Carlson v. Sweeney, Dabagia, Donoghue
| Decision Date | 07 June 2007 |
| Docket Number | No. 46A05-0602-CV-94.,46A05-0602-CV-94. |
| Citation | 868 N.E.2d 4 |
| Parties | Norman R. CARLSON, Jr., Individually and as Executor of the Estates of Norman R. Carlson and Hilda D. Carlson, Deceased, and as Trustee of the Trusts Established Under the Last Wills and Testaments of Norman R. Carlson and Hilda D. Carlson; Margaret Ann Carlson, Beth Carlson Montigue, and David R. Carlson, Appellants-Plaintiffs, v. SWEENEY, DABAGIA, DONOGHUE, THORNE, JANES & PAGOS; and John H. Sweeney, Appellees-Defendants. |
| Court | Indiana Appellate Court |
Steven K. Huffer, Huffer & Weathers, P.C., Indianapolis, IN, Attorney for Appellant.
Robert G. Devetski, Barnes & Thornburg LLP, South Bend, IN, Attorney for Appellee.
Norman R. Carlson, Jr., individually, and as executor of the estates of Norman R. Carlson and Hilda D. Carlson, and as Trustee of the Trust established under the last wills and testaments of Norman Sr. and Hilda, Margaret Ann Carlson, Beth Carlson Montigue, and David R. Carlson, (when referred to collectively, the "Carlsons"), filed a complaint against the law firm of Sweeney, Dabagia, Donoghue, Thorne, Janes and Pagos, and lawyer John H. Sweeney (the "Lawyers"), alleging legal malpractice that resulted in adverse tax consequences. The Lawyers filed a motion for summary judgment, raising two issues. The trial court denied the Lawyers' motion as to one issue, but granted it as to the other. The Carlsons now appeal, raising a single issue, which we restate as whether the trial court properly granted summary judgment based on its determination that reformations to the Wills drafted by the Lawyers effectively eliminated any malpractice that occurred relating to the drafting of the original Wills. On cross-appeal, the Lawyers raise a single issue, which we restate as whether the trial court properly denied its motion for summary judgment on the grounds that the original Wills would result in adverse tax consequences. The Lawyers also raise the following issues: 1) whether the "substantial adverse interest exception" protects the Carlsons from adverse tax consequences; 2) whether the Carlsons have brought this suit too early, as the IRS has not yet assigned a tax penalty; and 3) whether the trial court improperly considered the opinion of an attorney hired by the Carlsons. We conclude the adverse interest exception does not protect the Carlsons, the Carlsons are not precluded from bringing their suit at this time, and that the Lawyers waived their argument relating to the opinion of the expert witness by not raising it before the trial court. We further conclude that the trial court properly found that the original Wills would result in adverse tax consequences, and affirm the trial court's denial of the Lawyers' motion for summary judgment on that issue. However, we conclude that the reformations did not effectively avoid potential adverse tax consequences, reverse the trial court's grant of summary judgment on that issue, and remand for further proceedings.
In 1988, Norman Sr. and Hilda retained the Lawyers to prepare their Wills. Norman and Hilda informed Sweeney that, among other things, they wished to ensure that the property passing to Norman Jr. and Margaret would not be subject to federal estate or state inheritance tax upon the deaths of Norman Jr. and Margaret. Sweeney agreed to prepare the Wills in this way. The relevant portions of Hilda's Will are:1
ITEM II. I give, devise and bequeath all my personal and household effects and the like not otherwise effectively disposed of, such as jewelry, clothing, automobiles, furniture, furnishings, silver, books, pictures, and my real estate to my husband, NORMAN R. CARLSON. In the event my said husband should be deceased at such time, I direct that this bequest and devise shall lapse in favor of my son, NORMAN R. CARLSON, JR.
ITEM III. All the residue of my estate and property, wherever situated, including lapsed legacies and devises, but expressly excluding any property over which I may now or hereafter have a power of appointment, I give to FIRST CITIZENS BANK, N.A., as Trustee, to be held and disposed of as follows:
SECTION 1: If my husband survives me, then commencing with my death the Trustee shall pay the income from the trust estate in convenient installments, at least quarterly, to him during his lifetime.
The trustee may also pay to my husband such sums from principal as the Trustee deems necessary or advisable from time to time for his medical care, comfortable maintenance and welfare, considering his income from all sources known to the Trustee.
SECTION 2: Upon the death of my husband, the Trust shall continue and the Trustee may pay the income from the Trust Estate in convenient installments, at least quarterly, to my son, NORMAN R. CARLSON, JR., and to his wife, MARGARET ANN CARLSON, and the survivor of them. The Trustee may also pay to my said son, NORMAN R. CARLSON, JR., and/or his said wife, MARGARET ANN CARLSON, such sums from principal as the Trustee deems necessary or advisable from time to time for either of their medical care, comfortable maintenance and welfare, considering the income of either from all sources known to the Trustee.
Upon the death of my said son, NORMAN R. CARLSON, JR., and his wife, MARGARET ANN CARLSON, the Trustees shall distribute whatever balance remains in this Trust in equal shares to my following-named grandchildren.
* * * (a) While any grandchild of mine is under the age of twenty-one (21) years, the Trustee shall use for his benefit so much of the income of his share of this trust as the Trustee determines to be required, in addition to his other income from all sources known to the Trustee, for his reasonable support, comfort, welfare, maintenance (including medical, surgical hospital or other institutional care) and education including post high school education adding any excess income to principal at the discretion of the Trustee. After the grandchild reaches the age of twenty-one (21) years, the Trustee shall pay all the current net income of his share of this trust to him in convenient installments at least as often as quarter-annually. The Trustee may in its discretion pay to or use for the benefit of such grandchild so much of the principal of his share of this trust as the Trustee determines to be required, in addition to his respective incomes from all other sources known to the Trustee, for his reasonable support, comfort, welfare, maintenance (including medical, surgical hospital or other institutional care) and education including post high school education, or for any other purpose the Trustee believes to be in the best interests of either of [sic] grandchild.
* * *
ITEM IV. The Trustee of the trusts herein shall have the following powers:
A. If any beneficiary to whom the Trustee is directed in a preceding provision to distribute any share of trust principal is under the age of twenty-one (21) years when the distribution is to be made, and if no other trust is then to be held under this instrument for his primary benefit, his share shall vest in interest in him indefeasibly, but the Trustee may in its discretion continue to hold it as a separate trust, for such period of time as the Trustee deems advisable but not after the time the beneficiary reaches that age, in the meantime using for his benefit so much of the income and principal as the Trustee determines to be required, in addition to his other income from all sources known to the Trustee, for his reasonable support, comfort and education, and adding any excess income to principal at the discretion of the Trustee.
B. (1) If at any time any beneficiary to whom the Trustee is directed in this instrument to pay any income is under legal disability or is in the opinion of the Trustee incapable of properly managing his affairs, the Trustee may use such income for his support and comfort.
* * *
G. (2) If any Trustee at any time resigns or is unable or refuses to act or whenever a majority of the beneficiaries of the current income decide for any reason whatsoever to remove the Trustee, any person or another corporation authorized under the laws of the United States or of any state to administer trusts may be appointed as Trustee by an instrument delivered to it and signed by the beneficiaries, at the time of appointment, of a majority of the current income.
Appellant's Appendix at 57-63.
Norman Sr. died on June 24, 1992, and Hilda died shortly thereafter on August 3, 1992. Hilda's Will was admitted to probate on August 10, 1992. On January 11, 1994, Norman Jr. retained counsel in Houston, Texas, to assist with the management of the Trust. On January 13, 1994, his Texas counsel informed Norman Jr. that the language of the Will did not conform to the Treasury Regulations, and as a result, any property remaining in the Trust at the time of Norman Jr. or Margaret's death would be subject to federal estate tax. Specifically, the Texas counsel felt that the Trust created a general power of appointment, because 26 C.F.R. § 20.2041-1 indicates, "[a] power to use the property for comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard." (Emphasis added.) General powers of appointment are taxable upon the death of the power's holder. 26 U.S.C. § 2041(a)(2). On July 27, 1994, Sweeney, at the direction of the Carlsons, filed a Petition to Reform Testamentary Trust. The LaPorte Superior Court granted this motion, and ordered that Hilda's Will was reformed to read:2
The Trustee may also pay to my said son, NORMAN R. CARLSON, JR. and/or his said wife, MARGARET ANN CARLSON, such sums from principal as the Trustee deems necessary from time to time for either of their health and maintenance, considering the income of either from all sources known to the Trustee.
On June 2, 1999, the Carlsons filed an action...
To continue reading
Request your trial
- Carlson v. Sweeney, Dabagia, Donoghue
-
Kern v. Radez
... ... Court of Appeals dealt with a problem similar to this case in Carlson v. Sweeney, Dabagia, Donoghue, Thorne, Janes & Pagos, 868 N.E.2d 4 ... ...
-
Ickes v. Waters
... ... 2. Nor does Pansy receive help from Carlsonreceive help from Carlson v. Sweeneyreceive help from Carlson v. Sweeney, Dabagiareceive help from Carlson v. Sweeney, Dabagia, Donoghue ... ...
- Carlson v. Sweeney