May 27, 2022

Premarital Agreement and Probate

A premarital agreement is typically written in case of a divorce. For example, spouses can agree that property acquired during the marriage is to be the separate property of the acquiring spouse. This would be in contrast to the presumption that property acquired during marriage is community property. If a divorce were to occur, there would be no division of community property amongst the spouses because the premarital agreement (also known as a prenuptial agreement) would prevent the creation of community property. Of note, separate property is entirely awarded to the acquiring spouse upon divorce. As can be inferred, the intent of a premarital agreement is to prevent, or lessen, disputes regarding the division of property upon divorce.

A premarital agreement can also address property division in the case of death. For instance, the parties can waive any interest they have in the other's estate. This is in contrast to the general rule that a spouse has an interest in a deceased spouse's estate.

A recent published appellate opinion addressed the issue of one spouse attempting to rescind a premarital agreement based upon mistake. The spouse sought appointment as the personal representative of the deceased spouse's estate.

"In April 2015, shortly before their wedding date, Brandy learned that Scott wanted a premarital agreement. Brandy engaged the services of attorney Tracy Rain and met with her on April 24. On May 1, Brandy and Scott signed the Agreement at the office of Scott's attorney, Laurence Ross. Mr. Ross was present at the signing, along with a notary, but Ms. Rain was not present."

"In addition, in paragraph 5.01, the Agreement expressly waives on behalf of each party, "all right, claim, or interest, ... that he or she may acquire in the separate property of the other by reason of the marriage."

Following Scott' passing, "Brandy filed a probate petition seeking to be appointed the personal representative of her late husband's estate. The trial court denied her petition based on a premarital agreement (Agreement) that waived Brandy's interests in her husband's separate property, and the court appointed his parents (respondents) co-administrators of the estate."

On appeal, the appellate court affirmed the decision of the trial court.

"Because Brandy failed to read the Agreement and to meet with her attorney to discuss it before signing it, she bore the risk of her mistake and is not entitled to rescission. (See Donovan v. RRL Corp. (2001) 26 Cal.4th 261, 283 (Donovan); Casey v. Proctor (1963) 59 Cal.2d 97 (Casey); Civ. Code, § 1577.)[1] In addition, any error by the trial court in failing to make findings regarding voluntariness required by Family Code section 1615, subdivision (c), was not prejudicial."

Estate of Eskra (2022) ______ Cal.App.4th ______

April 28, 2022

Financial Elder Abuse

Occasionally I receive inquiries from concerned individuals who ask if their relative or friend has been the victim of financial elder abuse. The applicable law, Welfare & Institutions Code §15610.30, states that financial elder abuse occurs when a person or entity does any of the following:

  1. Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with the intent to defraud, or both.
  2. Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.
  3. Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Welf & I C §15610.70.

A recent unpublished appellate opinion described a case in which financial elder abuse occurred. Of note, the below excerpts from the opinion obviously do not recite the entire factual history.

"In 2015, Robert suffered from Alzheimer's dementia and experienced rapidly declining physical and mental health. In the summer of that year, he was hospitalized and, in August, recovered for several weeks in a rehabilitation facility.

In the middle of September, Miriam arrived from Texas and began living with Robert at the five-plex. The morning after her arrival at his home, she brought up the topic of Robert's estate with one of his nephews (Michael Sturm), who was then living at the five-plex. By that time, Robert had left the rehabilitation facility. Respondent Sturm, who had power of attorney over Robert's finances, was assisting Robert with his finances and care.

In the fall of 2015, Miriam made a number of significant changes to Robert's life. The day after Miriam's arrival, Sturm received a call from Bank of America that Miriam was attempting to withdraw cash from Robert's account. Over the following two days, Sturm received additional calls from the bank related to Miriam's attempts to withdraw money from Robert's account. After moving in with Robert, Miriam posted an eviction notice seeking to evict Sturm's brother (Michael Sturm). In response, Michael moved out.

Miriam also caused changes to be made to Robert's estate planning documents. In mid-September 2015, Miriam had Robert sign durable powers of attorney for his finances and health that appointed her as his agent. Robert also executed a revocable living trust and will dated September 19, 2015. The trust favored Miriam, Miriam's children, and Stephen and Michael Sturm.

On October 21, 2015, Robert signed an amended trust document that removed Sturm and his brother Michael from the trust and favored Miriam, her daughter Priscilla Olsen, Miriam's son, and Robert's other nephew. That same day, Robert purportedly executed a pour-over will naming Miriam as the executor of his estate. The will was lodged with the Santa Clara County Superior Court on October 23, 2015.

"In the spring of 2016, a trial occurred in the elder abuse case before Judge Scott, at which witnesses testified, including Miriam. In May 2016, Judge Scott ruled against Miriam and issued a permanent restraining order prohibiting Miriam from contacting Robert for three years. The court found Miriam had committed financial elder abuse against Robert. As summarized by the trial court in its statement of decision in the proceeding at issue here, "Judge Stuart Scott in connection with the elder abuse trial, found that [Miriam] engaged in a `full court press' to take control of Robert Broumas's property during his lifetime."

Broumas v. Sturm, Santa Clara County Superior Court case # 17-PR-181558

March 30, 2022

Undue Influence - Witnesses

Probably the most common legal theory to challenge a trust's validity in CA is undue influence. The other is probably lack of capacity for those keeping score at home.

“Undue influence” means excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity. Welfare & Institutions Code §15610.70(a).

Various factors are used to determine if the result was the product of influence, i.e. the vulnerability of the victim, the influencer's apparent authority, the actions or tactics used by the influencer and the equity of the result. Welfare & Institutions Code §15610.70(a)(1)-(4).

When challenging a trust or will, the contestant will gather evidence as to what happened during the time that the person wrote the trust or will. The reason being is that the contestant will need to prove that at the time of execution, the trust or will was the product of undue influence. Hence what happened 30 years prior to the trust or will's execution would likely be immaterial. Rather, the focus would be on the months or years leading up to the trust or will's execution. For example, the person was diagnosed with Alzheimer's disease 3 months before they signed their trust, or the person was admitted to a skilled nursing facility 3 months before they signed their will.

It is common for the contestant, also known as the petitioner, to testify that the trust or will was the product of undue influence. For example, the petitioner might state that the person required extensive assistance with life's daily functions, suffered from a physical or mental impairment, etc. These actions contributed to the person executing a trust or will that was the product of undue influence.  

Conversely, the respondent, often a spouse or child, will counter petitioner's testimony by downplaying the person's physical or mental impairment and testify that the person loved respondent more than petitioner because respondent took care of the person.

Furthermore, it is common for the petitioner and respondent to each hire their own expert, typically a medical doctor, who will opine as to the person's level of capacity and their corresponding vulnerability. Typically, the medical expert, if hired by the petitioner, will accentuate the person's fragility, or if hired by the respondent, minimize the person's fragility.

A recent unpublished appellate decision addressed the sufficiency of evidence in a undue influence case. 

"In 2009, Richard Barnes (decedent Richard) executed a will (2009 will), leaving property to his wife, objector and appellant Celestine Barnes (objector Celestine), and to his daughter from a previous marriage, petitioner and respondent Joann Barnes Williams (petitioner Joann). In 2011, decedent Richard and objector Celestine created a pour-over will and revocable living trust (collectively, 2011 trust), which had the effect of disinheriting petitioner Joann. They restated the trust in 2014 (2014 Trust), without any significant changes to petitioner Joann or objector Celestine's interests. Following decedent Richard's death in 2016, petitioner Joann filed a petition pursuant to Probate Code section 17200 et seq., seeking to determine the validity of the trusts and alleging that decedent Richard suffered from progressive mental decline as the result of dementia and either lacked capacity to execute the trusts or did so as the result of undue influence." 

The trial court noted who were the key witnesses in the case:

"Here, in its statement of decision, the trial court expressly stated that it considered the testimony of all 14 witnesses who testified at trial and considered all of the exhibits admitted into evidence. The trial court specifically noted portions of the testimony it found compelling in reaching its findings on undue influence and breach of fiduciary duty and further identified the four witnesses (petitioner Joann, objector Celestine, and their respective medical experts) that it deemed the "principal witnesses."

Estate of Barnes, Riverside County Superior Court case # RIP1600410.

February 18, 2022

Interpleader in an Estate Case

A typical estate dispute will involve ownership of assets, i.e. which party is the true owner of the asset in question. For example, a spouse may claim that a bank account owned by their late spouse is the property of the surviving spouse. Conversely, the late spouse's child may claim that the bank account is actually owned by the child through a testamentary instrument. The result is that the financial institution will be proverbially trapped in the middle as each side will claim to be the true owner of the property. 

In response, a financial institution may, but is not required to, file an interpleader action to deposit the funds with the court and let the parties litigate the matter. 

A recent unpublished appellate decision involved this issue:

"On January 23, 2020, BofA answered Royals's petition and simultaneously filed a motion for interpleader and discharge under section 386.5. The interpleader motion disclosed that on receiving the TPO, BofA had frozen all of Lu's accounts and that, while the 9029 Account contained no funds, the aggregate balance of the other frozen accounts was $250,558.14. The interpleader motion asserted that BofA was simply a stakeholder, having no interest in the frozen funds, and that BofA wished to deposit the frozen funds with the court clerk. BofA took the position that it was subject to conflicting demands from the Adams Trust, on the one hand, and from Lu, on the other, to funds held in accounts bearing Lu's name.

Alleging that it could not determine which of these two competing claims was valid without exposing itself to potential liability to the disappointed claimant, BofA asked that the court grant its interpleader motion, to allow BofA to deposit the disputed funds with the clerk, and then to discharge BofA from further liability in the suit. In support of the motion, BofA submitted a declaration from an assistant vice president stating that it was "prepared to tender immediately the sum of $250,558.14, i.e. the funds currently frozen in the At-issue Accounts, with the Clerk of Court." BofA also sought an award of its costs and attorney fees under section 386.6, subdivision (a)." 

"On March 12, 2020, following a hearing, the court granted BofA's interpleader motion and entered an order directing BofA to deposit the frozen $250,558.14 with the court clerk and be discharged from the action. The order also awarded BofA $3,930 in fees and costs "which amount is to be withheld from the $250,558.14."

Royals et al. v. Lu, Contra Costa County Superior Court, case # MSP1901563

January 6, 2022

Appointing an Administrator

A trust controls trust assets and a will controls probate assets. Consequently, it is very common to write a trust and will simultaneously to ensure that the trust and will work harmoniously post-death. Obviously it would be problematic if the two testamentary instruments conflicted with each other. Still, a trust and will can only work in harmony provided both are duly executed.    

A recent unpublished appellate decision addressed the atypical case of where a decedent writes a trust but never executes a will to accompany it.

In 1990, decedent and his former spouse executed a marital trust and funded it with various properties. In 2017, the parties divorced and a marital settlement agreement was executed. When decedent passed away, "he was neither married nor in a registered domestic partnership, and did not have any children."

Decedent's mother petitioned to be appointed her son's administrator. The trust beneficiaries, decedent's former step-children, objected to this appointment. The trial court found that appointment of decedent's mother as the administrator was merited. 

The Court of Appeal ultimately upheld the appointment because decedent left behind a probate estate and passed away intestate. 

The appellants made an interesting argument regarding what qualifies as a will:

"Appellants have not identified any operable will at the time of decedent's death that would transfer these assets into a trust and out of probate. The record indicates decedent's estate planning attorney prepared a pour-over will in connection with the Trust, but no evidence exists that the will was ever executed. And appellants confirmed no will was located with decedent's belongings. Instead, appellants argue the Bill of Sale executed with the Trust operated as a pour-over will. However, they cite no authority to support such an interpretation. Nor do they argue the Bill of Sale satisfies the statutory requirements for a will. (See, e.g., Prob. Code, § 6110.) Generally, courts reject attempts to transfer property by methods other than wills. For example, in Kelly v. Bank of America National Trust & Savings Assn. (1952) 112 Cal.App.2d 388, 396, the court held a deed designed to serve as a testamentary disposition of property would be "entirely inoperative." It explained, "This may only be done by a will executed as required by law. A deed, the purpose of which is intended to be testamentary, cannot be given effect." (Ibid.) Accordingly, we decline to interpret the Bill of Sale as a will. The trial court thus properly determined probate was necessary, at a minimum, for the disposition of decedent's personal property and bank account, and did not abuse its discretion in appointing Geear as the administrator."

Geear v. Pulliam, Napa County Superior Court, case # 20PRO00060

December 14, 2021

Trustee Suspension

An aggrieved trust beneficiary will typically seek the trustee's removal to prevent future trust mismanagement. In such a case, the beneficiary can request the trustee's  removal per Probate Code §17200(b)(10). The petition would need to be filed in the county where the trustee principally conducts the trust's administration. Probate Code §17005(a)(1). The beneficiary's location is irrelevant for venue purposes. The principal place of trust administration is normally the trustee's residence. For example, if the trustee resides in Los Gatos, CA, the petition for the trustee's removal would need to be filed in Santa Clara County.

Over the years, many beneficiaries have asked me to remove a trustee for various reasons, e.g. selling assets for below-market value, failure to provide an accounting, self-dealing, unreasonably delaying distributions, failure to follow the trust's terms, etc. The issue though is that many courts are reluctant, if not unwilling, to remove a trustee without an evidentiary hearing, i.e. a trial. Scheduling and preparing for an evidentiary hearing typically takes many months. Documents will need to be produced and reviewed, depositions will need to be taken, etc. Additionally, even if the parties have completed discovery, the court's calendar may not permit the scheduling of an evidentiary hearing in a prompt fashion. 

In light of the foregoing, the practical solution is to seek the immediate suspension of a trustee with their removal subject to an evidentiary hearing.

I have seen courts open to this request because suspending the trustee will preserve the status quo and protects the beneficiaries from future potential misconduct by the trustee. While a suspended trustee would naturally want to continue acting as trustee, the suspension is obviously not permanent. The suspended trustee can be reinstated if exonerated at trial or sooner if the parties reach a settlement. 

If a trustee is suspended, the court will typically require the suspended trustee to render an accounting from the date they became trustee to the date of suspension. Moreover, the court will require the suspended trustee to turn over all trust assets to the interim trustee.    

Of note, a court can suspend a trustee on its own motion even if no petition has been presented to the court for the trustee's removal. Schwartz v Labow (2008) 164 CA4th 417. Still, this would definitely be the exception as opposed to the rule for removing a trustee. Courts are reluctant to act on their own motion absent compelling circumstances.