Estate Planning

Caselaw Update: In re Estate of Stuart Alister Warner

Read the full opinion here.

Stuart Alister Warner died in 2013, leaving his relatively modest estate (around $150k in personal and real property) to his three child from his first marriage, and his second wife, who had first priority to be appointed Personal Representative of his estate. The three children and their step-mother did not get along. According to his children, Stuart did draft a will, but the children were unable to locate it in his gun safe, where he kept his important documents. The three children challenged the appointment of their step-mother as Personal Representative of their father’s estate, sought a declaration that their father did not die intestate (without a will), and sought to disallow their stepmother’s selection of spousal homestead and exempt property allowances. The children contended that their stepmother was an incurable alcoholic, and that her inventory failed to include several articles of personal property (guns, china, etc.) worth thousands of dollars.

The trial court denied the childrens’ petition and supervised the estate. The court reasoned that supervised administration would allay any concern the children had with their step-mother serving as personal representative. The court determined that since one of the children was incarcerated, and the two other children lived out-of-state, appointing the step-mother as personal representative made sense. Furthermore, since the step-mother was aided by an attorney, any concern about her alcohol problems could be alleviated with the help of an attorney. The court ordered that the issue of the missing will to be decided by a jury trial.

TAKEAWAY: Yet again, we see the importance of estate planning for blended families. With divorce rates hovering around 50% for the last few decades, and baby boomers getting remarried at older ages, blended families are very common, and a huge pitfall for estate planners. In this case, acrimony between the two factions of the family will likely deplete the entire estate, if it hasn’t already. Litigation, especially a jury trial, is expensive.

A little foresight could have prevented this mess. The stepmother, or the children, could have been provided for with life insurance proceeds from a policy maintained by the father. Alternatively, the father’s property could have passed to a trust that provided the step-mother with a lifetime right to reside on the real property, and a lifetime use of the income from the estate, or a percentage of income and principal, with the remainder passing to the children. In blended families, I almost always recommend a trust rather than a will, because not only can you avoid probate, but you can provide for two sets of beneficiaries without giving property outright. Once your property passes pursuant to a Will, there’s nothing your other heirs can do to get that property back. In this case, the second spouse could remarry, totally cutting off the children from the first marriage. Additionally, if the children’s contention about their step-mother’s alcoholism is correct, it’s likely the estate will be rapidly depleted. If a third party trustee was given discretion over distributions, that could be avoided. Additionally, the couple could have had a post-marital agreement not to take a spousal election, and to abide by the terms of the will or trust.

In addition, this case also serves as a reminder to estate planning attorneys of the importance of retaining client documents. If the children had a copy of the will from the drafting attorney, even if it’s not the original, it could be authenticated in court. Retaining hard copies of documents can be a liability for attorneys, but technology provides an easy and safer way to retain files. At my office, I retain encrypted files in the cloud, and periodically back up files to an external hard drive.


Caselaw Update: In re Phillip B. Begley Torch Lake Trust

Read the full opinion here:

Another case that demonstrates the importance of thorough planning for assets that have sentimental value.

On October 1, 1993, Phillip B. Begley executed the Torch Lake Trust, which held securities, and cottages on Torch Lake. The settlor also had property on Old Mission Peninsula, and property in Arizona. Huntington National Bank was appointed successor trustee in 2010, shortly before the settlor’s death. The cottages generated rental revenue, but from 2011 to 2013, the annual cost of maintaining the cottages exceeded this revenue. Additionally, there was testimony that Ann Begley, the setelor’s surviving spouse, required in-home care, which was costing about $178,000 per year. The trust officer testified that if the Torch Lake Cottages were sold, the money from the sale would be invested in a fashion to generate income for Ann Begley’s future care.

On September 15, 2013, Huntington received an unsolicited offer to purchase the Torch Lake Cottages for $1.4 million cash, which was above its appraised value. Huntington notified the beneficiaries, who disagreed on a course of action. Three beneficiaries supported the possible sale, two beneficiaries did not want trustee to sell the Torch Lake Cottages to anyone, and one beneficiary was noncommittal. Moreover, some of the beneficiaries believed that pursuant to the Torch Lake Trust, Huntington was required to obtain consent from the settlor’s children before it could sell the Torch Lake Cottages. Huntington, on the other hand, believed that it was not required to obtain consent because none of the children had directed the sale. Therefore, Huntington filed a petition for instructions on October 17, 2013, requesting the trial court enter an order allowing the disposition of the trust assets, including the Torch Lake Cottages, without the consent of the settlor’s children.

Section 4.7(b) of article IV of the Torch Lake Trust, addressed the sale of the cottages, and provided:

(b) Sale of Cottages. Settlor’s children may direct Trustee to sell one or both Cottages if they decide that the Cottages no longer serve the purposes envisioned by Settlor. Settlor’s children must approve the sale of the Cottages unanimously or unanimously less one vote. Trustee shall decide the terms of any sale in Trustee’s sole discretion. Trustee may, in its discretion, reinvest the proceeds in another cottage to be held and administered under the terms of this Trust, or invest the proceeds from the sale as Trustee deems advisable. It is Settlor’s intent that if a Cottage is sold, that the purchasers shall be one or more of his descendents who desire to acquire that Cottage for their use and enjoyment.

The Court determined that Section 4.7(b) required that the Trustee attain the consent of the Settlor’s children before a sale of the Cottages. The provision was not limited to only those sales directed by the beneficiaries. The court looked to the expressed intent of the settlor in Section 4.7(b), and determined that the cottages could only be sold if the children determined that retaining the cottages no longer served the purposes of use and enjoyment.

TAKEAWAY: This case shows the importance of careful planning for assets that have sentimental value, such as a family cottage. These kinds of assets are the number one cause of litigation and hurt feelings between family members. Make sure your estate plan covers:

1. How an asset can be sold.
2. Who can sell an asset.
3. How to compensate beneficiaries who don’t want to enjoy that asset.
4. The rights of beneficiaries to retain or purchase the asset for their own enjoyment.
5. Management of that asset between several beneficiaries, including how taxes and maintenance are apportioned.

Unfortunately, sentimental assets like this can also cause irrational attachments that can harm others. When faced with massive long term care costs, or a market downturn, it may be necessary to sell assets. Requiring unanimous consent of the beneficiaries to sell an asset can be detrimental. Instead, carefully delineate the discretion of a trustee, determine if there should be triggering events to require a sale, or nominate a trust protector to monitor the actions of the trustee.

On Do-it-Yourself Estate Planning

“Ye lawyers who live
upon litigants' fees,
And who need a good many
to live at your ease,
Grave or gay, wise or witty,
whate'er your degree,
Plain stuff or Queen's Counsel,
take counsel of me.
When a festive occasion
your spirit unbends,
You should never forget the
Profession's best friends;
So we'll send round the wine
and bright bumper fill,
To the jolly testator
who makes his own will.

He premises his wish
and his purpose to save
All dispute among friends
when he's laid in the grave;
Then he straightaway proceeds
more disputes to create
Than a long summer's day
would give time to relate.
He writes and erases,
he blunders and blots,
He produces such puzzles
and Gordian knots,
That a lawyer, intending to frame the thing ill,
Couldn't match the testator
who makes his own will.”

-Lord Neaves

I’m sure you have heard this less than eloquent phrase before – “Garbage in, garbage out.” The phrase is typically used in computer programming and scientific research. Unfortunately, it also applies to the law, legal documents, and writing your own Will.

What’s Wrong With Writing Your Own Estate Plan?

Legally, you have the right to draft your own documents; however, that doesn’t mean you have the right to have them actually work. Do-it-yourselfers accidentally disinherit children, fail to protect assets from lawsuits, trigger probate, invite court interference, give assets outright to drug addicted beneficiaries, and incur huge fees to straighten out a big mess.
Creating an effective set of estate planning documents involves many moving parts and deep analysis. An estate planning attorney will consider your family situation and financial status, coupled with where you live and where you own real estate. Your goals and concerns are also carefully considered. With a myriad of variables at play, how can a book of generic forms, computer program, or website possibly address all this correctly? It simply can’t.
Even attorneys, who don’t focus on estate planning, are hesitant to write their own estate plans. Instead, they turn to their colleagues who understand probate and trust laws, and are experienced in putting together estate plans that work.

Use Books and Software to Learn About Estate Planning, Not for Estate Planning

Estate planning books and software should only be used as tools to learn about the estate planning process. They should not be used a substitute for the hands-on, legal counseling from an experienced estate planning attorney. While there are many tasks you can complete on your own, designing, drafting, and implementing an estate plan is not one of them.

What’s the Biggest Problem With Do-It-Yourself Estate Planning?

The biggest problem with do-it-yourself estate planning is that it often creates a huge burden for loved ones. It’s your loved ones who will find out you tried to save a few bucks and, as a result, caused a huge stressful mess that will cost thousands of dollars to fix.