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.

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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.

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Safeguarding your Utah Estate Plan: What are the Dangers?

This post is the first in a series of posts that suggest various approaches for protecting one’s estate plan from the illicit conduct of successor trustees, family members and others, in order to ensure that the estate plan will be implemented as intended.

As a trust and estate attorney, I frequently receive phone calls from beneficiaries whose parents’ estate plans have gone awry.  The following scenario is typical.

Mom and Dad have several children.  One of the parents dies, and the other parent gets on in years.  The surviving parent comes to rely on one child more than the others.  Perhaps that child has more financial experience than the others.  Perhaps he or she is the primary caregiver.  Perhaps he or she is simply the child who lives closest geographically.  Whatever the reason, that child is named as the successor trustee in the revocable trust.

Often, assets mysteriously migrate from the parent to this child, perhaps during the parent’s lifetime, perhaps after death.  Sometimes this occurs with the other children’s knowledge – sometimes not.  There is usually at least a cloud of suspicion.  In other cases, the estate plan may actually be modified in a manner that benefits this child, again, often without the other children’s knowledge (until it is too late).

After the surviving parent dies, the successor trustee fails to provide the other beneficiaries with the information to which they are entitled, and generally treats the trust property as his own.  He either walks away with the trust property or dispenses small amounts to the other beneficiaries as and when he chooses, all in blatant violation of his fiduciary duties.  Sometimes the trustee acts out of ignorance – sometimes with unscrupulous motives.  In some cases, a lawsuit ensues.  In others, the other family members just give up and let that child get away with it, either because they lack the resources to fight, or because they don’t want to create tension in the family.

The problem of trustees ignoring their fiduciary duties and getting away with it has grown exponentially in recent decades.  Historically, when a person died, all of his or her assets were subject to a court-supervised probate.  In probate, it was the court’s job to make sure that all of the estate’s net assets were properly distributed to the estate’s beneficiaries.  But probate was a lengthy, expensive and inconvenient process.  Accordingly, revocable trusts were readily embraced when they were introduced on a large scale in the 1960s as a novel method for avoiding probate, and the Uniform Probate Code followed suit when it adopted greatly stream-lined probate procedures.  Utah has adopted the Uniform Probate Code.

The combined effect of the popularity of revocable trusts and the Uniform Probate Code is that trustees and executors have unprecedented freedom to administer trusts and estates as they see fit, without being answerable to the court unless a beneficiary files an objection with the court.  Unfortunately, that also means that trustees and executors have unprecedented freedom to breach their fiduciary duties with impunity because the other beneficiaries are often reluctant to commence legal action.  While making the succession of a decedent’s property less burdensome may have been a worthy objective forty years ago, the pendulum has arguably swung too far in the other direction.

Of course, the scenario described above is just one example of the kinds of problems that can arise that interfere with the smooth transition of wealth from one generation to the next.  There continue to be fraudsters who prey on vulnerable elder adults, just as there always have been.  And there continue to be dissatisfied beneficiaries who try to upset estate plans, just as there always have been.

For a discussion of probate and revocable trusts in Utah, go to “Basic Estate Planning Information” on the home page of this website and see other blog posts on Utah probate and Utah revocable trusts on this site.  For a discussion of a trustee’s fiduciary obligations in Utah, go to “Serving as Trustee” on the home page of this website.

In the next post in this series, I suggest some creative ways to protect your estate plan from financial elder abuse, that is, to protect against the possibility that a perpetrator (who may be a stranger or may be a family member) will, against your wishes, persuade you to change your estate plan and leave him a substantial portion of your estate.

In the third post, I recommend that you appoint multiple trustees who must act unanimously and who can keep an eye on each other.  In the fourth post, I suggest some provisions that you might want to include in your revocable trust to hold your trustees accountable.  In the fifth post, I encourage you to share with your family members as much information about your assets and your estate plan as you are comfortable sharing during your lifetime, in order to minimize the opportunity for your trustees to hide assets or information from your beneficiaries after your death.  In the sixth post, I offer some cautions about making undocumented loans and gifts.

In the seventh post, I discuss will contests and trust contests and offer some suggestions on how to discourage them.  In the eighth post, I offer some general advice for protecting your assets from scams and swindlers during your lifetime.  And in the ninth post, I go out on a limb and suggest that some people may actually want to consider protecting their estate plan by giving substantially all of their assets away to their beneficiaries during their lifetimes.

This series addresses how to protect the dispositive provisions of an estate plan – i.e. how to protect the estate plan itself.  It does not address how to protect assets from creditors.  For creditor protection in Utah, go to www.utahassetprotection.org and other blog posts on Utah creditor protection 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.

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Look Over Your Lawyer’s Shoulder

Even if your estate planning attorney is highly qualified, it is prudent to ask plenty of questions and check his or her work.  The following is a list of basic points to keep in mind as you work with your estate planning attorney.

Revocable Trusts.  Your attorney will probably recommend that you have a revocable trust as the core document in your estate plan.  Be sure that you understand the purposes of a revocable trust – what a revocable trust does do and does not do.  (To learn more about revocable trusts in Utah, see “Basic Utah Estate Planning Information” on this website.)  What follows in this blog post assumes that you will have a revocable trust.

Check the Gifts.  If you want your diamond ring to go to your sister, Mary Jones; $100,000 to go to your friend, Susan Thomas; and everything else to go to your children in equal shares, make sure the estate plan your attorney has drafted says so.

What if a Beneficiary Predeceases You?  Your estate plan should explain what you want to happen if one of your beneficiaries dies before you do.  Using the examples from above, who do you want to receive your diamond ring if Mary Jones predeceases you?  Your revocable trust should be specific.  Or if Susan Thomas dies before you do, what do you want to have happen to that $100,000 gift?  Do you want someone else in particular to receive the $100,000?  Or not?  Your revocable trust should state your preference.

Residuary Clause.  Check to make sure your revocable trust contains a residuary clause, i.e. a provision that disposes of “all the rest” of your property (the “residue”).  You don’t want an estate plan that just gives your diamond ring to Mary Jones and $100,000 to Susan Thomas.  You also need a provision in your estate plan that says where everything else goes.

Guardians.  If you have minor children, your will should nominate guardians who will be responsible for raising your children.

Funds for Minor Children.  How will your property be held and managed for your minor children if both you and your spouse die?  Presumably your assets will be held in trust until your youngest child reaches adulthood.  Make sure your revocable trust clearly expresses your desires.

Fiduciaries.  Make sure your revocable trust names the successor trustees you want, and make sure it nominates back-up successor trustees.  Similarly, check the executors who are named in your will and the agents who are named in your power-of-attorney.

Beneficiary Designations.  Work with your attorney to make sure the beneficiary designations on your retirement plans and life insurance policies are consistent with the dispositive terms of your revocable trust.  Make sure your property is really going to your intended beneficiaries in the proportions you want.

Existing Estate Plan.  If you have an existing revocable trust, your attorney will be amending and restating the trust.  The new trust should specifically refer to and restate your existing trust.  Failure to do so can cause your assets to be distributed in a manner other than what you intend.  The new trust must also comply with the procedures that the existing trust prescribes for amendments.  Check to make sure your attorney has done all of this properly.

Estate Taxes.  If there is a possibility that estate tax will be due upon your death, talk to your attorney about how the tax will be allocated among your beneficiaries and make sure the revocable trust actually provides for what you want.  For example, do you want Susan Thomas to receive $100,000 minus the estate tax attributable to her gift, or do you want her to get the full $100,000, with the tax attributable to that gift to be paid from the residue?

Funding your Revocable Trust.  It is important to make sure your revocable trust is fully funded.  Talk to your attorney about how to do this.  For information about funding a revocable trust, see the blogpost captioned:  Funding a Revocable Trust in Utah on this website.

Plain Language.  Make sure you understand the language in your estate plan.  Remember: If it doesn’t make sense to you, it doesn’t make sense.

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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Water Rights in Utah Estates

Most Utahans don’t need to think about where their water comes from.  They turn on the tap, and their water is supplied by a utility company to which they pay a monthly bill.

There are, however, two other methods of water supply and ownership.  Some Utahans (mostly in suburban and rural areas) own shares in the water companies that supply their water.  Other Utahans (mostly in rural areas) own water rights directly.

Shares in water companies are generally owned separately – and transferred separately – from the real property to which the water is supplied.  Simply buying a parcel of real estate does not necessarily result in a purchase of the associated water company shares.  Thus, the buyer of a home should make sure that he or she acquires the appropriate water company shares.

Water rights (as opposed to water company shares) are essentially interests in real property, and they generally accompany the real property with which they are associated.  For uses attached to land (such as domestic use, stock use or irrigation), water rights are said to be “appurtenant” to the real estate.  A transfer of the real property automatically transfers appurtenant water rights.  However, the water rights can be, and sometimes are, severed from the real property.  When this occurs, the buyer of the real estate should make sure he or she is also acquiring the associated water rights.  Indeed, even if the water rights have not been severed from the ownership of the real property, it is prudent to specifically identify and transfer the water rights in the deed that transfers the real property.

After the owner of water rights dies, problems can arise when real property is transferred from his or her estate if the estate is then closed without transferring the water rights.  This can happen if the person administering the estate does not know that the water rights exist and does not think to address the issue.  Title to the water rights then remains “stuck” in the name of the decedent.  It is often years, or even decades, before anyone realizes that this has occurred.  But when the owners of the land try to sell it, and the buyer enquires about the water rights, a headache can arise for everyone involved.  (This problem is less likely to occur with water company shares because mail from the water company will usually continue to be sent to the decedent’s address, giving family members notice that the shares exist.)

Fixing the problem of “hung water rights” may require obtaining an order from the probate court transferring the water rights to the persons who are entitled to them.  If a probate was previously opened for the decedent’s estate, the probate may need to be re-opened.  If the decedent left a valid will that was admitted to probate, the water rights will pass under the terms of that will.  If the decedent did not leave a will, the water rights will pass to the decedent’s closest living relatives under Utah’s rules of intestate succession.

If no probate was ever opened, and if more than three years has elapsed since the decedent’s death, a petition for determination of heirship will probably be needed, in which case the water rights will pass to the decedent’s closest living relatives under Utah’s rules of intestate succession, even if the decedent left a will.  (Utah imposes a three-year limitations period on the admission of a will to probate.  If no will is admitted to probate within three years of the decedent’s death, the decedent is conclusively presumed to have died intestate, i.e. without a will.)

Transfer of the water rights may be easier if the title to those rights was held in the decedent’s revocable trust.  If the rights were held in the revocable trust, the successor trustee named in the trust should have the authority to distribute them to the appropriate beneficiaries, without court involvement.

Thus, from an estate administration perspective, it is important to make sure the executor of the estate or the successor trustee of the revocable trust knows that the water rights or water shares exist and distributes them along with the other estate or trust assets soon after death.  This can be facilitated by directing the trustee’s attention to the water rights in documents that accompany the estate plan.

For discussions of probate in Utah and revocable trusts in Utah, see “Basic Estate Planning Information” 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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Warner v. Warner

In Warner v. Warner, 2014 UT App 16, a 15-year long dispute between the trustees of a trust and the trust beneficiaries, the Utah Court of Appeals affirmed the district court’s ruling that the trustees were required to pay a portion of the beneficiaries’ attorney fees from the trustees’ own personal funds.  The district court found that the trustees had in bad faith prepared a proposed order that was “180 degrees different” from what the court had ruled.  The court applied Utah Code §78B-5-825(1), which permits an award of attorney fees to the prevailing party where the other party’s actions were without merit and in bad faith.  The court limited the award to the fees the beneficiaries incurred in response to the trustees’ bad faith conduct.

The Court also prohibited the trustees from reimbursing themselves from trust funds for the payment of their own attorney fees that were incurred in connection with their bad faith conduct.  The Court held that Utah Code §75-7-1004(2) permits reimbursement from trust funds only where the trustees act in good faith.

The Court further rejected the trustees’ request that the beneficiaries (rather than the trust) be required to pay other attorney fees incurred by the trustees in the litigation.  However, the Court declined to address the district court’s ruling that Utah Code §75-7-1004(1) does not apply to trustees seeking reimbursement from trust funds, but rather applies only to persons who don’t have any official status that would otherwise entitle them to reimbursement.

In an amended opinion issued in response to the beneficiaries’ petition for rehearing, the Court of Appeals awarded the beneficiaries attorney fees that they incurred in defending against the trustees’ appeal of the district court’s ruling.

For an in-depth discussion of payment of attorney fees in Utah trust disputes and reimbursement of trustees’ attorney fees from trust funds, see The Utah Law of Trusts & Estates, a comprehensive online legal reference treatise that is available 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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Snow, Christensen & Martineau v. Lindberg

In Snow, Christensen & Martineau v.  Lindberg, 299 P.3d 1058 (Utah 2013), the Utah Supreme Court held that the terms of a reformed trust were so dramatically different from the terms of the original trust that the attorneys for the original trust were not required to disgorge privileged attorney-client information to the Special Fiduciary of the reformed trust and were not disqualified from representing parties adverse to the reformed trust.

A Utah district court had reformed the original trust several years earlier under the doctrine of cy pres.  While application of the cy pres doctrine requires that the trust be reformed in a manner that reflects the settlor’s intent and preserves the essential purposes of the trust, the Utah Supreme Court affirmed the reformation at that time on the basis of the defense of laches, without evaluating whether the reformation was consistent with the requirements of cy pres.  In the Snow opinion, the Court explained that the reformation of the trust had in fact been improper.  The original trust’s purpose was the advancement of the FLDS church and its tenets, while the reformed trust was to be administered according to secular, humanitarian principles.  The Court explained that, absent the defense of laches, the reformation would have been set aside in the prior proceedings.  The trust had nonetheless been reformed, and the reformed trust, with purposes far different from the purposes of the original trust, was a separate and distinct entity from the original trust.  The attorney-client relationship that existed between the law firm and the original trust did not therefore extend to the reformed trust.  Not only was the law firm not required to disgorge privileged attorney-client information to the Special Fiduciary of the reformed trust, but it was prohibited from doing so by Rule 1.9(c) of the Utah Rules of Professional Conduct.

The Court rejected the law firm’s contention that a charitable trust is merely a fiduciary relationship that exists between the trustees and the beneficiaries, and is not an entity capable of being a client for purposes of the attorney-client privilege.  The law firm argued that the attorney-client relationship existed only with the trustees of the original trust, not with the trust itself.  However, the Court held that, under Rule 504 of the Utah Rules of Evidence, the original trust was an entity capable of forming an attorney-client relationship.  The Court explained that, under Rule 504, it is the trust that holds the privilege and the trustee who claims the privilege on behalf of the trust.  Nonetheless, as noted above, the Court held in favor of the law firm because the reformed trust was an entirely different entity from the original trust.

For an in-depth discussion of trusts in Utah, see The Utah Law of Trusts & Estates, a comprehensive online legal reference treatise that is available on this website.

Rust Tippett is the author of this blog post.

Copyright 2013 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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Estate of Malloy

In Estate of Malloy, 288 P.3d 597 (Utah App. 2012), the court of appeals affirmed the district court’s ruling that the decedent’s divorce did not revoke the designation of his former spouse as the beneficiary under his life insurance policy because the express terms of the insurance manual stated that divorce alone would not constitute a revocation.

The decedent married Wife A in 1989.  The following month, he purchased a $50,000 federal employees group life insurance policy and designated Wife A as the beneficiary.  The decedent and Wife A were divorced in 2004.  In 2006, the decedent married Wife B.  He died in 2009 without having changed the beneficiary designation.  The insurance company paid the death benefit to Wife A, and Wife B brought an action arguing that the divorce revoked the beneficiary designation.

Utah Code §75-2-804 provides that a divorce revokes all revocable dispositions of property to the former spouse, except as provided in the governing instrument.  In this case, the insurance policy and the beneficiary election form were silent on the subject, but the insurance policy manual expressly provided that divorce alone would not revoke the beneficiary designation, and further stated that the owner of the policy would have to complete a new beneficiary designation election form in order to remove a former spouse as a beneficiary.  The district court ruled that the insurance manual was incorporated by reference into the beneficiary election form, and the court of appeals declined on procedural grounds to disturb that ruling.

For a discussion of estate planning in Utah, see Basic Utah Estate Planning on this website.  For a discussion of the effect of a divorce on an estate plan, see the blog: “Divorce and Estate Planning in Utah” on this site.

Rust Tippett is the author of this blog post.

Copyright 2013 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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