Estate Planning & Probate Section MCLE Meeting Location: Attorney Resource Center Date: October 24, 2018

Transcription

1 Estate Planning & Probate Section MCLE Meeting Location: Attorney Resource Center Date: October 24, :45 AM Noon Welcome/Introductions Michael-Anne Peck, Section Chair A few words from Sam Khalfan of Elite K Real Estate Solutions Today s Lunch Sponsor Case Law Update by Kaitlyn Anne Wild Noon 1:00 PM Program The Five Most Common Causes of Action Related to Wills and Trusts and How to Defend Against Them. Matthew Caruso & James L. Ryan of Roberts & Caruso Speaker s Bio Matthew T. Caruso is a partner at the law firm of Roberts & Caruso and practices out of the firm s Wheaton office. Matt concentrates his practice on business litigation, contested probate, construction law, guardianships and estate planning. Matt is a two-time Chairman of the DuPage County Bar Association s Business Law and Practice Committee. He has acted as lead counsel in over 25 jury trials and numerous bench trials in both state and federal courts. Matt is a member of the federal trial bar.

2 Matt received his undergraduate degree from University of Illinois and University of Vienna, Austria, and received his J.D. from John Marshall Law School. Matt is also a licensed real estate managing broker. James L Ryan is an associate at the law firm of Roberts & Caruso in Wheaton. He focuses his practice primarily on contested probate, business litigation, construction law, and estate planning. Jim is on the Board of Directors of the DuPage County Bar Association. Jim also serves as a member of the DuPage County Bar Association s Civil Law & Practice Committee, Business Law Committee and Estate Planning Committee. He is also a member of the federal trial bar. Jim received his undergraduate degree in finance from Notre Dame University and his J.D. from Loyola Law School. Jim is a licensed real estate managing broker. Presentation Summary A practical review of the five most likely causes of action relating to wills and trusts that a lawyer will encounter at the drafting stage and in court and how to defend against them. It will also include a discussion of in terrorem clauses and how to get the most out of their limited protection. Next Meeting: December 3, 2018 DCBA Events: Oct. 25th Ask a Lawyer Help Desk seeking attorney volunteers at the DuPage Judicial Center, Room :00 p.m. 4:30 p.m. November 14 th - Lawyer Lending a Hand-Annual Coat Drive Sorting, Bar Center, Classroom

3 Bring a friend campaign- bring ONE attorney (who is not already a DCBA member) to a DCBA event, a Happy Hour or one of our CLE programs, and receive one point. Bring FIVE different friends and collect 5 points. When you reach five points, you ll automatically receive a $25 DCBA Credit. The non-member must complete the bottom portion of the Bring A Friend card and submit it to a DCBA staff at the event for point(s) to be recorded. Receive one point per non-member; bringing the same person multiple times counts for only one point. Bring A Friend cards can be found at the event you and your non-member friend are attending, the Attorney Resource Center, or the Bar Center. (The DCBA member receives a point whether or not the non-member joins) Earn CLE Online! DCBA OnDemand CLE is Now Powered by IICLE The Illinois Institute for Continuing Legal Education (IICLE ) and the DuPage County Bar Association (DCBA) are excited to offer a new IICLE Share collaboration to provide DCBA members a high quality and reliable online learning experience. Members can find the link to The Illinois Institute for Continuing Legal Education (IICLE) on the DCBA website under Legal Community OnDemand CLE Online CLE Catalog View & Print All CLE Certificates through the DCBA Website: Manage Profile -> Professional Development (under content & features) and choose the icon to the left of each meeting to print your certificate directly or choose to have them ed to you to save to your computer (you MUST be logged in to view this feature)

4 Doyle v. Hood, 2018 IL App (2d) (op. filed Sep. 28, 2018) (not yet been released for publication in the permanent law reports; still subject to revision or withdrawal). Synopsis: Second District Appellate Court held that the two-year repose period in 735 ILCS 5/ (d) applied to a legal malpractice action alleging a failure to create a proper supplemental needs trust through the testator-client s revocable living trust. This case involved a legal malpractice claim brought by the trustee of a supplemental needs trust against the attorneys who drafted the revocable living trust from which the supplemental needs trust was created and funded upon the testator s death. The complaint was filed on May 1, 2017, which date was less than five years, five months after the defendants client, the testator, executed his will and the revocable living trust; more than five years, three months after the testator died and the supplemental needs trust was created out of his revocable living trust; and less than nine months after the Department of Human Services (DHS) issued a final administrative decision approving long-term-care benefits for the beneficiary of the supplemental needs trust subject to the trust s payment of nearly all of its assets as a fine based on the 60-month look-back period under 89 Ill. Adm. Code (a). The plaintiff alleged that the application of the 60-month look-back period and imposition of the large fine was the result of the defendants malpractice in drafting their client s estate plan. The defendants moved to dismiss the complaint as untimely under 735 ILCS 5/ (d) because it was an action based on an injury caused by [an] act or omission [that] does not occur until the death of the person for whom the professional services were rendered and was filed more than 2 years after the date of the person s death[.] See 735 ILCS 5/ (d). The Lake County Circuit Court granted the motion and dismissed the plaintiff s complaint with prejudice. The plaintiff appealed, arguing, inter alia, that the two-year repose period in Section (d) did not apply, but the six-year repose period in Section (c) did, which meant that the complaint was timely filed within six years of the testator s execution of the estate plan documents. In rejecting the plaintiff s arguments and affirming the trial court, the Second District Appellate Court held that Section (d) applied because the injury alleged in the complaint the failure of the supplemental needs trust did not occur until the supplemental needs trust could no longer be amended or revoked and was actually funded, both of which events occurred upon the testator s death. The Appellate Court based that holding on two supreme court opinions, Wackrow v. Niemi, 231 Ill. 2d 418 (2008), and Snyder v. Heidelberger, 2011 IL , which demonstrate that the supreme court approaches the question of the applicable statute of repose by looking at when the allegedly flawed legal documents become effective. Further, the Appellate Court followed the holding from Wackrow that Section (d) creates an exception to and applies instead of, foreclosing the application of, the Section (c) six-year repose period. Because the complaint was not filed within two years of the testator s death, it was indeed untimely.

5 DuPage County Bar Association Estate Planning & Probate Section Presentation October 24, 2018 CAUSE OF ACTION #1: Illinois Pattern Jury Instruction No : When I use the expression undue influence, I mean influence exerted at any time upon the decedent which causes him [her] to make a disposition of his [her] property that is not his [her] free and voluntary act. UNDUE INFLUENCE 1

6 Specific Conduct: Proof of specific conduct alleged to constitute undue influence. Undue influence means influence that is excessive, improper, or illegal. Estate of Glogovsek, 248 Ill.App. 3d 784, 792 (1st Dist. 1993). Undue influence may be proven through evidence of misrepresentations or concealment of facts. Estate of Hoover, 155 Ill. 2d 402 (1993). Presumption of Undue Influence: 1. A fiduciary relationship between the testator and a comparatively disproportionate beneficiary under the will; 2. A testator who was in a dependent situation where the beneficiary is in a dominant role; 3. A testator who placed trust and confidence in the beneficiary; and 4. A will that was prepared or executed in circumstances where the beneficiary was instrumental or participated. Document discussions with client. Record when necessary. Influencers should not be in the room when client tells you her intentions. Record the signing ceremony and use open ended questions asking client to explain the reasons for the decisions made in the estate plan. 2

7 Influence is okay. Use discovery to flesh out what is undue about the influence. Get the file from the attorney who wrote the will or trust. Call disinterested witnesses who knew the testator and the influencer. [T]he use of the presumption of undue influence must be applied with caution as to marital relationships. DeHart v. DeHart, 2013 IL CAUSE OF ACTION #2: LACK OF TESTAMENTARY CAPACITY A person does not have testamentary capacity to make a will if, at the time he executes the document, he does not have: (1) The ability to know the nature and extent of his property; (2) The ability to know the natural objects of his bounty; or (3) The ability to make a disposition of his property in accordance with some plan formed in his mind. See IPI

8 The capacity to transact ordinary business. A medical diagnosis. Dementia is a syndrome describing multiple mental disorders that all have the common effect of a decline in cognitive functioning and difficulty with memory. Most Common Cause is Alzheimer s Disease. Some Disorders are Static; Others are Progressive. Most Disorders are Chronic Conditions That Do Not Get Better Less Than 10% Can Go Into Remission with Treatment. 5-10% of population over % of population over 80. Dementia is a term that the medical community is phasing out. Draft DSM-V does not use the term Dementia. Mild or Major Neurocognitive Disorders. 4

9 The development of multiple cognitive deficits manifested by both (1) memory impairment (impaired ability to learn new information or to recall previously learned information) AND (2) one (or more) of the following cognitive disturbances: aphasia (language disturbance) apraxia (impaired ability to carry out motor activities despite intact motor function) agnosia (failure to recognize or identify objects despite intact sensory function) disturbance in executive functioning (i.e., planning, organizing, sequencing, abstracting) Stage Name Characteristic Mental Age MMSE Score 1 Normal Aging No Deficits Adult Possible Mild Cognitive Subjective Functional Deficit Adult Impairment 3 Mild Cognitive Impairment Objective Functional Deficit Interferes with Complex Tasks 4 Mild Dementia ADLs become affected such as bill paying, cooking, cleaning, and traveling Moderate Dementia Needs help selecting proper attire a Moderately Severe Dementia Needs help putting on clothes 5 9 6b Moderately Severe Dementia Needs help bathing 4 8 6c Moderately Severe Dementia Needs help toileting 4 5 6d Moderately Severe Dementia Urinary Incontinence e Moderately Severe Dementia Fecal Incontinence a Severe Dementia Speaks 5-6 words during day b Severe Dementia Speaks only 1 word clearly 1 0 Functional Assessment Staging Test 5

10 Neuropsychological Evaluation and Written Report Ask Questions to Testator to Establish Each Element of Testamentary Capacity At a Recorded Signing Ceremony In terrorem clauses are often described as No Contest Clauses DEFINITION: A clause that threatens to disinherit any beneficiary who challenges the terms of the will. Black s Law Dictionary. Designed to deter litigation; however, in our experience, they are misunderstood as being a bar to litigation to stop bad behavior by fiduciaries. 6

11 Case law is mixed, but mostly negative. PRO ENFORCEMENT: In terrorem clauses are enforceable as a valid exercise of a testator's power to control the disposition of her assets upon her death. In re Estate of Wojtalewicz, 93 Ill. App. 3d 1061, 1063 (1981). AGAINST ENFORCEMENT: However, in terrorem clauses are disfavored and are strictly construed to avoid forfeiture. Estate of Mank, 298 Ill. App. 3d 821 (1 st Dist. 1998). Step 1: Did the Beneficiary Trigger the Clause? Was there an action or inaction that triggered the clause? Was the beneficiary attacking or simply clarifying the will or trust? Is the in terrorem clause overly broad? Step 2: Is it Enforceable? Does enforcing the clause violate public policy? (Some public policies are defined by the legislature, some by the courts.) 7

12 It is against public policy to enforce an in terrorem clause against a disabled person. In re Estate of Mank, 298 Ill.App.3d 821 (1st Dist. 1989). It is against public policy to enforce an in terrorem clause against a legatee for expressing a feeling of hostility or a negative opinion of an executor. Estate of Wojtalewicz, 93 Ill.App.3d 1061, (1 st Dist. 1981). It is against public policy to enforce an in terrorem clause against a beneficiary for bringing a lawsuit against a fiduciary to enforce his rights as beneficiary such as a right to an accounting. Schroeder v Sullivan, 2018 IL App (1st) SECTION 13.03: CONTEST PROVISION If, after receiving a copy of this Section, any person shall, in any manner, directly or indirectly, attempt to contest or oppose the validity of this agreement (including any amendment to this agreement), or commences, continues or prosecutes any legal proceedings to set this agreement aside, then such person shall forfeit his or her share, cease to have any right or interest in trust property, and shall, for the purposes of this agreement be deemed to have predeceased me. This Section may not be applied so as to cause a forfeiture of any distribution otherwise qualifying for the federal estate tax charitable deduction. 8

13 CAUSE OF ACTION #3: ACCOUNTING Trust and Trustees Act requires annual accountings. 760 ILCS 5/11(a). Probate Act requires annual accountings. 755 ILCS 5/24-1. Power of Attorney Act requires an agent to produce an accounting within 21 days of a request of any interested person to a principal s estate. 755 ILCS 40/2-7(c)(1). 9

14 To sustain an action for an accounting in equity the complaint must allege the absence of an adequate remedy at law and one of the following: 1. a breach of a fiduciary relationship between the parties; 2. a need for discovery; 3. fraud; or 4. the existence of mutual accounts which are of a complex nature. People ex rel. Hartigan v. Candy Club, 149 Ill. App. 3d 498, , 501 N.E.2d 188, 190 (1986) Hire a professional CPA to draft the accounting. Rationale: Accountant gets paid off the top. Client becomes insulated from claims that the accounting is incorrect. Accountant becomes the star witness if heirs complain or speculate on a value for what mom s estate should be. 10

15 CAUSE OF ACTION # 4: BREACH OF FIDUCIARY DUTY To state a claim for breach of fiduciary duty, it must be alleged and ultimately proved: (1) that a fiduciary duty exists; (2) that the fiduciary duty was breached; and (3) that such breach proximately caused the injury of which the party complains. Lawlor v. N. Am. Corp. of Illinois, 2012 IL , 69, 983 N.E.2d 414, 433 Presumption of fraud in all self-dealing transactions by a fiduciary. Plaintiff simply has to establish that a fiduciary duty defendant has engaged in a self-dealing transaction. Then, the burden of proof shifts to the fiduciary to establish by clear and convincing evidence that the transaction was fair and did not result from his undue influence over the principal. Estate of Alford v. Shelton, 2017 IL 12119,

16 Reimbursement for Expenses Forgiveness of Pre-Existing Loans. Convenience Account with Joint Account Features Compensation for Services Rendered Reimbursement for Expenses Instruct Trustee to Keep Receipts and Obtain Three Quotes from All Contractors in the Trust Documents. Forgiveness of Loans Include Language in Trust Directing Trustee to Forgive Unpaid Loans unless There is a Written Note for a Substantial Amount. Convenience Account with Joint Account Features Include a Convenience Account Designation or a Gifting Document in client s estate planning documents to instruct the successor trustee of client s wishes. Compensation Include trust provisions specifying that a trustee is entitled to reasonable compensation and provide a formula if necessary. 12

17 CAUSE OF ACTION #5: PETITION FOR INSTRUCTIONS If there is going to be a fight, let s get it started! It is a well-settled right of a trustee that whenever there is any bona fide dispute as to the true meaning and intent of the provisions of the instrument creating the trust or as to the particular course which he ought to pursue, the trustee is always entitled to maintain a suit in equity at the expense of the trust estate and obtain a judicial construction of the instrument and directions as to his own conduct. Kaull v. Kaull, 2014 IL App (2nd) , 76. A trustee or a beneficiary may apply to an appropriate court for instructions regarding the administration or distribution of the trust if there is reasonable doubt about the powers or duties of the trusteeship or about the proper interpretation of the trust provisions. Bangert v. No. Trust. Co., 362 Ill.App.3d 402, (1 st Dist. 2005) There is no good reason for a trustee to ever have to guess about what to do or to put himself at risk of breach of fiduciary duty for taking steps that a beneficiary might challenge. Petitions for Instructions avoid endless correspondence, threats of litigation, and delay of distributions. Court Orders Make Excellent Insurance Policies! 13

18 QUESTIONS Matthew Caruso James Ryan ROBERTS & CARUSO 411 W. Wesley Wheaton, Illinois (630)