Arkansas Court Of Appeals Affirms Agreement To Split Joint Accounts Despite Beneficiary Designations

 There is often confusion regarding what property falls within an estate, or trust, and what property falls outside of either.  For example, commonly bank accounts, IRA’s, etc., are titled in such a way that upon one person’s death, the remaining monies are left to the other person or person(s) identified on the account paperwork such that this property passes outside the estate or trust.  It can often be a difficult task to demonstrate that this money should be divided in a different manner.

 However, the Arkansas Court of Appeals recently affirmed a trial court’s ruling that this was what was supposed to occur, in the case of Richardson v. Brown, 2012 Ark. App. 535 (September 26, 2012) stemming from Faulkner County Circuit Court.  This was actually a case that I handled on behalf of a client, and the Judge ruled in his favor.  The ruling was left wholly intact by the appellate court.

Without going into too much detail, the parties' mother passed away leaving three children as her heirs.  Certain property passed to the children pursuant to a will, but the mother had other property (a car, bank accounts, IRA, etc.) that were titled in various ways as between her and her individual children.  Our client argued that despite the titling on the various property, the three children had in fact an oral agreement, as demonstrated by the later actions and conduct of the children, to split all of the properties evenly.  He had received the “short end of the stick” and, basically, believed that his sisters had intentionally deprived him of his equal one-third share.

 In a hard fought battle, our client ultimately prevailed at trial and proved that, notwithstanding the titling on the various properties, there was an express agreement among the siblings to equally divide the various accounts.  The trial court imposed a judgment and a substantial attorneys’ fee award, both of which were affirmed by the Court of Appeals.

 In doing so, among other things the Court ruled that ordinarily ownership of a joint bank account with a right of survivorship is conclusive proof of the parties’ intent for the property to pass to the survivor.  However, this general rule does not prevent the survivor from making a different disposition by agreement, and in this case the trial court determined that such an agreement had in fact been made among the siblings.  This is a difficult argument to make, because courts presume that the titling on an account is strong evidence of how that property is to be distributed.  But, if the facts and evidence warrant it, this case demonstrates that a court will sometimes hold that an agreement to divide the property otherwise will prevail over the titling of an account.

 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.

Recent Articles On Alzheimer's Disease, And Trustee/Beneficiary Relationships

There is not much to this post, primarily because the articles referenced below already thoroughly discuss the issues.  Specifically, both articles shed light upon two common problem areas which can often eventually erupt into estate, trust and probate disputes. 

The first article is from the New York Times and addresses the effect of Alzheimer's Disease and dementia upon an individual's ability to control and account for their finances.  Given our aging population and ever-increasing life expectancy, it's recommended reading for everyone as this concern affects innumerable families in this country. 

The second article is from the Wall Street Journal and touches upon the often-tense relationship between trustees and beneficiaries.   It may especially be interesting and insightful for anyone who already acts as trustee or who may eventually act as a trustee in the future.

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.

Avoiding Estate, Trust & Probate Litigation

Since one of my areas of practice is estate, trust & probate litigation, it is obviously not in my economic self-interest to counsel against getting involved in this type of litigation in the first place.  However, first and foremost is a lawyer's duty to his or her client, which while sometimes involves filing or defending a lawsuit can also mean trying to avoid that lawsuit altogether.  After all, Abraham Lincoln once advised:  "Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser---in fees, expenses and waste of time."  That is still generally solid advice, although sometimes the fight just cannot be avoided.

That said, U.S. News published a good little article over the Thanksgiving holiday entitled "8 Tips To Avoid Nasty Estate Surprises" which provides some good pointers for avoiding estate, trust & probate litigation.  In summary:

1.  Pick aa reputable, experienced lawyer who has not performed any work for any of the other beneficiaries.  Basically, you want an attorney who knows what they are doing in this area, who does not have a conflict of interest, and who will be representing your interests (only). 

2.  Pick an administrator who can get along with the family, maybe even a professional fiduciary (like a bank trust department) if no one else could practically fill this role.  This is a biggie---oftentimes when one beneficiary is chosen to act as executor or trustee it can cause consternation with respect to the other beneficiaries. 

3.  Talk about your intentions with family members before any will or trust is drafted, in order to preclude surprises and fights after death and making everyone aware of your plans and desires.  Open, honest communication can go a long way toward heading off battles over the family fortune. 

4.  Consider your state's laws and create trusts if necessary to bypass probate if it is particularly burdensome under applicable state law.  Again, our law firm engages in estate, trust & probate litigation---not estate planning---however we can refer you to some reputable attorneys in this area if needed.

5.  Update the will or trust often so that challenges are less likely.  One of the best ways to avoid litigation is to occasionally update your documents---under facts and circumstances (lots of objective, detached witnesses, etc.) demonstrating the absence of fraud and undue influence from others---so that it can be demonstrated you were polishing your estate and trust objectives up until the end your life.

6.  Be sure to title your assets properly so that the assets pass through or outside of probate as you originally intended.  Too many folks spend a lot of money creating fancy trusts and then never do the relatively simple work of actually transferring assets into the trust. 

7.  Think about including a no-contest clause tied to testamentary gifts of a degree sufficient to discourage legal disputes.  To help avoid post-death disputes it is worth possibly including a penalty clause that essentially poses a risk of losing their piece of the pie for any beneficiary who challenges the instrument  in question after your death. 

8.  Consider allowing some discretion with respect to distribution of assets so that beneficiaries can agree to a distribution that best meets their own needs and desires.  There is no one-size-fits-all strategy and of course none of us have a crystal ball, so sometimes providing for some flexibility is often a good practical solution. 

While not a fool-proof plan to avoid estate, trust & probate litigation, the foregoing reflects some good first steps to staying out of the courts with respect to the family fortune.  As we are in the heart of the Thanksgiving and Christmas seasons, I extend my best wishes to you with hopes for a fuss-free next few weeks.

Statute Of Limitations For Breach Of Trust Suits Against Trustees

A couple of the most frequent questions in estate, trust, and probate litigation are:

(from trust beneficiaries)  "How long do I have to sue a trustee for breach of trust?", and

(from trustees or potential trustees)  "How long must I be concerned about potentially being sued for an alleged breach of trust?"

The Arkansas Trust Code (at Ark. Code Ann. Sec. 28-73-1005) addresses this issue and generally provides for two possible limitations of action:  (1) a shorter period when the trustee discloses the existence of a claim; and (2) a longer period if the trustee does not make a disclosure.

Basically, if the trustee discloses sufficient information to put the beneficiary on notice that they may have a potential claim, the beneficiary has one year after the date of the disclosure in which to bring suit.  Absent such a disclosure, the beneficiary has five years after the first to occur of: 

(1) the removal, resignation, or death of the trustee;

(2) the termination of the beneficiary's interest; or

(3) the termination of the trust

 in which to commence a claim against the trustee for the breach.

One question that does not appear answered by this statute (or any cases which so far have interpreted the statute) is whether the statute of limitation for breach of trust can be "tolled," or suspended, in situations where the trustee has engaged in fraudulent concealment.  If there has been concealment, Arkansas courts have generally held in other contexts that the statute of limitations does not begin to run until the person having the cause of action discovers the fraud or should have discovered it by the exercise of reasonable diligence. 

Eventually the Arkansas Court of Appeals or Arkansas Supreme Court will, once and for all, specifically decide whether or not the doctrine of fraudulent concealment also applies to the statute of limitations set forth in the Arkansas Trust Code.   Perhaps in doing so they can shed light on what statute of limitations, if any, applies to breaches of trust that are not governed by the Arkansas Trust Code (which only came into effect on September 1, 2005). 

Last Will And Testament Of Entertainer Michael Jackson

Michael Jackson's recent death shocked the world, notwithstanding his controversial and mysterious past.  The famous singer will not soon be forgotten, however, if nothing else because of the money, property, and incredible fortune that he left behind to his heirs.  Word is that he had incurred substantial debt at the time of his death, but royalties alone from his catalogue of music will surely reap many millions of dollars in profits long into the future.  Only time will tell whether any major fights erupt out of the settling of his estate (especially since Michael's father and siblings were apparently not named as beneficiaries), but in case you were curious The Smoking Gun has apparently obtained a copy of Michael's Last Will And Testament.