A roundup of significant court cases.
Another year has come and gone with no shortage of interesting cases containing, among some of the more interesting topics, fiduciary mistakes and tax issues. The following noteworthy cases highlight trends we see evolving in the fiduciary field.
Digital Assets
Access to a decedent’s digital assets is becoming extremely important as more clients are going paperless, foregoing the use of written communications and discontinuing landline telephones. What happens when an appointed fiduciary is asked to access a decedent’s email accounts? What role do third-party companies play in either allowing or disallowing the release of information (for example, banks and Internet service providers)?
In Matter of Serrano,1 the court granted the pro se petitioner permission to view a decedent’s Google calendar, but was denied, without prejudice, permission to view the content of the decedent’s email communications without first establishing that the disclosure of that electronic information was reasonably necessary for the administration of the estate. The court acknowledged that a calendar entry isn’t a “communication” as defined by the Stored Communications Act.2
In Ajemian v. Yahoo!, Inc.,3 the personal representatives to the estate sought access to the decedent’s email. While the court didn’t go so far as to require that Yahoo divulge the contents of the decedent’s communications to the personal representatives, it concluded that personal representatives may provide lawful consent on the decedent’s behalf to release the contents of a Yahoo email account.
Language in Wills
We’re often faced with documents drafted by attorneys who either don’t understand probate and trust law or know the law but draft documents to appease clients, rather than follow the law.
In Estate of Rodriguez,4 evidently, the drafting attorney chose to use the word “desire” to delineate that the testator wanted his ranch to stay intact (rather than be sold). Among other factors, the court found that this “precatory” language wasn’t “mandatory” and allowed the sale of property to a third party (rather than a sale to a competing offer from a family member). The determination of whether a particular word is precatory or mandatory turns on “the testator’s expressed intent as evidenced by the context of the will and surrounding circumstances.”5
In Bogar v. Baker,6 the decedent’s will left specific real estate together with all contents of said real estate to one relative. This 31 acre farm had a house, several buildings, tools, equipment, vehicles and machinery. A dispute arose regarding whether the testator intended to include the automobile and farm equipment with the real estate. The appellate court found that the will contained a latent ambiguity and instructed the lower court to hold an evidentiary hearing to decide whether vehicles and farm equipment should be interpreted as “contents of” such testator’s real estate.
Trustee Discretion
Trusts frequently are drafted with broad provisions dealing with distributions of income and principal. When an individual trustee is named, there’s a sense of naivety involved at times, as clients and their attorneys hope that such trustee will actually follow a health, education, maintenance and support standard or appoint an independent or disinterested fiduciary to serve.
In Matter of Goodman,7 an individual trustee distributed principal to the grantor for basic living expenses and made payments of alimony to the grantor’s ex-spouse. The court “blessed” these distributions, citing New York common law for the proposition that a trustee’s discretionary power is to be exercised free from judicial interference when exercised reasonably and in good faith.
In contrast, the court in Landau v. Landau8 froze trust assets after a remainder beneficiary proved that action was proper against the beneficiary-trustee to preserve assets of the estate and the trust for the protection of the ultimate beneficiaries. The remainder beneficiary alleged the beneficiary-trustee made excessive distributions to himself and failed to file tax returns and trust accountings. On ordering the freezing of the trust assets, the beneficiary-trustee provided an accounting showing distributions far exceeding such trust’s net income for the year.
Decanting
When is common law decanting appropriate? Can decanting be used as a sword to thwart creditors?
In Ferri v. Powell-Ferri,9 the Massachusetts Supreme Judicial Court (SJC) on certification from the Connecticut Supreme Court, was asked to answer three questions concerning a trustee’s authority to decant. The Massachusetts SJC declared that the trustee of a Massachusetts trust could decant under Massachusetts common law even if the beneficiary was in the middle of a divorce proceeding. Additionally, when the trust was silent on the issue of whether the trustees could decant, the court opined that judges can consider an affidavit of the settlor indicating the settlor’s priority for the trustee to do whatever he believed to be necessary and in the best interest of the beneficiary.
Removal of Trustee
If the trust instrument is silent, can consenting beneficiaries switch fiduciaries? In In re Trust Under Agreement of Taylor,10 the corporate trustee was aided by the comments to the Uniform Trust Code in having an appellate court disallow the beneficiaries’ proposed modification of a trust to permit the replacement of a corporate trustee. The trust in question was from 1928, and even though the beneficiaries unanimously agreed on the desire to switch fiduciaries, the court held that the exclusive remedy for removal was by court approval, and such power couldn’t be added to the trust instrument through judicial modification.
Formalities of Document Execution
Often, fiduciaries are asked to supervise document execution ceremonies. How stringent are those requirements? In Kelly v. Lindenau,11 a trust amendment wasn’t executed with the requisite formalities under Florida law during the settlor’s lifetime. A Florida district court invalidated the attempted imposition of a constructive trust to obtain the relief sought for a petitioning beneficiary. The court held that while the imposition of a constructive trust might be appropriate if a will (and thus a trust) was validly executed, that remedy isn’t appropriate when there’s an error in the execution of the document.
Payment of Attorney’s Fees
Litigants can end up draining a trust through litigation. When a trust is involved, a question to be debated is whether the trust is on the hook to pay attorney’s fees.
In In re Bloom,12 the court held that because the probate court assumed jurisdiction over the trust, Florida law applied and, on remand to the lower court, the court was instructed to decide the issue of whether an attorney who had rendered services to a trust could be awarded reasonable compensation from the trust. The court clarified that the fee-petitioning party must serve an application for attorney’s fees on various parties, among them, the beneficiaries, identified in the Florida statute on point, contemporaneously with the filing of the application with the court.
Disappearing Assets
Cash. Some of our clients choose to use a home safe instead of keeping cash with a bank or financial institution. As advisors, we need to identify potential solutions.
In In re Estate of Crain,13 some of the decedent’s children (the exceptors) alleged that a significant amount of cash stored in strongboxes was missing from their father’s estate. The court held that in a case of cash missing from a strongbox, the special administrator hadn’t failed his fiduciary duty in inspecting the decedent’s home and contents, identifying decedent’s bank accounts and accounting for other money and contents held in strongboxes. The court noted that there was insufficient evidence and testimony to substantiate the amount of money that the exceptors claimed was missing.
Art. Each year, another case of a missing or forged piece captivates the art world. Increasingly, fiduciaries are asked to marshal art assets. But, what are the minimum steps that a personal representative or trustee has to take to retrieve stolen pieces of art? As 2018 moves along, it will be interesting to see the outcome of Beale v. Wallace Gallery,14 in which representatives of the estate of Edith Beale (a first cousin of Jacqueline Kennedy Onassis) are suing an art gallery claiming a portrait of Jacqueline Kennedy Onassis rightfully belongs to them.
Self-settled Spendthrift Trusts
Much has been written about the benefits of self-settled asset protection trusts. At least four states, Alaska, Delaware, Nevada and South Dakota, are consistently thought of as “the” jurisdictions to settle such trusts. When spousal support orders are an issue, it appears Nevada achieved some separation from the group of states. In Klabacka v. Nelson,15 the court held that Nevada self-settled trusts are protected against court-ordered child support or spousal support obligations of the settlor/beneficiary that aren’t known at the time the trust is created. For our colleagues in community property states, prior to the creation of the trusts, the parties entered into a valid transmutation agreement.
In contrast, Alaska suffered a setback with the decision in Toni 1 Trust v. Wacker,16 in which the Alaska Supreme Court refused to follow the Alaska fraudulent transfer law when the cause of action arose under Montana law relating to an Alaska trust. In so holding for the creditor, the Alaska Supreme Court indicated that state and federal courts aren’t required to follow a sister state’s statute that purports to retain exclusive jurisdiction over a fraudulent conveyance action despite the Alaska legislature’s attempt to grant Alaska courts exclusive jurisdiction over a class of claims.
Beneficiary Designations
Failure to update a client’s beneficiary designation can cause major problems. We’re seeing this happen especially post-divorce and following a predeceased spouse’s death.
In Mueller v. Edwards,17 the decedent attempted to change a beneficiary designation on a payable-on-death account by naming an individual as the sole beneficiary in a handwritten note found in decedent’s safe. The court held that this attempt to change the beneficiary was ineffective. The decedent’s attempted change wasn’t akin to a will’s separate writing.
Releases
When a fiduciary makes a final payment to a beneficiary, thereby terminating their relationship, is his duty to the beneficiary over? What kind of a release is necessary to truly be released from a trustee’s fiduciary duties?
In Ohio, a signed release could potentially give some comfort. In a 2017 case, an Ohio court ruled that after a party signs a release, the burden shifts to such party seeking to invalidate it.18 The court noted that when beneficiaries had constructive knowledge of asset information imputed from matters freely available in the public record, they couldn’t then complain about lacking knowledge of material facts related to an asset distributed by the corporate fiduciary prior to the release.
In Matter of Ingraham,19 a former trustee sought to quash a successor trustee’s petition to account, claiming that the releases she signed with the grantor and former co-trustee barred the successor trustee from seeking to compel her to account. The court held that the release didn’t relieve the former trustee of her duty to account, indicating that without a full release from all beneficiaries or a formal discharge from the court, the former trustee remained duty bound to account.
Corporate Fiduciaries
Annually, newspapers print big bold headlines highlighting a particular charge of alleged malfeasance of a corporate fiduciary. Recently, a headline-grabbing “$8 billion verdict” was issued against one corporate fiduciary.20 In the trial, it was alleged that the corporate fiduciary hired to administer an estate, with a value of less than $30 million, took too long to release basic interests in the decedent’s assets. However, the corporate fiduciary contended that the disagreements among the surviving heirs led to much of the delay. The facts appear to illustrate the need to taper a beneficiary’s expectations when it comes to distributing an estate with heirs consisting of a surviving spouse and children from a separate marriage and assets consisting of collections of unique goods such as wine and golf equipment.
Not all published corporate fiduciary cases are negative. In the New York case of Matter of Sinzheimer,21 the court indicated that it was reasonable for the outgoing corporate fiduciary to petition the court to appoint a new corporate fiduciary to serve with an individual fiduciary prior to turning over trust assets to the individual fiduciary. The corporate fiduciary hadn’t unduly prolonged the possession of assets, and its actions were deemed prudent and appropriate under the circumstances.
Furthermore, one corporate fiduciary has been doing the best it can to avoid removal and competently administer a famous musician’s estate.22 In the most recent unreported case stemming from the death of Prince,23 the court dismissed a claim from one of Prince’s former attorneys, holding that the claimant failed to meet the statutory requirement that it commence any proceeding for allowance of the claim within the 2-month statutory time limit.
Endnotes
1. Matter of Serrano, 54 N.Y.S.3d 564 (Sur. Ct. June 14, 2017).
2. 18 U.S.C. Section 2701 et seq.
3. Ajemian v. Yahoo!, Inc., 478 Mass. 169 (2017).
4. Estate of Rodriguez, No. 04-17-00005-CV, 2018 Tex. App. LEXIS 254 (App. Jan. 10, 2018).
5. Ibid., at p. 9.
6. Bogar v. Baker, 2017-Ohio-7766 (Ct. App.).
7. Matter of Goodman, 52 N.Y.S.3d 363 (1st Dep’t 2017).
8. Landau v. Landau, 230 So. 3d 127 (Fla. 3d DCA 2017).
9. Ferri v. Powell-Ferri, 72 N.E.3d 541 (Mass. 2017).
10. In re Trust Under Agreement of Taylor, 164 A.3d 1147 (Pa. 2017).
11. Kelly v. Lindenau, 223 So.3d 1074 (Fla. 2d DCA 2017).
12. In re Bloom, 227 So.3d 165 (Fla. 2d DCA 2017).
13. In re Estate of Crain, 2017-Ohio-2724 (Ct. App.).
14. Beale v. Wallace Gallery et al., No. 2:2018cv00871, N.Y. East. D. Crt. (compl. filed Feb. 8, 2018).
15. Klabacka v. Nelson, 394 P.3d 940 (Nev. 2017).
16. Toni 1 Trust v. Wacker, No. S-16153, 2018 Alas. LEXIS 27 (March 2, 2018).
17. Mueller v. Edwards, 378 Wis. 2d 689 (2017).
18. Zook v. JPMorgan Chase Bank Nat’l Ass’n, 85 N.E.3d 1197 (Ct. App. 2017).
19. Matter of Ingraham (Daphne), 2017 NYLJ LEXIS 1641.
20. Estate of Hopper v. JP Morgan Chase, N.A, et al., No. PR-11-3238-1, Probate Court No.1, Dallas Cty., TX (Sept. 25, 2017) See Mark Curriden, “JPMorgan Chase loses probate damage verdict,” Houston Chronicle (Sept. 26, 2017), www.houstonchronicle.com/business/article/JPMorgan-Chase-loses-probate-damage-verdict-12231215.php; Tom Korosec and Margaret Cronin Fisk, “JPMorgan Says Family Awarded $8 Billion Deserves Nothing,” Bloomberg
(Nov. 11, 2017), www.bloomberg.com/news/articles/2017-11-11/jpmorgan-says-family-awarded-8-billion-verdict-deserves-nothing. See also Wassmer v. Hopper, 463 S.W.3d 513 (Tex. App. 2014).
21. Matter of Sinzheimer, 2017 NY Slip Op. 31379(U) (Sur. Ct. N.Y. Cty. 2017).
22. David Chanen, “Judge denies petition for new administrator of Prince’s estate,” Star Tribune (Dec. 18, 2017), www.startribune.com/judge-denies-petition-for-new-administrator-of-prince-s-estate/465043823/.
23. In re Estate of Prince, No. A17-0927, 2018 Minn. App. Unpub. LEXIS 181 (March 5, 2018).