On Nov. 18, 2009, the Appellate Court of Illinois, 3rd District published its opinion in Dunn v. Patterson, 2009 Ill. App. LEXIS 1112 (3d Dist. 2009). This case is significant because it examines the unusual intersection of principles of trust law concerning the modification of a trust and an attorney’s professional duties to his or her clients. It also highlights an expanded use of trust protector provisions that may become more popular with an aging generation, and may require more diligence and disclosure on the part of the drafting attorney.
I. Dunn v. Patterson
Lawrence Patterson was an estate planning attorney for Charles and Charlotte Dunn. In June 2006, Patterson prepared, and the Dunns signed: (1) a joint revocable trust; (2) a living will for each spouse; and (3) a durable power of attorney for each spouse. The estate planning documents contained “Modification Provisions” that required Patterson’s written consent or a court order to amend or revoke the documents. Patterson routinely inserted the Modification Provisions into his estate planning documents in an effort to prevent elder abuse.
Several months after the documents’ execution, another attorney, Timothy McJoynt, mailed Patterson a letter to inform him that the Dunns had retained McJoynt to modify the estate planning documents Patterson previously prepared. McJoynt sought Patterson’s consent to remove the Modification Provisions and to make other changes. In Patterson’s reply, he explained that he would not consent to the proposed changes until he had an opportunity to meet with the Dunns and determine whether the changes were consistent with the estate plan and otherwise in the Dunns’ best interests.
The Dunns did not meet with Patterson. Instead they filed suit against him, seeking a declaratory judgment that they had an absolute right to revoke and amend their estate plan and that Patterson was obligated under Illinois’ Rules of Professional Conduct to follow their directions. The circuit court entered judgment on the pleadings in favor of the Dunns, finding that the Modification Provisions were void as against public policy under the Illinois Rules of Professional Conduct, which required Patterson to abide by the Dunns’ directions. The circuit court also imposed sanctions against Patterson in the amount of the Dunns’ legal fees.
On appeal, Patterson argued that the Modification Provisions were not contrary to public policy and that the trial court abused its discretion in sanctioning him. Patterson asserted that third-party consent provisions, such as the Modification Provisions, are valid under Illinois law. Patterson cited to comment j of section 63(3) of the Restatement (Third) of Trusts which provides, [i]f the settlor reserves a power to revoke or modify the trust with the consent of [another], such as the trustee, [a beneficiary], or a third party, the power normally cannot be exercised without that consent.
The Dunns urged that although such limitations on trust modifications are generally appropriate, such limitations should not be permissible when the required consent is that of the drafting attorney, as attorneys are held to higher standards than lay people under the Rules of Professional Conduct. Accordingly, the Dunns argued that public policy, as embodied by the Rules of Professional Conduct, requires attorneys to follow the direction of their clients, so long as the direction is neither unethical nor illegal.
The appellate court found that third-party consents are a legally recognized manner of protecting individuals from changing their estate plan documents due to mental incompetency or undue influence. The court agreed with Patterson’s contention that designations such as those found in the Modification Provisions were consistent with the fiduciary duties an attorney owes to the attorney’s clients. The court found that a drafting attorney could act in a fiduciary capacity to give the attorney’s consent to modifying estate plan documents where the attorney does not have a financial stake in an estate. Moreover, the court found that the Dunns’ ability to discharge Patterson as their attorney was not impacted by Patterson’s continuing duties under their estate plan with respect to the Modification Provisions.
The court also found it reasonable that Patterson should, at a minimum, wish to meet with the Dunns before consenting to changes in their estate plan. This meeting was necessary to give Patterson the opportunity to assess whether the Dunns were competent or otherwise acting without undue influence. The court noted that if Patterson had consented to the requested changes without first meeting the Dunns, and then the Dunns’ were subsequently deceived into separating from their assets, that Patterson would then likely be sued for consenting to the modifications.
Accordingly, the court reversed the judgment holding the Modification Provisions void as against public policy. Additionally, the court reversed the award of sanctions against Patterson, finding that his conduct in the case was not only reasonable, but that it was “admirable and consistent with the highest ideals of the bar.”
II. Trust Modification in Illinois and Other Jurisdictions
The holding in Dunn with respect to the Modification Provisions is consistent with a long line of Illinois cases that provide the basic rule that where the method of exercising a power to modify a trust is described in a trust instrument, the modification can only be made in the described manner. Parish v. Parish, 29 Ill. 2d 141, 149 (1963).
This rule has been applied to invalidate a purported trust amendment by the surviving co-settlor where the trust instrument required both settlors to amend the trust (Williams v. Springfield Marine Bank, 131 Ill. App. 3d 417 (4th Dist. 1985)), and in circumstances where the method of execution and delivery of a purported trust amendment was not completed as specified in the trust document (Northwestern Univ. v. McLoraine, 108 Ill. App. 3d 310 (1st Dist. 1982)).
Dunn is unique in that the court references the Restatement (Third) of Trusts (as suggested by Patterson) while older Illinois cases generally rely on section 331 of the Restatement (Second) of Trusts, which provides at comment e: “If the settlor reserves a power to modify the trust only with the consent of one or more of the beneficiaries, or of the trustee, or of a third person, he cannot modify the trust without such consent.” Dallinger v. Abel, 199 Ill. App. 3d 1057, 1060 (3d Dist. 1990).
Other jurisdictions, such as California and New York, also recognize the validity of restrictions on trust modification and revocation, and specifically those requiring third-party consent or a specific method of amendment in order to protect trust settlors from the undue influence of those that seek to benefit from a trust’s assets. See Conservatorship of Irvine, 40 Cal. App. 4th 1334, 1344-45 (Cal. App. 4th Dist. 1995) (citing among other authorities, the Restatement (Second) of Trusts); and In re Mordecai, 24 Misc. 2d 668, 670-71 (N.Y. Sup. Ct. 1960) (citing New York common law and the Restatement (First) of Trusts). Like many other states, California and New York have also adopted specific statutes concerning the proper methods of trust amendment and revocation. See Cal. Prob. Code § 15401 and NY CLS EPTL § 7-1.17.
The Dunn case follows a long line of Illinois cases upholding the validity of restrictions on trust modification that require third-party consents. In this regard, Dunn is consistent with the approach adopted by the Restatements of Trust and the common law of Illinois and other jurisdictions.
However, Dunn’s significance lies at the intersection of established principles of trust law and the fiduciary duties an attorney owes to the attorney’s clients. The Dunn Modification Provisions were valid because the clients and their attorney created a method to protect the clients’ best interests in the event the clients’ capacities were later diminished and the attorney did not otherwise stand to benefit from the clients’ estates.
Although Patterson was successful in the action brought against him by the Dunns, his success was not without considerable cost. Moreover, any individual or corporation should be especially mindful of the inherent risks of taking on responsibilities beyond the normal responsibilities of a trustee, whether in a full or limited capacity, even when the law as to the underlying trust law principle appears clear.
McGuireWoods Fiduciary Advisory Services
Our Fiduciary Advisory Services assists financial institutions in an array of areas in which questions or concerns may arise. This includes advising corporate trustees on how to avoid litigation before it arises, and how to address litigation when it does arise.
Fiduciary Advisory Services is an offering of our Private Wealth Services Group. Our Private Wealth Services Group serves individuals, business clients, banks and trust companies, executors and trustees, and private and public charities in all areas of private wealth services. These include estate planning, tax planning, charitable giving, will contests, fiduciary litigation, risk management, closely held and family business planning, business succession planning, estate and trust administration, tax controversies and IRS ruling requests.
The team is one of the largest in the country, and is focused on handling the needs of high net worth clients. Our size, extensive experience, unmatched list of clients, and strong presence throughout the country sets us apart from our competitors. Chambers, the international rating service for attorneys, recently recognized the Private Wealth Services Group as one of the two best wealth management legal practices in the United States.