Presenting a live 90-minute webinar with interactive Q&A Trust Litigation: Navigating Defenses of Fiduciaries and Claims of Beneficiaries and Third Parties Bringing or Defending Against Trust Contests, Trust Construction Issues, and Challenges to Trustee’s Actions THURSDAY, OCTOBER 25, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Mary A. Akkerman, Partner, Lindquist & Vennum , Sioux Falls, S.D. J. Brian Thomas, Attorney, Burdette & Rice , Dallas The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Trust Litigation: Navigating Defenses of Fiduciaries and Claims of Beneficiaries and Third Parties Mary A. Akkerman (605) 978-5204 makkerman@lindquist.com
I. Contest Grounds A. Case Selection Tips B. Incompetence C. Undue Influence D. Fraud or Mistake of Fact E. Revocation F. Inadequate Formalities G. Construction Actions (Petitioning the Court for Instructions) H. Other 6
Case Selection Tips • What type of trusts may be subject to disputes? – Testamentary trusts are considered will substitutes and are generally subject to attack on a similar basis as a will would be. Non-testamentary trusts are generally subject to attack on the same basis as a contract would be. In some instances, the decedent has executed a will, trust, and other documents which are contractual and/or testamentary in nature that may be subject to dispute. Trust disputes can arise during a trustor’s lifetime, during any periods of incompetency, or after the trustor’s death, depending upon the type of trust. It is important when approached to take on a trust dispute case to obtain a copy of the trust and any accompanying documents to determine what type of trust is being disputed and the reasons for the dispute. 7
Case Selection Tips • What if my potential client cannot get a copy of the trust documents? – Generally, any interested party is entitled to a copy of trusts or other estate planning documents when the trustor dies or when the trust becomes court supervised. Depending upon state law, beneficiaries with a remainder or contingent interest may not be entitled to notice in some situations. “Interested party” is typically defined by statute, for example: SDCL29A-1- 201(23) defines “Interested person” as “heirs, devisees, children, spouses, creditors, beneficiaries, and any others having a property right in or claim against a trust estate or the estate of a decedent, minor, or protected person. It also includes persons having priority for appointment as personal representative, and other fiduciaries representing interested persons. The meaning as it relates to particular persons may vary from time to time and must be determined according to the particular purposes of, and matter involved in, any proceeding.” 8
Case Selection Tips • Do I need to look at medical records of the decedent? – It is usually beneficial to review medical records of a decedent if your clients are alleging lack of testamentary capacity or lack of capacity to contract. Your potential client may have authority to obtain copies of the decedent’s medical records if your client has priority under state law or is considered a “personal representative” under state law pursuant to HIPAA regulations. In cases where the decedent had all of his or her assets in a trust and no probate is necessary, no personal representative will be appointed under state law, but a trustee of the trust will instead by the acting fiduciary and should have the ability to obtain the records. However, if your clients are challenging the trust, the trustee may be the adverse party and may not be willing to release medical records unless litigation is commenced. In situations where the decedent has left a surviving spouse, that person will generally have priority under state law. Or, if there is no surviving spouse, adult children can typically obtain medical records. Once litigation is commenced, it is sometimes possible to subpoena medical records without the use of a HIPAA authorization. Or, if all else fails, an order may be requested from the presiding judge. 9
Case Selection Tips • Who may challenge a trust? – The right to challenge a trust vary from jurisdiction to jurisdiction. The following relationships may give rise to the right to contest a trust: 1) Interested persons; 2) Spouse of trustor; 3) Beneficiaries under a prior instrument; 4) Federal or state government; 5) Named fiduciary under a prior trust or will; 6) Creditors of the trustor or, in some cases, a beneficiary. 28 COA2d 99 § 28. 10
Case Selection Tips • What if there is a “no contest” clause in the trust? – Whether no contest clauses are enforceable is a matter of state law. Some states will uphold these clauses, but many states will only enforce them if the contestant has no good faith basis upon which to challenge the trust. No contest clauses (sometimes called ad terrorem clauses) in wills are unenforceable in South Dakota by statute if the party bringing the contest has probable cause to do so. SDCL29A-3-905; 29A-2-517. This is not the case with no contest clauses in trusts except in the case of fraud, duress, revocation, lack of contractual capacity, undue influence, mistake, forgery, or irregularity in the execution of the trust. SDCL 55-1- 46. 11
Case Selection Tips What is the proper jurisdiction? • Once a trust is under court supervision in a particular jurisdiction, that jurisdiction will retain authority over the trust unless the court orders that trust situs be moved to another jurisdiction. For trusts not under court supervision, the proper jurisdiction is generally where the trustee’s office is located. In the case of multiple trustees, it is usually the jurisdiction where the trust’s books and records are kept. This may not necessarily be the home state of the trustor or any of the beneficiaries. SDCL § 55-3-39 outlines the requirement for trust jurisdiction in the state of South Dakota: • When state law or jurisdiction provision valid, effective and conclusive. A general law or a state jurisdiction provision stating that the laws of this state govern is valid, effective, and conclusive for the trust if all of the following are true: (1) Some or all of the trust assets are deposited in this state or physical evidence of such assets is held in this state and the trust is being administered by a qualified person; in this subdivision, deposited in this state, includes being held in a checking account, time deposit, certificate of deposit, brokerage account, trust company fiduciary account, or other similar account or deposit that is located in this state including South Dakota investments; (2) A trustee is a qualified person who is designated as a trustee under the governing instrument, a successor trusteeship, or designated by a court having jurisdiction over the trust; and (3) The administration, for example, physically maintaining trust records in this state and preparing or arranging for the preparation of, on an exclusive basis or a nonexclusive basis, an income tax return that must be filed by the trust, occurs wholly or partly in this state. The State of South Dakota and its courts have jurisdiction over a trust created in a foreign jurisdiction if the administration of the trust meets the three requirements set forth in this section. • Nothing in this section may be construed to be the exclusive means of providing a valid effective and conclusive state jurisdiction provision. • If proper jurisdiction lies in more than one state (or venue), generally the first state (or venue) to take jurisdiction over the matter will retain jurisdiction. Trusts often include a choice of law provision. The state law named in that provision may be different than the state where jurisdiction lies. In those cases, the state assuming jurisdiction will apply the choice of law state’s substantive law to the trust and will apply the forum state’s procedural laws. 12
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