The case of Jane Peters Clark Dawson, et al. v. Freya Allen Shoffner, et al., Plymouth Probate Court 03E-0008-GC1, decided on December 26, 2006, reflects a combination of the misuse of nominee realty trusts, problems that often arise in second marriages, and the need for open communication within families.
The case involves two parcels of real estate, two marriages, and three families, with the two children of their deceased father's first marriage -- Jane and Luke -- suing their stepmother, their uncle, their half-brother and their stepmother's mother and two children by her first marriage. Their uncle and their stepmother's mother are bit players in the family drama having become involved as trustees on two realty trusts.
This matter began in the 1980s when Giles Nicholas Dawson ('Nick'), 'a savvy businessman' by the court's reckoning, created two realty trusts to hold title to two separate pieces of real estate. Realty trusts are often used as a way of holding title to property without revealing the true beneficial owner who is listed on a separate unrecorded schedule of beneficiaries. (They were also used, until recently, for real estate held in trust so that the entire trust need not be recorded at the registry. A recent law change permits the underlying trust to hold title without being recorded.)
In Nick's case, there is no evidence that he ever executed a schedule of beneficiaries. He named a friend of his as trustee, treated the real estate as his own property, and his friend followed Nick's instructions.
Subsequently Nick married Freya, who had two children of her own. Together, they had a son.
Over the years there were a number of transactions regarding the two properties. And in 2001, when Nick was sick with cancer, he finally created schedules of beneficiaries for the trusts, naming a separate Family Trust that he executed as the beneficiary.
The Family Trust provided for Freya during her life and directed that at her death it be divided into six shares, one each for Nick's two children by his prior marriage, one each for Freya's two children by her prior marriage and two shares for Nick and Freya's son.
This was not what Jane and Luke understood their father to have had in mind. They thought that one of the pieces of property was to be held in trust for them alone and the other to be held as directed in the Family Trust for all five children. They were convinced that this must have been provided for in the original schedule of beneficiaries. They sued.
The court in this case finds against Jane and Luke. With no evidence of schedules of beneficiaries when the realty trusts were created, 'the Court finds that Nick purposely failed to create a schedule of beneficiaries' and that his friend was simply acting as his 'straw' regarding these trusts.
Citing Arlington Trust Co. v. Caimi, 414 Mass. 830 (1993), the Court finds that 'a trust will fail if no beneficiaries are designated.' In short, absent any schedule of beneficiaries, the realty trusts did not exist back in the 1980s when Nick transferred his real estate into them and 'said transfers fail due to the invalidity of the trusts.'. The result was that the property remained in Nick's estate at his death and under the terms of his will it was distributed to the Family Trust.
The Court finds as well that 'Nick's estate plan evolved after he married Freya and they had Wolfgang,' their son.
The moral or morals of this story? First, beware of nominee realty trusts. In our practice we have seen numerous cases where the schedules of beneficiaries could not be found.
Second, beware of second marriages. Jane and Luke undoubtedly wanted everything to stay the same, be it their first family or their father's first estate plan. Bringing more people into the picture meant huge changes for them on all fronts. It's unfortunate that those changes culminated in this lawsuit.
Third, communication is vital. While Jane and Luke might have been unhappy, this litigation might have been avoided if Nick had explained his estate plan and his reasoning to them.
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