T&E Litigation Newsletter - 11/6/13November 2013 – Advisories
While the Red Sox were marching toward victory, the following decisions were reported enforcing an arbitration clause in a trust, addressing statute of frauds and statute of limitations questions in a case involving alleged breaches of an oral trust, and rejecting an attempt to obtain Medicaid benefits for a decedent pursuant to a trust that was reformed after the decedent’s death to make her benefit-eligible.
In The FPE Foundation v. Solomon, Civil Action No. 12-11342-GAO, 2013 U.S. Dist. LEXIS 134120 (D. Mass. Sept. 19, 2013), the charitable remainder beneficiary of a QTIP trust brought suit against the trustees and the estate planning attorney for alleged mismanagement of the trust, asserting tort and contract claims in the U.S. District Court. The Court dismissed the claims and compelled arbitration of the dispute pursuant to the arbitration clause in the trust instrument. In doing so, the Court assumed the enforceability of the clause and focused its discussion on whether the defendants had waived their right of enforcement.
In Berkowitz v. Berkowitz, Civil Action No. 11-10483-DJC, 2013 U.S. Dist. LEXIS 134791 (D. Mass. Sept. 20, 2013), Samuel Berkowitz sued his daughter Bonnie Berkowitz for breach of fiduciary duty, claiming that she was holding certain real property and securities for his benefit pursuant to an oral trust, and that she repudiated the oral trust in 2008. Bonnie moved for summary judgment, arguing in part that Samuel’s claim is barred by the statute of frauds and the statute of limitations. Her motion was denied.
The U.S District Court acknowledged that the statute of frauds applies to contracts for the conveyance of land, and that no trust concerning land, except a trust that may arise or result by implication of law, shall be created or declared unless by a written instrument. The Court held, however, that one such trust that arises by implication of law (and thus does not require a written instrument) is a resulting trust, and that a genuine issue of fact exists as to whether a resulting trust was created when Samuel transferred the real property to Bonnie.
Similarly, the statute of frauds does not apply to the securities that were allegedly held pursuant to the oral trust, because it was not a contract to make or revoke a will or codicil. Even if the oral trust were made in contemplation of Samuel’s death, and thus arguably fell within the statute of frauds, the statute of frauds would not apply to a constructive trust, and Samuel brought forth sufficient evidence to raise a genuine issue of fact as to the existence of a constructive trust.
Finally, the Court held that Samuel’s claim was not barred as a matter of law by the statute of limitations. A claim for breach of fiduciary duty does not accrue until the trustee repudiates the trust and the beneficiary has actual knowledge of the repudiation. Here, although there is evidence that Samuel knew he had been “swindled” as early as 2002, there was no evidence that Bonnie specifically repudiated the trust until 2008, when Samuel requested an accounting. For the same reason the Court rejected Bonnie’s argument under the doctrine of laches.
In Doherty v. Director of the Office of Medicaid for the Executive Office of Health and Human Services, Case No. ESCV2013-00457-D, 2013 Mass. Supr. LEXIS 103 (Aug. 14, 2013), the Essex Superior Court dismissed a claim by a decedent’s heirs to obtain Medicaid benefits. During her life, the decedent paid nearly $400,000 to a nursing home, where she resided from 2005 until her death in 2010. In 2006, her application for Medicaid benefits was denied because her assets were determined to include trust principal that could be distributed to her under some circumstances. Following her death, the co-trustees and sole remaining beneficiary reformed the trust pursuant to a Stipulation of Judgment to remove the trustees’ discretionary authority to make principal distributions to the decedent, and then they presented the reformed trust to the EOHHS, demanding that the EOHHS reconsider its earlier denial of Medicaid benefits to the decedent and reimburse them the full amount of money she had paid to the nursing home. The EOHHS said no, and this lawsuit followed. The Court agreed with the EOHHS, holding that the Medicaid program exists to provide health benefits to indigents, not to enrich heirs. As the Court remarked: “A reformed trust can turn back the clock on certain legal decisions. However, it cannot resurrect the departed. . . . [P]laintiff’s far-too-clever effort to obtain Medicaid funds must be denied, as they lack standing to apply for benefits.”
This update was authored by Mark Swirbalus, a Director in the firm's Probate & Fiduciary Litigation group. For questions or additional information on this topic, please contact Mark at [email protected] or contact any member of the Probate & Fiduciary Litigation group.
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