Griff’s Notes: Case Updates from Around the Country
When I was in law school, I loathed case briefs. I remember spending tons of time trying to highlight and outline the facts, issue(s), and rule(s), and eventually I learned to just shortcut everything and read each case for the small things that nobody would remember.
It is from this spirit and skillset that I am thrilled to introduce Griff’s Notes, a series in which I will pull tidbits from case opinions around the United States for your benefit. I will not cover every case, but only those in which I think you can find value. The goal is to help you save time by gleaning rules over time.
The format may change over time, but what I value is your feedback. What helps you? A 1-10 score of case importance? A summary of facts? Expanded rules or reminders? Audio or video explanations? For the time being, I will take a shot in the dark, but the format of Griff’s Notes will change over time based on your feedback and my self-indulgent whims.
So, sit back and enjoy the first 2022 installment of Griff’s Notes…
Ahmad v. Ahmad, Md. Ct. App., December 27, 2021
Central Issue: Statute of limitations to challenge a revocable trust
Value Added Score: 6.5
Rule: If a disinherited beneficiary receives a copy of a revocable trust during the settlor’s lifetime, the statute of limitations begins to run at the point of receipt, notwithstanding the fact that the settlor could revoke or amend the trust.
This unreported opinion from the Maryland Court of Special Appeals was interesting, because it could affect strategy and drafting when it comes to the use of a revocable trust which could be subject to a challenge. In this case, a disinherited child of an Iranian family challenged the revocable trust, asserting that Iranian compulsory inheritance laws should control (in addition to a number of other traditional grounds for such a challenge).
These issues did not come up, however, as the Trustees obtained summary judgment and prevailed at the appellate level. The summary judgment barred the beneficiary’s challenge based on the statute of limitations, and laches. The central fact was that the beneficiary had received a copy of the revocable trust in 2007 as part of related litigation dealing with the family’s commercial real estate holdings. However, the settlor died eleven years later, in 2018.
The Court of Special Appeals noted that the commencement of the statute of limitations was based on the discovery of potential injury, and not the injury itself. Thus, the Court was not compelled by the beneficiary’s argument that the trust did not become irrevocable until the settlor’s death in 2018. The Court expressly disregarded the settlor’s intervening power to amend or revoke the trust for the 11 years following the beneficiary’s discovery of disinheritance.
Based on this holding, it is important to check your state’s treatment of statutes of limitations for the challenge of a revocable trust. For clients disinheriting heirs under a revocable trust, this could create an incentive to disclose the revocable trust during life so as to start the clock on the statute of limitations. But, for clients affected by disinheritance, it could create a gray area, as no actual damages may arise until the settlor’s death, and by then it may not be possible to challenge the revocable trust. This latter point was completely ignored here – what other options did the beneficiary have?
Tendler v. Johnson, Fl. Ct. App, December 22, 2021
Central Issue: Statute of limitations to challenge the validity or probate of a will
Value Added Score: 4.5
Rule: A question of the construction of a will provision is not a challenge to the validity of a will, nor to the probate of a will. Thus, a beneficiary’s challenge to the effectiveness of a testator’s exercise of a limited power of appointment was not barred by Florida’s 3-month limitations period on challenges to the validity of a will.
Before diving into this Florida Court of Appeals opinion, I think it is helpful to note what was at issue in this case outside of the procedural challenges – the exercise of a limited power of appointment in favor of a revocable trust. As I have previously discussed, a limited power of appointment typically cannot be exercised in favor of a holder’s revocable trust alone, because creditors of the holder are often contingent beneficiaries of the revocable trust, and a limited power of appointment by its definition typically does not include creditors of the holder in the class of permissible appointees.
This issue aside (which was not actually ruled upon here), this case involved a petition for instruction by the personal representatives of the holder’s estate, asking the court to construe the validity of the clause of the holder’s will exercising this power of appointment. This power of appointment would, in effect, have disinherited Tendler (the appellant here), as he was a remainder beneficiary of the trust which granted the power of appointment. Tendler received a copy of the petition for instructions, and filed an answer and amended answer raising an affirmative defense that the attempted exercise of the limited power of appointment was not valid for the reasons set forth above.
The personal representatives obtained summary judgment against Tendler on the basis that his challenge to the power of appointment was a time-barred challenge to the validity of the will past the three-month cutoff for such challenges under Fl. Stat. Section 733.212(f)(3). However, the Court of Appeals distinguished that this statute only applies to a challenge to the will as a whole, based on problems with execution, which was not the basis for Tendler’s answer. Thus, the Court reversed and remanded to give Tendler his day in court.
Bonus: Of note is the fact that the underlying trust was a Maryland trust, but by raising this issue with the Florida Circuit Court, the personal representatives essentially sought a declaratory judgment in Florida with respect to the Maryland trust. Thus, the Court of Appeals found that Tendler should fairly and naturally be able to have a voice in this proceeding in the Florida circuit court.
Skarsten-Dinerman v. Milton Skarsten Living Trust, Mn. Ct. App., December 27, 2021
Central Issue: Interpretation of material purpose in a trust modification
Value Added Score: 3
Rule: A settlor’s specific instruction not to sell real estate in a trust is an unambiguous material purpose, which cannot be circumvented to modify a trust even where a sale might improve the return to the trust’s beneficiaries
This opinion from the Court of Appeals of Minnesota really just affirmed a common rule – that you cannot circumvent a settlor’s express intent within a trust. But, it is interesting for its value to trusts with highly-concentrated family assets such as farms, businesses, real estate, etc. It is also interesting for what it does not address – a trustee’s (potentially intervening) duty to prudently invest trust assets.
Skarsten-Dinerman was one of six siblings of a living trust, which became irrevocable at the settlor’s death. The asset at issue was the family farm, the value of which was declining and the lease of which generated a return of approximately 2.7% annually. The siblings were to receive all income from the land annually until three of them were deceased, at which point the land would be distributed to the settlor’s descendants by representation (including shares to the issue of the deceased siblings).
Skarsten-Dinerman became trustee of three resulting special needs trusts for three of her respective siblings, and (as a beneficiary of the underlying trust) got her siblings to all agree to a proposed modification to the underlying trust. They were seeking to modify the trust to allow the farmland to be sold or, alternatively, to allow for an early distribution of the farmland. Why? Because Skarsten-Dinerman believed (and was probably right) that a better return could be obtained by selling the land and investing the proceeds, and that doing so would avoid a Medicaid lien on the underlying farmland at the death of the sibling-beneficiaries of each special needs trust. (Mechanically, this did not matter because the shares were not bifurcated until three siblings were deceased, so the Medicaid lien could have attached to a common trust anyway).
However, the district court denied the petition to modify the trust, on the grounds that it would violate a material purpose of the trust. Based on the way the land was structured to pass to the beneficiaries, along with the specific language noting that the land should not be sold, the district court determined that not selling the land was a material purpose that could not be violated. The Court of Appeals agreed.
What was really at issue was general language versus specific language. There was form language in the trust which generally contemplated a sale of assets, for example, if needed to pay estate taxes. There was also a right of first refusal of a sibling living in a residence on the farmland, who could veto a sale of the farmland, which Skarsten-Dinerman latched onto out of a belief that it contemplated a sale of land in the future. The Court was not persuaded, because they refused to ignore express language which I have paraphrased to say “DON’T SELL THE LAND.”
So, this type of ruling gives comfort to clients who wish to preserve family heirloom assets. But, it does also raise the issue that preserving certain assets may not generate the best economic return. So, if you have a client contemplating such a restriction in their document, you may want to raise the question of economic return post-death, especially in today’s economic environment. The cost of not doing so may be costly litigation, such as we saw here, which in this case was not charged to the trust but to the beneficiary seeking modification.