Tuesday, May 5, 2009

Spoiling for a Fight: Estate Planning and the Family Dynamic

Estate planning and litigation help each other out. As an attorney, having experience in estate planning will make you a better litigator because, among other things, it helps you understand and spot the issues. There is little doubt (at least in my mind) that being a litigator makes you a better estate planner because it gives you a front row seat to what doesn't work, and why.

In Teselle v. McLoughlin, the estate plan was big and complex. It also was amended. One of the amendments may have removed property from the trust, or maybe it didn't. When the settlor died, the successor trustee distributed the property that may or may not have been removed from the trust as though it was still in the trust. Litigation ensued.

Complaints were filed. Demurrers were filed. Amended complaints were filed. More demurrers were filed. Finally, a motion for summary judgment was filed (after over two years of litigation). The motion was granted (in part because the plaintiff was one day late in filing their opposition!). An appeal was filed. The appeals court held that the summary judgment should not have been granted, so back to the trial court we go.

Most of the controversy is from the language surrounding the piece of property. The original trust called for the property in one brother's trust to be exchanged with property in the other brother's trust on the death of either brother. The one brother amended his trust, and removed a piece of property from the list to be exchanged with the other brother's property. When the first brother died, the trustee exchanged the removed property anyway, and then sued to get it back when they concluded that the property should not have been exchanged. The defendant argued that removing the property from the list in the trust did not mean the property was no longer in the trust and subject to the exchange agreement.

During the course of the litigation, the drafting attorney signed a declaration that the property was removed in the amendment because the brother intended to sell it. It was never sold. The attorney declared that the brother never intended to remove the property from the exchange agreement as long as he owned it.

Could clearer drafting have avoided this litigation? Maybe. The parties did seem very committed to fighting with each other, and there were (many) other issues in the lawsuit, but communicating the intent of the settlor is the most important job of an estate planner. Part of that is looking for the potential red flags of future litigation. Honestly, if the family is not getting along, it may not matter how carefully the plan is drafted. But it's better to know in advance because it may help the attorney counsel the client against a gift that may cause conflict.