Hopeful planning: when your estate plan is based around your hope that everything will turn out fine. We see it a lot. Often it works. Too often it does not.
Two cases we read last week illustrate how hopeful planning can go wrong when facts change after the planner’s death. Both happened to be California Court of Appeals cases, and both happened to arise from Los Angeles County. They could have been from anywhere, as hopeful planning is very widespread indeed.
Both cases also happen to be unreported, too — that means they do not have value as precedent for other cases, in California or elsewhere. Still, the facts illustrate how assumptions made by people signing trusts can fail to anticipate the future of needs, conditions and relationships.
Hopeful planning case study #1: my granddaughter’s living arrangement will stay the same after I die
Evelyn Goldberg knew her granddaughter Stacy had problems. She wrote that Stacy was “special, emotionally disturbed but needy.” Stacy had a young daughter who lived with her. After Stacy and her daughter were evicted from their apartment, Ms. Goldberg had purchased a home for them to live in.
When Ms. Goldberg revised her estate plan, she was hopeful. The house she had bought seemed to be working out. She left a special needs trust for Stacy and her daughter. The trust would include the house and $130,000 in cash. Ms. Goldberg calculated that the cash would pay the property taxes, insurance and utilities, even if it only earned about 5% interest. She hoped the house could stay available to Stacy for the rest of her life, and help provide some benefit for her daughter as well.
Even before Ms. Goldberg died, her hopeful planning began to unravel. Stacy antagonized neighbors to the point that city officials threatened to take some action if the trustee of Ms. Goldberg’s trust did not step up. By then Ms. Goldberg’s son was managing the trust; he faced the difficult choice of evicting Stacy and her daughter, and selling the house.
Managing Ms. Goldberg’s trust becomes more difficult
After Ms. Goldberg’s death, her trustee son realized that the proceeds from sale of the house plus the cash assigned to the trust would not provide housing for Stacy — let alone her daughter, who had now reached her majority. The daughter could not live with Stacy because of Stacy’s serious mental illness. Stacy was receiving Supplemental Security Income benefits, and the trust needed to be managed in a way that kept those benefits available.
The trustee (remember that he was Stacy’s uncle) even went so far as to buy a new house for Stacy, from his own funds. But she refused to move into it, and demanded the trust money be turned over to a non-family trustee. She accused her uncle of breach of fiduciary duty.
What is a conscientious trustee to do? In this case, the trustee proposed to modify the trust into an explicit special needs trust, give up on having it assure Stacy housing, allow Stacy’s daughter to receive some immediate benefit, and make the daughter trustee to manage her mother’s trust. Stacy, of course, objected vigorously.
Just a year after Ms. Goldberg’s death, the entire plan — created with hope and based on the situation in place when she met with her lawyer — had unraveled. The proposed modification of the trust became hotly contested, with Stacy filing numerous pleadings and two separate appeals. The California Court of Appeals rendered its final decision approving the trust modification nine years after Ms. Goldberg’s death, and eighteen years after she signed her last, hopeful, trust amendment. Eidelman v. Sterbcow, August 23, 2019.
Hopeful planning case study #2: my daughter will watch over her brother
When Kathleen Quiroz signed her estate plan in 2011, she knew her son Paul needed assistance. She left half of her estate to him — in a third-party special needs trust. The other half of her estate would go to her daughter Kimberly, and Kimberly would be in charge of her brother’s special needs trust.
Ms. Quiroz died in 2012. It was almost three years later that Paul, frustrated at not getting any information about his special needs trust, filed a court proceeding to force his sister to account. He also asked for her removal as trustee.
When Kimberly failed to provide an accounting, the California probate court removed her as trustee. The new trustee — Kimberly and Paul’s grandfather — hired accountants and lawyers to figure out what had been going on.
At several hearings, Kimberly failed to show up at all. She never provided explanations or accounting information. Ultimately, the court ruled that she had taken, misplaced or otherwise failed to account for $87,299.52 that belonged to Paul’s special needs trust.
Court actions to recover money for Paul’s trust
The probate court entered a surcharge order against Kimberly for the missing funds, and she appealed. Last month — seven years after Kathleen Quiroz’s death — the California court of appeals upheld the surcharge order.
Interestingly, Kimberly apparently did not challenge the accuracy of the surcharge order itself. Her appeal focused almost entirely on procedural issues — that she had not been given proper notice, or that the evidence supporting her grandfather’s accounting calculations was inadequate. She apparently had not excuse for failing to account — at all — for five years before the court order. Quiroz v. Lening, August 28, 2019.
Is there a substitute for hope?
Clearly, it was not enough to hope that everything would work out in the two California cases we read last week. But what could Evelyn Goldberg and Kathleen Quiroz have done to reduce the possibility of their estate plans failing to take care of their special needs offspring?
A few things come to mind:
- Family members are not always the best choices to act as trustee (or personal representative of an estate, or agent on a power of attorney). Family members might or might not have an understanding of their duties, the training and skill to discharge those duties, or the devotion to the vulnerable family member. Even if they are perfectly suited, the emotional baggage they bring to the relationship with the family member with a disability is often problematic.
- A plan that has worked — barely — during your lifetime will almost certainly unravel after your death. Why did Ms. Goldberg think her granddaughter could continue to live in the same house with just $130,000 to help pay all of her house-related bills? Because things seemed to be working out when Ms. Goldberg signed her estate planning. But she failed to appreciate that costs go up, that her largess had probably exceeded the $130,000 over her lifetime, and that things weren’t actually going well (her granddaughter’s house was sold at a substantial loss because of extensive damage and failure to maintain even basic levels of upkeep). And why did Ms. Quiroz think her daughter was reliable? Because, presumably, she had been appropriate with her brother while Ms. Quiroz was there to monitor the relationship.
- Consultation with qualified and experienced professionals makes sense early in the process. Would a member of the Special Needs Alliance been able to advise Ms. Goldberg about the realistic needs for her granddaughter’s special needs trust? Would such a qualified individual have been able to warn Ms. Quiroz about the dangers of leaving one sibling in charge of another’s trust? Perhaps.
