A Tale of Two Wills

What do you get when you mix a reclusive heiress with a will disinheriting her closest relatives? Unfortunately, litigation.

The story of Huguette Clark, reclusive daughter of a copper magnate and former United States Senator, should serve as a cautionary tale for everyone; even those with an estate worth significantly less than her estimated $300 million.

As reported by the New York Times, Huguette executed two wills in 2005. The first left the bulk of her estate to her closest relatives. The second, executed just six weeks later, cut out her relatives entirely, leaving gifts instead to her goddaughter, doctor, accountant, lawyer, and a foundation for the arts (among others).

Executing such vastly different wills in such a short period of time left the door wide open to legal challenge. Each side now has to develop their own narrative for what happened, painting dueling images of the reclusive heiress: a resolute millionaire vs. a vulnerable invalid. Was she a stubborn, strong-willed individual that had been jaded by “minimal contacts” with her family? Or did doctors, nurses, lawyers, and accountants isolate and exploit a vulnerable 104 year old woman? The outcome of the case is uncertain. What is certain is that the “dirty laundry” of what was once one of America’s richest families will now play out in the public arena.

It didn’t have to be that way. Better planning could have significantly reduced the likelihood of claims for undue influence and/or diminished capacity.

The lesson? Consulting with litigation attorneys as part of the planning process can sometimes help prevent litigation.

Click here to read the full NYT article.

Painter of light; writer of Wills?

The family of artist Thomas Kinkade is doing what many families do after the loss of a loved one (particularly when the loved one is wealthy): “lawyering up” to fight over the estate.

Mr. Kinkade was an American painter who passed away in April of 2012. He referred to himself as the Painter of Light and he was America’s most collected contemporary artist at the time of his death. Mr. Kinkade left behind an estate worth over $60 million, a wife from whom he was legally separated, and a girlfriend who had lived with him for more than a year.

A probate court in Santa Clara, California is now faced with the following arguments: In one corner is the decedent’s wife (from whom he was separated), who is arguing for the administration of the formal estate plan the couple had prepared during their marriage. In the other corner is the girlfriend, who has presented two handwritten wills to the court that leave the girlfriend Mr. Kinkade’s home, his studio and $10 million to establish a museum to display Mr. Kinkade’s paintings. Will these holographic (handwritten) wills stand up in court? Stay tuned, as that remains to be determined.

What is certain at this point is that Mr. Kinkade could have saved his family loads of unwanted publicity (and legal expenses) if he had executed a formal plan that outlined his wishes for the museum and the gifts to his girlfriend. Handwritten wills may hold up in some courts; however an estate plan is more likely to survive challenges if the family takes the time to execute proper documents in accordance with the appropriate state laws. Mr. Kinkade should have also been advised to formally amend or replace his estate planning documents as his relationship changed with his wife.

Properly executing and updating estate planning documents requires an investment of time and money. Improperly prepared documents may force family members into making far more substantial investments to protect their rights after we’re gone. 

You can find more on the Kinkade dispute here:

http://news.yahoo.com/kinkade-estate-dispute-remain-public-now-202323026–finance.html

Which Will is the right Will, Willis?

As a child growing up in the late ‘70’s and early 80’s, my earliest sitcom memories are of classics like ‘Silver Spoons’, ‘Eight is Enough” and, of course, “Diff’rent Strokes”. Arnold Jackson’s famous phrase, “Whatchu talking about Willis?” made actor Gary Coleman a sensation during the show’s six-year run, and it is not surprising that his career could go nowhere but downhill after becoming a superstar at age 10. Few could have predicted the sad trail his career (and his life) would take. No one could have predicted the bizarre ending that is taking place in a courtroom in Provo, Utah this week.

The bizarre ending I refer to is an ongoing argument over the administration of Mr. Coleman’s estate. First, a little background: Mr. Coleman got married to Shannon Price in 2007 and they were divorced in 2008. The couple lived together until Mr. Coleman died in 2010, two days after a fall in his home that resulted in a brain hemorrhage. Ms. Price made the decision to take Mr. Coleman off of life support.

Two documents have been presented to the court as the valid Last Will of Gary Coleman: a Will written in 2005 and a hand-written amendment written in 2007. The 2005 Will leaves Mr. Coleman’s assets to Anna Gray, his longtime friend and business associate. The 2007 amendment names Ms. Price as his sole heir.

Ms. Price is arguing that she and Mr. Coleman changed their minds about getting divorced and that their post-divorce relationship constituted a common-law marriage. The court has examined evidence of Ms. Price and Mr. Coleman’s joint bills and tax returns and has heard the testimony of conflicting witnesses about how close Mr. Coleman and Ms. Price were after their divorce. The court must now decide whether a common law marriage existed. If the court finds that such a relationship did exist, then Ms. Price will get everything. If not, Mr. Coleman’s assets will go to Anna Gray.

The case presents enough legal issues to excite a law professor. It also presents a life lesson that each of us should take to heart: The only way an estate plan works is if it is properly updated. If you get married, have a child, move, inherit assets, or if your life changes in any other material way, check with your attorney to see if your estate planning documents need to be updated to reflect the change. The alternative is often an expensive court battle where the only winners are the lawyers and the losers are your loved ones.

 

Trustees behaving badly

From time to time we publish summaries of interesting trust and estate cases.

In today’s post we discuss a recent Oregon Appeals Court case that addressed the availability of a constructive trust to remedy a breach of duty by a successor trustee. The case is a good illustration of the legal remedies available to beneficiaries who pursue claims against trustees behaving badly.

Olson v. Howard, 237 Or App 256, 239 P.3d 510, (2010)

Background: Plaintiff, the beneficiary of a trust, brought an action against the trustee and the purchaser of land from the trust, alleging that the purchase was the result of self-dealing by the trustee. The settlor of the trust had named himself trustee and appointed Howard as successor trustee. Howard, purporting to act as successor trustee, sold the property to his son, the defendant, for $55,000. Plaintiff contended that the fair market value of the property was actually $122,760. Moreover, defendant borrowed the money to purchase the property from his father, Howard. Seven years after the sale, plaintiff filed claims against both defendant and Howard, alleging that Howard acted unlawfully when he essentially sold the trust property to himself for grossly inadequate consideration, and that defendant knowingly and willfully acted as a strawman in the transaction. Plaintiff then sought return of the property to the trust, a resale of the land, and distribution of the proceeds of that sale to the trust beneficiaries. The trial court dismissed the case after finding that plaintiff failed to provide an “objectively reasonable” basis for his claim. 

 

Holding: The trial court erred in determining that plaintiff’s contentions were devoid of factual and legal support. Plaintiff’s claim sought the imposition of a constructive trust, which would be available to him upon showing that the defendant possessed property that should belong to the trust as a result of the property being transferred without authority, by a self-interested party, and without sufficient consideration. Moreover, the fact that plaintiff had signed a release as a trust beneficiary relinquishing all claims against the trustee or trust did not prohibit his claim, as the release did not bar claims against the defendant. The case was remanded to the lower court.

Choose your words wisely

From time to time we publish summaries of interesting trust and estate cases. Today’s post concerns promises made (and then broken) as part of a divorce settlement. The Oregon Supreme Court overturned a 2009 decision of the Appellate Court and, in the process, established new guidelines that should be considered by all parties – and their legal counsel – when preparing divorce settlements, pre-nuptial agreements, and/or child support arrangements.

Tupper v. Roan, 227 Or App 391, 206 P.3d 237 (2009) (Reversed, See Below)

Background: As part of a divorce decree, the decedent promised to obtain a life insurance policy of $100,000 for the benefit of his child. The divorce decree included a provision that called for a constructive trust to be created over “the proceeds of any insurance owned by either party at the time of either party’s death if either party fails to maintain insurance in said amount, ($100,000 fbo the child) or if said insurance is in force but another beneficiary is designated to receive said funds.”

Decedent obtained a $600,000 life insurance policy naming his girlfriend as the primary beneficiary. The decedent died several months after purchasing this policy. The ex-wife sued the girlfriend asking the court to impose a constructive trust on the portion of life insurance ($100,000 of the $600,000) that decedent promised to obtain in the divorce decree. The trial court held that $100,000 of the insurance proceeds was subject to a constructive trust.

Holding: The Court of Appeals reversed, holding that the trial court should instead have awarded summary judgment to defendant. The Appeals Court concluded that, “to prevail on an unjust enrichment theory against the person who had been named as the decedent’s beneficiary, a plaintiff must prove both (1) that, by designating another person as his or her beneficiary, the decedent essentially gave that person property that previously had belonged to the plaintiff; and (2) that the person named as beneficiary either knew or should have known of the wrongfulness of the decedent’s action.” The plaintiff had not and could not produce evidence that would satisfy the first requirement.

Tupper v. Roan, 349 Or. 211,243 P.3d 50 (2010)

Background: The Oregon Supreme Court reviewed Tupper v. Roan to consider whether and how the equitable concepts of unjust enrichment and constructive trust should be applied in the context outlined above. The Court declined to adopt the two-part test applied by the Appeals Court and instead set out the following three elements that the ex-wife had to prove in order to prevail on her unjust enrichment claim:

  • First, she had to show that a property interest that rightfully belonged to her was taken by the girlfriend under circumstances that in some sense were wrongful or inequitable.
  • Next, she had to show that the girlfriend was not a bona fide purchaser for value and without notice.
  • Finally, she had to establish, with "strong, clear and convincing evidence," that the insurance proceeds, i.e., the property upon which she sought to impose a constructive trust, was in fact the very property that rightfully belonged to her, or was a product of or substitute for that property.

Holding: Justice Gillette began his analysis with the observation that, “When ‘the law employs a constructive trust, the doctrine of unjust enrichment governs generally all of the substantive rights of the parties.’” He next traced the common law doctrine of unjust enrichment and constructive trust as applied by the Oregon Supreme Court, and noted that the common thread was the acquisition or retention of property in a way that is in some sense wrongful, even if the one holding the property (here, the girlfriend) was not directly involved in wrongdoing. The Court then focused on the language of the stipulated divorce decree, which included the phrase, "a constructive trust shall be imposed over the proceeds of any insurance owned by either party at the time of either party’s death." (emphasis added by the Court). The court evaluated where the property interest created by this language fell relative to two hypotheticals. In the first hypothetical, the divorce decree identified a specific policy that was in force at the time the decree was entered. The Court felt this scenario would create a protectable property right for the ex-wife. In the second scenario, the hypothetical decree language did not identify an existing insurance policy, rather it included a promise to take out insurance at some future time. The Court felt that while such language might not be sufficient to create a property right that belonged to the ex-wife, that issue was not before the court in this case.

Instead, the Court concluded that in this case the decree expressly contemplated a failure on Tupper’s part to carry out the obligation and that the parties intended to impose a constructive trust on any policy owned by Tupper. The Court concluded that the decree language gave the ex-wife an interest in the insurance proceeds held by the girlfriend and overturned the Appellate Court decision. In the process, the Supreme Court has provided estate planning and family law attorneys with important new guidelines for assessing cases and drafting decrees. The Supreme Court ultimately remanded Tupper for further analysis of whether the girlfriend knew of the decedent’s support obligation.
 

The effect mental capacity has on contractual rights

From time to time we publish summaries of interesting trust and estate cases. Today’s post examines a recent Oregon Appeals Court decision in the rapidly expanding field of elder law. The case involves an elderly woman with impaired mental capacity and asks whether she may be a considered a third-party beneficiary (under contract law) of a residency agreement signed on her behalf. The case also touches on the issue of arbitration clauses in residency agreements at senior housing facilities. Arbitration clauses like the one at issue in this case have been the subject of a number of recent 9th circuit cases.

Drury v. Assisted Living Concepts, 245 Or App 217 (2011)

Background: Dorothy Drury was suffering from dementia and her mental capacity was severely impaired at the time her son, Eddie, admitted her to the defendant’s assisted living facility. Eddie signed the facility’s admission paperwork and residency agreement. At that time he was not yet Dorothy’s guardian or conservator and did not then have a power of attorney for her.

The residency agreement included a clause requiring arbitration for all claims or disputes relating to the agreement or the services provided “to You by Us.” After about a year in the facility, Dorothy died as a result of injuries sustained in a fall. Her estate’s personal representative sued the facility for wrongful death resulting from negligent conduct. The defendants (unsuccessfully) moved to compel arbitration, arguing that the estate was bound to the arbitration clause in the residency agreement as a third-party beneficiary of the contract.

On appeal, the court held that Dorothy’s estate was not bound to the agreement and its arbitration clause. Under general contract law principles, a third-party beneficiary is presumed to assent to a contract when it accepts benefits or otherwise seeks to enforce rights under that contract. Dorothy was a “third-party donee beneficiary” of the residency agreement signed by her son. The critical issue for the court was Dorothy’s mental capacity – or lack thereof. Even though Dorothy accepted the contract’s benefits (the facility’s services and apartment), her lack of requisite mental capacity meant that her acceptance of benefits did not ratify the contract.