November 19, 2014

Trustee compensation

When a successor trustee assumes office, one question that naturally arises is, how much can I be compensated? Or in common verbiage, how much can I be paid? A trustee, like most people, will want to be compensated for their time, especially if they are a non-beneficiary. People do not like to work for free. Moreover, given the liability of being trustee, this further compels a trustee to seek payment because liability will attach regardless if compensation is taken.

The trust instrument controls the rate of compensation. However, I have never seen or heard about a trust that provided for a specific compensation rate, e.g. $___ per hour. Rather, it is customary to state in the trust that the trustee is entitled to "reasonable compensation." Probate Code § 15681. Usually this entails an hourly rate. Consequently, this requires that the trustee keep time sheets for record keeping. A good rule of thumb is to list for each instance at least  (1) the date of services rendered, (2) the services rendered and (3) the amount of time expended. Also, it is good practice to keep all receipts and invoices.

The trustee is generally required to provide an annual accounting to each beneficiary. Probate Code § 16063. The accounting requires that the trustee list their "compensation for the last complete fiscal year of the trust or since the last account." Probate Code § 16063(a)(3). Naturally a beneficiary may want to see documentation that substantiates compensation for the trustee. Hence, the necessity of time sheets, receipts and invoices. The "I just guestimated my time and winged it from there" is not the way to go. I can assure you of that.

If the trustee does not adequately document their time, this may cause their compensation to be reduced or denied. Probate Code § 16420(a)(7). The reason being is that a trustee owes "a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration." Probate Code § 16060. It is reasonable to expect a trustee to document their time given that it takes minimal effort and they are being compensated for their time.

Another aspect of trustee compensation is to handle assignments in a reasonably efficient manner. In the words of the Disney character Scrooge McDuck, "work smarter not harder." (I watched the cartoon "Ducktales" as a child). For example, I read that an attorney-trustee charged $525 to pick up a will from another attorney's office. His hourly rate was $375 and the amount of time he expended was 1.75 hours. See Williams v. McCullough, Los Angeles County Superior Court Case # SP006932. Given the ubiquity of email, a prudent maneuver would have been to simply email the office and ask them to mail it to the attorney-trustee.

November 14, 2014

Right to die statutes - Brittany Maynard

Rod of Asclepius
The story of the late Brittany Maynard has brought to light the contrast between states regarding right-to-die statutes, also known as euthanasia or assisted suicide. These statutes pertain to a third-party assisting with the death of the patient. Typically this entails a doctor administering a lethal dose of toxin, but in a humane fashion, to the patient.

Many people have heard of the late Dr. Kervorkian, a Michigan doctor, who famously assisted patients with ending their lives. Mr. Kervorkian was convicted of second-degree murder for providing a lethal injection to a patient who suffered from Lou Gehrig's disease. Due to his conduct, he was pejoratively labeled "Dr. Death."  

In regards to Ms. Maynard, she was a Californian diagnosed with terminal brain cancer in early 2014. She opted to end her life voluntarily by moving to Oregon which has an assisted suicide statute, titled the "Death with Dignity Act." She did so earlier this November and was only 29 years old.

Occasionally an estate planning client asks if California has a right-to-die statute because they are completing an advanced health care directive. The AHCD instructs the agent on how the patient wants them to handle an end-of-life situation, e.g. the patient is in a persistent vegetative state (a "vegetable"). The answer is a clear no. California does not have a right-to-die statute. California law is explicit in forbidding a health care agent from undertaking any action that might be perceived as assisted suicide. Probate Code 
§ 4653 reads:

"Nothing in this division shall be construed to condone, authorize, or approve mercy killing, assisted suicide, or euthanasia. This division is not intended to permit any affirmative or deliberate act or omission to end life other than withholding or withdrawing health care pursuant to an advance health care directive, by a surrogate, or as otherwise provided, so as to permit the natural process of dying."

Naturally this statute may be changed by the California legislature. So just as assisted suicide in California is illegal in California today, an assisted suicide law can be enacted in the future. A bill to allow assisted suicide in California was introduced in 2004 but failed during the legislative process. I would not be surprised if a legislator introduced such a bill again given Ms. Maynard's case. 

From a constitutional perspective, the U.S. Supreme Court stated that there is no constitutional right to assisted suicide. See Washington v. Glucksberg, 521 U.S. 702 (1997). Hence, assisted suicide is not a given. Rather, if one seeks to utilize assisted suicide, they must live in a state where this is authorized. In Ms. Maynard's case, this meant she had to travel to Oregon from California.

November 7, 2014

Estate Tax in 2015

When Congress averted the fiscal cliff a few years ago, enough votes were garnered so as to make the federal estate tax "permanent."

Congress also established that the federal estate tax would be pegged to inflation. Thus it has steadily been increasing the past couple of years (see chart below). The IRS recently announced in October that the exclusion amount for 2015 would be $5,430,000 or $5.43M. This represents a $90,000 increase from 2014, which had an exclusion of $5,340,000.

Year                   Amount Excluded         Maximum Tax Rate

2001                   $675,000                      55%

2002                   $1M                             50%

2003                   $1M                             49%

2004                   $1M                             48%

2005                   $1M                             47%

2006                   $2M                             46%

2007                   $2M                             45%

2008                   $2M                             45%

2009                   $3.5M                          45%

2010                   Repealed                      0%

2011                   $5M                             35%

2012                   $5.12M                        35%

2013                   $5.25M                        40%

2014                   $5.34M                        40%

2015                   $5.43M                        40% 

In most basic terms, the federal estate tax is a tax on estates whose value exceeds the exclusion amount. So if a person passed away in 2014 and was worth $1M, no federal estate tax would be due. Conversely, if the person was worth $10M, then a federal estate tax would generally be owed. 

The contents of this post only relate to the federal estate tax. Each state is free to institute or not institute an estate tax, just like income taxes. For example, New York has an estate tax whereas California does not.  

October 31, 2014

Trust Amendment vs. Trust Restatement

Once a client executes a revocable trust, a common follow-up question is what to do in case the client's situation changes that necessitates a change to their trust. For example, they get married, decide to change a beneficiary, have a child, move to another state, inherit a large sum of money, etc. The two options are to either execute an amendment or a restatement.


When a trust is amended, the amendment should specifically cite the section that is being amended and the contents of the amendment. For instance, assume Section II of the settlor's trust originally calls for Thierry Pires to be the successor trustee and now the settlor wants to have Robert Henry be the successor trustee. The amendment would state that the settlor is invoking their right to amend the trust and Robert Henry is now the successor trustee, i.e. Section II would be written to reflect such.

A benefit of an amendment instead of a restatement is that it is generally simple to complete. The client merely needs to state what they want changed to the attorney.

One detriment of an amendment instead of a restatement is that multiple amendments can be cumbersome to harmonize with the trust. If the settlor amends their trust multiple times, the trust and the amendments must be read and interpreted as one document. This sounds like an easy task but in practice it is not. Cross-referencing the trust with the amendments is time-consuming.

Another detriment is that if the settlor amends their trust to remove a child as a beneficiary, the child will be able to see that they were cut out of the trust. A child, as an heir, is always entitled to see a copy of a parent's trust. See Prob C § 16060.7. Thus, the child can see that the parent originally included them as a beneficiary but later changed their mind. At best it invites scrutiny and at worse it triggers litigation.


A restatement is essentially the replacement of a settlor's original trust. Though the restated trust uses the date of the original trust's execution, e.g. March 5, 2004, the restated trust is a brand new document.         

A restated trust is usually preferred to an amendment when the change are either too difficult or lengthy. For example, if the settlor wishes to revise the distribution portion of their trust and include specific instructions about the timing and amount of distributions, a restatement is preferred to an amendment.

A benefit of a restatement instead of a amendment is that it reduces the amount of paperwork. Since the restated trust replaced the original trust, the successor trustee does not have to piece together the original trust and the amendment(s). Alternatively stated, it is much easier to manage one document than multiple documents.

A detriment of writing a restated trust instead of an amendment is the cost. An attorney will have to devote more time towards drafting a restatement than an amendment because an entire new trust has to be created. Since the attorney has to devote more time to the matter, the fee will be higher.   

October 23, 2014

Community Property and Separate Property Trusts

California is a community property state for marital property purposes. This means that assets considered "community property" are equally owned by the spouses, i.e. each owns 50%. Conversely, assets considered "separate property" are owned 100% by the acquiring spouse.

Occasionally a married prospective client will call and ask about writing a trust for solely themselves. The crux is that while community property results in equal ownership, it does not allow for unilateral disposition unless one spouse is giving it to the other spouse. Smedberg v. Bevilockway, 7 Cal. App. 2d 578, 582 (1935). Simply stated, community property is considered indivisible.

The logical follow-up to this dilemma is to determine what is considered community and what is considered separate property. 

Ahhh, if only life was that easy. 

Determining the characterization of an asset is a labor-intensive chore. It is not as simple as saying if acquired during marriage such is community property or if acquired before marriage such is separate property. Rather, the date of acquisition, the manner of acquisition, the sources of funds of the acquisition, etc. needs to be ascertained to properly characterize the asset. 

Some might say that a transmutation agreement can eliminate the property characterization process because community and separate property can be definitively distilled into an agreement. See Family  Code § 850. That is, in a transmutation agreement the parties can agree to change the characterization of property from separate to community or vice versa. So if the parties have doubt about an asset being community or separate property because of a lack of documentation, they can agree in writing to alter the characterization to eliminate any doubt. However, a transmutation agreement will require the consent and understanding of both parties. Hence, a spouse wanting to do a trust unilaterally will still need the involvement of the other spouse if a transmutation agreement is sought. 

Furthermore, a transmutation agreement can be a legal quagmire if not properly completed. For example, an ex-wife incurred $120,000 in attorney fees to determine the validity of a transmutation agreement. The ex-wife and her ex-husband executed a transmutation agreement with a prominent law firm in San Jose. The transmutation agreement gave the ex-wife a community property interest in the ex-husband's previous separate property business interests. During the divorce proceeding, it was invalidated on the grounds that the ex-husband did not understand the full legal consequences of the agreement. Whoops. The ex-wife sued the law firm for malpractice but her complaint was dismissed for failure to timely file, i..e outside the statute of limitations.  All in all, a complete legal disaster.

Ultimately if a married person is seeking to do a trust unilaterally, they will find few, if any, attorneys willing to take the case given the consequences.          

October 15, 2014

Deathbed estate planning

Haste makes waste.

Unfortunately when people engage in extremely expedient estate planning, disastrous results can occur. The reason being is that legal issues are not identified and addressed due to a shortage of time. Consequently, the neglected legal issues ultimately materialize and injurious results flow.

An example of extremely expedient estate planning and its attendant disastrous outcome occurred in in the case of Mohr v. Mohr, San Bernardino Superior Court Case # PROPS1100603. According to the unpublished court of appeal opinion stemming from the case:

"Carol Slocum (decedent), the 76-year-old mother of seven children, had emergency surgery on June 26, 2011. She was in a coma for five days thereafter. In late July 2011, she was placed in a rehabilitation facility. After her condition worsened, she was admitted to a hospital emergency facility on August 2, 2011.

After her treating physicians told her she was terminal, decedent decided she needed to see her children as soon as possible. Terry, who lived with decedent, was able to arrange for most of his siblings to be at the hospital on August 3, 2011. He also arranged for a notary public (notary) with a deed to come to the hospital that day. Decedent executed the deed on that date. It served to transfer her residence from her name alone into the names of herself and Terry as joint tenants. Decedent died intestate on August 12, 2011."

Unsurprisingly, Sherri Mohr sued her brother Terri Mohr to invalidate the deed citing undue influence. 

The statement of the trial court's decision, in pertinent part, read:

"Terry brought a notary and a deed to this meeting and did not tell [decedent]. She never had the opportunity to discuss a Grant Deed with an attorney or her other children. [Decedent] knew she was dying. She was so very vulnerable to coercion. The fact that the notary told her it was a Grant Deed really does not overcome the undue influence that was present. [Decedent] knew that she had always wanted her children to share and share alike. When she was presented a document to sign, she signed it without knowing its true impact. Terry had taken advantage of his mother."

Consequently, the trial court ruled in Sherri's favor and this decision was upheld on appeal.