Minimize Litigation Risks in Estate Plans

Careful drafting is the first line of defense against expensive family clashes over the interpretation of a trust or will. For every published case regarding litigation surrounding a provision in a trust document or will, there are many more disputes that are privately settled out of court. To illustrate what can go wrong, I’ve highlighted some published cases, as well as examples of private disputes. For the private disputes, I’ve omitted or altered identifying information to protect my clients’ confidentiality. Experience administering estates and trusts leads to better drafting, because a provision can seem clear in the abstract but be difficult to administer in practice. The examples selected for this article are meant to serve as reminders of how a few words can make a big difference in the administration of a trust or will. 

Who’s a Beneficiary? 

Sometimes, family members can’t even agree on who’s a beneficiary of an estate or trust. For certain potential beneficiaries, such as adopted children or spouses in a same-sex marriage, the law has changed over time to generally be more inclusive. In those cases, if the document is silent, then state law will govern and can produce unexpected results or ambiguity. In other cases, the language of the trust or will itself can cause controversy over the inclusion (or exclusion) of a potential beneficiary. 

Most of my clients wouldn’t intend for individuals adopted as adults to qualify as family members under a trust or will, and I typically include provisions requiring an individual to be adopted before age 18 to be considered a descendant. A recent court case highlights the danger of not including an age limit for adopted children. In Dennis v. Kline,¹ a Florida court didn’t allow reformation to exclude an adopted adult as a beneficiary. Under his revocable trust, the settlor created trusts for his children. On a child’s death, the trust would pass to the child’s descendants, or if none, to the settlor’s other children. Trust terms included adopted individuals as trust beneficiaries. There were two adopted children in the settlor’s family line: one minor child adopted before the settlor’s death (whom the settlor knew), and one adult adopted 13 years after the settlor’s death (whom the settlor never knew and who was 27 years old at the time of adoption). One of the settlor’s children sued to exclude the 27 year old. She argued the settlor’s intent was to keep the assets in his family, and there was no evidence the settlor anticipated an adult adoption 13 years after his death. The trial court granted summary judgment and agreed to exclude the 27 year old, but the court of appeals reversed on the grounds that: (1) Florida public policy permits adult adoption, and there’s no statutory basis for excluding an adult adoptee, (2) there was no fraud in the adoption itself, (3) the trust terms didn’t exclude a legally adopted person as a beneficiary, (4) there was no evidence that the settlor opposed adult adoptions, and (5) whether the adult adoption impairs a material purpose of the trust is an issue inappropriate for resolution on summary judgment. 

It’s common for arguments to occur when there are potential beneficiaries born after a trust or will is drafted. In Bank of America v. Judevine,² an irrevocable trust drafted by a divorce attorney directed the remainder of the trust to be paid to the settlor’s “grandchildren,” who were then individually named. The settlor had additional grandchildren who were born after the trust was executed, and the court determined that this created an ambiguity as to whether these after-born grandchildren should be included in a “class gift.” The appellate court looked to the skill of the draftsman, who wasn’t the settlor’s longtime estate-planning lawyer, to determine that an ambiguity existed. Once the court determined the ambiguity, it considered the rules of construction favoring class gifts and equal treatment, as well as letters that were written bolstering the intent that it wasn’t a class gift, to reverse the summary judgment of the trial court and remand the case for further proceedings. The settlor could have avoided litigation if the definition of “grandchildren” in the trust document anticipated additional grandchildren. Alternatively, if the settlor really meant for only the identified grandchildren to be included as beneficiaries, additional clarification in the trust would have prevented the family dispute.

One word can make a huge difference. In a recent case, In re Estate of Albert Lello, Deceased,³ the Illinois Appellate Court affirmed that the will of a decedent, which left his estate to two of his sisters and his wife, “to share and share alike in equal shares or to the survivor or survivors of them” was unambiguous on its face and didn’t include the children of one of the sisters who died before the decedent. The court ruled that the gift was a “class gift” and didn’t extend to the children of the named beneficiaries. Although the court ultimately found that the language was unambiguous, the expense of litigation might have been avoided if the word “all” had been inserted after the word “or” in the will. 

Sometimes, disputes are caused because the drafting attorney didn’t contemplate the possibility of a divorce in the family. In Clairmont v. Larson,⁴ the court allowed reformation to exclude descendants of a child’s ex-husband as trust beneficiaries. The grandparents created various trusts for their four grandchildren, using different lawyers for each set. The trust for one grandson provided that at the grandson’s death, the trust assets were to be distributed to his descendants, or if none, to his “brothers and sisters.” The grandson’s parents subsequently divorced, and his father remarried and had two children with his second wife, who wasn’t the child of the grandparents. The grandson died in 2011, unmarried, intestate and without descendants. The trial court determined that “brothers and sisters” included the half siblings, but the North Dakota Supreme Court reversed, holding that “brothers and sisters” excluded the half siblings. The court looked at the extrinsic evidence and found that it supported reformation; the grandparents never discussed half-blood relatives with the drafting attorney, and the drafting attorney understood it to include only the direct lineal descendants (or he would have used different language). There was no evidence that the half-siblings were intended to be included. Still, the dispute could have been avoided if the trust had instead provided that the trust property would be distributed to the descendants of the grandchild’s mother if the grandchild had no descendants at his death.

Too Specific Bequests

Most estate-planning lawyers are aware of the dangers of drafting bequests too specifically. Clients may ask that certain accounts be distributed to certain beneficiaries, but there’s no guarantee the accounts will be in the same format at the clients’ deaths. In Eckels v. Davis,⁵ the trust directed that, at the time of funding of a living trust, a gift be made to the surviving spouse of the asset held in specific Account Number 1717. Subsequently, the bank opened a new Account Number 2095, transferred the assets held in Account Number 1717 to that new account and closed Account Number 1717. The settlor didn’t amend the living trust to reflect the bank’s account number change. The court found that the change in the account numbers caused an ambiguity as to whether the settlor intended the gift under the trust to be the assets that were once held in Account Number 1717 (which were substantially the same as the assets held in Account Number 2095) or just the Account Number 1717 (which no longer existed). The court looked at letters and testimony of the bank employees to show that the account number change was an internal bank change and didn’t affect the nature of the gift intended.⁶ A gift of a specific dollar amount (or a share of the trust assets) would have avoided the cost of going to court to resolve the ambiguity in the document.  

If it’s necessary to be specific in describing real estate, make sure to include the correct legal description. In Matter of Cohorn’s Estate,⁷ a provision in a joint and mutual will was found to have an ambiguity wherein the deceased devised Tract 81, League 277 to his son, when in fact the deceased didn’t own that property, but owned Tract 81, League 278 and a portion of Tract 82, League 277. Extrinsic evidence, including testimony or oral declarations of the deceased, was admissible to show intent of the deceased to devise Tract 81, League 278. 

Vague or Conflicting Language

Another common cause of disputes among family members is vague or conflicting distribution language. For example, I’ve seen a trust that in one sentence directs the trustee to hold a residence for the use and enjoyment of a specific beneficiary during the beneficiary’s lifetime and, in the next sentence, permits the trustee to sell the residence and reinvest the trust property in a new residence for the beneficiary if the trustee determines (in the trustee’s sole discretion) that it’s in the best interests of the beneficiary. In that case, the beneficiary and the trustee could disagree about whether the residence should be retained or sold. The beneficiary could point to the first sentence that states the trustee is directed to retain the residence for the beneficiary’s lifetime. The trustee could point to the second sentence that states the trustee has the discretion to sell the residence and reinvest the trust property in a new residence and argue that the trustee’s discretion governs even if the beneficiary dislikes the second residence. In a separate matter, a trust document provided in one sentence that the trustee had broad discretion to make distribution decisions, but then included another sentence that appeared to place real limits on the trustee’s discretion. There was no explanation included as to whether the trustee’s discretion could override the limits included. A potential dispute could have been avoided in each case if the trust document didn’t contain conflicting language.

Personal Property

Some of the most emotional (and relatively expensive) fights I’ve encountered have surrounded the division of tangible personal property. The cost of these disputes can easily outstrip the financial value of the personal property in question. I’ve seen disputes over many personal property items with strong sentimental value but relatively low financial value, including velvet Elvis paintings, old engagement rings and a particularly unique paperweight. Never underestimate the importance of “stuff” to family members.  

Because of the typical relatively low value of personal property items, most disputes over tangible personal property settle out of court. However, there are cases in which the parties were unable to settle and had to turn to litigation to resolve the issues. Kelly v. Estate of Johnson⁸ dealt with a will drafted in 1996, in which the decedent gave away “all the remaining living room furniture.” Each party offered a different definition of “furniture;” one party cited Black’s Law Dictionary (4th ed. Rev. 1968), which included all items that could be in the room, including paintings and knick-knacks. The opposing party cited newer sources, which included only large movable items such as chairs, couches, desks and tables (Encarta World English Dictionary North American ed. (2003)). Because of the divergence of definitions, the court felt that the term “furniture” was ambiguous, but still found a resolution within the four corners of the will. The court noted that the deceased must have intended the newer definition of furniture, as in another section in the will, he gifted everything in the room with much more specificity.⁹ In addition to reminding us that beneficiaries will fight vigorously over personal property, the case highlights the importance of drafting consistently within a document. 

Sometimes the allocation of personal property is complicated because the individual in possession of the decedent’s residence isn’t the individual entitled to its contents. I’ve administered more than one estate in which the decedent’s children were entitled to the tangible personal property, but the decedent’s spouse, who wasn’t the parent of the decedent’s children, was entitled to the residence. In those cases, it would have been helpful to have more direction from the decedent. It’s unlikely that the decedent really meant for every item of tangible personal property to be removed from the home so that the surviving spouse inherited an empty residence, but without further guidance from the decedent, the children and stepparent were left to argue about it among themselves. Also note that in all of those cases, the stepparent was living in the home, which raises questions about whether the personal property is secured and puts the children at a disadvantage when it comes to identifying all of the items owned by the decedent. 

Trust Termination Provisions

Sometimes a problem with a trust or will isn’t identified until it’s time for the trust to terminate and distribute, many years after the trust was created and the settlor has passed away. One large dispute was over the distribution of an approximately 100-year-old trust that provided that after a certain date, the trust property was to be distributed “to my then living descendants.” The trust didn’t specify per stirpes or per capita. The applicable state law had changed a few times over the years and included a modified per capita concept that itself had evolved into a different meaning over the term of the trust. The parties couldn’t even agree as to what the default distribution scheme would have been at the time of the trust’s creation. There were wide swings as to what each family member would inherit based on each interpretation. Many of the family members no longer lived in the same state, and there was a large disparity in financial resources among extended family members. After a couple of days of full family mediation (which involved over 15 attorneys and numerous law firms), the family ultimately settled, in large part because of the growing attorneys’ fees, the significant litigation risks and the desire of several family members to avoid further distribution delays.

In another case, a trust was terminating and the governing trust instrument included equalization language regarding separate trusts that had been created for the benefit of different family lines. The other family trusts had previously been distributed, and it was unclear under the trust document as to exactly how the settlor intended the equalization to be made. There was a dispute among family lines, and the trustee had to petition the local court for instructions. Four sets of lawyers (one for the corporate trustee and a separate one for three of the various family lines) collected fees in that case.

Consistency With Agreements

I’ve seen several disputes in which the provisions of the decedent’s premarital agreement or divorce decree (or both) conflicted with the provisions or structure of the decedent’s estate plan. If care had been taken to make sure the estate plan was consistent with prior agreements and obligations during the decedent’s lifetime, then substantial legal costs and emotional turmoil of the decedent’s loved ones could have been mitigated.

A comprehensive list of all family disputes over language in estate plans would be too long for the scope of this article. Given the intersection of love and money, it’s not possible to avoid family disputes and litigation entirely. But, paying attention to how a trust or will is administered, and what kinds of language can spark disputes, can teach us how to adjust our drafting to reduce the potential for future family conflict (or at least reduce the issues worth fighting over).                    

Endnotes

1. Dennis v. Kline, 120 So.3d 11 (Fla. Dist. Ct. App. 2013).

2. Bank of America v. Judevine, 26 N.E.3d 555 (Ill. App. (1st) 2015).

3. In re Estate of Albert Lello, Deceased, 2016 Ill. App. (1st) 142500.

4. Clairmont v. Larson, 831 N.W.2d 388 (Sup. Ct. N.D. 2013).

5. Eckels v. Davis, 11 S.W.3d 687 (Ct. App. Texas 2003). 

6. Ibid., at p. 697.  

7. Matter of Cohorn’s Estate, 622 S.W.2d 486 (Ct. App. Texas 1981).

8. Kelly v. Estate of Johnson, 788 N.E.2d 933 (Ct. App. Ind. 2003).

9. Ibid., at p. 936.