September 25, 2015

No-Contest Clause

A no-contest clause in a trust is a provision that seeks to discourage a beneficiary from attempting to invalidate the trust. The clause will state that the beneficiary will receive $0.00 if they challenge the trust's validity. If the beneficiary does not challenge the trust's validity, they will receive what is provided for them in the trust, e.g. $10,000.

A no-contest clause is only meant to discourage a person who has a beneficial interest in the trust. It serves no purpose if the person has no beneficial interest. For example, if a child is disinherited by a parent, a no-contest clause will definitely not deter them from challenging the trust's validity. If they do so, they have everything to gain and nothing to lose. That is, there is no potential inheritance forfeiture because they did not stand to inherit in the first place.

California law does not look upon no-contest clauses favorably. Generally speaking, California will not enforce a no-contest clause in an instrument that became irrevocable on or after January 1, 2001 unless it involved a "direct contest" brought without "probable cause." Prob C § 21311(a)(1). 

Under Prob C § 21310(b), a "direct contest" means "a contest that alleges the invalidity of a protected instrument or one or more of its terms, based on one or more of the following grounds:
  1. Forgery. 
  2. Lack of due execution. 
  3. Lack of capacity. 
  4. Menace, duress, fraud, or undue influence. 
  5. Revocation of a will pursuant to Section 6120, revocation of a trust pursuant to Section 15401, or revocation of an instrument other than a will or trust pursuant to the procedure for revocation that is provided by statute or by the instrument. 
  6. Disqualification of a beneficiary under Section 6112, 21350, or 21380."
"Probable cause" exists if, "at the time of filing a contest, the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery." Prob C § 21311(b). 

The result of California's no-contest clause law is that a beneficiary can challenge the validity of a trust, the beneficiary can lose at trial and still receive their inheritance despite the no-contest clause provided they had probable cause to bring suit. Therefore, the discouragement that a no-contest clause is originally meant to instill in the mind of a beneficiary who is contemplating litigation has been definitely muted. Even defeat does not automatically render forfeiture of a beneficiary's inheritance.

September 10, 2015

Property Ownership - Evidence Code Section 662

When a person claims to own a piece of property, the first step is to ascertain title. That is, one needs to look at basically the most recently recorded deed for the property. The reason for this is that California law strongly presumes that the name on title is the actual owner. Evidence Code § 662 states "the owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof."

Ascertaining title is particularly important in estate administration. For example, if an only child can show that title to a piece of property was solely owned in the name of their parent, who was either a widow or widower, they would likely be entitled to solely inherit the property assuming the parent did not write a will. Conversely, if the only child shows that title was held in the name of the parent's trust, inheritance would not be a given for the child. An examination of the trust would be needed to figure out the beneficiaries, which may or may not include the child. Furthermore, if the parent held the property in joint tenancy, the surviving joint tenant would likely inherit the property from them regardless of whether they wrote a will or not.  In short, it is easy to see how title can dictate an outcome.

The reason for the qualification, i.e. "likely inheritance," is due to the fact that the name on title is not absolutely the true owner. A person whose name is on title could have acquired it through unlawful means. This may take the form of undue influence, coercion, duress, etc. If such means were used, there are legal remedies to reform title. However absent those circumstances, it is difficult to rebut the presumption that the name on title is not the true owner. The reason being is that one needs "clear and convincing evidence" to rebut the presumption that the name on title is not the true owner. While there is no magic formula for qualifying "clear and convincing evidence," it is a high enough standard such that a significant degree of certainty is needed to meet that threshold.  

It is worth mentioning the difference between legal title and beneficial title (also known as equitable title). The statute uses these terms when describing property ownership. The holder of legal title is the one with the authority to sell, lease, mortgage, etc. the property. The beneficial title holder is the one who can take legal action against the legal title holder for mistakes involving the property. A common example of where you see this arrangement is if a trust owns a piece of property and the trustee and beneficiary are different people. The trustee is said to have legal title and the beneficiary is said to have beneficial title. The trustee's name will be on the deed but the beneficiary's name will not. However, if the trustee commits a breach of trust, the beneficiary can sue the trustee for redress of injury.      

August 27, 2015

Step-Child Inheritance

If a person passes away without a will, the legal term for this is "intestacy." 

If the decedent's estate was not disposed of by a trust or beneficiary designation(s) such as a pay-on-death account, his or her estate will be distributed to their heirs, i.e. their next of kin. This might include a parent, child, uncle, aunt, cousin, etc. For example, assume Bob was a widower who only had 1 child during his marriage. Bob passes away intestate. His sole heir would be his child. If Bob had 2 children, the 2 children would split the distribution of Bob's estate as heirs.  

Probate Code § 6402 lists the order of priority for a decedent's heirs. It goes from those closely related to the decedent to those less closely related to the decedent. The California legislature presumed that a decedent would prefer to leave their estate to a close relative rather than a remote relative.

A question that occasionally arises is whether a step-child is entitled to inherit from an intestate step-parent. The answer, much like most legal questions, results in the familiar refrain "it depends."

The applicable law is Probate Code § 6454. It states as follows:

For the purpose of determining intestate succession by a person or the person’s issue from or through a foster parent or stepparent, the relationship of parent and child exists between that person and the person’s foster parent or stepparent if both of the following requirements are satisfied:

(b) It is established by clear and convincing evidence that the foster parent or stepparent would have adopted the person but for a legal barrier.

Thus both elements, (a) and (b) of the foregoing statute, need to be satisfied to claim an intestate inheritance as a step-child from a step-parent. If both elements cannot be satisfied the step-child is basically a nobody for purposes of intestate succession and receives nothing.

If a step-child cannot show a colorable claim under Probate Code § 6454, there is an alternate route available. A step-child can assert a claim of equitable adoption. "In order to take as an equitably adopted child from the alleged adoptive parent's intestate estate, the claimant must prove the decedent's intent to adopt by clear and convincing evidence." Estate of Ford (2004) 32 C4th 160, 173.   

August 12, 2015

Equitable Estoppel

The law does not look favorably upon trickery. This is exemplified by Evidence Code § 623, which states that "whenever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it." This legal doctrine is known as equitable estoppel.

To prove equitable estoppel, a party needs to show that (1) the party to be estopped must know the facts; (2) the estopped party must intend that his conduct shall be acted upon, or must act in a way that causes the other party to believe that was his intent; (3) the party asserting estoppel must be unaware of the true facts; and (4) he must detrimentally rely on the other party's conduct. Estate of Bonanno (2008) 165 Cal.App.4th 7, 22. 

This doctrine was recently raised in an unpublished appellate opinion.

Janene Curtis discovered as an adult that she was the daughter of famous actor Troy Donahue, whose real name was Merle Johnson. Previously, at birth, she had been adopted.

When Mr. Donahue passed away, Ms. Curtis was told by a close friend of Mr. Donahue that the drug Vioxx might have caused Mr. Donahue's death. Ms. Curtis then hired a New York law firm to participate in the class action lawsuit against Merck & Co., the pharmaceutical giant that makes Vioxx. Ms. Curtis was later advised to open a probate in California. Since Ms. Curtis lived in Arizona and probate needed to be filed in California, she asked Eve O'Neill, Mr. Donahue's sister, to open probate in California on her behalf.

Ms. Curtis then negotiated a settlement in the Vioxx case and the estate of Mr. Donahue reaped $190,000. Later it was discovered by Ms. O'Neill's attorney that Ms. Curtis had been adopted at birth. An adoption severs normally severs the parent-child relationship whereby inheritance rights are cut off. Probate Code § 6451. The attorney then filed a petition to have Ms. O'Neill be declared the sole heir of Mr. Donahue's estate and to approve the Vioxx settlement. Naturally Ms. Curtis objected to the petition.

Ultimately, after two appeals, it was determined that Ms. O'Neill was equitably estopped from challenging Ms. Curtis' claim to the assets of the Donahue estate, i.e. the Vioxx settlement.

The California Court of Appeal upheld the trial court's decision that "(1) Ms. O'Neill either actually knew of the legal impediments to Curtis inheriting or that she was culpably negligent for failing to learn those facts; (2) Ms. O'Neill intended Ms. Curtis to act upon O'Neill's assertions that she would prosecute the Vioxx litigation on behalf of Ms. Curtis and then give her all the proceeds; (3) Ms. Curtis was unaware that O'Neill would renege; and (4) Ms. Curtis relied to her detriment on Ms. O'Neill's conduct.

July 31, 2015

Estate of Duke - Will Reformation

The law in California used to be that in the case of an unambiguous clause in a will, extrinsic evidence could not be introduced to reform it. Stated in non-legalese, the term or terms of a will could not be altered through documentation outside the four corners of the will if the term or terms were clear. This past week, however, the California Supreme Court unanimously held that extrinsic evidence could be used in such a case.

Estate of Duke (2015) ___ C4th ___

The facts of the case were straight-forward:

"Irving Duke prepared a holographic will providing that, upon his death, his wife would inherit his estate and that if he and his wife died at the same time, specific charities would inherit his estate. The handwritten will, however, contained no provision addressing the disposition of his estate if, as occurred here, he lived longer than his wife. The specified charities contend that at the time the testator wrote his will, he specifically intended to provide in his will that the charities would inherit his estate in the event his wife was not alive when he died. The courts below excluded extrinsic evidence of the testator's intent, finding that the will was unambiguous and failed to provide for the circumstance in which his wife predeceased him. Therefore, finding that Duke died intestate, the court entered judgment in favor of the heirs at law, Seymour and Robert Radin."

Prior case law, i.e. Estate of Page (1967) 254 Cal.App.2d 702, 719, held that a will could not be reformed, through the use of extrinsic evidence, if the will's language was unambiguous.  

However, in the Estate of Duke, this prior case law was overturned. The Duke Court held that "an unambiguous will may be reformed to conform to the testator's intent if clear and convincing evidence establishes that the will contains a mistake in the testator's expression of intent at the time the will was drafted, and also establishes the testator's actual specific intent at the time the will was drafted."

Given the amount of money at stake, over $5M, it is not hard to see why this case ended up in the California Supreme Court. Litigation is expensive and appeals are even more expensive. Hence, there typically is a large amount of money at stake when a probate case reaches the California Supreme Court.

July 17, 2015

Trustee Succession

There are 3 roles in a trust, (1) settlor, (2) trustee and (3) beneficiary. For purposes of this post, the focus will be on the trustee.

The trustee is the legal owner of trust property. Trust assets will be titled in the trustee's name. For example, if a property is owned by a trust, the deed should list the trustee's name and the name of the trust on it. As legal owner, the trustee has the authority to seek legal redress on behalf of trust property for any injuries. The availability of legal redress does not automatically end when the original trustee passes away. 

When a successor trustee replaces the original trustee, the successor trustee is said to "stand in the shoes" of the original trustee. Eddy v. Fields (2004) 121 Cal.App.4th 1543, 1548. This permits the successor trustee to seek recovery for damages caused to trust property that occurred while the original trustee was still alive. These facts generally entail the case of George v. Gandolfo Excavating Inc., Alameda County Superior Court case # 12628707.

Original trustee owned real property in a rural area of Livermore, CA. In 2009, neighbors of original trustee allegedly cleared an improper fence line. In 2010, original trustee passed away and successor trustee assumed the office of trustee. In 2012, successor trustee sued neighbors in Alameda County Superior Court for (1) trespass; (2) destruction of real property; (3) destruction of trees (Civ. Code, § 3346; Code Civ. Proc., § 733); (4) discomfort and annoyance as a result of trespass; (5) negligence and negligence per se; (6) indemnification; and (7) conversion. Yep, go big or go home.

Defendants moved to have the case dismissed because successor trustee lacked "standing" to sue. They argued that the real party in interest was original trustee, the person who owned the property in 2009 when the alleged torts took place. Since successor trustee did not assume that role in 2010, the alleged damage had already happened. No harm no foul you could say. The trial court agreed with this argument and dismissed the case.

Successor trustee then appealed his case to the First District Court of Appeal of California. 

The Court of Appeal reversed the lower court's ruling, finding that a successor trustee "succeed[s] to all the rights, duties, and responsibilities of his predecessors."  Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1131. So if original trustee had a right to seek legal redress for alleged injuries to the property, successor trustee does as well.