We often hear from prospective clients that they have been disinherited by a parent. They often assume they can challenge an estate plan that does not favor them. But we have to explain to them: in the American legal system, you have no right to inherit from a parent’s — or from anyone else’s — estate.
It is the holiday season, and a time to reach out to older family members. You should do that because it’s the right thing to do. But if you need further encouragement, consider two stories that arrived in our inbox this December — both dealing with mothers who partially or completely disinherited their daughters. And those disinheritances were effective.
Rose Karam had no right to inherit
The first case we read is an unreported Arizona Court of Appeals decision. It involved a straightforward principle, but a somewhat complicated history.
George Karam died in 1995. He and his wife Jane had executed a joint revocable trust. That trust divided on his death into two separate trusts. The division was probably occasioned by the $600,000 estate tax exemption that was current in 1995. Twenty years later, it no longer made as much sense to keep the two trusts separate.
In 2015, Jane Karam wrote to all of the beneficiaries of George Karam’s separate trust. She told them that, as trustee, she hoped to “decant” the “bypass” trust into the remaining revocable trust. She explained that each beneficiary would need to consent to the decanting. One of them — Rose Karam — refused to consent.
Rose’s refusal might make sense, since she and her mother Jane had had a falling out a year before. But it was ultimately ineffective to resist — because Rose had no right to inherit from her parents, even though she had been named as a beneficiary.
George and Jane’s trust gave Jane, as the surviving spouse, a power to change the beneficiaries. This authority is usually called a “power of appointment.” When Rose refused to consent, her mother exercised her power of appointment to remove Rose as a beneficiary. Then she filed a court action to approve the decanting, without giving Rose notice — because she was no longer a beneficiary.
Five years later…
In 2020, Rose filed a petition in Arizona’s probate court. She asked the judge to set aside her mother’s decanting. She also claimed that Jane’s decanting amounted to fraud, concealment and conversion. But Rose went further: she also filed a separate lawsuit against her mother. She sued for what she called her mother’s “retaliation” in removing her as a beneficiary.
Jane moved to dismiss both the probate proceeding and the separate lawsuit. In the civil case she argued that “there is no law that prevents a parent from ‘retaliating’ against an adult child that chooses to sever all ties” by disinheriting the child. First the probate court, and then the civil court, dismissed Rose’s separate complaints.
Last week, the Arizona Court of Appeals upheld the dismissal of Rose’s civil lawsuit (her appeal of the probate dismissal is still pending, in a separate case). The Court of Appeals agreed that children do not have any right to expect an inheritance from their parents. Since the civil court had also ordered Rose to pay Jane’s attorneys fees, the appellate court dealt with that issue, as well. The court upheld the award of fees — and, in fact, added an award of additional fees incurred in the appeal itself. Karam v. Karam, December 9, 2021.
[Update: in the few days since this newsletter article was posted, a different panel of the Arizona Court of Appeals rendered its verdict on the underlying trust challenge. It affirmed the probate court’s dismissal of Rose’s petition, finding that her mother had the power to remove her as a beneficiary. Once she was no longer a beneficiary, she was not entitled to notice of the petition to modify/decant the trust. And the second Court of Appeals decision also adds an award of attorneys fees in favor of Jane. In re Trust B Created Under Karam Family Trust, December 20, 2021.]
A similar issue — in Bankruptcy Court?
While thinking about the Karam holding, we bumped into a similar outcome in a bankruptcy proceeding. It is a California-based case, but we doubt that state law would be interpreted any differently in an Arizona case. It turns out that there’s no right to inherit — even in bankruptcy court.
In 2009, California lawyer Lisa Mellem filed for bankruptcy in the federal court in Los Angeles. She listed $248,000 in unsecured debt, which was discharged. She did not, however, list a $75,000 debt she owed to her mother (Dorothy) for a note she had signed in 2004. Why not? Because, apparently, she believed that the note had been forgiven by her mother before the bankruptcy filing.
In 2012-2013, Dorothy identified the $75,000 loan as an advance on Lisa’s inheritance. When Dorothy died (in 2017), her son, Lisa’s brother, prepared a proposal to distribute the remaining trust balance. That proposal showed a $75,000 reduction in Lisa’s share because of the lifetime transfers..
When Lisa objected to the reduced distribution, her brother filed a petition with the California probate court to approve his proposal. The probate judge agreed that reduction of her distribution was appropriate.
Lisa then moved to reopen her bankruptcy proceeding. She argued that her brother and his lawyer had violated the bankruptcy court rule that prevents creditors from seeking to enforce their debts after a bankruptcy discharge. The bankruptcy judge disagreed, noting that bankruptcy court is not a court of appeals for probate proceedings.
Appeal of the Bankruptcy Court denial
Lisa then appealed the unfavorable decision to the Bankruptcy Appellate Panel — a specialized appellate court for bankruptcy proceedings. The Panel affirmed denial of her request.
The Bankruptcy Appellate Panel noted that a creditor (like her mother’s trust) may not seek recovery of a debt after discharge in bankruptcy. But the bankruptcy court did not have any jurisdiction to decide how Dorothy would distribute her inheritance. If she wanted to characterize the money that she had given Lisa as an advance on her inheritance, she was free to do so. Lisa did not have any right to inherit from her mother’s estate or trust. In re Mellem, February 22, 2021,
The Mellem decision from the Bankruptcy Appellate Panel was affirmed by the Ninth Circuit Court of Appeals in a memorandum decision on November 26, 2021. The very brief memorandum from the Ninth Circuit summarizes neatly summarizes the notion that an individual has no right to inherit from a parent. The Court of Appeal wrote that Dorothy “was nevertheless free to treat the $75,000 as an advance on [Lisa’s] inheritance. The state probate court held that [Dorothy] intended such an advance. The bankruptcy court could not overrule that state court decision. Neither can we.” [We’ve omitted the citations in the original opinion.]