Revocable Transfer upon Death Deed

Back on June 21, 2011, I penned a post about proposed bill AB-699 which would have authorized a homeowner to designate a beneficiary for their property upon their death. The bill ultimately failed in the Senate Judiciary committee and thus the revocable transfer on death deed  never came into fruition.

Now a similar bill has been introduced as AB-139 which is modeled after AB-699. 

According to the Legislative Counsel's Digest:

"This bill would, until January 1, 2021, create the revocable transfer on death deed (revocable TOD deed), as defined, which would transfer real property on the death of its owner without a probate proceeding. The bill would require that a person have testamentary capacity to make or revoke the deed and would require that the deed be in a statutory form provided for this purpose. The revocable TOD deed must be signed, dated, acknowledged, and recorded, as specified, to be effective. The bill would provide, among other things, that the deed, during the owner’s life, does not affect his or her ownership rights and, specifically, is part of the owner’s estate for the purpose of Medi-Cal eligibility and reimbursement. The bill would void a revocable TOD deed if, at the time of the owner’s death, the property is titled in joint tenancy or as community property with right of survivorship. The bill would establish priorities for creditor claims against the owner and the beneficiary of the deed in connection with the property transferred and limits on the liability of the beneficiary. The bill would establish a process for contesting the transfer of real property by a revocable TOD deed. The bill would also make conforming and technical changes. The bill would require the California Law Revision Commission to study and make recommendations regarding the revocable TOD deed to the Legislature by January 1, 2020."

Currently, the common methods in which a person can transfer real property on their death include (1) a trust, (2) a will, (3) intestate succession and (4) joint tenancy. This proposed bill would provide a 5th method in which to transfer property on death.

To be clear, this is a proposed bill. It is not yet California law. Any attempt to transfer property this way is a nullity as of this writing.

The bill can be tracked here:
http://leginfo.legislature.ca.gov/faces/billSearchClient.xhtml

For the time being, a trust is generally the recommended method of transfer for California real property upon one's death. The reason being is that a trust avoids probate, a costly and lengthy court proceeding.

Following a Court Order

A sure-fire way to get into a legal predicament is to disobey a court order. Failure to abide by a court order is grounds for dismissal of an appeal. The term for this is the disentitlement doctrine. This legal remedy was recently applied in an unpublished opinion involving a misbehaving party from San Bernardino County Superior Court. Blumberg v. Minthorne, Case # PRODS1000744.

Following a bench trial pertaining to a probate matter, a judge ordered the petitioner to file an accounting by a certain date and quit-claim a property to her step-grandson. She failed to do either and in the meantime, filed an appeal. Her appeal was then dismissed because of her inability to comply with both aspects of  the court order. In light of the opinion, it is not hard to see how she failed to comply.

In regards to quit-claiming the property to her step-grandson, the opinion states:

"The second issue is the conveyance of the property. Gloria's conduct with respect to this issue is, to put it bluntly, despicable. She was ordered to quitclaim the property to Adam. She failed to do so. The court set an OSC. On the same day she filed an opposition to the OSC, she recorded a quitclaim to her daughter at 4:10 in the afternoon. The opposition does not mention this, instead suggesting a number of options in lieu of quitclaiming the property to Adam, including staying the transfer, appointing a neutral trustee, or staying transfer upon a reasonable bond. She was utterly dishonest with the court."

In a nutshell, the petitioner was supposed to transfer the property to her step-grandson. Instead she transfers the property to her daughter. Hmmmm.

For reference, "OSC" stands for "order to show cause." This hearing is typically scheduled when something has gone awry in a case and the court needs a status update. If a party has not conducted themselves appropriately, sanctions can be assessed (monetary penalties).

Naturally, the appellate court did not look kindly upon the petitioner's appeal:

"Gloria's conduct since the judgment has frustrated the attempts of the court to legitimately effect its own orders. She has missed court dates, failed to keep her own promises, lacked candor in her communications with the court, and ignored the court's orders. She cannot therefore now seek relief from the appellate court. The disentitlement doctrine applies."

The court of appeal then, not surprisingly, dismissed her appeal.

Time of Death - Survivorship Requirement

A person is entitled to receive an inheritance only if they outlive the decedent. Dead people, no matter what you may hear otherwise, are not allowed to inherit anything.  This is known as survivorship.

A logical follow-up question then is, how long does the beneficiary have to survive (or outlive) the decedent in order to inherit from them, i.e. 1 hour, 1 day, 1 month? Usually the trust will specify a survivorship period, e.g. the beneficiary must survive the decedent for at least 30 days in order to receive their inheritance. The default California law for survivorship is at least 120 hours, albeit this applies to cases of intestate succession. Prob C § 6403. 

Naturally, it is prudent to clearly specify when the survivorship period is triggered or else litigation can arise as to the interpretation of the survivorship clause.

In Burkett v Capovilla (2003) 112 CA4th 1444, Erma unfortunately used a paralegal service to write her trust in 1998 (never a good idea). The survivorship requirement clause read "for all gifts under this instrument, the beneficiary must survive for sixty (60) days before entitlement to such gifts." 

The decedent had two children, Peter and Eleanor.  The two children were the original primary beneficiaries. However, Eleanor predeceased her mother, as she passed away in September 2001 and then Erma passed away in October 2001. 

In probate court, Eleanor's children argued that because Eleanor survived for at least 60 days after Erma created her trust in 1998, they were entitled to Eleanor's beneficial interest as her heirs. Peter objected stating that the clock began when Erma passed away, October 2001. Since Eleanor predeceased Erma, Eleanor failed to survive the required 60 days.

The trial court ruled that the survivorship period began when the Erma executed her trust, 1998. Thus, because Eleanor survived for at least 60 days after Erma wrote her trust, Eleanor's children were entitled to her share.  I am not sure how many days are between 1998 and September 2011, but I'll just assume it is more than 60.

Later the California Court of Appeal reversed, holding that the ordinary meaning of the word "survivorship" denotes living past somebody who died.  Hence, whereas Eleanor predeceased Erma, Eleanor did not survive Erma for the required 60 days. The result was that Peter became the sole heir of Erma's estate.

Naming a Beneficiary

It is seldom a good idea for an attorney to be the beneficiary of a testamentary instrument written by a current or former client. This includes either a trust or will. The crux of such a scenario is the perception that the attorney unduly influenced the client into leaving them an inheritance. In a typical attorney-client relationship, the client will regularly place much trust and confidence in their attorney. For example, the client will disclose very private and sensitive information to them knowing that what they say to the attorney is privileged. The client is thus in a vulnerable position that can be exploited.  

Recently a California attorney, Carl Dimeff, was ordered by a San Diego County Superior Court judge to pay the trust estate of Siv Ljungwe $4.3M. Yes $4.3M. This ruling stemmed from the fact that Ms. Ljungwe had named Mr. Dimeff as the sole beneficiary of her trust and had, in the judge's opinion, procured it through undue influence.

In 2004, Ms. Ljungwe executed a trust which named four charities as co-equal beneficiaries of her estate, (1) SDSU Research Foundation, (2) UNICEF, (3) NPR and (4) Doctors without Borders. Thereafter, family turmoil ensued and Ms. Ljungwe retained Mr. Dimeff to assist with obtaining restraining orders against her husband. Ms. Ljungwe's health also suffered during this time, principally from the death of her adult son in 2004. This caused her to be hospitalized for paranoia and delusions.

Over the next couple of years, Ms. Ljungwe wrote Mr. Dimeff hundreds of personal notes. According to the court opinion, the notes were bizarre and contained sexual innuendo. Eventually Ms. Ljungwe informed Mr. Dimeff that she wanted him to be the sole beneficiary of her trust. Due to a California law that prohibits an attorney from drafting a trust in which he or she is a beneficiary, another attorney, Kirk Miller, wrote the trust.

Following Ms. Ljungwe's death in 2010, the four charities challenged the validity of the 2008 trust in San Diego Superior Court. Each argued that the 2008 trust was basically the product of undue influence and therefore the operative trust should be the 2004 trust (which named them as the beneficiaries). Judge William Nevitt Jr. agreed and ordered that the 2008 trust be invalidated in October 2014. Later in December 2014, Judge Nevitt Jr. assessed damages of $4.3M for Mr. Dimeff to pay Ms. Ljungwe's estate.       

Mr. Dimeff has indicated that he will appeal this decision. Given the gravity of the situation, I know I sure would.

Trust Fund Loophole - Stepped-up Basis

During President Obama's recent state of the union address, he proposed, amongst other tax recommendations, to "close the trust fund loophole." The trust fund loophole he was alluding to is the "stepped-up basis" assets receive when a person inherits them.

The term "trust fund loophole" is a slight misnomer because all inherited assets receive a stepped-up basis. If a person dies with neither a will nor a trust, their heirs nonetheless receive a stepped-up basis for the assets they inherit from the decedent. There is no requirement that assets be held in trust in order to receive a stepped-up basis. Many past clients have been beneficiaries of an estate where the decedent did not have a will or trust. Presumably "trust fund loophole" was used for messaging reasons because tax terminology is regularly obscure and dull. 

The stepped-up basis, as presently constituted, works as follows. (this example is a hypothetical). In 1980, John Smith purchased a home in the Almond Grove district of Los Gatos, CA for $100,000. In 2010, Mr. Smith wrote a trust and funded the trust with his property by executing and recording a grant deed with Santa Clara County. In 2015, Mr. Smith passed away in a tragic hot air-balloon accident. The successor trustee then had the property appraised for $1M. If the property is sold by the successor trustee for $1.1M, the capital gains tax is generally on the $100,000 gain. The reason is that when Mr. Smith passed away, the property received a new basis that is pegged to the value of the property on Mr. Smith's death, i.e. $1M. See IRC § 1014. For example, if Mr. Smith passed away on January 15, 2015, the reference point for the appraisal of the property would also be January 15, 2015.

President Obama's proposal is to eliminate the stepped-up basis. Under this scenario, the sale of Mr. Smith's property would result  in a capital gains tax on the $1M gain. The reason is that there is no stepped-up basis, so the selling basis is the same as Mr. Smith's acquisition basis, $100,000. Hence, all the appreciation in Mr. Smith's home which previously escaped taxation would now be taxed. 

This blog offers no opinion on the strengths and weaknesses of this proposal. This post is strictly for informational reasons. Please do not contact me with your political viewpoint(s) on the matter. I am not affiliated with Congress. Thank you.

Litigation involving a Decedent

When a person passes away, the law does not automatically grant them immunity from civil litigation. A cause of action survives the decedent's death. 

For example, assume the decedent prematurely broke a fixed-term lease because he wanted to follow the summer tour of the Grateful Dead (assume they are still touring). The landlord vowed to sue the decedent once he returned from his vacation. When the landlord returned from vacation he discovered that his former tenant had passed away in a tragic hot air balloon accident (the Grateful Dead were not playing that day). Normally the landlord would have 4 years to commence suit against his former tenant. CCP § 337.2. However, since his tenant passed away, the time limit changed.

CCP § 366.2(a) reads "If a person against whom an action may be brought on a liability of the person, whether arising in contract, tort, or otherwise, and whether accrued or not accrued, dies before the expiration of the applicable limitations period, and the cause of action survives, an action may be commenced within one year after the date of death, and the limitations period that would have been applicable does not apply."    

So the landlord now has 1 year to file suit rather than 4 years. If the landlord does not timely file suit, his claim is time-barred and is subject to dismissal with prejudice. That is, the landlord could not re-file his suit at a later time.    

This 1 year time limit is known as the statute of limitations. 

Many people ask if they can sue for some hypothetical reason. The answer almost always depends on what type of action they seek to file suit. One cause of action, personal injury or wrongful death, has a 2 year statute of limitation. CCP § 335.1. Another cause of action, trespass or injury to real property, has a 3 year statute of limitation. CCP § 338. What makes CCP § 366.2 unique is that it overrides the statute of limitations of the other statute. As mentioned above, the landlord would have 1 year to sue instead of 4 years because the tenant passed away before he filed suit. In other words, CCP § 366.2 trumps CCP § 337.2.

For reference "CCP" stands for the California Code of Civil Procedure. It can be found here 

http://leginfo.legislature.ca.gov/faces/codes.xhtml