Kathryn & Sarah are trust beneficiaries who sued trustees of family trusts in federal court for fraud and self-dealing. These trust beneficiaries claimed that, for years, the trustees deprived the trust beneficiaries of millions of dollars. The trust beneficiaries wanted trust damages and a trust accounting. This recent trust lawsuit’s opinion was released just days ago and involves how trust litigation can erupt with family partnerships, multiple trusts, many trustees and million & millions of $$$ .
WEALTHY NEW YORKER’S ESTATE PLAN AND TRUSTS
- Nettie was a wealthy woman from New York who evidently made millions and millions of dollars in real estate.
- Since 1971, Nettie had an elaborate estate plan created by her estate planning attorneys to save millions of dollars in estate taxes
- Nettie created several revocable trusts including a family trust
You know what was created ? Lots of trust litigation ! Lots of legal fees for probate lawyers and trust litigators.
FAMILY TRUST TERMS – son gets lots of money & power !
- one Trust gave the trustees discretion to give away trust income & principal to Nettie during her lifetime
- after her death, her son, Edward, was a trust beneficiary
- The trustees had great discretion to give Edward lots of trust money, even exhausting the trust.
- The trustees did not need to consider Edward’s income or net worth when the trustees wanted to give Edward trust money
- the trustees were exempted from liability for conflicts of interest
- Edward had a power to give away all trust assets to any other beneficiary — called a power of appointment
- Edward could remove any trustee for any reason
- Edward could approve any accounting that would bind all trust beneficiaries
EDWARD DIES in 2005 — grandchildren inherit trust
- After Edward’s death, the trustees were prepared to distribute the trust to grandchildren and great-grandchildren
- Grandchildren sued trustees
- 1985 – 1994, the trustees distributed more than $1 million to Edward
FAMILY PARTNERSHIP
- During her life, Nettie also created a family limited partnership
- the family trust and her revocable trust were partners
- lots of real estate
- Edward had created trusts during his lifetime
- Edward’s trusts were also partners of this family partnership created by his mother
- Nettie died in 1972
- Part of her $800,000 interest in the family partnership, now owned by the trust, was redeemed….. for only $392,000
- 1987: her other partnership interest was redeemed …. For $623,960
Wouldn’t you think that real estate increased a lot in value from 1971 through 1987 ?
Q: Who stands to gain from these redemptions of the trust’s interest in the family partnership ?
FAMILY LAWSUITS
- Each time the Nettie Trust redeemed a portion of its family partnership interest, 2 of the defendants’ interests in the family partnership — through family trusts — , increased ! Was this what Nettie intended and good business? Or something else ?
- 1994 : trust = $40,000.
- The plaintiffs in this trust litigation were Edward’s twin granddaughters. Their father, Thomas, had a difficult relationship with Edward.
- Thomas had previously sued family members and got $1.5 million
This case involved
- multiple family trusts,
- a family real estate empire,
- a family limited partnership
- It shows how complicated trust litigation can get when you have multiple family trusts and family wealth held in a partnership, with trusts being the partners
- The grandchildren allege that, for decades, defendants engaged in self-dealing, to the detriment of the various trusts and their trust beneficiaries
Was this a case of too many family members, too many trusts and fiduciaries with private business interests and everyone wearing too many “hats?” You can read the entire opinion to see what happened. Saving estate taxes is important. But do you want all your descendants, family members, heirs at law and beneficiaries embroiled in trust litigation and probate lawsuits ?????????????