E (4:22)

My topic is beneficiary conflicts, and this can arise in a variety of ways. But I found that most of these conflicts begin as a dispute over receiving information, that is when one beneficiary wants to know how the trust is being used by another beneficiary. This can be a dispute between two current beneficiaries in a pot trust or or between a current beneficiary and the presumptive remainder beneficiaries and other trusts. And I've often found that it becomes a highly contested issue when one of the beneficiaries is also the trustee of the trust. Everyone knows the trustee must provide accountings or reports on the use of the trust funds. But who must they account to in the pot trust situation? With two current beneficiaries, it's highly likely that both beneficiaries will receive all the information on how the trust funds are being used. So for drafters who are worried about these issues and having and conflicting beneficiaries, it's probably better to avoid the pot trust situation, if you think that one person is going to be trying to look over the other person's shoulder on how they're using the funds for the current beneficiary, who is also a trustee, and the presumptive remainder beneficiaries wanting to know how the funds are being used for that current beneficiary. This is an issue that came up in the case Schwam D. Schwam out of Massachusetts. In that case, the decedent's children wanted to know how their stepmother, the current beneficiary and trustee of the trust, was using the trust that they were eventually going to receive. And in that case, the Massachusetts court held the decedent's children were not entitled to any accountings while they were presumptive remainder beneficiaries. Now, the law on this topic is highly variable among states, even among states that have adopted the Uniform Trust Code Code. For example, Illinois and Massachusetts are both Uniform Trust Code states. But I believe the result in Schwabm v. Schwam would have been very different had it been litigated in Illinois. So I think the takeaway from the Schwam case is estate planners should always have this discussion with their clients and how much information should the presumptive remainder beneficiaries receive about the trust while the current beneficiary is another person, perhaps a parent or a step parent. So having those discussions, they would be able to build into the drafts of their documents, you know, just exactly how much information and how often the presumptive remainder beneficiaries would receive that information. So with that, I'm going to hand it over to Meg, who I believe is going to talk about citis.

C (7:00)

Thanks, Ray. Yes, I'm going to talk about sitis, which is a particularly prevalent issue. Trustors frequently draft trusts with the Citus selection clause along with a governing law clause to attempt to have the law of appropriate particular jurisdiction govern the administration of the trust. And although sometimes those Citus selection clauses may be governed by UTC or UPC provisions, I'm just dealing here with situations where it's in the trust itself. An interesting case on this issue is the Daniel Cloiber Dynasty Trust out of Delaware in 2014. It gives an excellent illustration of how Citus selection may go awry. In that case, the trustor established a Delaware trust with various provisions to protect his family, including a Delaware corporate trustee, a special trustee to direct investments, and with the power of trustee removal, as well as a holder who had the power to direct distributions to the beneficiaries. The trust also included various exculpatory provisions to protect the corporate trustee and the ability of the beneficiaries through the various advisors to change the law and Citus of the trust. Several years after the trust was established, the primary beneficiary's son became involved in a divorce proceeding in the state of of Kentucky. The Kentucky court attempted to assert jurisdiction over the Delaware trust and the son and his son attempted to wrest control back to Delaware through removal of the special trustee and appointment of a new one. Also notably not a resident of Delaware, the Delaware court found that it did not have exclusive jurisdiction despite the situs selection provisions of the trust. Notably, the Delaware court pointed to all the provisions of the trust that discouraged court involvement, such as waivers of accounting and the ability to move CITUS if the beneficiary checks chose. According to the Delaware court, this made the choice of Delaware law and Citus quote, impermanent and potentially temporary. I think the lesson from Kloiber is that despite the best drafting attempts, the facts may outrun them and the courts will look to equitable factors. I don't think it's completely irrelevant that the issues here were what assets would be available to the complaining wife in the Kentucky divorce proceedings. But as a practice pointer, if there is a concern about whether or not the desired court will assume jurisdiction, it may make sense to try to bring some sort of proceeding in the desired court to establish jurisdiction there, although even that strategy may not work if the court sees it as merely an advisory proceeding and not truly dealing with the matter in controversy. The Delaware case of inrae Trust and Will of Flint for the Benefit of Shattuck, which is a 2015 case, addresses this very point in the Court's opinion at page 186. It notes, A petition seeking consensual declarations that do not require judicial implementation does not give rise to an actual controversy supporting declaratory relief. So even if you try to bring the case in front of the court to acquire jurisdiction, the court may refuse you. The bottom line is that no matter what your best attempts at drafting are, the courts and the beneficiaries may very well turn those attempts on their head.

A (10:02)

Thanks thank you Meg, Ray, and Eric for sharing your knowledge and wisdom on how trust provisions can have unintended consequences or unexpected application. We really appreciate your time today.

B (10:16)

Thank you for listening to this episode of ACTEC Trust and Estate Talk, the podcast series about wealth planning matters from the American College of Trust and Estate Council. To find an ACTEC lawyer near you, visit Actec.org. please subscribe to this series and leave us a rating. Rating or a review.