Overview

Our client came to us after learning that she had lost control of the primary asset of her trust – a three-unit income-producing property – after her son unduly influenced her into executing a Qualified Personal Residence Trust (QPRT) and signing a deed that transferred the property from her existing trust into the QPRT. Worse still, the client’s son, who was acting as the sole trustee of the QPRT, was pilfering money from the QPRT for his own personal benefit. The client was seeking to not only suspend her son as the trustee of the QPRT but to altogether revoke or invalidate it.

In order to obtain a court order revoking an irrevocable trust, such as a QPRT, all beneficiaries of the trust must agree to the revocation. The client and her three children were the beneficiaries of the QPRT. Two of the children agreed, but one – the sole trustee of the QPRT and the client’s alleged financial abuser – refused to approve of the revocation since revoking it would mean that he no longer would wield control over the trust, and by extension, a large portion of our client’s resources.


You might be wondering how a competent person can be influenced into doing something as extreme as executing a QPRT and transferring their main source of income into it if it is not something they wanted. In the case of our client, her son was deliberately over-medicating her in order to make her more susceptible to his influence. She could not even recall executing the QPRT or transferring the property in question into it.

In fact, a QPRT was not even beneficial to our client. It can provide estate tax savings to people whose estates exceed the estate tax exemption amount (which was $5.4 million the year she executed the QPRT), but our client’s estate was a fraction of that. When she executed the QPRT, she was wholly unaware of the fact that she was gifting away her primary income-producing asset. Keystone’s lawyers would argue that since our client lacked the requisite intent and capacity to create the QPRT, and was subjected to undue influence by her son, it should be invalidated.

TELL US WHAT HAPPENED. WE’LL BE IN TOUCH SOON.
Invalidating a Trust on Account of Lack of Capacity, Undue Influence and Elder Financial Abuse

In order for a person to create and execute a trust or will, it is required that they be competent and have the intention to do so; otherwise, the trust or will can be invalidated based on lack of capacity and testamentary intent.

In the case of our client, at the time the QPRT was executed and the deed transfer signed a few months later, she lacked both capacity and intent. While normally competent, when her son took her to a lawyer to create and execute the QPRT, the client had been in a state of heavy sedation induced by her son through providing her incorrect dosages of her medication, which had left her feeling disoriented and confused. The client had no recollection of the meeting with the lawyer or of signing the QPRT document.

Estate planning documents may also be set aside if it can be proven that the documents were procured through undue influence. Undue influence is defined under California law as “excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity.” Undue influence is also a common form of elder financial abuse, and if it came to be proven that an abuser took or obtained property from an elder through undue influence, the court may order the abuser to pay double or triple in damages, as well as the plaintiff’s attorney’s fees and costs.

Elders are particularly vulnerable to financial abuse on account of many of them gradually losing competence and living in social isolation with no one to keeping tabs on their finances. In the case of our client, her son was able to unduly influence her precisely because of his proximity to her.

“Keystone handles many cases like this one in which an elderly person is financially abused through undue influence,” says Shawn Kerendian, the founder and managing partner of Keystone Law Group, P.C. “Fortunately, there are legal measures that can be taken to prevent such elder abuse. For instance, if the elder is competent, they can appoint an attorney-in-fact they trust to help them manage their finances. If the vulnerable elder lacks capacity, their loved one can try to obtain a conservatorship over them.”

Trustee Suspension or Removal

The trustee of a trust is considered a fiduciary, which means that they are obligated to always act in the best interest of the trust and its beneficiaries. Their fiduciary duties certainly don’t permit them to personally gain through the misappropriation or mismanagement of assets belonging to the trust, as our client’s son did. As the trustee of her QPRT, he was supposed to provide our client with the net income from her property at least once quarterly, which he never did. He also spent rampantly from the QPRT, using trust assets to fund his own lavish lifestyle.

The actions of our client’s son warranted for him to be suspended as the trustee of her QPRT. In many cases, when a trustee’s actions are sufficiently egregious, they may even be surcharged and held liable for paying the attorney’s fees and costs of the plaintiff.

An In-Depth Look Into Keystone’s Undue Influence Case

It is rare for trust lawyers to file a petition to invalidate a trust when the settlor is still alive, since most trusts only become irrevocable after the settlor dies. But QPRTs, like the one our client unknowingly executed at the urging of her son, are by nature irrevocable, and since irrevocable trusts can only be revoked by means of all the beneficiaries of the trust agreeing, it was impossible to revoke the QPRT it without the express consent of the client’s son, who was the trustee of the trust. Keystone’s only option, then was to secure a court order invalidating the trust due to lack of capacity, undue influence, and financial abuse.

The client’s son did not have much going for him as far as credibility. He had a history of addictions, which caused him to previously, on many occasions, misappropriate funds from his mother’s bank accounts, misappropriate her possessions and even open new credit lines in her name. At one point, he even had her sign a power of attorney document while she was heavily sedated to give him access to her finances. Our client vaguely remembered signing the power of attorney and revoked it as soon as she could, but a substantial amount of damage had already been done.

Keystone’s probate attorneys were able to present an effective argument, arguing that our client lacked capacity when the QPRT was signed, and was subjected to undue influence and financial abuse by her son — a predator with a demonstrated history of malfeasance and fraud.

Results

At the initial hearing for the petition to invalidate the QPRT and suspend the client’s son as its trustee, the judge – based on our trust lawyers’ compelling arguments surrounding the son’s extended history of questionable conduct toward his mother and her finances –determined that the son’s behavior raised enough concern about financial abuse to immediately suspend him as the trustee of the QPRT and appoint the private professional fiduciary proposed by Keystone as an interim trustee.

 

By crafting a winning legal strategy, Keystone’s lawyers ultimately compelled the son to agree to a settlement in which he agreed to invalidate the QPRT and return control of its assets to his mother.

 

“If this QPRT had not been invalidated, our client basically would not have had any source of income in retirement or any control over her finances,” says Verlan Kwan, Of Counsel at Keystone who served as one of the client’s attorneys. “Thanks to our quick work to suspend the son as trustee and invalidate the trust, our client will be able to enjoy her retirement after decades of hard work.”

Financial Elder Abuse Stopped in Its Tracks

The swift action taken by Keystone’s attorneys to invalidate the QPRT and suspend the client’s son as trustee helped the client to continue to have an income in retirement. Without our attorneys’ efficient handling of this case, our client could have struggled to retire and to exercise any control over her finances, given that most of them were tied up in the QPRT. Our work also stopped the client’s son from perpetrating any additional acts of financial abuse. While the client resided overseas, we worked hand-in-hand with the successor trustee to administer the trust and close it out.

My son, who I’d put through medical school was about to spend my entire life savings and sell my house. I had given him the legal authority to do so. He was challenging my ability to think for myself and retain legal counsel. He was playing dirty. I was lucky to have Verlan on my side. She really fought for me and eventually got the judge to void the document. Believe me when I say there is not a case Verlan can’t win.

The Takeaway

Financial abuse runs rampant among elders. No one wants to believe their own family members could be the perpetrators, but they often are, as demonstrated by this case. The lesson is for elders to remain cognizant of their finances at all times. And if they are not well-versed in money matters, they should have a lawyer or accountant assisting them.

If an elder lacks competence, then it is equally important for their attorney-in-fact or conservator of the estate to keep tabs on their financial affairs. The earlier misconduct is caught, the less damage the perpetrators will be likely to inflict.

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