March 6, 2014
When a person revokes a will, it is prudent to dispose of the old will. Out with the old and in with the new as the old adage goes. The obvious reason being is that problems can arise if the testator passes away and the 2 ostensibly valid wills are floating around. One person might find the earlier will and then petition for probate under the impression that the will is valid. Another person might find the later will and think that their will is valid as well. Such is the exact scenario of a recent court case originating from Contra Costa County Superior Court, Case # MSP0900615. Suffice to say, I was surprised to read such a peculiar situation.
On January 28, 1997, the late Daniel Bridges executed a will, written by his attorney John Busby, which named Kim Brumleve as the executor and a beneficiary. Following the will's execution, attorney Busby placed such in his will drawer. On September 28, 1997, Mr. Bridges revoked his prior will and wrote a new will that named Renee Hansen as the executor and a beneficiary. Yet attorney Busby mistakenly filed this second will in another folder. Consequently, the January Will was never properly disposed of because the September Will was not placed in the same file.
On April 10 2009, Mr. Bridges passed away. Attorney Busby then retrieved the January Will from his files so that probate could commence. Since the will was seemingly valid, letters testamentary were issued and Ms. Brumleve was appointed the executor on July 9, 2009 by the probate court in Contra Costa County. However in May 2011, Ms. Hansen located the September Will that named her as the executor and a beneficiary. Consequently, she too petitioned for probate and letters testamentary. Such was the beginning a very lengthy litigation battle. If protracted trust litigation piques your interest, the unpublished opinion can be found on Google Scholar and the California Court of Appeal's website, Case # A137168, Hansen v. Brumleve.
What I found fascinating about the case was that an apparently innocuous oversight, i.e. the misplacing of the will, caused this entire case. A mole hill had mushroomed into a mountain as the opinion detailed the numerous hearings that had been held over the years. However, I should mention that Ms. Brumleve did not appeal the validity of the second will. Rather she appealed the trial court's decision to surcharge her for misuse, conversion and waste of estate assets. Still, the genesis of the entire case was the result of a misplaced will.
February 27, 2014
In certain situations, a fiduciary needs to be appointed to manage the affairs of a minor, a guardianship, or the affairs of an incapacitated individual, a conservatorship. Though the circumstances when such are needed differ, there are nonetheless shared attributes between the two. The following are some similarities and differences between these legal procedures.
For reference, a guardianship is needed when a minor child lacks a guardian, i.e. a parent, while a conservatorship is for those lack the capacity to manage their affairs.
1. In the case of a guardianship, it automatically terminates when the minor 18. There is no deviation from this. Conversely, a conservatorship does not have a set end date. It can last for days, weeks, months, years, decades, etc. The typical termination date of a conservatorship is death.
2. When a person wishes to nominate a guardian for their child, they customarily do so through a will. Conversely, a conservatorship is not nominated in a will.
3. A guardian cannot draft a will for a minor. Whereas a conservator may draft a will on behalf of the conservatee, the incapacitated adult, if court approval is previously obtained.
4. A guardianship is automatically required if a child lacks a legal guardian, e.g. a parent. A conservatorship is not automatically required. There must be a judicial determination that the conservatee lacks the capacity to manage their affairs.
5. A guardianship and conservatorship are essentially default provisions in terms of estate planning, except in the case of a guardianship of a minor's person. For example, a parent can draft a trust which can hold a minor's inheritance in trust to avoid the necessity of a guardianship of the estate. As for a conservatorship, a power of attorney and advance health care directive can serve as substitutes for a conservatorship of the estate and person.
1. Both require court appointment and supervision, e.g. an annual accounting rendered to the court for approval.
2. Both have a "person" and "estate" component to it. The former encompasses basic life functions such as where you live, what you eat, who do you socialize with, what do you do with your free time, etc. The latter entails the management of your finances. Therefore, the guardian of a minor's estate and person would have control over both where the minor attends school and management of their finances.
3. Both roles can be held by a relative, friend, neighbor, etc. In other words, there is no licensure requirement for acting as a conservator or guardian. Although there is a limit on the amount of times a non-licensed person can act as a guardian and/or conservator.
4. Both can have the role be performed jointly by different people. For instance, a married couple can act as the guardian of their relative's child.
5. Both aspects of a guardianship and conservatorship, the person and estate component, can be held by the same person.
February 20, 2014
One of the necessary elements of a revocable trust is ownership of property. As stated by the California probate code a "trust is created only if there is trust property. Prob C § 15202. Basically any type of property can be owned by the trust, e.g. real property, bank accounts, stocks, mutual funds, business interests, promissory notes, etc. Thus, it is quite easy to fund a trust given that so many assets qualify as trust assets if properly titled.
The norm is to immediately fund the trust upon creation. This is accomplished by identifying trust assets in the trust document itself. Customarily the last page of the trust, commonly labeled "Schedule A" or "Exhibit A," will list the items the settlor(s) have placed into the trust. However, the desired sequence of events when creating and funding a trust does not always come into fruition as demonstrated by the following case.
In Luna v Brownell (2010) 185 CA4th 668, the settlor (the father) prematurely transferred his interest in the home he owned to the trust that he had not yet created. On August 6, 2006, the settlor's children, who owned a 75% interest in the home, executed a deed which conveyed their interest in the home to the trustee of the settlor's forthcoming trust. On August 13, 2006, the settlor executed a deed which transferred his 25% interest to his forthcoming trust. On August 29, 2006, the settlor executed a trust which named himself as trustee. The settlor passed away shortly afterwards on September 19, 2006 and a week after that the children filed suit against his estate.
One of their arguments was that the deed from them to their father's trust was void because the trust was not in existence when the deed was executed. This argument was rejected by both the trial court and the court of appeal because case law from other states held that such transfers are permitted. Those cases held that the transfer is valid between the parties but is void against third-parties. The result was that the deeds executed by the children to the their father's trust was valid.
Similar to Estate of Heggstad (1993) 16 CA4th 943, Luna is illustrative of the notion that an ostensibly defective trust can be remedied nonetheless. In Heggstad, the settlor failed to title his Menlo Park commercial property in the name of his trust, i.e. he failed to record a deed which transferred title from himself to himself as trustee of his trust. Yet since he listed the property on the trust's schedule of assets, this was sufficient to show intent to place it into the trust. Similarly, all the litigants in Luna agreed that the father was going to make a trust so there was no question that a trust would eventually be formed. The fact that the father formed the trust after the deeds were executed was seen as basically an oversight instead of a fatal flaw.
One odd aspect of Luna was that the father was represented by an attorney. Usually in cases where there is a trust irregularity, such was the result of a non-attorney, e.g. an independent paralegal, a legal document assistant or an Internet website. It is unknown why the attorney did not insist that first the father create the trust and then fund it with the conveyances from his children. This would've prevent putting the proverbial cart in front of the horse.
February 13, 2014
Eventually everybody reading this article will have their body disposed in some manner. This is one statement that I can say with absolute certainty. To quote a line from the 1991 movie Bill & Ted's Bogus Journey, "You might be a king or a little street sweeper, but sooner or later you dance with the reaper." Whether by cremation, burial or some other method, one's body will end up somewhere. Consequently, California law has a statutory scheme for deciding who is authorized to dispose of a decedent's body and what they may do.
Although a person may specify their manner of disposal in a will, the common method is to appoint an agent pursuant to an advanced health care directive. Health & S C §7100(a)(1). This agent is authorized to dispose of the body as the decedent instructed them to do so.
Detailing one's burial desires is important for a person who wants to be buried in an unorthodox manner or against the wishes of their family. For example, some religious orders disfavor cremation, whereas others call for a prompt burial following death. If a person wishes to be a contrarian, it is prudent to draft an advance health care directive to ensure that one's wishes are honored. Otherwise, a family feud can ensue which will invariably be messy.
In Cohen v Guardianship of Cohen (Fla App 2005) 896 So2d 950, the surviving spouse petitioned to have her late husband be buried with her in Florida. The couple, Jewish residents of New York when the husband wrote the will, originally called for the husband to be buried in the family plot, a Jewish-only plot in a New York cemetery. The wife, who was not Jewish, argued successfully that her husband had changed his mind and that he should be buried in Florida with her, presumably in a non-Jewish cemetery. An appellate court agreed with the wife and her late husband was presumably buried in Florida because it found that the late husband had changed his burial desires.
While Cohen is an extreme example of the length a burial desire can be contested, it nonetheless demonstrates that such an example exists. Hence it is prudent to draft an advance health care directive so that the decedent's agent has the authority to dispose of their remains. Otherwise, an over-zealous family member or friend can try to impose their subjective viewpoint on the subject.
February 4, 2014
|Great Wall of China|
In the context of estate planning, a person is able to somewhat protect the free-spending beneficiary from themselves by inserting a spendthrift clause into their trust. This clause generally bars a creditor from attaching to the beneficiary's interest in the principal, income or both of a trust. Prob C § 15300.
For example, Samuel established a trust for his irreverent nephew Benito. This trust was to benefit Benito during his lifetime. In the trust, Samuel wrote that Benito's interest in the principal and income of the trust was not subject to voluntary or involuntary transfer. This amounted to a spendthrift provision as Samuel was concerned that Benito's recklessness would jeopardize his trust funds. Samuel had worked tirelessly in life and wanted to benefit Benito, as opposed to a creditor.
Unfortunately Benito is spell-bound by a black Friday sale at a local retail store and incurs a massive credit card bill. Naturally Benito is unable to pay this bill and the credit card company obtains a money judgment against Benito. However, since the trust had a spendthrift provision, the credit card company cannot simply demand payment from Benito's trust. Rather, the creditor can either wait until a distribution is made to Benito from the trust or it can petition the court to direct Samuel to pay Benito's portion of trust principal and then collect. CCP § 709.010.
While California provides for a collection method as stated above, many creditors do not wish to engage in this for multiple reasons. First, it is expensive and time-consuming to petition a court to direct a trustee to satisfy the money judgment on behalf of the beneficiary-debtor. Second, if the trustee already paid the money to the beneficiary, the creditor has to be timely in their collection methods. The phrase "here today gone tomorrow" is apropos because the beneficiary can spend as they see fit when they receive it. They are under no duty to wait for the creditor to attach the judgment to it. This can easily disintegrate into a game of cat and mouse which taxes anyone's patience.
To be clear, a spendthrift provision is not an impregnable barrier that will thwart the attempts of any creditor. A determined creditor can collect their judgment provided they have available funds, time and patience. Yet for many creditors, this can be seen as a lost cause because there is an opportunity cost for everything. Time spent chasing down a debtor like Benito correlates with time sacrificed for chasing down a debtor with potential easier to attach assets.
January 29, 2014
The dynamics of estate planning for a blended family is a bit more complicated than for a nuclear family. Second marriages and step-children add a potential combustible variable into the equation. This is not to say that all situations involving a blended family are volatile. I have represented clients with blended families where there was no hostility whatsoever. Still, the possibility of potential conflict down the line is apparent.
A common scenario where this volatility can come into fruition is with the selection of a trustee when the first spouse passes away.
For example, assume Hal and Wendy, a married couple, each had a child from a prior marriage. Hal had a son named Sam and Wendy had a daughter named Donna. Hal and Wendy agreed that 1/2 of the community property would go to their natural child and the other half would go to the surviving spouse. Hence if Hal passed away first, his portion of the community property would go to his son Sam and if Wendy passed away first, her portion of the community property would go to her daughter Donna.
Since Sam and Donna were each minors when Hal and Wendy wrote their trust, they were both 8, the couple decided it would be best to hold the property in trust until they reached the age of 25. The couple wanted to avoid the necessity of a guardianship and did not trust the child with a large inheritance at an early age. So in 1997 the couple wrote a trust with an estate planning attorney per their desires and named the surviving spouse as the trustee of the other child's trust. A few years later, 2000, Hal passed away in a tragic hot air balloon accident.
Whereas Hal passed away first, Wendy allocated 1/2 of the community property to a trust benefiting Sam and the other 1/2 was allocated to the survivor's trust for Wendy's benefit. Wendy had secretly harbored strong resentment towards Sam because she believed that Sam was a spoiled child who consistently disobeyed his father. Furthermore, Wendy despised Sam's biological mother because she believed that Hal was a "loser" for initiating a divorce from her years earlier. Hence, she believed in exacting a measure of revenge against Sam by complying with the terms of the trust, albeit in a spiteful manner to agitate him. For instance, Wendy would require that Sam correspond with her strictly through certified mail as opposed to email or a phone call, always billed for every action she did on behalf of Sam's trust and waited until the last-second to make a distribution.
Sam was naturally displeased with the actions of Wendy but because she was the trustee, Sam was disinterested in filing suit to have her removed. Sam knew that Wendy could utilize trust assets to defend a lawsuit against her. Even though a petition for removal had merit, Sam did not want to risk it.
When 2014 rolled around, Sam turned 25 and Wendy terminated the trust and gave him the balance of the trust estate. Sam, obviously bitter about Wendy's conduct, acknowledged receipt of the money and vowed never to speak to Wendy again.
One solution to this problem is to name a professional fiduciary as the trustee. Thereby a professional fiduciary, instead of Wendy, would be named trustee of Sam's trust. A professional trustee is a licensed third-party neutral who has expertise in handling trusts. While they may be costly, $125 an hour and up is the typical rate, there is value in removing combative parties from the scenario. In other words, an ounce of prevention is worth a pound of cure.