In a recent case, the Supreme Court of Virginia offered guidance about who has standing to sue on behalf of an estate. Here, the court confirmed that the personal representative, not the beneficiaries of an estate, is the proper party to litigate on behalf of the estate.
Kittrell v. Fowler
In Kittrell v. Fowler, Walter Hurley, Sr. and his wife, Margaret, had two daughters, Susan Fowler and Lisa Foster (collectively, the “Appellees”), and one son, Walter Hurley, Jr. Before Walter, Sr.’s death, Walter, Sr., Margaret, and Walter, Jr. each owned approximately one-third of Hurley, LLC. When Walter, Sr. died in 2006, his interest in Hurley, LLC passed to Walter, Jr.
On May 15, 2006, Margaret signed a “Sales Verification” transferring her interest in Hurley, LLC to Walter, Jr. in exchange for a promissory note in the amount of $950,000 (the “Hurley Transaction”). Then, in July 2007, Margaret created the Margaret H. Hurley Living Trust (“Margaret’s Living Trust”), which provided that upon Margaret’s death, any residual trust property should be distributed equally between her children, but specifically excluding Walter, Jr. since he received assets during her lifetime. On April 15, 2013, Margaret signed an amendment to her living trust, providing that if Margaret resigned as trustee of her living trust, Walter Jr. would become the substitute trustee. She also signed another document creating an irrevocable trust (“Margaret’s Future Trust”) for the benefit of Walter, Jr.’s children, of which Walter, Jr. was named the trustee.
On April 16, 2014, Margaret died, and her living trust became irrevocable. William Farinholt became the trustee and personal representative of Margaret’s estate. Appellees became suspicious of Walter, Jr.’s handling of Margaret’s assets, but on May 16, 2017, Walter, Jr. died by suicide. Walter, Jr. ‘s will directed that the assets of his estate be passed to the Nanba-wan Sai Trust for the benefit of his children. Appellees filed a complaint against Margaret’s Future Trust, the Estate of Walter, Jr., and the Nanba-wan Sai Trust, seeking the imposition of a constructive trust on the assets of the trusts based on Walter, Jr.’s alleged fraudulent conduct and breach of fiduciary duty as trustee of Margaret’s estate. Appellees also requested that the circuit court declare the Hurley Transaction void and award Appellees an “amount of damages that is equivalent to the value of Margaret’s interest in Hurley, LLC as of the date of Margaret’s death.”
The court here noted that “to establish standing, it is essential for a litigant to ‘show an immediate, pecuniary, and substantial interest in the litigation, and not a remote or indirect interest.’” Specifically, in Virginia, “the personal representative, not a beneficiary of the estate, is the proper party to litigate on behalf of the estate and that is true even when the personal representative is also a possible beneficiary of the estate.”
The Appellees, here, sought to unwind the 2006 Hurley Transaction between Margaret and Walter, Jr. based upon Walter, Jr.’s alleged undue influence over Margaret and his breach of fiduciary duty. However, the court pointed out that because the Hurley Transaction occurred one year before the creation of Margaret’s Living Trust and well before the creation of her revocable trust, her minority interest in the LLC was never meant to be a trust asset. Thus, the court concluded Appellees are “legal strangers to the 2006 Hurley Transaction because they never obtained an interest in Margaret’s minority interest.”
The court explained that, even if a claim exists for the rescission of the 2006 Hurley Transaction, “the claim belongs to Margaret’s estate as it would have belonged to Margaret during her lifetime.” Upon Margaret’s death in 2014, any claims relating to the sale of her minority interest in Hurley, LLC passed to her estate and may only be pursued by the estate’s personal representative.” The court concluded that since “neither Appellee is the personal representative of Margaret’s estate, they lack standing to bring such a Claim.”
After a death of a loved one, family situations can erupt into conflicts — especially those involving business interests like Hurley, LCC. Without proper business succession planning, and estate planning potential beneficiaries may not receive the expected inheritance or share of the business that may have been discussed with a loved one before their death.
An experienced estate planning attorney can help you prepare and guide you through the process of protecting your wealth and business interests, and provide strategies which can avoid costly court battles. Estate planning attorneys at General Counsel, P.C. can guarantee that you’ll feel more confident about your future after you’ve made your estate plan or updated your existing plan. Our attorneys can also assist with estate litigation matters.
We would welcome the opportunity to help you navigate all aspects of the estate planning, including trusts and estate litigation, and advising personal representatives and trustees as to their fiduciary roles.