June 26, 2019

Selling Real Estate

The sale of real estate in an estate matter, whether trust administration or probate, is a very common occurrence. 

Typically the beneficiaries will prefer the cash over real estate because of the flexibility that cash provides. This cash can be used to invest in other financial instruments such as stocks, bond, mutual funds, annuities, etc. Furthermore, the beneficiaries are not "in business" with the other beneficiaries in managing the property. One question I commonly pose to beneficiaries who are set to inherit real estate is "do you want to liquidate or retain the property with the other beneficiaries (invariably relatives) and operate as a quasi-partnership?" The response is practically universe, sell.

If the estate's representative is tasked with selling real estate, prudence is naturally expected of them. 

A recent appellate opinion highlighted the failed efforts of an administrator to sell real estate.

"Armuress's expert witness testified Rogers did not effectively market the estate's land holdings in the years after the probate court's 2001 ruling. Rogers removed parcels from the active listings for periods of time and failed to adjust the asking price when the market for similar undeveloped land dropped considerably. At the time of trial, the properties were listed for a total asking price of more than $9 million, but the expert opined the property was worth no more than $6.1 million and the inflated asking price meant the property was effectively off the market. Rogers's expert provided contrary testimony, for sure, but the record supports the probate court's conclusion that "the weight of [the] evidence" showed the properties had been marketable since 2001 yet Rogers failed to sell them."   

Estate of Sapp (2019) _____ Cal.App.4th _____

A conclusion from the case would be that to reasonably market real estate, the estate's administrator needs to be mindful of current market conditions. If the real estate market is soft, the price should be dropped to reflect the lack of demand at the current price. Conversely, if the real estate market is competitive, the price could remain as-is.

For context, the opinion noted that it had been 15 1/2 years since the administrator was instructed to sell the properties and failed to do so. While the administrator "sold four parcels in 2004, in the 12 years that followed she had failed to sell the remaining nine parcels."  

May 30, 2019

Estate of Michael Jackson

It is hard to believe that Michael Jackson passed away practically a decade ago. He passed away on June 25, 2009. 

Simply put Michael Jackson was a world-famous musician. He still is my sister's favorite musician. I can remember listening to his music as a child during the 1980s on a boombox that was playing a cassette tape. How times have changed.............

Following Mr. Jackson's passing, 4 individuals came forward to assert a claim against his estate. The claimants alleged that Mr. Jackson had promised them a share of a new company during a meeting on June 1, 2006 in Japan.  

However, no claim was immediately filed after the co-executors had been appointed on November 10, 2009 to administer Mr. Jackson's estate. 

Instead, according to the unpublished appellate opinion, "[o]n December 20, 2012, El-Amin wrote to the executors advising them of the June 1, 2006 meeting and claiming that at that meeting Jackson had made promises to appellants of ownership interests in his company and had stated how those supposed equity interests would be allocated."

This prompted the co-executors into action. 

"On January 28, 2013, the executors filed their "Petition for an Order Determining that the Estate of Michael Joseph Jackson Is the Sole Member and Owner of the Michael Jackson Company, LLC," pursuant to Probate Code section 850 (the Petition), by which they sought an order confirming that "the Estate is the sole member and owner of the [LLC] and that no other person has an interest in the [LLC]." The Petition noted that Jackson had been listed as the sole member of the LLC on the Estate Inventory and Appraisal, filed in 2011."

"On May 7, 2013, Morris and El-Amin filed a complaint in the Los Angeles Superior Court, seeking damages for Jackson's alleged repudiation of the claimed joint venture among the parties which they alleged had been formed at the meeting in Tokyo to determine the value of their interests in the claimed joint venture and to obtain damages for its breach."

The probate petition and civil action were eventually consolidated. 

"Following a multi-day bench trial on the Petition in the probate court and posttrial briefing, on March 27, 2017, the trial court issued a 27-page minute order containing its credibility determinations, findings of fact and legal rulings. The court determined the Estate was the sole owner of the LLC."

On appeal, the appellate court affirmed the trial court's decision.

The crux of claimants' case was the delayed filing. Mr. Jackson passed away on June 25, 2009. Code of Civil Procedure § 366.2 generally imposes a strict 1-year deadline to file a claim against a decedent's estate. No exception to Code of Civil Procedure § 366.2 applied to this matter, so the claimants needed to file their claim by no later than June 25, 2010. Unfortunately for the claimants, their claim was filed after June 25,  2010 and so their claim was time-barred.

April 29, 2019

Trustee-Attorney of a Trust Part II

In a prior post from 2016, I discussed the dangers of being an attorney that serves as the trustee of another's trust (as opposed to the attorney representing the trustee). 

A recent unpublished appellate opinion highlights this danger, as another California attorney made this unfortunate decision.

"In 1988, Virginia and Lloyd created the Trust. The beneficiaries of the Trust were the couple's four adult children: Jean, Julie, Wayne, and Patricia (not a petitioner). Virginia and Lloyd were "astute" business people who bought, sold, and rented various real estate properties. Lloyd was particularly "frugal" in his business and private affairs. The couple's estate was worth about $3 million.

In 2009, Virginia and Lloyd were both diagnosed with dementia. Virginia and Lloyd became progressively worse, but Virginia's dementia progressed more rapidly. In 2011, Virginia was placed in an assisted living nursing facility. In March 2012, Virginia passed away. Without notifying his children, Lloyd then married Marion, who also suffered from dementia.

In August of 2012, Knighton stopped working as an attorney in a law firm. Her salary had been $220,000 per year plus bonus. In September 2012, Knighton began doing legal and caretaking work for Marion and Lloyd.

In January 2013, Lloyd executed a power of attorney naming Knighton as his agent. Lloyd later agreed to pay Knighton a flat fee of $220,000 per year; there was no written retainer agreement.
In April 2014, Lloyd executed an amendment to the Trust naming Knighton as a cotrustee. In September, Lloyd signed forms naming Knighton as the primary beneficiary of five annuities worth $300,000. Knighton submitted a form to the annuity provider requesting a change of address from Lloyd's address to Knighton's home address. Lloyd's financial advisor, Carmello Buscemi, expressed concerns regarding undue influence. In December, Lloyd terminated Buscemi."

"On August 22, 2017, the court filed a statement of decision after a trial. The court imposed surcharges, gave a credit for Knighton's services, and imposed double damages. "[T]he testimony and evidence supports a finding that Lloyd Gross from October 2013 up until the time of his death on February 22, 2016 did not have sufficient mental capacity to enter into a valid contract such as the flat fee arrangement for $220,000 agreed to in October 2013 and to make the change of primary beneficiary for five annuities executed on September 5, 2014."

The trial court's decisions were all upheld by the appellate court.

Storey-Gross et al. v. Knighton, Orange County Superior Court case # 30-2015-00777776.

March 27, 2019

Location of a Litigant

There is generally no geographical limitation for a participant in litigation. For example, assume there is a pending probate case in Santa Clara County Superior Court. 

The litigant could live in San Jose, the city where the probate court in Santa Clara County is located. Or the litigant could live in Campbell, a city located in the same county as the superior court, i.e. Santa Clara County. Or the litigant could live in Santa Cruz, a city located outside of Santa Clara County but in California. Or the litigant could live in Winnemucca, a city located outside of California but in the United States. It is in Nevada in case you are wondering. Or the litigant could live in Salzburg, a city located in Austria.

All of these locations do not preclude a litigant from participating in a case.

Moreover, a person confined to a fixed location for a set amount of time can still participate in a case. For instance, being an inmate at a California penitentiary is not an insurmountable impediment for a litigant. Obviously there are inherent obstacles, both literally and figuratively, if a litigant is residing in a correctional facility. Still, the fact that the litigant is an inmate does not bar the inmate from participating in a lawsuit. A recent unpublished appellate decision said as follows "Appellant Rodney E. Keim appeals the probate court's order denying his petition requesting an accounting of the Rodney E. Keim Trust" and then later "Rodney Keim is serving a life sentence at California Medical Facility in Vacaville, California." The case originated from El Dorado County Superior Court, case # PP20150156. Mr. Keim's appeal was unsuccessful in case you are wondering. 

While Mr. Keim's appeal was unsuccessful, not every appeal by an incarcerated litigant reaches the same fate. A landmark U.S. Supreme Court decision came from the appeal of a Florida inmate whose petition to the high court was written on prison stationery. His name was Clarence Gideon and a defendant's constitutional right to counsel in criminal cases came from his case, Gideon v. Wainwright, 372 U.S. 335 (1963). 

February 27, 2019

Substantial Benefit Doctrine

A trust typically has multiple beneficiaries. For example, parents will often evenly divide their estate amongst their children. Now assume that after both parents have died, only one child out of five is selected as the successor trustee. This child has great difficulty in administering, principally because he has an addiction to classic Nintendo video games such as Gun Smoke, Tecmo Bowl, Contra and Castlevania. This addiction causes the child to neglect his duties as trustee. The trust's rental property falls into disrepair and the tenants refuse to pay rent given the property's condition. 

The other children soon become disgruntled with his mismanagement but only of them is sufficiently disgruntled to retain an attorney to file suit against the trustee. 

The disgruntled child ultimately obtains a favorable judgment against the inept trustee that equally benefits the other beneficiaries. That is, the inept trustee is removed and is surcharged for the damages incurred. The disgruntled child's attorney moves to have their attorney fees reimbursed from the trust. The other children object to having to pay the attorney fees for the disgruntled child.

The general rule is that a trust beneficiary "must generally pay their own attorney's fees incurred challenging a trustee's conduct, even if they succeed." Leader v. Cords (2010) 182 Cal.App.4th 1588. 

However, "under the substantial benefit exception, the trial court may exercise its equitable discretion . . . [to] determine whether the interests of justice require those who received a benefit to contribute to the legal expenses of those who secured the benefit." Pipefitters Local No. 636 Defined Benefit Plan v. Oakley, Inc., (2010) 180 Cal.App.4th 1542, 1547.

In this case, the disgruntled child may be reimbursed for their attorney fees from the trust. The rationale for this is straight-forward. The disgruntled child expended their own money to benefit not only themselves but their siblings as well. To allow them then to piggy-back off the work of the disgruntled child would be improper. They would essentially be free-riders, i.e. they obtained a benefit without paying for it. Or to paraphrase a certain song, "everybody had their cup, but they did not chip in." If you know the name of that song, I commend you.

The substantial benefit doctrine was recently referenced in the appellate case Smith v. Szeyller, (2019) ____ Cal.App.4th ______.

January 30, 2019

Lapsed Residuary Gift

Occasionally a will names as an individual as a beneficiary who does not survive the testator. For example, Tom writes a will and names his friend Ben as a 20% residual beneficiary of his estate. Ben dies before Tom and there is no clause in the will that states what happens to Ben's 20% interest should he predecease Tom. The following issue arose in a recently decided published appellate opinion in California. 

The case originated in Contra Costa County Superior Court.

Estate of Stockird (2018) _______ CA4th _______

"Cheryl D. Stockird died, leaving a handwritten will that transferred "all my property and everything I may be entitled to inherit" to her life partner, John L. Aguirre, Sr., and an aunt related by marriage, Patricia Ambrose. The will did not include alternative provisions for disposition of the shares if either gift lapsed. Ambrose died before Stockird."

"On February 3, 2014, Stockird executed a holographic will, which provided in its entirety as follows:
"I Cheryl Denise Stockird declare this as my last will. I am single and I have no children. I hereby leave all my property and everything I may be entitled to inherit to:
"65% John L. Aguirre Sr.
"35% Patricia Ambrose
"I sign this on February 3, 2014.
"[Signature: Cheryl D. Stockird.]"
Aguirre was Stockird's long-time life partner. Ambrose, who was not related by blood to Stockird, had been married to Stockird's predeceased maternal uncle. Ambrose died in June 2014.
Stockird died in January 2015. Stockird's will was admitted to probate, and Aguirre was appointed administrator with will annexed."

"After Stockird died, her will was admitted to probate. Aguirre petitioned the probate court for an order declaring he is entitled to Stockird's entire estate as the sole surviving residuary beneficiary under Probate Code section 21111, subdivision (b) (§ 21111(b)). Stockird's half brother, Bruce Ramsden, filed a petition arguing the lapsed gift to Ambrose must instead pass to Stockird's estate under section 21111, subdivision (a)(3) (§ 21111(a)(3)). Ramsden then asserted that as Stockird's only surviving heir, he is entitled to distribution of Ambrose's share under the laws of intestacy.

The probate court agreed with Ramsden and entered an order transferring the residuary gift that would have passed to Ambrose to Stockird's estate."

The court of appeal reversed, finding that "the plain language of the statute and the clear intent of the Legislature to abolish the no residue of a residue rule and avoid intestacy, we conclude the 35 percent lapsed gift does not go to Stockird's estate under section 21111(a)(3), but, subject to determination of the reformation petition filed by Ambrose's descendants, must pass to Aguirre under section 21111(b)."