In Edwards v. Gillis (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., August 29, 2012), a California court of appeal considered whether, in a petition to void a decedent's trust amendments, the trial court applied the correct standard in requiring plaintiff to prove that the defendant unreasonably delayed making preliminary distributions from the trust assets to the beneficiaries; and whether sufficient evidence supported the trial court's determination that the executor did not unreasonably delay distribution of the trust's assets.
The court ruled that because the law does not require that distributions be made as quickly as possible, but only that they be made without unreasonable delays, the trial court applied the correct standard. Further, the court found that the distributions had not been unreasonably delayed.
Eileen Gillis executed the Eileen Gillis Trust in 1988 and named her daughter, Beverly Sims, as successor trustee. The 1988 Trust distributed the contents equally among Sims and her four siblings. A 1991 amendment to the trust removed Sims as a beneficiary, and as trustee, replacing her with her sister, Kim Des-Rochers. A 2001 amendment replaced Des-Rochers as trustee with John Gillis, Eileen Gillis’ husband. This amendment also stated: “Under no circumstances do I wish my eldest daughter, Beverly Sims, a.k.a. Beverly Edwards, to receive anything whatsoever from my estate or to have any control or influence over the administration or distribution of the estate.”
Eileen Gillis died on February 22, 2007. Included in her trust were several real properties worth millions of dollars which were to be sold upon her death and proceeds from the sales distributed among the beneficiaries. An accounting advisor to the trust advised John Gillis to delay distributions until the Internal Revenue Service (“IRS”) issued a closing document on the estate. In June 2007, Sims filed a petition to void the trust amendments alleging that John Gillis had used undue influence to persuade Eileen Gillis to amend the trust and remove Sims as a beneficiary. Sims became ill and died on May 11, 2008.
John Gillis made an initial small distribution of $24,000 from the trust to each beneficiary on July 22, 2008 – about two months after Sims’ death – at the behest of one of the beneficiaries. He set aside an additional $24,000 should the court determine that the amendments were void and that Sims was entitled to inherit. Rex Edwards, the executor of Sims’ estate, replaced her as plaintiff in the petition to void the amendments to the trust and argued that Gillis had unreasonably delayed payments until after Sims’ death.
The trial court entered judgment for Gillis ruling that Edwards failed to demonstrate Gillis had unreasonably delayed distribution of the trust assets and lacked standing to challenge the amendments because even if invalidated, Sims would not have stood to inherit from the trust. Edwards appealed arguing that the court applied an incorrect rule of law in requiring him to bear the burden of proving that Gillis unreasonably delayed distribution of the trust assets and instead should have applied a rule that would only have required him to prove that Gillis could and should have made distributions of assets prior to Sims’ death.
Citing case law, the court said that contrary to Edwards’ argument, an executor is not required to proceed as quickly as possible, but rather, “it requires him to proceed without ‘unreasonable delay.’” Edwards failed to establish an unreasonable delay.
First, the court noted, John Gillis had no personal financial interest in the trust and had nothing to gain by delaying distributions. Second, Sims had not been a beneficiary of the trust since 1991, more than 15 years before her death, so John Gillis could not have unreasonably delayed distribution to disinherit someone whom he believed had no claim to the trust. Additionally, evidence showed that John Gillis learned of Sims’ fatal illness only three months before she died. It is untenable, the court said, to contend that John Gillis should have issued a distribution during that narrow three-month period when Sims had no standing at that time to benefit from it.
The court also noted that John Gillis had relied on a tax professional’s advice to delay distributions until after receipt of the IRS closing document. Heeding that advice could hardly be construed as an unreasonable delay, the court said. Substantial evidence supported the trial court’s conclusion that there was no unreasonable delay in the distribution and that the trial court correctly found that the burden was on Edwards to establish an unreasonable delay.
The ruling was affirmed.
If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.
Linda M. Monje | 661.864.3800