Virginia Fiduciary Law Blog

SEVEN DEADLY SINS IN ESTATE PLANNING: A LITIGATION RISK ASSESSMENT

    The "Seven Deadly Sins" in estate planning appear in no particular order and are intended to be illustrative only.  These sins do not involve drafting or scrivener’s errors.  Rather, each shares an underlying root cause:  collateral client objectives. 

Collateral client objectives refers to client wishes unrelated to the orderly disposition of property after death. Such client objectives, however, may reflect a client’s deeper, more personal, and sometimes hidden motivations or wishes.  Although such collateral client objectives can be understandable, they may also increase the risk of costly discord:

• Naming two or more adult children together as joint fiduciaries to encourage them to reestablish or repair a compromised sibling relationship

• Selecting an executor of a last will and testament or a trustee of a trust on the basis of not hurting someone's feelings (e.g., selecting one's eldest child as trustee because he or she is the oldest)

• Naming a stepparent as long-term trustee for an adult stepchild (or an adult stepchild as long-term trustee of a stepparent)

• Treating children differently because one of them has "already succeeded" in life

• Forcing children to own real estate together

• Naming one sibling as a long-term trustee for another sibling absent a disability

• Mandating or effectively requiring the long-term retention and running of a family business despite a lack of demonstrated harmony, aligned interests, or management aptitude by a junior generation of intended primary beneficiaries

    The nature of these variables, tethered to family dynamics of perceived position or desired control, may help explain their recurrence.  Considering the full range of possibilities in estate and trust litigation, estate planning counsel, financial advisors and longtime family CPAs should carefully evaluate the dangers of what is famously known as a client's "Dead Hand": a client's after-death dictates governing the continued control over assets and the terms of their eventual disposition. Seen in this context, the Dead Hand is a common thread that runs through the fabric of the Seven Deadly Sins in estate planning and a strong indicator in assessing the risks of estate and trust litigation.

PROBATING A LOST WILL: NOT AN EXISTENTIAL QUANDARY AFTER ALL

  An adult child recently fought against the admission to probate of a copy of his biological father’s missing will.  The adult child insisted that, without proof of what happened to the will, its copy could not be admitted to probate. Without proof of what happened to the lost will, the adult child argued, the lost will’s proponent could not overcome the legal presumption that the decedent must have intended to revoke the will. The trial court disagreed, admitting the copy of the missing original of the will to probate. 

    An appeal followed, challenging the trial court’s ruling.  The Virginia Supreme Court upheld the trial court’s decision to recognize and admit to probate the copy of the lost will.  Notably, in doing so, the Court clarified more than a century of case law. The Court held that the proponent of the lost will did not have to prove what actually became of the decedent’s will. 

    Although the Court recited the evidence in support of the trial court’s holding, it did not limit its ruling to the specific facts of the case presented.  The Court did note, however, that the proponent of a lost will had to overcome the presumption of revocation that applied if the original will was in the testator’s custody. That is, the proponent of a lost will still had to prove that the testator “did not destroy the will with the intention of revoking it.”  The proponent of the lost will in the case at issue had met that burden under the applicable “clear and convincing evidence” standard. The case is Edmonds v. Edmonds (Va. 2015).

EQUALITY VS. IMPARTIALITY: A ZERO-SUM CHOICE FOR FIDUCIARIES?

A notion frequently presented by beneficiaries of a trust or an estate is that the trustee or executor is doing something unlawful if the beneficiaries are not treated “equally.” Although equality between or among beneficiaries appears to be a readily understandable concept, it is not the same as being entitled to receive an equal share of a trust or an estate.  In the context of beneficiary disputes, the claim is not complicated to summarize: if the trustee (or executor) did not treat the beneficiaries equally, the fiduciary must have breached a duty. This argument has a surface appeal, but it is not necessarily consonant with the law.

    Trustees and executors often face zero-sum situations, particularly without express instructions from the governing trust instrument or will. For example, two or more beneficiaries may wish to select the same tangible personal property. Alternatively, two or more beneficiaries may wish to receive the same real property. Some beneficiaries simply object to other beneficiaries receiving any specific property, or anything in-kind, even if such a transfer would not result in a shortfall of benefits or property distributable to the other beneficiaries. 

    There are guideposts in the law that may help pave the fiduciary's way out of such a quagmire.  For instance, Virginia’s Trust Code, substantially modeled on the Uniform Trust Code that is now the law in a majority of states, focuses on the legal concept of impartiality. The concept of impartiality is different from the commonly understood notion of equality. Impartiality by a trustee focuses on equitable treatment:  in investing, managing, and distributing the trust property. As a legal construct, impartiality is also qualified, and may require more than the rote exercise of the fiduciary's taking identical actions for each beneficiary.

    The laws governing trusts and estates generally permit fiduciaries to reach an appropriate resolution even in the case of an apparent impasse. These legal guideposts are not always readily discernable, however, and distinctions can become easily blurred when arguments are made on the basis of surface appeal, including those asserting a lack of equality.  A trustee or executor challenged by such arguments should either involve legal counsel early in the process of a trust's or estate's administration to prevent such claims from being litigated needlessly or seek counsel with relevant experience in the event that litigation arises.

LITIGATING TRANSFER ON DEATH DEEDS: IS THE DISCOVERY RULE DEAD?

     An estate planning tool perhaps as yet unnoticed by estate and trust litigation counsel recently was enacted by the General Assembly.  New to Virginia practice is the “transfer on death deed.”  This form of conveyance permits the grantor of such a deed to designate a person to receive property in a transfer on death deed without creating any legal or equitable property rights in the designated beneficiary until the death of the transferor.  The conveyance passes real property interests at the transferor’s death by operation of law, thus falling outside of the probate process and, generally, the provisions of a transferor’s lifetime trust. Although this planning device may make sense in limited settings, its piecemeal application in estate planning could give rise to a variety of unintended consequences in later litigation. 

    One such consequence is the passage of title to property without any form of accounting or oversight under the aegis of fiduciary duties applicable to trustees.  Although creditor’s claims, statutory allowances, and estate administration expenses theoretically may be claimed against such property, the lifetime recordation of a transfer of death deed could cause real property quietly to slip forever into the hands of a designated beneficiary or alternate beneficiary.  Under the Virginia Code, after a transfer on death deed is recorded, “it can be revoked only by an effective revocatory instrument recorded prior to the death of the transferor and may not be revoked by a revocatory act taken against or on the original or a copy of the recorded transfer on death deed.”

    The statutory scheme contains a publicly available form for such deeds. A compelling feature of the form is a provision for alternate beneficiaries, generally absent in garden-variety survivorship deeds.  The real distinction between transfer on death deeds and other deeds that convey current property interests, however, stems from the manner in which real property interests openly intended to be conveyed paradoxically may remain obscured.

    Because there is no present transfer of  ownership, and the real property in question remains owned by the transferor until death, family members may not notice or become aware of the transfer on death deed’s existence or even its prior recordation.  The prior recordation of a transfer on death deed may affect later legal claims.  Post-mortem claims alleging undue influence or constructive fraud, for example, may be barred even under a “discovery” statute of limitation due to the public nature of the earlier act of recording such a deed.  The potential later inability to challenge or dispute a transfer on death deed’s past execution, in the face of its prior public recordation, is an uncertain feature of this new estate planning device.

THE DEMURRER: PLEADINGS OR PROOF?

A recent appellate decision by the Supreme Court of Virginia may appear to leave employers and their counsel widely relieved.  They may rightly ask themselves:  are claims to enforce noncompetition and nonsolicitation agreements effectively still subject to demurrer?  In the case in question, the trial court faced a commonplace legal inquiry, namely, whether the complaint stated an actionable claim. In scrutinizing the demurrer record before it, the trial court reviewed the complaint and the written restrictive employment covenants at issue.  The trial court held that, as a matter of law, the covenants were overly-broad and unenforceable, dismissing the suit with prejudice.  The Supreme Court of Virginia reversed the trial court, however, noting that the employer had a right to present evidence to support the reasonableness of the provisions restraining competition.

  The Supreme Court held that the trial court used the demurrer to decide the enforceability of the noncompetition and nonsolicitation provisions “on the merits.”  In so holding, the Supreme Court distinguished one of its prior decisions, in which it affirmed a trial court’s sustaining of a demurrer to a noncompetition agreement.  In that prior case, the Supreme Court said, the employer had failed to offer “argument or evidence to prove its legitimate business interests were served by the particular restraint at issue.”  Although a hearing on a demurrer is not evidentiary in nature, the Supreme Court stated that, in its recent decision, the party seeking to enforce the restrictive covenants based its “argument” on the ground that it sought to present “evidence” to prove the reasonableness of the restraint. 

   At first blush, the lessons of the Supreme Court’s decision may be two-fold. First, the party seeking to enforce noncompetition and nonsolicitation provisions now may have additional support to obtain leave to amend its complaint before suffering a dismissal with prejudice. Second, “argument” that evidence later will supply the reasonableness needed to uphold the noncompetition or nonsolicitation provisions might suffice to overcome a demurrer.

  What remains unspoken by this recent appellate decision, however, is whether “argument” about evidence should be accepted by trial courts to cure a substantive pleading defect. A demurrer, after all, tests whether a charging pleading states a particular claim.  Given this bedrock statutory function of a demurrer, and in the absence of well-pleaded factual allegations to support the reasonableness of a restrictive covenant, it may be going too far to say that the Supreme Court of Virginia has foreclosed the demurrer from remaining a viable defensive pleading whenever the enforceability of noncompetition and nonsolicitation provisions is in dispute.  The case is Assurance Data, Inc. v. Malyevac (Va. 2013).  

JUDICIAL EXPANSION OF A TORT'S ZONE OF DANGER: AN EMPLOYEE DUTY FOR WRONGFUL DISCHARGE

When an employment relationship sours, and a termination results, an employee may harbor the idea that he or she has a wrongful discharge claim.  Employees frequently use the label “wrongful discharge” to denote a broad range of claims for the unlawful firing of an employee.  In Virginia, wrongful discharge can be a legal term of art, and, until recently, it has meant a very narrowly circumscribed set of actionable claims. The state of the law may be changing, however.

 In a recent case, the Virginia Supreme Court advised the United States Court of Appeals for the Fourth Circuit that Virginia law would recognize the liability of an employee for the tort of wrongful discharge.  The potential for an employer to be liable for a wrongful discharge was not in question. The novel twist in the question before the Court was whether the supervisor of the allegedly wrongfully discharged employee also could be held liable for that tort.  In a sharply divided Virginia Supreme Court opinion, over the dissents of Justice Kinser who was joined by Justices Goodwyn and McClanahan, the Virginia Supreme Court held that a supervisory employee may be liable for the wrongful discharge of the employer.

 The majority opinion noted that the actual predicate giving rise to a wrongful discharge claim remains narrowly construed under Virginia law. The majority also noted that recognizing another employee’s potential liability for the employer’s wrongful discharge would be consistent with agency law principles by which “employers and employees are deemed to be jointly liable and jointly suable for the employee's wrongful act.”  Both the majority and dissenting opinions drew on out-of-state legal decisions in support of their stated rationales. 

 Justice Kinser’s dissenting opinion pointed out, however, that, at present, there exists no precedent in Virginia for the proposition that one employee may be liable to another for carrying out a wrongful discharge by the employer.  Justice Kinser noted that “the legal duty at issue in a claim for wrongful discharge does not flow from one employee to another employee.”  She noted that although the Court’s majority opinion was intended to further the policy of deterring a wrongful discharge in the workplace, “such policy determinations are for the General Assembly, not this Court.”  The case is VanBuren v. Grubb (Va. 2012). 

LITIGATING POWERS OF ATTORNEY: AN OUNCE OF PREVENTION

 Individuals looking for assistance with the management of their financial affairs are often advised that they need a “power of attorney.”  The notion is not altogether misplaced.  Few people want to be the subject of costly guardianship proceedings, involving court filings and medical or psychological determinations. Powers of attorney, now that they can be “durable” and can last through any period of disability, may be the right answer.  But, given the increasing litigation over actions taken by attorneys-in-fact or agents, the inquiry should not end there.

 Naming someone attorney-in-fact, or “agent” under modern Virginia statutes, creates a fiduciary relationship.  A fiduciary relationship implicates duties of care and loyalty by the fiduciary toward property or money belonging to the fiduciary’s principal. Standards of care and loyalty applicable to a fiduciary's dealings are generally higher than in arm's length commercial transactions.

 Both principal and agent must be mindful of these considerations.  In particular, and although a power of attorney may be designed to be revocable, if the principal were to become disabled, an agency under a power of attorney may in fact result in a longstanding legal relationship, possibly lasting until death.  (Death revokes all powers of attorney.) What is more, the majority of financial powers of attorney are drafted to take effect immediately:  that is, they are “live” upon the principal’s signing and do not require a prior determination of disability to be triggered. 

 The alternative to a “live” power of attorney would be to create “stand-by” powers of attorney.  Stand-by powers of attorney are dormant, “springing” into force upon the happening of some specified future event.  For most individuals, there may be cogent reasons not to create “stand-by” powers of attorney, however.  One such reason is that third parties, with whom the agent must deal, may not have a satisfactory  way of determining whether the conditions necessary to trigger the agency have occurred.  This could negate the agent’s effective ability to serve the principal if doing so requires the cooperation of such third parties.  Another reason may be  that triggering events can involve an emergency, such as a disabling event, and obtaining the requisite documentation at such a time may be inconvenient or, worse, impossible to obtain.

 Because financial powers of attorney frequently are broadly drafted, the intended principal who is considering asking his or her lawyer to draft up a power of attorney should first reflect on the objectives to be served by the power of attorney.  The choice of agent under a power of attorney merits equal consideration. If a client has a broader estate plan, care should be given to determine whether different appointments in fiduciaries are indicated—should your trustee be the same as your agent, for instance? 

 Despite the routine manner in which powers of attorney today may be treated by clients, lawyers and even non-lawyer commercial suppliers of power of attorney forms, clients seeking to create such relationships would do well to give careful thought to the nature and scope of such appointments.  Likewise, any agent who undertakes to fulfill such an appointment should consult counsel early to determine the contours of the agent’s duties.  The alternative is to be embroiled in costly fiduciary litigation—regardless whether the actions of an agent are ultimately held unlawful. 

SHORT-CHANGING A SURVIVING SPOUSE? THINK AGAIN….

Many people have heard the phrase “taking against the will” or “electing against the will.”  Generally, this refers to protections in the form of an “elective share” of an “augmented estate,” created for a surviving spouse who has been disinherited.  In Virginia, the concept of an “augmented estate” reflects a legislative public policy determination:  disinheriting a surviving spouse is easier said than actually done, even when a predeceasing spouse makes certain transfers before death. Moreover, the augmented estate can be affected not only by the assets owned or transferred by a decedent, but also by liabilities incurred.

    If a deceased spouse leaves no children from a prior marriage, a surviving spouse generally may elect to claim half of a predeceased spouse’s “augmented estate”—a statutory concept that involves a “lookback” to include certain pre-death transfers.  This election overrides the predeceased spouse’s will or estate plan to the contrary.  The applicable fraction is reduced to a third of the predeceased spouse’s augmented estate if there are children from a prior marriage. Sounds straightforward in the abstract, but is it in application? 

    In a recent case, the Virginia Supreme Court had occasion to deal with subtle distinctions in the law governing the composition of the augmented estate.  The decedent disinherited her husband and their two adopted children, leaving her entire estate to her son from a prior marriage.  In computing the augmented estate, two issues arose:  (1) whether the husband had consented to the wife's transfer, during her lifetime, of half of certain jointly owned funds to her son from a prior marriage; and (2) whether her surviving husband was entitled to contribution for half of a joint debt.  The trial court had held against the surviving husband on both counts. 

    The Virginia Supreme Court reversed, holding that the surviving husband had not consented to permit his wife to transfer her half of the jointly owned funds to her son. He had only consented to permit his wife to transfer these funds into her sole name, which did not “decrease the value of the decedent’s estate”—the linchpin of whether his consent did, or did not, exclude these funds from the computation of the wife’s augmented estate.  The Court also held that where the husband and wife were co-makers of a promissory note, they were subject to this liability equally, and the husband was entitled to contribution from the wife’s estate for the full half of the joint obligation.  The case is Tuttle v. Webb (2012).

QUALIFYING AS EXECUTOR OR ADMINISTRATOR OF AN ESTATE?

 Are you about to qualify as a personal representative (executor or administrator) of an estate for a decedent who died in Virginia?  If so, do you know that, under Virginia law, you are considered to be a “fiduciary” once you become the estate’s personal representative?  Do you know that you will have fiduciary duties toward the beneficiaries of the estate?  Before you qualify, you should be asking yourself some fundamental questions.

    Individuals who are about to qualify as executor or administrator of an estate should carefully consider obtaining legal counsel before taking such a step.   Familiarity with the obligations and liabilities of the position should be part of that determination.  If you are considering to be appointed a fiduciary, you would do well to remember that the position often requires time, care, and the application of skills with people and numbers.  For example, you may be faced with navigating complex legal documents, transferring an array of different property interests, handling requests affecting the rights of and demands by individual beneficiaries, dealing with institutional charitable beneficiaries, and working through claims made by creditors, whether now known or unknown. 

    You will also have inventory and certain accounting obligations to the Office of the Commissioner of Accounts.  The Office of your local Commissioner of Accounts serves as the arm of the local county circuit court under Virginia’s court-supervised probate process.  In addition, there are strictures relating to Internal Revenue Service and state taxing authorities.  You may be required timely to file state and federal tax returns, such as the decedent’s final income tax return, the estate’s federal and state income tax returns, and possibly an estate tax return.  With these obligations come deadlines that you must be prepared to meet.

    In considering whether to qualify as personal representative of an estate, a major consideration should be whether the estate’s debts and liabilities exceed the estate’s assets.  Insolvent estates can be especially difficult to administer.  Consider whether you should assume the obligations of becoming a personal representative of an insolvent estate before you are appointed.  Once appointed as the personal representative, resignation generally requires obtaining permission from the court.

    If you have counsel, question your lawyer whether serving as executor or administrator is right for you.  If you do not have counsel, or need a second opinion, you should seek out an experienced probate attorney before making a decision to assume significant legal obligations on behalf of other individuals, usually beneficiaries whose interests you must protect.  In short, when it comes to qualifying as personal representative of an estate, look before you leap. 

STARE DECISIS OR A "RESTRICTED RAILROAD TICKET”?

Claims by employers against former employees, managers, or officers for breach of fiduciary duties abound.  Frequently, in the case of employers who have implemented noncompetition agreements, also known as restrictive employment covenants, one or more claims against a former employee are based upon the terms of a “noncompete.”  A recent decision of the Supreme Court of Virginia, Home Paramount Pest Control Companies, Inc. v. Shaffer, may render reliance on existing noncompetition agreements less certain for employers, however.

    Over a rare and blistering dissenting opinion by one of the Justices, decrying the abandonment of stare decisis (adherence to legal precedent), the Virginia Supreme Court reversed the position it took 22 years previously by striking down an employee’s noncompetition agreement as unenforceable.  The noncompetition agreement at issue in 2011 was for the same company and upon the same terms that, in 1989, the Court held to be enforceable.  In the present case, the Court did not strike down the noncompetition agreement on the basis of any geographic “over-breadth” (too large of a geographic area) or because its terms stretched too far into the future (excessive duration of the noncompetition period).  Rather, the Court’s analysis came down to a “functional” analysis – whether the prohibition of working for a competitor in “any” capacity was overly broad. 

    The majority opinion characterized the Court’s holding as part of a gradual refinement of the law, noting that the Court’s decisions since 1989 have “incrementally clarified” the Court’s position on the subject matter.  The dissenting Justice, however, cautioned that “frequent overruling of an appellate court’s decisions tends to bring adjudications of the tribunal ‘into the same class as a restricted railroad ticket, good for this day and train only.”’  Whether seen as an extension of an evolving body of case law or a repudiation of stare decisis, employers, employees and their respective counsel will want to undertake a functional analysis of any existing agreements in light of the Shaffer case.

INCAPACITY AND CONSERVATORSHIP: BARS TO MAKING A WILL?

The Supreme Court of Virginia recently took up the appeal of a son, David, who challenged the testamentary capacity of his father, Eugene, to make a 2002 will.  Eugene had been found in need of a conservator in three different states, including Virginia, since Eugene suffered a head and spinal cord injury after being hit with a metal pipe at a bar in 1982. At the time, his son David was an infant. 

David challenged the 2002 will.  The will left 25% of Eugene’s estate to Eugene’s brother and 25% to Eugene’s sister-in-law.  Eugene’s brother and sister-in-law had become Eugene’s court-appointed conservators after filing a petition with a court in Tennessee in 2000.  Without the will, Eugene’s entire estate would have passed to his son, David.

The Supreme Court of Virginia affirmed the Virginia trial court by upholding the will that left Eugene’s brother and sister-in-law with a total of 50% of Eugene’s estate.  The Supreme Court noted that the proponent of a will bears the burden of proving the existence of testamentary capacity by a preponderance of evidence, not by a higher “clear and convincing evidence” standard.  The trial judge had found that Eugene had sufficient testamentary intent and was not subject to undue influence in making the will.

Eugene’s will was upheld despite the fact that Eugene was under a conservatorship at the time because he had a mental or physical incapacity and even though Eugene’s brother served as Eugene’s “translator” during the drafting of the will since Eugene spoke through a “voice box due to a tracheotomy.”   The Court cited past precedent for the proposition that “the mere fact that one is under a guardianship does not deprive him of the power to make a will.”  The “condition of being unable, by reason of weakness of mind, to manage and care for an estate, is not inconsistent with capacity to make a will.”  What about the conservatorship proceedings?  The Court held that none of the conservatorship statutes “required a specific factual finding that Eugene was incompetent to such an extent that he could not execute a will....” The case is Parish v. Parish (Va. 2011).

COURT CONTINUES REVIEW OF ESTATE DISPUTES

In 2010, the Virginia Supreme Court issued no fewer than 10 opinions bearing on the laws affecting fiduciaries, executors, trustees, and the estates of decedents.  Yet as civil litigators in Virginia are apt to remind clients (and potential clients) exploring an appeal, being granted an appeal in a civil case to the Virginia Supreme Court is anything but  assured.  Appeals of civil cases to the Virginia Supreme Court generally require the grant of a writ of appeal by the Court.  And even then, the Court may limit the writ of appeal to just one or two appeal issues, known as "assignments of error," that a party seeks to appeal.  It is significant, therefore, that so far in 2011, the Virginia Supreme Court continues to show interest in adjudicating fiduciary litigation cases. 

One appeal to watch this year is the case of Mary Ann Weedon, Individually and as Executor of the Estate of Dorothy Rose Weedon v. Larry Weedon, et al.  In that case, the Court granted the petitioner a writ of appeal on five (5) assignments of error:

1.    The trial court erred in failing to determine that Dorothy Rose Weedon had the requisite testamentary capacity when she executed the 2008 Will.

2.  The trial court erred in failing to properly weigh the evidence of the fact witnesses at the time of the execution of the 2008 Will by ruling that the drafting attorney did not have the right to delegate certain duties owed to the testator.

3.  The trial court erred in ruling the 2008 Will was the result of undue influence.

4.  The trial court erred in admitting the testimony of the expert witness of the contestants and by giving undue weight to the evidence of the expert witness contrary to Virginia law.

5.  The trial court erred by failing to rule that the contestants did not have sufficient corroborative evidence to support their allegations of lack of testamentary capacity and undue influence.

These assignments of error implicate a broad cross-section of legal issues in will contests, and parties who face or seek to bring a will contest will no doubt want to be on the lookout for developments in this case. 

TACKLING THE UNIFORM TRUST CODE IN COURT

Provisions in the Uniform Trust Code (“UTC”), adopted in a growing number of states, explicitly contemplate a modification or termination of a trust under circumstances not anticipated by the settlor.  These provisions hold the potential to prevent or resolve trust litigation, particularly if all parties can concur on a desired outcome.  Given a sound basis in law and parties who agree to a settlement, judges tend to be practical; they are not inclined to thwart the resolution of costly trust disputes.  The UTC’s provisions for the modification and termination of trusts, particularly in the case of noncharitable trusts, contemplate the application of such common sense.  What happens if the end of hostilities is not quite so tidy, however?  The Virginia Supreme Court recently addressed just such a case in Ladysmith Rescue Squad, Inc. v. Newlin. 

The costs of failing to achieve unanimity

After “several years of litigation” relating to a multi-million dollar testamentary unitrust, the parties in Newlin reached a settlement of the trustees’ original suit for aid and direction.  They agreed to submit several unresolved issues to the trial court for approval:  the trustees, the income beneficiaries, and Upper Caroline, one of two charitable remaindermen, moved the trial court to permit the trustees to divide the trust into two equal trusts—to be called the “Upper Caroline Trust” and the “Ladysmith Trust.”  These parties also sought to terminate the Upper Caroline Trust by commuting the income beneficiaries’ interests based on their life expectancies and by distributing the remainder to Upper Caroline.  Ladysmith, the other charitable remainder beneficiary, objected.  Over Ladysmith’s objections, the trial court granted the motions to divide the unitrust, commute the income interests, and terminate the Upper Caroline Trust.  The Virginia Supreme Court granted Ladysmith an appeal. 

 Preserving the guiding principles of the trust law under the UTC

In support of the trial court’s rulings, the trustees cited § 55-544.17 of Virginia’s UTC, claiming the trust’s division was proper.  They relied on § 55-544.12(A) to argue that the trial court could modify and terminate the trust under circumstances not anticipated by the settlor.  The trustees also argued that the 2005 adoption of the UTC “effected a ‘dramatic change’ in the trust law of Virginia.”  The Virginia Supreme Court reversed, finding the trustees’ arguments unavailing:  “The framers of the UTC were careful to preserve the guiding principles that have historically been the foundations of the trust law.”  The court noted that to the extent provisions of the UTC were in derogation of the common law or principles of equity, they must be strictly construed.  “The UTC has not so altered the law as to permit beneficiaries, after the death of a testator, to defeat the terms of his will that postpone their enjoyment of his bounty, merely because they ‘would rather have [their] money today than wait.’”

 The court further noted that the record did not disclose evidence of trust assets being “mismanaged,” the trust becoming “uneconomic,” that its objects were “unobtainable,” or that any factor, “aside from the desires of the beneficiaries,” justified amending the trust.  It explicitly disagreed that the settlor could not have foreseen the beneficiaries’ desire to accelerate payment.  The court lamented the “depressing frequency” with which beneficiaries had “for centuries” engaged in litigation over wills and trusts, noting that the likelihood of such litigation increased “in direct proportion to the amount in controversy.”

 Broader perspectives of Newlin for UTC states

With 22 states and the District of Columbia having adopted the UTC, and more slated to do so, Newlin is instructive in several respects.  The UTC has undeniably begun to shape the landscape of trust litigation.  As estate planning attorneys and counsel to trustees in administration begin to scrutinize the possibilities offered by the language of the UTC, so must courts increasingly grapple with the UTC’s inherent ambiguities and limitations.  While the UTC makes available a number of salutary statutory devices to trustees and trust beneficiaries, the settlor’s intent may still predominate. 

Although the UTC’s treatment of the modification and termination of charitable and noncharitable trusts presents subtle but important distinctions, the Newlin decision did not explicitly address the UTC’s wider statutory scheme in this regard.  When dealing with charitable trusts, however, absent of one or more of the substantive factors listed by the court in Newlin—mismanagement, uneconomic administration, or unobtainable purposes, for example—courts are likely to remain wary of finding “circumstances” not anticipated by a trust’s settlor as grounds to alter a trust. 

In a broader sense, with the proliferation of multi-party trust disputes, the premium on achieving unanimity has never been higher.  Almost every will or trust is different—hence the old estate planning adage, “no will has a twin brother.”  Evaluating and seizing on these nuances can offer opportunities for achieving finality earlier in the litigation process, even in the most difficult trust and estate disputes.  Whether in conveying a demand or evaluating those of another claimant, parties should keep in mind that achieving a global resolution often requires mutual economic concessions carefully calibrated to conclude all controversies.  The alternative for parties embroiled in costly trust disputes can mean more of the same:  protracted litigation. 

IN ESTATE LITIGATION, WHAT'S OLD IS NEW AGAIN

Picture your client:  the executor of an estate. 

She wants to know from you whether and how to pay a mortgage that encumbered the decedent’s real estate.  The decedent was the sole party liable on the loan, which was secured by the real estate in question. Your trouble, and the executor’s, is two-fold.  The real estate was held with rights of survivorship with the decedent’s second spouse. And, of course, the decedent’s children don’t want their stepmother, who takes the property, to have the loan paid off for her by the executor. The children therefore point to the article of the will forbidding the executor to pay any debt secured by mortgage of real property “owned at death,” and requiring “such property [to] pass subject to such mortgage.”

In short, the second spouse says, “pay the mortgage, but not from my real estate,” and the children say, “you can’t pay the mortgage, because it must pass to our dear stepmother with the lien on the property.”  What to do?

If you said get the court’s aid and guidance, you’d be one step ahead of the curve.  The trial court reasoned that the will’s intent was to pass the property subject to the lien.  And the will’s stated intent must ultimately control, right?  

The Virginia Supreme Court, in Dolby v. Dolby, reversed the trial court.  The Supreme Court held that the estate was obligated to pay the decedent’s mortgage debt and that because the real estate passed outside of the probate estate by operation of law—namely, pursuant to the survivorship clause in the deed—the provision in the will relied upon by the decedent’s children did not apply.  The Court’s decision, issued in 2010, relied upon the principle that the duty of an executor of an estate is to first pay the decedent’s debts.  In doing so, the Court cited to Edmunds v. Scott, a prior decision of the Court.  The Scott opinion was issued in 1884.

FIDUCIARY DUTY CLAIMS: PLEADINGS COUNT AT TRIAL

Small business litigation presents a variety of challenges, particularly when a claim for breach of fiduciary duties is involved.  To the litigants, the stakes are high—and the desire to pursue their claims often motivated by the business duress suffered at the hands of former partners.  In Syed v. ZH Technologies, Inc., a 2010 decision of the Virginia Supreme Court, the Court’s analysis stands as a reminder that, notwithstanding the evidence actually adduced at trial, in considering the viability of a party’s claims, the pleadings still count.

Among the various holdings in ZH Technologies, the Virginia Supreme Court reversed the trial court for permitting a litigant’s jury instructions to set up a theory of the case that had not been pleaded.  At trial, the trial court had denied the motion to amend the complaint, noting that such an amendment would be “fundamentally unfair.”  In reversing the trial court, the Virginia Supreme Court noted that permitting a litigant to espouse a new theory of the case that had not been previously pleaded, by way of jury instructions and closing argument, was likewise “fundamentally unfair” and “prejudicial.”  The Virginia Supreme Court reversed and remanded the claim for retrial on the merits.  The Court observed, however, that a renewed motion to amend the complaint could be considered in the discretion of the trial court.

 

PERILS IN VIRGINIA ESTATE LITIGATION: LESSONS OF PARTS I-IV

  
Litigation of Fiduciary Cases: Technicalities Abound

The primary lesson of the four cases featured in our four-part series of posts (Perils in Virginia Estate Litigation) is not so much that the Virginia Supreme Court stands on technicalities—many lawyers might agree that it can and does so regularly, yet they might further observe that “technicalities” exist for a reason.  Rather, one lesson is that personal representatives, be they executors, administrators or trustees, and their trial counsel would do well to consult with experienced fiduciary litigation counsel even when the subject matter of the case does not directly implicate a will or trust.  The four 2010 Virginia Supreme Court opinions discussed in our four-part installment illustrate only two of the complexities in dealing with or representing fiduciaries in court—standing and proper parties.  As the Virginia Supreme Court’s recent decisions continue to reflect, there are many other complexities. With the advent, adoption, and overlay of the Uniform Trust Code, these complexities will only continue to surface in the fiduciary litigation setting, increasingly placing a premium on the fiduciary litigator’s substantive knowledge of fiduciary law in Virginia.

PERILS IN VIRGINIA ESTATE LITIGATION - Part IV

Suing the Estate's Lawyer....

The final installment of our four-part series of posts on standing and proper parties in fiduciary litigation may (pleasantly) surprise even veteran probate lawyers.  In Johnson v. Hart, another 2010 opinion of the Virginia Supreme Court, the question posed was whether “a sole testamentary beneficiary, in her individual capacity, may maintain a legal malpractice action against the attorney for the estate for the attorney’s allegedly negligent services rendered to the estate.”  The beneficiary argued that as the sole testamentary beneficiary, she was the beneficial owner of the assets of the estate, and thus permitted to bring a legal malpractice action in her own name.  The Virginia Supreme Court disagreed, reiterating that Virginia is a “strict privity doctrine” jurisdiction in legal malpractice cases, and that the “plaintiff must demonstrate the existence of an attorney-client relationship.”  Because the attorney in question was retained to represent the estate, not the plaintiff, the plaintiff ultimately failed to show any attorney-client relationship as a “threshold element.”

PERILS IN VIRGINIA ESTATE LITIGATION - Part III

May the Administrator Appeal pro se?

The third of the Virginia Supreme Court's recent opinions in our four-part installment also turned on standing or, more accurately, lack of standing.  In Hawthorne v. VanMarter, the decedent’s administrator was represented as a plaintiff by licensed counsel in the trial court on a claim of negligence for personal injuries.  After the jury trial resulted in a defense verdict, the administrator of the estate appealed “pro se.”  The Virginia Supreme Court considered the appellee’s objection to the estate’s appeal, holding that, under Virginia law, the administrator could not mount an appeal pro se but must be represented by licensed counsel.  The cause of action at issue belonged to the beneficiaries of the estate, which the administrator only served in a representative capacity.  The court dismissed the administrator’s pro se appeal.

 

PERILS IN VIRGINIA ESTATE LITIGATION - Part II

Thinking Before Qualifying as Administrator

In Part I of our four-post series on the perils in Virginia estate litigation, we discussed a recent Virginia Supreme Court opinion on proper parties. In that case, naming the "Estate" as the defendant proved fatal to the plaintiff's claims.  In Part II of our four post-series on the subject, we discuss another 2010 opinion by the Virginia Supreme Court.  

In Antisdel v. Ashby, the Virginia Supreme Court affirmed the dismissal of an action filed by an estate’s administrator for lack of standing—the converse of the complication encountered by the plaintiff in Helou (the subject of our first in a four-post series on standing and proper parties).  The estate’s personal representative in Ashby had properly qualified under Virginia law to serve as administrator for the purpose of bringing a wrongful death claim.  The administrator later brought suit not to assert a wrongful death claim, but personal injury “survival claims” instead—claims the decedent could have asserted during his lifetime in his own right.  The Virginia Supreme Court found that the applicable statute in the title of the Virginia Code governing Wills and Decedent’s Estates permits appointment of an administrator for purposes of bringing personal injury claims, wrongful death claims, or both. 

In Ashby, the order granting the appointment only reflected the administrator’s request to bring a wrongful death claim, however. Thus, the administrator lacked standing to prosecute the personal injury or “survival claims.” Affirming the dismissal of the case with prejudice, the court also rejected the administrator’s argument that the trial court should have modified the order of appointment nunc pro tunc.

PERILS IN VIRGINIA ESTATE LITIGATION - PART I

“MEASURING TWICE” BEFORE FILING SUIT

In 2010, the Virginia Supreme Court has published numerous opinions implicating the laws governing fiduciaries, wills, or trusts.   Four of these decisions are particularly instructive about two continuing perils:  standing and proper parties.  Here is a little teaser:  have you, as counsel of record, or has your lawyer, named the such-and-such “Estate” or the so-and-so “Trust” as the party—whether as plaintiff or defendant—in your case?  If so, you should read on, as we will bring you a four-part series of posts to discuss these cases on standing and proper parties.  Our first of four case discussions appears in the post below.

PART I:  HAVE YOU SUED THE "ESTATE" LATELY?

In Idoux v. Helou, the Virginia Supreme Court affirmed the dismissal of claims filed against the “Estate of Raja Alexander Helou.” The court reiterated that under Virginia statutes and Virginia precedent the “Estate” could not be a proper party to the lawsuit.  In Virginia, the proper party is the personal representative—in Helou, it would have been the executor.  The problem for the plaintiff in Helou was that the lawsuit filed against the “Estate” amounted to a “legal nullity.”  Accordingly, it did not toll, or halt, the running of the statute of limitation, which had expired. Therefore, the plaintiff could not amend his complaint to substitute the executor as the proper party.