Utah Trust & Probate Litigation: What Should I Expect?

Trust and probate litigation can take a variety of forms.  A classic example of such litigation would be a will contest or a contest of a revocable trust in which the validity of the will or trust is challenged, usually on grounds that the decedent lacked testamentary capacity or that the will or trust was the product of undue influence.  Another example might be a dispute between the beneficiaries and the trustee of an irrevocable trust over the administration of the trust.  A more common example in recent years may be a dispute arising from the failure of the successor trustee of a revocable trust to distribute the trust assets to the beneficiaries after the death of the trust’s creator.

Like other forms of litigation, trust and probate litigation is long and expensive.  It will likely cost each side at least $50,000 to $100,000 in legal fees to take a case through trial, and the entire process will usually take 12-18 months.  Most cases settle before trial.  But even if the case is settled before it gets to trial, it will probably take many months and tens of thousands of dollars before it is resolved.

In addition to the time and expense involved, litigation can also be emotionally difficult for the parties.  Probate and trust litigation can be especially draining because the litigants are usually family members.  The lawsuit can thus tear families apart and consume lives.

Why Does It Take So Long and Cost So Much?

Clients often ask: Why can’t we just appear before the judge, explain our case, and have him or her rule in our favor?   The answer is that our legal system is designed to prevent a rush to judgment.  It permits each side to be fully heard through an orderly presentation of all of the relevant facts.  The judge will not rule on the merits of the case until both sides have had an opportunity to obtain all of the pertinent information to support their case, and that information is available only through a lengthy fact discovery process consisting of depositions, interrogatories, requests for admissions, requests for production of documents, and subpoenas to third parties.  And so it may seem that the legal system favors the “bad” person on the other side, but it is really just trying to be as even-handed as possible.

How Does the Process Work?

As with other forms of litigation, the lawsuit may begin with the filing of a Complaint.  In the probate or trust context, the initial pleading may, alternatively, be a Petition that is filed in probate court.  The Petition might or might not set up an adversarial situation.  For example, on the one hand, it might seek to have the trustee of a revocable trust removed from office on grounds that he has breached his fiduciary duty.  That would be adversarial.  On the other hand, the Petition might simply ask the Court to approve a particular transaction or other act by the trustee to which the beneficiaries might consent.  It might even just be an Application to open probate.

Once the Complaint has been filed and served on the defendant, the defendant in most cases has 20 days to file an Answer (or 30 days for a defendant who resides outside the State of Utah).  If the initial pleading is a non-adversarial Petition or Application, the stage will not be set for an adversarial proceeding unless and until an interested person files an Objection.  If an Objection is filed in a probate or trust proceeding, the probate judge will typically refer the case over to the civil litigation calendar.  From that point forward, the case will proceed in the same manner as any other civil litigation case.

Once the Answer (or Objection) has been filed, the clock starts ticking on the discovery process.  In Utah, if less than $50,000 is at issue, discovery (i.e. depositions, interrogatories, requests for admissions, requests for production of documents, and subpoenas to third parties) must be completed within 120 days (4 months).  If the case involves $50,000 to $300,000, discovery must be completed within 180 days (6 months).  If more than $300,000 is at issue, discovery must be completed within 210 days (7 months).

One reason litigation is so expensive is that, throughout the discovery period, there are likely to be many procedural motions.  Some of these motions may relate to discovery disputes over what material must be turned over to the other side.  Other motions may pertain to who should or should not be parties to the lawsuit, or to what court should hear the case, or to attempts by parties to dismiss some or all of the claims in the case, as well as a variety of other matters.

Additional delays are also possible.  For example, if the attorney for one side withdraws, the other side will file a Notice to Appear or Appoint Counsel, after which all action in the case is stayed for 20 days.

When the discovery process is completed, the parties will file a Certificate of Readiness for Trial.  The court will then schedule trial three to six months in the future.  And even the trial is not the end of the litigation road.  After the trial is completed, the losing party has 30 days to appeal the judgment.

The foregoing assumes that the plaintiff did not seek immediate temporary relief in the form of a Temporary Restraining Order or a Preliminary Injunction when the lawsuit was commenced.  If injunctive relief was sought, over $10,000 may have been spent before the Complaint was even drafted.

Are There Any Short-Cuts?

It is possible to ask the court to decide the case before it ever gets to trial.  One method would be to file a Motion for Summary Judgment.  Such motions are seldom granted, however.  In order to prevail on a Motion for Summary Judgment, the moving party must show that there is no dispute of a material fact and that he or she is entitled to a judgment as a matter of law.  If the Motion for Summary Judgment is brought too early, the other side may argue that more discovery must be conducted before the court can rule on the motion.

Another method for resolving the case early is a Motion to Dismiss.  This could be brought by the defendant if the Complaint fails to cite a claim for relief, or if the plaintiff is not prosecuting the suit.  Conversely, if the defendant is not defending the suit, the plaintiff may enter a Notice of Default.

Of course, even a Motion for Summary Judgment can involve a lengthy process.  After the Motion is filed, the other party has 14 days to file its Opposition, after which the moving party has seven days to file its Reply.  Extensions of these time periods are routinely requested and granted.  Once the Reply is filed, the moving party will file a Request to Submit for Decision.  Because the motion is dispositive of the case, the court will usually set a date for hearing at which both sides can present their arguments. And even a Notice of Default may be followed by a “prove-up” hearing at which a party must present evidence to support the claims he or she has brought or to support damages sought.

Is There Another Way?

The litigation can be abbreviated if the parties settle the case before trial.  A formal mediation is not required to settle a case, but it can facilitate a settlement.  (For more information about probate and trust mediations, go to www.utahprobatemediation.com.)  Mediation is generally voluntary, however in Salt Lake County the probate judge will usually refer the parties to mandatory mediation when an Objection is made in a trust or probate case.

While mediation may be very helpful in avoiding trial, it will not necessarily shorten the litigation process by very much because mediation is most useful after the discovery process has been completed, when each side has a better sense of the weaknesses in its own case.

On balance, a great deal of expense and emotional anxiety can be avoided if the parties can come to agreement before the litigation is commenced.  A demand letter from the aggrieved party to the other party may serve to open a dialogue that permits resolution before a Complaint gets filed.  For example, if a trustee refuses to perform his or her responsibilities, a letter from the beneficiary to the trustee describing those responsibilities, the trustee’s failure to meet those responsibilities and the consequences of continued failure, may wake the trustee up and provoke compliance.  If not, litigation may be the only recourse.

For a discussion of estate planning, revocable trusts and probate in Utah, see “Basic Estate Planning Information” on the home page of this website.  For a discussion of trustee responsibilities in Utah, see “Serving as Trustee” on the home page of this website.

Rust Tippett is the author of this blog post.

Copyright 2015 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Attorney Fees in Utah Trust & Probate Litigation

The terms “probate litigation” or “trust litigation” generally refer to legal disputes over the administration or the internal affairs of trusts or probate estates, as opposed to disputes between a trust or estate on the one hand and a third party on the other.  An example of a legal dispute regarding the internal affairs of a trust would be a lawsuit in which a trust beneficiary claims that the trustee has breached his or her fiduciary duty.  An example of a third party legal dispute would be a suit in which a person who was injured on property that is owned by the trust sues the trust for damages related to the injury.

When determining how attorney fees are to be paid in probate or trust litigation, there are two basic principles to keep in mind.

The first is that, as in most litigation cases (not just trust and probate litigation), each party to a lawsuit must generally pay his or her own attorney fees.

The second principle is that a trustee is generally entitled to have attorney fees that he or she incurs paid from the trust assets.  Utah Code §75-7-1004(2) provides:  “If a trustee defends or prosecutes any proceeding in good faith, whether successful or not, the trustee is entitled to receive from the trust the necessary expenses and disbursements, including reasonable attorney’s fees, incurred.”  In addition, trust instruments sometimes expressly authorize payment of the trustee’s attorney fees from the trust funds.

Thus, if there is a dispute between the trustee and the trust beneficiaries, such as when a trust beneficiary sues the trustee for breach of fiduciary duty, the beneficiary must pay his or her own legal fees, and the trustee’s legal fees would be paid from the trust funds, even if the trustee loses the case.

However, both of these principles have exceptions that relax what may seem to be an unjust rule.

In litigation generally (not just trust and probate litigation), Utah Code §78B-5-825 provides that the court may award reasonable attorney fees to a prevailing party if it determines that the action or defense was without merit and not brought in good faith.  Rule 11 of the Utah Rules of Civil Procedure has a similar provision.  But awards of attorney fees under these provisions are very rare, and one should never anticipate an award of attorney fees under them.

Utah Code §75-7-1004(1) states a broader rule for trusts:  “In a judicial proceeding involving the administration of a trust, the court may, as justice and equity may require, award costs and expenses, including reasonable attorney’s fees, to any party, to be paid by another party or from the trust that is the subject of the controversy.”  And in Cafferty v. Hughes, 46 P.3d 233 (Utah App. 2002), the Utah Court of Appeals held that, in trust litigation, even “in the absence of a statutory or contractual authorization, a court has inherent equitable power to award reasonable attorney fees when it deems it appropriate in the interest of justice and equity.”

Thus, if a beneficiary successfully sues a trustee for breach of fiduciary duty, the beneficiary may have a good argument (1) that the trustee should pay his or her legal fees from his or her own personal funds, rather than from the trust funds, particularly if the breach was a serious violation of the trustee’s responsibilities, and (2) that the trustee should also pay the beneficiary’s legal fees from the trustee’s personal funds.  Conversely, if the beneficiary loses, the trustee may argue that his or her legal fees should be paid by the beneficiary rather than from the trust funds.

It is important to bear in mind, however, that even if a party succeeds in persuading the court to require the other party to pay his or her attorney fees, the court’s order on that issue will not come until the very end of the litigation.  That means that he or she will have to pay the legal fees until then, unless the attorney agreed to take the case on a contingency basis.

For a discussion of trustee responsibilities in Utah, see “Serving as Trustee” on the home page of this website.

Rust Tippett is the author of this blog post.

Copyright 2015 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Aagard v. Jorgensen, 2014 UT App. 269

In Aagard v. Jorgensen, 2014 UT App. 269 (filed November 14, 2014), the Utah Court of Appeals approved a modification of an LLC operating agreement that was proposed by the Petitioner, who was the manager of the LLC.  The Petitioner was also the owner of all of the LLC interests, partly in his capacity as trustee of several irrevocable family trusts, and partly in his individual capacity.  The petition proposed the removal of a veto power that the Petitioner’s sister held over the sale of ranch property the LLC owned in northern Utah.

Both the family trusts and the LLC had been created by the Petitioner’s parents.  Initially, the trusts and the LLC operating agreement all contained provisions giving the Petitioner’s sister a veto power over the sale of any of the ranch land.  During their lifetimes, the parents removed the veto provisions from the trusts, but did not remove the veto provision from the LLC operating agreement.  After the deaths of the parents, the Petitioner, as the holder of all of the LLC interests, sought to remove the veto power from the operating agreement.

The Petitioner’s sister argued that the proposed modification would be a voidable transaction under Utah Code §75-7-802(2) because it was affected by a conflict of interest.  The district court agreed that the modification would involve a conflict of interest.  The Court of Appeals reversed.

The Court of Appeals held that the modification was not a “sale, encumbrance or similar transaction” within the meaning of §75-7-802(2), and further held that there was no conflict of interest.  The Court stated that a trustee does not violate his duty of loyalty to the trust beneficiaries simply because he owns LLC interests in both his individual and fiduciary capacities.  The Court explained that hypothetical conflicts are always conceivable in such a case, but that a conflict of interest exists, and the duty of loyalty is breached, only when the interests in question are inconsistent or incompatible.

For a discussion of trustee responsibilities in Utah, see “Serving as Trustee” on the home page of this website.

Rust Tippett is the author of this blog post.

Copyright 2015 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Dahl v. Dahl, 2015 UT 23

In Dahl v. Dahl, 2015 UT 23, the Utah Supreme Court held that Kim Dahl had an enforceable interest in a Nevada asset protection trust that was established by her husband, Charles Dahl, during the marriage with marital property.

The trust instrument expressly stated that the trust was irrevocable.  However, it also stated: “Settlor reserves any power whatsoever to alter or amend any of the terms or provisions hereof.”  The trust instrument provided that the trust was governed by Nevada law.

The Court first held that it would interpret the trust according to Utah law – not Nevada law – because Utah has a strong public policy in favor of the equitable distribution of marital assets upon divorce, and application of Nevada law would deny the district court the ability to equitably divide the marital assets.

The Court then held that, under Utah law, the trust was revocable because Charles Dahl, as settlor, retained the power to amend the trust in any manner.  Because the trust was funded with marital assets, the Court then concluded that Kim Dahl was also a settlor of the trust and therefore also had the power to revoke the trust and withdraw assets from the trust.  The trust assets were thus subject to equitable distribution in the divorce proceeding.

In a footnote, the Court explained:

“Were we to construe the Trust as irrevocable, it would create a serious conflict between trust law and divorce law in Utah.  The question of whether a spouse could create an irrevocable trust in which he or she placed marital property, thereby frustrating the equitable distribution of property in the event of a divorce, is not before us in this case.  Accordingly, we take no position on a likely outcome of such conflict.  Rather, we bring the potential pitfalls to the Legislature’s attention.”

For more information about revocable trusts in Utah, see “Basic Utah Estate Planning Information” on this website.

Rust Tippett is the author of this blog post.

Copyright 2015 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Protecting Your Utah Estate Plan from a Contest

This post is the seventh in a series of posts that suggest possible methods to help ensure that one’s estate plan will be carried out as intended.

As is discussed in the blog on this site entitled “Will Contests in Utah,” a will contest (or a contest of a revocable trust) can be brought either on the grounds that the decedent lacked testamentary capacity (i.e. the necessary mental capacity) at the time he or she signed the estate plan, or on the grounds that the estate plan was the product of undue influence exercised by the alleged perpetrator.

So if you have testamentary capacity and are not subject to undue influence, is there anything you can do while you are still alive to protect your estate plan from such allegations and from an attempted contest after death?  Yes, to a degree.  The following are some possibilities:

Meet with Your attorney alone.  If your estate plan is contested on the grounds that it is the product of undue influence, one damaging fact could be that the alleged perpetrator attended all of your meetings with your estate planning attorney.  It is very helpful if your attorney can testify that she met with you alone and assured herself that the estate plan truly reflected your wishes.  If you plan to leave more of your estate to one of your children than to the other children, that child should not attend your estate planning meetings with your attorney.

Cognitive Evaluation.  One of the most effective methods to protect against a successful will contest (and for discouraging even an attempted contest) is to be examined by a physician (or even a geriatric psychologist) immediately (i.e. less than an hour or so) before you sign your estate planning documents, and to have the physician sign a certificate stating that you have testamentary capacity.  But be careful.  The plan can backfire if you are having a bad day and fail the examination, causing the signing ceremony to be postponed.  It can be very damaging if that fact later comes out in discovery in litigation.

Videotape.  Another potentially effective way to guard against a will contest is to videotape the signing ceremony and answer questions on tape about your estate plan in order to show that you are mentally competent and are not under the influence of another person.  Like a cognitive evaluation, however, this technique can backfire if you are having a bad day.  In addition, a videotape can also backfire if you do not come across well on camera.

Attorney’s Memo to File.  If there is any substantial reason to suspect that a client’s mental capacity will be brought into question, it may be advisable for the attorney to prepare a memo for her file explaining why she is confident that the client had testamentary capacity.  It may also be prudent for the attorney to have the memo notarized and to email it to herself to show that she did not prepare it after the fact.

Explanation of the Estate Plan.  Many people are tempted to explain in their estate plan, or in a separate letter, why they disinherited a particular child.  But such an explanation can be a two-edged sword that cuts both ways.  If the explanation is factually accurate and well-reasoned, it can help thwart an attempted contest.  But if the explanation contains any factual inaccuracies, it can be used to demonstrate diminished capacity.

No Contest Clauses.   A no contest clause is a provision in a will or revocable trust that attempts to disinherit any beneficiary who challenges the validity of the will or trust.  No contest clauses are included in estate plans, of course, to discourage any would-be contestant.  However, no contest clauses are of limited usefulness for two reasons.  First, in Utah a no contest clause is unenforceable unless the contest lacks probable cause (i.e. unless it is frivolous).  Second, if you are disinheriting someone, then by definition you do not want that person to receive anything.  But in order for a no contest clause to be effective against a dissatisfied beneficiary, that beneficiary must be given a large enough bequest to incentivize him not to bring a contest.  If you do not give that person a sufficient “incentive bequest,” he will have no incentive not to contest the estate plan, notwithstanding the no contest clause.

Other Trust Provisions.  Utah Code §75-7-607 provides that a contest of a revocable trust must be brought within 90 days after the contestant receives notice from the trustee informing him of that 90-day deadline.  The trustee is not required to send this notice, and trustees often neglect to do so.  If no notice is sent, the 90-day period never starts to run.  It may be prudent, therefore, to include a provision in the revocable trust prohibiting any distribution to any beneficiary until 90 days have elapsed since such notice was sent.  Of course, §75-7-607 covers only contests.  In some families, there may be a concern about a beneficiary bringing a lawsuit (other than a contest) against a trustee or other beneficiary.  If that is your situation, you may want to include a provision in the estate plan that requires a beneficiary to agree not to bring a lawsuit against a trustee or other beneficiary as a precondition to receiving his or her distribution from the trust.  However there is no Utah law addressing whether or not such a provision would be enforceable.

Update Your Estate Plan Periodically.  If your will or revocable trust is successfully contested, that will or revocable trust will be invalid.  If you had a prior estate plan, that prior plan will then govern the disposition of your estate.  If that plan is substantially similar to the plan that was contested, the contestant will have accomplished very little, unless he can also successfully contest that prior plan.  You can thus protect your estate plan by putting any potential contestant in a position where he would need to successfully contest a series of estate plans that were put in place over the years.

Use an Attorney.  It is almost never a good idea to prepare your own estate plan.  If you do, you will almost certainly make a mistake – probably several mistakes.  Even if litigation doesn’t result, your property will likely not be distributed in the manner you intend.

For a more detailed discussion of estate planning in Utah, see Basic Utah Estate Planning on this website.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

 

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Safeguarding Your Utah Estate Plan: Be Careful of Loans and Gifts

This post is the sixth in a series of posts that offer ideas for ensuring that your estate plan will be implemented as intended.

Problems often arise when an estate plan fails to address loans or lifetime gifts to a child or other estate beneficiary, or when loans are not properly documented.

If you make a loan to a child or other beneficiary of your estate plan during your lifetime, the beneficiary will still owe the outstanding balance on that loan to your estate at the time of your death, unless you have forgiven the loan during your lifetime.  You can forgive the loan in your estate plan, but your will or revocable trust must do so expressly.  If you do not expressly forgive the loan, the beneficiary will owe the outstanding balance to your estate, and the amount owed will be an asset of the estate.  For convenience, when distributions are made from the estate, the outstanding balance can be deducted from the beneficiary’s share of the estate, rather than requiring the beneficiary to pay the funds back.  But if the amount owed exceeds the beneficiary’s share of the estate, the excess must be paid by the beneficiary to the estate.

If you make a gift to a beneficiary of your estate plan during your lifetime, the rule in Utah is that the amount of that gift is not deducted from the beneficiary’s share of the estate, unless the estate plan specifies that it should be deducted from the beneficiary’s share, or unless the beneficiary has acknowledged in writing that the value of the gift should be deducted from his or her share.

These rules seem straight-forward enough.  But unfortunately, when parents transfer money to children, it isn’t always clear if the transfer was a loan or a gift, and they often fail to document the transfer properly, if at all.  Even if the transfer was intended to be a loan at first, there may be conflicting opinions as to whether it was forgiven by the parent during his or her lifetime.  And in any event, there may be widely differing opinions as to the terms of the loan and the balance that remains outstanding at the time of the parent’s death.  As a result, when the parent dies, there are often unanswered questions as to how the transfer should be treated, and ill-feelings among the children and other beneficiaries may ensue.

It is very important, therefore, to carefully document any transfer you make to your children.  Be clear as to whether it is a gift or a loan.  If it is a gift, be clear as to whether it should be deducted from the beneficiary’s share of the estate at your death.  If it is a loan, clearly document the terms of the loan, and be clear in your estate plan how it is to be treated.

For a more detailed discussion of estate planning in Utah, see Basic Utah Estate Planning on this website.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Protecting Your Utah Estate Plan: Inform Your Beneficiaries

This post is the fifth in a series of posts that offer recommendations for safeguarding your estate plan against the improper conduct of trustees, family members and others.

Sharing information with your beneficiaries during your lifetime can help ensure that the estate plan will be implemented as intended.

Discussing the contents of the estate plan with family members during your lifetime can help relatives who are not happy with the plan understand the rationale behind the plan, reducing the possibility that they will contest the plan after your death.

As discussed in prior posts, trustees are not always forthcoming when it comes to providing information to beneficiaries.  Telling all of the beneficiaries in advance what they are to receive gives them an opportunity after your death to enforce their rights against trustees who do not fulfill their duty to keep the beneficiaries informed.

Similarly, providing all of your “residuary” beneficiaries with an itemized list of your assets can thwart an attempt by a trustee to hide or siphon off assets.  A residuary beneficiary would be any beneficiary who is to receive a percentage share of the estate, as opposed to a beneficiary who receives a particular item of property or a specific dollar amount.  There would be no point in disclosing all of your assets to a beneficiary who receives only an antique table, or to a beneficiary who receives only a $5,000 bequest.  But after such small gifts have been made, a beneficiary who receives a share of what is left (i.e. a residuary beneficiary) should perhaps be told the extent of your property during your lifetime so that he or she can make sure it is all accounted for after death.

It may therefore be advisable (1) to give a copy of your estate plan to all of your primary beneficiaries during your lifetime; (2) to discuss the estate plan with your primary beneficiaries, and even with relatives who are not beneficiaries, but who think they should be; and (3) to give your residuary beneficiaries an itemized list of all of your property during your lifetime.

For a more detailed discussion of estate planning in Utah, see Basic Utah Estate Planning on this website.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Safeguarding Your Utah Estate Plan: Holding the Trustee Accountable

This post is the fourth in a series of posts that consider possible methods for protecting one’s estate plan from the inattentive or unethical conduct of trustees, family members and others, in order to ensure that the estate plan will be implemented as intended.

As described in the previous post, individual (i.e. non-institutional) trustees often fail to perform their responsibilities in a timely manner.  Sometimes this failure is intentional – sometimes not.

The law imposes certain informational requirements on trustees.  (See Utah Code §75-7-811.)  Trustees have a duty generally to keep beneficiaries fully apprised regarding the trust’s activities.  For example, a trustee must send a notice to all trust beneficiaries within 60 days after the settlor of a revocable trust dies, informing the beneficiaries that they have a right to receive a copy of the trust instrument.  In addition, the trustee must provide an annual accounting to the beneficiaries on request, showing the trust assets and liabilities, and the receipts and disbursements made during the accounting period.  While there is no express requirement that a trustee provide an inventory of the trust assets to the beneficiaries within a specific period of time, the trustee should certainly do so in a timely manner.  A trustee’s failure to keep the beneficiaries informed constitutes a breach of the trustee’s fiduciary duties for which the trustee can be removed, with court approval.

For a more detailed discussion of trustee duties and responsibilities in Utah, go to Serving as a Trustee on the home page of this website.

For a detailed discussion of revocable living trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah revocable living trusts on this site.

One technique for holding the trustee accountable is to include provisions in the trust instrument that impose specific requirements on the trustee and specific penalties for failure to comply with those requirements.  Some examples might include:

(1)  The trust instrument could require that the trustee provide a full, detailed inventory of all trust assets within 120 days after the settlor’s death, and could further provide that, if the trustee fails to do so, a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.

(2)  As noted above, Utah Code § 75-7-811 requires that the trustee provide the beneficiaries with annual accountings, on request.  While the trustee can be removed by the court for a breach of fiduciary duty generally, no specific penalty is prescribed for failure to provide an accounting.  But the trust instrument can be more direct.  For example, the trust could require that the trustee provide annual accountings to the beneficiaries within 60 days after the end of each calendar year, and could further provide that, if the trustee fails to do so, a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.

(3)  The trust instrument could require that the trustee distribute all trust assets to the beneficiaries within one year after the settlor’s death, and that, if the trustee fails to do so (without good reason), a majority of the non-trustee beneficiaries can remove the trustee without first obtaining court approval.

An additional remedy may be to provide that, if the trustee does not perform these responsibilities and meet these deadlines, he may not receive any compensation for his services as trustee.

If the trustee is also a beneficiary, a more extreme approach may be to provide that, if the trustee does not perform these duties and meet these deadlines, his share of the estate is to be reduced.

As a general rule, each party to litigation must bear his or her own legal fees, and a trustee’s legal fees are to be paid from the trust.  In egregious cases, a judge can order that the trustee bear his own legal fees, and could require that the trustee pay the beneficiaries’ legal fees, as well, but the standards for determining when it is appropriate for a judge to issue such an order are somewhat vague.  The trust instrument, however, could provide that, if the trustee does not perform the duties and meet the deadlines described above, his legal fees in defending against his removal must be paid by him out of his own personal funds.  If the trustee is also a beneficiary, the trust instrument could also require that the legal fees of the other beneficiaries be deducted from the trustee’s share of the trust.

The foregoing are just examples of the types of provisions one might want to consider.  Of course, such provisions will be more effective if the trustee is aware of them at the time he becomes trustee.  It may be advisable, therefore, to take steps to ensure that these provisions are not just buried in the trust boilerplate.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

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Safeguarding Your Utah Estate Plan: Selecting the Trustees

This post is the third in a series of posts that recommend techniques for protecting one’s estate plan from the negligent and/or unscrupulous actions of trustees, family members and others, in order to ensure that the estate plan will be implemented as intended.

As described elsewhere on this website, it is generally advisable to hold one’s property in a revocable trust.  (For a more detailed discussion of revocable living trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah revocable living trusts on this site.)

During your lifetime, you will typically be the trustee of your own revocable trust.  Upon your death or incapacity, the person you name as successor trustee in the trust instrument will become the trustee.  The successor trustee will hold legal title to the trust property and will control the trust property, subject to the fiduciary duties he or she owes to the trust beneficiaries.  These fiduciary duties include providing the beneficiaries with a copy of the trust instrument, sharing a complete inventory of the trust assets with the beneficiaries, preparing an accounting of trust income and disbursements, and distributing the trust assets to the beneficiaries once all creditors and taxing authorities have been paid.  Under no circumstances may a trustee use the trust property for his or her own purposes or otherwise engage in self-dealing.

Successor trustees of revocable trusts will typically be individual persons, such as family members, friends or professional advisors.  Because institutional (i.e. corporate) trustees charge for their services, individuals are usually selected to serve as successor trustees in order to save money.  (See the post on this site: “Should I Select a Corporate Trustee or an Individual Trustee?”)

Unfortunately, individual (i.e. non-institutional) trustees often do not properly perform their fiduciary responsibilities.  In many cases, they don’t know what their duties are.  But often, they just don’t care.  They treat the trust assets as their own property and ignore the responsibilities they owe to all of the beneficiaries.

What can be done to protect against this all-too-common problem?  The following are some suggestions:

Suggestion #1.  Appoint Multiple Co-Trustees.  When your attorney drafts your revocable trust, you might consider designating two, or perhaps three, successor co-trustees who can keep an eye on each other, and requiring that they must act unanimously.  Having more than three trustees can be unwieldy, but two or three is usually manageable.  Appointing multiple successor co-trustees can significantly reduce the danger that your successor trustee will undermine the estate plan you have put in place.

Suggestion #2.  Appoint Qualified Trustees.  Of course, even if you appoint multiple successor trustees, the possibility exists that one trustee will call the shots and the other trustee (or trustees) will take a back seat.  That’s why it’s important to select qualified trustees.  Not every trustee need be an experienced professional.  But all trustees should be individuals who are smart, conscientious and reasonably sophisticated.  If your children do not fit that description, consider appointing another family member or a trusted family advisor, such as your accountant or your lawyer.

Suggestion #3.  Appoint an Independent Trustee.  Appointing a co-trustee who is not a beneficiary, and who has no financial expectations or emotional involvement in the estate, can help safeguard against the problems that may come with having a family member or beneficiary serve as trustee.

Suggestion #4.  Consider a Corporate Trustee.  Most families do not want to hire banks or trust companies because they charge for their services.  Nonetheless, for the reasons described above, in some circumstances an institutional trustee may be well worth the cost.  Another option is to select a private professional trustee.  Private professional trustees are individuals (often retired trust company officers) who are available to serve as fiduciaries at a lower cost than what institutional trustees charge.  Selecting an institutional or private professional trustee can dramatically reduce the risk of mismanagement or malfeasance.

Of course, the principles described above apply to naming the executors under your will and the agents under your financial power of attorney, and to nominating your conservators, if they should ever be needed.  Appointing multiple, qualified, independent executors, agents and conservators can be just as important as naming multiple, qualified independent trustees.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

Posted in Safeguarding your Utah Estate Plan, Utah Revocable Trusts | Tagged , , , | Leave a comment

Protecting Your Utah Estate Plan from Undue Influence

This post is the second in a series of posts that offer suggestions for protecting one’s estate plan from the unprincipled behavior of trustees, family members and other perpetrators, in order to ensure that the estate plan will be implemented as intended.

Financial exploitation of elder adults is an epidemic in our society.  One form this abuse can take is “undue influence,” which occurs when the perpetrator causes a vulnerable elder adult to change his or her estate plan in a way that benefits the perpetrator and is contrary to what the elder adult really wants.  Regrettably, financial elder abuse – including undue influence – often occurs at the hands of family members.

One rarely-used technique to protect one’s estate plan from undue influence is to include a restrictive amendment provision in one’s revocable trust.

Simply holding assets in a revocable trust can provide modest protection against undue influence.  A revocable trust can be amended only in the manner that the trust itself prescribes, unlike a will, which can be revoked and amended by simply signing a new will.  Thus, the ultimate disposition of property that is held in a revocable trust can be altered only in the manner required by the trust.  Unless the perpetrator is familiar with the victim’s financial affairs, the perpetrator is not likely to know that the victim even has a revocable trust.  And unless the perpetrator is knowledgeable about estate planning, he or she is not likely to realize that the revocable trust needs to be amended and is not likely to know how to do it.  In this way, having a revocable trust can help protect against undue influence.

But it may be advisable to go a step further.  Restricting one’s ability to amend one’s own revocable trust can be a very effective way to protect one’s estate plan from undue influence.  The trust provision could say something along the lines of the following:

“Any amendment to this trust shall be effective only if it is delivered to [insert name of trusted family member, friend or professional advisor] within five calendar days of its execution.”

Such a provision provides protection in three ways.  First, the perpetrator is not likely to know that the delivery requirement exists.  Second, even if the perpetrator is aware of the requirement, he is not likely to comply with it because doing so would reveal his nefarious plans.  And third, if the perpetrator does deliver the amendment to the designated individual, the recipient can then take appropriate action, such as contacting the elder adult, the elder adult’s attorney or Adult Protective Services.

The restrictive amendment provision will need to be customized to suit each client’s particular situation, but the basis concept should be evident.

One potential danger of using a restrictive amendment provision is that it may be overlooked when the client wants to make a legitimate change to the trust, with the result that the amendment will be invalid.  Such a restrictive provision should be used, therefore, only in exceptional circumstances.  It is appropriate only where the client is genuinely concerned that he or she may be subjected to undue influence.

For a more detailed discussion of revocable living trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah revocable living trusts on this site.

Rust Tippett is the author of this blog post.

Copyright 2014 UNLEPI, LLC, a Utah limited liability company.  All Rights Reserved.

This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC.  The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.

Posted in Safeguarding your Utah Estate Plan | Tagged , | Leave a comment