Estate Disputes 101
Estate Disputes 101
The probate of baby boomer estates has begun the long anticipated greatest transfer of wealth in human history. Simultaneously occurring is the death of the American nuclear family and increasing issues of economic inequality and underemployment (especially millennial underemployment.
Given the foregoing conditions, it is then no surprise that when money changes hands at death (either through probate or trusts) there are an increasing amount of estate-related disputes. Fiduciaries would be well-advised to seek legal counsel to ensure they are staying the course with what is required of them, and quickly addressing any issues that arise early, thoroughly, and sincerely. Families’ who file lawsuits against their fiduciaries rarely enjoy doing so, and typically would have far rather been able to come to common ground outside the courtroom.
Who are the average parties to these lawsuits? Siblings.
Thinking you will "win" your case is not enough: in most estate lawsuits attorneys on both sides will eventually be paid out of the estate by an order of the court. That's right. Even if your misguided family member loses their multi-year will contest lawsuit, their attorney's six figure bill can still get paid. There are some exceptions to this (bringing a contest without "substantial merit"), but they are exceptions to the rule. Read N.C. Gen. Stat. 6-21(2).
If you have a dispute, remember that going to court is not your only option.
Overview of Common Disputed issues (future posts will elaborate on these):
Breach of Fiduciary Duty: this is more of a topic unto itself than a specific type of lawsuit, but it regards conflicts where a fiduciary may not have done something they should have (or done something they should not have). Fiduciaries (trustees, executors, agents of powers of attorney (“POAs”)) owe duties to individuals at a very high standard. When they fall short of those duties, they may be liable (able to be sued) for “breaching” their fiduciary duties. Many of the issues below are examples of such breaches. Duties are created by the “common law” (law of the courts’ opinions) and statutory law, such as the statutory duties for POA agents, trustees, and executors. A frequent misunderstood issue is that of “standing” (legal right to bring a lawsuit) in breach of fiduciary duties in POA standing, as typically only the principal (person who executed the POA) was owed a fiduciary duty by their agent. As shown in the recent appellate cases like Stitz v Smith (North Carolina Court of Appeals, 2020), wise litigators can still pursue indirect claims that navigate around this standing issue (claims such as conversion and intentional interference with inheritance).
Accountings: perhaps the most common and classic element in a fiduciary dispute is that of family members simply wanting more detailed information. Cooperation in the face of a family request for accounting information is often a vital step towards deescalating estate disputes. Fiduciaries have varying degrees of a duty to account, but they always have one. Executors have to file regular accountings with the probate court; trustees are bound by N.C. Gen. Stat. §36C-8-813 to respond to “reasonable requests” of the beneficiary; and POA agents can be compelled to account to the court under certain circumstances.
Administration: failure to do the basics of the fiduciary’s job can lead to litigation. Fiduciaries benefit from legal counsel to ensure they know what exactly their job requirements are. Examples include not filing court documents on time in probate, not safeguarding property of the estate/trust, or failing to properly report/file with the relevant taxing authorities. Consider the recent North Carolina Court of Appeals decision in In re Harper (April, 2020) which includes a fiduciary removed from their office for failing to timely or coherently file proper accountings.
Self-Dealing: my litigation experience caused the scales to fall from my eyes about fiduciary misconduct in the context of self-dealing. While I handled several matters involving a fiduciary wrongly accused of self-dealing, I also encountered several cases of fiduciaries taking tens to hundreds of thousands of dollars from their beneficiaries. Two points to note here: (1) this was vastly more common in trust settings (not probate) due to the lack of accounting oversight in trust administration, which is one reason I do not always favor trusts over wills; but (2) lawsuits were rarely needed to correct the problem, i.e., the fiduciary when caught was quick to return the money, resign, and generally be quite compliant.
Conflicts of Interest: conflicts of interest can arise when the fiduciary has their own vested interest in the estate or trust, such as a direct inheritance or oversight of the inheritance, say, of their child. A fiduciary is bound to avoid conflicts of interest and must take great care to be honest about the reality of a situation.
Capacity to Make the Will/Trust: the mental integrity of the person signing a document can be challenged in an effort to have the document set aside. I have seen this approach attempted several times, and though never successfully done it nonetheless always created massive financial costs to the family. Capacity is frequently made part of will contests (caveats). A 2020 North Carolina Court of Appeals case (Anton v. Anton) includes such a contest. Typically these claims fail when the drafting attorney testifies in support of the testator's mental abilities. It is important to realize in advance of a lawsuit that claims like this have pre-drafted pattern jury instructions which ultimately are what the judge reads to and instructs the jury on. Here is the pattern jury instruction for lack of capacity to make a will.
Undue Influence: “Undue influence occurs when a person’s professed act is not his own, but is in fact the act of the person exerting the influence.” Four elements are typically associated: (1) the testator was susceptible to undue influence; (2) the wrongdoer had an opportunity to exert undue influence; (3) the wrongdoer had a propensity to exert undue influence; and (4) the resulting will appears to be the result of undue influence. Undue influence is a very, very difficult claim to prove. Consider this language from our appellate courts (which appears on the pattern jury instruction for undue influence): “It is impossible to set forth all the various combinations of facts and circumstance that are sufficient to make out a case of undue influence because the possibilities are a limitless as the imagination of the adroit and the cunning. The very nature of undue influence makes it impossible for the law to lay down tests to determine its existence with mathematical certainty.” The 2018 case of the Estate of Violet P. Ward shows how difficult prevailing on a claim of undue influence can be.
Will Construction: Sometime you have the will and no one disputes whether the testator was in their right mind, but parties disagree about what a particular term means. This requires a court to evaluate the terms of the will. Typically, if the will makes logical sense within its "four corners" the courts will allow that disposition to take effect, even if it produces a bizarre result. Parties often are stuck trying to thus prove (or disprove) the existence of an "ambiguity" that may allow the court to consider outside evidence. Common problems here include gifts of stock and holographic (handwritten) wills, which tend to be less carefully worded. In 2020 the North Carolina Court of Appeals had just this problem in construing a handwritten will in In re Worley. In a 2018 case the unbending nature of judicial will construction was put on display in Barret v. Coston in a devastating (albeit predictable) result. A la Mark Twain: mind your Ps and Qs!