February 22, 2017

A California Estate Tax?


There is a federal estate tax, for now. The current president and both houses of Congress have indicated a desire to repeal the federal estate tax. Although the details of such a repeal have not been clearly defined. In response, CA state Sen. Scott Wiener (D-San Francisco) has pledged to seek a ballot initiative that would impose a California estate tax if the federal estate tax is repealed.

As of right now, there is no California estate tax.

The reason why a ballot initiative would be needed to impose a California estate tax is because voters in 1982 abolished it via initiative. See California Propositions 5 and 6, Repeal of Inheritance and Gift Tax Laws (June 1982). Thus to revive the California estate tax, another ballot initiative is needed.   

PLEASE READ:

This blog offers no opinion on state Senator Wiener's proposal. This post is strictly for informational purposes. Please do not contact me with your viewpoints on the matter, there is reddit for that. Thank you. 

February 9, 2017

Probate Code § 850 Petition


1969 Shelby GT350
The probate code permits an interested party to seek a judicial determination, i.e. an order, that property is owned by the decedent's estate or that the decedent's estate owns property that is really the property of another. See Probate Code § 850. The typical reason for filing a Probate Code § 850 petition is a dispute over the ownership of land. For example, the decedent held title to property that another party believes is rightfully theirs. Or title to property is held by another that is rightfully the decedent's. However, a recent unpublished appellate decision revolved around ownership of a rather unique item, a 1969 Shelby GT500.

Fredrickson v. Gersh, Case # BP125612, Los Angeles County Superior Court 

"Decedent (Gersh) and Frederickson became high school friends in the 1970's. In 1980, decedent was involve in a motorcycle accident that rendered him a quadriplegic. Despite his disability, decedent achieved success as an investment manager, until his physical condition precluded him from continuing to work. Decedent was able to sign his name to important documents by using a mouth pen. As for Frederickson, he worked in various automobile businesses, although not as a mechanic, and he had some experience in motorcycle repair.

In 1991, Frederickson purchased the subject vehicle, an inoperable 1969 Shelby GT500, a classic "muscle" car. The purchase price was $2,000, according to the application for title. Frederickson did nothing with the car for 13 years.

In 2004, Frederickson and decedent entered into a joint venture with respect to the car. Prior to that, they had not spoken in three years. They orally agreed that decedent would pay for what it would take to restore the car to showroom condition, with Frederickson to perform the physical labor needed to do so. There was no specific deadline for completion of the project. Thereafter, Frederickson brought the car to decedent's home and parked it in the garage where the work could be done.

In June 2004, Frederickson submitted a title application to the Department of Motor Vehicles (DMV) for registration of Frederickson and decedent as the owners of the car. The title application was purportedly signed on decedent's behalf by one of his then caregivers, "Otto Gonzalez P.O.A.," but there was no evidence that Gonzalez had a power of attorney.

On June 25, 2004, the DMV issued a title certificate showing Frederickson "or" decedent as the registered owners of the car. Notwithstanding the use of the word "or," neither the title application nor the certificate of title specifically stated that Frederickson and decedent were owners as joint tenants.
Thereafter, Frederickson disassembled the car and took voluminous notes and photographs of the parts for purposes of later reassembly. Decedent, in turn, spent about $40,000 for parts. The project dragged on for years, the work on the car was sporadic and it was never completed.

In 2007, decedent amended the living trust he created in 2002 (before decedent acquired an interest in the car), leaving his estate to his brother, Gersh, and their sister, Wilson. At the same time, decedent signed a pour-over will which left his assets to the Trust. In connection therewith, decedent specified in writing that the car was part of his personal property to be assigned to the Trust.

On January 9, 2010, decedent died."

Ultimately the trial court found that there was no joint tenancy between decedent and Frederickson. Since title was tenants in common, ownership of the car went as follows: (1) 50% to decedent's estate and (2) 50% to Frederickson. This decision was upheld on appeal.

Frederickson argued that title to the 1969 Shelby GT500 was held in joint tenancy. If so, Frederickson would automatically inherit decedent's 50% interest in the 1969 Shelby GT500 upon his death. Alas for Frederickson, neither the trial court nor the appellate court ruled his way. 

January 26, 2017

Allocating Attorney Fees in Trust Litigation


A beneficiary's share of the trust is like a pie. Just trust me on this.
Actions have consequences. In the trust litigation context, a beneficiary is not able to file any action he or she wants with absolute immunity. "[W]hen a trust beneficiary instigates an unfounded proceeding against the trust in bad faith, a probate court has the equitable power to charge the reasonable and necessary fees incurred by the trustee in opposing the proceeding against that beneficiary's share of the trust estate." Rudnick v Rudnick (2009) 179 CA4th 1328, 1335. However, a recently decided appellate case placed a limit on the awarding of attorney fees. 

Pizarro v. Reynoso (2017) ___ Cal.App.4th _____

The case revolved around the sale of real property between family members. One of the arguments on appeal was the awarding of attorney fees to the prevailing party from the losing parties' share of the trust.

"The trial court's award of attorney fees stated: JENSEN, BARTHOLOMEW, and PIZARRO are jointly and severally liable for REYNOSO['s] attorneys' fees and costs incurred herein. These fees shall first be charged against the estate shares of JENSEN and BARTHOLOMEW due to them from the Trust. To the extent that REYNOSO's fees and costs exceed such shares, JENSEN, PIZARRO, and BARTHOLOMEW, jointly and severally, shall be personally liable for the unpaid portion of the fees."   

The trial court relied on the case cited above, Rudnick, as the basis for the awarding fees of attorney from the contestants' share of the trust. The problem with this ruling, the appellate court found, was not the awarding of attorney fees but the extent to which the attorney fees applied.

"Neither Rudnick nor any other case supports the reach of the trial court's award of attorney fees and costs beyond a beneficiary's share of the trust. The effect of Rudnick and Ivey is to allow the trial court, in its equitable jurisdiction over trusts, to direct that the share of the trust assets that would be distributed to an offending beneficiary would instead be used to pay attorney fees and costs to the benefit of the trust, specifically to the benefit of those trust beneficiaries who did not improperly cause the trust to expend funds for attorney fees and costs. Ordering Pizarro and Bartholomew to potentially pay attorney fees and costs out of their own pockets is beyond the equitable power of the court over trusts because the court has no equitable jurisdiction over that money. We therefore strike the part of the award assessing personal liability for attorney fees and costs against Pizarro and Bartholomew."    

January 13, 2017

Spendthrift Clause and Creditors


A common, albeit erroneous, legal assumption is that a beneficiary's interest in a trust with a spendthrift clause is bullet-proof. That is, the beneficiary's interest cannot be attached by a third-party so as to prevent the beneficiary from enjoying the full benefits of the trust. In certain circumstances, however, a third-party can attach a beneficiary's interest in a trust and direct payments to be made to them and not the beneficiary. A recent unpublished appellate opinion highlighted this example.

Power v. Power, Sonoma County Superior Court, Case # SCV252844

Estranged husband was a 1/6 beneficiary of a trust established by his mother. The trust contained a spendthrift clause. It read in pertinent part that the beneficiary "cannot anticipate, assign or encumber the beneficiary's interest in income or principal. Similarly, a creditor of a beneficiary cannot subject the beneficiary's interest in income or principal to the creditor's claims or to legal process before the beneficiary actually receives a distribution." 

Estranged wife obtained a spousal support judgment against estranged husband. She then sought to attach estranged husband's interest in the trust to satisfy her judgment. The co-trustees balked and estranged wife sued to compel payment from them.

Since estranged wife had a support judgment, she could avail herself of Probate Code § 15305. The statute provides that a support judgment creditor may, under certain circumstances, attach a beneficiary's interest in a trust. The relevant section reads "whether or not the beneficiary has the right under the trust to compel the trustee to pay income or principal or both to or for the benefit of the beneficiary, the court may, to the extent that the court determines it is equitable and reasonable under the circumstances of the particular case, order the trustee to satisfy all or part of the support judgment out of all or part of future payments that the trustee, pursuant to the exercise of the trustee’s discretion, determines to make to or for the benefit of the beneficiary." Probate Code § 15305(c).

The trial court found that the "none of Mark's creditors that have been paid directly from the Trust are preferred or secured creditors. For the most part, these debts are owed to the limited partnership and the Trustees have scrupulously seen to it that Mark pays his debts to his birth family, while leaving Patricia with no funds." It should be noted that the trustees feared reprisal from the estranged husband who threatened to sue them if they paid even "one dollar" to his estranged wife. Hence, it was not as if the trustees refused to satisfy the support judgment whimsically.

On appeal, the trial court's decision to have the co-trustees pay the support judgment directly from estranged husband's share of the trust was upheld.

December 26, 2016

Trust Administration - Principal Place of Administration


Santa Clara County Superior Court
When a trustee provides notice of a trust's existence to the beneficiaries, it must include where "the address of the physical location where the principal place of administration of the trust is located, pursuant to Section 17002." Prob C § 16061.7(g)(3). "The principal place of administration of the trust is the usual place where the day-to-day activity of the trust is carried on by the trustee or its representative who is primarily responsible for the administration of the trust." Prob C § 17002(a). While seemingly an irrelevant clause, the place of administration can be salient. Although, it should be mentioned why an address in California is even needed to be included in the first place. 

When a trustee designates a principal place of administration, this provides jurisdiction to the applicable county superior court in case judicial relief is needed. For example, if a trustee designates an address in Campbell, CA as the principal place of administration, then Santa Clara County Superior Court would be the appropriate venue for judicial relief. Each California county (there are 58 of them) has a county superior court located in it. Thus any address in CA will have a local county superior court. Just trust me on this.

From a legal perspective, county superior courts are not all the same. One county superior court may view probate matters differently than other county superior courts. For instance, Santa Clara County Superior Court is very receptive to Prob C § 850(a)(3)(B) petitions (commonly known as Heggstad petitions). In particular, Santa Clara County Superior Court allows for these petitions to be heard ex parte (which essentially means there is a minimal waiting period for the case to be heard by the judge) and does not hyper-scrutinize the evidence needed to have the petition be granted. The difference between having a Heggstad petition be granted or not is often enormously consequential. If granted, it typically avoids the necessity of probate for the petitioner. 

Conversely, other counties take a much more stringent approach in hearing Heggstad petitions, e.g. they require a noticed hearing (which means the case will be heard in 30-60 days) and certain evidence is needed to have the petition be granted.

In light of the foregoing, I designate my office as the principal place of administration for the client to ensure that they have access to Santa Clara County Superior Court, even if the client lives outside Santa Clara County (which has happened a few times).

December 14, 2016

Transferring Trust Property


One of the primary rules when administering a trust is for the trustee to follow its terms. Probate Code §16000, Penny v Wilson (2004) 123 CA4th 596. For example, if the trust provides for an equal distribution of trust assets to 4 beneficiaries, then logically each beneficiary would receive a 25% interest. A trustee cannot simply deviate from the terms of the trust arbitrarily.

A recent unpublished appellate opinion detailed the interesting story of one trustee. 

Kiwata v. Kiwata, San Francisco County Superior Court, Case # CGC14542957   

"Years ago, Richard and Howard's parents, the Kiwatas, and their aunt and uncle, the Hironakas, acquired property in San Francisco on Collins Street. Each couple initially had a one-half interest in the property.

The Kiwatas transferred their interest into the Kiwata Family Trust, of which Richard became the trustee.

The Hironakas first transferred their interest into the Hironaka Revocable Trust and then, in late 2008 after the death of one of the Hironakas, partly into the Hironaka Family Trust (65.41 percent of the one-half interest) and partly into the Yoshiko Hironaka Surviving Spouse's Trust (34.59 percent of the one-half interest). Over several years, ending in May 2013, a series of deeds resulted in absorption of the survivor trust's interest into the family trust, such that the Hironaka Family Trust eventually owned all of the one-half interest. Upon the death of both Hironakas, Howard became the trustee of the Hironaka Family Trust, with Richard as successor trustee if Howard can no longer perform trustee duties.

In the meantime, earlier in 2013, Richard recorded two deeds. The first, recorded in February and executed by Richard as trustee, purported to transfer the Kiwata Family Trust's interest in the Collins Street property to the Richard Kiwata Family Trust. However, at his deposition, Richard conceded he never actually created the Richard Kiwata Family Trust. The second deed, recorded in March and executed by Richard as supposed cotrustee, purported to transfer 37.5 percent of the Collins Street property from the Hironaka Revocable Trust to Richard, individually. However, as just described, the Hironaka Revocable Trust by then had no interest in the property (the interest having been transferred in 2008 to the Hironaka Family Trust and Yoshiko Hironaka Surviving Spouse's Trust). Further, according to Howard's trial testimony and the trust documents, Richard was never a trustee of any Hironaka trust."

In short, for the February 2013 deed, Richard transferred a property interest to a trust that never existed. For the March 2013 deed, Richard transferred a property interest from a trust that no longer existed and was never a trustee of said trust. Naturally both deeds were declared void by the trial court for the aforementioned reasons. This decision was upheld on appeal.