June 2015
In Re: Estate of Bennie P. Farren C.A. No. 8714-MA (June 18, 2015)
Master Ayvazian, in her final report in this matter, modified an earlier draft report to recommend that a petition to sell real estate to pay a decedent’s debts be dismissed without prejudice so that “the executor would not be precluded from filing another petition under 12 Del. C. § 2701.” To ensure “the proper administration of the decedent’s estate,” the Master dismissed the petitioner’s exceptions to her earlier draft report “as waived under Rule 144 because [the petitioner] failed to order the transcript of [the Master’s] draft report issued from the bench.” However, the Master addressed the petitioner’s exceptions to determine whether “the executor… demonstrated that the personal estate of the decedent [was] insufficient to pay his debts,” so as to allow the executor to petition to sell the estate’s real property to satisfy the decedent’s debts under 12 Del. C. § 2701. The Master recommended that the petition to sell the real property be denied because of the executor’s breach of his fiduciary duty, for his failure to contest the claim, and for his reliance on “an illegal calculation of compound interest.” Furthermore, the Master recommended granting a petition to remove the decedent’s son as the executor of the estate for his attempt to shift the burden of contesting a claim against the estate to the beneficiaries.
The decedent’s will established a trust for his “lady friend,” his close companion of thirty years, and her son (the beneficiaries). The trust granted the beneficiaries a life estate in the decedent’s residence and the income required to maintain the home. The decedent’s son was named the executor of the estate. The executor’s mother, the decedent’s ex-wife, filed a claim against the estate for $228,459.47 “purportedly for past due child support with interest therein.” The claim was accepted by the executor as a just debt. The executor, relying on 12 Del. C. § 2701, filed a petition to sell the decedent’s real property to satisfy the decedent’s debts. The beneficiaries objected to the executor’s petition to sell the property and filed a petition to remove the decedent’s son as executor for breaching his fiduciary duty to the beneficiaries by failing to contest or verify his mother’s claim against the estate. The beneficiaries alleged that the executor’s mother’s claim was not based upon a foreign judgment, and that the records used by an independent certified public accountant to calculate the amount owed to the claimant “contained double hearsay.” The executor conceded that the claimant’s calculation of compound interest was in error during oral arguments.
The Master’s recommendations relied on the executor’s handling of the decedent’s debts. The Master took exception to the fact that the executor rejected a separate claim for a significantly lower amount that was tied to legal fees incurred by the decedent in connection with a U.S. Bankruptcy Court Judgment Order and a Final Order of Custody and Support in the Florida Circuit Court against the estate, but accepted his mother’s claim without contesting the claim or its validity. Furthermore, the Master determined that the executor tried to shift the burden of opposing his mother’s claim to the beneficiaries when the estate’s attorney advised counsel for the beneficiary that, unless the beneficiary agreed to pay all the costs of opposing the claim, the executor planned to accept it.
The Master rejected the executor’s argument that the Court “can and should perform… the clerical or ministerial act of calculating simple interest on child support arrears.” Although the child support claim filed against the estate far exceeded the decedent’s personal estate, the net personal estate of the decedent (valued at $27,600) would have been sufficient to satisfy a debt of $24,300 (the amount owed in child support arrears by the decedent according to a certified copy of the Arrearage Affidavit). Therefore “the estate would have had sufficient assets to pay [the] claim without having to petition to sell the realty.” However, the Master explained that it was unclear whether the record of the amount owed by the decedent, provided by the claimant, included “interest or not,” and, “whether the claimant is entitled to any interest on [that] amount as a matter of law.” Moreover, the Master recognized that under 13 Del. C. § 507(a), “Delaware Family Court has exclusive jurisdiction over” the payment of child support, the determination of arrears owed by the decedent, and the reduction of “those arrears to a judgment provided that the proper proofs are made.”
The Master acknowledged “[t]he fact that Family Court lacks the authority to enforce such a judgment against the personal representative of the decedent’s estate,” but explained that the Family Court’s lack of authority “does not render the claimant’s action… futile because the claimant may return to this Court to enforce the judgment.” The Master therefore recommended the dismissal of the petition to sell real estate to pay the decedent’s debts without prejudice, to allow the executor to file another petition under 12 Del. C. § 2701 “if the Family Court reduces the child support arrears to a judgment in an amount exceeding the remaining personal estate.”
IMO the Last Will & Testament of Wilma Kittila, deceased C.A. No. 8024-ML (June 24, 2015)
Master LeGrow, in a recent final post-trial report, granted a motion for an award of attorneys’ fees and costs to petitioners. The motion was preceded by a judgment against the petitioners regarding the validity of Wilma Kittila’s last will and testament. We addressed that judgment in a recent blog post. To access our earlier blog post for more detailed information about the facts of the case, please go to: http://www.gfmlaw.com/blog/master-refuses-invalidate-will-even-though-no-coherent-definitive-explanation-claimed-familial
The petitioners sought an award of attorneys’ fees and costs from the estate on the basis that they had demonstrated the required “probable cause plus exceptional circumstances” that allows for deviation from the American Rule that each party bear its own expenses. The Master explained that, considering only the petitioners’ evidence and not the estate’s evidence, the petitioners had probable cause to challenge the wills because they provided a prima facie case that the challenged wills were invalid. The Master referenced an expert’s report, the testimony of an experienced psychiatrist, evidence of the decedent’s abrupt change in personality and treatment of the petitioners, and the decedent’s cause of death (dementia), as important factors supporting the determination that probable cause existed.
Additionally, the petitioners had to show that there were exceptional circumstances demonstrating “the special equities which would make a failure to shift the burden onto the estate unfair.” (citation omitted). The Master explained that the Court’s decision “that Wilma had testamentary capacity and was not susceptible to undue influence,” was neither “easy nor readily apparent at the outset of [the] case,” and that “unusual circumstances” made “this case one in which the estate should bear some portion of the cost for the challenge to the will.” Several factors, including the decedent’s unusual behavior in the final years of her life, the guardianship imposed on the decedent, and false statements made by the executor of the decedent’s estate, persuaded the Court that the estate should be required to bear the burden of some of the costs resulting from the petitioners’ challenge to the validity of the decedent’s wills.
The petitioners did not include in their motion a requested amount for attorneys’ fees and costs. The Master therefore ordered the parties to convene “to attempt to reach an agreement regarding the amount of fees to be paid by the estate,” to be determined by comparing “the relative size of the estate to the amount of the fee request.”
In Re Trust Under Will of Wallace B. Flint for the Benefit of Katherine F. Shadek, C.A. No. 10593-VCL (June 17, 2015)
The Delaware Court of Chancery denied a beneficiary’s unopposed petition to modify the terms of a testamentary trust (the “Trust”) established by her father in his Last Will and Testament (the “Will”). Vice Chancellor Laster held that, while there is no universal agreement as to whether “the wishes of living beneficiaries should prevail over the wishes of a dead settlor,” in Delaware “the settlor’s intent controls,” and the policy of the state is “to give maximum effect to the principle of freedom of disposition and to the enforceability of governing instruments.” 12 Del. C. § 3303(a).
The plain language of the Will expressed the decedent’s intent to give his trustees the discretion to decide how to invest the corpus of the trust, while reserving for the beneficiary the option to “invade the principal of the Trust” to a limited extent. The Will did not allow for the beneficiary to obtain complete control of the corpus of the Trust, or authorize her to determine how to invest it.
Before the petition was filed the beneficiary and her children (contingent remainder beneficiaries) had expressed their wishes that the Trust’s investments remain heavily concentrated in International Business Machines Corporation (“IBM”) stock, whereas the trustee had recommended diversifying the Trust. Despite the fact that the Trust is not a directed trust, the trustee “acceded to [the beneficiary’s] wishes.” Noting this, Vice Chancellor Laster wrote that nowhere in the Trust did the grantor “say that the trustees can retain an investment… even if they believe that it would be in the best interests of the Trust to sell it.” In recent years, the trustee had attempted “to distance themselves from the actual investment decisions,” in-part by delegating to two of the beneficiary’s adult children (the “Investment Managers”) all the duties and powers related to investing the assets of the Trust. In October, 2014, the beneficiary petitioned to modify the terms of the Trust by asking the court to approve what the petition named the “Restated Will”, with the intention to “formalize the current investment management structure and replace the ad hoc mechanism of delegations of investment responsibilities to the Investment Managers.” Vice Chancellor Laster identified the “heart of the change” in the Restated Will as an attempt to “convert the Trust from a traditional trustee-managed structure into a directed trust” by creating the position of Investment Advisor (to be appointed by majority vote by the beneficiary and her adult children), and by forfeiting to the Investment Advisor the trustee’s liabilities and discretion to invest the corpus of the Trust.
Denying the beneficiary’s petition, the Court determined that the Will never established a directed trust, and that the limits placed both on the beneficiary to access the corpus, and on the trustees to invade the principal on the beneficiary’s behalf (to a limited extent), “evidences [the testator’s] intent” that “[t]he beneficiaries are not supposed to exercise the degree of control over the Trust that the Restated Will would give them.”
The Vice Chancellor recognized that “English law has long made the wishes of the beneficiaries paramount,” and that recent statutory initiatives in the United States have signaled a major shift away from the Claflin doctrine towards prioritizing the wishes of beneficiaries. However, the Vice Chancellor found that, according to the Delaware Supreme Court, “[t]he cardinal rule of law in a trust case is that the intent of the settlor.” In following this rule and the policy decisions of the State, the Court rejected the beneficiary’s argument that the Court “should assert and exercise the… power to modify a trust instrument whenever all current beneficiaries consent,” even when “grounds for reformation do not exist.” The Vice Chancellor explained that reformation is reserved for definite limited circumstances, that it “is not freely available,” and that under Delaware law “the petitioners are not permitted to rewrite [the decedent’s] Will to suit their current convenience.”
Although the beneficiary’s petition was rejected, the Vice Chancellor acknowledged that Delaware law allows a testator “to create a new trust containing all of the features” that the beneficiary’s petition sought to implement. If the testator had intended to create a directed trust, or had the instrument that he executed included language representing his intent to empower the beneficiaries with the ability to influence the assignment of investment responsibilities for the Trust or to empower the trustees to waive or transfer their duties or responsibilities to another party, we believe that the Court likely would not have rejected the beneficiary’s petition.
Margaret C. Ughetta v. Mary Harding Cist, Individually, as Executrix of Estate of John David Cist, and as Trustee of the Supp Trust Agreement of John David Cist. C.A. No. 7885-MA (May 29, 2015)
In this case, a co-beneficiary of an irrevocable trust contended that the successor trustee (also a beneficiary of the trust) should be removed for alleged breaches of her fiduciary duty. The co-beneficiary claimed that the successor trustee violated the terms of the trust concerning the selection and distribution of the trust’s tangible personal property (“TPP”) and the equalization process to be used for distributing the benefits of the trust. Additionally, the co-beneficiary claimed that the successor trustee acted hostilely and lacked impartiality when dealing with the co-beneficiary. In a counter-claim, the successor trustee claimed that by initiating litigation related to the trust the co-beneficiary triggered the no-contest provision of the trust agreement and, thus, forfeited 50 percent of her trust share.
The Master found that the trustor (father to all four beneficiaries of the trust) made several amendments to the trust during his lifetime, intending to ensure that each beneficiary received the trust’s benefits in the most equitable way possible. Following the trustor’s death, the co-beneficiaries attempted to reach an agreement on how to distribute the TPP. Upon failing to reach an agreement, the successor trustee hired an independent overseer (an experienced estate administrator) to help determine the TPP distribution process, as well as a certified public accountant to help finalize the equalization process. The challenging co-beneficiary made frequent objections and expressed dissatisfaction with the decisions reached by both the independent overseer and the CPA. However, the co-beneficiary ultimately participated and cooperated in the processes developed by both individuals. Following the completion of the TPP distribution and equalization process, the co-beneficiary filed this suit alleging that the successor trustee failed to abide by the provisions of an amendment to the trust concerning the distribution of the trust’s TPP to the beneficiaries. Furthermore, the co-beneficiary maintained that the equalization process used was “unreasonable and burdensome,” and that the successor trustee’s refusal to answer numerous requests made by the co-beneficiary showed that the successor trustee was hostile to the co-beneficiary, and affected her ability to act entirely fair during the administration of the estate and trust. The successor trustee filed a motion for summary judgment on the basis that the co-beneficiary failed to demonstrate that the successor trustee breached her fiduciary duty to any beneficiary in distributing the TPP, and in the equalization calculation used to determine the distribution of trust benefits. Furthermore, she argued that the co-beneficiary’s participation in the TPP distribution and equalization process showed that the co-beneficiary had acquiesced to the use of those procedures, and that her acquiescence estopped her from making any objections.
As to the distribution of the TPP, the Master determined that it was unnecessary to reach the issue of acquiescence because the co-beneficiary “failed to demonstrate the existence of a genuine issue of material fact regarding the successor trustee’s impartiality in distributing the TPP.” The Master, ruling for the successor trustee, explained that the trust described exactly what should happen if the co-beneficiaries were unable to agree upon a method of distributing the TPP, that the distribution process used by the experienced estate administrator was appropriate considering the terms of the trust, and that the co-beneficiary was “unable to point to any specific evidence of unfairness or lack of impartiality during the TPP distribution process.”
On the equalization process followed by the successor trustee, the Master found an ambiguity within the language of an amendment made by the trustor to the Supplemental Trust Agreement. Following “a basic rule of construction that a court will prefer an interpretation that gives effect to each term of an agreement and avoids rendering language superfluous or uselessly repetitive,” the Master determined that resolving the ambiguity required examining the extrinsic evidence of the trustor’s intent as to the equalization process to be used. The evidence showed that the successor trustee’s decisions related to the ambiguity were based on the information and records provided by the trustor during his lifetime. Therefore, the Master ruled that the successor trustee “did not breach her fiduciary duty when she completed the equalization process started by” the trustor.
The no-contest provision issue presented perhaps the most notable aspect of this case. The Master determined that the co-beneficiary did not trigger the no-contest provision of the trust by initiating this litigation. The Master pointed to the “distinction between a challenge to the propriety of the trustee’s actions and an attack on the provisions of the trust itself.” The Master explained that the co-beneficiary was not seeking to alter the provisions of the trust, rather she was “attempting to enforce the provisions regarding the TPP distribution and the equalization process according to their terms” as she interpreted them. Given that the successor trustee herself acknowledged the ambiguity of certain terms, the Master found it reasonable that the two parties had reached different conclusions as to how that language should be interpreted. Since the co-beneficiary “has not challenged the disposition or validity of the trust,” and because “courts do not view disputes over the interpretation of instruments as violating a no-contest clause,” the Master concluded that the co-beneficiary’s suit did not trigger the no-contest clause.
