Family Trust Distribution Case: Keystone Helps Co-Trustees Protect Money Held in Trust for Minor From Opportunistic Family Members
Learn about the tactics Keystone used in this family trust distribution case to overcome the many obstacles posed by the opposing parties and fulfill its clients’ wish to protect the shares held in trust for the minor by her late father.
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It is unfortunate when minors get dragged into legal disputes among adults. The minor in this case was 6 years old when her father unexpectedly died. Though the law forbade her from directly accessing the inheritance she was left on account of her being a minor, there was no question as to the father’s intention to leave her the entirety of his ⅓ share of the trust his father had executed many years prior.
As the co-trustees of their father’s trust, Keystone’s clients, who were the uncle and aunt of the minor in question, were seeking Keystone’s help to protect the money held in trust for the minor by their deceased brother. It was clear to them that their sibling had intentionally kept his assets in the trust, even though the terms of the trust allowed for beneficiaries to withdraw the entirety of their share of trust principal and trust income once they turned 38, an age the decedent had surpassed.
When he died, the decedent had been living separately from his wife. He had been granted custody of their daughter because of the gravity of his wife’s substance abuse and mental health issues. At one point, her behavior had become concerning enough for him to take out restraining orders against her for him and his daughter. He didn’t trust that his wife would preserve his assets for their daughter if he were to remove them from the trust, so he left his share of the trust exactly where it was.
Legal Battle Ensues Between Keystone’s Clients and the Maternal Grandparents for Guardianship of the Minor’s Estate
Keystone’s clients proceeded to petition the court to be appointed their niece’s guardian of the estate so they could preserve her share of the trust and make distributions from the family trust to her as needed. All of Keystone’s clients’ efforts were to uphold the wishes of their late brother regarding his daughter’s inheritance. But the maternal side of the family had different plans.
The maternal grandparents had already been appointed as the guardians of their granddaughter’s person without facing any objections from Keystone’s clients. Now, they wanted the shares held in trust for the minor to be released to them for the minor’s benefit. They petitioned the court to also be appointed the minor’s guardian of the estate, since she would need an adult to manage her inheritance for her. It was this guardianship petition that got Keystone involved in this case.
Keystone’s inheritance dispute lawyers suggested to the court that if anyone is to be appointed to the role of guardian of the estate, it should be a private professional fiduciary, who could assess the situation with a neutral eye. The court agreed with Keystone’s proposition and appointed a private professional fiduciary to assume responsibility over the minor’s estate.
Mother Files Petition to Have Minor’s Family Trust Distribution Transferred to Decedent’s Estate
During this guardianship action, there had also been an estate proceeding filed by the decedent’s estranged wife. She was seeking to not only be appointed as the administrator of her late husband’s estate, but also to have her daughter’s share of the trust transferred into the estate through what is known as a Heggstad Petition. Since the decedent died without signing a will, if the wife’s petition were successful, it would mean that the wife would receive 50% of the decedent’s assets, essentially depriving her own daughter of half of her inheritance; however, at some point in the estate proceeding, to assure the court that her motives were not self-serving, she assigned her full interest in the decedent’s estate to her daughter.
However, even if the mother had sincerely planned to use her daughter’s family trust distribution solely for her daughter’s benefit, removing these assets from the trust and liquidating them (as had been suggested by the maternal side), was clearly not in the minor’s best interest, Indeed, while the trust owned one real property, its other assets were fractional interests in private business holdings. To remove and liquidate them would cause them to be devalued to the detriment of the minor. Furthermore, pursuant to contract, the assets at issue (which were generational family assets dating back almost 100 years), could be controlled only by members of the paternal family line, which included the decedent’s daughter but not his surviving spouse.
Maternal Family’s Unwillingness to Compromise Leads Keystone to Settle at Mediation Without Their Involvement
Despite the willingness of Keystone’s attorneys and clients to comply with the opposing side’s steady stream of requests for additional information and accountings, and despite the terms of the proposed settlement agreements being reasonable, the maternal side kept prolonging litigation by refusing to settle, showing little concern for the emotional distress such prolonged litigation might be causing the minor.
In the end, Keystone settled the case at a mediation with the minor’s guardian ad litem (a person the court appoints to represent the interests of a minor in a particular legal action) and guardian of the estate in a manner that was favorable to the minor.
What Is Guardianship?
In California, a guardianship is a legal arrangement that enables an adult to manage a minor’s life or assets. Barring rare exceptions, guardianships expire once the minor turns 18, even if they were classified as permanent.
Minors can have either a guardian of the person or a guardian of the estate, or they can have both. A guardian of the person has full legal custody of the minor and is tasked with arranging their food, shelter, education, clothing, medical care and dental care, among other things. A guardian of the estate is needed when a minor already possesses or is entitled to receive upward of $5,000, even when the minor is under the care of his natural parents, who themselves can petition to be appointed as guardians of the minor’s estate. A guardian of the estate’s duties include preserving the minor’s assets, paying the child’s expenses (e.g., school tuition, medical procedures), keeping thorough records of every transaction involving the minor’s finances and submitting regular accountings to the court.
While reasons for guardianship can vary considerably, the intention should always be to provide protection and support to the child so they can grow into well-adjusted adults. But in this family trust distribution case, it wasn’t clear that the minor’s permanent guardians of the person (her maternal grandparents) had her best interests at heart. For seven years, they caused litigation to drag on because of their vehement unwillingness to agree to any of the proposed settlement agreements.
Over the course of litigation, both Keystone’s clients and the grandparents had filed petitions for guardianship over the minor’s estate, but the court, per Keystone’s request, moved to appoint a private professional fiduciary to the role instead. This type of neutral agent is generally used when there are conflicts of interest at play in an estate or trust matter. In this case, the appointment of a private professional fiduciary enabled Keystone to finally make some progress.
An In-Depth Look Into Keystone’s Family Trust Distribution Case
The clients did not involve Keystone in this family trust distribution case until the maternal grandparents filed a petition to be appointed guardians of their granddaughter’s estate, but the rift between Keystone’s clients and the maternal side of the family had started long before that.
Keystone’s clients had assumed the role of their niece’s temporary guardians of the person after their brother passed away. Soon after, the maternal grandparents filed a petition to establish a permanent guardianship over the minor’s person, to which Keystone’s clients did not object. They assumed they would be able to maintain a regular visitation schedule with their niece.
But to the clients’ dismay, once appointed, the maternal grandparents did not allow them to regularly visit their niece. Not only were the clients close relatives of the decedent, but they had a relationship with their niece. They filed their own action asking the court for permission to visit their niece. Unsurprisingly, the maternal grandparents were staunchly opposed to the clients having visitation rights.
At trial on this visitation issue, the court found the clients to have the minor’s best interests at heart and granted them full visitation rights. In regard to the maternal grandparents, the court believed they were making vicious and unwarranted allegations about Keystone’s clients with the intent of turning their granddaughter against them. As a result, the judge ordered for all the parties to attend mandatory visitations with a therapist.
Despite the judge’s stern warnings to the grandparents about the harm they may inadvertently be causing their young granddaughter, the grandparents continued their crusade. Keystone’s clients were concerned that if the grandparents succeeded in securing a guardianship over their granddaughter’s estate, her ⅓ portion of the trust would be removed, resulting in financial losses for their niece. The fractional interests in business holdings that comprised her trust assets would be both severely devalued and unable to be controlled if moved out of the trust. But the grandparents could not be convinced no matter how much logic they were presented with.
The decedent’s wife complicated things even further by initiating an estate proceeding to be named administrator of her late husband’s estate and to transfer her daughter’s ⅓ share of the trust into the estate via a Heggstad Petition. A Heggstad Petition is an expedited procedure for transferring property into or out of a trust when the settlor failed to complete the title transfer before dying.
If the mother’s Heggstad Petition had been successful, the trust assets would have been confirmed as estate assets and regarded as the decedent’s separate property. This means that the decedent’s child and wife would have each inherited 50% of his trust assets, which, for the minor, would have been 50% less than the amount she would have received had the assets remained in the trust.
Mediation ensued to reach a resolution for the estate proceeding, but curiously, even though the mother was the one who filed the Heggstad Petition, she did not appear. The other parties in attendance were the private professional fiduciary who had been appointed as guardian of the minor’s estate and her lawyer, the minor’s guardian ad litem, and Keystone’s clients and their lawyers. The grandparents were in attendance as well, but as their granddaughter’s guardians of the person, they arguably did not have the authority to participate in the mediation or sign any agreements arising from it since the agreements were financial in nature
Even though Keystone’s representation of its clients had not yet begun at the time they were engaged in litigation over visitation rights with the grandparents, they had extensively reviewed all the case files. They discovered that the judge from the visitation proceeding had not been very sympathetic to the grandparents’ decision to restrict visitations from Keystone’s clients; therefore, Keystone’s litigation strategy involved transferring all aspects of this case (including the wife’s estate proceeding, which was initially heard before a different judge) back to this original judge, since he understood the background of the case and the irrationality with which the maternal family had been operating.
While this family trust distribution case was not resolved during the first mediation, the parties did reach an agreement during the second mediation (which also was not attended by the decedent’s wife). Ultimately, this case was settled by a mediator’s proposal. The document called for its provisions to be approved by the court, so Keystone took the case to the judge who had presided over the initial guardianship proceeding and sought to turn the settlement agreement into an enforceable court order.
The petition to approve the settlement was granted, entitling the minor to receive both a lump sum payment that exceeded her share of the trust, and monthly payments from the trust until she turned 19. The opposing parties had a right to appear in court to object to the petition, but they would have had to provide reasons for their objections. Given that this settlement provided tremendous benefit to the minor in question, the opposing parties’ loyalties may have been called into question if they had taken issue with it.
“All of this came at great cost to our clients because the clients had nothing to personally gain; they were just litigating to enforce the rights of their niece and the wishes of their late brother,” says Supervising Attorney Joshua D. Taylor.
The most disconcerting aspect of this family trust distribution case was that the minor in question had spent more than half of her life in litigation. When her father died, she was 6 years old. By the time the settlement agreement was reached, she was 13.
While the legal system is often to blame for such delays, in this case, all the blame falls on the maternal side of the family, who failed to consider how their unwillingness to play ball might be further traumatizing a child who had just lost a parent. On many occasions, reasonable settlement terms were presented to them, but to no avail.
“The clients were great to work with and were reasonable in their litigation and settlement positions throughout,” says Monica Yun, the handling attorney on the case. “If the other side had been slightly more flexible, lots of money on attorney’s fees could have been saved and their granddaughter could have gotten on with her life many years ago.”
As far as Keystone’s clients go, they went above and beyond to protect the inheritance of the other beneficiary of the trust, their niece. Despite facing challenges at every turn from the opposing parties, they persisted with their litigation, not only securing for their niece a greater inheritance than what she would have received under the trust, but fulfilling their late brother’s wish to shield his daughter’s inheritance from his wife.