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Kentucky Trust and Estate Cases - 2022

Barring another opinion released by the Kentucky Supreme Court or the Courts of Appeal over the next three weeks, this year, the courts issued four published decisions interpreting statutes associated with trust, estate, or probate matters were published. The four ranged from examining the interplay of the district court and circuit court in a contested probate, a trustee acting against the interests of the beneficiary, the alleged self-dealing by an executor, and Kentucky’s dower rights. Below are summaries of the four cases in question.

Goff v. Edwards, 653 S.W.3d 847 (Ky. 2022) published on September 22, 2022

At issue in the case was the interplay between the authority of the district and circuit court in probate matters. The Kentucky Supreme Court, in its analysis, clarified the interplay of KRS chapter 24A and KRS Chapter 395, finding that while the district courts have exclusive jurisdiction regarding the management and settlement of a probate estate, once issues become adversarial, the action must move to Circuit Court. Furthermore, the heirs at law of an estate have standing to file such an action in Circuit Court.

The Jefferson District Court appointed Debra Goff as Executrix of her father’s estate according to provisions in the elder Goff’s will. Goff’s sisters, Tina Thompson and Benda Daughtry, brought an action in the Jefferson Circuit Court accusing Goff of self-dealing as her father’s agent before his death and failing to faithfully pursue her duties as Executrix, including failing to collect the $400,000 debt she owed the estate. As a result, the sisters’ alleged that they were denied their equitable share of the estate.

In response, Goff sought dismissal, arguing that the Circuit Court lacked jurisdiction and the issues were within the District Court’s exclusive jurisdiction as a probate matter. The Circuit Court denied Goff’s dismissal motion finding it had jurisdiction under KRS 24A.120 as an adversarial probate proceeding and the sisters had standing under KRS 395.510 as heirs of the estate. Goff then sought a writ ordering the Jefferson Circuit Court to dismiss her sister’s suit. The Court of Appeals denied Goff’s Writ of Mandamus, and the Kentucky Supreme Court affirmed that denial.

Any writ is an extraordinary measure for an appeals court to grant, generally requiring the appellate court to find the lower court is acting outside its jurisdiction. Here the Supreme Court settled the competing issue of jurisdiction under KRS Chapter 395 and Chapter 24A. The Supreme Court said the plain language of the statutes required it to find the Jefferson Circuit Court had subject-matter jurisdiction of the underlying case. Citing the language of KRS 24A.210(2), the district court has exclusive jurisdiction in “[m]atters involving probate, except matters contested in an adversary proceeding. Such adversary proceeding shall be filed in Circuit Court in accordance with the Kentucky Rules of Civil Procedure and shall not be considered an appeal.” Furthermore, the sisters had standing under KRS 395.510 and 395.515 as beneficiaries with a right to payment in the estate distribution to seek adjudication of their rights in court. Finding the Jefferson Circuit Court was not proceeding outside its authority, the Supreme Court affirmed the Court of Appeals denial of Goff’s writ.

Mason v. Stikes, 650 S.W.3d 292 (Ky. App. 2022) published May 6, 2022

This case is an action between competing estates. Norma Catherine Mason-Stikes and William T. Stikes were married in 1992, and the couple made a post-nuptial agreement in 2006. Included in the agreement was language outlining Norma’s interests in William’s Army disability, work pension, and social security. In 2011, Norma was diagnosed with dementia, leading to her residence in several assisted care facilities. Norma’s final facility was in Virginia, while William continued to live in Jefferson County.

William died in October 2019, and his son, as executor (“Executor Howard”), listed him as “widowed” on his death certificate despite Norma still living in Virginia. As a result, Norma never received the benefits included in their post-nuptial agreement. Norma’s attorney-in-fact filed a claim against William’s estate. The suit claimed the payments made to William’s estate that were actually due to Norma under the agreement. Norma then died in September 2020. William’s executor denied the claims made by Norma and maintained by her executor (“Executrix Angela”) and filed suit in Jefferson Circuit Court on behalf of Norma’s estate.

Administrator Howard’s moved to dismiss, which the Jefferson Circuit Court granted with prejudice. The Court said that Section 2 of the post-nuptial agreement waived future claims by Norma’s estate and Executrix Angela lacked stating to file because Norma died in Virginia and Kentucky appointed her as Executrix and therefore void.

The Court of Appeals reversed, saying Executrix Angela had standing to bring claims against the estate, and the remaining issues represented contested facts requiring further development. Under KRS 394.140, a non-resident’s estate may be probated “where there is a debt or demand owing to the [decedent].” The circuit court was incorrect when it found that because Executrix Angela did not first probate Norma’s will in Virginia, her appointment as Executrix was void, and therefore, she lacked standing to sue on behalf of the estate. Here, the probate of Norma’s interest in debts owed to her by William’s estate was proper in Jefferson County as ancillary probate, and therefore the appointment of Executrix Angela as to those debts was proper under KRS 394.140. Furthermore, the court said there is no requirement in Kentucky statutes that the domiciliary probate (or primary probate) be opened before any ancillary probate.

The court also found questions of fact remained in the underlying issues. Therefore the case was remanded for further actions

Estate of Worrall v. J.P. Morgan Bank, N.A., 645 S.W.3d 441 (Ky. 2022) published April 28, 2022

I wrote a post earlier this year regarding this case, so I won’t go into too much detail. (Trustee’s Duties Upon Trust Termination). In this case, the corporate trustee failed to distribute the trust reasonably, withholding the funds until the sole beneficiary agreed to indemnify against misdeeds and waive accounting. When the beneficiary refused to agree to the indemnification, the trustee convinced the district court to permit it to liquidate the trust assets and distribute them to the beneficiary as cash. These actions were highly detrimental to the beneficiary from a trustee fee and tax perspective.

The beneficiary appealed the district court’s order and sued, seeking damages for the trustee’s actions. The Kentucky Supreme Court, interpreting Kentucky Uniform Trust Code, KRS Chapter 386B, said the trustee’s actions were a breach of its fiduciary duties and found its actions to be “punitive and vindictive” toward the beneficiary. The case was then remanded to the district court to set damages, including reimbursement of capital gains taxes, reimbursement of trustee and attorney fees for 2019, reimbursement of commissions paid by the trust for liquidation of the securities, James’s attorney fees, and the value of any appreciation of the securities between the time of liquidation and the Court’s opinion.

Simpson v. Wethington, 641 S.W.3d 124 (Ky. 2022) published February 24, 2022

Another case that I wrote about pitted spousal estates against each other. (You Can’t Estate Plan by Writing Your Kids A Check). James Wethington (“James”) and Nannie Wethington were married in 1990, and each had children from prior marriages. James died in January 2017. Two days before his death, James’s son wrote himself a check at James’s direction for the balance in James’s checking account, $38,500. Nannie only became aware of the withdrawal when her checks were returned for insufficient funds. The lower courts found the transfer of funds to be an inter vivos gift by James Nannie died in September 2017, and her daughter, Mitzi Simpson, pursued her dower rights on behalf of the estate as Administrator.

The Court found that James’ use of the check to transfer the money to his children represented a fraudulent gift and an attempt to avoid Nannie’s dower rights. The Court emphasized that while James was permitted to make gifts to his children from common funds, the reasonableness of such gifts is based on the condition of the parties and the surrounding circumstances. The remedy, in this case, was the unwind the gift to the extent of Nannie’s rights in the property. Because the facts on appeal were insufficient to determine James’ total estate value and what portion of the check represented a reasonable gift that James was permitted to transfer, the Court remanded the case to the Circuit Court to determine the extent of Nannie’s estate’s interest in the gift.

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