July 27, 2017

Probate Attorney Fees - Extraordinary Compensation


When an attorney handles a probate, they may be entitled to two methods of payment from the estate, ordinary compensation and extraordinary compensation. This is also known as ordinary fees and extraordinary fees.

Ordinary compensation is rather straight-forward as it utilizes a set formula for determining the fee. The formula is based off the estate's value. Below reflects ordinary compensation in intervals of $100,000 up to $1M.

Estate Value            Statutory 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 

Extraordinary compensation is awarded to the attorney for services rendered that fall outside the scope of a regular probate. For example, extraordinary fees are merited for “legal services in connection with the sale of property held in the estate.” See CRC 7.703(c)(1). The most common example of this is the sale of the decedent's house. 

At probate's conclusion, i.e. the petition for final distribution, the attorney will attach a declaration specifying what extraordinary services have been rendered and the amount of their requested compensation. Although the probate court ultimately decides if the requested fee is "just and reasonable" so as to permit payment of it.
Estate of Trynin (1989) 49 Cal.3d 868, 873. In particular, a probate court may reduce the amount the attorney ultimately receives as extraordinary compensation. A recent unpublished appellate opinion illustrated this point.

The executors' former attorney sought $273,010 in extraordinary fees. A beneficiary then objected to this amount. Following three hearings, the probate court reduced the awarding of extraordinary fees to $109,697.      

On appeal, the decision of the trial court to award $109,697 in extraordinary fees was upheld. 

Quint v. King, San Diego County Superior Court Case # P190541.

July 14, 2017

Power of Attorney - Agent's Authority


When a principal appoints an agent, the agent's authority is limited by the scope of the authorizing document. 

For example, if the principal only permits the agent to sell the principal's house while they are on vacation, this would not entail allowing the agent to mortgage the property, lease the property or host a massive party at the house by a local fraternity such as Lambda Lambda Lambda. 

Conversely, if the principal gave the agent the authority to encumber the property, in addition to selling it, the agent would be permitted to mortgage the property. Similarly, if the principal gave the agent the authority to retain any outside professional necessary to sell the property, the agent could retain a plumber, roofer, carpenter, etc.

In a recent appellate decision, the central issue in the case was whether "whether an attorney-in-fact who admitted her principal to a residential care facility for the elderly made a "health care" decision. If she did, as the trial court found, she acted outside the scope of her authority under the power of attorney, and the admission agreement she signed, and its arbitration clause this appeal seeks to enforce, are void."

Hutcheson v. Eskaton Fountainwood Lodge (2017) __ C4th__

In this case, the agent admitted the principal to a residential care facility because of health issues. "A medical appraisal performed the day of her admission disclosed Lovenstein was suffering from dementia and seizures. She was confused and disoriented. She engaged in inappropriate, aggressive, and wandering behaviors. She was not able to follow instructions consistently, and she was depressed. She required "complete" supervision."

The principal's doctor recommended that the agent return the principal to her home because the residential care facility allegedly over-medicated the principal. Unfortunately, matters went awry when the agent went to retrieve the principal.

"On March 22, 2012, Charles went to FountainWood to pack Lovenstein's belongings and move Lovenstein into her home. However, Lovenstein choked on her lunch at FountainWood that day and was transferred to a hospital. Doctors allegedly diagnosed her with aspiration pneumonia and severe dysphagia (difficulty in swallowing). She remained hospitalized until March 28, 2012, and died on April 11, 2012."

Ultimately the court found that the agent had made a health care decision by admitting the decedent to a residential care facility. Thus, the agent had acted outside her authority under the power of attorney agreement, as it did not authorize her to make a "health care decision." Consequently, the arbitration clause was not binding on the plaintiffs because the principal, through her agent, had not validly executed the binding arbitration agreement. 

June 29, 2017

Estate Planning and Divorce


Unfortunately the words "till death do us part" do not hold true with every marriage. Stating the obvious, some marriages end with a dissolution. When it comes to inheritance rights, married, legally separated and divorced have very important legal distinctions.  The below illustrations highlight these nuances.

Assume Hal and Wendy were married in 2000. They purchase a home in San Jose, CA in 2001 and take title as husband and wife as community property. They then have a son named Sam and a daughter named Dana. Wendy dies in 2005 without a will or trust. By virtue of being married to Wendy and the house being community property, Hal inherits Wendy's 50% share of the house. Probate Code § 6401(a). Sam and Dana receive no share of the house.

Now assume that Hal and Wendy legally separate in 2003 but do not divorce. Wendy purchases a Los Gatos condo in 2004 by herself. Again Wendy dies in 2005 without a will or trust. The San Jose home would still pass to Hal because it is community property. However the Los Gatos condo would be split evenly between Hal, Sam and Dana because the asset would be considered Wendy's separate property. Probate Code § 6401(c). The reason being is that an asset acquired after legal separation is considered the separate property of the acquiring spouse. Nonetheless, Hal still has an interest in Wendy's separate property because they were married, though legally separated, when Wendy passed away.

Now assume that Hal and Wendy divorce in 2003 because Wendy  lacked the plow skills that Hal wanted in his bride. The divorce decree awards 50% of the house to Hal and 50% of the house to Wendy. Again Wendy dies in 2005 without a will or trust. In this case Sam and Dana would solely inherit the Los Gatos condo. Since Wendy was not married when she passed away, the Los Gatos condo is Wendy's separate property and passes to her children equally. Probate Code § 6402(a). 
 
Now finally assume that Wendy files for divorce on June 30, 2005. Wendy dies a day later on July 1, 2005. Since there was no date of legal separation, let alone a judgment of dissolution, Hal would inherit all of Wendy's community property and 1/3 of her separate property. The other 2/3 would be split evenly between Sam and Dana. 

June 16, 2017

Breach of Trust and the Statute of Limitations


Probate Code § 16460(a)(2) provides that if "an interim or final account in writing or other written report does not adequately disclose the existence of a claim against the trustee for breach of trust or if a beneficiary does not receive any written account or report, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim."

So you better file your petition on time.............

A recent unpublished appellate opinion touched upon this issue. Kathleen, a trust beneficiary, was a party to a trustee removal petition filed by another beneficiary, her sister Kelly Sue. The petition was filed in 1987. 

The 1987 petition stated that the trust was established for educational purposes to benefit the settlor's children, which included Kathleen and Kelly Sue.

The 1987 petition stated that "the entire trust is to be distributed in equal shares to all living beneficiaries on December 5, 1998, when the youngest beneficiary turned 25 years old." 

In 2015, Kathleen filed "an amended petition for redress for breach of trust, for fraud and punitive damages, conversion, constructive trust, injunctive relief, and declaratory relief." The petition alleged that Kathleen never received any distributions from the trust.

Kelly Sue was the respondent in the 2015 petition.

Kelly Sue's demurrer was sustained without leave to amend (a coup de grace in litigation) because Kathleen had failed to timely file suit, i.e. the statute of limitation had run. See Probate Code § 16460(a)(2). The reason being is that Kathleen's claim accrued on December 5, 1998. She did not file suit until 2015, more than 3  years after her claim had accrued. 

Kathleen argued that she lacked actual knowledge of wrongdoing by Kelly Sue. The California Court of Appeal was unmoved. "Kathleen cannot toll the statute of limitations by claiming she was unable to discover the claim by the distribution date. Her own allegations in the amended petition demonstrate she had actual knowledge of the existence of the trust; her status as a beneficiary of the trust; and the contents of the removal petition, which attached to it was the trust as an exhibit. In addition to her actual knowledge, Kathleen had constructive knowledge of the trust and its terms because she admits she was a trust beneficiary. As a beneficiary, she was entitled to request a copy of the trust and related information, through which she should have reasonably discovered the distribution date. Kathleen was also on inquiry notice as a trust beneficiary, and could have obtained information about the trust, as she eventually did in 2013 through public records. Unlike the situation in Quick, where the existence of the trust and the petitioner's status as a beneficiary were hidden from the plaintiff, thereby tolling the statute of limitations, here, Kathleen had actual and constructive knowledge of the trust and its terms."

Dunphy v. Wilken, Orange County Superior Court Case # 30-2015-00779480

June 2, 2017

Attorney-Client Communications


One of the requirements I have for any client is for there to be a clear channel of communication between the parties (I'm positive other attorneys require the same). This is a bilateral relationship. If the client inquires, I respond in a timely fashion. If I inquire with the client, I expect the same. For a productive attorney-client relationship, both sides need to uphold their end of the bargain. Otherwise, there can be serious ramifications.

This segues into a recent unpublished opinion that dealt with an attorney-client relationship that lacked communication and the client suffered the serious consequences.

Crabill et al. v. Brown, San Diego County Superior Court, Case # 37-2010-00151394-PR-TR-CTL

The summary of the case is as follows:

"Defendant Frank Brown appeals from the denial of his motion to vacate an order assessing over $250,000 in penalties arising from a breach of his duties as a trustee. Brown's motion, filed approximately 14 months after the penalty assessment order, claimed he simply forgot to disburse payments as the trustee and did not read his mail to receive notice of the subsequent court proceedings. The probate court denied the motion, finding that the time periods for statutory relief had long since passed and equitable relief was not warranted. Brown now contends the court abused its discretion in denying his motion because he presented compelling evidence that he had a satisfactory excuse for not appearing, acted diligently in seeking to set aside the order and, if he had appeared, had a meritorious defense. We see no abuse of discretion and accordingly affirm."

Some notable excerpts from the case include: 

"Crabill and Smidebush allege that over the course of the next year they sent letters to Brown's attorney seeking their distributions. Brown's attorney told them that he forwarded their letters to Brown but did not receive any response. Ultimately, in June 2014, Brown's attorney informed counsel for Crabill and Smidebush that he no longer represented Brown."

"The motion to vacate sought relief pursuant to Code of Civil Procedure sections 473, subdivision (b) and 663. In support of his motion, Brown declared that after the court's final disbursement order, he believed he did not need to take any further action in regard to Smidebush because he had sent her a check for her distribution years earlier. He claimed he never paid Crabill because he wanted to directly hand her a check, but her family prevented him from seeing her. After several months of attempting to personally deliver a check to Crabill, he "came to believe" he had sent the trust disbursement, although he now recognizes he was mistaken. He attributed his mistake to "old age, medical issues and memory loss problems." He listed a broad range of medical issues, including a serious car accident, that "distracted from any trust-related matters."

"Brown further declared that he never saw any mail concerning trust issues because he does not have a "secure home mailbox," and that it was possible the mail "was inadvertently discarded or lost." He also explained that during the entire time period, he believed he was still represented by his former attorney."

May 18, 2017

Spendthrift Clause - Carmack v. Reynolds


A common provision to include in a trust for a careless beneficiary is a spendthrift provision. This provision provides protection to a beneficiary's inheritance by limiting the ability of a creditor to attach their claim to a beneficiary's interest in the trust. Still, a spendthrift clause does not absolutely insulate a beneficiary's inheritance from creditors. 

Certain types of creditors can attach to the beneficiary's interest regardless of a spendthrift provision, e.g. child support creditors. For general creditors, recovery is typically not as easy. 

A recent California Supreme Court case addressed the issue of how far a bankruptcy trustee can reach into a beneficiary's interest in a trust.

Carmack v. Reynolds (2017) _____ Cal.4th _____

The pertinent facts are as follows:

"The trust provides that at Freddie's death, Reynolds is entitled to $250,000 from the trust if he survives Freddie by 30 days. In addition, Reynolds is entitled to receive $100,000 a year for 10 years and then one-third of the remainder. All payments are expected to be made from principal; the trust's assets are in undeveloped real estate that do not produce income. Those assets are estimated to be worth several million dollars, although their exact value will not be known until the trust assets are liquidated.

The day after his father died, Reynolds filed for voluntary bankruptcy under chapter 7 of the United States Bankruptcy Code. The trustees of the Reynolds Family Trust sought a declaratory judgment on the extent of the bankruptcy trustee's interest in the trust. The bankruptcy court held that under the California Probate Code, the bankruptcy trustee standing as a hypothetical lien creditor could reach 25 percent of Reynolds's interest in the trust. The bankruptcy appellate panel affirmed. The bankruptcy trustee appealed to the Ninth Circuit, which asked us to clarify if Probate Code section 15306.5 caps a bankruptcy estate's access to a spendthrift trust at 25 percent of the beneficiary's interest where the trust pays entirely from principal. We granted the Ninth Circuit's request."

The court found that "that a bankruptcy trustee, standing as a hypothetical judgment creditor, can reach a beneficiary's interest in a trust that pays entirely out of principal in two ways. It may reach up to the full amount of any distributions of principal that are currently due and payable to the beneficiary, unless the trust instrument specifies that those distributions are for the beneficiary's support or education and the beneficiary needs those distributions for either purpose. Separately, the bankruptcy trustee can reach up to 25 percent of any anticipated payments made to, or for the benefit of, the beneficiary, reduced to the extent necessary by the support needs of the beneficiary and any dependents."