Archive for the ‘Probate’ Category

Decision: Nelson v. Nelson

April 23, 2009

April 17th. The Kansas Supreme Court has issued its opinion in Albert H. Nelson III and Markeyta Nelson Dewey v. Doris H. Nelson (No. 97,664), a case brought by a pair of adult children against their stepmother for their late father’s failure to abide by the terms of his divorce settlement in drawing his will. In a unanimous opinion, written by Justice Luckert, the Court found that the claim which was brought was for a breach of contract by the late Albert H. Nelson Jr and that it was not filed in time to avoid being barred by the Kansas nonclaim statute. In the course of the ruling the Court also overrules one line of its precedents and determines that constructive trusts do not require fraud be shown in order to be created.

In 1975 Albert Nelson Jr and his wife divorced. Under the terms of the divorce settlement he was to leave his entire estate to his two children. In 1978 Nelson remarried and structured his affairs in such a way that almost all his property was held in two trusts or in his new wife’s name (Doris). One trust was to ultimately benefit his children, but on their deaths to bequeath the assets to Oklahoma State and Wichita State Universities. The other was to benefit OSU and WSU after the death of Doris. Mr Nelson died in 2003 and this case was brought by his children to assert that a constructive trust existed which meant that the trusts he had funded should return the assets to the children under the terms of the 1975 divorce settlement.

The District Court and the Court of Appeals rejected this argument, finding that the case which had been brought did not show constructive fraud to have taken place, and that therefore under established precedent of the Kansas Supreme Court a constructive trust could not have been created. The Kansas Supreme Court agreed in part, finding that the Albert (III) and Markeyta had not shown that their action was one for constructive fraud, rather they were bringing an action for breach of contract, which ultimately was against Albert (Jr)’s estate, not his trusts.

However, the Court went on to investigate whether the rule in Kansas that a constructive trust could only be created where constructive fraud was shown was valid. After reviewing the case law it concluded that it was not, finding that there were two lines of cases, a recent one which asserted this principle and an older one which took a broader view. The older cases were from a time when contracts to include someone in a will were common and therefore there were more cases regarding them. The modern cases were based around constructive fraud claims, however there was not reason to limit the law this way and therefore that part of precedent was overturned.

As a result of this, the Court considered whether the claim could therefore be brought that a constructive trust existed. It found that it could not because it had not been brought in a timely manner under the Kansas nonclaim statute which sets time limits on actions such as these to allow probate to conclude with finality. While an exception exists to this statute for tort claims, the Court ruled that that exception did not apply in this case since this was essentially a contracts case (breach of the 1975 divorce settlement). Therefore the claim was time barred and the lower courts’ decisions were upheld.

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Decision: Estate of Draper v. Bank of America

April 17, 2009

April 17th. The Kansas Supreme Court has issued its opinion in Estate of Draper v. Bank of America (No. 96,060), a probate case. In a unanimous decision, written by Justice Luckert the Court ruled against First Christian Church of Olathe, two private individuals, Olathe Medical Center and the American Cancer Society retaining the proceeds from two trusts created by the late Ethel Draper. The property conveyed in these trusts more properly belonged in Draper’s estate for the benefit of her stepson’s due to a 1967 antenuptial agreement. Notes: While named in the litigation the American Cancer Society and Olathe Medical Center had settled with the Estate out of court. Bank of America’s naming in the lawsuit stems from its position as trustee of one of the trusts at issue. The other trust involved is overseen by UMB Bank.

In 1967 Clark Draper married Ethel Catlin. They signed an antenuptial agreement which stated that while each brought separate assets to the marriage and would retain control over those assets independently, if Clark predeceased Ethel his assets would pass to her, and she would leave at least one quarter of her estate to each of Clark’s sons by a previous marriage. Clark died in 1977. In 1977 and 1982 Ethel created two irrevocable trusts from which she benefited during her lifetime, but which upon her death would transfer the benefits to those listed above. Ethel Draper died in 2002, leaving her entire estate of $10,000 to the three sons of Clark Draper, while the two trusts contained combined assets totalling around $1 million. Clark’s son Gerald, acting as executor of Ethel’s estate sued the two trusts, arguing that their creation was a breach of Ethel’s fiduciary obligation under the 1967 antenuptial agreement.

The Johnson County District Court issued a Summary Judgement in favor of the Estate. This was reversed by the Court of Appeals. In this decision the Kansas Supreme Court reverses the Court of Appeals, reinstating the District Court’s Summary Judgement.

The essence of the decision comes down to the determination that Ethel held the property under a Constructive Trust while she was alive, that was created by the 1967 antenuptial agreement. The transfer of the property into the two irrevocable trusts was therefore a constructive fraud (essentially a legal fiction, unbeknownst to the beneficiaries). To reach this conclusion the Court finds that Ethel had a Confidential Relationship with her husband (something which does not arise automatically just from marriage) because of the agreement – under Kansas law a Confidential Relationship arises when two spouses agree to write their wills in a manner co-ordinated between the two of them. The second part of the constructive fraud finding is that Ethel had a duty under the 1967 agreement, since she owed Clark a duty to carry out her part of the bargain in good faith, which she breached by divesting her estate of most of her assets through the two trusts.

The Court also cleared a path through a number of statutory rules regarding timing. It found for example that the statute which bars out of time claims against an Estate did not apply in this instance because the lawsuit was initiated as part of the process of marshaling the assets of the Estate (in spite of the fact that the Executor doing the marshaling was also a beneficiary), where that particular rule did not apply. A claim that the suit was barred under the statute of limitations regarding fraud (on the argument that the fraud took place in 1982) was rejected on the grounds that the terms of the antenuptial agreement were not actually breached until Ethel’s death in 2002.

Kansas Supreme Court Decision – November 21st 2008

December 15, 2008

This post originally appeared at The Kansas Progress, before this blog went live. Consequently the date in the title does not tally with the date on the post.

November 21st. The Kansas Supreme Court today handed down a single decision. Ruling unanimously in the case of Rector v. Tatham No. 97,725 in an opinion authored by Justice Beier, the Court held that under Kansas law prospective heirs can make contracts to assign their expectancy interests to other people. In other words, an expected inheritance is a transferable piece of property.

The question arose in a messy family dispute between siblings Mary Rector, Clifford Tatham, Patricia Disque, and Ruth Strickland (now deceased) over their late mother’s estate. Before the mother’s death, Rector had agreed to purchase her house. The terms of the agreement were that any funds remaining on her mothers’ death from this purchase would return to her. When her mother died, the remaining funds were allocated to the siblings evenly, per the mother’s will. The agreement under dispute had been signed by Rector, the mother and two of her siblings.

Rector sued in District Court but the siblings filed a motion to dismiss (which was granted) on the grounds that the cause of action was not one of the three explicitly allowed reasons to contest the distribution of an estate under probate law. The Court of Appeals reversed this decision, and the Supreme Court upholds the Court of Appeals in doing so on the grounds that under Kansas law an expected interest in a property can be assigned in a contract. This case therefore does not come under the statutorily defined rules of probate, but under more general contract law. In doing so the Court reached back to three pre-war cases which demonstrate the ability to carry out this kind of assignment. Further the court held that the doctrine of Promissory Estoppel would also be a valid basis for Rector’s claim to rest on. That is the idea that if a promise is made to someone who then acts to their detrminent on the assumption that it is true, the promise is enforceable.

The case now moves back to the district court for an assessment on the merits of the claim. The ruling today merely acknowledges that Rector is asserting a valid legal theory, which is assumed to be correct for the purposes of the appellate process. The remainder of the case will determine if her claim has merit.