December 21, 2018

Standing to Challenge a Trust

Standing is the ability of a party to file a lawsuit. It acts as a limitation on the class of litigants that can bring forth claims.
For example, a child has standing to contest a parent's will or a parent has standing to pursue a wrongful death action involving a deceased child. 

Standing is procedural in nature. That is, the substantive merits of a case are inapplicable to determining whether or not a person has standing. 

For instance, assume a concerned neighbor witnessed their neighbor being coerced into signing a will. The coerced neighbor, a parent, was given the ultimatum by their child to sign the will leaving the entire estate to them, or else the wicked child would immediately place them in a retirement home. The coerced neighbor dreaded the idea of living out their life in a retirement home and repeatedly mentioned such to their neighbor. 

The foregoing facts would be highly relevant to a case involving undue influence in regards to the will's execution. However, the neighbor would not have standing to challenge the will's validity, despite their first-hand knowledge, because they lack a familial connection to the neighbor. Conversely, the other children of the coerced neighbor would have standing to challenge the will's validity because they clearly have a familial connection to their parent.

In terms of a trust, assume that a child was named a beneficiary of their parent's trust in earlier versions. Then in later versions, the child is disinherited. Following the parent's death, the child brings a petition to invalidate the trust amendments which disinherited them pursuant to Probate Code § 17200. 

The applicable section reads "Except as provided in Section 15800, a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust." Probate Code § 17200(a).

A California trial court determined, which was upheld by the California Court of Appeal, that the disinherited child could not bring such a petition because they lacked standing. The plain language of Probate Code § 17200 provides standing for only trustees and beneficiaries, of which the disinherited child was neither. Therefore, the petition was dismissed due to lack of standing. 

Barefoot v. Jennings, (2018) 27 Cal. App. 5th 1       

The decision was surprising given that litigants often file suit to challenge a trust's validity based on Probate Code § 17200. Although there had been no case law that supported such an argument until now.

On December 13, 2018, the California Supreme Court granted review for the case. Hence, there will be a future ruling on whether or not a disinherited child has standing to file a petition under Probate Code § 17200.        

November 29, 2018

Estate Tax in 2019

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2019 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%

October 31, 2018

Filing a Will

It is seldom a prudent decision to delay filing a document. The law imposes a statute of limitations on parties to submit documents in a timely fashion or else their claim is time-barred. The following unpublished appellate opinion highlights what happens when a party waits too long to file: 

"Appellant Gregory Smith challenges the court's determination that his attempt to introduce a copy of a holographic will into probate of the estate of his mother, Helen Louise Smith, was untimely under Probate Code section 8226. Section 8226, subdivision (c)(1), requires the proponent of a will to petition for probate within 120 days of an order determining the decedent to be intestate. Here, Gregory filed a petition for probate of the holographic will over 11 months after the court determined Helen died intestate. Despite the late filing, Gregory appeals the court's decision that the filing of the petition was untimely even assuming Gregory was entitled to the benefit of equitable tolling to extend the statute of limitations period."

The following excerpt encapsulates Mr. Smith's problem:

"The trial court assumed that attorney Schultz's possession of the holographic will for roughly six months served as an impediment to Gregory's filing the petition for probate. The trial court even further assumed that the tolling event continued until Gregory's March 24, 2016, meeting with Lee, after he received the will back from Schultz on March 7, 2016. At that meeting, Gregory was expressly advised by the estate attorney to get his own attorney if he wished to proceed on the holographic will. Even so, over 120 days passed before Gregory filed the petition for probate. Using the latest possible date of March 24, 2016, the 120-day filing deadline expired on July 22, 2016, and Gregory filed the petition on August 3, 2016.  

At the time of the March 24, 2016, meeting, Gregory was in personal possession of the holographic will. The trial court found that Lee advised Gregory to obtain his own counsel to act should he wish to pursue his rights to admit the holographic will into probate. No impediments prevented Gregory from petitioning the court at that time. His delay of more than 120 days in filing the petition evinces a lack of diligence separate and apart from any impediment created by Schultz. Despite having possession of the holographic will and express notice from Lee that he needed to act should he wish to enter the holographic will into probate, Gregory failed to act promptly."

Estate of Smith, Tuolumne County Superior Court Case # PR11349

September 26, 2018

Objecting to a Trustee's Accounting

“Don’t throw good money after bad.” 

This idiom can commonly be used in the litigation context. It basically means that a reasonable person would not invest their time, energy and money on an endeavor in which the potential output is outstripped by the input. For example, it would be illogical to invest a substantial sum of money in trying to fix a very old car.   

The following excerpt is from a recently decided unpublished appellate opinion: 

"In 2010, Dorothy resigned as trustee of the Survivor's trust and appointed her accountant, Terry Hinricher, as successor trustee. The trust provides that upon Dorothy's death, its assets shall be equally divided among her children, Jack Goulden, Laurie Goulden, and Elliot Goulden. Dorothy died in 2014.

In 2012, Jack petitioned to compel Hinricher to prepare an accounting of the trust. (Prob. Code, § 17200, subds. (a), (b)(6) & (7)(C).) Hinricher filed the first account, to which Jack objected. The probate court referred the matter to mediation. In 2014, the parties settled the first account, and the court approved the settlement. The same year, the probate court approved the second account. In 2015, Jack signed a written approval of the third through fifth accounts, and those approvals were filed with the court.

In 2016, Hinricher petitioned for approval of the sixth account, which included trustee fees of $78,398.57 and attorney fees and costs of $9,969.23. Jack objected to the sixth account on the grounds that (1) the trustee fees were excessive, and (2) checks from the trust account were missing or out of sequence. Hinricher filed a supplement to the sixth account, which explained that the missing checks were voided.

In 2017, Hinricher petitioned for approval of the seventh account. The account showed that the entire trust estate had been distributed to the beneficiaries. Hinricher requested an order approving trustee fees of $45,065.70 for the seventh account period. He also requested an order approving attorney fees and costs of $21,916.31 incurred as a result of the ongoing litigation with Jack and Laurie. Hinricher had set aside reserve funds for final expenses, but they only covered a portion of the fees and costs. Hinricher requested that the beneficiaries be "personally charged" with the outstanding balance of the fees and costs. Elliot objected on the grounds that only Jack and Laurie should be personally charged for fees and costs because only they were involved in the litigation. No other objections were filed.

After an evidentiary hearing, the probate court approved the sixth and seventh accounts and the trustee and attorney fees. The court sustained Elliot's objection, and it ordered that the trustee fees incurred from defending the first through fifth account be charged only to Jack and Laurie. The court ordered the remaining balance of fees and costs be "charged" equally among all beneficiaries."

Here the beneficiary challenged the trustee's accounting numerous times. Each time the trustee's accounting was approved by the court. One wonders why the beneficiary consistently challenged the trustee's accounting when no wrongdoing was exposed. It is understandable if the trustee botched a prior accounting which engendered mistrust between the trustee and beneficiary. However, that was not the case here. The trustee complied with their fiduciary duties by submitting an appropriate accounting every time. Hence, one wonders why the beneficiary challenged the latest accounting when the trustee had no track record of mismanaging trust assets. In other words, it appears the beneficiary was throwing good money after bad. 

Goulden v. Hinricher, Ventura County Superior Court, Case # 56-2012-00425329-PR-TR-OXN.

August 29, 2018

Professional Fiduciary - Trustee

A professional fiduciary is commonly used to serve as the trustee of a special needs trust. The rationale is that the professional fiduciary is equipped to navigate the myriad of rules and regulations regarding a special needs trust. This would include applicable federal law, state law (namely the probate code) and the California Rules of Court. In short, an expert is needed and a professional fiduciary fits that mold. However, not all professional fiduciaries follow the appropriate rules. In such a case, the consequences can be acute and expensive.

In a recently decided published appellate opinion, the California Court of Appeal upheld a $93,036.75 surcharge issued against a professional fiduciary.

Scott v. McDonald (2018) _______ CA4th _______

The opinion was not especially kind to the professional fiduciary in regards to her request for trustee compensation:

"The trust instrument provides, "The Trustee shall receive just and reasonable compensation, to be paid from the Trust, for [her] services in an amount to be determined by the Court on the occasion of the Trustee's court accountings or such other times as that issue may be brought before the Court with jurisdiction over the Trust. The Trustee may receive interim compensation on account, in accordance with the order of the Court with jurisdiction over the Trust."

Trustee did not file the required accountings with the court because she was unaware the trust was court supervised. Trustee did not look at the trust instrument to understand her authority under the trust. Trustee continued to serve as trustee of the trust when her professional fiduciary license was suspended from 2008 to 2010. Trustee did not keep accurate time records for her fees. Trustee breached her fiduciary duty by making disbursements for rent, clothing, vehicle expenses, and vacations. Trustee also breached her fiduciary duty by making a final distribution to Mother in the amount of $15,574.85, which was then commingled with Mother's personal funds and primarily spent on living expenses and household items.

Given Trustee's mismanagement of the trust estate, failure to make the required court filings, and continued service when she lacked a license, the probate court could reasonably conclude that Trustee was not entitled to compensation because any compensation for the service rendered would be inequitable due to Trustee's multiple failures in administering the trust (Cal. Rules of Court, rule 7.776(2))."

July 31, 2018

Beneficiary Designation vs. Codicil

If a life insurance policy owner wants to ensure that their ex-spouse will not receive a death benefit, it is obviously best to remove them as a beneficiary. To do so requires that the life insurance policy owner contact the life insurance and adjust the beneficiary designation. Unless they do so, a holographic codicil disinheriting the ex-spouse from receiving the life insurance proceeds will be insufficient. 

In a recently decided appellate case, the California Court of Appeal had to decide if an ex-spouse was entitled to receive life insurance benefits where they were named the beneficiary but the policy holder's holographic codicil stated that he did not want the ex-spouse "inheriting anything from [him] under any circumstances by beneficiary designation or otherwise."

Estate of Post (2018) _____ Cal.App.4th _____
The trial court ruled in favor of the policy holder's sons but the ex-spouse appealed and prevailed.

"It is well settled that a beneficiary under an insurance policy takes by virtue of the contract of insurance rather than by the law of succession; that the proceeds do not become a part of the estate of the insured; and the law of descent and distribution has no applicability to such cases." Estate of Welfer (1952) 110 Cal.App.2d 262, 265. 

Thus, the trial court did not have the requisite subject matter jurisdiction to adjudicate the matter. Consequently, a "judgment rendered by a court that does not have subject matter jurisdiction is void and unenforceable and may be attacked anywhere, directly or collaterally, by parties or by strangers." Marlow v. Campbell (1992) 7 Cal.App.4th 921, 928.

It should be noted that the life insurance policy holder made an effort to avoid this result:

"Along with their reply, they included a declaration from decedent's estate attorney. She reported that she met with decedent on May 13, 2016. He stated that he wanted to confirm and ensure that objector received nothing from him after his death, "either by will, devise, beneficiary designation, or otherwise." He reportedly "was concerned that he may not have proactively retitled all assets, updated beneficiary designations, nor effectively unwound a short lived and immediately regretted attempt to reconcile with [objector]." The attorney assisted him in drafting the Codicil at their meeting, but he died before he could return the following week to execute a more formal version of the document. It was her understanding that, had there been more time, decedent "desired and intended that all beneficiary designations and assets passing outside of his estate be retitled to remove his ex-wife as a beneficiary."