Federal District Court Has Jurisdiction to Hear Challenge to Trust but Not Will

In April 1996, Mrs. Sianis executed a will and a trust, to which she transferred the majority of her property, worth about $430,000. The trust instrument named Sianis’s daughter Mary Jensen as trustee and provided that upon Sianis’s death, 25% of the value of the trust (but no more than $100,000) was to be distributed to Sianis’s son Chris, and the rest would go to Mary. One month after executing the will and trust, Sianis died without a agent agreement with the secretary of state.

Her will was informally probated in a Nebraska probate court. Pursuant to a pour-over provision in her will, the assets of her $83,000 estate were distributed to the trust. Chris executed a release in favor of the trust and received a distribution of $88,600. In the release, Chris indicated he did not believe his mother’s will was in harmony with the terms of the trust.

In January 1999, he filed an action claiming that his sister and her husband had fraudulently induced his mother into executing the will and the trust predominantly in their favor. A district court decided that Chris’s action was a disguised will contest, which should have been lodged in the Nebraska probate court, but dismissed the entire action on res judicata rather than jurisdictional grounds. In other words, the district court concluded that the probate court essentially had already settled the matter in the earlier proceeding. Chris appealed to the 8th Circuit.

The 8th Circuit agreed that any contest of the will would have to have been brought before the probate court. Since the federal courts lack jurisdiction to probate a will or administer an estate, the district court properly dismissed Chris’s claim concerning the will. However, the trust was a different issue. It was funded before Sianis died, and the probate court had no jurisdiction over it during the probate proceeding. Chris could not have challenged the validity of the trust before the probate court.

The 8th Circuit therefore ruled that the district court erred in dismissing Chris’s charge that Mary and her husband wrongfully induced Ms. Sianis into executing the trust instrument. The district court has jurisdiction to entertain the merits of that claim.

On a related note, a US Magistrate judge recently held that the government was entitled to the proceeds that an individual received as part of a settlement of a malpractice suit against the attorney who performed estate tax computation and asset valuation for his mother’s estate.

Check out my previous article here.

Attorney William Hackney provided legal services to the estate of Virginia Murphy, whose son William Murphy was the estate’s primary beneficiary and personal representative. Murphy later sued Hackney for alleged professional negligence that resulted in more than $1.2 million in taxes, penalties, and interest. Murphy brought suits both on behalf of the estate as personal representative and in his individual capacity as beneficiary. The parties settled both suits for about $130,000, but the US government claimed it was entitled to the entire amount.

Before the US Magistrate judge, Murphy argued that his claim to a portion of the settlement proceeds was superior to the government’s claim because of the dual capacity in which he brought the underlying suits. He claimed that the portion of the proceeds attributable to the suit he brought in his own capacity belonged solely to him, whereas the government’s tax lien was against the estate.

The US government argued that its claim to the entire settlement amount was superior to Murphy’s. Under Maryland law, the primary beneficiary of an estate does not have standing to sue the estate’s attorney in an individual capacity. Since Murphy did not have standing to sue in an individual capacity, the entire amount of the settlement proceeds were attributable to the suit he brought on behalf of the estate.

The judge agreed with the government and held that the settlement proceeds were estate property to which the government held superior claim

And here was my first post.