May 20th, 2013

Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings.  Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code.  That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”  For years, the lower courts had struggled with what, exactly, “defalcation” means.  Wonder no longer because the Supreme Court has defined it.

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May 10th, 2013

Almost invariably, settlors give their trustees broad powers regarding trust property.  Often these broad powers include the power to convey and encumber trust property and the power to loan trust property.  But, sometimes, the settlor also gives the trustee specific instructions with respect to specific trust property.  In Hamel v. Hamel, the Kansas Supreme Court interpreted a trust instrument that gave the trustee broad general powers, but also specific directions regarding a specific piece of real property, and examined the interplay between the two provisions. (more…)

April 29th, 2013

If we were to identify hot topics in fiduciary litigation during 2012 and 2013, this one would be scorching: what duties do trustees owe the remainder beneficiaries of revocable trusts?  We’ve explored the topic in some detail here, here, and yet again here.

Last week, over at Bryan Cave‘s Private Client Group blog, TrustBryanCave, Kathy Sherby and Stephanie Moll wrapped up a three part series on this topic.  Readers of this blog will definitely be interested:

Part 1 takes a look at Pennell v. Alverson, which we previously looked at here.

Part 2 explores the ongoing saga of In re Estate of Giraldin, which we briefly reviewed here.

Part 3 wraps up the discussion with In the Matter of Trust #T-1 of Mary Faye Trimble, which we took a look at here.

April 24th, 2013

Thomas and Michael Tessier allegedly bilked Frederick and Thaddeus Jakobiec and the estate of their mother, Beatrice Jacobiec, out of millions of dollars.  One part of that scheme allegedly involved the theft of approximately $100,000 in life insurance proceeds due a trust benefiting Thaddeus.   After Beatrice’s death, Thomas was rummaging through Beatrice’s items and found that a life insurance policy existed on the life of Beatrice.  That policy was payable to a trust known as the Smillie Trust.  So began this alleged criminal enterprise.

Thomas and Michael filed an ex parte petition to remove Frederick as trustee and install Michael as the trustee of the Smillie Trust for the benefit of Thaddeus.  Nearly simultaneously, Thomas fraudulently created a second trust for Thaddeus.  Through alleged fraud, forgery, and subterfuge, Thomas convinced the insurance company to pay the death benefit to the fraudulent trust rather than to the correct trust.  Thaddeus sued the insurance company for breach of the insurance contract by making out the insurance proceeds check to the wrong trust thereby allowing Thomas to steal the money.

In Jakobiec v. Merrill Lynch Life Insurance Co., a New Hampshire federal court dismissed the claims against the insurance company and a federal appellate court agreed.  The reasoning was that, even if the insurance company made a mistake by making out the check to a fraudulent trust, the insurance company was not the cause of the beneficiary’s loss.  Because the Tessiers were hellbent on stealing the money and because they had gained control of the legitimate trust, too, they would have stolen the money even if the insurance company had made the check out to the correct trust.

You have to wonder how far this protection extends. (more…)

April 19th, 2013

We’ve looked at a lot of cases to figure out who needs to be named as a party in trust litigation.  And we’ve assumed that, if a party is suing to have the trust declared invalid or is suing the trustee for breach of fiduciary duty, then all trust beneficiaries need to be joined as parties to the litigation.  That may be the rule, but where there’s a rule there’s apparently an exception.  In Harvill v. Harvill (link provided by Justia.com), a federal court in Tennessee gives us guidance on possible exceptions. (more…)

April 10th, 2013

We often see trust beneficiaries sue a trustee to compel an accounting of the trust’s receipts, disbursements and assets.  A court should start with the trust instrument to determine whether an accounting is required and, if so, to whom and what it should contain.  That’s what an Illinois federal court did in Drewry v. Keltz.

The trust instrument there required that “[e]ach Successor Trustee shall render an account of his/her receipts and disbursements and a statement of assets to each adult vested beneficiary.”  The plaintiffs were adult vested beneficiaries of the trust who had made requests for the successor trustee to provide an accounting, which the trustee did not provide.  The federal court ordered the trustee to provide the plaintiffs with an accounting of his receipts and disbursements on behalf of the trust and a statement of the trust assets within 30 days of the order.

We’re interested in this opinion for two issues that weren’t central to the court’s decision.

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April 5th, 2013

Right now we are all in the peak of tax return filing season.  As part of the tax return process, many tax practitioners file information returns for the entities they represent. Any person, including a corporation, partnership, individual, estate, and trust, who makes a payment (such for as rent, wages, salaries, and annuities) must file an information return with the IRS to report the payment.  But what happens if a false information return is filed with the IRS?

In 1996, Congress enacted 26 U.S.C. § 7434(a), which gives victims of fraudulent filing activities a damage remedy against the perpetrators.  The provision applies whenever “any person willfully files a fraudulent information return with respect to payments purported to be made to any other person.”  It allows the subject of the false information return to recover from the person filing the return the greater of $5,000 or actual damages flowing “as a proximate result” of the fraudulent return including costs incurred in dealing with deficiencies resulting from the return, court costs and, in the court’s discretion, “reasonable attorneys fees.”

In Vandenheede v. Vecchio, the U.S. District Court, Eastern District of Michigan, recently granted the Defendants’ motion for summary judgment based on the fact that violations of 26 U.S.C. § 7434(a) fall on the “filer,” and not on every person involved in preparing the return.  The Plaintiff, Mary C. Vandenheede (“Vandeheede”), filed suit against the co-trustees of her husband’s revocable trust for, among other things, filing a false and fraudulent tax form. The facts are as follows: (more…)

March 19th, 2013

Time to get into the weeds on the scope of a trustee‘s powers.  There are basically two sources of power for a trustee – the trust instrument and state law.  Where those two intersect, overlap, conflict, or diverge is where you will likely find the bulk of fiduciary litigation about trustee powers.

In Rendall v. Black, the Court of Appeals of Kentucky dug into both the trust instrument and Kentucky trust law to reverse a local circuit court’s ruling that declared a 1994 deed void ab initio based upon the language of a trust agreement.  In doing so, the appellate court got to differentiate between the trustee’s power to distribute income versus the trustee’s power to sell off the corpus of the trust.  And we saw a brief – and curious – appearance of the trust pursuit rule. (more…)

March 13th, 2013

It usually takes a lot to convince a judge to terminate a trust.  The grantor wanted assets held in trust for a reason.  Therefore, if you want to go against the grantor’s intent and terminate a trust, then you better give the court a very good reason why termination is appropriate.  And, there may very well be good reasons to terminate a trust.  That’s why many states have a statutory method for terminating or modifying a trust.

In Kristoff v. Centier Bank, Amy Jean Kristoff tried to use Indiana‘s statute to terminate or modify a trust created by her mother.  The Court of Appeals of Indiana found that Amy did not satisfy her burden under the statute because Amy could not demonstrate the existence of circumstances not anticipated by the settlor of the trust.

What were the unanticipated circumstances Amy was claiming warranted termination of the trust? (more…)

March 6th, 2013

Many fiduciary litigation concepts, like undue influence, lack of capacity, or breach of fiduciary duty, can be difficult for the lay people of a jury to understand.  For lay people, sometimes the actual law doesn’t always match up to what they may think is right or wrong.  So, when a case actually ends up going to the jury, the temptation for the lawyers litigating it may be to try to drive some last points home through the jury charges by repeating the law several times.

In Burkhalter v. Burkhalter, however, after a jury returned a verdict vindicating an alleged undue influencer, the Court of Appeals of Iowa granted a new trial on the claims because of a faulty jury charge regarding undue influence.  The appellate court found that the charge was either unduly repetitive and therefore faulty or through its unnecessary repetition gave undue emphasis to otherwise correct statements of law.

Let’s check out the faulty jury charge on undue influence. (more…)