Archive for the ‘Trusts’ Category

This Week in Probate and Guardianship Appeals

May 10, 2010

Conte v. Louis M. Ditta, Guardian of the Estate of Doris L. Conte, First Court of Appeals Houston

This week’s entry comes to us from the 1st District Court of Appeals in Houston. Louis Ditta, acting in his capacity as the guardian of the estate of Doris L. Conte, an incapacitated person, filed suit seeking the removal of appellant, Susan C. Conte, as trustee of the Conte Family Trust. After a bench trial, the probate court ruled in Ditta’s favor and issued two orders. The first order removed Susan as trustee, and the second order modified the terms of the Conte Family Trust and appointed a successor trustee. Susan Conte appealed the trial court’s ruling removing her as trustee and appointing a successor trustee.

Background

In 1987, Joseph and Doris Conte created the Joseph P. Conte Family Trust, an inter vivos trust that became irrevocable on the earlier of Joseph or Doris’s death. The Trust agreement named Joseph the original trustee. Upon his death in 1993, per the terms of the trust, Doris began serving as co-trustee along with her two children, Susan and Joseph, Jr.

While things started out well, eventually it came to light that Joseph, Jr. was not administering the trust properly, and Susan began litigation to remove him as co-trustee. During the course of this litigation Doris was declared to be incapacitated and Louis Ditta was appointed as her guardian.

In 1998, Ditta sought the appointment of a receiver to take over the Trust in light of the continuing discord between Joseph, Jr. and Susan. Instead of appointing a receiver, the probate court entered an agreed order appointing a temporary successor trustee. The successor trustee filed an accounting and it revealed that both Susan and Joseph, Jr. had become significantly indebted to the Trust by using Trust assets for personal expenses. Ditta then sought the removal of both Susan and Joseph, Jr. as Trustees.

Following a bench trial, the probate court removed Susan as trustee, modified the terms of the trust regarding trustee succession, and appointed Frost Bank as successor trustee. The modification was in light of an agreement by Susan and Joseph, Jr. to reappoint Susan as trustee if she were removed by the court in the removal proceeding initiated by Ditta. This appeal followed.

Susan appealed stating that there was no evidence upon which to base her removal. Unfortunately for Susan, there was plenty of evidence of her being indebted to the Trust, and as such, removal was deemed to be within the discretion of the trial court.

However, in her second point, Susan argued that the trial court erred in appointing the successor trustee. Susan stated that the Court could not deviate from the terms of the trust when it came to appointing a successor trustee. The Court of Appeals agreed.

The Court of Appeals stated that the Texas Trust Code requires that on the removal of a sole trustee, a successor trustee must be appointed by the court in accordance with the terms of the trust. In this case, the trust provided that if neither Joseph Conte, Sr. nor Doris Conte appointed a successor in the first sixty days after the position of trustee was vacated, the majority of adult beneficiaries had a thirty-day window to appoint a successor. The Court noted that this showed a clear intent by the grantor to leave decisions regarding the management of the trust to his wife and children. While Susan was disqualified from being reappointed, her ability to pick a successor (other than herself) should not be modified. The Court remanded the case to the trial court to rule accordingly.

What does all of this mean for you? First of all, if you have a trust, make sure it says exactly what you want it to say. Secondly, if you are a beneficiary of a trust and have concerns regarding the Trustee, call us today and schedule an appointment to discuss your matter. Even where a Judge has ruled against you there may still be options available, but the timelines are short so do not put off calling an attorney that is qualified in probate matters.

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This Week in Probate and Guardianship Appeals

April 9, 2010

Doherty v. JPMorgan Chase Bank, First Court of Appeals Houston

This week’s entry comes to us from the 1st District Court of Appeals in Houston. Lois Doherty appealed the order of Mike Wood, Judge of Harris County Probate Court Number Two, who granted JPMorgan’s motion for summary judgment.

Background

Mrs. Doherty is the beneficiary of the Lois Doherty Trust, created by her late husband Wilfred T. Doherty in his Will. JPMorgan is the trustee of this Trust. Paragraph 3.3 of the Trust states that the Trustee must distribute such amounts of Trust principal as Mrs. Doherty may request to provide for her comfort, health, support or maintenance. In 2005, Mrs. Doherty suffered a stroke that left her physically impaired and she moved into her daughter’s home. This house lacked a handicap-accessible bathroom and therefore Mrs. Doherty requested funds to modify the bathroom in her daughter’s home. Mrs. Doherty requested that all of the funds in the trust be released and placed into another account that she owned.

The bank decided that they did not agree with this request and instead asked her to send them quotes for the repairs to the bathroom and they would review such quotes and make the distribution. Obviously this did not sit well with Mrs. Doherty. She therefore hired an attorney and requested that JPMorgan resign as trustee. JPMorgan refused to resign and instead requested a full judicial release. They then denied the request for funds to install a handicap accessible bathroom and continued to hold the funds.

Mrs. Doherty filed a petition for declaratory judgment seeking a declaration that in light of JPMorgan’s refusal to act, the Will allowed her to appoint a successor trustee. Both Parties then filed motions for summary judgment. Mrs. Doherty’s motion sought summary judgment on the issue that JPMorgan had refused to act under the mandatory terms of the trust and such an act entitled Mrs. Doherty to appoint a successor. JPMorgan’s motion sought summary judgment on the issue that it had not failed to act under the terms of the trust and that all of Doherty’s claims were invalid. Even though JPMorgan expressly denied Mrs. Doherty’s request for funds under a mandatory provision of the Trust, Judge Wood found in favor of the bank and granted its request for summary judgment.

The Court of Appeals reviewed the terms of the trust, acknowledged that the provisions under Paragraph 3.3 required mandatory distribution when requested for maintenance, and therefore ruled that JPMorgan had in fact refused to act under the terms of the trust. This meant that Mrs. Doherty was well within her rights to appoint a successor trustee and JPMorgan was not entitled to summary judgment. The Court reversed Judge Wood’s ruling and rendered judgment in favor of Mrs. Doherty on her declaratory judgment claim.

What does all of this mean for you? First of all, if you have a trust, make sure it says exactly what you want it to say. Secondly, if you are a beneficiary of a trust and have concerns regarding the Trustee, call us today and schedule an appointment to discuss your matter. Even where a Judge has ruled against you there may still be options available, but the timelines are short so do not put off calling an attorney that is qualified in probate matters.

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Alternatives to Guardianships of the Person

February 1, 2010

A few weeks ago, we took a more in-depth look at the use of Section 867 Trusts as an alternative to guardianships for a minor. We examined some the advantages of the trusts and pointed out that guardianship alternatives like them are fine examples of the legislature working to provide reasoned solutions to issues that affect more people every day. There are others, and this time I thought we would focus on a few alternatives to guardianship of the person.

Recall that guardianship of the person involves the Probate Court’s judicial finding of incapacity of a minor or adult. Once the court finds the person lacks some or all capacity, the court appoints an individual to be responsible for that person’s non-financial interests. Often, the court reaches this restrictive measure because there is no option that can better protect the incapacitated person. Other times, there are alternatives that are not nearly as restrictive as the imposition of a guardianship.

For example, the Texas Health and Safety Code provides several useful options. Under that Code’s provisions, a person may take advantage of naming an agent under a Medical Power of Attorney. With some pre-need estate planning, a person could avoid guardianship altogether by nominating someone to make the same kinds of decisions before the need ever arises. Directives to Physicians, also authorized under the Health and Safety Code, might be useful as well. Used correctly, these documents can communicate a person’s intentions and directions regarding medical treatment under terminal or other specified circumstances.

Likewise, the Health and Safety Code may help avoid guardianship and permit the nomination of a surrogate decision maker, much like the agent under a Medical Power of Attorney. In both emergency and non-emergency situations, Texas law may provide a means of assisting the person without the time and expense of a formal guardianship.

Keep in mind that the Probate Court does not approach the creation of a guardianship lightly. Because the process can involve the removal of rights and liberties that a person would otherwise enjoy, most probate judges in Texas are very careful to invoke their guardianship authority only in those circumstances where it appears that there is no other option available. Even then, by requiring appointed guardians to report on the condition of their ward annually, those probate judges are careful to keep a watchful eye on the guardian to see that he or she is making decisions consistent with the ward’s best interests.

Too often, guardianship issues become litigated matters. They are particularly emotional when guardianship of the person is at issue. These cases can pit brothers against sisters, sons against mothers, and so on. Meanwhile, a person who may need help is often tugged in both directions. The fact is that in many cases, these fights have been brewing for some time, and they are going to happen despite all the best estate planning. Human nature often knows no logic. But, with alternatives to formal guardianships in place, the Probate Court and the parties can begin to work together toward crafting a result that accomplishes what everyone should be concerned about – the well-being and best interests of the incapacitated person.

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The High Cost of Your Will

January 18, 2010

Each week, The Houston Chronicle runs a column entitled “State Your Case,” where local attorney Ron Lipman answers 4 or 5 questions from readers regarding various legal subjects. Recently, Lipman devoted the entire week’s column to estate planning and probate questions covering a range of concerns regarding Wills and probate questions.

In one of those questions, the reader asked Lipman, “What should I expect to pay for a simple Will…?” The reader pointed out that he just wanted a Will that passed everything to he or his wife when the first of them died, and then upon the death of the second of them, everything would be split equally between their children.

Having apparently conducted an informal survey of other attorneys in Houston, Lipman discussed that fees for a simple Will can sometimes be as high as $2,000 for a married couple. He also pointed out that a simple trust for a special needs child will generally cost anywhere from $2,000 on the low side or $4,000 on the higher end.

In my opinion, Lipman has provided useful information to answer this reader’s question, and his answer is probably fairly accurate. What surprises me, though, is the fairly high cost that some lawyers are charging for their “simple” Wills and for trusts for special needs children.

Ford & Mathiason has always advocated that each person in Texas should have a Will and that there is no substitute for the competent, experienced advice of attorneys who routinely advise clients in estate planning. However, Ford and Mathiason has historically charged much lower rates for these services and has always been very upfront and honest about the manner in which we charge for our estate planning services. In the Rates and Fees section of our website, you can find detailed information on the methods that we use for charging for our services, which we provide so that potential clients can fully understand the financial commitment that they are making when hiring an attorney.

As you embark on new decisions in 2010, consider carefully whether you need to make changes to your existing Will or if you need to create a Will for the first time. At the same time, do not let articles like Lipman’s scare you into thinking that these services are cost prohibitive. Ford & Mathiason is happy to offer estate planning expertise at reasonable rates. Please contact us if you would like to discuss your options further.

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Alternatives to Guardianships for Minors: Section 867 Trusts

December 28, 2009

In many cases, the Court’s creation of a guardianship of the estate for an incapacitated individual or a minor may be inevitable. It may be the least restrictive option for the Court. However, many times I am approached by clients for whom there are lesser-restrictive and more efficient mechanisms or processes that can achieve many of the same goals.

When faced with the situation that a minor child is supposed to inherit some money from a parent or grandparent, the Courts cannot allow the minor to receive the property outright. Likewise, the law does not allow a parent to collect the money on their behalf without some formal procedure like a guardianship.

Take, for example, a father’s $50,000.00 life insurance policy naming his minor child as the sole beneficiary. The surviving parent wants to collect the funds owed to the child so that they can be used for the ordinary expenses of raising the minor, or perhaps the funds will be tucked away for college. In either event, the mother wants to collect the funds, and the insurance company wants to pay them but cannot pay the minor child directly. As par for the course, the insurer usually demands that a guardianship be created. They don’t want to be liable to the child by delivering the funds to the mother without some kind of security that the mother will be accountable for the funds. Guardianship of the minor’s estate seems like the best choice, if not the only one. But is it?

As with most attorney answers – it depends. The mother could request that the Court appoint her as the Guardian of the minor’s Estate. But this choice often comes with some significant downside. The mother would need to post a bond for the policy proceeds, and the proceeds will be reduced by the fees and expenses of creating the guardianship. Moreover, the guardianship must be maintained, which means that additional expenses will be incurred annually until the child turns 18. Again, the proceeds would be reduced, sometimes significantly, over time. The overall process might be inefficient and challenging, if not impossible under certain circumstances.

One alternative available to the mother might be a trust created by the Court under Section 867 of the Texas Probate Code. Under this law, a financial institution, and sometimes a person, can be appointed by the Court to act as Trustee of a trust created by the Court for the benefit of the minor. The trust comes equipped with very specialized terms that permit the Trustee to collect the insurance proceeds and use them for the benefit of the minor until anywhere from the age of 18 to 25. Every year, the Trustee reports to the Court and accounts for the trust’s activities.

Often, such an alternative can be achieved relatively quickly and with significantly lower cost. The insurance company is happy to pay a bank or person who will be accountable for the funds, and the mother is happy that the funds will be available for the same purpose for which they were intended by the deceased father.

Sometimes, guardianship is not just the best choice, but the only one. But, alternatives such as the Section 867 Trusts are prime examples of the legislature working for our citizens to provide reasoned answers to questions and issues that affect more people every day. In the areas of guardianship and probate, there may be a number of achievable alternatives that provide the same, if not better, results for the client, at lower cost and with greater overall benefit.

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Non-Probate Assets

December 1, 2009

Every estate planning client is unique. There are simply far too many variables to boil effective estate planning down to a “one-size-fits-all” approach. Families and loved ones are diverse and dynamic, and assets vary immeasurably from one circumstance to the next. However, there are some common elements in most cases. The coordination of what are typically known as “non-probate assets” is one of those elements that comes up in the case of nearly every estate planning client that I counsel.

In a nutshell, “non-probate assets” are those assets that are specifically designed to pass to a designated beneficiary, or group of beneficiaries, at a future point. They can come in all sorts of shapes and sizes, and insurance policies represent a perfect example. John Doe purchases a $1 million insurance policy and names his wife, Jane, as the sole beneficiary. At John’s death, his insurer holds up their end of the contract and pays Jane once she informs them of John’s death and provides the necessary identification. Seems easy enough.

However, in many past cases, I have seen decedents’ Wills that attempt to direct who is entitled to certain “non-probate assets,” whether a life insurance policy, retirement account, or other such similar asset. Sometimes they identify the same beneficiary, and sometimes they do not. What if John Doe died leaving a Will that gave his life insurance policy to his girlfriend, and not to Jane, as the policy directed? And so many clients ask the obvious question: When they conflict, do the policy proceeds pass under the Will, or does the insurance policy control where the proceeds go?

The answer, which remains surprising to some, is that the provisions of the Will take a backseat to the provisions of the contract. With very little exception, the Texas Probate Code governs Wills, Trusts and other types of instruments. Insurance policies are not generally governed by the same law. Rather, they are contracts between the insured party and the insurer. When an event (John’s death,) triggers the obligation of the insurer (paying the proceeds to Jane,) the insurer’s obligation is to abide by the contract and pay the proceeds to Jane. Whether or not John left a Will is irrelevant to the insurance company. Similarly, his attempt to direct the proceeds to someone other than his designated beneficiary falls short.

In future posts, look for some discussion of some circumstances where it may work to John’s advantage to coordinate his “non-probate assets” with his Will to achieve the result that he wanted. In the meantime, remember that “non-probate assets” are generally governed by the contract that creates them. Many clients neglect this side of their estate planning, as they are primarily focused on having a well-drafted Will in place. Review the beneficiary designations that you have made on your own “non-probate assets,” and you can be certain that your plan fits together to cover all of your intentions.

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Wall Street Journal Article Fails the Test

November 21, 2009

In the Wall Street Journal’s issue on November 12, 2009, Journal writer Jane Hodges offers a “Cranky Consumer” article in which she compares and contrasts various online programs to create a do-it-yourself Will. The article, entitled “Before It’s Too Late: A Test of Online Wills,” provides a review of how easy each program is to use, and it offers information on costs, services, and technical support for each of the programs reviewed. However, Ms. Hodges seems to fail her own “test.”

The laws related to Wills and trusts vary by state. What may constitute a valid Will in Texas may not be a valid Will in California. Likewise, because of the extreme differences in the probate laws across the various states, the most effective method of planning for your estate in some states may be the creation of a revocable living trust, while in other states the most effective method of handling your estate may involve a traditional Will. Likewise, depending on the overall assets owned by an individual or married couple, including certain tax provisions in a Will or Trust might be useful in saving significant amounts of taxes when one or the other of them dies.

Ms. Hodges article fails to provide a single warning or caution about any of the programs that she reviewed. She does not address whether or not the programs create documents that adhere to the specific laws of the state in which you live (most do not). While she does make passing mention of the fact that only one of the programs even mentioned future taxes, she does not attempt to caution her readers of the fact that this issue along could be significant. Likewise, while she seems to presume that a Revocable Trust is the appropriate method for planning for an estate, she does not point out that this may not be the best advice for each consumer. Most disturbingly, Ms. Hodges makes a cavalier reference to seeking the advice of an attorney, and she seems to suggest that an attorney’s advice is not necessary. However, she does tout the fact that one of the programs allows you to call into their hotline and ask questions.

In reality, do-it-yourself Wills are very often poorly drafted, and they frequently fail to properly conform to the laws of the specific state in which you live. As a result, it can be significantly more expensive to probate the Will at your death, or the Will may be completely invalid because it was not prepared properly. Additionally, the thought that you can call a hotline to have an attorney in California answer “general” questions regarding your Will is preposterous, unless you live in California. You should not accept legal advice from an attorney who is not properly licensed in the state in which you live. In fact, it violates the ethics rules of every state in the country for an attorney to express a legal opinion about laws in a state in which he is not licensed.

While Ms. Hodges’ article may have some value, she should have done a much better job to caution her readers as to the very significant pitfalls that can befall them by using an online Will program rather than seeking the advice of a competent lawyer.

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A Peer of Your Juries

November 11, 2009

An article concerning the probate of the Estate of local oil pioneer provides an interesting glimpse into the mind of potential jurors.

I recently ran across a Houston Chronicle article concerning the Estate of Alfred C. Glassell. It seems the daughter of the oil pioneer and cultural philanthropist has contested the probate of his will, on the grounds that he was unduly influenced. Her claim revolves around the allegation that local museums (i.e. their attorneys) convinced the elderly man to change his will and give more to charity (i.e. the museums) thereby leaving less for his heirs (i.e. the daughter).

What struck me was not the content of the article, Lord knows there’s nothing new in a beneficiary contesting a will in a multi-million dollar estate. No, what caught my eye was the comment section located below the on-line version of the article. I was curious to see how joe public views such a fight. The results were not too surprising.

Of the 70 comments, my unofficial count was 12 in favor of the daughter, and 30 against. I noticed the following terms used to describe the daughter: “greedy wench,” “trust fund baby,” “roaches,” “brain dead liberal,” and my personal favorite “money grubbing wannabe heiress.” One poster asked “being a millionaire isn’t enough?”

However, I was somewhat surprised by the number of those who questioned the “disproportionate share” and lamented on how all of the estate was going to be sucked up by the money hungry attorneys. In fact, I counted at least ten anti-lawyer comments. Funny, I can’t remember any lawyer ever filing a suit without a client, but then again, I’ve come to expect such comments in my line of work. Like they say, the problem with lawyer jokes is that lawyers think they’re funny and everyone else thinks their true.

Either way, it should be interesting to see how the trial pans out, if these comments were any indication as to the bias of a potential jury pool, I would say the daughter is facing an uphill battle.

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Effective Trust Administration

October 21, 2009

Even in the case of simple estate planning, more and more individuals are utilizing the safety and flexibility of trusts in order to accomplish their goals. Marital, bypass and contingent trusts, just to name a few, are becoming more prevalent in wills and routine estate planning ever day. These tools can sometimes offer very attractive results, such as greater control, tax savings or creditor protection. They also often require maintenance and guidance long after the terms are written. Spouses, children and even trusted friends can easily find themselves named as trustees, with little to no understanding of the rights, obligations and liabilities that come with the job.

In the simple case of a married couple with two young children, the couple’s Wills might direct that the Estate of the surviving spouse pass into trust for the kids at his or her death. The Will might appoint the husband’s brother as Trustee, with instructions to hold and manage the property until the children reach the age of 30, at which time they will receive it with no strings attached. Perhaps the good uncle is authorized to make distributions from the Trust to the children, until they turn 30, for their health, education, maintenance and support, as he deems fit in his discretion.

Does the uncle owe the children any legal duties? Must he keep the current property, or can he invest it differently? Do the children have a right to complain if the uncle invests the Trust property unwisely? Can the uncle send the good child to Harvard, leaving the prodigal one only enough funds to attend the local community college? These are questions that linger long after mom and dad came into to plan and draft their Wills, and the legal relationship between the uncle and the children invokes decades of developed fiduciary law in Texas.

Well-drafted Wills and Trusts will expressly outline a Trustee’s duties and responsibilities. Even where these terms are absent, the Texas Trust Code fills most of the gaps. At a minimum, our uncle will owe his niece and nephew specific duties of loyalty, reasonable care, impartiality and full disclosure. The children may have the right to demand an accounting from the uncle to better understand his administration. All three might even collectively agree to terminate the trust before the children turn 30.

Trusts are as unique as the individuals for whom they are drafted. However, many of the common principles, rights and obligations of effective trust administration apply regardless of the language used. Beneficiaries should be well-advised of their rights and the limits of their ability to compel a trustee to act. Trustees, likewise, should be well-advised of how to administer the Trust competently, effectively and within the scope of the fiduciary laws of Texas.

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