Archive for the 'Trust Litigation' Category

So You Say You Want To See A Trust That You’re A Beneficiary Of And An Accounting Of The Trust?

Well ok then!  If its an Ohio trust, all you have to do is ask.

Under Ohio law, the Trustee of a Trust is obligated to give a copy of the trust to the beneficiaries that ask for it.  The same goes for an accounting of the trust as well.  Ohio Revised Code Section 5808.13 reads as follows:

A) A trustee shall keep the current beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.

(B) A trustee shall do all of the following:

(1) Upon the request of a beneficiary, promptly furnish to the beneficiary a copy of the trust instrument. Unless the beneficiary expressly requests a copy of the entire trust instrument, the trustee may furnish to the beneficiary a copy of a redacted trust instrument that includes only those provisions of the trust instrument that the trustee determines are relevant to the beneficiary’s interest in the trust. If the beneficiary requests a copy of the entire trust instrument after receiving a copy of a redacted trust instrument, the trustee shall furnish a copy of the entire trust instrument to the beneficiary.

So, if you’re the beneficiary of a trust or you even think you may be the beneficiary of a trust, all you’ve got to do is ask!

If your the Trustee of a trust and you receive one of these requests, you likely have to comply.  And typically – at least in my experience – all the requesting beneficiary wants is a little information.  In these situations sunlight really is the best disinfectant so unless you’ve got something to hide then responding timely is almost always advisable.

What is an accounting?  Well its not simply a listing of the assets owned by the trust – though that’s a nice start.  NO, an accounting should show all cash and property transactions during the accounting period, including compensation paid to the trustee and the trustee’s agents, gains and losses realized during the accounting period and all receipts and disbursements should be evident as well.  Finally, the account should identify and value the trust assets on hand at the close of the accounting period and for each asset or class of assets that are reasonably capable of being valued the accounting should contain two values, the asset acquisition value and the estimated current value.  This is the only way for beneficiaries to be kept reasonable informed about what’s going on with the trust.

I’ve had this issue come up a lot in the last two months and I am actually litigating 3 different matters right now all because a Trustee didn’t want to make the required disclosures.  So, beneficiaries, if you’re having a problem getting information from your Trustee just tell them they have to respond to your request.  If you’re a Trustee, either respond or risk getting removed as Trustee.  (If the latter happens, keep in mind, that usually all of my attorney’s fees incurred in removing you will come out of the trust thus reducing its value for all beneficiaries.  I’ll also usually take a long hard look at any compensation you’ve taken before your removal…  So think about that when contemplating not responding to a beneficiary’s request.)

If your the beneficiary of a trust or the Trustee, contact a qualified estate planning attorney in your area to talk about the best next step to protecting your interest and the trust.

Heir to IBM Fortune Adopts Her Lesbian Parter in Maine – Supreme Court Upholds Adoption’s Validity

This seemed as good a topic as any to ease myself back into the blog-o-webs, so here goes:

According to this story at (a CW network affiliate out of Houston),

Maine’s highest court gave a legal victory Thursday to a woman who stands to stake a claim to a share of one of America’s premier business fortunes thanks to her adoption by her lesbian partner.

Back in ’91, Olive Watson, daughter of Thomas Watson Jr. – the guy who built IBM – adopted Patricia Spado.  At issue in the case was whether the adoption was legal at all.  The two longtime partners spent “several weeks” each summer in North Haven.  Like many other states, Maine requires peitioners for adoption to live in the state and, after Mr. Watson, Jr. and his wife passed away, the Trustees for Mr. Watson’s trust “alleged that the couple obtained the adoption through fraudulent means by not disclosing their relationship to the court. The petition further alleged that Spado and Watson, as New York residents, had not fulfilled the statutory requirements of living in Maine at the time of the adoption.”  On appeal, the Trustees further argued “that the adoption should have been annulled on the grounds that it was obtained by two partners seeking to manufacture inheritance rights who did not intend to establish a normal parent-child relationship.”

In yesterday’s decision, Maine’s supreme court ruled that even if Spado did not live in Maine under the law, the adoption should not have been annulled [in the lower court] because there wasn’t enough evidence to support the claim that Watson had committed fraud.

The court also rejected the trustees’ claim that the adoption should be annulled based on a public policy prohibiting adoptions involving same-sex couples. Historically, adult adoptions have been recognized as a means to convey inheritance rights, to formalize an existing parent-child relationship or to provide perpetual care to a disabled adult adoptee, the decision reads.

Its interesting to ponder what would have happened if Watson and Spado were allowed to marry…  Under the terms of most standard trusts, its unlikley that Spado, as Watson’s spouse would have inherited anything given that most trusts attmpt to keep assets in the bloodline of the Grantor.  Being the adopted child of Watson, however, Spado is deemded to be just that.  Interesting.

“Breaking Up Is Hard To Do” …

… is the title of this great article in yesterday’s NYT. Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years[…].

Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.

So what to do about Trustees and beneficiaries that can’t get along with each other? The article discusses different options from multiple perspectives:

Newer trusts often spell out procedures for firing a trustee. A growing trend is to designate a so-called trust protector — typically, an accountant, a lawyer or a relative — [at BDB we call this a Trust Advisor] with the power to fire a trustee or change the investment manager. But Melvyn H. Bergstein, a partner at the law firm Walder, Hayden & Brogan in Roseland, N.J., said that even if there were provisions for firing, “friction or hostility between a beneficiary and the trustee alone is not enough to warrant removal. It takes essentially misconduct.”

Experts disagree on how difficult it is to win a trustee-dumping case. Mr. Dardaman said that evidence like a log showing a long spate of unreturned phone calls or proof of poor investment returns could convince a judge. But Mr. Kahn said such complaints were not enough. “You have to do something egregious before the court will fire you as a trustee,” he said, like putting trust assets into an investment where the trustee has a personal interest. “The court may simply say you owe some money back to the trust.”

The situation gets very sticky if the beneficiaries disagree among themselves. Trust documents usually require majority or unanimous consent among the beneficiaries to fire a trustee.

Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint. “The longer a trust lasts, the more you’re going to have a change in trustee personnel,” said Richard Kahn, a partner in the law firm Day Pitney in Florham Park, N.J., who specializes in trusts and estate planning.

Read the rest of the article here.

The Sub-Prime Mortgage Debacle and Lawsuits – Closer Than You Think?

A bankruptcy trustee has filed suit against major investment banks claiming that their lax practices shored up a third-party lender.

Philadelphia-based American Business Financial Services Inc. went bankrupt 3 years ago and investors, many of them elderly individuals, lost about $750 million says the Wall Street Journal reported in a front-page article on 4/9/08.

From this article in the ABA Journal:

Although the defendant investment banks—which include Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley—apparently had no direct duty to individual holders of notes that ABFS issued, the trustee claims the investment banks are responsible for helping ABFS inflate the value of securitized subprime loans that ABFS also made, according to the newspaper. Thus, the trustee contends, the investment banks are in part responsible for leading investors to believe that ABFS was on a stronger financial footing than it was when they purchased the notes.

The investment banks declined to comment for the newspaper article, but in pleadings deny any wrongdoing.

I don’t doubt that other trustees of large investment trusts that were similarly invested are watching this case closely. As am I.

Top 12 Tax Scams

This list from the California Tax Attorney Blog (my other lists can be found here and here) is of the Top 12 Tax Scams. Check out Mitchell’s post for the full list.

6. Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. Most recently, the IRS expanded its list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of these positions on the list are subject to a $5,000 penalty. The most recent update of the list of frivolous positions includes: misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending, erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States, a nonexistent “Mariner’s Tax Deduction” related to invalid deductions for meals and the misuse of the fuel tax credit (see below). The complete list of frivolous arguments is on the IRS Web site at

7. Disguised Corporate Ownership

Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity. Once formed, these anonymous entities can be used to facilitate underreporting of income, non-filing of tax returns, engaging in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

8. Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to Roth IRAs. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value. In one variation of the scheme, a promoter has the taxpayer move a highly appreciated asset into a Roth IRA at cost value, which is below annual contribution limits even though the fair market value far exceeds the amount allowed.

9. Scams Related to the Economic Stimulus Payment

Some scam artists are trying to trick individuals into revealing personal financial information that can be used to access their financial accounts by making promises relating to the economic stimulus payment, often called a “rebate.” To obtain the payment, eligible individuals in most cases will not have to do anything more than file a 2007 federal tax return. But some criminals posing as IRS representatives are trying to trick taxpayers into revealing their personal financial information by falsely telling them they must provide information to get a payment. For instance, a potential victim is told by phone or e-mail that he or she is eligible for a rebate but must provide a bank account number (or similar information) to get the payment. If the target is unwilling, the victim is then told that he cannot receive the rebate unless the information is provided. Individuals should remember that the only way to get a stimulus payment is to file a 2007 tax return. The IRS urges taxpayers to be extra-vigilant. The IRS will not contact taxpayers by phone or e-mail about their stimulus payment.

10. Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property and overvaluation of contributed property. In addition, IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.

11. Phishing

Phishing is a tactic used by Internet-based thieves to trick unsuspecting victims into revealing personal information they can then use to access the victims’ financial accounts. These criminals use the information obtained to empty the victims’ bank accounts, run up credit card charges and apply for loans or credit in the victims’ names. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. Some scam e-mails falsely claim to come from the IRS. To date, taxpayers have forwarded more than 33,000 of these scam e-mails, reflecting more than 1,500 different schemes, to the IRS. The IRS never uses e-mail to contact taxpayers about their tax issues. Taxpayers who receive unsolicited e-mail that claims to be from the IRS can forward the message to a special electronic mailbox,, using instructions contained in an article titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Remember: the only official IRS Web site is located at

12. Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit was recently added to the list of frivolous tax claims, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

Another Attempt By A POA Holder To Modify A Trust

David Goldman writes here about Gurfinkel v. Marmor December 12, 2007, 32 Fla. L. Weekly D2931 (Fla. 3rd DCA) (PDF). A case out of Florida where “[t]he decedent’s trust beneficiaries challenged a pre-death “amendment” executed by the decedent’s spouse as attorney in fact pursuant to a valid Durable Power of Attorney.”

The amendment “deleted” the trust’s primary asset stock in a family corporation. The stock was subsequently transferred to one of the decedent’s sons. The trial court relied upon language in the Durable Power of Attorney to uphold the amendment. The appellate court reversed, relying upon language in the Trust which indicted powers granted by the trust could be exercised only by the grantor and not by a conservator, guardian, or any person other than the grantor.

And I think that’s the correct decision. Its interesting to note that these cases are out there, and kind of sad too… I’m assuming that both the Durable Power of Attorney and the Trust were drafted by the same attorney and, if they were, and if it was actually the decedent client’s wish that his spouse be able to alter his trust after his passing (perhaps to account later for unforeseeable circumstances) then we have another case of sloppy drafting and potential malpractice by the drafting attorney. While this case is interesting, it doesn’t get us any closer to solving the running debate I posted on here.

Thanks again David – great post.

Power of Attorney Holder Could Not Modify Trust

This post by Charles Rubin of the Rubin On Tax Blog is an interesting one because it touches on a running debate in my firm, which is: To what extent should one of our client’s durable powers of attorney be able to modify their trust?

Some don’t like the extent of the power granted by our durable POA because it essentially allows the POA holder to completely restate or even revoke the Grantor’s trust. Usually, when dealing with husbands and wives the argument is merely academic. But such a broadly applied power has always made me nervous.

The case of ROSE GURFINKEL, etc., et al., Appellants, vs. JOSI, a/k/a JOSEPH MARMOR, etc., et al., Appellees., 3rd District. Case No. 3D06-1616. L.T. Case No. 05-3664. (Opinion filed December 12, 2007) speaks to the principal that when a trust and a POA are arguably in conflict, the trust will prevail:

In [this] case, a settlor’s revocable trust prohibited any conservator, guardian, or “any other person” from exercising the rights of amendment during the lifetime of the grantor. A holder of a durable POA asserted that the POA allowed him to modify the settlor’s trust.

The court made short-shrift of the POA holder’s argument, and held that the prohibition language include a POA holder.

A more interesting case would have arisen if the POA explicitly granted the power to amend to the POA holder – then there would have been a direct conflict between the POA and the trust. However, in the instant case, while the POA holder did assert that some language under the POA authorized amendment, the POA language really didn’t have any clear language to that effect.

In Terrorem Clauses – An Important Distinction

In Terrorem clauses are often used by estate planner’s to coerce someone (usually a beneficiary, or someone who thought they should have been a beneficiary) to not sue the trust or estate. They can be useful but as this post by Professor Berry illustrates, they don’t prevent all actions against Trustees.

In Lesikar v. Moon, 237 S.W.3d 361 (Tex. App.—Houston [14th Dist.] 2007, pet. filed), a Beneficiary sued their Trustee for an alleged breach of fiduciary duty. There was a in terrorem clause in the trust and so the Trustee claimed that Beneficiary forfeited her share of the trust. The appellate court determined that the trial court was correct in not reaching the issue because Trustee’s motion for an interlocutory summary judgment was not timely filed.

In what is most likely dicta, the court concluded that even if the Trustee’s motion had been timely filed, Beneficiary’s conduct would not have triggered a forfeiture. The court explained that the right to challenge a fiduciary’s actions is an inherent part of a trust relationship and thus such conduct is insufficient to trigger a forfeiture.

Moral: A no contest clause will not prevent a beneficiary from bringing a breach of fiduciary claim against the trustee. It would be against public policy to permit the settlor to trigger a forfeiture when a beneficiary merely seeks to enforce the trust as written and assure that the trustee obeys the trustee’s fiduciary duties.

Thanks Professor. You don’t see these cases too often but they’re usually interesting when you do.

Tolkien Trust Sues New Line – May Kill “Hobbit”

From today’s Slashdot:

“The AP is reporting that the Tolkien Trust and HarperCollins are suing New Line Cinema for $150 million in compensatory damages, unspecified punitive damages, and a court order revoking New Line’s rights to produce any more films on Tolkien properties.

The Tolkien Trust is managed (and was set up by) the youngest of the four Tolkien children, Christopher. At age 77 he established the trust to watch over the interests in dad’s estate after the last of his children pass away.

The AP reports here that, “[t]he Tolkien Trust says that New Line paid them only $62,500 to make ‘The Lord of the Rings’ trilogy of films — instead of the agreed-upon 7.5 percent of gross receipts of all film-related revenue. The suit may set back, if not kill, a film adaptation of Lord of the Rings prequel ‘The Hobbit,’ which Peter Jackson had recently signed up to make after his own legal row with the studio over payment for the sequels.”

Christopher Tolkien (who I think is the Trustee) is currently represented by Manches & Co in London… And man am I jealous of that client!

Trust Beneficiary Rights in Ohio – 3 questions by 3 potential clients

During the course of the last three months I have received three inquiries from potential clients all concerned about the same thing:

What right do I have as a beneficiary of a [Ohio] trust?

Usually I find the potential client just wants to see a copy of “their” trust but their Trustee is being difficult… This is easily cured. Other times, the issue gets a little more thorny but the answer to the question is simple – Its the relationships involved that complicate things.

The definition of “Beneficiary” is found in Ohio Revised Code Section 5801.01(C):

“Beneficiary” means a person that has a present or future beneficial interest in a trust, whether vested or contingent, or that, in a capacity other than that of trustee, holds a power of appointment over trust property, or a charitable organization that is expressly designated in the terms of the trust to receive distributions. “Beneficiary” does not include any charitable organization that is not expressly designated in the terms of the trust to receive distributions, but to whom the trustee may in its discretion make distributions.

If you want to see a copy of the trust in which Aunt Gladdis left you some money (whether you’re supposed to get that money now or later) your Trustee has a duty to furnish you with a copy if you ask for one. Specifically R.C. § 5808.13(B)(1) says:

Upon the request of a beneficiary, [the Trustee must] promptly furnish to the beneficiary a copy of the trust instrument[.]

But Trustees have many other reporting duties to their beneficiaries – you first need to know if you are a “Beneficiary.”

The three potential clients that called all had relatively simple questions that could have been answered by this post. If your issue is more complicated, custom advice from an attorney who is familiar with beneficiary rights should be contacted.