Articles Posted in Probate and Trust Litigation

For parties involved in trustee negligence cases or cases involving trust losses, there is a Tennessee statute, the Tennessee Uniform Prudent Investor Act (which was adopted in Tennessee in 2002), which may well take center stage in the lawsuit. The purpose of the Uniform Prudent Investor Act was to codify, alter, and update the common law “prudent man” or “prudent investor” rule, which rule is at the heart of a significant amount of trust litigation.

The Act applies to trustees, guardians and other fiduciaries (all of whom are referred to in the Act, and in this article, as “trustees”). The Act does not apply to every fiduciary relationship, but only to those where the trustee, fiduciary or guardian relationship was created by a will, deed, agency agreement, or trust agreement. For trusts created after July 1, 2002, the Act applies with no restrictions. For trusts already existing as of July 1, 2002, the Act applies only to “decisions or actions” occurring after that date.

It is helpful to understand the fundamental objectives which the drafters of the Act intended to achieve. Those objectives are: (1) To ensure that the prudent investor standard is applied in the context of the entire portfolio instead of to individual investments within a portfolio; (2) to promote the ability of a trustee to focus on the tradeoff between risk and return as a primary consideration; (3) to eliminate the rules categorically prohibiting trustees from making certain types of investments; (4) to integrate into the definition of prudent investing the requirement of diversifying; and (5) to allow the trustee to delegate investment and management functions.

Sometimes, a dispute will arise after someone passes away regarding who is entitled to receive monies held by that person in a bank account or other type of account like a 401(k) account, money market account, mutual fund account, CD, or the like. Some beneficiaries or family members may have expected that all, or part, of the money in the account would be distributed to them by virtue of the terms of the Will of the person who died. They may find out, after the death of the person who established the accounts, that another relative or person claims total ownership of the funds in the account by virtue of the right of survivorship status of the account, or because the bank, or other account institution, was directed to pay the funds in the account to a designated beneficiary on the death of the person who established the account or owned it.

In a recent undue influence case, the Tennessee Court of Appeals explained some basic Tennessee law that comes into play when a Will directs one thing as to the distribution of account funds, but someone claims that the funds in the account should go to them, irrespective of the terms of the Will, because the account had a right of survivorship in their favor. The case involves a mother (“Mother”), her son (“Son”) and the Son’s siblings (“Siblings”).

Mother’s Will provided that Son was to receive the real estate owned by Mother, and that the Siblings were to receive the rest of her monetary assets. At the time of Mother’s death, she owned two accounts: (1) a bank account at SunTrust Bank; and (2) a money market account. Son asserted that the funds in both accounts passed outside of Mother’s estate because they were survivorship accounts and not sole owner accounts. The Siblings asserted that the funds in the accounts should not pass outside of the estate.

In a recent will contest and undue influence case decided by the Tennessee Court of Appeals, the Court of Appeals sustained the decision of the trial judge to set aside the verdict of the jury and to grant a new trial. The opinion of the court of appeals, which characterized the case as a “classic will contest case,” discusses two of the grounds upon which wills are frequently contested: (1) Lack of competency of the person who executes the will; and (2) undue influence.

(A will can be held invalid if the person who executed it was competent, but, nevertheless, he or she executed it as the result of the undue influence of another person.) The case also discusses what Tennessee lawyers refer to as the “13th Juror Rule.”

Here are the facts of the case:

In a recent case involving the interpretation of a will and a trust created in the will (a testamentary trust), the Tennessee Court of Appeals reversed the decision of a trial court that the corpus of the trust should be distributed to the brother of the deceased, and held that it should be distributed to the wife of the beneficiary of the trust. The case involved the will of a one Steve Woodward (the “Deceased”).

The Deceased’s Will provided that, at his death, a trust (the “Trust”) was to be created for the benefit of his son (the “Son”). Under the terms of the Trust, Son was to receive monthly payments of $1,000.00 per month until he reached the age of 50. When Son reached age 50, the trustee of the Trust was to distribute the corpus of the Trust to him. Son outlived his father, the Deceased, but died at the age of 33.

The brother of the Deceased (the “Brother”) was given all of the Deceased’s residual estate in the Will. (Residual estate refers to property of a testator (a person who makes a will) that is not specifically given to anyone else in a will). What the Deceased had apparently not planned for, and had definitely not specifically addressed in his Will, was what would happen to the property in the Trust if the Son did not live to be 50.

If a living person owes you money, under Tennessee law, generally, you have six years to file a breach of contract lawsuit against that person to collect your money. Once that person passes away, however, certain Tennessee laws set time deadlines for filing claims against estates. These laws may drastically shorten the time within which you must take action on your claim or lose it.

It is not necessary that you have a court judgment against the deceased person for the debt you are owed in order to make a claim against the estate of the deceased person. The personal representative of the deceased person’s estate might challenge your claim by filing an “exception” to it, but cannot prevent you from filing your claim and bringing it before the probate court.

In Tennessee, the longest period that a creditor ever has to file a claim against an estate is twelve months from the date of the death of the deceased. That time period may be shorter (as discussed below). The reasoning behind requiring creditors to file their claims with a probate court within no later than one year of the death of the deceased is to allow heirs and beneficiaries of the estate of the deceased to receive their distributions without having to contend with the claims of creditors made years after the distributions.

Fairly frequently, we receive calls from people inquiring about their chances of having a will invalidated. Often, those persons believe that a will contest is in order because another relative, or person close to the deceased, unfairly influenced the terms of the will.

A recent Tennessee case, which was decided by the Tennessee Court of Appeals, is an informative read for anyone interested in educating himself or herself about the basics of Tennessee law regarding will contests and undue influence. Keep in mind that, if you are looking for guidance about your possible will contest case, you should not count on finding a definite answer as to the outcome of your specific case. In Tennessee, each will contest case involving a challenge to a will on the grounds of undue influence will be decided on its own unique facts.

In the recent case mentioned above, the trial court’s decision that a will should be invalidated on the grounds of undue influence was affirmed by the Tennessee Court of Appeals. Here are the basic facts of the case:

A Tennessee case involving a father who, by all indications, intended that each of his three children share equally in his assets, illustrates the importance of paying careful attention to the specific language in a trust agreement. Here are the facts:

• The father (“Father”) executed a living trust (“Trust”) in 1996.

• The Trust provided that the Father’s daughter, Judith, would have her share of the distributed Trust assets reduced by $247,800 on account of advances Father had made Judith over the years