Estate Tax in 2020

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2020 as detailed below:

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2010                   Repealed                      0%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% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40% 

2020                   $11.58M                      40%

Filing a Timely Creditor's Claim

All people pass away owing some kind of debt. Some estates have large debts while others have small debts. If an estate is probated, the probate process provides an opportunity to file a claim against the decedent's estate. Each creditor is tasked with filing their claim in a timely manner. Otherwise their claim can be time-barred even if their claim is valid.

A recent published appellate opinion addressed the issue of when a creditor's claim is timely filed.

Estate of Holdaway (2019) _______ CA4th _______

"The decedent died on June 13, 2013. On June 11, 2014, Everett filed a petition for probate and creditor's claim seeking $90,875. The claim was based on (1) four loans to the decedent, totaling $25,200; (2) unspecified "in-home services" she provided to the decedent, valued at $24,000; (3) unspecified "in-home expenses" of $17,675 she incurred on the decedent's behalf; and (4) "certain property" owned by Everett in the possession of the decedent at the time of his death, valued at $24,000.

After five continuances requested by Everett's counsel, in March 2015 the trial court issued an order to show cause why the petition should not be dismissed for failure to prosecute. On May 7, 2015, the trial court ordered the case "dismissed without prejudice as to [the] entire action" for failure to prosecute.

In December 2015, Everett filed another petition for probate with the trial court under the same case number as her previous petition. In May 2016, Holdaway, who is the decedent's son, filed a competing petition for probate. The competing petition stated that the decedent had died testate, and attached an attested and subscribed will that left all the property to a family trust he had established. The will nominated the decedent's wife or, in the alternative, Holdaway, as executor. In October 2016, the trial court granted Holdaway's competing petition, dismissed Everett's petition, appointed Holdaway as the personal representative of decedent's estate, and admitted the will. There were no objections to these rulings, and the court noted that the dismissal of Everett's petition was "by agreement" of the parties.

On March 10, 2017, Holdaway formally rejected Everett's creditor's claim against the estate. On May 19, 2017, Everett filed her complaint challenging the rejection, seeking damages in the amount of the claim, $90,875.

Holdaway demurred to the complaint, arguing among other things that it was time barred under Code of Civil Procedure section 366.2, and that in any case it was barred by other statutes of limitations. The trial court sustained Holdaway's demurrer without leave to amend."

On appeal, the appellate court reversed the trial court holding that only the estate's personal representative had the power to reject Ms. Everett's creditor claim. Since the personal representative did not reject the claim until March 10, 2017, Ms. Everett had 90 days thereafter to file her lawsuit against the estate.

The fact that Ms. Everett initiated her lawsuit years after the decedent's death was immaterial. Normally a claim must be filed against a decedent's estate within 1 year of death. Code of Civil Procedure section 366.2. In this case though, since Ms. Everett had filed her creditor's claim within 1 year of the decedent's death, the statute of limitations was tolled until it was rejected by the personal representative on March 10, 2017. Following the personal representative's rejection, Ms. Everett had 90 days to commence a lawsuit. She timely did so by filing her complaint on May 19, 2017.

Amending a Trust

Practically every revocable trust will contain an amendment or modification clause which details how the trust can be validly changed. For example, the settlor may want to modify the successor trustee or beneficiaries because of a change in circumstances. It is common to change a revocable trust at least once during the lifetime of the settlor(s).

A recent published appellate decision touched upon the issue of compliance with a trust amendment clause:

Pena v. Dey (2019) _______ CA4th _______

"In this case, we must determine whether James Robert Anderson, settlor and trustee of the James Robert Anderson Revocable Trust (the trust), validly amended the trust when he made handwritten interlineations to one of the operative trust documents, specifically the First Amendment to the trust (First Amendment), making Grey Dey a beneficiary. After making the interlineations, Anderson sent both the original trust instrument and the interlineated First Amendment to his attorney to have the new disposition of his trust estate formalized in a second amendment to the trust. Anderson died before the formal amendment was prepared for his signature."

"We conclude the interlineations did not validly amend the trust because the trust specifically requires amendments "be made by written instrument signed by the settlor and delivered to the trustee." (Italics added.) While the law considers the interlineations a separate written instrument, and while there can be no doubt Anderson delivered them to himself as trustee, he did not sign them. Instead, he sent them to his attorney to have them formalized into a second amendment to the trust and prepared for his signature, evidencing his intent to sign the changes to his trust at a later date. We also reject Dey's argument that Anderson effectively signed the interlineations by attaching a Post-it® note to the documents he sent to his attorney, on which he stated: "Hi Scott, [¶] Here they are. First one is 2004. Second is 2008. Enjoy! Best, Rob." We cannot conclude these lines on the note were part of the written instrument comprised of the interlineations to the First Amendment to the trust such that the signature on the note effectively signed the interlineations. Instead, Anderson signed a separate note indicating what the enclosed documents were. While there is no dispute in this case that Anderson intended Dey to receive a portion of his trust estate, there is also no genuine dispute that Anderson intended to sign this and other changes to his trust when formalized by his attorney. Unfortunately, he died before that could be accomplished. We must therefore affirm the summary judgment entered in this case."

It is clear that Mr. Anderson intended to change his trust and made a substantial effort to do so. Unfortunately he did not complete the process, i.e. signing the amendment, and that was the crux of Mr. Dey's argument. 

Filing a Timely Claim

A litigant can having a winning case but still lose. How can this be you ask? 

The law, known as the statute of limitations, requires parties to timely file their claims. This law prevents parties from indefinitely waiting to file their claim. By imposing this requirement on litigants, it ensures finality to matters once the requisite amount of time has elapsed. Otherwise a litigant could resurrect an ancient claim that would frustrate the current climate. This brings us to a recent unpublished appellate opinion. Kern County Superior Court case # S-1501-PB-62540, Estate of Catlin.

Gretchen Brown claimed that her mother, Lynda Catlin, promised Ms. Catlin's residence to her upon Ms. Catlin's death. However, a few days before Ms. Catlin passed away, she executed a grant deed which transferred the home to Mark Chagoya as "husband and wife as joint tenants." Catlin was not legally married to Mr. Chagoya, as her prior marriage had not been formally dissolved.
 
The unpublished opinion noted irregularities regarding the execution of the deed:

"The notary who notarized Catlin's signature on the grant deed testified that her sequential journal had been lost or stolen after notarizing Catlin's signature. There was no evidence the notary informed the Secretary of State that the journal had been lost or stolen.

Additionally, a doctor testified that the dosage and type of pain medication provided to Catlin was "substantial," and its effect would depend on her "tolerance." Some evidence indicated Catlin's ability to communicate worsened each day beginning with her hospitalization on January 29, 2011.

There was also evidence that on the day after the grant deed was executed, Chagoya said, "I got everything I want anyway," before leaving the hospital."

The trial court invalidated the deed and imposed a constructive trust on the property for Ms. Brown's benefit. Mr. Chayoga appealed this judgment.

The appellate court reversed the trial court's decision, finding that Ms. Brown did not file her constructive trust claim within the statute of limitations. Ms. Brown had 1 year to file her claim because it related to "a claim that arises from a promise or agreement with a decedent to distribution from an estate or trust or under another instrument, whether the promise or agreement was made orally or in writing." Ms. Catlin died on February 4, 2011. Ms. Brown filed her petition on January 28, 2013. 

The opinion concludes with "[w]e only hold that Brown is not entitled to a constructive trust on the property (or the proceeds of its sale) based on her oral agreements with Brothers and Catlin." 

Probate Fees

An attorney can be awarded 2 fees for handling a probate. 

First the attorney can receive ordinary fees for handling the typical duties that entail probate, e.g. filing the petition to open probate, filing the petition to close probate, making court appearances, notifying heirs and beneficiaries, etc. This fee is based off of the value of the estate. Below is the fee calculation for an estate up to $1M.

Estate Value            Ordinary Fee 

$100,000                   $4,000 

$200,000                   $7,000 

$300,000                   $9,000 

$400,000                   $11,000 

$500,000                   $13,000 

$600,000                   $15,000 

$700,000                   $17,000 

$800,000                   $19,000 

$900,000                   $21,000 

$1,000,000                $23,000  

Second, an attorney can be awarded extraordinary fees for certain matters. The most common example of this is the sale of real estate. It is common for a probate estate to own real estate. Invariably the decision will be made to sell that real estate. Rarely do heirs or beneficiaries want to form a business entity to manage a property together. Under such a scenario, the attorney can be awarded an ordinary fee and an extraordinary fee.

However, extraordinary fees are not automatic. You can't always get what you want........

"If, under all the relevant circumstances, the amount awarded as ordinary compensation is fair and reasonable for all the attorney services, the court may disallow a request for extraordinary compensation even though some extraordinary services have been performed." Estate of Trynin (1989) 49 Cal.3d 868, 874.   

In a recent unpublished opinion, the California Court of Appeal addressed the reduction of extraordinary fees awarded to a probate attorney. The attorney had requested $27,510 in extraordinary fees. The trial court reduced the extraordinary fees to $3,399. On appeal, the appellate court upheld this decision. San Francisco Superior Court case # PES14297788.  

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."