Beneficiaries May Sue for Excessive Gifts

Beneficiaries May Sue for Excessive Gifts

By Deborah Elkins

Published: September 7, 2011

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Beneficiaries of a family trust and will may sue decedent’s stepdaughter, their aunt and the executrix of the estate and holder of a durable power of attorney granted by decedent, for breach of contract and breach of fiduciary duty, for gifts she made to herself during decedent’s lifetime; a Norfolk U.S. District Court says plaintiff beneficiaries have standing to sue under North Carolina law.

This case involves a dispute over the management and execution of assets of the estate of Donald Clarke. On June 14, 2004, Clarke established a revocable inter vivos trust, the Donald Clarke Family Trust, and executed his will. The trust instrument identified the beneficiaries of the trust as Clarke’s deceased wife Claudine S. Camper’s daughter, Celeste Manning, and the children of Camper’s two deceased children, Jennifer C. Smith and Thomas B. Camper. The children of Mrs. Camper’s deceased children comprise the plaintiffs in this case.

The trust instrument also listed defendant Manning as trustee and directed defendant to accumulate the income and retain the principal of the trust during Clarke’s lifetime. Clarke’s will directed the residue of his estate be poured over into the Family Trust and disposed of in accordance with the provisions of the trust instrument. Under the trust instrument, upon Clarke’s death, the trustee was to distribute the remaining principal, along with any accumulated income as follows: two-thirds to defendant and one-third to plaintiffs in equal shares.

On Aug. 1, 2005, Clarke executed a durable power of attorney (DPOA) under N.C. Gen. Stat. Sec. 32A-8, listing defendant as his attorney in fact and giving her the power to act in his name, place and stead in any way in which Clarke himself could act. The DPOA granted defendant the power to make gifts of Clarke’s real or personal property or interest in such property to the living issue of Camper and their spouses, in amounts not to exceed the annual exclusion for federal gift tax purposes at the time the gifts were made. According to plaintiffs, defendant attorney in fact made gifts to herself from Clarke’s estate totaling $11,000, $297,000, $192,000, $192,000 and $208,000, from the years 2004 through 2009. Plaintiffs allege defendant, acting as attorney in fact, breached her duty to adhere to the express terms of the DPOA and plaintiffs seek for the court to order defendant to pay to the Family Trust the full value of the excess gifts, plus interest. Plaintiffs request defendant be ordered to pay the estate the value of the excess gifts, plus interest, to be distributed to the Family Trust.

Clarke died as a resident of North Carolina, and the Family Trust terminated and its assets became distributable. Plaintiffs filed suit on March 11, 2011.

Defendant argues that plaintiffs, as beneficiaries under Clarke’s will, had no legal interest in the transactions alleged to have occurred prior to his death on March 12, 2009. Defendant argues only Clarke and his personal representative may bring a cause of action to impeach personal property transfers made during Clarke’s lifetime.

Under the controlling North Carolina law, defendant’s alleged breach of the terms of the DPOA when she conveyed gifts to herself in amounts exceeding the annual exclusion for federal gift tax purposes created a cause of action for breach of contract or breach of fiduciary duty as to Clarke during his lifetime. Clarke’s legatees or distributes have standing to sue to recover personal assets of an estate when fraud, collusion or a refusal to sue on the part of the personal representative renders such action necessary for the protection of ultimate rights accruing to them under a will or the statute of distribution.

In this case, Clarke’s personal representative is also the same person who allegedly wrongfully gifted assets from the estate. In such a situation, the court finds that under the exception articulated in case law, plaintiffs, as distributees under the Family Trust and consequently under Clarke’s will, may bring a cause of action for breach of contract and fiduciary duties for acts occurring prior to Clarke’s death in place of the personal representative.

Further, defendant’s reliance on N.C. Gen. Stat. Sec. 28A-19-3(a) as the applicable statute of limitations is misplaced. That statute bars claims against a decedent’s estate, not claims to recover debt on behalf of the decedent’s estate. This case involves a claim to recover debt for the estate based upon allegations of breach of contract and fiduciary duties under the DPOA. Because the claim raised in count I is based on contract, the statute of limitations is three years.

Only claims based on the excess gifts for 2008 and 2009 were filed within the applicable statutory period. The court finds plaintiff’s claims based on excess gifts defendant allegedly received from 2004 through 2007 are time-barred.

Defendant also argues that because plaintiffs’ claims arose prior to Clarke’s death but were not timely presented to his personal representative, they are forever barred. This court finds the three-year statute of limitations in N.C. Gen. Stat. Sec. 1-52(a) applies. That period has not expired and plaintiffs are not barred from suit. They allege defendant gave herself gifts in excess of the annual exclusion amounts until March 22, 2010. Plaintiffs filed suit March 11, 2011, well before the earliest date of expiration for the statutory period. The court also declines to dismiss count II as to defendant in her individual capacity.

Camper v. Manning
(Jackson) No. 2:11cv157, June 27, 2011; USDC at Norfolk, Va. VLW 011-3-349, 14 pp.

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