April 29, 2021

Renting the Residence

In a typical estate administration case, whether a trust or probate, real property is involved. If the real property is vacant, the question then becomes  whether to rent the residence or not until the property is sold or distributed to the beneficiaries.

A recent unpublished appellate decision touched upon the co-trustees' unwillingness to rent the decedent's residence given the circumstances.

"When Loucks died in 2006, Trust assets were valued at nearly $9 million. Among the Trust's properties was Loucks's Camarillo residence. The residence was built in the 1950s, and was virtually unchanged over the next six decades: The carpet was worn, the walls were "dripping with . . . nicotine" from cigarette smoke, the septic tank was unusable, and the plumbing and electrical systems needed to be replaced. There was no hot water, no heat, and no air conditioning.

The exterior of the residence was similarly dilapidated. There was fungus and dry rot around the eaves. Shrubs and trees were overgrown. Rodent holes riddled the backyard. The pool—which was just inches from the residence—had begun to sink."

Following the property's sale, a beneficiary sued the trustees for essentially lost profits since they opted not to rent the residence from 2007-2014. 

The beneficiary's "expert witness testified that the Trust could have earned more than $330,000 from renting out the residence from 2007 through 2014."

However, the trial court disagreed and held that the co-trustees' decision to not rent the residence was reasonable under the circumstances. This decision was upheld by the appellate court. 

"Substantial evidence supports the probate court's determination that the co-trustees acted reasonably and in good faith when they declined to rent out the residence between 2007 and 2014. The evidence admitted at trial showed that the residence was uninhabitable and in need of more than $80,000 in repairs. Those repairs would have had to be completed before the residence could be rented. And once completed, there remained safety and liability concerns due to the unsecured pool at the residence."

One common theme when I've represented trustees is a beneficiary's tendency to emphasize the benefits but not adequately account for the burdens. This is natural because the beneficiary is not the responsible party, rather the trustee shoulders the liabilities. Hence the mindset of the trustee will invariably differ from that of the beneficiary.

In this case the beneficiary was adamant, as evidenced by them litigating this issue, that renting the residence was reasonable. However, the beneficiary was not responsible for renovating the property to make it habitable. Rather, the trustee was responsible for the renovations. Since the cost of renovations was significant, $80,000, the co-trustees acted prudently when they opted to forego renovation and renting the residence.     

Walstad v. Maloney, case # 56-2016-00479026-PR-TR-OXN, Ventura County Superior Court

March 29, 2021

Holographic Will

A recent unpublished appellate opinion addressed the validity of a holographic will that was executed roughly 45 days before the testator passed away. The testator executed a holographic will on November 8, 2017 and passed away on December 25, 2018. So in 2021, this was case still ongoing..........

Interestingly the testator, a California attorney, had written two prior holographic wills. 

"Edward, a lawyer, drafted three holographic wills, each on a single piece of paper from a legal pad. The first two, drafted in July 2014 and December 2016, were written neatly, with few spelling and grammatical errors. They left either $40,000 (July 2014 will) or $75,000 (December 2016 will) to Barbara, with the remainder of Edward's estate going to his sister Marcia. Both wills also provided contingencies for what would occur should either Barbara or Marcia predecease Edward. The December 2016 will additionally revoked Edward's previous will, and named an executor (Marcia, or Randi Sue Berger (Marcia's daughter) should Marcia predecease Edward).

The Contested Will, drafted on November 8, 2017, read:      

"My Last Will and Testiment [sic]      

"I Edward M Sherman, hereby giives [sic] to Barbara Garrison my home at 15743 Hesby Strreet [sic], Encino, California 91436 and all my other money and possesions [sic].      

"Nov. 8, 2017      

"This is my last Will and Testiment this [sic].  

"Edward Martin Sherman"  

It is uncommon in a will contest to have two prior holographic wills. Still, this circumstance was quite elucidating when determining whether the contested will was valid or not. That is, the litigants and their experts reviewed the prior two holographic wills to see how the contested will was analogous or distinguishable.

For example, an expert witness in this case, a medical doctor, opined "that the misspellings in the Contested Will, along with the way the writing did not stay within the lines, raised concerns about the writer's cognitive abilities. He had no concerns regarding the July 2014 and December 2016 wills, noting they were more thorough, in-depth, and legible, compared to the Contested Will."

Ultimately, the appellate court affirmed the trial court's ruling that the testator lacked sufficient testamentary capacity to write and execute a holographic will. 

Estate of Edward Martin Sherman, Los Angeles County Superior Court case # 18STPB03628.

February 19, 2021

Gift, Loan or Advancement

One common issue I have seen arise in estate administration matters is whether a pre-death payment by a parent to a child was a gift, a loan or an advancement. 

In the case of a gift, the child would clearly not have to pay back the parent for the gift or have their potential inheritance reduced.

In the case of a loan, the child would need to repay the principal to their parent plus some amount of interest. A loan might or might not affect a child's inheritance.

In the case of an advancement, the parent's trust or will should specify that this pre-death payment is a credit against the child's future inheritance.  

Invariably, the recipient of the pre-death payment will argue that it was a gift.

Conversely, the non-recipients of the pre-death payment, i.e. almost always the other children, will argue that it was a loan, or at worse an advancement.

A recent unpublished appellate decision focused on this issue, i.e. was a pre-death payment from a parent to a child a gift or a loan.

"Patricia passed away in February 2016, leaving a will. Eight years before her death, Patricia transferred $600,000 to Dana. Plaintiffs sought a ruling that Patricia lent the money to Dana and that she was required to pay it back to the estate. Dana asserted the money was a gift."

"The court filed its SOD on June 6, 2019. It included a description of the transaction and the evidence on which it relied about the nature of the transaction and Patricia's intent. The court confirmed its oral pronouncement at the May 10 hearing that Patricia gifted the $600,000 when she transferred it to Dana in 2008. The court in its SOD considered each of the six factors necessary for a gift and found each was proven by clear and convincing evidence. In so doing, the court noted there was conflicting evidence on the issue of whether the $600,000 transfer was a gift or a loan. The court nonetheless found Patricia's intent in 2008 at the time of transfer was to make a gift to Dana. The court denied the petition and awarded costs to Dana."

The trial court's ruling was upheld by the appellate court. It found, based upon the evidence, that the parent intended to make a gift of $600,000 to her daughter in 2008.

Estate of Walsh, San Diego County Superior Court case # 37-2017-00016491-PR-PW-CT.

January 29, 2021

Oral Agreement or Written Agreement

A "hand-shake agreement" or oral contract is rarely advised.
While the law does enforce an oral contract, it is hardly ever a prudent decision. Countless probate lawsuits have arisen from situations when an agreement could have been memorialized but instead was agreed to orally. A recent partially published appellate decision involved an oral contract to transfer a cabin's ownership. In particular, the case involved a deceased married couple's interest in a cabin on leased federal land.  
Capra v. Capra, (2020) ____ CA4th _____. 
"In 1992, Frank Jr. and Thomas attempted to transfer the Forest Service permit to themselves and Lucille as trustees of the trust, but the Forest Service would not allow three names to be on the permit. The Forest Service would allow only an individual or a married couple to be named on the permit.

The three siblings decided it made sense for Thomas to be the trustee listed on the permit because Lucille was not living in California. Plaintiffs allege that Lucille and Frank Jr. "agreed to forego their rights to act as the representative on the Permit and allowed Thomas to be the representative Trustee named on the Permit." In October 1992, the Forest Service placed Thomas's name on the permit. The permit was renewed in 2008 in Thomas's name."

The sharing of the cabin unfortunately did not end well.

"In September 2015, Thomas declared that he owned the cabin and the permit exclusively, and that the plaintiffs had no right or interest in either. He asserted the right to deny anyone access to the cabin. He closed the Bank of America account and withdrew all its money, claiming it belonged to him. He changed the door locks and asserted exclusive control over all personal property at the cabin. He has not provided access to the cabin to plaintiffs, and in some instances, he has banned others from the property."

In an expected move, Thomas was sued by his siblings for taking the position that he owned the cabin exclusively. 

My reading of this case is that a written agreement should have been executed in 1992 which specified that even though only Thomas' name would appear on the lease, the cabin was effectively a tenants-in-common arrangement with each sibling owning a 1/3 interest. A written agreement would not have definitively prevented a lawsuit, but it would have definitely decreased the odds of one. An executed agreement would have (hopefully) specified the rights and obligations of each party. This would avoid the dreaded "he said, she said" scenario which invariably arises when a disagreement happens.   

December 16, 2020

Fiduciary Duties of a Trustee

A trustee is required to discharge a number of fiduciary duties for the benefit of the beneficiaries. The California Probate Code spells out these duties, e.g. the duty of loyalty, the duty of impartiality, etc. If a trustee breaches a fiduciary duty, the trustee becomes liable for damages which can take the form of many different remedies. Typically, money damages are the most common remedy awarded for a breach of a trust.

A recent unpublished appellate decision upheld a trial court's ruling that a trustee had breached her fiduciary duties. The factual summary is quite easy to follow.

"In January 2009, Eddie Copeland Neighbors (the Settlor) created the Trust for the benefit of her two daughters, Jackson and Marsha Josiah (Josiah), who were to share equally in her estate. The principal asset of the Trust was the Settlor's residential home in Sacramento (the home), which was transferred to the Trust. 

In July 2010, around the time that the Settlor was placed in a long-term care facility, Jackson and her husband began living in the home. 

In June 2015, the Settlor passed away and Jackson and Josiah became the successor cotrustees of the Trust. Shortly thereafter, in August 2015, Jackson recorded a grant deed transferring title of the home from the Trust to herself and her husband. 

In September 2017, Josiah filed a petition alleging that Jackson engaged in self-dealing and breached her fiduciary duties by transferring title to the home and by residing in it without paying rent to the Trust. Josiah sought, among other relief, an accounting of the Trust's assets, an order removing Jackson as a successor cotrustee, an order requiring that the home's title be returned to the Trust, an order requiring Jackson and her husband to pay rent for the period during which they resided in the home after the Settlor's death, and an order allowing Josiah to sell the home. Jackson opposed the petition."

Probate Code 16002(a) provides that a "trustee has a duty to administer the trust solely in the interest of the beneficiaries." This duty is breached if a trustee engages in "self-dealing." Self-dealing can be described as a trustee using trust property for their own personal benefit instead of for the beneficiary's benefit. From this case, the trustee engaged in self-dealing by conveying the settlor's home to herself instead of herself and her sister, which the trust required. That is, the trustee used trust property to benefit herself instead of the beneficiary.

Due to the trustee's misconduct, the trial court made a number of orders. "The court's order provides that (1) the home is an asset of the Trust; (2) Jackson owes $79,650 for the fair rental value of the home for the period from July 1, 2015, through March 31, 2019; (3) Jackson is entitled to a credit (offset) of $73,921.43 toward the fair rental value for mortgage payments, taxes, and other expenses she paid with her personal funds; and (4) as long as Jackson continues to occupy the home, fair market rent (less any offsetting credits) shall continue to accrue. The court ordered Jackson removed as a successor cotrustee, but denied Josiah's request to require Jackson to vacate the home so that it could be sold."

Josiah v. Jackson, Sacramento County Superior Court case # 34-2017-00219410.

November 5, 2020

Estate Tax in 2021

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2021 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%