Family Feuds and Trust Litigation: Weighing the Monetary and Emotional Cost of a Lawsuit in Estate Planning

If you were wronged in a business transaction, let’s say by a supplier of goods or a provider of services, litigation can be a wonderful tool. You hire a lawyer who takes your claim to court, and ideally you end up with a judgement that leaves you feeling vindicated. After the case, you get on with your life, henceforth avoiding any business dealings with the party you sued. When it comes to estate planning, however, where the parties are usually related to each other. Trust litigation is more tricky.

As an estate planning attorney, I have always been acutely aware of this difference, but a recent decision by the California Court of Appeal for the Second District brought home the message once again. The case is Babbitt v. Superior Court, and here’s what happened:

In 1998, Mary Lynne Babbitt and her husband Leland created a revocable trust for which they designated themselves co-trustees. After Leland died, in 2014, the trust was split into two trusts, one revocable, the other irrevocable.

Things got complicated soon afterward, when Leland’s daughter from a previous marriage, Carol McCormack, requested to see an accounting of the trust, found herself unhappy with her stepmother’s response and asked the probate court to compel Mary Lynne Babbitt to provide an accounting. The court granted McCormack’s petition and ordered Babbitt to account for “the activities of the trust from May 5, 2011 to the present.” Babbitt, who had agreed to provide an accounting for the irrevocable trust created after her husband’s death, asked the California Court of Appeal for the Second District to intervene. It reversed the decision of the lower court and also ordered McCormack to refund Babbitt for her costs in connection with her petition.

The appeals court’s reasoning was straightforward: While a trust is revocable, the trustee (in this case Babbitt) owes limited duties to the beneficiaries (McCormack,) and providing an accounting is not one of them. Why? Because the terms of a revocable trust, per definition, are not set in stone. Since you can revoke the trust at any time or remove a beneficiary without explanation, you shouldn’t be forced to explain to the beneficiary what you’re doing with the assets in the trust. (The appellate court did note that an accounting might be appropriate even with respect to a revocable trust if there were allegations of undue influence or incompetence in connection with its creation.)

Those are the facts — but here’s what I’m wondering: Did the lawyers for the stepdaughter make it clear to her that she was on wobbly ground, that her argument was unlikely to succeed? Yes, the trial court did, somewhat surprisingly, agree to the accounting. But once the appellate court intervened, the case turned into an expensive exercise for McCormack. Moreover, by taking things to the court, McCormack probably didn’t help her relationship with her stepmother.

And this is exactly why lawsuits around estate planning issues are so much trickier than many others. When it comes to trust litigation you’re usually dealing with a family member, and after the verdict you’re still related to the person you sued. In a situation like the one above, if I were your attorney, the first question I’d ask you is: On an emotional level, what’s it worth to you?

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.