May 21, 2015

Revoking an Old Will or Trust

When a person executes a subsequent testamentary document, it is prudent to clearly revoke the old document or ensure that the old one is destroyed. This applies to either a trust or will. Although the cases I've seen typically involve a will. Otherwise a legal quagmire can arise later on that is both very costly (attorneys are not cheap) and very time-consuming (the legal process is not a sprint). The following is an example of such a legal quandary. Sanchez v. Darnell, Los Angeles County Superior Court Case # KP013821. According to the unpublished appellate opinion involving this case:

"At Decedent's residence, five of the sisters went through documents Decedent left in a safe, and discovered a holographic will dated June 15, 1998, and a statutory will dated June 16, 1998. Both wills named Sanchez as the executor and her children as the contingent executors. The holographic will did not dispose of Decedent's property, but the statutory will devised Decedent's entire estate to Sanchez. Sanchez petitioned to probate the 1998 wills.

One of the sisters also discovered a January 2009 holographic will at Decedent's residence. Chacon read the 2009 will aloud to the sisters, who also examined it. The will was later viewed by one of Decedent's nephews and his wife. Although the 2009 will also named Sanchez as executor, its terms were markedly different than the 1998 wills. The 2009 will instructed that the estate be divided equally among all of the siblings. Subsequently, the 2009 will could not be found. Darnell petitioned for the 2009 will to be admitted to probate. Contrary to the assertions of her siblings at trial, Sanchez denied the existence of the 2009 holographic will and testified that the document they examined was a jewelry list and not a will."

Obviously it was not the best result to have 3 wills floating around when the decedent passed away. In particular, when an old and new will materially conflict, this provides a huge incentive for a beneficiary to litigate the matter. That is, the beneficiary has a financial motivation to seek admission of the will that benefits them the most. Shocking, I know. Here, the child who was the sole beneficiary of the old will naturally wanted to see that will admitted to probate. Simultaneously, such beneficiary also naturally wanted to see the new will, which significantly reduced her inheritance, not be admitted to probate. Conversely, the other children had the exact opposite intent. 

Given these polar opposites, it should come as no surprise that the case has dragged on for so long. The decedent passed away in 2009 and this matter remains unresolved as of May 2015.

May 8, 2015

Trustee Accounting & Res Judicata

When an aggrieved party seeks judicial redress, he or she generally has one chance to remedy the issue. In simple terms, a litigant has "one bite at the apple." He or she cannot continuously re-litigate the matter if all the facts have been disclosed and a judge has issued a ruling. The term for this is res judicata. The doctrine is applicable to probate proceedings. Lazzarone v. Bank of America (1986) 181 Cal.App.3d 581, 591. In particular, "an order settling a trustee's account, like an order settling the account of an executor or administrator, is conclusive as to all matters passed upon but is not binding as to those matters not passed upon. Id. at 595.

One obvious reason for res judicata is that it provides finality to a matter. If a person could re-litigate the same matter over and over again, the parties could never move forward. They would be in a perpetual state of limbo. Clearly society works better when matters are resolved and the parties can move forward with their lives.

As mentioned, an approved trustee's accounting is entitled to res judicata for the matters it addresses. The following is an example of how res judicata plays out in a hypothetical situation.

A trustee files a petition to settle an account and approve their compensation under Probate Code § 17200(b)(5),(b)(9). In the petition, the trustee asks for $6,000 as trustee compensation. The trustee, a lay person, states that they expended 300 hours administering the trust and appends hand-written time sheets to the petition. Their billing rate is the reasonable sum of $20 an hour. 

The trustee provides notice to all beneficiaries of the hearing on the accounting petition. No beneficiary however attends the hearing and the judge approves the accounting, which permits the trustee to pay themselves $6,000 from the trust.     

Months later, a beneficiary files a petition to instruct the trustee to pay back the $5,000 to the trust per Probate Code § 17200(b)(6). The beneficiary believes that the trustee exaggerated the amount of hours they worked on the trust. The beneficiary cannot believe that it took 300 hours to administer the trust. The beneficiary believes that 50 hours is an acceptable amount of time.   

The beneficiary's petition will be denied because they failed to object prior to or at the hearing on the trustee's accounting. If the beneficiary can re-litigate the issue of trustee compensation, they would get two bites at the apple. First, the petition that the trustee filed under under Probate Code § 17200(b)(5),(b)(9). Second, the petition the beneficiary filed under under Probate Code § 17200(b)(6). Since res judicata says that a litigant only gets one bite at the apple, the beneficiary's petition will be denied. Cue fog horn.     

April 29, 2015

The Harsh Consequences of Intestacy - Estate of Britel

Intestacy, the consequence of a person not writing a will, can result in harsh consequences. For example, the decedent might have despised an heir who otherwise inherits from their estate just for the sheer fact that the heir is next of kin. Or, the ostensible beneficiary does not fit within the statutory framework to qualify as an heir because of its rigidity. The latter arose in the following Court of Appeal decision. 

In re Estate of Britel, __ Cal.App.4th __ (2015)

The decedent, an Olympic cyclist, had a romantic relationship with the petitioner while the couple was at Harvard Business School. The two graduated in spring 2000 but parted ways. Later in summer 2000, petitioner revealed to the decedent that she was pregnant with the decedent's child.

To put it mildly, the decedent was not exactly thrilled. 

"Amine told his best friend, Youssef Choukri, that Jackie said she was pregnant with his baby, and that his having a child out of wedlock would bring shame to his family (who were highly regarded in Morocco) and might possibly cause Amine to be disinherited. Amine initially told Choukri he was not sure whether Jackie was really pregnant, but that he had told Jackie that if she was indeed pregnant, he would like her to have an abortion." 

The child was born in February 2001 but the decedent was not listed as the father on the child's birth certificate.  Furthermore, the petitioner "never sought a paternity order to determine whether Amine was A.S.'s father. Amine never provided any financial support to A.S., never met her, and never communicated with her."

In February 2011, the decedent was struck and killed by a drunk driver while riding his bicycle. At the time of his death, he was not married and lacked any estate planning documents. Therefore, the decedent died intestate. 

The petitioner sought to be appointed administrator and have the child declared the decedent's heir under Probate Code § 6453(b)(2). The result would be that the child would inherit all of the decedent's estate to the exclusion of the decedent's other relatives. 

The case's focus was the definition of Probate Code § 6453(b)(2), i.e. "paternity is established by clear and convincing evidence that the father has openly held out the child as his own." If the child could prove paternity, she would be considered the decedent's heir. However, the court's ruling went against her.

"We conclude section 6453(b)(2) requires an affirmative representation of paternity that is unconcealed and made in open view. But although the representation must be a public one, in the sense of being made in open view, the statute does not require an announcement to the world, an official action, or an affectionate fatherly intent."

Applying this holding to the facts of the case, the court found:

"Substantial evidence shows Amine never made an unconcealed affirmative representation of his paternity in open view. Prior to A.S.'s birth, Amine made it clear, in a private e-mail message to Jackie, that he could never tell his parents about the pregnancy; in other words, that he would conceal it from them. The court found Amine "maintained a close, open and loving relationship with his family." Yet, he never told them about the pregnancy or, later, the child. He told his best friend Choukri that Jackie had had an abortion, and never mentioned the matter again to Choukri. There is no evidence that after A.S.'s birth, Amine acknowledged paternity in any way. Indeed, in late 2006, less than four and one-half years before his death, Amine told Jackie not to contact him again and that he wanted nothing to do with her or A.S. In sum, substantial evidence supports the court's finding Amine did not openly hold out A.S. as his child." 

The tragic part of this case is that DNA testing showed a  99.9996% probability that the decedent was the child's father. However, DNA testing was irrelevant when interpreting the statute. This compelled one justice to urge the California state legislature to amend Probate Code § 6453 to incorporate DNA testing when establishing the parent and child relationship. 

April 24, 2015

Beneficiary's Objections to a Probate Petition

When a trust beneficiary objects to a trustee's petition, the objection(s) must be limited to the scope of the petition. Otherwise, the objection will be disregarded.  "Evidence offered on an unpleaded claim, theory, or defense is irrelevant because it is outside the scope of the pleadings." California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 637, fn. 3.

The following example illustrates this point.

Bobby is the lifetime beneficiary of a trust established by his late affluent uncle who lived in Monte Sereno, CA. To guard against trustee malfeasance, the trust required that an annual accounting be filed with the local probate court. The trust's main asset was a duplex in Santa Clara that produced a steady stream of income. Still, Bobby believed that the trustee, Tom, was not charging market-rate rent given the recent surge in rent. Bobby demanded that Tom increase rent for each unit but Tom objected, citing that tenant turnover was quite low over the years. Tom believed that if he charged at or near market-rate rent, he could cherry-pick the right tenants. These tenants would then stay at the property for years instead of leaving after a year. The transactions costs of finding new tenants, i.e. cleaning and repairing the unit, were quite high. Hence, Tom believed his strategy was prudent because ultimately it reaped a greater profit for the trust. The short-term cost of charging at or near market-rate rent was eclipsed by the long-term gain of avoiding costly tenant turnover.    

When Tom filed his accounting, it indicated that rent was $2,200 for each unit. Upon receiving the accounting petition, Bobby scoured Craigslist for duplex rentals in Santa Clara. He found that most duplex rentals in Santa Clara rented for $2,400 a month. In Bobby's objection to the Tom's accounting petition, he argued that Tom should be removed as trustee for breach of fiduciary duty. In particular, Bobby argued that Tom's refusal to charge more in rent was preventing the trust property from being productive and not in furtherance of the purposes of the trust. See Probate Code § 16007.

The problem with Bobby's objection is that the accounting petition was not the proper avenue to seek removal of Tom as trustee. While Bobby could object to the contents of the accounting petition, e.g. he could object if Tom could not substantiate expenses and costs. He was not in a position to seek removal of Tom as trustee because the pleadings were limited to the accounting. If Bobby wanted Tom removed as trustee he would have to file his own petition under  Probate Code § 17200(b)(10). Bobby could not piggyback on Tom's accounting petition for purposes of seeking his removal.

April 16, 2015

Vested Benficiary and Contingent Beneficiary

Two terms that can describe a beneficiary of a testamentary instrument are "vested" and "contingent." There is a stark difference between the two terms. The former means that the beneficiary has a present interest in the estate, i.e. they can receive distributions now. The latter means that the beneficiary has a possible future interest in the estate, i.e. they may or may not receive a distribution down the line.

This distinction can be very consequential when administering an estate. The reason is that, generally speaking, certain rights inure to a vested beneficiary and not a contingent beneficiary. One of those rights is the ability to receive an accounting. "The trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed." Probate Code § 16062.

The following example illustrates the difference between a vested and contingent beneficiary.

Thomas, a widower from Campbell, CA, created a revocable trust that named his daughter Dawn as the sole beneficiary upon his death. The trust permitted the trustee to spend as much or as little as the trustee deemed necessary on Dawn's health, education, maintenance and support. If any property remained in the trust after Dawn's passing, such property would be distributed to Thomas' nephew Ned.
When Thomas dies, his trust becomes irrevocable and sets in motion the trust's distribution scheme. If Dawn survives Thomas, she becomes a vested beneficiary. She is considered a vested beneficiary because she satisfied the one requirement to become the sole beneficiary of Thomas' trust estate, outlive him. On the other hand, Ned becomes a contingent beneficiary if Thomas passes away and Dawn survives Thomas. The reason is that Ned may or may not receive anything upon Dawn's death, assuming Ned survives Dawn. The trustee may or may not expend the entire trust estate on Dawn during her lifetime. This decision on whether or not to expend the entire trust estate on Dawn is up to the trustee's reasonable discretion.

Going forward, Dawn would be eligible to receive an annual accounting under Probate Code § 16062, given that she is a vested beneficiary. Ned however would not be eligible to receive an annual accounting under Probate Code § 16062, as he is merely a contingent beneficiary. 

There are other probate code sections that Ned could invoke if he wanted details about the trust's administration. The issue with these other probate code sections is that they are not as clear as Probate Code § 16062. For instance, Probate Code 16061 states "on reasonable request by a beneficiary, the trustee shall report to the beneficiary by providing requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest." Clearly such is an example of ambiguous legal language that makes people ponder in bemusement. What is relevant to one person can reasonably be considered irrelevant to another. Whereas an accounting under Probate Code Section 16062 has specific requirements of what must be mentioned in it. Hence, an accounting will almost invariably be more informative than an information request under Probate Code 16061.

April 10, 2015

Probating a Lost Will

When a person who wrote a will, the testator, passes away the will needs to be lodged with the appropriate probate court in California. If the person was domiciled in California at death, the county of domiciliary has jurisdiction. For example, if the decedent was a domiciliary of Campbell, CA at death, Santa Clara County Superior Court would be the proper venue for the will lodging.  

Naturally, a problem arises when the original will cannot be located. This can result from a number of scenarios, e.g. the testator lost it, the testator accidentally destroyed it or the testator gave the will to a forgetful person, etc. I've heard  attorneys erroneously state that the original will is required to commence probate. However, Probate Code § 8223 holds otherwise.  

Probate Code § 8223 reads: "the petition for probate of a lost or destroyed will shall include a written statement of the testamentary words or their substance. If the will is proved, the provisions of the will shall be set forth in the order admitting the will to probate."

For purposes of illustration, assume that Tom penned a will. He gave the original will to his friend Carl, the sole beneficiary and nominated executor of Tom's estate. Tom was concerned that his overbearing niece, Allison, his heir, would try to pressure him into making her the sole beneficiary of his estate. Tom's attorney also retained a copy, albeit a duplicate copy.

Tom eventually passes away and Allison commences probate. She argues that since no will can be found amongst Tom's possessions at his home, he died intestate, i.e. without a will. Therefore, as next of kin, she should be appointed administrator and sole beneficiary of Carl's estate. Unfortunately Carl was horribly disorganized and simply could not find the will amongst his belongings when he heard that Tom had died. Still, Carl remembered that Tom had hired an attorney to write his will. Carl calls the attorney and explains Tom's passing. Seeing no ethical issue, the attorney agrees to release the will to Carl. He then petitions the court to be appointed executor in light of Probate Code § 8223. That is, even though the original will was essentially lost, the duplicate original was sufficient because Carl convinces the court that he simply misplaced the original will. Carl does this through his own declaration and the declaration of the attorney who wrote Tom's will.