If you do estate and trust litigation for a living, it's easy to begin thinking that greed is ubiquitous. But just when you might harden into cynicism, a case comes along to restore your faith in human nature.
Two recent cases are classic. One, involving the estate of Marjorie Sims, showcases her unfortunately well-founded fear of living long, getting ill, and needing a lot of her money for health care. Following her death, a nasty fight broke out between her two legatees. Peck v. Froehlich, 853 N.E.2d 927 (Ill. Ct. App. 2006).
In contrast, a case involving the estate of George Fournier displays literal trustworthiness: In re Estate of Fournier, 902 A.2d 852 (2006). But more on that later.
First, a quick look at a case that — like so many nowadays — involves more than one state's laws, as well as payments for long-term health care:
Marjorie Sims, a childless widow, created two trusts in two states, a revocable trust in Illinois where she resided and an irrevocable trust in Arizona, where she wintered. Both trusts were for the purpose of providing for her health, support and maintenance while she lived.
When she died, the remaining assets in her revocable Illinois trust were to go to James B. Peck, Sr., while most of the residue of the irrevocable Arizona trust was slated for David E. Froehlich. As the Illinois Court of Appeals for the Fourth District noted in its November 2006 decision, James and David had been employed by Marjorie's husband in his lumber business and “were to him the sons he never had. They were closer to [Marjorie] than any of her relatives.”
Apparently, Marjorie was so fond of these men that she was careful to state in a 1999 amendment to her Illinois trust, “I do not want the gifts to either of them to be impaired by the entire burden of my care and maintenance or of taxes imposed upon my estate, but I want the burden of my care to be shared equally and the estate taxes to be shared proportionately.”
Unfortunately, Marjorie was prescient about her health, but her trusts were not necessarily set up to automatically fulfill her wishes. In November 2000, Marjorie had a stroke. She required 24-hour care until her death on June 10, 2004.
James and David became successor trustees of their respective trusts in the spring of 2001. And from that spring until Marjorie died, the court noted, James sent David quarterly bills for one-half of Marjorie's “extraordinary caretaking expenses.” All requests for payment were refused.
About four months after Marjorie died, James sued David. An Illinois trial court entered summary judgment in David's favor, finding that he had “complete and total discretion as trustee” over disbursements and, under the terms of the Arizona trust, “it is not relevant whether… [David] properly exercised his discretion.” After all, the trial court added, the trust Marjorie had set up in Arizona in 1991 was irrevocable and so she had no right or ability to alter or modify it with her 1999 amendment to her Illinois trust. That amendment describing how her two trusts should share her health care expenses was inadmissible “extrinsic evidence,” not needed to construe the Arizona trust, the trial court declared.
The court of appeals disagreed. That court found David might not have had quite as much discretion as he claimed. The language of the Arizona trust does state that Marjorie's “primary desire” was that all of her needs should be met “even if the trust estate is thereby entirely depleted.” It would be contrary to public policy for a settlor to relieve a trustee of all accountability, said the appeals court, pointing to the Restatement (Third) of Trusts, Section 50. Also, the court noted, if Marjorie had revoked her Illinois trust, the Arizona trust would have had to pay the entire cost of her care.
Moreover, the appeals court said, “it does not appear that [Marjorie] attempted to alter or modify” the irrevocable Arizona trust with her 1999 amendment to the Illinois trust. Rather, the court noted, Marjorie stated in the amendment that she merely wanted “to explain and clarify the purpose and [her] intent with respect to the declaration” of both her trusts. And, the court said, “it seems logical that she was in fact doing so, not making a change.”
It's wrong to ignore this explanation, said the appeals court. “Sometimes a trust instrument may stand alone as the complete and exclusive statement of the settlor's intent, but that was not the situation here.” There was another trust document to consider, plus Marjorie's 1999 explanation of it all.
Try again, the appeals court told the trial court on Nov. 6, 2006, remanding the case for a full hearing.
This case is interesting for three reasons. First, it deals with an increasingly common situation in which clients establish trusts in different jurisdictions dealing with essentially the same subject matter. Second, it highlights a concern that, unfortunately, more clients and estate planners should address: the need to apportion skyrocketing health care costs. In fact, health care costs have reached the level of concern that most planners usually reserve for estate tax apportionment, which is to say, a lot. In this case, better planning as to how to apportion Marjorie's health care costs between the trusts likely would have avoided David's and James' litigation. And finally, the appellate decision had a dissent that is noteworthy in that it criticizes the majority opinion for creating in Illinois a “doctrine of Irrevocable Trust (Sort Of) which means that even if a trust is irrevocable, it may be subject to ‘clarification’ eight years after the fact to ‘explain’ what its terms meant.”
But let's leave David, James and their judges to battle it out in the Illinois courts and take a moment to revive our spirits with the case of George L. Fournier in Maine:
In 1998 or 1999, George gave friends two boxes with a total of $400,000 in cash, asking them to hold the money in secret until his death, then deliver it to his sister, Faustina Fogarty. One of the friends asked about George's other sister, Juanita Flannigan. George said that Juanita was well off and Faustina needed the money more.
George died in 2005. And guess what? The friends, true to their promise, handed over the cash — all of the cash — to Faustina.
Faustina, not wishing to hide anything, did the right thing by asking the probate court to declare the money was legally hers as a gift in trust and not part of her brother's estate.
And, although sister Juanita did say she thought brother George had left the money for her as well as Faustina, Juanita did not, we repeat, did not, file any legal challenges.
The only problem Faustina encountered was with a trial court, which held that no trust had been created and that, instead, the money had been left to the estate, with Faustina as executor. This would have meant that the money would be divided among all of George's heirs, presumably the two sisters Juanita and Faustina.
But this story has a good ending. Maine's highest court, reversing the trial court, found that George had created an “oral trust” and that there was “overwhelming” evidence he'd intended the money for Faustina.
So, while we certainly can't recommend George's estate-planning technique, we can applaud George, his friends and his family. All of them apparently understood the true meaning of “trust.”
May all our cases be as happily resolved.