Pennsylvania Fiduciary Litigation : Pennsylvania Trusts and Estates Lawyer & Expert Witness : Patti Spencer Law Firm : Fiduciary Litigation, Planning : Lancaster, Harrisburg, Philadelphia, Pennsylvania

Today I listened to the ALI-ABA Webcast "Virtual Representation in Trust and Estate Dispute Resolution:  Opportunities and Risks",  You can check at the ALI-ABA website to find out when the online version will be available - i highly recommend it.  This concept will be increasingly valuable in the resolution of trust and estates disputes.  The ALI-ABA course description reads: 

"Virtual representation," which has long-existed in the common law and is embodied in a variety of state statutory schemes, seeks to protect incapacitated, unborn, and unidentified beneficiaries who can't protect themselves in trust and estate litigation. This doctrine has become an increasingly necessary tool to bind all parties whose interests are affected by the resolution of such disputes.  As the use of "virtual representatives" to bind absent parties increases, the risks for parties involved in trust and estate disputes of not identifying an appropriate virtual representative have also increased.

Here is a segment of my outline from the PBI seminar on Developments in Fiduciary Litigation:

Virtual Representation PEF Code §§ 7721-7726

1. Virtual Representation PEF Code §§ 7721-7726

   History: "Virtual representation was a concept in Hanoverian Britain, based on the belief that men without the vote, such as persons in the colonies, or those in Britain who did not have the franchise, were "virtually represented" by Members of Parliament who had been elected by "similar" voters. There were some shopkeepers who voted for MPs, the theory went; therefore all shopkeepers were virtually represented. Men who owned property in North America voted for MPs—some, indeed, sat in Parliament. This, the advocates of virtual representation held, meant that American interests were virtually represented."

   A. "Virtual" means " not in fact"

   B. "The theory of virtual representation is that, if the interests of the representor and representee are closely aligned and are affected in the same way by the decision, the presence of the representor will be sufficient to make every argument that the represented party would make."

   C. Representatives provided there is no conflict of interest [emphasis added] with respect to the matter at issue:

   1.   Guardian represents the ward

   2.   Agent under a power of attorney represents the principal

   3.   Living sui juris members of class represent other class members who are minors, unborn, unknown or unascertained

   4.   Predecessors in interest - where property will pass to a person or class upon the occurrence of a future event, but will pass to another person or class upon the occurrence of an additional future event, the class who would take on the first event represent those who would take on the second event

   5.   Unknown or unascertained beneficiaries - Person represents all minors or unborn individuals or persons whose identity or location is unknown or not reasonably ascertainable if the interest of the persons represented are substantially identical with respect to the particular question or dispute involved.

   6.   Donee of a general power of appointment - represents all potential appointees (objects) and all takers in default even if a conflict of interest exists

   7.   Donee of a limited power of appointment - represents all potential appointees (objects) and all takers in default who are also potential appointees.

   B.  Judicial proceedings

   An order or decree binding the virtual representative is binding on the persons, or class of persons represented if the trustee notifies the representative in writing whom they represent and they do not decline representation and they act in good faith

   C.  Non-judicial proceedings

   Notice, consent, approval, waiver or release by the representative is binding on the persons, or class of persons represented if the trustee notifies the representative in writing whom they represent and the do not decline representation and they act in good faith.

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Whom are a person’s heirs? Heirs are those who inherit a decedent’s property if he or she dies without a will. The law has long established that a surviving spouse has a right to receive a share, and then children, or other lineal descendants, inherit. If there are no lineal descendants, then parents are heirs, then grandparents, siblings, nieces and nephews, and so forth.

In a world where there are multiple marriages, many children born to unmarried parents, in vitro fertilization, and unconventional living situations, how does one determine whom are a person’s heirs? Recent developments in technology, including DNA tests, are raising challenges to well-settled principals of the common law.

A Florida case, Doe v. Doe, decided by Florida’s 2^nd District Court of Appeals in September 2009, was about this problem. The facts of Doe are uncomplicated. Chester Jr. and Eleanor, his wife, executed trusts which provided for a gift to their grandchildren. One of the grandchildren was Catherine, who was the daughter of Chester III (son of Chester Jr. and Eleanor) by virtue of his name appearing on her birth certificate and a court order entered in the domestic relations division following Chester III’s divorce from Catherine’s mother.

Chester Jr. and Eleanor never knew, but Chester III submitted samples from Catherine and himself to two separate laboratories for DNA testing. The test results from each of the two laboratories conclusively excluded Chester III as Catherine’s biological father. Eleanor, who survived Chester Jr., died six years after the results of the DNA tests became known to Chester III.

The trust contained this language: "For all purposes, hereunder, in determining whether any person is a child or descendant, only children and descendants by blood shall be included."

The trustee brought suit to exclude Catherine from the class of trust beneficiaries since the DNA test proved she was not a "descendant by blood." The question before the court was whether DNA test results should be allowed to prove that a child is not an heir?

After a long disquisition, the court said: "To put it in a nutshell, the trusts’ Article XVIII appears in legal instruments, not in a technical paper on genetics. The phrase "descendants by blood" is a legal term of art, not a scientific one. As a legitimate child of one of the settlors’ sons, Catherine qualifies as one of the settlors’ ‘descendants by blood.’"

What is meant by "legitimate" in this context? It has long been a presumption of the law of inheritance that a child born to a married couple is "legitimate" that is, it is the child of both parents. In the days when this presumption developed, DNA testing was not available. Also, a child acknowledged by the father has been presumed an heir.

Questions of the interpretation of wills and trusts always turn on the decedent’s intent. The presumption and interpretations imposed by law are aimed at discerning intent. In this case, what did Chester Jr. and Eleanor intend? Did they want Catherine to share in their estate? Apparently they did. Would they have wanted her to share if they knew their son Chester Jr. was not her biological father? Tough question. How can we know?

The Court closely examined the meaning of the term "descendants by blood" as it has been historically used in wills and trusts. Generally, such expressions were used as a term of art to exclude adopted persons as beneficiaries. Because the blood restriction came to be used long before genetic testing became available, the Court did not want to extend its meaning "to disqualify descendants who were not adopted and who would otherwise qualify as a beneficiary." Therefore, as a legitimate child of Chester III, Catherine qualifies as one of the descendants by blood of Chester Jr. and Eleanor.

Thus, the court held that the DNA evidence would not be used to remove Catherine as a beneficiary.

A different standard and view was applied to the converse case when the court included a child not born in wedlock, who claimed to be an "heir" of the decedent, even though he or she had not been acknowledged and there had been no adjudication of paternity.

We look for more developments in the law around these issues. Will the old common law approach be upheld when the DNA evidence is clear and convincing? What will this do to families?

If you are concerned about who will be considered to be your heirs and beneficiaries because of complex personal relationships, there is an easy solution: make a will. When you make a will you can specify who should be included and how their relation should be determined. Don’t leave it to chance, or years of litigation. Making a will that specifically addresses these issues is the way to make sure your intentions are followed.

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When I draft wills and trusts I always include definitions of "child" and "descendant:"

"For purposes hereof, the term "child," however expressed, shall refer to any descendant in the first degree of the parent designated. The term "descendant," however expressed, shall include (i) children or more remote descendants, either naturally born or legally adopted, but only if such descendant was adopted prior to attaining the age of eighteen (18) years, it being my intent that such adoption shall have the same effect as if such individual had been naturally born to the adopting parent or parents; (ii) legitimate descendants only; and (iii) any child or remote descendant in gestation at any time specified in connection with the administration, division or distribution of any portion of my estate."

The thinking is that if my son adopts his new (much too young) girl-friend, Miss Gold Digger - she is not a descendant of mine.

But what if the document does not address the issue?

Professor Gerry Beyer at Wills, Trusts & Estates Prof Blog reports on the case of In re Ray Ellison Grandchildren Trust, 261 S.W.3d 111 (Tex. App.—San Antonio 2008, pet. denied, rehearing filed), Settlor established a trust for the “descendants” of his children.  A dispute arose as to whether descendants included the adopted children of his son who were adopted after reaching adulthood.  The trial and appellate courts agreed that these individuals were not within the class of individuals who would qualify as descendants.

In Ellison, the deceased grantor's son adopted the three children of his second wife when they were adults - ages 39, 37 and 36.  His two children from his first marriage didn't want to share with these 3 adoptees.

Surprisingly, the court held, through some very strained reasoning, that the adopted children are not included.  We shall see what happens on appeal.

In the meantime - don't leave it to litigation - include a definition when you draft.

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