Category: Legal writing

A badly-tailored trust causes three suits to be pressed

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            When you drop a stitch in a garment, an unexpected strain may make it fall apart.  When you alter one part of a garment, sometimes the alteration affects the garment somewhere else.  The same is true for trust agreements: a missing clause or a careless amendment may throw the trust out of whack and send a warring family to their lawyers.  Three cases in Washington County show what happens next.

            In 1998 a successful industrialist (“Trustor”) adopted a revocable living trust agreement and placed his assets into the trust.  As is usual, Trustor was the initial trustee.  In Paragraph 11.1 he provided for successor trustees:  “If the Trustee becomes unable or unwilling to serve, the Trustor hereby appoints Brother One and Brother Two [two brothers of the trustor] as the Co-Successor Trustees,” or if they weren’t available then Son One as the first alternate successor, and Son Two as the second alternate successor.  Son One and Son Two are two of the trustor’s three children; Daughter is the other child.

            Trustor provided a means for his family to remove Brothers One and Two.  In Paragraph 11.7 he stated:  “After the death or incapacity of the Trustor and upon the written request of a majority of the income beneficiaries who are not incapacitated, the Trustee shall resign in favor of the next Successor Trustee designated in Paragraph 11.1 above, if any.”  If none of the Successor Trustees named in Paragraph 11.1 remained, then the Trustee would ask a court to appoint a Successor Trustee, either a trust company, a bank with trust powers, or a disinterested individual.

            The lawyer who drafted the 1998 trust agreement was capable and competent, but he did not define “income beneficiaries” —  he dropped a stitch, so to speak.  The missing definition plagues Trustor’s family today.  I’ll come back to that.

            In 2008, Trustor hired a different lawyer, less familiar with trusts, to change the order of his successor trustees.  The new lawyer may have got a Word copy of the original trust, because almost all of the 2008 trust is the same as the 1998 trust.  The drafter left Paragraphs 4.3 and 11.7 alone, but changed Paragraph 11.1 to read: “If the Trustee becomes unable or unwilling to serve, the Trustor hereby appoints Brother One, Brother Two, and Friend One as Successor Co-Trustees.”

            The Trustor amended Paragraph 11.1 several more times, either by himself or with the second lawyer.  In 2014 he amended Paragraph 11.1 to read:  “If the Trustee becomes unable or unwilling to serve, the Trustor hereby appoints Brother One, Brother Two, Son-in-Law, Friend Two, Friend Three, and Friend Four as Successor Co-Trustees.”  The Trustor did not amend Paragraph 11.7, which continued to provide that if a majority of the “income beneficiaries” requested the trustee (meaning a successor trustee) to resign, then the trustee would resign in favor of the next Successor Trustee designated in Paragraph 11.1, or if none, then a court would appoint a trust company or disinterested individual as the successor trustee or trustees.

            By 2020 Brothers One and Two had died, and Trustor had become incompetent.  Son-in-Law, Friend Two, Friend Three, and Friend Four became the successor co-trustees.  Disputes arose among the trustees.  In March 2021 Friend Two sued the other trustees over a dispute about whether or not to make certain distributions, which the trustees eventually settled.  The disputes continued, however, and the children and grandchildren of Trustor requested Friend Two to resign.  Friend Two did not resign.  In November 2022 Daughter (not herself a trustee) sued Friend Two and asked the court to require Friend Two to resign, presenting the consents of all of Trustor’s living descendants.  Last month Son-in-Law (Daughter’s husband, who is one of the trustees) filed suit number three, asking the court to remove all four trustees, including himself, and appoint a professional fiduciary in their place.

            The 2022 case brought to light the first drafting error.  Paragraph 11.7 gave the “income beneficiaries” the right to remove a trustee, but who are the “income beneficiaries”?  The Trustor is still living (he’s now 97).  He is the only person who has the right to compel the trustees to distribute money, and he is the only person currently entitled to receive income from the trust.  However, the trust agreement gave the successor trustees the right, but not the duty, to distribute trust funds to Trustor’s family in accordance with any gift plan that Trustor had undertaken, or if necessary for their health, maintenance, education, and medical care.  The trustee has the power to distribute income to the Trustor’s family, but they don’t have the right to compel the trustee to give them anything.  Are they “income beneficiaries”?

            The trust agreement does not define “income beneficiaries” – that’s the dropped stitch I mentioned.  Neither does Oregon’s trust code, though it uses the term “income beneficiary” in one place, at ORS 130.232(1)(b).  That’s the argument in the 2022 case: can the family members who are eligible to receive income oust Friend Two?  A careful drafter could have avoided dropping the stitch by phrasing Paragraph 11.7 like this:

            “If the Trustor dies or becomes incompetent, a majority of the Trustor’s then-living adult descendants may request any Successor Trustee to resign.”

            The 2008 and 2014 amendments created a different problem.  Paragraph 11.7 states that if a majority of the income beneficiaries request a trustee to resign, then the vacancy will be filled by the next successor trustee listed in Paragraph 11.1 – but Trustor removed all of the “next in line” successor trustees from Paragraph 11.1.  If the family members count as “income beneficiaries” under the trust, and if they can remove a trustee under Paragraph 11.7 but Paragraph 11.1 no longer names any successor co-trustees, must the court appoint a successor co-trustee to replace all four of the current trustees, or can the trust continue with three of the four co-trustees and no replacement?

            A dropped stitch in 1998 and sloppy alterations in 2008 and 2014 haven’t ruined any garments, but they’ve spawned three suits and hundreds of thousands of dollars in legal fees that one definition and a few added words might have avoided.

Late to the party wall? Here’s a drafting tip

Despite its jaunty name, a party wall is not a vertical place of amusement but simply a single common wall on a property line, built to support two buildings.  The people who created party walls and party wall agreements a century or two ago didn’t consider what would happen if one of the two adjoining owners should want to add on to the party wall to support more floors, or to take the party wall down and redevelop a property.  Raising and razing party walls both present practical problems.

Lawsuits about party walls go back to at least 1813 and a decision of the English Court of Common Pleas in Matts v. Hawkins, 5 Taunton 20 (1813).  Twenty-five years earlier adjoining owners had built a party wall.  Ten years before the dispute got to court, Hawkins demolished his building, leaving the party wall standing.  Hawkins then built a shed against the party wall.  Later on Matts, whose building still stood, began to extend the party wall upward to support a floor that Matts was adding to his building.  Hawkins tore down the wall extension.  When Matts started to rebuild it, Hawkins tore it down again, and Matts sued Hawkins for trespass.  Hawkins argued that they were tenants in common as to the wall, and that as a tenant in common Hawkins could not be liable in trespass to Matts because the wall belonged to both of them.  The court rejected the argument of Hawkins and held that Matts and Hawkins each had some rights to the portion of the wall on the property of the other, which the court described as being easements.

One lesson of Matts v. Hawkins and the many decisions on party walls since 1813 is that a good party wall agreement should cover three points:

  • How will the owners divide the cost to maintain and repair the party wall?
  • Can either neighbor extend the wall upward, and if so, then can the extending neighbor build the extension on both properties?
  • What happens to the wall if one building is destroyed or is demolished?

Owners who want to be able to replace the party wall with a new party wall can use this clause to describe when and how each will pay for the new wall:

            If the North Building and the South Building are both demolished or destroyed, then the North Owner and the South Owner will replace the party wall with a new party wall designed and built to be capable of supporting buildings on the North Tract and the South Tract of up to ___ floors above ground.  The party that replaces its building first (in this section, the “Building Party”) will pay the cost to build the party wall and furnish an accounting of the cost to the other party.  The second party will reimburse the Building Party for one-half the cost to build the party wall before the second party begins construction on the second party’s building.  The second party will reimburse the Building Party for one-half the cost to build the party wall whether the second party uses all or part of the party wall.

The case of the absent comma: Error Five in drafting easements

One common drafting error in easement agreements and other contracts is that the drafter doesn’t use exact language to describe what the contract allows, requires, or prohibits.  The grantee of a view easement is commonly paying for the right to prevent the grantor from building structures or allowing trees to grow in a certain area or above a certain height.  A 2018 case from Nantucket, Massachusetts, MacLean v. Conservation Commission of Nantucket, No. 17-P-746, Memorandum and Order (Mass. App. 2018) demonstrates what happens when the drafter squeezes too many concepts into not enough words.  Did the easement agreement prohibit all structures, or only tall structures?  A missing comma made the difference.

The plaintiff held a view easement over adjoining land on Nantucket Island.  The defendant’s property was subject to “a permanent and non-exclusive view easement which prohibits any and all structures and/or vegetation with a height greater than eight (8’) feet from existing grade upon and over said Lot,” for the benefit of the plaintiff’s property.  The defendant built a deck and a staircase to the beach, both less than eight feet high.  The plaintiff sued to force the defendant to remove the deck and staircase.

Both parties argued that the easement language was unambiguous, but they read it differently.  The plaintiff said that the clause unambiguously prohibited construction of any and all structures, but vegetation could be up to eight feet high.  The defendant said that the clause unambiguously allowed the defendant to have both structures and vegetation if they were less than eight feet high.

The trial court took the defendant’s view and held that the easement did not prohibit structures that were shorter than eight feet.  The court said that the eight-foot limit unambiguously applied to both structures and vegetation, which meant that structures and vegetation were both allowed.  The plaintiffs (the easement holders) appealed.

The court of appeals reversed the trial court and found the language to be ambiguous.  In the court’s words, “the absence of a comma after the word ‘structures’ combined with the use of the term ‘and/or’ makes it unclear whether the eight-foot height restriction applies only to vegetation or to structures as well.”

That was an expensive missing comma.

Did the drafter intend to allow short structures?  The drafter could have written the clause this way:

* * * a permanent and non-exclusive view easement which prohibits any structures and vegetation from exceeding eight (8) feet in height above existing grade upon and over said Lot.

By contrast, if the drafter had wanted to prohibit all structures, but to allow vegetation up to eight feet high, the drafter could have written:

* * * a permanent and non-exclusive view easement which prohibits:

            (a)        any and all structures upon and over said Lot, and

            (b)        any vegetation with a height greater than eight (8’) feet from existing grade upon and over said Lot.

Don’t be bashful about using numbered and bulleted lists in your easement agreements to make it clear to the reader what you mean. The court of appeals is an expensive proofreader of your work.

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