Small Estate Affidavit - Transfer of a Deed of Trust

When a person passes away and they have a modest probate estate, for example $150,000 or less in gross assets, beneficiaries may collect the estate using a small estate affidavit. The figure of $150,000 is used because that is the threshold for determining whether or not an estate must be probated or not. For instance, if the decedent passed away with a probate estate worth $170,000, then probate would be required. Conversely, if the decedent passed away with a probate estate worth $120,000, then no probate would be required. Consequently, the small estate affidavit procedure can be used to collect the decedent's estate in such case.

Of note, California until recently had a probate threshold of only $100,000. This was only recently increased to $150,000 effective January 1, 2012.

Many people have inquired over the years if the affidavit has to be filed with the probate court. The short answer is no, the affidavit does not have to be filed with the court. Frankly, absent extreme circumstances, the affidavit will not be filed with the probate court. Although for the transfer of a beneficial interest in a deed of trust, the affidavit needs to be recorded. 

Probate Code §13106.5(a) requires that "if the particular item of property transferred under this chapter is a debt or other obligation secured by a lien on real property and the instrument creating the lien has been recorded in the office of the county recorder of the county where the real property is located, the affidavit or declaration described in Section 13101 shall be recorded in the office of the county recorder of that county and, in addition to the contents required by Section 13101, shall include both of the following: (1) The recording reference of the instrument creating the lien and (2) A notary public’s certificate of acknowledgment identifying each person executing the affidavit or declaration.

The easiest way to obtain the information to complete the affidavit is to acquire a copy of the recorded deed of trust. Since a deed of trust is a recorded document, acquisition of such should not an obstacle. Websites such as datatree.com can be used to obtain these documents for a fee. I used datetree.com, formerly docedge.com, in the past to locate real property records and was please with their service  

A bizarre aspect of this law is that it asks for a notary's acknowledgement when notarizing the affidavit. Yet in California, the correct notarization for an affidavit is a jurat. Hence, when I had to draft an affidavit that transferred a beneficial interest in a deed of trust I was confused about the notarization aspect (I am also a notary). I opted to follow Probate Code §13106.5 because apparently the California legislature decided to alter the notarization requirement for this type of affidavit.

Fiduciary Duty of a California Trustee - Impartiality

A trustee of a trust, whether revocable or irrevocable, owes various fiduciary duties to all beneficiaries. Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208. A fiduciary duty can basically be described as the trustee putting the best interests of the beneficiary ahead of themselves. In other words, the trustee is obligated to act in the best interests of the beneficiary as opposed to the best interests of themselves.  For instance, if the trustee is required to sell real estate, it would be in the best interest of the beneficiaries if competitive bidding is involved in order to sell it. Conversely, it would not be in the best interests of the beneficiaries if the trustee merely told a handful of friends about the real estate to see if any of them are interested or purchased the property themselves below market price (known as self-dealing).

For reference, numerous professions entail fiduciary obligations, e.g. lawyers, doctors, clergy members, etc. So I personally owe various fiduciary duties to clients. 

If the trustee breaches a fiduciary duty, this is considered a breach of trust and the trustee can be removed, amongst other penalties. Probate Code § 16400.

One fiduciary duty is to impartially deal with beneficiaries. Probate Code § 16003. The issue of impartiality commonly arises when children are the beneficiaries of their parents' trust. For example, parents almost universally name their children as beneficiaries of their trust. They also overwhelmingly select a child or children, if they are of suitable age, as the successor trustee, i.e. the person who assume trusteeship when both parents have passed away. 

A common result is where you have multiple beneficiaries but only 1 trustee. This 1 trustee must not favor one sibling over the other as they have a fiduciary duty of impartiality. Thus, California law obligates them to treat everybody the same essentially.

The obvious problem is that occasionally there can be family discord. One sibling may harbor resentment, jealously or anger at another sibling for any number of reasons. These can range from the reasonable, e.g. poor lifestyle choices, profligacy or shoddy work ethic, to the unreasonable, e.g. the decision to leave home for college, affinity for a particular sports team or manner of dress (see Hammer pants). These negatives feelings can easily spill over when administering the trust. Hence, when given the opportunity to administer the trust, an embittered sibling trustee has an accessible avenue to exact revenge on their despised sibling. While California law does not permit this, i.e. impartiality must be observed when administering a trust, many siblings choose to forgo judicial redress against the malevolent trustee to maintain a semblance of familial harmony. Also, the cost of litigation is typically prohibitive.    

Still, any beneficiary should be aware of the fact that the trustee cannot favor one beneficiary over another. Or in this case, one sibling over the other. California law, fortunately, does not take into account petty differences or squabbles between siblings that jeopardize the administration of a trust. 

What is a life estate?

A life estate is a conveyance which grants the life estate holder, the life tenant, the ability to live on the property for the duration of their life. This type of conveyance offers control to the donor because they can restrict the life tenant's use of the property. For example, the donor can require that (1) the life tenant remain a continuous occupant of the property for their life and/or (2) require the life tenant to pay all taxes and maintenance associated with ownership.  

The following illustration demonstrates how a typical life estate arrangement works.

In the 1990s, John Doe, a widower, owned 650 Rosewood Court Los Altos, CA 94024. John decided that he wanted his only son, Jack Doe, to own the property albeit in a life estate form because Jack was largely irresponsible. Jack had a penchant for unsuccessfully gambling on English Premier League soccer matches. He insisted that he only picked "winners" but alas lady luck was not on his side. Naturally John worried that Jack might sell 650 Rosewood Court to fund his gambling habit. Since the property was quite lucrative, a large infusion of cash from the sale could cause Jack to gamble an outlandish amount of money at casino sportsbook in Las Vegas, NV. 

John executed a deed in 1992 which granted a life estate to Jack and the remainder to his cousin Carl Walcott. The life estate required that Jack maintain the property's upkeep and continuously occupy the home as his primary residence. If Jack failed to perform either requirement, title would be transferred to Carl immediately. Since the life estate conveyance from John to Jack involved a parent to child transfer, such was not subject to real property tax re-assessment. This was especially important to Jack because the property taxes were quite modest given that John purchased the house with his late wife Jane in 1944 for a small sum. Hence Jack was able to enjoy a low property tax base and the corresponding property taxes were quite manageable. 

Sadly Jack succumbed to his insatiable gambling habit and decided to move to Las Vegas permanently. Spurred by fantasies of instant gratification and enormous wealth, Jack's temptations over-whelmed him. This caused the termination of his life estate because John required that Jack continuously occupy 650 Rosewood Court.  Therefore when Jack signed a lease to rent an apartment in Las Vegas, his life estate for 650 Rosewood Court was terminated. A termination of life estate was then filed with the Santa Clara County Recorder's Office . This transfer did result in a real property tax re-assessment because there were no exclusions that apply to the transfer of real estate between John and Carl. 

Arbitration Clause in a Trust - McArthur v. McArthur

Arbitration is a common non-judicial method of resolving legal disputes. An arbitrator, who is typically a retired judge, will weigh the evidence from both sides and issue a ruling. Arbitration clauses are typically inserted in employments contracts and consumer contracts. 

Recently settlors, the people who author trusts, have begun to insert arbitration clauses in their trust agreements. The intent behind this, presumably, is to reduce the cost of litigation and to keep the matter private. As for the cost, arbitration is typically cheaper than judicial action for a number of factors, notably lower discovery thresholds, e.g. interrogatories, depositions, etc. Thus in arbitration, litigants cannot poke and prod for the same volume of information as in a judicial matter. As for the privacy aspect, arbitration is not done in a public venue such as a superior court courtroom. Rather arbitration is done behind close-doors so to speak. Still, an arbitrator's ruling is, generally speaking, subject to judicial review. 

One such person who pursued the arbitration route was Frances McArthur. In her original 2001 trust, Ms. McArthur named her three daughters as co-equal beneficiaries, Pamela, Kristi and Deborah. Then in 2011, she amended her trust and allocated a larger share of the trust to one daughter, Kristi, and included a "Christian Dispute Resolution" clause to resolve disputes:

"The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe that the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the Trustor and Co-Trustees agree that any claim or dispute arising from or related to the Trust as amended shall be settled by biblically based mediation and, if necessary, legally binding arbitration before the Institute for Christian Conciliation™, a division of Peacemaker® Ministries, in accordance with its Rules of Procedure for Christian Conciliation (the `Rules' found at www.peacemaker.net). To the extent authorized by the Rules, the provisions of California Code of Civil Procedure section 1283.05 (right to discovery in arbitration) are incorporated herein and made a part hereof. Judgment upon an arbitration decision may be entered in any court otherwise having jurisdiction. The Trustor and Co-Trustees understand that these methods shall be the sole remedy for any controversy or claim arising out of the Trust Agreement and expressly waive their right to file a lawsuit in any civil court against one another for such disputes except to enforce an arbitration decision. This Section shall also be binding on all successor trustees and benefices for the Trust as amended."

Following Ms. McArthur's death in 2011, Pamela sued Kristi for financial elder abuse and sought, inter alia, to have the 2011 trust invalidated. Kristi moved to compel arbitration, citing the clause in the 2011 trust. Pamela objected to this and the trial court agreed, finding that because Pamela was not a signatory to the agreement, she could not be compelled to arbitrate her claims against her sister. Kristi then appealed her decision to the 1st District Court of Appeal.

The appellate court agreed with the trial court's decision, finding that because Pamela had neither expressly or implicitly sought the benefits of the 2011 trust, she was not compelled to arbitrate.

Cost of Probate Statutory Fee - How Much, When Paid and From Whom?

The cost of probate is one of the main reasons why many individuals opt to write a revocable trust. Below is a table which details the fee that the attorney can collect for estates valued at up to $1M. As can be inferred, the cost of probate is directly proportional to the size of the estate. The larger the estate, the higher the fee and vice-versa.

The table below is for ordinary compensation. If the attorney performs services beyond that which is expected of them, they may petition for extraordinary compensation. This fee is not set by statute. Rather it  requires a declaration by the attorney, and his or her staff, which documents their hourly rate and the amount of time they expended on the matter. A common reason to petition for extraordinary compensation is if real property was sold during probate.  

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 

While probate fees can be seen as quite high, there are two notable aspects that should be mentioned when discussing probate fees.

1. Timing of payment of probate fees

Generally, the attorney collects the above fee when probate has concluded, i.e. following the grant of an order for final distribution. Hence, the fee is not collected when the proposed personal representative initially retains the attorney. In particular, it is violation of a California Rule of Court for the attorney to collect the statutory fee absent a court order.

Since probate usually takes months to complete, 9 months is a reasonable estimate, there is no immediacy to this probate fee. The attorney must wait patiently for probate to conclude. This in stark contrast to the normal payment of an attorney fees. Almost universally an attorney will ask for some payment, i.e. a retainer, before engaging a client's matter. Yet in probate, the attorney has to wait 9 months or so to be compensated. From personal experience, I am still handling probate matters that I started last summer. Whereas the probates have not concluded, I am obligated to wait until an order for final distribution is granted.

2. Source of probate fees  

Probate fees are an estate expense instead of a beneficiary's personal expense. For example, if the estate's sole asset, a bank account, was appraised at $400,000, the $11,000 statutory fee will be subtracted from that $400,000 figure. The fee will not be collected from the beneficiaries.  

Revoking a Will

When a person revokes a will, it is prudent to dispose of the old will. Out with the old and in with the new as the old adage goes. The obvious reason being is that problems can arise if the testator passes away and the 2 ostensibly valid wills are floating around. One person might find the earlier will and then petition for probate under the impression that the will is valid. Another person might find the later will and think that their will is valid as well. Such is the exact scenario of a recent court case originating from Contra Costa County Superior Court, Case # MSP0900615. Suffice to say, I was surprised to read such a peculiar situation.

On January 28, 1997, the late Daniel Bridges executed a will, written by his attorney John Busby, which named Kim Brumleve as the executor and a beneficiary. Following the will's execution, attorney Busby placed such in his will drawer. On September 28, 1997, Mr. Bridges revoked his prior will and wrote a new will that named Renee Hansen as the executor and a beneficiary. Yet attorney Busby mistakenly filed this second will in another folder. Consequently, the January Will was never properly disposed of because the September Will was not placed in the same file.

On April 10 2009, Mr. Bridges passed away. Attorney Busby then retrieved the January Will from his files so that probate could commence. Since the will was seemingly valid, letters testamentary were issued and Ms. Brumleve was appointed the executor on July 9, 2009 by the probate court in Contra Costa County. However in May 2011, Ms. Hansen located the September Will that named her as the executor and a beneficiary. Consequently, she too petitioned for probate and letters testamentary. Such was the beginning a very lengthy litigation battle.  If protracted trust litigation piques your interest, the unpublished opinion can be found on Google Scholar and the California Court of Appeal's website, Case # A137168, Hansen v. Brumleve.

What I found fascinating about the case was that an apparently innocuous oversight, i.e. the misplacing of the will, caused this entire case. A mole hill had mushroomed into a mountain as the opinion detailed the numerous hearings that had been held over the years. However, I should mention that Ms. Brumleve did not appeal the validity of the second will. Rather she appealed the trial court's decision to surcharge her for misuse, conversion and waste of estate assets. Still, the genesis of the entire case was the result of a misplaced will.