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 Barnes (1965) 63 C2d 580, held that a will could not be reformed if the language was unambiguous, even if outside evidence suggested error on the part of the testator in writing the will.    

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.

July 3, 2015

Medicare and Medi-Cal eligibility

An annoyance of mine is when I see a non-attorney make a legal determination involving an ostensibly simple matter that is wrong and consequential. While reading through appellate opinions, I stumbled upon a case involving such a a scenario.

Wong v. Tam, Los Angeles County Superior Court, Case # BC541794.   

In this case, the plaintiff and defendant agreed to purchase a property for their elderly parents (presumably they were brother and sister). According to a declaration by the defendant:

"At a wedding reception in December 1999, plaintiff told the parties' parents and siblings that their parents would need to divest their assets in order to qualify for Medicare and Medicaid and suggested they and defendant buy a home in a new senior living community in Walnut, California. Defendant expressed interest in purchasing a home in that community because it would allow him and his wife to use the home when he retired or earlier in order to live closer to their children. He and his father also said they were open to purchasing the home provided it was not sold for the lifetimes of the parents' children and "hopefully" their grandchildren, which stemmed from the Chinese cultural tradition of passing family homes through generations. With that understanding, defendant, plaintiff, and their parents orally agreed that defendant and their parents would pursue buying a home."

This declaration is wildly inaccurate in terms of qualifying for benefits, i.e. the parts in bold

Medicare, the medical insurance program for the elderly, is an entitlement. If you earn enough credits, you are eligible to receive it. It makes no difference whether you are a billionaire or living a meager existence. If you pay for it, you get it. It is as simple as that.

Conversely, "Medi-Cal," the name California uses for the federal program known as "Medicaid," is a medical insurance program for the poor and disabled. Medi-Cal is not an entitlement. Essentially you have to be poor and/or disabled to qualify for it. Therefore, Medi-Cal is described as a needs-based public benefit.   

While the case did not turn on benefits eligibility, it does demonstrate the defendant's ignorance of the law on this topic. This can be particularly damaging because of the legal adage "ignorance of the law is no excuse." A person is stuck with their mistake, whether they knew the law or not. This can be a sobering reality for the legally uninformed.  

June 26, 2015

The Perils of Pro Bono

When an attorney is representing a client in court, certain items are sometime best left unspoken.

Katzenstein v. Chabad of Poway (2015), ___ Cal.App.4th ___

In this case, the decedent had originally named his trust as the beneficiary of two life insurance policies. The successor trustee was the plaintiff in this matter. Later on, the decedent allegedly provided the defendant with an "irrevocable pledge" of those same two life insurance policies. In exchange, the defendant would rename the senior center after him and operate it from the life insurance proceeds.
When the decedent passed away, a dispute ensued over who was the beneficiary of the life insurance policy, the plaintiff or defendant. Naturally each side believed they were the rightful beneficiary and litigation ensued.

What captured my attention from this case though is this portion of it, as recited in the appellate opinion:

"The court entertained oral argument, during which most of the exchange concerned the tentative striking of Chabad's Objection and Counterclaim. In part, the court described to Chabad's counsel (who stated that he was representing Chabad on a pro bono basis) some of the differences between the procedures in the Code of Civil Procedure and the Probate Code, explaining that claims in probate need to be presented properly." Italics added. 

In reading the opinion, the defendant's counsel seemed more accustomed to civil actions as opposed to probate actions. For example, counsel mistakenly believed that they could file a counterclaim to the plaintiff's petition when the proper procedure was to oppose the plaintiff's petition and file their own separate petition.

Arguably the defendant's counsel offered this admission in hopes that the court would offer him sympathy. Clearly this was not the case. Moreover, the fact that the appellate opinion decided to highlight this admission emphasizes this apparent mistake. Although the appellate opinion did not specifically give the attorney's name in mitigation.

Personally I doubt I would ever disclose such a fact in front of a judge. While performing pro bono work is laudable, disclosing such an arrangement during litigation seems imprudent. A pro bono attorney has to abide by the same rules and procedures as a compensated attorney. There are no special rules for pro bono attorneys when representing a client in court. 

Unfortunately the cruel adage holds true, no good deed goes unpunished.      

June 18, 2015

Attorney Fees

Occasionally a party will represent themselves in a probate matter. "Pro per" is the term used to describe a self-represented party. For example, an heir could challenge the validity of a will by arguing that the testator lacked capacity to execute a will.  

A self-represented party is required to identify themselves that way on court papers.  If you ever look at a probate petition filed on pleading paper, the petition will list in the upper left-hand corner of the 1st page the attorney's name and their bar number, e.g. 258625 (my bar number). For a self-represented party, they will write "pro per" or something similar to that near their name.

Self-representation is permissible because a third-party is not involved. Attorney licensing is required, so the theory goes, to protect clients from unlicensed attorneys who might cause them irreparable harm through incompetent representation. However, there is nothing that prevents a party from representing themselves in an action. Attorney licensure requirements do not protect a party from themselves.

An associated issue that comes up with self-represented parties is whether they are entitled to attorney fees. Normally attorney fees are not awarded to even the prevailing party, much less the losing side. Each side bears their own cost of litigation. The exceptions for this rule, in the probate context, involve certain causes of action. For instance, attorney fees are recoverable under the common fund theory for a beneficiary. See Copley v Copley (1981) 126 CA3d 248, 292. Still, attorney fees are not recoverable for a self-represented party, even if the party is an attorney. See Musaelian v. Adams (2009) 45 Cal.4th 512, 520. So even if a self-represented party prevails in a probate matter and spent 50 hours working on the case, they will not be compensated for the time they spent on the matter.

Logically it makes sense to bar a self-represented party from recovering attorney fees, even if they are an attorney. The prohibition recognizes that attorney fees are for a third-party, not the party themselves. Allowing attorney fees for a self-represented party would create the impression that the self-represented party is somehow two people, the client and the attorney. That would be a neat trick, but such obviously defies reality.

Moreover, since nearly all self-represented parties are not attorneys, the prohibition ensures that there is no attorney licensure loophole. One would expect that attorney fees are reserved for attorneys. If you are not an attorney, you do not receive them.  

June 5, 2015

Why Write a Trust and Will?

Clients commonly ask, "why should I write a trust and a will?" Their rationale is that both are testamentary instruments which dispose of their property when they pass away. So if one is written, this eliminates the need to write the other and vice-versa. While technically true, such a statement does not grasp the practicalities of estate planning. 

The common route is to write both because the California probate code permits the trust and will to work in harmony because of a specific law, the Uniform Testamentary Additions to Trusts Act, or UTATA. See Probate Code § 6300. The law reads:

"A devise, the validity of which is determinable by the law of this state, may be made by a will to the trustee of a trust established or to be established by the testator or by the testator and some other person or by some other person (including a funded or unfunded life insurance trust, although the settlor has reserved any or all rights of ownership of the insurance contracts) if the trust is identified in the testator’s will and its terms are set forth in a written instrument (other than a will) executed before or concurrently with the execution of the testator’s will or in the valid last will of a person who has predeceased the testator (regardless of the existence, size, or character of the trust property). The devise is not invalid because the trust is amendable or revocable, or both, or because the trust was amended after the execution of the will or after the death of the testator. Unless the testator’s will provides otherwise, the property so devised (1) is not deemed to be held under a testamentary trust of the testator but becomes a part of the trust to which it is given and (2) shall be administered and disposed of in accordance with the provisions of the instrument or will setting forth the terms of the trust, including any amendments thereto made before or after the death of the testator (regardless of whether made before or after the execution of the testator’s will). Unless otherwise provided in the will, a revocation or termination of the trust before the death of the testator causes the devise to lapse."

The law's importance is that it closes the estate funding gap.

When a trust is created, it becomes effective immediately. This is why the term "living trust" is used. The person will fund the trust with various property, e.g. house, bank account, brokerage account, etc. However, it is virtually impossible to ensure that every asset is titled in the name of the trust at one's death. There are a couple of reasons for this. First, the person may simply forgot to title the asset in the trust's name. Second, the asset cannot effectively be titled in the trust's name, e.g. a fancy rug.

When the person passes away, the will they wrote becomes effective. Simply stated, wills only become effective at death. UTATA allows a person's will to name their trust as the exclusive beneficiary of their estate. This bookends the person's estate as the trust can handle the bulk of the estate when the person writes it and the will can capture anything that was not titled in the trust's name at the person's death. This reduces the chances that an asset will fall through the cracks and not be part of the trust. 

The type of will described above is known as a "pour-over will."