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My Relative Just Died in Hawaii. I Do Not Live in Hawaii and I Have No Information on His Assets or His Estate. Please Help!

Fri, 11 Oct 2024 08:59:22 GMT

This law firm receives phone calls almost daily from inquisitive relatives living on the mainland or overseas regarding the death of a relative.

The potential client only tells us that they have no information other than a notice of death and perhaps where the location of the body is. Now, understandably, they want to know:

Did he or she die with assets?
Who has the authority to provide for cremation or burial services?
What are the assets?
Where are the assets located?
Did the person leave a Will or a Trust?
Who should be notified of the death?
Who should be put in charge of collecting the assets?
Did the caller inherit anything?

The answer to these questions can be difficult, and full answers would be the subject of a very long dissertation. This is particularly true when a decedent has been living alone, without close relatives, family members, or friends who are familiar with the decedent’s personal and financial affairs.

This article attempts to walk the reader through some of the issues that one confronts when trying to identify assets and locate a Will or Trust that the decedent may have left behind.

Generally, the first place to start is to obtain an Order from the Probate Court or what is called an “Affidavit for Collection” for estates that are known to be below $100,000 in assets and own no real estate in Hawaii. Generally, Affidavits require a fair amount of knowledge regarding a decedent’s financial affairs. Either of these legal instruments will allow a relative or an individual to legally act on behalf of the decedent’s estate. This individual would have the legal authority to approach various institutions and third parties that may hold assets.

The goal of the personal representative who is put in charge by the court is to collect assets, pay debts, and distribute the assets according to a Will or a Trust, or pursuant to Hawaii’s laws of intestate succession, which determines where assets go when a decedent does not have a written Will or Trust.

It takes approximately one month to receive an order from the court authorizing an individual to act on a decedent’s behalf. That appointed individual does not have to be a resident of Hawaii or even the United States. Our law firm charges a flat fee to assist in the appointment process.

Once a personal representative is appointed, if possible, it is suggested that the personal representative visit the decedent’s last place of residence to begin the laborious process of going through the decedent’s belongings and mail to find clues as to where assets may reside. Accessing a decedent’s email account and computer hard drive may be required to ascertain the location of mutual fund accounts, stock brokerage accounts, pensions, savings accounts, checking accounts, and other assets.

In the case of real estate, law firms can perform a title search, and title companies can determine whether an individual holds real estate in the State of Hawaii.

Law firms do not investigate a decedent’s computers and piles of mail in cases where a personal representative cannot travel to Hawaii. However, third-party services are available to do this type of work.

In terms of insurance policies and annuities, there is a national depository for insurance policy information with certain participating insurance companies and financial service companies. There is a national insurance policy locator service on the web at NAIC.org. By filling out the forms and submitting them over the Internet, you may be able to locate a potential life insurance policy or annuity belonging to the decedent.

With respect to local bank accounts, once an individual has the authority from the probate court, it may be desirous to contact all the local banks to determine if the decedent left a checking or savings account.

It may also be possible to write to the Internal Revenue Service to get a copy of the decedent’s last tax return, which could provide clues as to where investments were located.

A law firm or other individuals can check the local probate court records to see if a Will has been admitted to probate. Also, in the case of private trust agreements, which are not registered with the court typically, the Probate section of the Hawaii State Bar Association may be able to assist in contacting various estate planners in Hawaii to see if a Trust was prepared and executed by the client of an attorney licensed to practice law in Hawaii.

Once an individual has been appointed personal representative, they only have the authority to commence and take possession of the decedent’s body and provide for funeral arrangements and/or cremation if the will authorizes them in writing to do so or the priority statute discussed below permits them to take control.

Hawaii law has a statute, HRS § 531B-4, which sets forth a priority list of individuals who have the right to control the disposition of a decedent’s remains and the location, manner, and conditions of disposition of those remains. If a decedent’s Will or Trust designates someone to take control of their funeral and burial, that person has priority above everyone else. If no other relatives exist, any person willing to assume responsibilities may take possession of the body and direct disposition after attesting in writing that a good faith effort has been made to notify the decedent’s next of kin under the statute.

In summary, if an individual does not have proper estate planning when they pass away, a relative can be faced with the time-consuming and challenging task of locating assets and dealing with the administration of the decedent’s estate. Law firms can provide invaluable assistance in this process, but they are not a substitute for doing the necessary “boots on the ground” work in Hawaii. Individuals who do not have the ability or time to travel to Hawaii may wish to seek to appoint an independent personal representative or corporate fiduciary in Hawaii to undertake much of the investigative work. As a result, a relative or other interested person may be required to advance fees or costs that would be reimbursable from the estate if assets are found.

If you would like to start the informal probate process with our law firm, please contact us at (808) 523-3080 to start the process of estate administration and appointment of a personal representative for a decedent who dies with assets in Hawaii.

Avoiding the Black Sheep Sibling as Personal Representative, Trustee, Power of Attorney and Parental Caregiver by Michael D. Rudy, Esq.

Tue, 13 Jun 2023 19:46:42 GMT

It has always perplexed the Firm’s lawyers, why serious responsibility for an elderly parent’s welfare and estate is so often reposited in the weak link in the family. Parents are very protective of their ne'er do well child. That child frequently is unemployed and often lives at home with his or her elderly parents. Often these are the sons and daughters whom the other siblings (or the elderly parent) appoint with the most significant responsibilities. Do not forget elder abuse is a crime of opportunity and this is when parents may be at their most vulnerable to undue influence by an unscrupulous caregiver.

These caregivers are often unprepared to take on the taxing role of Trustee or Personal Representative and are least likely to understand their role as attorney-in-fact, Trustee or Personal Representative. Somehow, whether their name is on a bank account or credit card, or they have other access to their parents’ funds, they come to view their parents’ assets as their own. This is one of the most frequent fact patterns we see in elder financial abuse cases, and I refer to it as the “Black Sheep Syndrome.”

In this scenario, fellow siblings who have not faced the acute situation of caring for a 70-, 80-, or 90-year-old frail and infirm parent are desperate to address the situation of their parents’ care. In an attempt to create a win-win situation with a Black Sheep sibling they agree to let the Black Sheep sibling financially and personally care for their mother or father.

A Black Sheep sibling can best be described as someone in the age range between early fifties to mid-sixties who is typically single or divorced, with a history of unemployment or other poor job performance and possibly financial woes of their own. They may also have had a history of alcohol or drug abuse, which has rendered them unemployable and will render them unreliable. They have few financial assets of their own, and their current living situation would be best described as unstable (if not for the financial assistance of the parent).

The naive brothers and sisters of Black Sheep siblings attempt to create a win-win situation for both the parent and the Black Sheep, and they just assume that the Black Sheep will honestly or fairly carry out their parent’s final wishes. When the parent is in need of custodial care and wishes to age in place, typically in the family home, the fellow siblings believe that they can avoid this costly expense of private care in an assisted living environment. Collectively, they determine that they will be able to save and preserve their own inheritance and essentially give the Black Sheep sibling a stable home environment. Sometimes this means a modest salary, and the chance at a healthy nurturing relationship with their elderly parents. Unfortunately, honest and naive siblings do not contemplate the pitfalls of such a relationship.

This scenario often creates a disastrous situation. The Black Sheep sibling almost immediately provides no or less than desirable care, can be left totally unsupervised with a parent, and quickly gains access to a parent's bank accounts and other forms of savings and may even have the family home transferred to their own names. In doing so they commence to embezzle cash and property, although they will rationalize spending that money as necessary for parental care. However, if the situation goes on unnoticed for several years, and the elderly parents’ estate permits, the Black Sheep can end up spending hundreds of thousands of dollars on their parent’s estate, far more than a professional caregiver would cost.

It will seem self-evident in hindsight that the naive siblings made a poor decision. Potential clients frequently come to our office suffering the emotional pain of a parent’s death and then are stunned that the Black Sheep has never complied with their original compact. We rue appointments when a group of siblings come to our office and tell us a woeful, sad story of this kind that inevitably results in the lack of physical and financial care that ought to have taken place owing to their good intentions in supporting the Black Sheep sibling as caregiver.

If the Black Sheep sibling is living in the home of the elderly parent their lives inevitably become enmeshed and often it is difficult to unravel the dysfunctional relationship that arises between the Black Sheep and the aging parent. The Black Sheep sibling will have entrenched herself or himself in the family home, making it difficult to legally extract them. Moreover, owing to the difficulty of the caregiving role, the Black Sheep sibling will become resentful of the other siblings, some who may live far from the family home.

“Entrepreneurial” and manipulative Black Sheep siblings take mom or dad to an estate planning attorney and have health care powers of attorney and other powers of attorney executed in their favor, making it especially difficult to unwind the legal relationship. In these situations, parents feel duress that if they do not make the Black Sheep sibling the holder of these legal powers, they will stop caring for them. Often, particularly with very old parents or non compos mentis parents, parents will not be able to make the decision of their own free will. The Black Sheep, of course, feels that they are so overwhelmed and overworked they deserve this money, irrespective of what their parents’ wishes are.

Once the Black Sheep sibling seizes control, gaining access to bank records and other important documents that are in an aging parent’s name alone, it is often difficult and sometimes requires emergency court filings and hearings before a judge to unravel the mess created in this situation.

Even in situations where siblings believe they have a firm understanding of their expectations with the Black Sheep, things can go wrong quickly. Owing to the difficulty of this task, the Black Sheep family member quickly feels entitled and denial quickly seeps into the abusive situation.

It cannot be overstated that is never an opportune time to institute a social experiment with a Black Sheep sibling in the hopes that he or she may possibly be a good fit in their new role as a caregiver and trusted fiduciary. Quality caregiving is difficult and requires experience. A senior’s caretaker must have a history of dedication, honesty, and empathy in working with elderly individuals.

Just as a sibling would interview professional caregivers inquiring about their references and past employment, the same metric should be used in evaluating the Black Sheep sibling. It is simply too much to expect the Black Sheep sibling to "clean up their act," and in cases of drug addiction and alcoholism it is impossible. Responsibility for caretakers can be a strange, novel and stressful situation for anyone, let alone overseeing a sibling that lacks the skills to work with elderly individuals.

Entitlement of an individual is a very powerful tool that a perpetrator of elder fraud uses to justify virtually any action against an elderly individual. They simply do not view the situation as a win-win for everyone, but simply as an opportunity for their “put upon” selves to be rewarded. Remember, financial elder abuse is a crime of opportunity. If an unsuitable person has access to a parent’s funds, the temptation will be too great to pass up. Responsible siblings that end up being legally responsible for a parent's care must be realistic in any caregiving situation particularly in a Black Sheep situation.

If you want to attempt to provide a win-win situation for an elderly parent, it should only be done on a trial basis with strict monitoring. Simply assuming or hoping for the best is not the solution. We recommend in these types of situations to have paraprofessionals monitor the situation weekly, sometimes with surprise inspections and at least a monthly review of an elderly person's finances to ensure that they are not being victimized. The caretaker may likely resist financial and personal oversight, and that is a sign there may be elder abuse going on.

Also, it is critical that before this trial period starts a complete estate plan is executed by the aging parent. Alternatively, and at a minimum, a conservatorship should be instituted, or a parent that is already incapacitated and lacks the requisite ability to execute their own will or trust. Protecting the elderly from abuse requires vigilance.

It is not foolish to give someone a second chance in life, particularly a sibling, but it is not responsible if you do not monitor trust and verify what is occurring in the caregiving situation. Therefore, what at the outset appears to be a simple and economic solution to a serious problem, results in an outcome that can be not at all what the family expected. These situations can cause an irreparable rift in family relations and cost more of the beneficiaries’ share of their parents’ estate than merely hiring a professional caregiver. Finally, and most importantly, it will not result in the care one’s elderly parent deserves.

Is a Handwritten Will Valid in Hawaii? By Michael D. Rudy, Esq.

Tue, 13 Jun 2023 19:37:50 GMT

Unwitnessed, handwritten wills or Holographic Wills, as the law more particularly describes them, can be perfectly valid and enforceable in Hawaii if certain drafting conditions are met.

As this article discusses more particularly below, Hawaii is among just five other states that has a specific law that provides for very permissive criteria allowing a probate judge to accept wills that may not otherwise conform to the strict standards of a properly witnessed and attested to will.

The Hawaii Revised Statutes (“HRS” or the “Statute”) § 560:2-502(b) and (c) states a Holographic Will:

(a) is valid as a holographic will, whether or not witnessed, if the signature and material portions of the document are in the testator's handwriting.

(c) Intent that the document constitute the testator's will can be established by extrinsic evidence, including, for holographic wills, portions of the document that are not in the testator's handwriting.

It is interesting to note that since the outbreak of Covid in Hawaii in March 2020, this Firm has litigated more Holographic Will cases than it has in its 30 prior years of existence! This development is unsurprising since for several years, adults, particularly the elderly, were advised not to leave their homes. Additionally, statistics of thousands of Americans dying every day were an effective reminder for people to put their estate plans in order. Since not leaving the house precluded visits to attorneys’ offices, many people decided to handwrite their wills. Moreover, more lawyers than ever were working remotely, and the idea of gathering the testator, his or her attorney and two witnesses could not be easily accomplished. This sudden frequency of Holographic Wills appearing in probate courts this year may be attributed to individuals’ prior difficulty in obtaining an estate planner during Covid.

Even before the paucity of in-office lawyers during 2020 and 2023 owing to Covid, it was challenging to serve many senior citizens located in nursing homes or otherwise isolated. It can be difficult to gather witnesses, paralegals and even visiting attorneys to prepare even a simple Will.

Consequently, many elderly individuals were forced to use "do it yourself" handwritten wills. The Probate Court was then left to interpret the Testator’s acts regarding the issues of enforceability, intentions, and documents.

The discovery by a third party of a Holographic Will after the death of a decedent can result in a legal quagmire over its authenticity, Testator intent and the interpretation of the handwritten instrument. The Personal Representatives of Decedents who have been alone or estranged from their families, can find themselves in possession of a Holographic Will and may expect disputes over the document from relatives, caregivers, and even relative strangers. Therefore, a careful and well-planned case must be mounted. It is up to the attorney, working with clients, to uncover evidence that will allow the denominated Person Representative to prevail.

As set forth above, Hawaii law provides that handwritten wills that are not witnessed can still be valid and offered for probate if the signature and material portions of the will are in the testator's handwriting. The requirement of authenticity is typically proven by someone who is familiar with the maker's handwriting. Alternatively, the handwriting may be identified by a handwriting expert using near contemporaneous samples of the maker's handwriting as contained in letters, checks, other written documents, or instruments in the maker’s own writing and performing a signature comparison of same

Typically, in a Holographic Will dispute, the main point of contention is whether the document contains evidence of the Testator’s requisite testamentary intent to make the will. The question before the court is whether the material portions of the will contain sufficient language expressing the intent of the maker of the will and that the instrument is sufficient evidence of the Testator’s irrevocable intention to leave or dispose of the property according to the Holographic Will found at the maker's death.

Courts and judges across the country that admit Holographic Wills interpreting Hawaii's expansive law on the subject have universally held that there need not be any formal legal language to establish testamentary intent. Phrases like "should anything happen to me” or when I leave" constitute the required demonstration of testamentary intent. Even words or phrases in a document describing the instrument as someone's last will and testament can be enough to satisfy testamentary intent.

However, vague references to making a will in the future such as "I intend to change my will and leave my property to X" have been held insufficient as well as merely making a promise to make a will at a later date. Alternatively, the phrase "I want you to have it all" is considered a valid will with requisite testamentary intent when signed.

The interesting and developing part of the law with respect to handwritten wills is whether the will even has to be signed or dated at all. In 1996, Hawaii joined just five other states -- Connecticut, Hawaii, South Carolina, Washington, and Wisconsin -- in the United States along with the countries of Australia, Israel, and Canada in enacting Hawaii's version of the “Harmless Error Rule” regarding wills that is now codified in HRS §560:2-503. The Statute states:

Contested Conservatorships

Sat, 03 Jun 2023 09:43:33 GMT

There is perhaps no other area of law which is as rapidly growing as contested conservatorships. The U.S. senior population is rapidly growing as it has been since 1900. From 2010 alone there has been an increase of 38 percent in Americans above the age of 65 compared to the rate of 2 percent growth in the under-65 population*. This represents a societal shift in which a smaller cohort of the under-65 population is left to care for the greater cohort of the over-65 population. According to the Administration on Aging, a division of the U.S. Department of Health and Human Services, rates are expected to climb to roughly 80.8 million residents 65 and older by 2040, more than double the number in 2000. In addition, the Administration on Aging also predicts a doubling of the number of even older residents by 2040, with the count of those 85 and older expected to grow from 6.7 million in 2020 to 14.4 million by 2040*. This development puts a strain on families and the judicial system as well as challenges a practitioner in this area.

Contested conservatorship cases in Hawaii are court proceedings conducted and overseen by a probate judge or a civil judge acting as a probate judge. This proceeding determines whether an individual has the legally recognized capacity to manage his or her own financial matters. If the senior does not have capacity, there is a need for a third party or other entity to intervene and do so for them.

The number of contested conservatorships in Hawaii and in other states is rapidly growing. The fact that people are living longer and living with appreciated assets such as real property, investments, savings, and other bank accounts necessitates that these assets might need to be safeguarded from someone who is in a position to exploit the senior. Conservatorship is a tool to protect the elderly individual from financial exploitation.

These proceedings typically concern those between the ages of 70 to 100 and have been initiated by a child, sibling, or other close family relative. These proceedings are proliferating owing to the rampant abuse, financial and otherwise, of the over 65-population. The U.S. Department of Justice defines financial exploitation as the illegal, unauthorized, or fraudulent use, or deprivation of use, of the property of a vulnerable adult with the intention of benefiting someone other than the senior. Types of financial abuse include deception, intimidation, or undue influence by a person or entity in a position of trust and confidence with an elderly person or a vulnerable adult to obtain or use the property, income, resources, or trust funds of the elderly person or the vulnerable adult for the benefit of a person or entity other than the elderly person or the vulnerable adult. Additionally, trustees may not appropriate property for their own gain, which is a breach of their fiduciary duty*.

Approximately 75 percent of contested conservatorships in which people fight over the control of the incapacitated adult are triggered by accusations of financial elder abuse. Legal action can be initiated upon such bases as embezzlement and theft of cash or property or fraudulently procuring through undue influence or fraud and the creation of invalid will, trust, or a power of attorney. All too often the perpetrator is a trusted friend or child, the law terms them “close confidantes” and in some cases these perpetrators are “fiduciaries” as well, such as a named personal representative, trustee, or attorney-in-fact. In these cases, financial exploiters confuse their role as close confidant or fiduciary with “owners” of the estate or trust. A fiduciary or close confidante must conduct themselves dutifully to benefit the settlor and beneficiaries*.

A conservatorship may be viewed as a precursor to a will or trust contest. In conservatorship cases there are usually accusations of undue influence or breach of fiduciary duty that have prevented the senior from exercising his or her intent in drawing up the will or trust. The financial exploiter may produce amendments to trusts and codicils to wills that the senior did not intend or was not cognizant of. If the close confidante or fiduciary has not acted in good faith, trusts and wills are challenged. In response the litigants bring a petition, seeking to avoid or erase these illicit documents because they often unfairly advantage a single individual and possibly his or her family over the remaining members of the family (often are beneficiaries or interested persons in the matter).

These proceedings can be very complex and nuanced, particularly if the elder is incapacitated or easily persuaded. They are often fact-intensive, and investigating the allegations can take a lot of legal time and money. Additionally, they also typically require one or more expert opinions from qualified third-party physicians, psychologists or psychiatrists that specialize in a unique field of forensic medicine.

Forensic medicine is generally described as the intersection between law and medicine. A proper forensic medical expert must have a solid grasp of the legal requirements of capacity* that they are evaluating when they interview and assess an elderly individual.

In a contested conservatorship, there are typically at least two mixed questions of law and fact in dispute. The first question is whether under Hawaii law the adult is incapacitated such that they cannot manage their own financial affairs without some lesser restrictive means i.e., other forms of less formal supervision under other than a third party (who would take over the legal ability for that individual to control his or her assets). The second question is who is the proper third party* to take control of the financial responsibilities of the adult in question. All too often, this question involves pitting one or more children of an elderly individual against one another as the court struggles to determine who is most fit to manage their parents’ financial affairs.

The Court can, in order to avoid this delicate question, simply appoint a neutral third-party. In that case, there are additional attendant costs and management fees that must be factored into the court's decision.

A discerning attorney experienced in the field is required to understand the intricacies of a contested conservatorship case. Additionally, a case that at the outset seems fairly simple, can turn into a complex one. In one respect, as in chess, the lawyer must think several moves ahead in order to be prepared for the twists and turns of the case.

First and foremost of the lawyer’s tasks is fact gathering and trying to assess the validity of one or more accusations of wrongdoing against an adult individual. That person, owing to his own incapacity, may not be able to help in the fact-finding.

At the same time, the practitioner must find capable experts who have the education and experience to navigate the complexities of the law and medicine. The results of the expert’s medical findings will certainly influence that case, so these doctors must be staunch and discriminating expert practitioners.

Many “so-called” forensic experts in Hawaii and elsewhere simply do not understand that an assessment requires a deep understanding of the legal standard and the correct medical diagnoses. Without this background a party cannot obtain the results required to prevail in a conservatorship contest.

In litigating countless contested conservatorships over the past 30 years, I have found that finding a competent expert is one of the fundamental challenges presented to an attorney practicing in the area of elder law and trust and estate litigation. The pool may be wide, but only upon occasion is it deep enough to serve the purpose of the litigator. The doctor must have a reserve of knowledge in this specialized area.

Simply passing the buck to a neutral third party in the event that two or more individuals contest who ought to be conservator is frequently ill-advised. Putting a complete stranger in charge of an elderly person's finances can be both stressful and cost prohibitive for both the senior and the person seeking the conservatorship. Nevertheless, courts often take the easy way out by simply appointing a neutral third party due to a variety of factors, including court time management and the court's overall patience with a family dispute.

Contested conservatorships in this author's opinion are one of the most bitterly contested types of proceedings that exist in the law today. There are real human emotions, disappointments and frustrations that confront family members as they go through what can be a prolonged and emotional process. Therefore, attorneys that practice in this area must be keenly aware of the psychosocial issues as well as the legal issues in guiding clients through this emotionally charged event. With so much experience behind us, our attorneys provide a deft hand sorting out the differences among family members, some of which have been festering since childhood. Understanding the root of the dispute can be essential to solving it. No more than in elder law and trust and estates litigation and planning do lawyers require a diplomatic approach assessing the needs of real people. All law is in service; however, a slightly more personal level of service might be needed in these particular cases each of which is unique.

_______________________________________________

*Linda Searing. The Washington Post., More than 1 in 6 Americans now 65 or older as the U.S. continues graying, February 14, 2023.

*Ibid.

*https://www.justice.gov/elderjustice/prosecutors/statutes.

*Fiduciary duties include duty of care, loyalty, good faith, confidentiality, prudence, and disclosure. There is no measurable difference between the duties of a close confidante and a fiduciary.

*To be “of sound mind,” the testator must, when executing a will, be capable of knowing and understanding in a general way the nature and extent of his or her property, the natural objects of his or her bounty, and the disposition that he or she is making of that property, and must also be capable of relating these elements to one another and forming an orderly desire regarding the disposition of the property. Bradley E.S. Fogel, The Completely Insane Law of Partial Insanity: The Impact of Monomania on Testamentary Capacity , 42 Real Prop. Prob. & Tr. J. 67, 77 (2007)

*Conservator.

Choosing the Right Trust & Estates Litigation Law Firm in the Aftermath of COVID

Sat, 03 Jun 2023 09:26:18 GMT

Hiring an attorney in a specialized field such as trust and estate litigation in the wake of COVID is challenging to say the least. This harsh truth is even more magnified in a small legal market such Hawaii with a population of just 1.5 million individuals. Here, locally, even prior to COVID, the pool of competent, experienced lawyers in nuanced and highly specialized fields such as trust and estate litigation were exceedingly limited.

Now, owing to a number of factors, even fewer experienced and qualified legal professionals are available in this area. Several experienced attorneys have quietly retired in the last few years, and, owing to the vicissitudes of running a small practice. Their law firms have either closed their doors or their remaining lawyers have moved elsewhere.

Remote work is laudable for a number of reasons, but there are downsides. Many young lawyers who could have received valuable training and experience working with senior lawyers do not have that opportunity. Remote practice can lead to a lack of strict or close supervision during the training of new lawyers. This is unfair to the client and to junior counsel.

As a result of COVID and remote work, many younger attorneys have lost several years of valuable skills and training. They find themselves grappling with that fact. Given the typically small to mid level size of attorneys practicing in this area, junior associates find themselves working directly with clients, a task that they may not have genuinely been trained to do. Additionally, since the training is not as intensive their frame of knowledge and experience is concomitantly smaller. This fact may lead to a less than experienced response to certain matters. Clients fear this, but so does the judiciary and seasoned counsel; the law can be a minefield.

Adding to these troublesome issues, over the last three years the hours and quality of training that these attorneys have received, and their interaction with other members of the bar has largely been conducted via Zoom video conferencing. This affects the quality of representation, because it deprives newer lawyers, indeed all lawyers, from observing subtle indicators that might be useful in litigating the matter to a positive result. In addition, clients have often retained counsel without any face-to-face meetings as engagement of counsel has been either by telephone conference or similar video teleconferencing. Generally, this makes clients less inclined to follow their lawyer’s advice and to question the glacially slow legal process. In essence clients do not have the opportunity to fully evaluate counsel.

As a lawyer with some 30 plus years of experience, and memories of my own training by seasoned lawyers, it is my opinion that video conferencing, is a difficult mode for less experienced counsel to learn how to conduct an oral argument, depose a witness, let alone conduct an evidentiary hearing or even a trial. In addition, many of the more moderately experienced attorneys made the decision during 2020 to 2023 to downsize their practice by eliminating staff and other resources that provide quality representation to clients. Just because a practitioner is able, via a computer or other electronic means, to do a task does not mean it is the most cost-efficient and best way to get the thing done.

This additional pressure has often inevitably led to attorneys taking fewer cases, requiring the same need for revenue notwithstanding. Many attorneys have been forced to take fewer cases and increase their hourly rates in order to stay in business. In essence, the client, who is the consumer of legal services, is paying for less. It will take many years for the trust and estate litigation bar to recover from the effects of COVID, and many clients, will continue to engage attorneys through remote means such as email, video conferencing and telephone conference calls. They will be forced to gauge what they can expect to receive in terms of value and quality of service affected by these shifts in the practice of law.

As a matter of due diligence, a prospective client should always ask prospective counsel whether or not COVID has forced them to disengage from a prior firm, reduced their resources, and the level of training and experience that they have received in this specialized field. It is true, an attorney may not necessarily be less qualified because he or she is working from their kitchen table, but the client should know whether that is the case. Clients should also ask whether the attorney has back up, whom exactly they will be dealing with, how many cases the attorney is simultaneously handling and what they can expect in terms of communication and response time to their questions.

Attorneys that have gone through one or two professional changes in the structure of their practice during the last three years, should explain how and why the client can expect the same level of legal service as a larger firm has with more lawyers and professional staffing. This is especially true in complex cases. It is our Firm’s experience that even cases that may seem routine, often turn into highly complex matters and require unanticipated significant resources that may not be available to every client.

This goes to show that a sole practitioner requiring a smaller retainer than a larger firm will not necessarily be cost efficient in the long run. History has shown our Firm that approximately 25 percent of our cases concern taking over from other law firms that simply could not handle the size and complexity of the matter they undertook. Oftentimes, damage has been done by lack of attention to the case over a prolonged period of time, which has turned a "simple case" into an extremely complicated case that may or may not be salvageable.

Moreover, attorneys that are working remotely, whether in the State of Hawaii or elsewhere, are increasingly being forced back into courtrooms, and require physical presence in front of the judge, because the judge, too, knows that Zoom does not necessarily provide the nuance that may be a major factor in the case. It is this author's opinion that many attorneys that must reappear in the courtrooms may be rusty or will not have the requisite fundamental knowledge, support staff, and even the desire to go back into the courtroom. There is stiff competition from increasingly hungry opposing counsel and a contested case is necessarily time consuming. A contested case is not a summary proceeding as many cases in probate court are. It could take months or years to sort out the client’s issue. So careful choice of litigation counsel is paramount.

Our Firm, MacDonald Rudy , thought the best way to address the post COVID changes in the legal environment was to actually expand our firm to add personnel, both lawyers and paraprofessionals since qualified and experienced attorneys were retiring. The result is that the firm emerged from COVID a larger, stronger organization than ever before. We truly believe in training our associates as rigorously we have been trained. Junior lawyers as well as senior lawyers have the training to undertake complex cases and the analytical and intellectual support from their colleagues which can be case defining. We firmly believe that our services and experience place us far above other firms or attorneys advertising similar services in our field. A keen legal strategy and relentless counsel often proves well worth it for our clients.

Filing Creditor Claims Against the Estate or Revocable Trust

Tue, 25 Oct 2022 23:18:32 GMT

Do you know someone who has recently passed away that presently owes you money, or will owe you money in the future under an agreement or contract?

There are very specific legal procedures with short time limitations in which you must, under Hawaii law, present these obligations or debts, regardless of whether the debt has already become due at the time the individual passed away.

Michael Rudy spoke to the Hawaii State Bar Association Collections Division on October 7, 2022, and spoke about these complex and highly technical rules that protect your rights when someone who owes you a debt or other obligation passes away.

Filing Creditor Claims Against the Estate or Revocable Trust

Hawaii State Bar Association Collection Law Section

October 7, 2022 9:00 a.m.

YWCA Laniakea – Fuller Hall

1040 Richards Street

Honolulu, Hawaii 96813

Michael Rudy founded MacDonald Rudy over 30 years ago. The law firm concentrates on fiduciary, trust and estate, and real property litigation. For over three decades he has litigated complex trust and estate matters and contested conservatorships involving some of Hawaii's largest private trusts and high-profile individuals and families in Hawaii.

I. INTRODUCTION

Creditor-claim Procedure in the probate court of Hawaii is highly statutory. The procedure, however, is fraught with peril with very short time limits for presenting claims.

The rules are nuanced, and occasionally complex issues arise as to whether there exists a claim or whether the claim was pre- or post- death, or administrative.

This is true even for more specialized practitioners in the probate courts of which there are unfortunately relatively few and qualified practitioners that can assist when complex issues arise.

Although there are relatively few known litigated creditor claims in the probate court, when specific technical or legal issues do arise, there is little or no UPC case law or practical guidance to refer to.

This is true not only in Hawaii but in other jurisdictions across the country that have adopted in some form the Uniform Probate Code.

Creditor-claim issues, when they do occur, frequently revolve around the following:

Failure to identify a proper claim;
Failure to promptly identify the fiduciary whether it be trustee or personal representative;
Complying with applicable short statute of limitations;
Assessing and determining pre- or post- death or administrative claims;
Assessing non-exempt and exempt non-probate transfers;
Determining proper choice of forum to litigate efforts in creditor claims.

A. Do You Have A Claim?

1. The definition of a claim is very broad. Claims are any potential or actual contractual obligation, whether breached or not at the time of death. Example: partnership obligations, executory contracts, personal guarantees, promissory notes not yet due, torts that have occurred, but damages are unliquidated, etc. Virtually any existing legal relationship the decedent may possess, vis a vis third parties, may contain a possible claim subsumed within it.

B. Determine that the type of claim, whether it be pre-death, post-death, or administrative claim.

560:3-803 All claims against either a decedent or decedent's estate, which arose before the death . Proceedings such as will contests, trust disputes, or other claims to specific estate or trust property or fiduciary conduct is not a claim for purposes of 560:3-803. This Section is typically straightforward and not usually a fertile ground to litigate.
Bearing in mind, however, claims can be absolute or contingent, liquidated, or unliquidated and still be pre-death claims. They may be found on contract or tort or other legal basis.
Claims that are not administrative but arise after death. Again, there are few litigated claims in such area, but claims such as a decedent’s personal indemnity, obligations of an estate, other such contribution claims would be an example.
Post-death claims are due four (4) months after it is due or 18 months, whichever is the first to occur. Publication does not bar a post-death claim.
Administrative claims must be adjudicated and paid before probate closes or prior to the trustee final accounting being submitted.

Note : Claim to enforce a mortgage, pledge, or other lien upon property is not a claim. A potential deficiency judgment will be a post-death, or possibly pre death unliquidated and contingent claim.

“The entry of a deficiency judgment against decedent's estate in foreclosure proceeding could not override or eliminate the mandatory provisions of the probate code's nonclaim statute, and therefore, the entry of the deficiency judgment merely constituted a valid debt against the estate that must also have been presented within the time limits of the nonclaim statute.”

In re Est. of Hover , 407 S.C. 194, 754 S.E.2d 875 (2014); See, e.g., Harter v. Lenmark, 443 N.W.2d 537, 540 (Minn.1989); Meissner v. Murphy, 58 Or.App. 174, 647 P.2d 972, 974 (1982); Provident Inst. for Sav. in Jersey City v. W. Bergen Trust Co., 126 N.J.L. 595, 20 A.2d 437, 439 (1941).

II. SHORT STATUTE OF LIMITATIONS

Pro Tip : If you are a known creditor or reasonably ascertained creditor, you are entitled to actual notice of the four (4) month bar date. If you get actual notice of the bar date, it is 4 months after the first published notice or 60 days after the delivery of the bar date notice, whichever is later . But if you do not get actual notice, and you are a known or ascertainable creditor, the bar date for a claim is 18 months.

In Hawaii there is no actual obligation to provide actual notice to a known or reasonably ascertainable creditor. But in order to pass constitutional muster under Pope, without actual notice, an ascertainable credit is not bound by the four (4) month short statute of limitations.

Pro Tip : Fiduciaries typically ignore and abuse the ascertainable standard and actual notice requirement and thus the 18 month statute applies in many more instances than otherwise believed.

How do I know if my client is a reasonably ascertainable creditor?

A decedent's fiduciary must make attempts to reasonably ascertain a decedent's creditors through reasonably diligent search, such as a reasonably prudent person would make in view of the circumstances, and must extend to those places where information is likely to be obtained and to those persons would likely have information regarding decedents' creditors. See in re Estate of Loder 308 Neb. 210, 219-20, 953 N.W. 2d 541, 449 (2021).

An example of a reasonably ascertainable creditor might be a medical care provider, hospice care that had provided previous medical services to an elderly or sick individual, in which the care provider gets no actual notice, but it is obvious care was provided. In that instance, the bar date without actual notice would be 18 months.

Pro Tip : If a case is already filed in a court of appropriate jurisdiction, there is no need to file a proof of claim.

III. WHERE TO FILE

Deliver the claim to the personal representative with an affidavit in support to file the claim.
Filing with the court with a copy to the personal representative.

IV. FORM OF CLAIM

Hawaii Probate Rules. See Probate Rule 63, all supporting documentation not required.

“A creditor seeking payment from the deceased shall present a claim by (a) delivering the claim, with an affidavit in support thereof, to the person” Rule 63 - Presenting Claims , Haw. Prob. R. 63

...an attempt is made in this rule to keep any court-filed documents with respect to presenting a claim as minimal as possible by not requiring that all supporting documentation be attached, but only that the claim be supported by affidavit. This rule does not prohibit the pursuit of claims by any other legal method.

Pro Tip : There is no law on procedure for filing claims against a trustee of a revocable trust. Suggest always to file a claim in the estate and with a trustee or Jane Doe trustee, if necessary, with the clerk of the court at small estates in the First Circuit Court for decedent’s domicile there at death.

If you choose to directly litigate without filing a proof of claim that is permissible, however, you need a defendant. You cannot sue a trust. You must sue a trust through a trustee. You cannot sue an estate. You must sue an estate or heirs directly. You must litigate a special administrator or personal representative.

At some point, it may be necessary to file as a creditor, a creditor may as an interested party petition to open up a special administratorship, or a probate, or potentially even a conservatorship in the case of an incapacitated but living adult.

The idea is to have an individual appointed as a defendant that can adequately represent the needs of the conservatorship, the estate, or in the cases of a revocable trust, the appointment of a successor trustee.

A conservator, a special administrator or a personal representative can compromise claims with probate court approval.

V. WHEN TO FILE A LAWSUIT

Creditor litigation can be filed either in the probate court or the circuit court that has concurrent jurisdiction. A fiduciary has 60 days to reject a claim after presentment, or it is deemed accepted by the fiduciary. If the fiduciary rejects the claim, the creditor has 60 days after the denial to commence the lawsuit, unless the court extends the 60-day deadline for good cause, See H.R.S. Section 560:3-804, or if the fiduciary fails to notify the claimant of the 60 day bar date, Section 560:3- 806 states that the creditor then has 18 months to file the lawsuit.

VI. WHAT ASSETS AVAILABLE?

The Uniform Trust Code provides in 554D-505 that trust assets in a revocable trust are available to satisfy creditor claims notwithstanding the presence of a spendthrift provision in the trust.

However, as stated above, the newly enacted Uniform Trust Code provides absolutely no procedures on filing claims against the trust.

The Uniform Probate Code does set forth references to the 4-month and 18- month bar date that is a short and affects short statute of limitations for Claims against a trustee.

Pro Tip : Practitioners that represent creditors, should assume that the procedural timing of presentation of claims applies with equal force to trust. However, there ostensibly is the argument that after a timely presentation of claim is made against the trustee, that the 60-day period for denial by a trustee in the following 60-day claim to file litigation subsequent to denial is not applicable to a trustee revocable trust.

Claims are payable out of the assets of the probate estate (check filed inventory) subject to: housing allowance $15,000; exempt property allowance $10,000; family allowance $18,000 (but may be increased with court order); expense and administration; federal taxes; last illness medical expenses; state taxes.

Non-probate transfers generally are not available for creditors since Hawaii has not adopted UPC § 6-415 or 6-102 which would otherwise make joint transfers available. There are other Hawaii statutes in play that also exempt certain assets from creditors of decedents such as life insurance, pensions, IRAs, and annuities.

Joint bank accounts, payable and death accounts, tenancy by the entirety property, IRAs, 529 plans, life insurance are all equally exempt from a creditor after the death of the decedent or settlor.

Jointly held real property exemptions in Hawaii are unresolved. Until the Legislature addresses this issue Hawaii courts should follow the common law principle that a creditor’s right against a joint tenant is extinguished upon the death of the joint tenant debtor.

Hawaii has passed the Uniform Real Property Transfer on Death Act Section § 527-15 which makes the interest in the subject property available to claims against the estate if the probate estate is insufficient to pay claims.

Pro Tip : Non-probate transfers, particularly death bed type transfers, are vulnerable to be set aside as a fraudulent transfer as to present creditors. See HRS §651C-4. Bearing in mind that the creditor and their counsel comply with the probate statute of limitations.

Michael D. Rudy, Esq.

For more information, please contact:

MacDonald Rudy O'Neill & Yamauchi

1001 Bishop Street, Suite 2800

Honolulu, Hawaii 96813

Telephone: (808) 523-3080

Website: www.macdonaldrudy.com

Email: mrudy@macdonaldrudy.com

Early Intervention in Preventing Family and Closely Held Business Litigation

Thu, 09 Jun 2022 16:22:04 GMT

It has often been said that family wealth which has been created in the first family generation completely evaporates by the third family generation.

The old adage "from short sleeves to short sleeves in three generations” is commonly used to describe situations where family wealth, which is typically created by a family business, is completely dissipated by the third generation.

This is commonly true among many of Hawaii’s even most successful family owned companies.

There are a variety of reasons why family businesses implode by the third generation. There are both external and internal factors that create this phenomenon.

Many of these external reasons are due to ever changing market conditions for a company’s goods and services. Local family businesses face stiff competition from suppliers with cheaper products. In addition, technology from outside companies continue to provide more efficient, less expensive, and improved services to the public. The Company may become the victim of ever increasing labor and real estate costs which makes competition against out-of-state suppliers of goods and services difficult, if not impossible.

There are, however, many internal factors that may spread and damage an otherwise successful family business. These internal factors center around disputes between various family members over the future control, management, and goals of the business. In Hawaii, formal business succession planning can be sorely lacking, particularly among smaller companies with informal governance structures. In fact, even with competent estate planning attorneys and business advisors assisting the family business, business succession planning is often either completely ignored or poorly addressed.

Often, after the founding member or members have retired or passed away, a power vacuum develops. Growing numbers of family members in the second or third generation can dilute control and impede a positive and unified direction of the family business. This fractionalization often leads to lack of centralized management or diffusion of responsibility.

When an attorney or other advisor deals with family business disputes, they are often presented with particularly unique challenges and issues that are not usually present in larger privately owned or even publicly owned companies. In family businesses, many family members have different goals, desires, and abilities in managing the Company. Often, a family business by the second or third generation of ownership supports an ever increasing number of family owners, many of them, having different interests and responsibilities in the Company. Some family members wish to be highly active, while others may desire to receive passive income. Some members may want to liquidate or sell the Company as a going concern, while others may want to continue on and provide themselves a salary. Because of this, various owners, such as spouses or children from a prior marriage can have vastly different and conflicting needs, goals and desires.

These internal factors coupled with increasing outside external pressures, can inevitably crush a company by the third generation of ownership.

It is extremely important for individuals in a family business to identify disputes that may quickly develop after the death or retirement of a founding member or other key family member.

Once issues of management and control or other areas of tension and disagreement are identified, it is important to obtain competent legal advice before disputes reach the level of full blown litigation.

There are several common areas of family disputes. They include:

Multiple family members who are not involved in operating the business but desire equal profit participation with the other employee-owners.
Disputes as to a present or future opportunity to sell some or substantially all of the assets of the Company.
Valuation disputes contained in existing shareholder agreements or buy-out agreements among family members.
Disputes as to future control and management of the Company.
Disputes between a Founder’s spouse and adult children from a previous marriage over corporate operations.
Failure to provide corporate records or information in order to keep shareholders or members fully informed.

Litigation is an expensive, inefficient and time consuming forum in which to resolve family member disputes regarding a family business. It puts the business at risk and may subject the Company to irreparable harm since it is essentially airing, in public, the Company’s private negative history.

Litigation can also lead to the disorderly and unorganized liquidation of a company resulting in a tremendous loss of value in the Company’s going concern value.

If an individual family member or members find themselves embroiled in company litigation, it is even more important to retain competent counsel to preserve, to the greatest extent possible, the maximum value of a company's tangible and intangible assets that exist as a result of the efforts of many family members over the course of several generations.

For more information, please contact:

MacDonald Rudy

1001 Bishop Street, Suite 2800

Honolulu, Hawaii 96813

Telephone: (808) 523-3080

Website: www.macdonaldrudy.com

It has often been said that family wealth which has been created in the first family generation completely evaporates by the third family generation.

This is commonly true among many of Hawaii’s even most successful family owned companies.

There are a variety of reasons why family businesses implode by the third generation. There are both external and internal factors that create this phenomenon.

These internal factors coupled with increasing outside external pressures, can inevitably crush a company by the third generation of ownership.

It is extremely important for individuals in a family business to identify disputes that may quickly develop after the death or retirement of a founding member or other key family member.

There are several common areas of family disputes. They include:

Multiple family members who are not involved in operating the business but desire equal profit participation with the other employee-owners.
Disputes as to a present or future opportunity to sell some or substantially all of the assets of the Company.
Valuation disputes contained in existing shareholder agreements or buy-out agreements among family members.
Disputes as to future control and management of the Company.
Disputes between a Founder’s spouse and adult children from a previous marriage over corporate operations.
Failure to provide corporate records or information in order to keep shareholders or members fully informed.

Litigation can also lead to the disorderly and unorganized liquidation of a company resulting in a tremendous loss of value in the Company’s going concern value.

For more information, please contact:

MacDonald Rudy

1001 Bishop Street, Suite 2800

Honolulu, Hawaii 96813

Telephone: (808) 523-3080

Website: www.macdonaldrudy.com

Is It Possible To Break a Trust Created For My Benefit By My Parents or Grandparents?

Sat, 05 Mar 2022 05:00:23 GMT

One of the most common questions we are asked, at MacDonald Rudy, is whether a trust can be “broken” or terminated prior to the time set forth in the applicable written trust agreement. This situation occurs when a trust has been created by a prior generation, typically a parent or grandparent who has passed away, and the next generation is receiving some economic benefit from the trust.

In this situation, where the creator of the trust (the “Settlor”) has died, the trust instrument may provide only for income, and perhaps, discretionary principal for a child-beneficiary. Here, the beneficiary may have only limited ability to access income and principal in the trust. The beneficiary may be an older adult in need of additional principal and income for building or buying a home, sending a child to college, paying for catastrophic medical care expenses or other important needs. The trust, as written, may simply not have the flexibility to provide for any one or more of these exceptional needs. Moreover, the trust may terminate at the death of the child-beneficiary, or when the child-beneficiary reaches a specified age, precluding invasion of principal and/or all of the income until that time.

In either case, the child-beneficiary does not have the unfettered right to gain access to the principal to make a major purchase or solve a financial problem that may have serious and negative economic impact upon his or her life. Often, the drafters of the trust did not anticipate or realize how little economic benefit an annual income-only trust distribution plan may have. Many trusts are mainly established to benefit the Settlor’s own children, and the Settlor’s grandchildren were to have only incidental benefit after the death of the Settlor’s children. Yet the income-only or discretionary principal distributions may be grossly inadequate to accomplish the Settlor’s known trust support objectives for the Settlor’s own children.

Trust terms can also be highly restrictive upon the beneficiary, resulting in severe friction between the trustee and the beneficiary concerning distributions of principal and income and other important trust decisions that ordinarily are left to the discretion of the trustee. This friction can result in wasted time, money and resources, as a result of in-fighting between a trustee and a beneficiary. It can often be very difficult to remove a trustee, and thus we are routinely contacted by prospective clients to ascertain whether or not they have a legal ability to "break a trust," and have access to a beneficiary’s entire principal and undistributed share of income from the trust, and thus effectively end the trustee-beneficiary conflict.

Hawaii has recently adopted the Uniform Trust Code, effective January 1, 2022, which constitutes a brand-new set of laws directly pertaining to trusts. Part of this new trust law instructs the courts, lawyers, and their clients as to the trust termination rights of a beneficiary with respect to gaining access to trust property held for the beneficiary’s benefit.

Prior to January 1, 2022, in Hawaii, the law with respect to trust termination did not favor the beneficiary. This stems back to the old common law in England, where we derive much of our legal history. In England, when trusts were created by third parties for the benefit of others, such as a child or grandchild, those trusts often contained special provisions which were called spendthrift provisions, which did not typically allow for early trust termination.

Spendthrift provisions generally prohibit a beneficiary from transferring, assigning, mortgaging or pledging trust principal. Under a spendthrift trust, the beneficiary typically has no right to take principal and income, unless the trust language specifically authorizes the trustee to make distributions to the beneficiary. The clause also prohibits a creditor from having any rights to claim a beneficiary’s trust property to pay a debt.

Because the beneficiary lacks unfettered access to principal or income, without relying upon the trustee and the trust instrument to do so, and the trust prohibited a creditor from seizing trust property, the creditor under common law, had no greater rights than the beneficiary as to accessing trust principal held for the protection of the beneficiary. Hence, the assets of the trust held for the beneficiary were immune from creditor claims. It was often said that the spendthrift provision was one of the material purposes of the trust, in that its main purpose was to hold protected property in trust and ensure the trust’s continued existence and use for future generations.

Starting in the latter half of the 1900’s, revocable trusts for the general population became more in vogue. Trusts were no longer for just the wealthy and upper class. As trusts became more popular, they were mass produced, and spendthrift provisions were typically boilerplate provisions. These provisions were included without any analysis as to whether the spendthrift clause was a material purpose of a Settlor at the time the trust was created.

Therefore, the law with respect to trust termination began to change. Beginning in 2003, with the Third Restatement of Trusts, legal scholars changed the understood assumption that a spendthrift provision was always a material purpose of the trust. This former material purpose rationale was the basis for trust continuance, which ensured that a trust could not be terminated prior to its stated term, even with the consent of the beneficiaries, particularly where the Settlor was deceased.

Additionally, the Uniform Trust Code (which is a model code for trust law, which all states are free to adopt, in whole or in part) also provided that beneficiaries could consent to a termination of a trust. The Court could grant such termination, as long as the termination was not inconsistent with any material purpose of the trust.

Under the Uniform Trust Code, a trust can be terminated prematurely and its assets distributed by agreement of the beneficiaries, even if beneficiary consent is not unanimous, as long as the interests of non-consenting beneficiaries will be adequately protected.

Although the trustee may oppose the trust termination in court, if all beneficiaries consent to the termination and it is proven that a material purpose of the trust would not be frustrated by an early termination, it would be more likely that a Hawaii court would grant such an early termination.

As with many nuanced aspects of trust law, there may be challenges to such premature termination. These challenges lie, in part, in the fact that all beneficiaries must be adequately represented in Court, and if there are minors or unborn beneficiaries, which is often typically the case in a multi-generational trust, then an independent guardian ad litem may be appointed by the court to protect their interests. Consent to the termination often will result in some type of subsequent negotiation with the guardian ad litem to ensure that the minors and unborn beneficiaries would receive some economic benefit from the early termination of the trust. The economic benefit of having the class of the unborn or minors receiving a portion of the trust corpus, could justify a guardian ad litem consenting to the trust termination.

Thus, Hawaii’s recent implementation of the Uniform Trust Code may have a profound, positive impact on the ability of beneficiaries to terminate a trust prior to its natural expiration, according to the trust’s written terms.

In conclusion, it is believed that beneficiaries will begin to more frequently seek early termination of trusts by petitioning the courts in the State of Hawaii and employing Hawaii’s newly enacted Uniform Trust Code. This will undoubtedly increase the ability of beneficiaries to access principal and income to a degree, and at an earlier period of time not previously possible. An early termination may completely eliminate costly and unnecessary future trust administration expenses.

One of the most common questions we are asked, at MacDonald Rudy, is whether a trust can be “broken” or terminated prior to the time set forth in the applicable written trust agreement.

This situation occurs when a trust has been created by a prior generation, typically a parent or grandparent who has passed away, and the next generation is receiving some economic benefit from the trust.

In this situation, where the creator of the trust (the “Settlor”) has died, the trust instrument may provide only for income, and perhaps, discretionary principal for a child-beneficiary.

Here, the beneficiary may have only limited ability to access income and principal in the trust.

The beneficiary may be an older adult in

need of additional principal and income for building or buying a home, sending a child to college, paying for catastrophic medical care expenses or other important

needs.

The trust, as written, may simply not have the flexibility to provide for any one or more of these exceptional needs.

Moreover, the trust may terminate at the

death of the child-beneficiary, or when the child-beneficiary reaches a specified age, precluding invasion of principal and/or all of the income until that time.

Often, the drafters of the trust did not anticipate or realize how little economic benefit an annual income-only trust distribution plan may have.

Many trusts are mainly established to benefit the Settlor’s own children, and the Settlor’s grandchildren were to have only incidental benefit after the death of the Settlor’s children.

Yet the income-only or discretionary principal distributions may be grossly inadequate to accomplish the Settlor’s known trust support objectives for the Settlor’s own children.

Trust terms can also be highly restrictive upon the beneficiary, resulting in severe friction between the trustee and the beneficiary concerning distributions of

principal and income and other important trust decisions that ordinarily are left to

the discretion of the trustee.

This friction can result in wasted time, money and resources, as a result of in-fighting between a trustee and a beneficiary.

It can often be very difficult to remove a trustee, and thus we are routinely contacted by prospective clients to ascertain whether or not they have a legal ability to "break a trust," and have access to a beneficiary’s entire principal and undistributed share of income from the trust, and thus effectively end the trustee-beneficiary conflict.

Hawaii has recently adopted the Uniform Trust Code, effective January 1, 2022, which constitutes a brand-new set of laws directly pertaining to trusts.

Part of this new trust law instructs the courts, lawyers, and their clients as to the trust termination rights of a beneficiary with respect to gaining access to trust property held for the beneficiary’s benefit.

In England, when trusts were created

by third parties for the benefit of others, such as a child or grandchild, those trusts often contained special provisions which were called spendthrift provisions, which

did not typically allow for early trust termination.

Spendthrift provisions generally prohibit a beneficiary from transferring, assigning, mortgaging or pledging trust principal.

Under a spendthrift trust, the beneficiary typically has no right to take principal and income, unless the trust language specifically authorizes the trustee to make distributions to the beneficiary.

The clause also prohibits a creditor from having any rights to claim a beneficiary’s

trust property to pay a debt.

Hence, the assets of the trust held for the beneficiary were immune from creditor claims.

It was often said that the spendthrift provision was one of the material purposes of the trust, in that its main purpose was to hold protected property in trust and ensure the trust’s continued existence and use for future generations.

Starting in the latter half of the 1900’s, revocable trusts for the general population became more in vogue. Trusts were no longer for just the wealthy and upper class.

As trusts became more popular, they were mass produced, and spendthrift provisions were typically boilerplate provisions.

These provisions were included without any analysis as to whether the spendthrift clause was a material purpose of a Settlor at the time the trust was created.

This former material purpose rationale was the basis for trust continuance, which ensured that a trust could not be terminated prior to its stated term, even with the consent of the beneficiaries, particularly where the Settlor was deceased.

The Court could grant such termination, as long as the termination was not inconsistent with any material purpose of the trust.

Under the Uniform Trust Code, a trust can be terminated prematurely and its assets distributed by agreement of the beneficiaries, even if beneficiary consent is

not unanimous, as long as the interests of non-consenting beneficiaries will be

adequately protected.

Consent to the termination often will result in some type of subsequent negotiation with the guardian ad litem to ensure that the minors and unborn beneficiaries would receive some economic benefit from the early termination of the trust.

The economic benefit of having the class of the unborn or minors receiving a portion of the trust corpus, could justify a guardian ad litem consenting to the trust termination.

This will undoubtedly increase the ability of beneficiaries to access principal and income to a degree, and at an earlier period of time not previously possible.

An early termination may completely eliminate costly and unnecessary future trust administration expenses.

The Top Ten Warning Signs Of Elder Financial Abuse

Tue, 14 Jul 2020 09:30:21 GMT

Our law firm has compiled data over the last 30 years of predictors that are warning signs that elder financial abuse is occurring or is about to be committed against an elderly relative.

Unfortunately, this data has been gathered through years of client and witness interviews only after significant elder financial abuse has occurred.

Typically, elder financial abuse is committed by someone who is very close to the victim, knows the victim very well, has access to the individual, and is a trusted individual.

It is important to note that financial exploitation is fueled by motive and opportunity.

It is no surprise that the typical perpetrator of elder financial abuse is not a professional caregiver or casual acquaintance of the victim, but a family member who has the motive and opportunity to commit elder financial abuse.

Elder financial abuse or exploitation occurs in various forms. It includes theft or embezzlement of joint bank accounts, raiding stock brokerage accounts or mutual fund accounts that have an individual’s savings, gaining access to an individual’s Social Security or retirement savings account.

It may also involve what is known as undue influence, where an elderly individual is pressured to change their will or trust to name the perpetrator as the sole or major beneficiary of the family home or other assets in the trust or provided by the will. It may involve obtaining a power of attorney in which embezzlement of assets occurs.

It may also involve changing the individual’s trust to make them trustees of the trust to gain access to the trust property at a later time.

It may also involve gaining access to safe deposit boxes, changing beneficiaries, designations and documents to life insurance, annuities, and other financial instruments.

Here are our top ten warning signs of elder financial abuse, that if they been promptly discovered, could have stopped or altogether prevent elder financial abuse. Remember, by preventing elder financial abuse you are protecting the health and welfare of your loved one.

Suspected sibling/perpetrator who has access to the elderly parent suddenly breaks off communication with you for little or no reason.

Your access to your parent is significantly blocked by perpetrator above (i.e., mom is not available to talk on the phone, a family visit is not the right time, etc.)

You repeatedly ask for a family meeting with other siblings with mom and dad to discuss finances and their financial security, but it never seems to be a good time.

Mom and dad have had an episode requiring hospitalization and/or skilled nursing home care and financial information seems to be missing or unavailable.

Mom and dad are suffering from dementia or severe memory loss.

There has been a sudden change in trusted legal or financial advisors for mom or dad with little or no sensible explanation.

You have asked for copies of mom or dad’s estate plan from a sibling and is always promised but never delivered.

The caretaker sibling often suddenly loses their job or says they are now available to be a caregiver for mom or dad when there was never any such prior interest.

A sibling, without being a caregiver, starts showing unusual interest in mom or dad and their finances, coupled with their own personal financial hardship.

Mom or dad starts complaining that they are poor, and they have no money and bills suddenly are going unpaid.

If one or more of these warning signals occur, a family member, or other trusted friend, has various legal avenues to explore. Often, an elder law attorney can impose a conservatorship or change in trustees by going to Court and demonstrate through facts and evidence that a new family member or other independent person needs to be appointed as an individual to secure and take control of the elderly individual’s finances. The Probate Court has the power to void or cancel improperly obtained changes to a will or trust, cancel deeds to property, such as the elderly individual’s home, and order the perpetrator to repay money or funds that were improperly taken.

The key to the success of repayment and repairing the damage to the security of an elderly individual’s financial health is to identify these warning signs as early as possible and obtain competent legal assistance. In our next article, we will explore safeguards and keys to prevention against elder financial abuse.

Who has Legal Ownership of the Contents of a Safe Deposit Box Upon the Death of the Initial Depositor or Lessee?

Thu, 11 Jun 2020 09:29:02 GMT

The answer to this question is not clearly understood by most people, including experienced attorneys (and even experienced estate planning attorneys), judges, bank employees, and other individuals.

Contrary to popular wisdom, the terms of a safe deposit box agreement with a financial institution typically describe a lessor/lessee relationship. As a result, most safe deposit box agreements only govern the use of the box; they do not govern the ownership of its contents. Thus, even if a co-tenant is listed on the safe deposit box agreement, it does not automatically vest ownership of the contents to the survivor, upon the death of one co-lessee.

In fact, most safe deposit box leases clearly state in writing that nothing in the lease provides any transfer of ownership during the lifetime of the initial depositor or upon death.

In short, by adding an individual as a co-lessee of a safe deposit box, the original depositor is not creating a joint tenancy with right of survivorship.

Many states have particular statutes on this point, but the vast majority of states instead rely on common law holding that there is absolutely no transfer of legal ownership during the life of a co-depositor which creates a joint tenancy during the lifetime, nor does it create any type of transfer on death status to the surviving co-lessee on the safe deposit box.

Many attorneys falsely believe that a type of joint tenancy is created and the contents of the safe deposit box simply pass to the surviving co-lessee on the lease, similar to a co-owner on a joint bank account. However, this is simply not true.

If an individual in Hawaii dies with a simple will, the assets in a safe deposit box are subject to probate and must be distributed according to the terms of the will (typically as part of the residuary) or a tangible personal property list that may be attached to or referenced in the will. If the decedent had a trust and properly transferred his personal property to his trust during his lifetime via an assignment, the terms of the trust would control.

The problem sometimes arises when individuals claim that a safe deposit box lessee has transferred one or more items to them orally and has symbolically delivered the property to them through a constructive receipt by adding them as a co-lessee on the safe deposit box. This creates a complex question of fact as to whether oral delivery and receipt of an item have occurred.

For these reasons, it is incumbent upon an individual that wishes to make a lifetime gift of an item(s) located in a safe deposit box to either transfer the item(s) out of the safe deposit box during their lifetime or properly document the depositor’s intention to gift the item(s) with a written, express agreement documenting the gift.

In the latter scenario, it is incumbent upon the estate planning attorney to work with the depositor to ensure that the specific item(s) in the safe deposit box are earmarked for a specific devisee or beneficiary in a tangible personal property list or otherwise clearly delineated in the will or revocable trust.

In short, people should not rely on the fact that an individual has been merely added as a co-lessee to a safe deposit box as a method to transfer assets during the lifetime or at the death of the depositor to said co-lessee.

Michael D. Rudy, Esq.

Hawaii’s Elderly Population Vulnerable to Financial Abuse During Difficult Financial Times

Sat, 11 Apr 2020 09:28:25 GMT

Hawaii’s stay-at-home/work-at-home response to the coronavirus pandemic, unfortunately, brings additional concerns to Hawaii’s sizeable elder population beyond protecting their own physical health.

Financial exploitation of elderly citizens by those closest to them has always been a serious concern. There is a prevalent myth that elderly individuals are most commonly victims of financial fraud and abuse committed by strangers who are unknown to them. This is not true. Statistics demonstrate that financial abuse against an elderly individual aged 65 or above is far more likely to be committed by a known and a trusted family member or other individuals who are well-known to them rather than by an unknown individual. The number of assets wrongfully taken by a known family member can be sizeable and catastrophic.

There are many types of financial exploitation. In Hawaii, many of the most common examples of financial abuse are embezzlement of checking and savings accounts, gaining access to retirement accounts, including Social Security, as well as becoming a beneficiary of individual retirement accounts, stock brokerage accounts, and other sources of valuable savings. In addition, senior citizens are often victims of subtle pressure which results in changing the title to real estate, placing home equity credit lines on their property with the end result of lines being drawn down upon by a family member or other trusted third party. Additionally, fraudulent powers of attorney, wills, or trusts are created which selectively benefit one family member to the detriment of other prospective family heirs.

Often, when financial exploitation is discovered by a third party, it is either too late, or the situation requires going to court to prevent further exploitation, or to legally void fraudulently obtain deeds, beneficiary designations, and estate plans that have been wrongfully created or executed.

Hawaii residents are highly vulnerable, in part, because of the relatively high rate of multigenerational living within one home, giving family members additional access to their parents or grandparents. This is particularly true when a member of an extended family has lost his or her job and is desperately looking for other means of financial support.

Now, particularly during this time of stay-at-home, work-at-home mandate, additional opportunity and motivation by a family member to commit financial abuse against a parent or grandparent occur when that family member is motivated by their own fear and financial distress.

According to Honolulu trust and estate litigation attorney, Michael Rudy, Esq., his office has already noticed just within the last two weeks, an increase in the number of calls to his office by family members that have suspected or witnessed a sibling or other trusted relative taking advantage or attempting to gain access to a parent, grandparents’ or other live-in relative’s cash or other liquid assets.

According to Mr. Rudy, “While there is nothing wrong with families pooling financial resources together during difficult times, there is a not-so-fine line between an elderly person providing voluntary and knowing financial assistance to his or her extended family members and secretive financial abuse and exploitation of a vulnerable adult. The latter will have long-lasting and permanent repercussions for our elderly population.”

In short, the results of financial exploitation committed against elderly retirees may last far beyond the few short months that, hopefully, this pandemic will last.

Financial abuse against the elderly is an opportunistic attack. By all family members being involved and sharing in the collective responsibility of protecting their parents, grandparents and other vulnerable family members, we can all ensure that our elderly family members are protected during these financially stressful times.

Michael D. Rudy, Esq.

Pleading Practices in Hawaii’s Probate Courts

Thu, 15 Feb 2018 09:26:38 GMT

Founding partner, Michael D. Rudy, discusses pleading practices in Hawaii’s Probate Courts.

One of the most difficult aspects of litigating trust and estate cases in Hawaii, particularly in their early stages, is the lack of guidance that the Hawaii Probate Rules provide a practitioner in dealing with a degree of specificity that is required in the initial petition. A poorly drafted petition is likely subject to dismissal or other adverse outcomes in the initial stages in the probate courts.

Any estate planner or litigation attorney who routinely practices in the Hawaii probate courts realizes that the Hawaii Probate Rules were enacted in 1995, with various amendments thereafter, and provide only a limited guide of the procedures of probate court litigation. This is despite the fact that will and trust cases are some of the highest fact-sensitive, complex cases that involve significant assets for individuals.

In the beginning stages of evaluating a case, a client and his or her counsel may be left solely with the ultimate end result of a trust or will that has left its client “out in the dark” as to the detailed facts that led to this result. For example, in embezzlement or undue influence case, there may be little to no knowledge as to how much was taken, how it was taken, and the exact mental or medical condition of the victim.

Often, the answer to these questions can only come after extensive and expensive discovery. For instance, medical records may have to be subpoenaed under HIPAA guidelines. Forensic psychiatrists or psychologists may have to be obtained to evaluate competency or consent issues at the time of the creation of the trust instrument. Various financial institutions will have to be subpoenaed to obtain bank statements, checks, and other financial information. Forensic accountants may have to be hired to summarize detailed financial information.

Rule 20 of the Hawaii Probate Rules allows the probate court to assign a contested matter to the civil trial calendar in circuit court, where formal discovery can begin. Although certain probate judges have circumvented this “contested case” procedure and allowed discovery to commence immediately upon filing a petition, each circuit court has employed its own approach. This leaves the petitioner in a “Catch 22” position where ultimately the cause of action legal theories cannot be fully developed until a petition is filed and a case is designated contested and extensive discovery is undertaken.

What is a practitioner to do? On occasion, our office has attempted to do prefiling discovery under the rules of civil procedure to attempt to obtain medical records, depose witnesses and obtain financial information in order to preserve evidence. Unfortunately, different judges view prefiling discovery in the circuit courts differently.

Making the matter more difficult is since 1996, some judges have taken the position that the case should be contained in the probate court and discovery should not be undertaken until mediation has failed. Alternatively, some judges have attempted to encourage the parties to conduct “mutual discovery” without court involvement. Sometimes this works, sometimes it doesn’t. It is this office’s experience that the more at stake, the less likely “mutual discovery” without formal discovery procedures in place work.

In summary, any attorney wishing to practice in the area of trust and estate litigation must carefully analyze their strategy prefiling. Simply filing a skeletal petition, and advising the client that they can amend later once the matter goes to the trial court, may be a dangerous proposition.

The Magnitude of Financial Elder Abuse in Hawaii

Sat, 16 Dec 2017 09:25:23 GMT

Founding partner, Michael D. Rudy, discusses financial elder abuse and the staggering number of unreported cases of abuse.

As our population ages, financial abuse perpetrated against our elderly citizens has reached epidemic proportions. There are thousands of cases each year of financial abuse committed against elderly citizens in various forms, including embezzlement; conversion; theft; fraudulent use of credit cards; improper home equity lines or mortgages; fraudulent deeds, wills and trusts; and improper use of joint accounts. This financial abuse has a wide range of implications for heirs and family members.

To offer a sense of the scope of the problem of financial elder abuse, consider the following:

About one in five Americans age 60 and older will become a victim of financial exploitation during their lives.

Based upon various Mainland studies there are 44 times more unreported claims than there are reported claims of financial elder abuse to agencies such as Hawaii Adult Protective Services or other similar local authorities. In Hawaii in 2015, Adult Protective Services reported a total of 265 cases of financial exploitation on elderly Hawaii citizens. Using Mainland data as a guide there could have been as many as 11,000 unreported instances statewide in the same year.

Contrary to popular notion, it is direct relatives – a spouse, child, or grandchild – who are to blame for as much as 65 percent of the financial abuse committed against an elder. In Hawaii, anecdotal evidence suggests that only a slight majority of perpetrators are female versus male, in a typical perpetrator age range between 45 and 60.

For dementia patients, the rate of financial abuse committed against them is two to three times that of the normal elderly population. The prevalence of dementia in the elderly population (ages 75 to 85) is approximately one in every three. Given the dementia rates as cited above and the incidence of financial abuse committed against dementia patients, we could expect to have anywhere from 3,000 to 6,000 cases of financial elder abuse per year in Hawaii.

The number of unreported financial elder abuse cases is staggering. Most abuses are discovered when one family member realizes that another family member is acting as a conservator, trustee, or holds a power of attorney, and has been using that position to steal from the elderly adult, who is typically incapacitated and unable to handle his/her finances.

In most of these cases, the perpetrator of the financial elder abuse has often given themselves a preferred position in the estate planning documents (e.g. named trustee or attorney-in-fact), making it even more difficult to wrestle away control of the incapacitated adult’s finances from the perpetrator of financial elder abuse.

Our firm has helped many children/spouses/relatives of elders who have been subject to financial abuse. MacDonald Rudy specializes in trust and estate litigation, and we are happy to answer any questions or comments you have regarding financial abuse against a loved one or an elderly person you may know.

Using Powers of Attorney To Deal With Trust Assets

Wed, 04 Oct 2017 09:24:26 GMT

Founding partner, Michael D. Rudy, discusses the use and misuse of powers of attorney when dealing with trust assets.

With the widespread use of revocable trusts in estate planning, financial institutions occasionally find that they are presented with powers of attorney which the holder uses to attempt to withdraw cash, securities, or other forms of assets from accounts.

Our firm has seen several instances where individuals have either not been named a successor trustee or have failed to accept the successor trusteeship position, yet have actively used the power of attorney to extract significant funds from trust bank accounts.

The misuse of a power of attorney often happens when an elderly individual is incapacitated and the holder of power of attorney begins to make withdrawals.

What happens if the power of attorney is used to extract trust assets and the withdrawals are for an improper purpose (e.g. a vacation to Europe for the holder of power of attorney)? Is the financial institution liable? The answer lies in how the power of attorney is drafted. Many well-drafted powers of attorney incorporate the holder’s powers to include the trust. If that is the case, and it references the trust with specificity, then it is unlikely that the bank would be liable for improper withdrawals.

The answer becomes murkier if the holder of the power of attorney does not reference the powers of the trust. The question that then arises is whether the power of attorney and the holder of the power of attorney and the trustee are one and the same, and whether or not the documents were drafted essentially on the same day as part of the same estate planning “package” in which the intent of the grantor was to have the same individual exert broad powers.

These types of fact patterns remind us of the old adage that whatever can go wrong will go wrong. Banks and other financial institutions should strive for consistency in how a client or customer titles their accounts. Nothing good can happen by having some accounts titled in the name of the trust and some in their individual names unless there is solid justification for doing so. Confusion on the part of a bank can quickly lead to honest mistakes and the improper use of a power of attorney.

In summary, powers of attorney should only be drafted with careful estate planning.

The “Lucid Interval”

Wed, 13 Sep 2017 09:22:52 GMT

Founding partner, Michael D. Rudy, discusses the “lucid interval” and explains that the occurrence of a lucid interval in moderate or advanced dementia cases is wholly unsupported by medical science.

Recently, my firm was involved with a case in which a petition was filed in the probate court alleging that the testator (maker of the will or trust) was severely stricken with advanced dementia and Alzheimer’s disease when he had executed his trust instruments. An argument was made that the trust documents were patently void due to the testator’s lack of testamentary capacity when said trust documents were executed. The court declared that competency is difficult to ascertain and stated “you know we all have our good days and bad days when we sign documents.” This statement observation has virtually no basis in neurocognitive science.

Research over the last several decades has not supported the fact that patients with advanced dementia, particularly those with Alzheimer’s disease, are capable of having “good days and bad days.”

There are several basic presumptions concerning the execution of a will or trust. One of the most important is that the testator was competent at the time of the execution of the trust or will. That is to say that he or she had testamentary capacity and acted with his or her own free will and without being subject to improper undue influence. We explain testamentary capacity in detail on our MacDonaldRudy.com website [here].

The law generally states that whenever a lack of testamentary capacity has been established at the time of execution of the will or trust, the burden shifts to the proponent of the will or trust to prove the will or trust was executed during a “lucid interval.”

The concept of a “lucid interval” has existed since at least early Roman times, when the idea of oral or written instruction as to the disposition of one’s property was recognized. In modern times, the definition of a “lucid interval” has been described as “a temporary period of rationality or neurological normality” such that a person has “sufficient intelligence, judgment and a will to enter into a contractual relation or perform other legal acts without disqualification by reason of disease.”

For at least 150 years courts have held that a “habitual insanity” condition would leave the patient incapable of executing a contract or performing other acts with no ability to enter into a “lucid interval.” However, any disease or condition described as causing “recurrent sanity” meant there were “lucid intervals” during which the patient could capably execute contracts, wills or trusts. This often begs the question of what precisely constitutes “habitual insanity” or “recurrent sanity.”

Some of the earliest legal cases go back as far as the 1880s, where a “completely demented” testator was capable of having a lucid interval. Surprisingly, someone suffering from the condition known as melancholia (which modern psychiatry refers to today as depression) was actually incapable of experiencing a lucid interval since it was deemed habitual or incurable. In other words, someone suffering from depression was automatically and permanently deemed to lack the testamentary capacity to execute a will or trust instrument.

All these prior legal pronouncements and rulings, while seemingly lacking in fundamental understanding today, are forgivable given that the birth of forensic psychiatry (the branch of psychiatry which bridges the fields of medicine, mental health, and civil and criminal law) did not occur until the late nineteenth century. Forensic psychiatry is still in its infancy, as it only began to be employed in the law in the last few decades after World War II. Therefore, many forensic concepts today, including the “lucid interval,” are still poorly understood and misapplied.

Thus, while it is true that dementia patients can be more alert and more responsive in certain periods of the day (such as the morning rather than a mid or late afternoon period) the ability of advanced dementia patients to perform at higher levels of abstract thought is severely lacking. On the other hand, persons suffering from a depressive state, delirium, psychosis, schizophrenia, alcohol and drug use, diabetes, and other such illnesses can and may experience lucid intervals.

Nevertheless, courts have mistakenly allowed evidence of lucid intervals in many moderate or advanced dementia cases where the potential for a “lucid interval” is arguably wholly unsupported by medical science.

The Use of Physician Opinion Letters In Estate Planning and Trust and Estates Litigation

Thu, 23 Mar 2017 09:21:58 GMT

Founding partner, Michael D. Rudy, discusses contracts to make a will or devise and why you should consult an estate planning attorney.

We live in a society where marriages often end in divorce, which has led to an influx of conflicts between children from one marriage and a second (or third, or fourth) spouse. In fact, multiple successive marriages can vastly complicate estate planning. Without proper planning, disastrous results may ensue, which may include effectively disinheriting children from the first marriage.

Approximately one-third of our firm’s trusts and estates litigation practice involves disputes between a child from a decedent’s previous marriage and a spouse from a later marriage who is often attempting to claim his/her legally protected share (i.e. elective share) of the decedent’s estate or attempting to otherwise disinherit the child from the first marriage of the deceased spouse. These disputes often arise from alleged oral contracts to make a will, trust, or another request where the decedent promised a distribution to his/her child in the possible event of remarriage and presence of a second spouse.

The law with respect to contracts to make a will or devise is very clear and the requirements to have an enforceable contract are very rigid. However, with proper planning, a testator/settlor can ensure added protection for the children of the first marriage.

In 1996, Hawaii adopted the Uniform Probate Code, which dramatically changed the law with respect to the enforceability of contracts to make a will or a devise. In short, the new law abolished the claim of part performance with regard to oral contracts to make a will, which the law previously recognized in the Hawaii Supreme Court case of Shannon v. Waterhouse, 58 Haw. 4 (1977).

The present law is now codified in Hawaii Revised Statutes (HRS) Section 560:2-514 entitled “Contracts Concerning Succession.” The Hawaii statute provides in relevant part:

A contract to make a will or devise or not to revoke a will or devise, or to die intestate, if executed after January 1, 1997, may be established only by: (1) Provisions of a will stating material provisions of the contract; (2) An express reference in a will to a contract and extrinsic evidence proving the terms of the contract; or (3) A writing signed by the decedent evidencing the contract.

The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills.

Thus, a contract to make a will or devise must effectively be in writing and signed by the decedent (either in the contract itself or in the decedent’s will). When you couple these requirements with a later surviving spouse’s statutorily protected right to inherit a portion of the decedent’s estate, it makes little sense for a testator/settlor not to take the time to effectuate his/her desired bequests in a valid will or trust.

In addition to the strict statutory requirements, there is also a myriad of issues that stem from contracts to make a will. One of the issues that arise is whether these contracts can be formed between various individuals and their revocable trusts. Another issue is that a contract to make a will or devise must be clear in the event that a specific gift (otherwise irrevocably devised to a contracting party) is sold or consumed during the other party’s lifetime. There are also numerous specific gift tax and estate tax implications involved with contracts to make a will, which I will discuss in a later article.

In summary, contracts to make a will or devise should only be drafted with careful estate planning, tax planning, and evaluations of a couple’s or other individuals’ total financial picture. Many experienced estate planners advise not to draft these types of contracts at all because of the complexity involved.

Contracts To Make A Will — Are They Ever A Good Idea?

Thu, 09 Feb 2017 09:19:45 GMT

Founding partner, Michael D. Rudy, discusses contracts to make a will or devise and why you should consult an estate planning attorney.

The present law is now codified in Hawaii Revised Statutes (HRS) Section 560:2-514 entitled “Contracts Concerning Succession.” The Hawaii statute provides in relevant part:

The execution of a joint will or mutual wills does not create a presumption of a contract not to revoke the will or wills.

Introducing the T.E.L. ALL–The Everything Guide to Trusts and Estates Litigation

Mon, 09 Jan 2017 09:18:31 GMT

The new blog and e-newsletter from the law firm of MacDonald Rudy

Dear Colleagues:

This e-newsletter you have received is the first of its kind in Hawaii such that it concentrates specifically in both the legal area of financial elder abuse as well as presenting topical issues in trust and in litigation which is relevant not only to fellow practicing managers of the probate bar but also will be of interest to financial planners, brokers, family law lawyers, general practice attorneys, medical practitioners and other professionals that proudly serve the elderly.

Financial elder abuse is a growing national epidemic and is not unique to Hawaii. As our local Hawaii population ages, many of our senior citizens have become and are becoming vulnerable to financial fraud committed not just by strangers but unfortunately, by their own family members or other trusted people that are well known to them. National statistics show that 1 out of 5 individuals over age 60 will become victims of financial elder abuse. Some estimates place the amount of financial fraud committed against our elderly and their heirs on a national basis in excess of 6.6 billion per year. That figure merely represents the loss from fraud by family members and others exploiting a trusted relationship.

It is no wonder that elder abuse is grossly unreported, and the number of cases filed involving improperly procured deeds, joint bank accounts, wills, trusts, and bequests, are a tiny fraction of the civil fraud that is committed by Hawaii’s elderly population annually.

Our law firm consults and advises elderly individuals, as well as their heirs in cases involving conversion, embezzlement, contested guardianships, conservatorships and improperly, procured wills and trusts. Elderly financial abuse after all effects not only the elderly but their heirs and loved ones who often depend on an inheritance or other assistance from their parents, grandparents, or other relatives during their lifetime only to see it stolen from them.

Our law firm is celebrating its 25th anniversary in August of 2017. We have grown to five full-time attorneys that practice predominantly in the trust and estate litigation department litigating family property disputes and as well as other trust and estate matters. We have grown since 1992 from a sole practice to one of the largest, if not the largest department that concentrates in the area of financial elder abuse. Due to the rampant abuses against the elderly, we are ever expanding our services and trained personnel as quickly possible.

Over the last 25 years, we have litigated some of the largest fraud and abuse cases that Hawaii has presented itself. We have made ourselves known through being involved in some of the largest will and trust cases in all islands, some as large in excess of $80 million to a few hundred thousand dollars involving improperly procured amendments to trust, improperly procured wills, stolen or embezzled assets or other improperly procured lifetime transfers or gifts. We have recovered for the benefit of our clients several hundred million dollars of assets over the last decade alone.

We have also continued to litigate disputes over guardianships and conservatorships of family members who are alive and well but are no longer capable of managing their own finances.

We work closely in partnership with other general practice attorneys, family lawyers, corporate counsel in family-held businesses, estate planning attorneys as well as stock brokerage representatives, bankers, financial planners, insurance salesmen, valuation appraisers, primary care and geriatric physicians, assisted living centers and other non-profit agencies in protecting against and prosecuting elder abuse and fraud claims throughout Hawaii. We continue our estate planning practice and many of the lessons we have observed and learned through our litigation practice area we have applied in our estate planning area as well.

We hope you enjoy our inaugural issue and look forward to working with you again in the future. We welcome your comments and suggestions regarding this newsletter. All questions and comments can be emailed to Michael Rudy in care of info@macdonaldrudy.com.

Physician Opinion Letter

Fri, 09 Dec 2016 09:17:27 GMT

THE USE OF PHYSICIAN OPINION LETTERS IN ESTATE PLANNING AND TRUST LITIGATION

In my over 30 years of practice in the area of trust & estate litigation and elder law I have found that there is no area which is so universally misunderstood by judges, attorneys, clients, physicians, and social workers as the term legal capacity, as it relates to an individual’s ability to perform tasks and enter into contracts as recognized by the law. Additionally, even many physicians including psychologists, psychiatrists, neurologists, as well as general primary care physicians, have little knowledge of the use and more specifically the necessary testing and expertise required in forming medical-legal opinions as to their patient’s capacity to perform a specific task or enter into a specific transaction or to execute a testamentary document.

This is despite the fact that physician letters or opinions are often used and provided to third-parties including attorneys, investment advisers, bank representatives and the like. Unfortunately, the majority of these physicians writing these letters have little or no knowledge, skill or training when formulating these opinions which are used for highly specific purposes sometimes involving significant assets and having long-lasting financial and personal consequences to the patient and other third-party individuals who rely on them.

The terms incapacity and competency are often mistakenly used interchangeably, but they have a different meaning. Incapacity is the term employed by a physician or trained psychologist who specializes in neurocognitive behavior when referring to an individual’s cognitive ability to assimilate information to make informed and rational decisions in relation to a particular task or function. Competency, conversely, is a legal term used by the courts and attorneys to refer to an individual’s legal ability that is recognized by the law to perform a specific task or enter into a specific type of contract or instrument.

The great confusion lies among physicians, psychologists, psychiatrists, and even attorneys, social workers, and the courts and the failure to recognize the differing types of capacity required to perform a particular task or function. There are many different degrees of capacity and even within a particular function capacity may be greater or less depending on the nature of the task. For example, differing types of capacity is required and recognized at law to perform a simple will versus a complex trust, or capacity to stand trial in a criminal proceeding, to manage one’s own finances, to marry or divorce, to engage in assisted suicide and end of life decisions, or merely to consent to medical treatment. In some states, the capacity to sign or execute a power of attorney is different than to execute a will or trust in most states. The capacity required to manage one’s finances is recognized as generally greater than to execute a simple will.

Although these concepts by themselves seem simple enough they are not so simple to ascertain and apply in a specific fact situation with a given person. Sometimes age, education, general health all play a role in determining capacity. To make matters more difficult, there is no single test for determining capacity that is employed by a skilled practitioner. Often practitioners, in order to determine capacity, must rely on a multitude of tests and analysis along with patient interviews in order to determine capacity. Even with this, in large and small cases it is clearly known that experts can differ strongly over whether an individual has capacity at any given point in time relative to any particular task or function.

For these reasons, experts often battle in court over a given transaction which may have occurred in determining whether, at that instant, the transaction was executed with the individual having the capacity to enter into it. After the death of an individual, experts such as forensic psychiatrists may be called in to testify after reviewing medical charts, interviewing third parties, and sifting through the nature of the transaction or instrument to ascertain whether an individual had the requisite legal competency at the time. It has only been over the last 20 years or so that physician opinions have been used on an informed and meaningful basis prior to the execution of an instrument or completion of a transaction. The reality is that until recently the fields of forensic psychiatry were simply not at the stage to have meaningful value into determining capacity or competency.

The community standard in the area of neuro-cognitive science and behavior and neuropsychiatry as it pertains to an individual’s capacity is woefully inadequate and extremely low. In some cases, a physician’s opinion can be completely worthless because the physician lacks the knowledge to provide a qualified opinion.

This author recently took a deposition of a primary care doctor since retired, that had written an opinion letter that the person was capable of performing simple tasks. The individual went on to write amendments to their trust which involved several million dollars. The physician at deposition could not definitively state whether they even examined the patient and the physician indicated that the opinion might have been performed as a favor for a physician partner in her office. Furthermore, the physician indicated that they had absolutely no skill or training in the area of competency or capacity and did not even know what testamentary capacity was. The physician did not ask any questions regarding the purpose of the letter and therefore could not ask the patient regarding the future change that was about to occur in the estate plan.

It is incomprehensible, how the estate planner could have relied on that letter to make the required change.

Sadly the physician is often “set up” by one or more individuals to be a witness in a trial in which they have been simply unaware of the nature of the testamentary instrument or the overall purpose of the opinion letter. Because the physician has little or no training in the area that simply does not ask the proper questions as to why, when, and how this transaction will occur, the physician has no way of having the ability of the patient to evaluate information relative to the transaction or instrument.

In trust administration, a trustee should be removed when he or she is unable to serve due to “disability.” Often times, estate planners employ language in which “disability” can be evidenced by the opinion letter of the trustee’s primary care physician. Given the lack of training of a primary care physician, estate planners may desire to re-examine physician certification language regarding a trustee’s disability.

In summary, third parties relying on physician letters, whether it be estate planning attorneys, corporate counsel, or individuals, should use a common-sense approach. A cursory short broad statement of competency, when provided to a third party, is clearly insufficient in the vast majority of cases. Third parties should request, whenever appropriate, that a definitive and comprehensive evaluation specific to the transaction or purpose be undertaken particularly when other red flags are present in the course of dealings with the individual.

Financial Elder Abuse

Mon, 07 Nov 2016 09:09:26 GMT

As our population ages, financial abuse perpetrated against our elderly citizens has reached epidemic proportions.

Recent studies have placed a wide range of estimates on the prevalence of financial abuse, estimating the amount of theft upon our elderly between $2.9 billion to as high as $29 billion annually with many commentators suggesting that the actual number is somewhere in between. The effects of financial elder abuse could be devastating. It can mean the difference between enjoying a quality of life or a complete absence of quality care for individuals who count on their retirement savings to get them through their senior years. Recently published research suggests that approximately one of out of every five elderly citizens, age 60 and above will become a victim of financial exploitation during their lives.

Additional studies suggest that in any given year four to five percent of the entire elderly population, age 60 and above, will be a victim of financial abuse or exploitation.

Studies also suggest that contrary to popular notion, as high as 65 percent of the financial abuse against an elderly citizen is committed by a direct relative such as a spouse, child, or grandchild. Paid caregivers, often thought to be the main perpetrators of financial elder abuse, represent only 50 percent of all reported claims.

Studies have shown that nationally, about 60% of perpetrators of financial abuse are male in the age range of 30 to 59. Female perpetrators are slightly younger in the age range of 30 to 49.

In Hawaii, the informal anecdotal evidence suggests that the perpetrators are more equally balanced between males and females with only a slight majority being female perpetrators within an age range generally older than the national average: between 45 and 60 years of age.

Studies have shown through various documented research that the amount of unreported claims of financial elder abuse is as high as 44 times the amount of actual reported claims to such agencies as Adult Protective Services or other similar programs or authority. The implications for this are staggering. The public simply has little or no appreciation for the sheer magnitude of criminal conduct being committed against our elderly population.

As our population ages, the threat of financial elder abuse is even starker. Some studies have shown that for dementia patients, the rate of financial abuse committed against them ranges from two to three times that of the normal adult elderly population.

Given the fact that the prevalence of dementia in the elderly population age 75 to 85 is approximately one in every three, and almost one out of every two adults age 80 or greater, one can see that the pervasiveness of financial abuse committed against elderly individuals aged 75 and greater is breathtaking. In Hawaii there are approximately 277,000 adults age 60 or older. There 100,000 elderly individuals over the age of 75 and 30,000 adults at age 80 or higher. Given the dementia rates as cited above, and the incidence of financial abuse committed against dementia patients, we could expect to have not fewer than 3,000 cases of financial elder abuse per year and perhaps as high as 6,000 cases per year.

In 2015, the State of Hawaii Adult Protective Services Division reported a grand total of 265 reported cases of financial exploitation on elderly Hawaii citizens.

Although no known data is published for actual confirmed financial elder abuse cases, Adult Protective Services confirmed fewer than one out of every five cases of elder abuse and neglect in all forms in 2015. In fact, in 2015, only 194 reports of adult abuse and neglect were confirmed.

The implication of this data cannot be overdramatized. There are thousands of cases each year of financial abuse committed against elderly citizens in various forms, including but not limited to embezzlement, conversion, theft, fraudulent use of credit cards, improper home equity lines and mortgages, fraudulent deeds, improper use of joint bank and stock brokerage accounts, and fraudulent wills and trusts.

All our institutions within both the public and private sector, as well as social workers, courts, attorneys, and other individuals, need to become more vigilant than ever before as our elderly citizens become more vulnerable.

Most abuses are discovered when one family member realizes that another family member has been or is currently stealing from the elderly adult. The adult at that point is typically incapacitated and unable to handle his/her finances, requiring a conservatorship.

Oftentimes these battles are fought in the probate court and are difficult to obtain since allegations of wrongdoing and denials go back and forth and family members argue over who the conservator should be. Moreover, the perpetrator of the financial elder abuse has also given themselves a preferred position in the estate planning documents, such as larger post-death distributions, and have been named as trustee or personal representative of the incapacitated adult’s trust or will. The perpetrator may also be named as attorney-in-fact under the durable powers of attorney making it even more difficult to wrestle away control of the incapacitated adult’s finances from the perpetrator of financial elder abuse.

Alternatively, an interested person can seek the appoint of a guardian ad litem in probate or family court who then in turn brings a protective proceeding on behalf of the incapacitated adult. However, there is currently no direct statutory right for a child or other relative to directly bring a proceeding to stop financial elder abuse.

Hawaii Revised Statutes Section 346 contemplates that Adult Protective Services bring cases to stop financial elder abuse, however, this is rarely done.

In the case where a fraudulent will or trust has been procured while the incapacitated adult is alive, there is no clear authority on how to go about seeking an order from a court to invalidate these fraudulent estate planning documents.

There are many gaps in our statutory laws and, therefore, no quick and easy way for interested persons to stop and ameliorate financial elder abuse.