October 26, 2017

Joint Bank Account

A typical financial arrangement between an elderly parent and a child is for parent and child to be joint bank account holders. This allows the child to pay various bills for their parent. When the parent passes away, an inevitable legal issue arises. That is, (1) did the parent create the joint account with the intent that it pass to the child upon their death or (2) did the parent simply create the joint account with the intent that it be accessible as a matter of convenience for the child to pay the parent's expenses. If (1), the child receives the bank account as the surviving joint account holder. If (2), the parent's estate receives the bank account and it is distributed via their will or intestate succession.

The applicable law says "Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent." Probate Code § 5302(a).

For reference, clear and convincing is a higher evidentiary standard than preponderance of the evidence but less than proof beyond a reasonable double. Most people have heard of proof beyond a reasonable double because that is the standard used in criminal cases. Preponderance of the evidence is the normal standard in civil cases.

The following is an example of how this scenario can hypothetically play out. Widowed mother and daughter venture to the local credit union to open a joint bank account. Mother's mobility is limited and she would have peace of mind if daughter could pay her household bills. Son lives in another state so he is unable to be of assistance. Prior to her passing, mother writes a will that devises her entire estate equally to her daughter and son. Mother then passes away. 

In order for the bank account to be an estate asset, son would need to provide clear and convincing evidence that mother intended for the joint bank account to pass via her will instead of to daughter as the surviving joint account holder. 

It is common to find cases where the testamentary document and the joint account arrangement conflict. The reason being is that estate planning is not always the sole impetus for titling one's financial accounts.
This issue was recently litigated in a recent California Court of Appeal case, In Re Estate of O'Connor (2017) ___ C4th___.

September 29, 2017

Breach of Fiduciary Duty

A typical arrangement involving a marital trust is for a child to serve as the successor trustee and be a beneficiary. That is, once both parents have passed away, the child steps into the role of trustee and their beneficial interest vests. I'd say the vast majority of marital trusts I've written follow this pattern.

The child, as the successor trustee, is obligated to properly discharge their fiduciary duties or else they can incur liability.

For example, assume the parents selected just Son as the successor trustee, but named Son and Daughter as co-equal beneficiaries. Hence Son would receive 50% and Daughter would receive 50% of the trust estate.

The trust instructs the trustee to sell the marital home within 1 year of the parents passing and to make the property productive prior to the sale. The parents both pass away in a tragic hot air balloon accident on New Year's Eve. Thereafter Son becomes the acting trustee of the trust.

The marital home on January 1 was in a habitable condition and thus could be rented immediately. Son however was addicted to social media, hacky sack and recreational marijuana use so he was unable to rent the property over the next year. The property could have rented for $5,000 a month but Son's misconduct caused any rental income to go up in smoke. 

Additionally, Son did nothing to prepare to sell the house. Although he did plant many cannabis plants on the property. Son also used trust funds to pay for personal expenses such as jazzercise classes, hair gel for his mullet and sleeveless undershirts.

Come December of that year, Daughter had become exasperated that Son had done nothing to make the house productive, wasted trust funds on personal expenses and not prepared the house for sale. 

Daughter filed a petition in probate court to surcharge Son for his breach of fiduciary duty and requested that the surcharge be satisfied from Son's beneficial interest in the trust, i.e. his 50%. Thus, if granted, Son's interest in the trust would be reduced by the amount of damages he had caused the trust. For instance, if Son caused the $200,000 in damages, his interest in the trust would be reduced $200,000 and awarded to Daughter, the aggrieved beneficiary. Such a remedy is available for breach of fiduciary duty where the trustee is also a beneficiary. See Chatard v Oveross (2009) 179 CA4th 1098.

August 24, 2017

Probate Fees

An attorney's ordinary compensation, or statutory fee, for representing a personal representative in a probate case is determined by the estate's value. Estate of Hilton (1996) 44 Cal.App.4th 890, 894-915. For example, if the estate is valued at $400,000, the attorney's ordinary compensation is $11,000. The multiplier is a percentage of the estate, i.e. 4% of the first $100,000, 3% of the next $100,000 and 2% of the next $800,000.

Ordinary compensation is payment for typical services rendered in a probate, e.g. appointment of the personal representative, preparation of the inventory and appraisal, payment of creditors, closing of the estate, etc. Extraordinary compensation can be awarded for certain services, e.g. selling estate property (quite common in probates involving real estate). Extraordinary compensation is based off the attorney's hourly rate.

If "there are two or more attorneys for the personal representative, the attorney’s compensation shall be apportioned among the attorneys by the court according to the services actually rendered by each attorney or as agreed to by the attorneys." Probate Code § 10814.

In a recent unpublished appellate decision, an attorney was not permitted to collect the full statutory fee because other attorneys had worked on the case, but did not request their portion of the statutory fee when probate concluded. 

In this case, Attorney A had assisted with the appointment of the initial personal representative. Attorney A later sought leave to withdraw. Attorney B became counsel of record and "prepared and obtained the estate's Employer Identification Number, prepared and filed forms with the Internal Revenue Service, researched title to the estate's real property, and prepared and filed a "Final" inventory and appraisal." Attorney B later filed a motion to be relieved as counsel. Attorney C then became counsel of record until probate was concluded.

Due to an unconventional method for closing the estate, Attorney A and Attorney C did not request a portion of the statutory fee. Instead, Attorney B claimed that he was entitled to the full fee. The trial court disagreed and awarded Attorney B 50% of the statutory fee. This was upheld on appeal. 

July 27, 2017

Probate Attorney Fees - Extraordinary Compensation

When an attorney handles a probate, they may be entitled to two methods of payment from the estate, ordinary compensation and extraordinary compensation. This is also known as ordinary fees and extraordinary fees.

Ordinary compensation is rather straight-forward as it utilizes a set formula for determining the fee. The formula is based off the estate's value. Below reflects ordinary compensation in intervals of $100,000 up to $1M.

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 

Extraordinary compensation is awarded to the attorney for services rendered that fall outside the scope of a regular probate. For example, extraordinary fees are merited for “legal services in connection with the sale of property held in the estate.” See CRC 7.703(c)(1). The most common example of this is the sale of the decedent's house. 

At probate's conclusion, i.e. the petition for final distribution, the attorney will attach a declaration specifying what extraordinary services have been rendered and the amount of their requested compensation. Although the probate court ultimately decides if the requested fee is "just and reasonable" so as to permit payment of it. Estate of Trynin (1989) 49 Cal.3d 868, 873. In particular, a probate court may reduce the amount the attorney ultimately receives as extraordinary compensation. A recent unpublished appellate opinion illustrated this point.

The executors' former attorney sought $273,010 in extraordinary fees. A beneficiary then objected to this amount. Following three hearings, the probate court reduced the awarding of extraordinary fees to $109,697.      

On appeal, the decision of the trial court to award $109,697 in extraordinary fees was upheld. 

Quint v. King, San Diego County Superior Court Case # P190541.

July 14, 2017

Power of Attorney - Agent's Authority

When a principal appoints an agent, the agent's authority is limited by the scope of the authorizing document. 

For example, if the principal only permits the agent to sell the principal's house while they are on vacation, this would not entail allowing the agent to mortgage the property, lease the property or host a massive party at the house by a local fraternity such as Lambda Lambda Lambda. 

Conversely, if the principal gave the agent the authority to encumber the property, in addition to selling it, the agent would be permitted to mortgage the property. Similarly, if the principal gave the agent the authority to retain any outside professional necessary to sell the property, the agent could retain a plumber, roofer, carpenter, etc.

In a recent appellate decision, the central issue in the case was whether "whether an attorney-in-fact who admitted her principal to a residential care facility for the elderly made a "health care" decision. If she did, as the trial court found, she acted outside the scope of her authority under the power of attorney, and the admission agreement she signed, and its arbitration clause this appeal seeks to enforce, are void."

Hutcheson v. Eskaton Fountainwood Lodge (2017) __ C4th__

In this case, the agent admitted the principal to a residential care facility because of health issues. "A medical appraisal performed the day of her admission disclosed Lovenstein was suffering from dementia and seizures. She was confused and disoriented. She engaged in inappropriate, aggressive, and wandering behaviors. She was not able to follow instructions consistently, and she was depressed. She required "complete" supervision."

The principal's doctor recommended that the agent return the principal to her home because the residential care facility allegedly over-medicated the principal. Unfortunately, matters went awry when the agent went to retrieve the principal.

"On March 22, 2012, Charles went to FountainWood to pack Lovenstein's belongings and move Lovenstein into her home. However, Lovenstein choked on her lunch at FountainWood that day and was transferred to a hospital. Doctors allegedly diagnosed her with aspiration pneumonia and severe dysphagia (difficulty in swallowing). She remained hospitalized until March 28, 2012, and died on April 11, 2012."

Ultimately the court found that the agent had made a health care decision by admitting the decedent to a residential care facility. Thus, the agent had acted outside her authority under the power of attorney agreement, as it did not authorize her to make a "health care decision." Consequently, the arbitration clause was not binding on the plaintiffs because the principal, through her agent, had not validly executed the binding arbitration agreement. 

June 29, 2017

Estate Planning and Divorce

Unfortunately the words "till death do us part" do not hold true with every marriage. Stating the obvious, some marriages end with a dissolution. When it comes to inheritance rights, married, legally separated and divorced have very important legal distinctions.  The below illustrations highlight these nuances.

Assume Hal and Wendy were married in 2000. They purchase a home in San Jose, CA in 2001 and take title as husband and wife as community property. They then have a son named Sam and a daughter named Dana. Wendy dies in 2005 without a will or trust. By virtue of being married to Wendy and the house being community property, Hal inherits Wendy's 50% share of the house. Probate Code § 6401(a). Sam and Dana receive no share of the house.

Now assume that Hal and Wendy legally separate in 2003 but do not divorce. Wendy purchases a Los Gatos condo in 2004 by herself. Again Wendy dies in 2005 without a will or trust. The San Jose home would still pass to Hal because it is community property. However the Los Gatos condo would be split evenly between Hal, Sam and Dana because the asset would be considered Wendy's separate property. Probate Code § 6401(c). The reason being is that an asset acquired after legal separation is considered the separate property of the acquiring spouse. Nonetheless, Hal still has an interest in Wendy's separate property because they were married, though legally separated, when Wendy passed away.

Now assume that Hal and Wendy divorce in 2003 because Wendy  lacked the plow skills that Hal wanted in his bride. The divorce decree awards 50% of the house to Hal and 50% of the house to Wendy. Again Wendy dies in 2005 without a will or trust. In this case Sam and Dana would solely inherit the Los Gatos condo. Since Wendy was not married when she passed away, the Los Gatos condo is Wendy's separate property and passes to her children equally. Probate Code § 6402(a). 
Now finally assume that Wendy files for divorce on June 30, 2005. Wendy dies a day later on July 1, 2005. Since there was no date of legal separation, let alone a judgment of dissolution, Hal would inherit all of Wendy's community property and 1/3 of her separate property. The other 2/3 would be split evenly between Sam and Dana.