Petitions For Instructions And Declarations Of Rights---Not All Trust Litigation Is Necessarily Nasty

Frequently trust litigation stems from a heated dispute between trustees and beneficiaries, or co-trustees who cannot agree on the trust administration, or beneficiaries who cannot agree on their respective rights under a trust instrument, or other disagreements between various parties incident to a trust.  When such disputes cannot be resolved amicably by the parties themselves, with or without the assistance of legal counsel, sometimes the only practical recourse is to file suit and let a judge or jury decide who should prevail depending upon the facts,  circumstances and evidence. 

With this in mind, Ark. Code Ann. § 28-73-201(b)  does not mandate continuing court supervision of trusts.  Rather, a court may intervene in the administration of a trust whenever it is asked to by an “interested person or as provided by law.”  Ark. Code Ann. § 28-73-201(a).  Such judicial proceedings involving a trust “may relate to any matter involving the trust’s administration, including a request for instructions and an action to declare rights.”  Ark. Code Ann. § 28-73-201(c) (emphasis added). 

In sum, occasionally trust-related judicial proceedings do not involve an alleged breach of trust, breach of fiduciary duty, misappropriation of assets, etc.  That's a good thing because such disputes---often involving family members fighting over money---can turn into some of the ugliest and most contentious wealth wars imaginable. 

Rather, petitions for instructions and requests for declaratory judgments---such as the ones contemplated in Ark. Code Ann. § 28-73-201(c)---are typically less heated because theoretically they involve an innocuous request that the court merely provide instructions or guidance to the trustee or beneficiaries. Perhaps the proceeding stems from an alleged ambiguity in the trust terms, maybe there is a question regarding which beneficiaries are supposed to receive trust income or principal, or possibly the court is simply being asked to declare the rights and obligations of various individuals associated with the trust.  

While these matters can still be adversarial in nature, they are usually not the classic battles in which someone is claiming that another party necessarily engaged in intentional fraud or other wrongdoing.  Accordingly, when appropriate this type of proceeding should be considered as an option whenever there is a need for court intervention in a situation which does not necessarily rise to the level of a full-blown  "divorce on steroids," as we sometimes call the nastiest of the inheritance-related disputes in which we are frequently asked to become involved. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

 

Understanding Estate, Trust, Probate And Inheritance Litigation In Terms Of "Pie"

I love pie, and it's probably my favorite type of dessert.  I have fond childhood memories of my Grandmother making fantastic butterscotch meringue pies whenever we would travel to her house back when I grew up in Oklahoma.  Every Fall I look forward to eating pecan pie, and I can cook a pretty good one using a recipe and method that I read about in Southern Living magazine many years ago.  In my opinion, cakes, cookies and other desserts pale in comparison to a big slice of pie accompanied by a big scoop of Blue Bell ice cream (or Arkansas-based Yarnell's).  

That said, I find that when talking to clients it is often helpful to explain estate, trust, probate and inheritance litigation and disputes  in terms of "pie."  For example, sometimes the question is "who gets a piece of the pie?"  There could be a conflict   about who the beneficiaries are in a will or trust.  Or, if there was not a will or trust a Court could need to determine who the deceased's heirs are for purposes of intestate succession.  If a will or trust sought to exclude someone and they challenge it, the enforcement or non-enforcement of that term could dictate whether or not they get a piece of the pie at all.

Sometimes the issue revolves around "how big a slice does everyone get?"  For example, a will or trust often leaves different types or percentages of property to different people or entities.  In an intestate estate where the deceased did not leave a will or trust (or perhaps those documents were found to be invalid), one's status as a surviving spouse, surviving child, surviving parent, surviving sibling, surviving grandchild, etc. will determine the size and extent of one's piece of the pie.

Other times the question involves "what is even in the pie?"  What I mean by  that is that property formally conveyed to a trust should pass through the trust, but property not conveyed to that trust will pass outside the trust (typically through the estate).  Likewise, whether or not an estate is formally opened or a trust even exists, some property can automatically pass by beneficiary designations (IRA's, life insurance, etc.) or operation of law (transfer on death accounts, joint tenants with right of   survivorship accounts, etc.) instead of passing to or through a trust, estate, etc.  

Finally, occasionally the concern focuses upon "whether anyone ate some (or all) of the pie before it got sliced  up?"  In other words, if there was a misappropriation of monies or assets the dispute may necessarily be primarily concerned with (1) attempting to investigate, locate and recover the missing property, and (2) holding whomever took it civilly or criminally responsible, if appropriate.  

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Presentation At The 2016 Arkansas Bar Association Annual Meeting

Today one of my law partners, Pat James, and I will be privileged to make a presentation at the Arkansas Bar Association Annual Meeting in Hot Springs, Arkansas, where over 1,200 lawyers and judges congregate every June for 4 days of continuing education seminars,  meetings, and socializing.   The title of our presentation is---not surprisingly given that you are reading this blog---"WEALTH WARS:   Arkansas  Estate, Trust, Probate And Inheritance Litigation."

The hour-long presentation is designed to be a broad overview, for the general practitioner, of numerous topics arising in this area of law.   For an A to Z listing of the topics to be discussed, inclusive of some written materials containing a checklist of common claims and causes of action; a checklist of common defenses; an exemplary case theme (the “fraud triangle”); a lengthy list of Arkansas statutes frequently arising in litigated estate and trust matters; and citations to a few helpful general and Arkansas-specific secondary materials,  please click on the following link:    Written Materials For June 2016 CLE Presentation 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Brief Thoughts On Claims Of Undue Influence

As stated in my previous post regarding the capacity of a testator to execute a will or trust, the two concepts are closely related.  For example, incapacity relates to invalidation of a will, trust, deed, etc. because of the testator’s own deficiencies (typically mental impairment).  Undue influence, however, is when the will, trust, deed, etc. may be invalidated by the actions of others because they allegedly exercised such a degree of influence and power over the testator thatthey were induced to act by something other than free will.

As a general matter, the less testamentary capacity that one possesses, the less proof of undue influence will be necessary.  A presumption of undue influence may be triggered by a confidential relationship between the testator and someone who is receiving a benefit from the document, such that the burden of proof can shift to the proponent of the document to prove that there has in fact been no undue influence.  Unless there is “procurement” involved, in Arkansas the proponent merely has the burden of proving no undue influence by a preponderance of the evidence (more likely than not, as opposed to a higher standard such as beyond a reasonable doubt).

Obviously influence is ever-present and we are constantly influencing others to take certain actions.  This is especially true in the context of family and other close relationships.  However, mere influence doesn’t necessarily equate to taking advantage of someone.

Accordingly, while a testator may be legitimately influenced by his children, for example, the influence may go too far if the kids dictate or control the testator.  Likewise, the mere existence of a confidential relationship between the testator and the beneficiary, or a close and affectionate relationship, may not in and of itself constitute undue influence although it can in some instances have the effect of shifting the burden of proof.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Managing Someone Else's Money

 Estate, trust, power of attorney and probate disputes often develop due to disagreements over the manner in which someone managed another person's money. For example, the beneficiaries of a will might disagree with the executor's claim for fees related to administration of an estate.  Co-trustees might differ as to the best investments for maximizing the income and assets of a trust.  Two children might question the propriety of their third sibling's withdrawals of money from their mother's bank account, pursuant to a financial power of attorney that the mother apparently executed at some point in the past.

 To provide guidance in these situations, the Consumer Financial Protection Bureau has recently released 4 booklets entitled "Managing Someone Else's Money" which are intended for such persons as trustees, agents under powers of attorney, court-appointed guardians, and government fiduciaries.  Not only do they assist those who are honestly and legitimately attempting to assist in the management of money or property for a loved one, they also provide information on warning signs and things to look for when someone else is doing the managing of that person's finances.

 Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

"Murder, Fraud, $2.2 Million Somewhere"

This week's issue of the Arkansas Times  contains a sad but fascinating story written by Mara Leveritt, who is well-known for her writing about so-called "true crime," including but not limited to her book about the West Memphis Three, Devil's Knot.  Specifically, Ms. Leveritt tells the tale of an older gentleman living in Washington state whose trust assets were swindled by a love interest with Arkansas ties, and how the gentleman's son has relentlessly pursued bringing the woman to justice and recovering the monies in question.  The story also contains a link to the family's own website detailing the ordeal, the criminal case, and the civil lawsuits stemming from the fraud.  Interesting reading. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Common Mistakes When Serving As Trustee

My last post discussed the pros and cons of institutional trustees vs. family member trustees.  Regardless of whom is serving as trustee, in the course of my law practice there are common themes which repeatedly arise in the area of trust disputes and litigation.  Specifically, it is easy for trustees---especially inexperienced family member trustees---to make mistakes when administering a trust.  Some of these were nicely summarized in a recent article, published in Barron's Penta, entitled "The Five Biggest Ways To Bungle A Trust." 

(1) Not Keeping Good Trust Records---The Arkansas Trust Code, and presumably trust laws in most if not all other states, contain requirements mandating that trustees provide beneficiaries with accountings of trust assets, income, expenditures, etc.  The timing and extent of those accountings can vary based upon certain factors, including whether one is an income beneficiary or a remainder beneficiary.  However, at all times the trustee is to act in the interest of the beneficiaries, which includes maintaining comprehensive and accurate records.  Trustees who do not keep such records act at their own peril, as gaps and inaccuracies in documentation (even if purely innocent) can create an aura of suspicion and sometimes later liability for breach of trust, breach of fiduciary duty, etc. 

(2) Not Diversifying Trust Investments---Another duty which too often goes unfulfilled is the trustee's obligation to properly diversify trust investments.  Just because the trustee might handle their own investment portfolio in a certain manner does not mean that the investments are being properly handled with regard to the beneficiaries of the trust.  For example, if the beneficiary is an elderly person in need of income, having the trust's assets invested in 100% tech stocks is not likely to be deemed a wise investment strategy.  Arkansas has a Prudent Investor Act which must be reviewed and followed, and it is based upon a well-recognized uniform act that is utilized in many other jurisdictions as well. 

(3) Not Distributing Trust Assets Fairly---A trustee owes a fiduciary duty to current beneficiaries, as well as to remainder beneficiaries.  Sometimes this can create problems when a duty to one conflicts with a duty to another.  Also, sometimes in the case of family member trustees, the trustee is herself a beneficiary (e.g., perhaps the father named his daughter as trustee of his trust after his death, but also named her as a beneficiary like his two sons/her two brothers).  Especially when no trustee fee is involved (see below), we have seen cases in which the trustee is tempted to take extra distributions, etc. as purported justification for being saddled with the extra time and work associated with acting as trustee.  This can be dangerous as it can constitute an actual impropriety, or at least suggest an appearance of impropriety.  It is therefore wise to maintain clear and well-documented records of all distribution decisions.

(4) Not Properly Handling The Trustee Fee---The fact is that administering a trust can involve a lot of work.  It can be very profitable, which is precisely why institutional trustees exist.  Families often do not want to see their assets being consumed in part by the fees of an institutional trustee (notwithstanding some of the advantages to using one), and so often a family member is named as trustee.  The family member, however, might have a time-consuming occupation and/or an active family life.  Adding the trustee duties on top of an already-busy schedule can naturally trigger a desire for some sort of compensation associated with the extra work.  Whatever the trustee fee arrangement is (assuming trustee fees are paid at all), similar to asset distributions discussed above it is wise for there to be a well-documented record of how trustee fees will be paid, when they will be paid, and how they will be calculated.

(5) Not Watching Your Back---A trusteeship has been viewed as involving the highest duty owed another under the law.  It entails a tremendous amount of responsibility, and should not be lightly regarded.  Individuals named as trustee in a trust instrument often view it as an honor, which is fine so long as the trustee treats it as such.  However, money has an uncanny way of sometimes causing people---including trustees and beneficiaries---to engage in actions and behavior which they (and others) perhaps never previously conceived.  Occasionally this will result in nasty disputes between trustees and beneficiaries which can ultimately erupt into actual litigation.  A trustee might innocently take on that "oath of office," so to speak, never imagining that they might someday be mired in stressful, expensive disagreements with once-close friends or family members.  On that note, typically the trustee's dispute is not with the person who named them as trustee (i.e., in a revocable trust situation the grantor of the trust can simply remove or change the trustee)---instead, the fight will frequently be with the children or grandchildren of the grantor. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Family Member Trustees vs. Institutional Trustees

When a trust is formed, one of the many decisions that must be made by the "settlor" (the one who forms the trust) is who will serve as trustee.  The settlor may also select multiple trustees ("co-trustees," who serve with each other) and later ("successor") trustees (who may serve after the original trustee can no longer serve [death, disability, etc.] or for some other reason [resignation, removal, etc. of the original trustee]. 

The selection of trustee is an important one because they have a fiduciary obligation to carry out the terms of the trust and the desires of the settlor.  Because the trustee exercises great power and discretion over money and property, the pros and cons of family member trustees vs institutional trustees should be considered.  Trust disputes often relate back to whom, and how, was selected to serve as trustee.  

FAMILY MEMBER TRUSTEES
Family members such as spouses and children are frequently named as trustees, but this selection occasionally results in trouble down the road due to sibling rivalries and the trustee's lack of knowledge and experience.

Advantages of family member trustees include a familiarity with the beneficiaries, and possibly the trust property as well; and a common willingness to serve with little or no compensation.

Disadvantages of family member trustees include an inability or disinclination to carry out the duties of a trustee; favoritism or unfairness toward certain beneficiaries; the need for a successor trustee at the resignation, incapacity, or death of the trustee; the lack of insurance coverage in case of liability; and tax consequences if the trustee is also a beneficiary.

INSTITUTIONAL TRUSTEES
Institutional trustees include such entities as banks and trust companies, which have their pros and cons as well.

Advantages of institutional trustees include expertise and competence at carrying out trustee duties, such as adherence to the prudent investor rule; impartiality with regard to trust property and beneficiaries; avoidance of the problem of successor trustees; the possibility of additional services such as tax reporting or money management; and sufficient insurance coverage in case of liability.

Disadvantages of institutional trustees include greater administrative costs; a lack of familiarity with the beneficiaries ; and an inability to administer certain types of trust property, such as real estate. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Frank Talk On Attorney's Fees

One of the first questions that a potential inheritance litigation client quite reasonably asks is some form of the following question: “How much is this ultimately going to cost me?”  While there is unfortunately little or no way of determining on the front end how much a legal matter might cost, how that cost will be calculated generally is capable of early determination.  There are typically three primary ways in which an attorney charges for his or her services, and of course occasionally a couple of these methods can be combined together to create a “mixed” fee arrangement.

1.  HOURLY FEE

As Abraham Lincoln famously said, "A lawyer's time and advice are his stock in trade."  Accordingly, the most common fee arrangement is based upon an hourly fee, i.e., the lawyer charges an hourly rate for their time and the ultimate fee is determined upon how much time the lawyer has to spend on the representation.  For example, if I was retained by the trustee of a trust to defend against claims brought by a beneficiary of the trust, I would charge the trustee an hourly fee and the ultimate bill would be determined upon how much time I had to spend working on the trustee’s case.  The same goes for a beneficiary pursuing claims against the trustee.

Obviously, the more time-consuming the case the more expensive the representation (and vice versa).  Hourly rates in Arkansas are by and large considerably lower than in other, more populated and wealthier areas of the country, especially the East and West Coasts.  There are a number of factors which determine the hourly rate, including but not limited to the complexity of the area of law, the attorney’s experience and reputation, the attorney's location, etc.

2.  CONTINGENCY FEE

A second, but less common, fee arrangement in inheritance disputes (and other litigation for that matter) is a “contingency fee.”  This is an arrangement which is necessarily only used by the person bringing the lawsuit, as opposed to the person defending the action.  Specifically, the lawyer and the client agree that the lawyer will accept a percentage of whatever amount is recovered (if anything) as the lawyer’s fee for the representation.  A common percentage is anywhere from 25-50%, and rarely will the percentage stray outside of that range.  Usually the lawyer and the client will come to an agreement on the front end regarding who will pay for the various costs (filing fees, deposition expenses, copies, postage, etc.) and sometimes the lawyer will advance those expenses and then take them “off the top” in the event of any recovery.

As one can tell, under this arrangement the more favorable the recovery, the higher the lawyer’s fee.  However, there is also added risk for the attorney because if there is little or no recovery, or if the client prevails but the judgment is uncollectible as a practical matter (the defendant has no money, etc.), then the lawyer loses just like the client.  Given the fact that litigation can often take years, essentially the attorney is working for free for a long period of time before recouping out-of-pocket expenses much less any fee for the work performed.

This type of arrangement can be beneficial in situations wherein an individual might not be able to afford an hourly arrangement.  Again, the potential downside is that, unlike a rear-end collision wherein liability in a personal injury case might be very clear, liability in estate, trust, or probate litigation can often be quite unclear and unpredictable.  Therefore, in cases where liability is unclear or in cases in which the defendant could potentially have counterclaims against the plaintiff, contingency fee arrangements will probably not be the ideal arrangement.  Occasionally, a lawyer will be willing to combine a lower hourly fee (perhaps charging 2/3 of their regular hourly rate) with a lower-than-usual contingency percentage (perhaps 25% instead of 33% or more), therefore creating a mixed hourly/contingency fee arrangement.

 3.  FLAT FEE

Finally, the third and least common type of fee arrangement is simply a “flat fee” paid for a certain amount of services.  In other words, the lawyer and the client agree that a certain type of service or a certain number of actions will be taken by the lawyer to represent the client (drafting a certain amount of letters, preparing an agreement, etc.).  For that finite amount of services the lawyer and client agree on a specific fee.  This gives both the lawyer and the client a greater degree of predictability, but it is an often impractical arrangement in estate, trust and probate disputes because litigation is unpredictable and can rarely be reduced to only a certain number of actions.  However, in certain situations it can be used effectively and should not automatically be discarded.

In conclusion, the best fee arrangement in a particular situation will necessarily depend upon the facts and circumstances.  While the free market has resulted in lawyers no doubt being expensive, when it comes to the amounts of money and high stakes involved in inheritance litigation, many times the lawyer’s fee can be a mere drop in the bucket.  For example, if a plaintiff potentially goes without recovering some or all of a large inheritance that they were otherwise supposed to receive, then hiring an attorney can even be construed as a wise investment.  Likewise, if a trustee could potentially be removed from her office or is wrongfully accused of harming the trust and causing substantial damages, hiring representation is a necessity rather than a luxury (incidentally, sometimes trustees' attorney fees can be paid out a trust or reimbursed by a trust).  In certain situations (breach of contract, breach of trust, etc.) the prevailing party also may be able to recover some or all of their attorney’s fees expended.  In essence, every situation is different and unfortunately there are simply no guarantees when it comes to the outcome of a legal matter nor the attorney fees necessary to handle that legal matter.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.

Inheritance Hijackers: Who Wants To Steal Your Inheritance And How To Protect It

At the recommendation of a client, I have recently started reading a fascinating book entitled Inheritance Hijackers:  Who Wants To Steal Your Inheritance And How To Protect It (Ovation Books 2009) written by a Florida attorney named Robert C. Adamski.  The book is primarily written for beneficiaries and potential beneficiaries of an inheritance.  Mr. Adamski's book sets forth an extensive discussion of the growing phenomenon which he calls "inheritance theft," and which of course is a primary component of what I do in my own law practice as well (representation of beneficiaries, but also fiduciaries such as trustees andexecutors, in estate, trust and probate litigation).  "Inheritance theft" is defined on page 2 of the book as "the act of diverting assets from the intended recipient to another person[.]" 

 

While the book is available for sale at Mr. Adamski's own website, Amazon.com, and I'm sure other places, a good overview of the phenomenon can be found below which is directly from a prior post by Mr. Adamski: 

1.  Who steals inheritances?

Inheritance theft is a crime of opportunity committed by those we place our trust in. These are family members, close associates, care givers and others we depend on as we grow older. Inheritance hijacking is always a surprise to the victim, who never expected a trusted family member or friend to betray their trust.

2.  Who are the victims of inheritance hijacking?

There are always two classes of victims. The first is the person who intended to give the inheritance. The second is the person or persons who were the intended recipient of the inheritance. As we age we are all potential victims because we become weaker in our physical and mental ability. We then are forced to rely upon and put our trust in others. This gives the trusted persons the opportunity to hijack our inheritance.

3.  How are inheritances hijacked?

The hijacker's bag of tricks includes undue influence, duress, forgery, theft by an administrator, marriage, and more. Administrators of probate estates and trusts are common hijackers. They have the opportunity and ability to take advantage. Marriage is the 'Silver Bullet" in the world of inheritance theft because it is all but impossible to overturn a marriage which hijacks an estate. Care givers earn the trust of their victims and as a result are often inheritance hijackers. An important element of inheritance theft is the trust which is gained by the hijacker and later betrayed. Without that element of trust it would be very difficult to hijack an inheritance.

4.  How can I determine if my inheritance is at risk?

Take the Inheritance Risk Quiz at www.ProtectYourEstate.Net to determine the risk to the inheritance you intend to give or the inheritance you expect to receive.

5.  How do I protect the inheritance I intend to give or the inheritance I expect to receive?

Self education and proper estate planning are the first steps. But it does not end there. It is vital to understand how inheritances are hijacked and how to guard against inheritance hijacking. The book, INHERITANCE HIJACKERS: Who Wants to Steal Your Inheritance and How to Protect It, was written to help people protect their families from inheritance theft. Learn more about the book at www.ProtectYourEstate.Net

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I have not yet finished Mr. Adamski's book, but can already tell that I will be recommending it to beneficiary-clients, and potential clients, who anticipate possibly receiving inheritances.  The book contains an immense amount of valuable information for a very reasonable price. 

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, Fink & House, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.