February 2, 2024

No-Contest Clause

One method used to deter litigation amongst trust beneficiaries is to insert a no-contest clause in the trust. A no-contest clause provides that a beneficiary will forfeit their inheritance if they challenge the trust's validity and lose. Probate Code §21310(b). Essentially then, a beneficiary must balance the risk of challenging the trust’s validity, an uncertainty, against the assurance of an inheritance, a certainty. Of note, undue influence is probably the most common reason to challenge a trust's validity.

Occasionally I read trusts which state that a beneficiary will forfeit their inheritance, $1, if they contest the trust’s validity. Since $1 will hardly dissuade a litigant, the no-contest clause is rendered effectively useless. Rather the better approach is to increase the size of the inheritance, e.g. $75,000, whereby the litigant will have to seriously ponder the possibility of forfeiting a sizable sum of money should they contest the trust’s validity and lose.

Since January 1, 2010, California has greatly curtailed the impact of no-contest clauses. Now a contestant can challenge a trust’s validity and lose, but still receive their inheritance provided the contestant had “probable cause” when they filed their contest. Probable cause “exists if, at the time of filing a contest, the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery.” Probate Code §21311(b). A recent unpublished appellate opinion provides an example of this.

In the trial court, the contestant (Randi) lost her contest. The respondent (Fred) appealed the trial court’s decision that the contest had been filed with probable cause. If filed without probable cause, Randi would be disinherited per the trust’s no-contest clause.

“Taken together, the evidence proffered by Randi in her declaration and the declarations from others would cause a reasonable person to believe there was a reasonable likelihood Randi would prevail on the undue influence claim. Marcia was unwell and seemed feeble at the time. Fred had taken her into his home and the evidence supports an inference that he isolated her from her other family and friends. Marcia signed trust documents prepared by an attorney she previously stated she did not want to work with further, and aspects of the Trust seemed inconsistent with Marcia's previously stated practices or desires. Additionally, though Fred did not "unduly" profit from the Trust in the sense that his share of the estate exceeded that of Randi and Julie, a reasonable person could nonetheless consider his receipt of an equal portion an undue benefit given his limited presence in Marcia's life prior to the months leading up to her death. So, too, could one consider his appointment as trustee, a position that gave him both authority and compensation, as an undue benefit under the circumstances."

This part of the opinion was particularly elucidating

“The court also found the evidence pointed to Fred having a virtually non-existent role in Marcia's life until shortly before she passed, and thus, it was not unreasonable to infer that he feared he might be disinherited or only left a small portion of the estate, with a greater portion going to "his apparent nemesis," Randi, who spent a substantial time with Marcia during her lifetime.”

Estate of Sherman, Los Angeles County Superior Court case no. 19STPB10622

January 18, 2024

Financial Elder Abuse

"I know when I see it." Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring).

While there is obviously a legal standard for proving financial elder abuse, a cursory reading of the factual summary in a financial elder abuse case often yields an immediate recognition of the wrongdoing. That is, one can know when they read it.

"Felice and James married in 1978. Felice and James had no children of their marriage, but each had children from their previous marriages. Appellant Falb was James's daughter from a previous marriage, and respondent Lynne Scherer (Scherer) was Felice's daughter from a previous marriage. James died February 28, 2018. Felice died June 10, 2020, during the pendency of this matter."

"At the relevant times, Felice and James had four bank accounts: (1) US Bank checking account ending 6578, held in joint tenancy; (2) US Bank money market account ending 2001, held in joint tenancy; (3) Chase Bank checking account ending 5875, held as trustees of the Family Trust; and (4) Chase Bank savings account ending 5575, held as trustees of the Family Trust. In October 2017, James withdrew half of the balance from each of these bank accounts. The total withdrawn from the bank accounts was $291,569.26. Falb drove James to both banks to make those withdrawals. On the same day, Falb and James opened a joint account at Chase Bank into which they deposited all of the funds withdrawn from Felice and James's four bank accounts."

"In April 2018, after James's death, Falb had two cashier's checks issued to herself from the joint account at Chase Bank in the total amount of $285,474.30. She deposited this money into a new account at Union Bank in her own name."

"In May 2019, after James's death, knowing that Felice was in Colorado, Falb hired a locksmith to enter the Property and rekey it. She later rented a small truck to remove what she claimed was her personal property from the Property. She took a mechanical bed, three flat screen televisions, a typewriter, and a sewing machine.[2]"

"After James's death, Felice was unable to locate a signed copy of the Family Trust and was therefore unable to administer the Family Trust. In March 2018, Scherer asked Falb if she was in possession of the Family Trust document; Falb claimed she was not. Falb claimed she found the Family Trust document in May 2019 in her garage in a box of books given to her by James in late 2017."

"In any event, substantial evidence supports judgment in Scherer's favor on the financial elder abuse claim. The trial court made findings that Falb took and "appropriated" the money in question by assisting James in withdrawing the money. To appropriate means "to take without permission." (Webster's 3d New Internat. Dict. (1986) p. 106.)[7] The court also found Falb had taken and hidden the only executed copy of the Family Trust; taken, appropriated, and hidden items of personal property; and prevented Felice from selling the Property by pursuing the probate petition. These findings were sufficient to support a conclusion that Falb's conduct was undertaken for a wrongful purpose within the meaning of Welfare and Institutions Code section 15610.30, subdivision (b)."

Falb v. Scherer, San Bernardino County Superior Court case no. TRUPS1900250

December 12, 2023

Trusts Disputes - Civil Department or Probate Department?

In order for a court to properly adjudicate a case, it must have jurisdiction over the matter. For example, if the manager of the Oakland Athletics wanted to lodge a protest over a supposedly blown call by an umpire, they would lodge their protest with the commissioner of Major League Baseball, not the commissioner of the National Football League. In legal terms, Santa Clara County Superior Court would not have jurisdiction over a case involving real property located in Scotts Valley, CA because Scotts Valley is not located within Santa Clara County. Conversely, Santa Cruz County Superior Court would have jurisdiction over a case involving real property located in Scotts Valley, CA because Scotts Valley is located within Santa Cruz County.

Typically a trust matter is heard in the probate department of the superior court. For instance, the trust matter could be a challenge to the trust’s validity, a petition to remove the trustee, a petition to compel an accounting, a petition to determine the trust’s interpretation, etc. Still, it is not a certainty that every single probate matter will be heard in probate court. Of note, reference to a “probate court” is really just a reference to a particular department in the applicable superior court. For instance, Department 2 and Department 13 are currently the departments in which probate matters are heard in Santa Clara County Superior Court. The departments change periodically as the probate judges rotate over time.

A recent unpublished appellate decision addressed, amongst other issues, whether a civil department could properly hear a trust matter.

The appellant argued that “Department 52 of the Los Angeles County Superior Court lacked jurisdiction to decide this matter because jurisdiction relating to internal trust disputes resides exclusively in the probate department.”

The California Court of Appeal disagreed with this argument.

“Thus, although the Los Angeles Superior Court maintains a probate department, no authority vests that department with exclusive jurisdiction over probate matters. On the contrary, the California Constitution vests the superior court as a unified entity with plenary jurisdiction. As applicable here, even if the probate department has jurisdiction over internal trust affairs, that jurisdiction is nonexclusive. The superior court as a whole, which indisputably enjoys jurisdiction over actions involving contested interests in real property and the enforcement of judgments, also enjoys jurisdiction over ancillary issues that may arise in those actions, including issues relating to internal trust affairs.”

“The trial court therefore had jurisdiction to decide the merits of Lea's third-party claim to the Berryman property, even if that claim raised issues concerning internal affairs of the Family Trust.”

SMS Financial XIX LLC v. Stromberg, Los Angeles County Superior Court case no. B313902

November 17, 2023

Estate tax in 2024

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2024 as detailed below:

Year                   Amount Excluded        Maximum Tax Rate
2001                   $675,000                      55%

2002                   $1M                             50%
2003                   $1M                             49%
2004                   $1M                             48%
2005                   $1M                             47%
2006                   $2M                             46%
2007                   $2M                             45%
2008                   $2M                             45%
2009                   $3.5M                          45%
2010                   Repealed                      0%
2011                   $5M                             35%
2012                   $5.12M                        35%
2013                   $5.25M                        40%
2014                   $5.34M                        40%
2015                   $5.43M                        40% 
2016                   $5.45M                        40%  
2017                   $5.49M                        40%         
2018                   $11.18M                      40%   

2019                   $11.4M                        40%  

2020                   $11.58M                      40% 

2021                   $11.7M                        40% 

2022                   $12.06M                      40% 

2023                   $12.92M                      40% 

2024                   $13.61M                      40%

October 17, 2023

Truste Removal

Life is not fair. Bad things can happen to good people and good things can happen to bad people.

A recent unpublished appellate opinion detailed the story of one unfortunate trustee.

"Lerae Bush amended her living trust several times. Initially, the successor trustee was Caroline Lee Holmes; however, after Bush legally adopted Noel Montes Cazares, she made him the successor trustee. She also gave the trustee more and more discretion to choose the beneficiaries."

"Bush died in a fire. Cazares was arrested and charged with her murder. The trial court therefore removed him as trustee, "until all matters related to the death of [Bush] are fully understood and adjudicated, or further order of the Court," and it appointed Holmes and Jennifer Haas, a professional independent fiduciary, as cotrustees."

"Holmes filed a petition seeking approval of her choice of beneficiaries. Cazares — still in jail — asked the trial court to stay the petition 'until my criminal issues are resolved.' The trial court granted Holmes's petition; it ruled that, because Cazares was not a trustee or a beneficiary, he had no standing to oppose it. Cazares attempted to appeal, but his notice of appeal was untimely."

"Thereafter, the charges against Cazares were dismissed, and his arrest record was expunged. He then petitioned to be appointed trustee (and executor of Bush's estate). The trial court denied these petitions, ruling again that he lacked standing."

In short, Cazares did nothing wrong but was removed as trustee merely because he could not perform his duties from a jail cell. However, despite being exonerated, he was able to be reinstated as trustee because he did not timely appeal a court order while incarcerated. I recognize that inmates can file appeals from prison, and many do, but it is still nonetheless a daunting task.

Estate of Bush, Riverside County Superior Court case nos. PRIN1801843, PRIN1802480

September 22, 2023

Amending a Trust (validly)

Following the passing of a relative or friend, the search begins to discover if the decedent had any estate planning documents. Obviously this process is easier if the decedent previously told their family and friends that they executed estate planning documents and where to find the documents. Regardless, the documents need to be retrieved and authenticated in order to properly administer the estate.

The estate planning documents could be found in a safe deposit box, at the decedent's home or some other place. Usually all the documents are found in one place. So if one document is found, e.g. the trust, it should be expected to find the will in the same place as well.

Some attorneys (I'm not one of them) provide clients with an estate planning binder. The binder will contain all the estate planning documents, i.e. trust, will, power of attorney, etc. Occasionally I will see that the binder contains preprinted forms to amend the trust or modify the will. Fortunately I've not had a case where the estate planning binder contained an amendment of questionable validity. In a recent unpublished decision, the successor trustee encountered this issue.

"Yvonne created the Yvonne Ellias Living Trust (Trust) in 2007. She amended the Trust in 2018, naming her stepdaughter, Veronica Ellias, as trustee. Section 1.04 of the Trust provides: "Any amendment, restatement, or revocation must be made in writing and delivered to my then-serving Trustee." Yvonne passed away on February 20, 2021. The Trust became irrevocable upon her death.

 Yvonne purportedly amended the Trust twice more before she died, in June 2019 and July 2020. The amendments purportedly redistributed Yvonne's assets, including her home, from Veronica to David upon Yvonne's death. Veronica discovered the amendments after Yvonne died, inside a binder containing the original estate planning documents."

The appellate court affirmed the trial court's ruling that the purported amendments were invalid.

"Here, section 1.04 requires any modification of the Trust to be "delivered to [Yvonne's] then-serving Trustee." (Italics added.) Thus, as David concedes, for Yvonne to validly amend the Trust pursuant to its terms, she was required to deliver the amendments to Veronica. But Yvonne did not do so when she purportedly executed the Trust amendments or at any other point before she passed away. Nor is there evidence that Veronica had access to Yvonne's estate planning binder before her death such that the amendments were "effectively" delivered to her, as suggested by David. Yvonne therefore could not have amended the Trust pursuant to its terms. (See Lombardo v. Huysentruyt (2001) 91 Cal.App.4th 656, 670 [trust modification ineffective if trust requires delivery of modification to trustee and settlor fails to inform trustee of modification].)"

Estate of Ellias, Ventura County Superior Court case no. 56-2021-00556111-PR-TR-OXN