Litigation…a Necessary Evil?
This blog often focuses on avoiding litigation; more than one blog has detailed ways to make an Estate Plan “litigation-proof” or at least as litigation-proof as possible. Sometimes, though, beneficiaries need to litigate in order to achieve the goals of the decedent. A recent California appellate case, Smith v. Myers (2024) 103 Cal.App.5th 586, highlights just that. Let’s explore a real-life example of how litigation helped ensure proper implementation of a decedent’s plan.
Smith v. Myers (2024)
Ernest Myers’ first wife died in 1992 and at that time, he gifted a 45.8% interest in his ranch consisting of two parcels, to his daughter, Kathleen Smith. Seven years later, Ernest married his second wife, Emma. Shortly after marrying Emma, Ernest restated the “Ernest Wilbur Myers 1992 Family Trust” (hereinafter “Trust”). The restatement indicated that Ernest was leaving no further gifts to Kathleen because he had or would provide for her otherwise outside the terms of the trust. The restatement gifted the remaining 54.2% of the ranch to Emma upon his death. The restatement also named Emma to serve as successor Trustee upon Ernest’s death. Ernest later amended the Trust on July 19, 2016 (hereinafter “Amendment”) giving the remaining 52.4% of the ranch to Kathleen and her husband, Bruce, upon his death. According to the Amendment, Emma would continue to receive income from rental units located on the ranch and she would become successor Trustee of the Trust. Interestingly, Ernest died just about a month after executing the Amendment on August 22, 2016.
Undue Influence
Nearly 4 years after Ernest’s death, on July 10, 2020, Kathleen and Bruce filed a petition for an order confirming the validity of the amendment and to remove Emma as Trustee of the Trust. Emma countered and argued that Kathleen and Bruce could not seek to confirm the validity of the Amendment because they failed to do so within one year of the decedent’s death and further that the Amendment was procured through undue influence. Emma argued that Kathleen and Bruce were seeking to enforce a promise or agreement with the decedent to distribute a portion of his estate or trust. The court reviewed the terms of the statute that Emma sought to use and determined that she was correct that the statute imposed a one-year statute of limitations on claims based upon a decedent’s declaration to undertake or refrain from undertaking an act when the decedent promised to arrange for the claimant to receive a distribution from an estate, trust or other instrument, but that this was not the case at issue.
Amendment Upheld
The California appellate court affirmed a lower court’s decision that the one-year statute of limitations did not apply to Kathleen and Bruce’s petition. The appellate court examined the statute at issue and determined that the claim at issue was not based upon Ernest’s promise to make a distribution from his estate or trust to Kathleen and her husband. Rather, Kathleen and Bruce were alleging that the Amendment required that the Trustee (Emma) distribute the remainder of the ranch to them, that the Amendment was valid, and that they were entitled to the ranch under the Amendment. Kathleen and Bruce did not allege that Ernest promised to make a distribution or any other allegation that meant application of the statute Emma cited. Ultimately, the court decided that the Amendment posed no obligation on Ernest to distribute the property and made no obligation on the beneficiaries. The Amendment imposed an obligation upon the Trustee to distribute the ranch.
Revocable Until Death
While the case doesn’t indicate whether Emma will continue as Trustee, it made clear that she was obligated to distribute the ranch in accordance with the terms of the decedent’s Trust. It’s a logical conclusion from the case that Emma intended to keep the ranch for herself despite Ernest’s Amendment. It’s unclear why Ernest ultimately changed his mind regarding distribution of the ranch, especially so close in time to his death and sixteen years after his documents gifted it to Emma. It may be that it was a case of undue influence, as Emma alleged, or it simply may be that Ernest changed his mind, which happens often. That’s the beauty of Estate Planning, the decedent may change his mind at any time up until death. Regardless, this case demonstrates the importance of understanding an Estate Plan and how litigation sometimes becomes a necessary evil.
Don’t Wait Until It’s Too Late
Finally, on a smaller scale, this case highlights the difference between an amendment to a trust and a promise or agreement by the decedent. It underscores the importance of filing an action timely, especially when enforcing provisions of a Revocable Trust. While qualified Estate Planning attorneys work to avoid litigation, sometimes, like in this case, it produces the right result. In those situations, it’s good to understand the options that exist. If you have concerns about your rights under an Estate Plan, connect with an experienced Trusts and Estates attorney. While it’s less expensive and stressful to address the issues while everyone is alive, sometimes litigation is a necessary evil.
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