Rescinding an Irrevocable Trust Using 3-Defense Strategy


Rescinding an Irrevocable Trust Using 3-Defense Strategy

Unmarried couple raised two children together and for all intent and purpose, lived as husband and wife for 25 plus years without a legal marriage.”Husband,” a physician, was about to lose his malpractice insurance because his out-of-state insurance company was going bankrupt.To make matters worse, he was in the midst of a large malpractice case against his surgery center.
Fearing for his assets, he and his business attorney concocted an asset protection plan.The plan, endorsed by “husband’s” counsel, required that each of the mates amend their existing revocable trusts.The changes involved making each trust irrevocable, and for the benefit of the other “spouse.”In effect, “husband” became the beneficiary of “wife’s” trust and “wife” became the beneficiary of “husband’s” trust.

 

As the plan was devised, if the injured patient got a judgment against “husband,” “husband” would hold up the last amendment and show that, per the amendment, the trust was irrevocable and no longer for his benefit, making him judgment proof.
The couple agreed that the revised trusts would be used only to protect against creditors.For all other purposes, they would treat their trusts as those the last amendment did not exit.

Eventually, after 25 years of dealing with the “husband’s” controlling nature and backhanded deals, and with her children fully grown, the “wife” left the “husband” to start fresh.Embittered, in a ultimately futile attempt to hold “wife” captive, “husband” filed an action in probate court to enforce “wife’s” last amendment, claiming per its written terms that the last amendment made the “wife’s” trust irrevocable. “Husband’s” petition in probate court against “wife” claimed that “wife” breached her fiduciary duties by not using the assets in her “trust” for husband’s exclusive benefit.

Husband refused to settle and the case proceeded to trial. CJT represented “wife,” and immediately had wife file a petition to rescind the last amendment to her trust.CJT counsel asserted three primary defenses, namely, that the last amendment was (1) a sham and therefore not enforceable; (2) the last amendment was based on a mistake of law, because neither “husband” nor “wife” believed it could be enforced against the other; and (3) it was established for an invalid purpose (to defraud a possible creditor).”Husband’s” counsel argued that the terms of the last amendment were clear, the amendment expressly stated it was irrevocable, “wife” understood what she read and that she could not now attempt to set it aside.CJT trial counsel called the “husband” as the first wife and cross-examined him.The husband’s testimony was inconsistent and he was discredited.CJT counsel then called the drafting attorney, who walked a fine line between protecting his own interests and telling the truth. CJT called the accountants used by “husband” and “wife” to show that neither of them filed the correct tax returns if the trusts were in fact irrevocable.CJT was able to admit into evidence a variety of exhibits, consisting primarily of refinance documents, showing that the couple represented to lenders, after the amendments were signed, that there trusts were still revocable.

 

Ultimately, through careful examination, CJT counsel was able to get the drafting attorney to admit that there were in fact oral agreements limiting the ability to use the last amendments against each other.CJT finished its case with “wife,” who told the truth, remaining calm and consistent in her testimony.”Husband’s” counsel put on his case, calling “wife” on cross-examination as the initial witness, followed by “husband.””Wife’s” testimony remained reliable and consistent, while “husband’s” testimony on cross-examination again proved unreliable.The trial concluded.Six weeks later the court produced an 18-page statement of decision, finding that “wife” had proved all three defenses and granted wife’s decision to rescind her trust.

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