Trusts and Estates
February 1999 Vol. 45, No.3
Statements or expressions of opinion or comments appearing herein are those of
the editors or contributors, and not necessarily those of the association or section.
Contents
* 1998 Illinois case law update: How to keep your powder dry
Editor's note: This newsletter issue contains a compendium of recent Illinois estate and probate decisions prepared by Donald L. Metzger of Edwardsville, Illinois. The list, while comprehensive, is not intended as an exhaustive survey of all decisions affecting the estate and probate field. Readers are encouraged to check the status of the cases for leaves to appeal, rehearings and modifications.
1998 Illinois case law update: How to keep your powder dry
By Donald L. Metzger, Law Offices of Donald Metzger, Edwardsville
Supplemental needs trust--
Medicaid reimbursement
In re: Estate of Calhoun, 291 Ill. App. 3d 839, 684 N.E. 2d 842, 225 Ill. Dec. 851 (1st Dist. 1997)
Facts:
Dawn Calhoun, a minor, received a personal injury settlement in excess of $2.5 million. From the date of the injury to the date of the settlement, Public Aid carried approximately $225,000 of her medical expenses. Chicago Trust Company as guardian of Dawn's estate filed a petition with the court to establish a supplemental needs trust with the settlement proceeds for Dawn's benefit, the result being that Dawn would retain her Medicaid eligibility. Chicago Trust also requested that the Illinois Department of Public Aid lien not be paid until Dawn's death. The probate court authorized the establishment of the trust, however, ordered the guardian to pay the Public Aid lien immediately rather than at Dawn's death. The guardian took an appeal on the questions of the timing of the Public Aid lien payment.
Decision:
In its analysis of 760 ILCS 5/15.1 the court noted that a trust established with a disabled individual's own property must comply with the "Medicaid reimbursement requirements of federal law."
Noting that under federal law, if Medicaid benefits have been made under a state plan to an individual because of an injury where a third party is liable, the state is required to seek reimbursement, and to that end, the Medicaid recipient must assign to the state any rights, he or she has to seek payment for his or her medical care, the court held that the Public Aid lien must be immediately paid.
Spendthrift trusts--child support
In re: Marriage of Chapman, 297 Ill. App. 3d 611, 697 N.E. 2d 365, 231 Ill. Dec. 811 (1st Dist. 1998).
Facts:
A provision of the Chapman's divorce settlement agreement provided that Mr. Chapman was to pay $2,000 per month child support. Sometime thereafter, Chapman became delinquent in those child support payments. His ex-wife filed a petition, and asked, and among other things, that the court order Chapman to exercise his limited power of appointment to direct the trustees of his spendthrift trust to pay the arrearage and the $2,000 per month child support thereafter. The trial court allowed Mr. Chapman's motion to dismiss.
Decision:
The spendthrift trust instrument of which Mr. Chapman was the beneficiary provided that he could direct the trustee to disburse such amounts as he ... may appoint to or for the benefit of all or any one or more of (his descendants) ... ... In its reversal on this single question, the appellate court determined that the settlor of the trust intended that both the principal and income of the trust could be used for the benefit of Chapman's children. Accordingly, the trust assets would be available to satisfy child support arrearages.
With regard to impressing the trust with future child support obligations, the court held for Chapman, noting that section 4.1 of the Non-Support Act and section 706.1 of the Marriage and Dissolution Act provides for the withholding of a party's income only in the case of child support arrearages and not for future support payments.
Attorney client--privilege
Hitt v. Stephens, 285 Ill. App. 3d 713, 675 N.E. 2d 275, 221 Ill. Dec. 368 (4th Dist. 1997)
Facts:
Grandchildren and a daughter-in-law of the decedent brought a replevin action against attorney Stephens to obtain possession of Stephens' files that he had maintained during an estate planning representation of the decedent. The trial court upheld Stephens' claim of attorney-client privilege and refused to order the production of the attorney's file.
Decision:
In its affirmance, the appellate court noted that the attorney-client privilege survives the death of the client except in certain will contest circumstances. In so ruling, the court observed:
Estate planning is an extremely personal and private endeavor, and may be based on considerations one would prefer never to reveal. The attorney-client privilege presumes that a client wishes his communication with his attorney to remain secret until proved otherwise. The burden is on the party seeking disclosure to show an exception to the privilege.
Attorney client--conflict of interest
In re: Estate of Kirk, 292 Ill. App. 3d 914, 686 N.E. 2d 1246, 227 Ill. Dec. 90 (2nd Dist. 1997)
Facts:
The decedent appointed a bank to serve as his executor and nominated the same bank to serve as guardian of the estates of his minor children. Prior to the bank filing its petition seeking judicial appointment to those offices, one of the decedent's adult daughters was appointed guardian of the estates of her minor siblings. After the appointment of the bank as executor, its lawyer, Lahti, filed a petition seeking the removal of the decedent's daughter as guardian of the minors' estates. The decedent's adult heirs filed a petition seeking Lahti's removal as the attorney for the estate alleging he had a conflict of interest in that, as the attorney for the estate, he should not represent an interest adversarial to an heir of the estate, i.e., the decedent's adult daughter who had previously been appointed guardian of her minor siblings' estates.
Decision:
In holding for the bank and its attorney, the appellate court noted that because the decedent had nominated the bank in his will to serve as guardian, the bank as executor and its attorney were justified in seeking the ouster of the previously appointed adult daughter of the decedent. The court observed:
Even though the beneficiaries of a decedent's estate are intended to benefit from the estate, an attorney cannot be held to have a duty to those beneficiaries due to his potential adversarial relationship (citation omitted). Therefore, while the attorney for the executor owes a fiduciary duty to act with due care to protect the interests of the beneficiaries, the attorney does not have an attorney-client relationship with the beneficiaries.
Attorney client--conflict of interest
Schwartz v. Cortelloni, 177 Ill. 2d 166, 685 N.E. 2d 871, 226 Ill. Dec. 416 (1997)
Facts:
Schwartz filed a partition action against her half-sister, Cortelloni, relative to property known as Lawndale 160. Cortelloni contended that Schwartz's counsel, the Gehlbach firm, should be disqualified because approximately 40 years prior, Cortelloni's father had been killed in an auto accident. Cortelloni's mother filed a petition, those 40 years ago, to have herself appointed guardian of Cortelloni's estate and in that proceeding was represented by the Gehlbach law firm. The only relevance of Lawndale 160 to those guardianship proceedings was that the inventory prepared by the Gehlbach firm listed Lawndale 160 as an asset of the guardianship estate. In the current partition action, Cortelloni maintained that because the Gehlbach firm represented her interests in the guardianship proceedings 40 years previous, that same firm could not now accept a representation adverse to her interests.
Decision:
The supreme court rejected Cortelloni's argument. The court acknowledged that, by representing her guardian, the Geldbach firm had represented Cortelloni; however, that representation was so far removed in time and subject matter from the current litigation that neither established law or ethical considerations dictated the firm's withdrawal as attorney for Cortelloni's adversary.
Attorney fees--unnecessary services
In re: Estate of Shull, 295 Ill. App. 3d 687, 693 N.E. 2d 489, 230 Ill. Dec. 360 (4th Dist. 1998)
Facts:
The attorneys representing the petitioner for temporary guardian requested fees in excess of $3,000 and costs of $304. The trial court found that the legal services rendered were not in the best interests of the estate and awarded fees of $500 and no costs.
Decision:
The appellate court reversed and remanded for further proceedings noting that the claimant's attorneys were presented with some unusual circumstances that resulted in the guardianship proceedings being somewhat more complex than usual. Further, the guardianship estate consisted of over $250,000 in cash, plus a residence, life insurance, and personal property.
In response to the objector's contention that the time charges for research was excessive, the court cited In re Continental Illinois Securities Litigation, 92 F. 2d 566, 570 (7th Cir. 1992) at 364:
No matter how experienced a lawyer is, he has to conduct (or have conducted for him) research to deal with changes in the law, to address new issues, and to refresh his recollection.
Contingent beneficiary's standing to sue
Giagnorio v. Torkelson Trust, 292 Ill. App. 3d 318, 686 N.E. 2d 42, 226 Ill. Dec. 693 (2nd Dist. 1997)
Facts:
Emmet established a living trust with life income to wife and remainder to children. The trust instrument further provided for the invasion of principal for wife's health, maintenance, and reasonable comfort. Upon Emmet's death, one of his daughters became trustee and sold the stock of a family corporation to one of her brothers at what may have been very favorable terms. One of the trustee's sisters filed suit claiming that the sale was a sweetheart deal, the stock having been undervalued and the terms of financing imprudent.
The daughter of the decedent who brought the action was, admittedly, a contingent beneficiary of the trust. It was possible that she would take nothing from the trust, all of its assets being exhausted for the wife's health, maintenance, and reasonable comfort. Based upon those facts, the trial court held that the complaining sister did not have standing to sue.
Decision:
In reversing, the appellate court held that, though her status as a beneficiary was contingent, the complaining sister had an interest in the trust res and any dissipation of same, and therefore had standing to challenge the acts of the trustee as those acts may affect her contingent interest.
Joint tenancy
In re: Estate of Goldstein, 293 Ill. App. 3d 700, 688 N.E. 2d 684, 227 Ill. Dec. 991 (1st Dist. 1997)
Facts:
Max was one of seven siblings who worked in a number of different family businesses. The revenues from these various businesses were all deposited to a common fund, and it was an unwritten family rule that whenever a sibling married, that sibling's share of the common fund would be transferred to the remaining unmarried siblings. The existence of that rule was not shared with the brides and grooms-to-be of the family members. As per custom, shortly before his marriage, Max transferred without consideration his theretofore joint tenancy interest in four family assets to his unmarried siblings. Prior to his death, Max told his wife, Ann, that the family would take good care of her in the event of his death. Max died and the family favored Ann with an automobile and several pieces of furniture.
Ann filed suit against the unmarried siblings, her main claim being that her marital rights were invalidly defeated by her husband-to-be's transfer of his property interests immediately prior to the marriage and that the transfers were illusory.
Decision:
In response, the appellate court noted that, though the cause defined by Ann's complaint was a recognizable one, the voiding of the conveyances would result in the assets returning to their former title status, i.e. joint tenancies, the tenants thereof being the then unmarried Max and his unmarried siblings. The pre-marriage joint tenancies never included Ann, and thus she had no survivor right.
Rights of joint tenant
In re: Estate of Vogel, 291 Ill. App. 3d 1044, 684 N.E. 2d 1035, 226 Ill. Dec. 39 (2nd Dist. 1997)
Facts:
Arthur and Irene, husband and wife, had three joint bank accounts. Irene withdrew $90,000 from one of the accounts and gave it to her daughter. Next, she withdrew $49,000 from the other two accounts for her own use. Approximately one month later, Arthur, Irene's husband and joint tenant, died. Irene died approximately one year later. Arthur's estate asserted a claim against Irene's estate on two fronts:
1. When Irene withdrew the money from the joint accounts for her own use, she severed the joint tenancies. Upon that occurrence, Arthur's interest in the accounts was equal to the amount that he had contributed to each, and, upon his death, that amount devolved to his estate.
2. The withdrawal of such substantial sums from the joint accounts was a breach of Irene's fiduciary duty towards Arthur.
Decision:
In its affirmance of the trial court, the appellate court noted that in the real property arena, a joint tenancy requires the unity of interest, title, time, and possession. When a joint tenant conveys his/her interest to a third party or to self, the unities of title and interest are destroyed. When that occurs, the remaining joint tenants hold as tenants in common.
Unfortunately for Arthur's estate, however, those same rules of thumb do not apply to joint bank accounts which are subject to the terms of the deposit agreement between the parties to the account.
Personal effects--defined
Sverid v. First Nat. Bank of Evergreen Park, 295 Ill. App. 3d 919, 693 N.E. 2d 423, 230 Ill. Dec. 294 (1st Dist. 1998)
Facts:
The decedent's will provided:
I give all of my personal effects, household goods, and all other goods and chattels to my good friend, Mary Kay Looper Sverid.
In the search for assets, certain of the decedent's stock certificates were found at her residence among her personal possessions. Mary Kay contended that the above provision of the decedent's will served to bequeath to her all of the decedent's personal property, both tangible and intangible.
Decision:
The appellate court noted that no prior Illinois case had construed the term "personal effects" in this context. The Probate Act is dispositive of the issue, said the court, in that it distinguishes tangible personal property from stocks, bonds, mortgages, accounts receivable, notes, and the like.
Thus, stocks and bonds are not to be considered "personal effects."
Divorce decree--child's award
In re: Estate of Downey, 293 Ill. App. 3d 234, 687 N.E. 2d 339, 227 Ill. Dec. 265 (4th Dist. 1997)
Facts:
Michael and Cynthia had three children at the time of their divorce in 1991. The judgment of dissolution contained the following provision:
That, petitioner and respondent will maintain life insurance policies on themselves and shall name the children of the parties as irrevocable beneficiaries until such time as the youngest child reaches his 18th birthday.
After his divorce from Cynthia, Michael married Louella. Three years later he was diagnosed with cancer and, contrary to the terms of the dissolution judgment, he changed the beneficiary of his $300,000 life insurance policy to his estate. At the same time, he executed a will, a provision thereof being that a portion of the policy proceeds be payable to first wife, Cynthia:
... in the amount necessary to fund the balance of the child support obligation I would have at the time of my death under existing court order in cause 91-D-47.
The residue of his estate left one-third to his children in trust and two-thirds to second wife, Louella.
The trial court ordered that the children were to receive one-third of the insurance proceeds to be committed to a trust established by the decedent's will. First wife, Cynthia, appealed, arguing that the children were entitled to the full $300,000 of life insurance benefits and that those funds should not go to a trust but should be administered by the guardian of her minor children's estates presumably her.
Decision:
The appellate court rejected Cynthia's argument and affirmed the trial court noting a court deciding a dissolution case has no authority to increase a surviving child's award in the event of the demise of one of the parents. Likewise, a court in a dissolution proceeding does not have the authority to order a parent to leave a certain amount to a child in his or her will. In this case, the decedent amply provided for his children in his will and the trial court's order committing the funds to a trust was not inappropriate.
Representative's obligation re tax levy
In re: Estate of Van Praag, 292 Ill. App. 3d 213, 684 N.E. 2d 1080, 226 Ill. Dec. 84 (4th Dist. 1997)
Facts:
Van Praag died in 1979 and his son, James, ended up as the sole administrator with will annexed. In 1988 the Internal Revenue Service levied on the estate bank account an took $83,000 the result being: the estate was insolvent. The trial court ruled that James was not entitled to credit for the $83,000 levied by the Service, but was required to pay all estate costs and the beneficiaries their due. Accordingly, judgment was entered against James and in favor of the estate for the $83,000.
The tax assessment made by the Service against the decedent in 1988 was for a tax deficiency for the year 1978, the assessment being four years outside the six-year assessment period. For whatever reason, James indicated to IRS that he would prefer a levy upon the estate funds instead of dealing with an IRS claim in the estate.
Decision:
In its affirmance of the trial court, the appellate court found:
James not only failed to take any action against the levy, but he sought it and did not inform those interested in the estate of the levy until it was too late for them to prepare to attack the levy.
James breached his fiduciary duty to the estate.
Resulting trust
In re: Estate of Koch v. Haskell, 297 Ill. App. 3d 786, 697 N.E. 2d 931, 232 Ill. Dec. 189 (3rd Dist. 1998)
Facts:
Verne and Raymond were both shareholders in a construction company and decided to purchase some Florida real estate in order to build a vacation home for their families. In the course of negotiating the contract for the pur