By Alexander G. LeVeque, Partner, Solomon Dwiggins Freer, Ltd.
Over the years, my firm has represented scores of business owners who never imagined that they would need the services of a trust & estate litigation attorney, especially when no one had recently died. While it is common for business owners to retain attorneys for estate and business planning (and sometimes litigation counsel to handle garden-variety contract and employment claims), trust and estate litigation counsel is not a number typically saved on a contact list.
The fact of the matter, however, is that modern business planning (especially for closely-held family businesses) more often than not has a trust component. Family trusts and asset protection trusts are routinely used to hold ownership interests in businesses. Such planning is intended to create an extra layer of protection from creditors, to streamline succession, and also to minimize the chances of family feuds concerning the ownership and control of the business through the generations.
Nevada has wisely positioned itself to be attractive to entrepreneurs and high net worth individuals due to its business-friendly tax laws, absence of a personal income tax, and its strong asset protection laws. For these reasons, more and more businesses and trusts are being formed in Nevada. What results are hybridized business formation models which hold the assets and the control of the business in both a trust and a traditional legal entity like a limited-liability company. For example, the business could be formed as a limited-liability company with its sole member being a trust. In this common scenario, the business owner wears two hats: the first being the manager of the company, and the second being the trustee of the trust. With each hat comes distinct duties (e.g. duties of care, fiduciary duties, marital duties) owed to certain people or other entities. And to make matters more complex, the duties owed by the trustee to the trust could potentially conflict with the duties owed by the manager to the company’s owners, especially if the company is not wholly owned by the trust.
When such a business gets sued (or needs to sue), a trust and estate litigator is usually a better option than a general civil litigator.
Here are four reasons why:
First, trust and estate litigation is a different style of litigation. Notice and due process requirements are different than general civil litigation. If your attorney is not aware of these different requirements, you could miss a case dispositive deadline, for example a deadline to file a creditor’s claim. There are 38 chapters of the Nevada Revised Statutes (Chapters 132-167) dedicated to wills, trusts and estates.
Second, although there have recently been efforts made to codify more trust and estate law in Nevada, much of the law is still governed by the common law (law decided by judges), much of which is in the form of unpublished Supreme Court decisions or common law trends from other jurisdictions. What this means is that competency in the trust/estate area of law is achieved almost entirely by experience and keeping up with trends in the common law throughout all jurisdictions in the United States.
Third, competency in this area requires the ability to see the whole forest and not get confused by the trees. Trust and estate cases routinely touch upon other practice areas like tax, community property law, and fiduciary law. Practically every business dispute which concerns a trust has fiduciary duty issues. The fiduciary duties of a trustee of a trust are not identical to the duties of an officer, director or manager of a company. This is a common pitfall for business litigators. The business judgment rule, for example, may not be a valid defense to a claim against a trustee of a trust for a breach of fiduciary duty.
Fourth, settling a contested trust or estate matter almost always requires a tax analysis. Forgetting this important step could lead to adverse estate, gift and/or personal tax consequences.
The hope is that no business owner will ever have to consult with a trust & estate litigation attorney. However, if and when a dispute arises concerning your business and your business is owned and/or managed by a trust, an initial consult with a competent trust & estate litigation attorney is worth its weight in gold and could save you thousands of dollars in the long run.