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))."

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."

Standing to Contest a Trust

In order to contest the validity of a trust, a litigant is required to have standing. One  individual that always has standing is the person's child. 

A recently decided unpublished appellate opinion focused on whether or not a child born out of wedlock had standing, as a child, to contest the validity of his father's trust.  

 The trial court found that the son did not having standing.

"The trustee moved for an evidentiary hearing to determine plaintiff's standing before proceeding to a trial on the merits. The trustee asserted that plaintiff could not show he is Smith's son and, therefore, has no standing to contest the validity of the trust. Following an evidentiary hearing on June 13 and 14, 2016, the court found that "[a]ll presented testimony was credible, and clearly established that [plaintiff] was decedent's biological son." But the court concluded that paternity of a child born out of wedlock must be "established by clear and convincing evidence that the father has openly held out the child as his own." (§ 6453, subd. (b)(2).) "While decedent openly and publicly acknowledged [plaintiff] to be his son on several occasions, this occurred only within [plaintiff's] family and social circles. Decedent never so acknowledged [plaintiff] in [decedent's] own family and social circles, such that those most likely charged with administering decedent's estate had no knowledge of [plaintiff] or his relationship to the decedent. The legislative intent behind [Probate Code section] 6453(b)(2), namely promotion of the efficient and expeditious administration of decedent['s] estates, is not advanced in this case, and so [plaintiff] does not have standing to pursue his trust contest."

The trial court's decision was reversed on appeal.

"Decedent Smith did not admit paternity to his close relatives, as in Burden. Nor did Smith admit paternity only to the mother's child and his best friend, as in Britel. Smith admitted paternity in one social circle and concealed it from another. Although Smith concealed his paternity from his wife, marital children, parents and friends, he "openly and publicly acknowledged" plaintiff to be his son within plaintiff's "family and social circles," as the trial court found. Smith acknowledged his paternity to a wide array of plaintiff's family and friends and never asked plaintiff's mother "to deny" his paternity. At plaintiff's college graduation ceremony and party, Smith approached plaintiff's friends and freely introduced himself as plaintiff's father."

Interestingly, the son was challenging the trust's validity, inter alia, on the theory that his father lacked capacity because "he suffered from concussive traumatic encephalopathy and other cognitive impairments." 

CTE is the degenerative brain disease that has afflicted numerous professional and college football players. 

Portero-Brown v. Smith Javaneri, Alameda County Superior Court case # RP15786933.

Will Contest & Statute of Limitations

A litigant often files a petition to contest the validity of a testamentary document shortly after discovery of the supposed flawed document. Rarely does a litigant delay filing suit. One principal reason for this is because of the statute of limitations. 

A litigant might have a colorable claim, but the law imposes on them the requirement to file suit in a timely manner. Otherwise their claim is time-barred because of the statute of limitations and their case will be dismissed. This produces finality to matters. If a litigant has an endless amount of time to file suit, this can be disruptive to any party because there is no assurance that the legal situation has been resolved. For example, if real property is involved, the owner will be discouraged from improving it as they fear a lawsuit could cause them to relinquish ownership in the property.

The facts of one recent unpublished appellate case related to a will contest that was unsuccessful because the statute limitations had run.

"Craig sued the estate of his father's widow and other individuals for intentional interference with expected inheritance and constructive trust contending the holographic will submitted to probate by his father's widow was fraudulent and the defendants intentionally used an incorrect address for Craig so he was not given proper notice of the probate proceedings. He alleged he did not discover the fraud until he reviewed the probate file in 2014.

In their answers, the defendants asserted the statute of limitations as an affirmative defense. Following a bench trial, the court found the statute of limitations expired for Craig's action and found in favor of all the defendants.

At Craig's request, the court prepared a settled statement setting forth the procedural background of the case and identifying the witnesses and evidence presented at the bench trial. The court summarized its findings, stating: "the [c]ourt found that the statute of limitations has expired and ruled in favor of defendants. Plaintiff claims that the will that was probated 24 years ago was fraudulent. Defendants established that the will and probate of deceased, Samuel C. Craig, Sr., was properly executed 24 years ago and that the probate was properly heard before San Diego Superior Court. The [s]tatute of [l]imitations bans a challenge to the will and probate after a 20[-]year delay. Case was dismissed." 

Craig v. Cardona, San Diego County Superior Court case # 37-2015-00010184

Will Interpretation

A primary purpose of a will is to exactly identify who the testator wants to inherit their estate. If the person does not care, they can simply choose to abstain from writing a will and let the laws of intestate succession govern the disposition of the estate. Consequently, their next of kin, heirs to use legal parlance, would inherit their estate.  

In a recent unpublished appellate opinion, the California Court of Appeal had to determine which individual the testator was referring to in their will.

"The decedent had two "Janets" in his life: (1) a daughter named Janet Benninghoff, who was known as Janet Derickson before she married; and (2) a companion, associate, paramour, or friend of sorts named Janet Whelan. Whelan contends that she is "Janet Derickson [] Whelan." The estate administrator and Benninghoff assert that Benninghoff is."  

"A page entitled "Upon Death" lists five numbered clauses. The first clause bequeaths a piece of real estate to "Janet Derickson nee Whelan." The second gives another property to "Janet Benninghofen." The third provides that "Janet Derickson-Whelan, Linn Derickson Jr and Judy Hughes" will share equally in the profits from several of the decedent's assets; the fifth specifies that upon the death of "Janet Derickson, Whelan [¶] Linn Jr Derickson and Judy Hughes," the aforementioned profit shares become part of a remaining trust. The fourth provides that the equity in trust "other than items 1 and 2" goes to Hughes's three children. A separate page entitled "Put in Living Trust" and the following page list ten assets, including the homes referenced in the first and second clauses of the "Upon Death" document."

The court ultimately held that 

"Whelan prevails. Because she had a romantic relationship of some kind with the decedent, "Janet Derickson [] Whelan" could plausibly refer to her; the two may well have planned to wed at some point in the future. The same cannot be said of Benninghoff, who has no ties to the surname "Whelan." And the will provides for Benninghoff as "Janet Benninghofen" elsewhere. In light of the language used and the circumstances surrounding the will's execution, there is only one reasonable construction. Whelan is "Janet Derickson [] Whelan."

Another excerpt from the opinion shed light on how the family viewed the decedent's lady friend:

"At some point before his separation from Mary Sue, the decedent began a relationship of sorts with appellant Janet Whelan. The precise contours of Whelan's status vis-à-vis the decedent are unclear. The decedent's obituary dubbed her a "special friend." She has described their association as "what politely might be termed an `extramarital illicit relationship' for an extended period." In briefing before the probate court, Mary Sue, Benninghoff, and the administrator used the more colorful designation "paramour." However, in other briefing before the probate court, the administrator opted for more distant language, stating Whelan "was apparently an associate of the [d]ecedent, but the extent of that relationship is unknown."

San Bernardino County Superior Court case # PROPS0900650.

Spousal Property Petition

A spousal property petition can be used by a surviving spouse to collect the community property of their late spouse. This method is preferable to probate because probate typically takes anywhere between 9-15 months to complete and a spousal property petition can be completed in roughly 2-3 months (depending on the court's calendar). The distinguishing feature is that the property in question must be the late spouse's community property. A spousal property petition cannot be used to collect the separate property of the late spouse.

A recent unpublished appellate opinion addressed this issue:

"Jackson and decedent had been married for 36 years when decedent died in March 2016. Ten years prior, using funds she inherited from her parents, Jackson had purchased a home (the property) in Rio Vista, California, with title held by successor trustees of the family trust. Jackson and decedent lived together in the home, and maintained the property using community property funds. In 2011, the property was transferred from the successor trustees to Jackson and decedent as joint tenants.

Two years later, Jackson and decedent were struggling to pay their expenses and determined they would take out a reverse mortgage on the home. When they applied for the reverse mortgage, the lender advised Jackson's name would need to be removed from title to the property because she was not yet 62 years old and thus, did not qualify. In order to obtain the reverse mortgage, Jackson signed an interspousal transfer grant deed, granting the property to decedent as his sole and separate property."

The couple did not seek legal counsel about the title change and Jackson states the "reverse mortgage company did not provide guidance on this issue." All funds from the reverse mortgage were deposited to the couple's joint bank account, and all expenses related to maintaining the property, including property taxes, were paid from the same account.

In 2016, decedent died intestate. He was survived by Jackson and three adult children. Jackson petitioned the trial court to have the property distributed entirely to her as the surviving spouse. After continuing the hearing twice and accepting supplemental briefing and evidence from Jackson regarding her interest in the property, the trial court determined the property was decedent's sole and separate property. The trial court ordered one-third interest in the property to Jackson as the surviving spouse."

Solano County, Superior Court No. FPR047868