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___.

Undue Influence in Estate Planning

Haste makes waste.

Unfortunately when people engage in extremely expedient estate planning, disastrous results can occur. The reason being is that legal issues are not identified and addressed due to a shortage of time. Consequently, the neglected legal issues ultimately materialize and injurious results flow.

An example of extremely expedient estate planning and its attendant disastrous outcome occurred in in the case of Mohr v. Mohr, San Bernardino Superior Court Case # PROPS1100603. According to the unpublished court of appeal opinion stemming from the case:

"Carol Slocum (decedent), the 76-year-old mother of seven children, had emergency surgery on June 26, 2011. She was in a coma for five days thereafter. In late July 2011, she was placed in a rehabilitation facility. After her condition worsened, she was admitted to a hospital emergency facility on August 2, 2011.

After her treating physicians told her she was terminal, decedent decided she needed to see her children as soon as possible. Terry, who lived with decedent, was able to arrange for most of his siblings to be at the hospital on August 3, 2011. He also arranged for a notary public (notary) with a deed to come to the hospital that day. Decedent executed the deed on that date. It served to transfer her residence from her name alone into the names of herself and Terry as joint tenants. Decedent died intestate on August 12, 2011."

Unsurprisingly, Sherri Mohr sued her brother Terri Mohr to invalidate the deed citing undue influence. 

The statement of the trial court's decision, in pertinent part, read:

"Terry brought a notary and a deed to this meeting and did not tell [decedent]. She never had the opportunity to discuss a Grant Deed with an attorney or her other children. [Decedent] knew she was dying. She was so very vulnerable to coercion. The fact that the notary told her it was a Grant Deed really does not overcome the undue influence that was present. [Decedent] knew that she had always wanted her children to share and share alike. When she was presented a document to sign, she signed it without knowing its true impact. Terry had taken advantage of his mother."

Consequently, the trial court ruled in Sherri's favor and this decision was upheld on appeal.

The Dangers of Do It Yourself (DIY) Estate Planning

The Eternal Struggle: Client, Attorney and Fees

A common reason why some people balk at writing a trust or will through an attorney is because of the cost. The familiar refrain goes that why pay an attorney in excess of a thousand dollars when you can find a document online or just draft something yourself, a holographic instrument. Furthermore, a self-represented person does not have to meet with the attorney multiple times to review the documents and can conclude the process rather expediently.

One of the pitfalls with this line of thinking, there are many, is that a person almost always does not fully understand the ramifications of their decisions. A hypothetical fill-in document can be completed in mere minutes but can have a lasting effect. Moreover, there is no second chance opportunity when writing a trust or will essentially. A court is very reluctant to re-write a testamentary instrument. So do it once, do it right.

Whereas an attorney can advise a client on the various issues raised by an important testamentary decision, e.g. leave everything to my children at age 25, a self-represented person often fails to grasp such. The following are instances of mistakes I have seen a self-represented person make on their testamentary document that could've been easily avoided if they had hired an attorney.

A terminally ill parent wanted to leave their home to ostensibly their daughter. In the distribution clause of the trust, the parent named the daughter as the sole beneficiary. Yet on the trust's schedule of assets, the father listed the house as being equally split between the daughter and granddaughter, a minor. The daughter sought counsel for a Heggstad petition because the father had not transferred title to his trust prior to his passing. The obvious problem was the contradictory distribution scheme, i.e. was the house to go to the daughter exclusively or was it to be split equally between daughter and granddaughter? Any competent attorney would have spotted this clear inconsistency and counseled their client to correct this ambiguity before signing the document. 

A mother wrote a trust through an attorney that names her two children, son and daughter, as the primary beneficiaries with her grandchildren as the contingent remainder beneficiaries. A year later, she amends her trust through the same attorney, but does not alter the existing distribution scheme. That is, the amended trust still stated that the estate goes to her two children and her grandchildren are the contingent remainder beneficiaries  A few years later, the mother writes a rambling unsigned holographic document that designates the daughter as the sole beneficiary of her estate basically. Son naturally objects to the enforceability of the holographic document and prevailed in court. The obvious red flags were that the document was unsigned and the decedent did not use an attorney even though she had done so in the past. Again, a competent attorney would have counseled the decedent to sign any document which they wanted to have testamentary effect and to
follow the right procedures for amending a trust. For example, it is prudent to notarize any trust document, whether it be the actual trust, a trust amendment, a trust restatement or a certificate of trust.

Transfer iTunes on Death?

The advent of digital media has made it much easier to amass an enormous collection of music, movies, television shows, etc.. My cousin Bob told me that he has more than 10,000 songs on his iTunes playlist a few years ago. The need to store and catalog compact discs, cassettes and records (for those of you old enough ) is ostensibly an antiquated practice. The smart phone and laptop have replaced them. 

In terms of estate planning and digital media, a common question raised is whether or not you can transfer said digital media, e.g. iTunes, to a beneficiary when you pass away. The short answer is no. According to the terms and conditions  of iTunes: 

a person "may not rent, lease, lend, sell, transfer redistribute, or sublicense the Licensed Application and, if you sell your Mac Computer or iOS Device to a third party, you must remove the Licensed Application from the Mac Computer or iOS Device before doing so. You may not copy (except as expressly permitted by this license and the Usage Rules), decompile, reverse-engineer, disassemble, attempt to derive the source code of, modify, or create derivative works of the Licensed Application, any updates, or any part thereof (except as and only to the extent that any foregoing restriction is prohibited by applicable law or to the extent as may be permitted by the licensing terms governing use of any open-sourced components included with the Licensed Application)." 

The above legalese means that only the original licensee is allowed to use it, not your friends, neighbors, family members, will beneficiaries or trust beneficiaries. So your entire collection of music, The Beatles, Metallica (personal favorite), Michael Jackson, Elvis, Abba, Pink Floyd, etc., is for your ears only you could say.

For reference, a license is a permit to own or do something subject to certain restrictions. Many people erroneously believe that when they purchase a song through iTunes, they own the song outright. As mentioned, this is simply not true as the terms and conditions specify that "The Mac App Store Products and App Store Products (collectively, “App Store Product(s)”) made available through the Mac App Store Service and App Store Service (collectively, “App Store Service(s)”) are licensed, not sold, to you." 

The legal term "license" is applicable to the daily lives of many Californians, though you probably never think about it. For example, a California driver's license is roughly analogous to the license granted by iTunes to a song purchaser. Provided you meet the requirements, the state of California will issue you a license to operate a motor vehicle. If you cannot abide by the rules, i.e. incur excessive speeding tickets or DUI convictions, the state may rescind your license. The same holds true for an iTunes song, use it in the correct manner, namely follow the terms and conditions, or else you will lose your right to use it.

Ultimately, I am sure some people will find a way around the license agreement but my point here is that iTunes does not legally permit it, since you merely have a license and thus do not own your iTunes catalog.

Successor Trustee Fees

In the typical estate plan it is common for a child to become the successor trustee of his or her parent's trust provided they are over the age of 18 and of sufficient competency. 

One of the biggest dilemmas facing the successor trustee is their compensation rate because even though the Probate Code states that a trust document may specify the compensation rate, such a clause is often omitted. Prob C § 15681. In which case, "the trustee is entitled to reasonable compensation under the circumstances." Prob C § 15681.

So you are the successor trustee of your parent's trust and have just read through the trust and found that the trust document states that the trustee is entitled to reasonable compensation. Knowing that the word "reasonable compensation under the circumstances" is an elastic phrase which lawyers love to litigate over, you begin to wonder what could constitute reasonable compensation? Would $50 an hour be considered reasonable given that the trust owns a home and a few bank accounts? Given the difficulty in ascertaining "reasonable compensation under the circumstances", a simple formula used by some is to compensate the trustee 1% per annum based off of the value of the entire trust estate.

For example, if the trust estate is worth $100,000 at the close of the year, the trustee would be entitled to $1,000 as compensation. Although, the trustee is not required to accept a fee, but if he or she does so, the fee must be reported as taxable income.

Revocable Trusts and Probate

One of the reasons why living trusts in California are so popular is because of the surge in real estate prices over the past couple of decades.

Despite the past couple of years, real estate prices in California have increased tremendously when adjusted for inflation during this time. The result is that many estates that were previously probate ineligible became probate eligible.

For example, the magic number before an estate becomes probate eligible is $100,000 subject to a few qualifications. Since it is difficult to find a parcel of real property worth less than $100,000, a person is left with the choice of either having to go through probate or draft a living trust to pass the real property to their beneficiaries upon their death. Although a living trust is not a panacea for post-death administration, most people find it preferable to probate due to savings in cost and time.

Living Trust Myths

These are some more fallacies I have been asked, read and heard about in regards to living trusts:

Fiction: If I set up a trust I must file a separate tax return for the trust.

Fact: Most trusts do not require the filing of a separate tax return provided the person who drafted the trust has substantial control over it. IRC §§671-679. For example, if John Smith established a trust for his own benefit, the John Smith 2009 Living Trust, he would not need to file a separate tax return for the John Smith 2009 Living Trust. Such a trust in IRS speak is known as a “grantor trust.”

Fiction: If I transfer my house into a living trust, the house will be re-assessed for property tax purposes.

Fact: California law clearly says that if a couple or single person transfers their residence into a revocable trust that they created the property is not reassessed for property tax purposes. Rev & T C §§62(d). For example, if John and Mary Smith established a trust and transferred their 650 Rosewood Court residence into the trust, the assessed value of 650 Rosewood Court would remain the same after the transfer. This is particularly important for people who purchased their homes years ago and are acutely aware of the low assessed value for property tax purposes.

Fiction: Everything I own should always be transferred into a trust.

Fact: Due to tax and administrative reasons a retirement account and life insurance policy should not be transferred into a trust typically.

Fiction: If I do not write a will or a trust, the government will inherit my property.

Fact: To quote the character Randolph Duke from the movie Trading Places, “hogwash.” The government, namely the state of California, will only inherit your property (called escheat) if you have no relative or you do have a relative but they cannot be located. For example, there would be no escheat if your had either a spouse, child, parent, grandchild, grandparent, brother, sister, uncle, aunt, nephew, niece or distant cousins (Please click on the diagram below). Consequently, the odds of a person not having any relative alive when they die is ostensibly zilch. The cases in which escheat occurs, and it is very rare, comes about because a person moved far far away from their family. Ultimately, escheat is a very narrow exception to the rule that somebody other than the government will inherit your property.