{"id":334,"date":"2023-09-13T09:55:35","date_gmt":"2023-09-13T16:55:35","guid":{"rendered":"https:\/\/alterman.law\/blog\/?p=334"},"modified":"2023-09-20T10:10:26","modified_gmt":"2023-09-20T17:10:26","slug":"a-badly-tailored-trust-causes-three-suits-to-be-pressed","status":"publish","type":"post","link":"https:\/\/alterman.law\/blog\/a-badly-tailored-trust-causes-three-suits-to-be-pressed\/","title":{"rendered":"A badly-tailored trust causes three suits to be pressed"},"content":{"rendered":"
\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 When you drop a stitch in a garment, an unexpected strain may make it fall apart.\u00a0 When you alter one part of a garment, sometimes the alteration affects the garment somewhere else.\u00a0 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.\u00a0 Three cases in Washington County show what happens next.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In 1998 a successful industrialist (\u201cTrustor\u201d) adopted a revocable living trust agreement and placed his assets into the trust.\u00a0 As is usual, Trustor was the initial trustee.\u00a0 In Paragraph 11.1 he provided for successor trustees:\u00a0 \u201cIf 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,\u201d or if they weren\u2019t available then Son One as the first alternate successor, and Son Two as the second alternate successor.\u00a0 Son One and Son Two are two of the trustor\u2019s three children; Daughter is the other child.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Trustor provided a means for his family to remove Brothers One and Two.\u00a0 In Paragraph 11.7 he stated:\u00a0 \u201cAfter 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.\u201d\u00a0 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.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The lawyer who drafted the 1998 trust agreement was capable and competent, but he did not define “income beneficiaries” —\u00a0 he dropped a stitch, so to speak.\u00a0 The missing definition plagues Trustor\u2019s family today.\u00a0 I\u2019ll come back to that.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In 2008, Trustor hired a different lawyer, less familiar with trusts, to change the order of his successor trustees.\u00a0 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.\u00a0 The drafter left Paragraphs 4.3 and 11.7 alone, but changed Paragraph 11.1 to read: \u201cIf the Trustee becomes unable or unwilling to serve, the Trustor hereby appoints Brother One, Brother Two, and Friend One as Successor Co-Trustees.\u201d<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The Trustor amended Paragraph 11.1 several more times, either by himself or with the second lawyer.\u00a0 In 2014 he amended Paragraph 11.1 to read:\u00a0 \u201cIf 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.\u201d\u00a0 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.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 By 2020 Brothers One and Two had died, and Trustor had become incompetent.\u00a0 Son-in-Law, Friend Two, Friend Three, and Friend Four became the successor co-trustees.\u00a0 Disputes arose among the trustees.\u00a0 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.\u00a0 The disputes continued, however, and the children and grandchildren of Trustor requested Friend Two to resign.\u00a0 Friend Two did not resign.\u00a0 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\u2019s living descendants.\u00a0 Last month Son-in-Law (Daughter\u2019s 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.<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The 2022 case brought to light the first drafting error.\u00a0 Paragraph 11.7 gave the \u201cincome beneficiaries\u201d the right to remove a trustee, but who are the \u201cincome beneficiaries\u201d?\u00a0 The Trustor is still living (he\u2019s now 97).\u00a0 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.\u00a0 However, the trust agreement gave the successor trustees the right, but not the duty, to distribute trust funds to Trustor\u2019s family in accordance with any gift plan that Trustor had undertaken, or if necessary for their health, maintenance, education, and medical care.\u00a0 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.\u00a0 Are they “income beneficiaries”?<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The trust agreement does not define \u201cincome beneficiaries\u201d – that’s the dropped stitch I mentioned.\u00a0 Neither does Oregon\u2019s trust code, though it uses the term \u201cincome beneficiary\u201d in one place, at ORS 130.232(1)(b).\u00a0 That\u2019s the argument in the 2022 case: can the family members who are eligible to receive income oust Friend Two?\u00a0 A careful drafter could have avoided dropping the stitch by phrasing Paragraph 11.7 like this:<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u201cIf the Trustor dies or becomes incompetent, a majority of the Trustor\u2019s then-living adult descendants may request any Successor Trustee to resign.\u201d<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The 2008 and 2014 amendments created a different problem.\u00a0 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 \u2013 but Trustor removed all of the \u201cnext in line\u201d successor trustees from Paragraph 11.1.\u00a0 If the family members count as \u201cincome beneficiaries\u201d 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?<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 A dropped stitch in 1998 and sloppy alterations in 2008 and 2014 haven\u2019t ruined any garments, but they\u2019ve spawned three suits and hundreds of thousands of dollars in legal fees that one definition and a few added words might have avoided.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 When you drop a stitch in a garment, an unexpected strain may make it fall apart.\u00a0 When you alter one part of a garment, sometimes the alteration affects the garment somewhere else.\u00a0 The same is true for trust agreements: a missing clause or a careless amendment may throw the trust out of whack and […]<\/p>\n","protected":false},"author":1,"featured_media":335,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"class_list":["post-334","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal-writing"],"jetpack_featured_media_url":"https:\/\/alterman.law\/blog\/wp-content\/uploads\/2023\/09\/Proofreading-Shutterstock-image-scaled.jpeg","_links":{"self":[{"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/posts\/334","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/comments?post=334"}],"version-history":[{"count":1,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/posts\/334\/revisions"}],"predecessor-version":[{"id":336,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/posts\/334\/revisions\/336"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/media\/335"}],"wp:attachment":[{"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/media?parent=334"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/categories?post=334"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alterman.law\/blog\/wp-json\/wp\/v2\/tags?post=334"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}