Amending a Trust

Practically every revocable trust will contain an amendment or modification clause which details how the trust can be validly changed. For example, the settlor may want to modify the successor trustee or beneficiaries because of a change in circumstances. It is common to change a revocable trust at least once during the lifetime of the settlor(s).

A recent published appellate decision touched upon the issue of compliance with a trust amendment clause:

Pena v. Dey (2019) _______ CA4th _______

"In this case, we must determine whether James Robert Anderson, settlor and trustee of the James Robert Anderson Revocable Trust (the trust), validly amended the trust when he made handwritten interlineations to one of the operative trust documents, specifically the First Amendment to the trust (First Amendment), making Grey Dey a beneficiary. After making the interlineations, Anderson sent both the original trust instrument and the interlineated First Amendment to his attorney to have the new disposition of his trust estate formalized in a second amendment to the trust. Anderson died before the formal amendment was prepared for his signature."

"We conclude the interlineations did not validly amend the trust because the trust specifically requires amendments "be made by written instrument signed by the settlor and delivered to the trustee." (Italics added.) While the law considers the interlineations a separate written instrument, and while there can be no doubt Anderson delivered them to himself as trustee, he did not sign them. Instead, he sent them to his attorney to have them formalized into a second amendment to the trust and prepared for his signature, evidencing his intent to sign the changes to his trust at a later date. We also reject Dey's argument that Anderson effectively signed the interlineations by attaching a Post-it® note to the documents he sent to his attorney, on which he stated: "Hi Scott, [¶] Here they are. First one is 2004. Second is 2008. Enjoy! Best, Rob." We cannot conclude these lines on the note were part of the written instrument comprised of the interlineations to the First Amendment to the trust such that the signature on the note effectively signed the interlineations. Instead, Anderson signed a separate note indicating what the enclosed documents were. While there is no dispute in this case that Anderson intended Dey to receive a portion of his trust estate, there is also no genuine dispute that Anderson intended to sign this and other changes to his trust when formalized by his attorney. Unfortunately, he died before that could be accomplished. We must therefore affirm the summary judgment entered in this case."

It is clear that Mr. Anderson intended to change his trust and made a substantial effort to do so. Unfortunately he did not complete the process, i.e. signing the amendment, and that was the crux of Mr. Dey's argument. 

Undue Influence by a Child

A child is free to assist a parent with drafting their estate plan. However, a child cannot exert undue influence on the parent. A recent unpublished opinion involved the latter scenario for the late Elizabeth Plott.

The opening paragraph summarized the case as follows: 

"The probate court invalidated a trust amendment drafted by one of the beneficiaries—a lawyer who effectively disinherited her sibling. There is no credible evidence that the amendment manifests the intent of the beneficiaries' elderly mother. As the trial court found, the evidence "overwhelmingly establishes that the 2007 Trust Amendment is the product of undue influence."  

Key v. Tyler, Los Angeles Co. Superior Court Case # BP131447

The opinion did not present the child, Elizabeth Plott Tyler (appellant), a California attorney, and the estate planning attorney, Allan Cutrow, in a positive light. Tyler & Wilson was Ms. Tyler's law firm and MSK was Mr. Cutrow's law firm.

For example the opinion stated:

"Steege reiterated at trial that Mrs. Plott stated, more than once, that she did not trust appellant. This is because Mrs. Plott wanted to do things her way, but appellant "had her agenda" and would do things differently, which upset Mrs. Plott when she learned of it. Appellant recalled that Mrs. Plott balked at signing checks for appellant's legal bills, provoking appellant to "use[ ] my scary yelling tone." When appellant walked out of the meeting, Mrs. Plott signed the checks. At trial, appellant denied ever raising her voice at Mrs. Plott, which was contradicted by her deposition, when appellant answered, "Yes, I'm sure I did on some occasions."

Later in the opinion: 

"There is no shortage of evidence that appellant actually participated in the preparation of the Trust amendment in 2007, personally and by giving directions to others. Drafts prepared by MSK were sent to Tyler & Wilson, not to Mrs. Plott. During the drafting period, Cutrow did not communicate with Mrs. Plott in person, by telephone, by letter or by e-mail. In February 2007, appellant wrote to Cutrow, "After we left your office last time, my mother told me that she was okay with giving me a controlling interest in the business like we discussed, that she did not want to do that with my sister." Cutrow did not meet alone with Mrs. Plott, to confirm that the drafting instructions he received were what Mrs. Plott wanted, as opposed to what appellant wanted. Tyler & Wilson billing records show that appellant's employee Stajduhar attended both the presigning meeting and the meeting at which the Amendment was executed." 

The opinion mentioned that "the Plott nursing home businesses were sold for $55 million at a probate court auction." Due to the high-net worth of the trust estate, I would expect further appeals.

Doolittle v. Exchange Bank

California has watered down the application of no-contest clauses through recent legislation. Still, there are alternative methods to  dissuade a beneficiary from challenging a trust. For example, shifting the burden of cost as reflected in the recent appellate decision.

Doolittle v. Exchange Bank, __ Cal.App.4th __ (2015)

In Doolittle, the settlor, a very wealthy individual, was concerned about her children challenging an amendment to her trust. The trust amendment provided for a substantial distribution to her gardener.  On the same day she amended her trust, she executed a document entitled "Instructions to Successor Trustee and to Agent." This document provided, in pertinent part:

"I, Constance Doolittle, as the Trustor of the Constance Doolittle Trust UTD November 5, 1999 ('Trust'), as amended, and on behalf of myself as an individual, hereby instruct the successor trustee of the Trust and my agent under a durable power of attorney, that in the event any one or more of my attorney, my accountant, my investment counsel, my trustee, my agent, any doctor or psychologist, or any other representative of mine . . . is called upon to testify on my behalf as to my intentions or my circumstances with respect to my inter vivos gifts and estate planning documents, I hereby instruct my said successor trustee and my agent to compensate such representative at his or her regular, usual and customary rate for all time expended by such representatives with regard to such testimony."

The consequence of this document is that associated parties with Ms. Doolittle would be compensated for their time if they became involved in litigation. As anticipated by Ms. Doolittle, her children challenged the trust and objected to the validity of this cost-shifting provision. The rationale for the objection was to preserve trust funds. If the trustee had to compensate highly-paid professionals such as an attorney, accountant and doctor for their involvement in the case, their naturally would be less trust funds available for the beneficiaries. Ultimately, the appellate court found the document to be a valid trust amendment.

Naturally the attorneys for each side viewed the decision differently. 

The bank's attorney said "if a parent truly wants to leave something to someone who is not their natural heir, they can provide for the defense of that gift in the event the heirs attack it." Payne, Paul. "Battle over Marin County woman's inheritance spills into Sonoma County court." Press Democrat. Santa Rosa, CA. October 22, 2015.

Conversely, the children's attorney said the ruling was the "Full Employment Act for counsel.” Id. 

Ukkestad v. RBS Asset Finance, Inc. - Heggstad Petition

A Heggstad petition is a commonly filed probate petition in California. The petition is filed under Probate Code § 850. The purpose of the Heggstad petition is to obtain a court order confirming that a particular piece of property, typically real estate, is part of the trust estate. 

The common reason to file a Heggstad petition is because the settlor failed to formally transfer the property into the trust. For example, in the case of real estate, the settlor failed to execute a deed which transferred their interest in the property to their trust. Recently, a California Court of Appeal decision clarified the specificity needed in terms of real estate when filing a Heggstad petition.

Ukkestad v. RBS Asset Finance, Inc., __ Cal.App.4th __ (2015) 

Just prior to his death in 2012, Larry Gene Mabee executed a restatement of his trust. However, Mr. Mabee unfortunately did not execute trust transfer deeds for two parcels of real estate which he owned in his individual name. Thus when Mr. Mabee passed away, title to the two parcels was not in the trust's name. One of the successor co-trustees, Daniel Ukkestad, petitioned the probate court in San Diego County to have the two parcels be confirmed as trust assets. The trial court denied the petition and Mr. Ukkestad appealed.

According to the opinion, a key fact in the case was that "the Trust Instrument does not describe the Two Parcels by reference to any specific identifying information unique to those properties, such as the address or legal description of the Two Parcels." Conversely in the Estate of Heggstad (1993) 16 Cal.App.4th, the trust there did describe the property with some particularity. The trust's schedule of assets referred to the property in question as “Partnership interest in 100 Independence Drive, Menlo Park, California.” Id. at 946. Still, the Court of Appeal opined that a sufficient description had been made by Mr. Mabee given that the trust stated: 

"The Grantor [i.e., Mabee], by the execution of this instrument, hereby assigns, grants and conveys to the Trustees of this instrument all of the Grantor's right, title and interest in and to all of his real and personal property, including all Tangible Personal Property, stocks, bonds, cash, mutual funds and promissory notes, all amounts on deposit from time to time at any bank, savings and loan association or investment institution, real property, leases on real property, interests in business entities and all other property owned by the Grantor, wherever situated. . . . The Grantor intends this assignment to be effective as of the date of this instrument even though other documents may be necessary to perfect title to such property in the name of the Trustees."

Therefore, the Court of Appeal reversed the trial court's ruling as it stated "that because the Trust Instrument states that all of Mabee's "right, title and interest" to "all of his real . . . property" is included in the Trust's assets, and it is possible by resorting to extrinsic evidence to determine that Mabee held title to the Two Parcels, the statute of frauds creates no bar to Ukkestad's petition for an order confirming that the Two Parcels are part of the Trust's assets." 

Trust Amendment vs. Trust Restatement

Once a client executes a revocable trust, a common follow-up question is what to do in case the client's situation changes that necessitates a change to their trust. For example, they get married, decide to change a beneficiary, have a child, move to another state, inherit a large sum of money, etc. The two options are to either execute an amendment or a restatement.

Amendment

When a trust is amended, the amendment should specifically cite the section that is being amended and the contents of the amendment. For instance, assume Section II of the settlor's trust originally calls for Thierry Pires to be the successor trustee and now the settlor wants to have Robert Henry be the successor trustee. The amendment would state that the settlor is invoking their right to amend the trust and Robert Henry is now the successor trustee, i.e. Section II would be written to reflect such.

A benefit of an amendment instead of a restatement is that it is generally simple to complete. The client merely needs to state what they want changed to the attorney.

One detriment of an amendment instead of a restatement is that multiple amendments can be cumbersome to harmonize with the trust. If the settlor amends their trust multiple times, the trust and the amendments must be read and interpreted as one document. This sounds like an easy task but in practice it is not. Cross-referencing the trust with the amendments is time-consuming.

Another detriment is that if the settlor amends their trust to remove a child as a beneficiary, the child will be able to see that they were cut out of the trust. A child, as an heir, is always entitled to see a copy of a parent's trust. See Prob C § 16060.7. Thus, the child can see that the parent originally included them as a beneficiary but later changed their mind. At best it invites scrutiny and at worse it triggers litigation.

Restatement

A restatement is essentially the replacement of a settlor's original trust. Though the restated trust uses the date of the original trust's execution, e.g. March 5, 2004, the restated trust is a brand new document.         

A restated trust is usually preferred to an amendment when the change is either too difficult or lengthy. For example, if the settlor wishes to revise the distribution portion of their trust and include specific instructions about the timing and amount of distributions, a restatement is preferred to an amendment.

A benefit of a restatement instead of a amendment is that it reduces the amount of paperwork. Since the restated trust replaces the original trust, the successor trustee does not have to piece together the original trust and the amendment(s). Alternatively stated, it is much easier to manage one document than multiple documents.

A detriment of writing a restated trust instead of an amendment is the cost. An attorney will have to devote more time towards drafting a restatement than an amendment because an entire new trust has to be created. Since the attorney has to devote more time to the matter, the fee will be higher.   

Trust Modification

One should not be penny-wise pound-foolish when amending a trust

There are many issues in life that, at first blush, require ostensibly only a slight tweak, gentle nudge or subtle adjustment. For example, a leaking faucet, a malfunctioning toilet or a porous roof are just a few of the many items that many Americans (think they) can fix themselves. Yet many people mistakenly assume that a slight modification to their trust requires only a small notation here or there. Yet, when that person passes away, typically their do-it-yourself efforts will have yielded disastrous results which they naturally did not anticipate. The reason being is that amending a trust is not as simple as putting pen to paper without any preparation.

A California Court of Appeal decision, King v. Lynch (2012) 204 CA4th 1186, held that if a trust calls for a certain modification method, that method must be used to validly amend the trust. 

Many trusts have a requirement that any modification be in writing and be acknowledged before a notary public. The rationale behind the latter requirement is to curb fraud. If nobody can attest to the modification by the person, fraud suspicions will naturally arise. Thus, the need for a notary who can certify that the person who signed the trust amendment is in fact who they say they are. In particular, the notary is required to obtain proof of identification from the signatory. This most often comes in the form of a driver's license.

In practice, there are numerous cases out there where the person who wrote the trust (called a "settlor") decides to amend their trust without the assistance of counsel. This usually manifests itself through strike-outs and insertions in the trust document. For instance, the settlor may cross out the name of one beneficiary and replace it with another beneficiary by writing in the replacement's name above the former beneficiary's name. As mentioned, a trust document will commonly require that any amendment be notarized to curb fraud. Yet in reality, the settlor blindly ignores that notarization requirement and forges ahead with the amendment, even though the amendment is on, at best, shaky legal ground per King. This neglect of the notarization requirement can be attributed to the lack of legal training by lay people.

I am not sure what compels a person to engage in this behavior because a person can easily spend $2,000 for a trust and then be unwilling to amend it for a fraction of that cost. The British phrase "penny wise pound foolish" comes to mind.

The obvious takeaway is that if a person decides to amend their trust, it is prudent to retain an attorney to amend it. Otherwise, you can have an estate planning disaster that will end up costing far more than if an attorney had been retained to handle the amendment.

Single Trustee or Co-Trustees?

When a person writes a trust, known as the settlor or trustor, they almost always nominate a successor trustee in the document to assume trusteeship when they are no longer available, e.g. death, illness, etc. Although, there is no legal requirement to name a successor trustee in the trust. A maxim of wills and trusts law is that "a trust will not fail for want of trustee." Thus if no successor is nominated a probate court can appoint a successor. Still, given the expense and time of judicial intervention, people opt to name a successor in their trust to avoid this.

Many clients opt to choose a single trustee instead of multiple co-trustees as a successor. One of the reasons why a single successor trustee is preferable is due to administrative reasons.

The general rule in California is that co-trustees must reach a unanimous decision when exercising their powers. Prob C § 15620. Thus, if there are 2 co-trustees, then those 2 co-trustees must jointly be in agreement as to the decision. 

For example, if one wishes to a sell a trust asset such as a house, then the other must be in agreement. While unanimity might not seem like a major hurdle, an old adage goes "reasonable minds can differ." Hence a co-trustee can make a perfectly rational decision but the other co-trustee may nonetheless balk citing an equally defensible rationale. From above, selling real estate can be a tricky predicament. The ebbs and flows of the real estate market are well-known. One trustee might want to wait until the real estate market is white hot. Another trustee might want to sell immediately given the volatility of the real estate market in recent years.

The foregoing is one of the reasons why many clients opt to select a single successor trustee instead of successor co-trustees. To always require that co-trustees be in agreement on matters pertaining to the trust can prove arduous. This is not to say that nobody ever selects successor co-trustees. Some past clients have consisted of a single co-trustee or both co-trustees.

One countervailing argument is that nominating successor co-trustees reduces the risk of mismanagement and waste. The standard beneficiaries of nearly all revocable trusts are children, so by nominating the children as co-trustees, this allocates authority equally to all the children. Hence, a single child cannot, as the theory goes, unilaterally wreak havoc because there are other co-trustees to check their authority. This sentiment has been specifically expressed a few times in the past by clients.

As in many areas of law, the selection of one or multiple successor trustees does not yield an unassailable answer. There are pros and cons to each side of the argument. Still, it is prudent to be informed of these pluses and minuses so a person can make a prudent decision.   

Creative Trust Distribution

There is basically no limitation as to how a person can draft the distribution language in their trust. The standard route is for the settlor to leave their entire estate to their surviving spouse, or if they are a widow or widower, to their children split equally. Occasionally there are peculiar distribution requirements. I can remember in law school reading about cases where the testator required that the son marry a person of a certain religious background. Shapira v. Union National Bank, 39 Ohio Misc. 28, 29-39 (1974). Or another case where the will  required that the person marry somebody of a specific ethnic background. In re Keffalas' Estate, 426 Pa. 432, 435 (1967)

While reading through recent probate cases, I came across a very creative distribution scheme. Frankly I had never read or heard about such a scheme until I read the unpublished appellate opinion. Mike Moore's will created a testamentary trust that pegged a distribution to the beneficiary's earnings. It read "at the end of each calendar year following my death, my children shall submit to my said trustee tax returns, certified by a certified public accountant, showing their gross income for said year. My Trustee shall, within thirty days of receipt of these certified tax returns, disburse from the trust to my daughter Daphne Gail Moore the sum of ONE DOLLAR ($1.00) for each dollar she has earned during the preceding calendar year and for my son Terry Lynn Moore, the sum of FIFTY CENTS ($0.50) for each dollar he has earned during the preceding calendar year."

The intent behind this distribution scheme is clear. Mr. Moore wanted to incentivize gainful employment for his two children. The more each child earned, the more they would receive from the trust. This is in stark contrast to the vast majority of wills and trusts that I have written, read and reviewed over the years. These simply require that the beneficiary outlive the testator and settlor. I am not exactly sure what compelled Mr. Moore to write his will that way, but it can be inferred that Mr. Moore insisted that his children "earn" their inheritance instead of having it handed to them. This sentiment is commendable given that large inheritances can foster perverse behavior or a "trust fund baby" mentality in more brusque terminology

Unfortunately though, Terry Moore encountered difficulty with the proof of income requirement. From the opinion, "Terry admittedly lacked any proof of his earnings. He had no receipts, no canceled checks and no documentation of his alleged earnings as a mechanic. Terry offered to supply the court with his customers' names and phone numbers. The trial court declined, stating "Judges don't call."

So a few morals can be gleaned from the case of Terry Moore, (1) keeping adequate income records is important and (2) a superior court judge will not call your customer base to verify that you have assisted them in the past. 

Filing a Probate Petition - Venue

When filing a lawsuit against the trustee of a revocable trust, such needs to be done in the appropriate venue. That is, the petition has to be filed in the appropriate superior court. Otherwise the lawsuit cannot be heard because the court does not have jurisdiction to hear the case. For instance, a disgruntled beneficiary in San Francisco cannot file a petition to have the trustee removed in San Francisco County Superior simply because they live there. The petitioner needs to comply with the venue requirement when filing the petition. 

California law dictates that the appropriate venue is the county where the trust’s principal place of administration is located.
Probate Code §17005(a)(1). In practice, this is often the trustee's home address or their attorney's office address. Also, when a beneficiary has received a Probate Code §16061.7 notice, such is required to list the principal place of administration of the trust. Probate Code §16061.7(g)(3). 

For example, assume that Bobby Beneficiary, a resident of Los Gatos, CA, is a residual beneficiary of the trust estate of Samuel Settlor. The successor trustee is Thomas Trustee, a resident of Oakland, CA. Samuel's trust estate solely consists of a home in Bolinas, CA. From the facts given, a petition by Bobby against Thomas as trustee would need to be filed  in Alameda County Superior Court rather than Santa Clara or Marin County Superior Court. The reason being is that Thomas' home would be the location for the trust's principal place of administration.

While venue might seem like an afterthought, the superior court in which the petition is filed can be relevant. First, certain probate courts have smaller dockets than others. One county might be able to hear the petition in 6-8 weeks while another county might take 12 weeks. Second, the probate judge in a particular county might be more or less receptive to certain petitions than other counties. For instance, some judges are apt to routinely grant Heggstad petitions, while other judges are much more demanding. Third, there is the time and expense of having to travel to a particular courthouse to file the petition. From the above example, it would be much more convenient for Bobby to file the petition in Santa Clara County than in Alameda County. It is about 15 minutes from downtown Los Gatos to the probate court in Santa Clara County, 191 N 1st Street, San Jose. Whereas it is about 1 hour, without traffic, from downtown Los Gatos to the probate court in Alameda County, 2120 Martin Luther King Jr Way, Berkeley.  This travel time is compounded if Bobby has to attend multiple hearings. Fourth, the written (and unwritten) local rules of each particular probate court differ. Hence if Bobby hires an attorney based in Los Gatos, he or she might be very familiar with the local rules of Santa Clara County but maybe not the local rules of Alameda County.

Arbitration Clause in a Trust - McArthur v. McArthur

Arbitration is a common non-judicial method of resolving legal disputes. An arbitrator, who is typically a retired judge, will weigh the evidence from both sides and issue a ruling. Arbitration clauses are typically inserted in employments contracts and consumer contracts. 

Recently settlors, the people who author trusts, have begun to insert arbitration clauses in their trust agreements. The intent behind this, presumably, is to reduce the cost of litigation and to keep the matter private. As for the cost, arbitration is typically cheaper than judicial action for a number of factors, notably lower discovery thresholds, e.g. interrogatories, depositions, etc. Thus in arbitration, litigants cannot poke and prod for the same volume of information as in a judicial matter. As for the privacy aspect, arbitration is not done in a public venue such as a superior court courtroom. Rather arbitration is done behind close-doors so to speak. Still, an arbitrator's ruling is, generally speaking, subject to judicial review. 

One such person who pursued the arbitration route was Frances McArthur. In her original 2001 trust, Ms. McArthur named her three daughters as co-equal beneficiaries, Pamela, Kristi and Deborah. Then in 2011, she amended her trust and allocated a larger share of the trust to one daughter, Kristi, and included a "Christian Dispute Resolution" clause to resolve disputes:

"The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe that the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the Trustor and Co-Trustees agree that any claim or dispute arising from or related to the Trust as amended shall be settled by biblically based mediation and, if necessary, legally binding arbitration before the Institute for Christian Conciliation™, a division of Peacemaker® Ministries, in accordance with its Rules of Procedure for Christian Conciliation (the `Rules' found at www.peacemaker.net). To the extent authorized by the Rules, the provisions of California Code of Civil Procedure section 1283.05 (right to discovery in arbitration) are incorporated herein and made a part hereof. Judgment upon an arbitration decision may be entered in any court otherwise having jurisdiction. The Trustor and Co-Trustees understand that these methods shall be the sole remedy for any controversy or claim arising out of the Trust Agreement and expressly waive their right to file a lawsuit in any civil court against one another for such disputes except to enforce an arbitration decision. This Section shall also be binding on all successor trustees and benefices for the Trust as amended."

Following Ms. McArthur's death in 2011, Pamela sued Kristi for financial elder abuse and sought, inter alia, to have the 2011 trust invalidated. Kristi moved to compel arbitration, citing the clause in the 2011 trust. Pamela objected to this and the trial court agreed, finding that because Pamela was not a signatory to the agreement, she could not be compelled to arbitrate her claims against her sister. Kristi then appealed her decision to the 1st District Court of Appeal.

The appellate court agreed with the trial court's decision, finding that because Pamela had neither expressly or implicitly sought the benefits of the 2011 trust, she was not compelled to arbitrate.

Funding a Trust - Luna v. Brownell (2010) 185 CA4th 668

One of the necessary elements of a revocable trust is ownership of property. As stated by the California probate code a "trust is created only if there is trust property. Prob C § 15202. Basically any type of property can be owned by the trust, e.g. real property, bank accounts, stocks, mutual funds, business interests, promissory notes, etc. Thus, it is quite easy to fund a trust given that so many assets qualify as trust assets if properly titled.

The norm is to immediately fund the trust upon creation. This is accomplished by identifying trust assets in the trust document itself. Customarily the last page of the trust, commonly labeled "Schedule A" or "Exhibit A," will list the items the settlor(s) have placed into the trust. However, the desired sequence of events when creating and funding a trust does not always come into fruition as demonstrated by the following case.

In Luna v Brownell (2010) 185 CA4th 668, the settlor (the father) prematurely transferred his interest in the home he owned to the trust that he had not yet created. On August 6, 2006, the settlor's children, who owned a 75% interest in the home, executed a deed which conveyed their interest in the home to the trustee of the settlor's forthcoming trust. On August 13, 2006, the settlor executed a deed which transferred his 25% interest to his forthcoming trust. On August 29, 2006, the settlor executed a trust which named himself as trustee. The settlor passed away shortly afterwards on September 19, 2006 and a week after that the children filed suit against his estate. 

One of their arguments was that the deed from them to their father's trust was void because the trust was not in existence when the deed was executed. This argument was rejected by both the trial court and the court of appeal because case law from other states held that such transfers are permitted. Those cases held that the transfer is valid between the parties but is void against third-parties. The result was that the deeds executed by the children to the their father's trust was valid.

Similar to Estate of Heggstad (1993) 16 CA4th 943, Luna is illustrative of the notion that an ostensibly defective trust can be remedied nonetheless. In Heggstad, the settlor failed to title his Menlo Park commercial property in the name of his trust, i.e. he failed to record a deed which transferred title from himself to himself as trustee of his trust. Yet since he listed the property on the trust's schedule of assets, this was sufficient to show intent to place it into the trust. Similarly, all the litigants in Luna agreed that the father was going to make a trust so there was no question that a trust would eventually be formed. The fact that the father formed the trust after the deeds were executed was seen as basically an oversight instead of a fatal flaw.

One odd aspect of Luna was that the father was represented by an attorney. Usually in cases where there is a trust irregularity, such was the result of a non-attorney, e.g. an independent paralegal, a legal document assistant or an Internet website. It is unknown why the attorney did not insist that first the father create the trust and then fund it with the conveyances from his children. This would've prevent putting the proverbial cart in front of the horse.   

A Living Trust is Not a Person

A corporation is, in legal terms, a person. This is probably most famously, or infamously depending upon your political persuasion, stated in  the United States Supreme court case Citizens United v. Federal Election Commission, 558 U.S. 310, which held that corporations have 1st amendment political speech rights. 

This notion of corporate personhood means that a corporation is a separate legal entity. Therefore a corporation can do a host of activities that a natural person can do, e.g. enter into contracts, own real property, be sued by a third-party, sue a third-party, engage in political speech, etc.

For example, if Abel and Baker band together to form a corporation to own real estate, Whispering Meadows, Inc. for instance, said corporation is one person and Abel and Baker are two separate people. Thus, the "persons" involved in the transaction are (1) Abel, (2) Baker and (3) Whispering Meadows, Inc.  

This is in stark contrast to a living trust. As stated in numerous California opinions over the years, a living trust is not a separate legal entity. "Unlike a corporation, a trust is not a legal entity." Galdjie v. Darwish 7 Cal.Rptr.3d 178, 187 (2003). Thus a living trust and the person that created the trust, the settlor, or the legal owner of trust property, the trustee, are not a separate person or persons apart from the trust. They are essentially the same person.

A common myth is that a living trust is considered a separate legal entity. Clearly, as stated above, such is not true. 

Recording a Deed

If you don't have time to do it right, when will you have time to do it over?" Albert Einstein. 

When it comes to writing and funding a revocable trust, there are no repeats or do-overs. I am pretty sure that nobody has been risen from the grave who amended or finalized their trust to ensure a smooth administration. So if a person wishes to expend the money necessary to create a revocable trust, then naturally they want to start and complete the task appropriately. The focus here is on trust funding, i.e. the recording of the deed that transfer the person's interest in their home to their trust. 

One of the primary reasons to write a revocable trust is because the transfer of real estate from a dead to living person is usually optimally achieved through such an instrument.  Other methods used to transfer real property include a gift deed and probate but both of those methods have numerous failings, e.g. cost, lack of control, tax disadvantages, liability issues, etc.

Once the deed has been executed, the next step is to record the deed. This is a very important step because it provides notice to third-parties, i.e. everybody in the world, who were not a party to the transaction. For example, "every conveyance of real property or an estate for years therein acknowledged or proved and certified and recorded as prescribed by law from the time it is filed with the recorder for record is constructive notice of the contents thereof to subsequent purchasers and mortgagees." CC § 1213. In regular English, the statute means that if a deed is properly recorded, a buyer will be imputed to have constructive knowledge of the transfer, i.e. they ought to know of the transfer. Even if the purchaser is unaware of the conveyance, the law assumes that they know about it because the deed has been recorded.

The deed recording usually occurs after the revocable trust has been executed. This is logical because the trust cannot hold assets until it is created. Similarly, a person cannot deposit money into a bank account until it is opened.  Thus, once the trust has been formed, assets can transferred into it. Although, a deed can be transferred into a trust pending formation if (1) the deed was executed in anticipation of the trust's creation and (2) the trust is actually formed. Luna v. Brownell (2010) 185 CA4th 668.  

Researching recorded deeds in California is actually quite easy. In law school, we learned about the grantor-grantee index. This was the prior method used to research recorded deeds. I will spare you the boring details. Fortunately this antiquated system has been replaced by online searches. Many commercial companies offer subscriptions to research recorded deeds for California's 58 counties. Furthermore, numerous counties also offer free online real property searches but the results will just show names and not the actual document. For example, Santa Clara County has a very good recorder's website, although you cannot view the documents on your computer. In order to view the documents, you must go to the computers at the recorder's office, 70 W Hedding Street San Jose, CA 95110.

Failure to record a deed can prove disastrous. For example, the deed can be lost  and a Heggstad petition might be required to transfer the real property into the trust. Or worse, the Heggstad petition can be denied and probate might be required. 

Trust Accounting Exceptions

A trustee is normally required to render an annual accounting to a beneficiary subject to the following exceptions.

Accounting Waived by Trust Instrument

The trust may waive the right to an accounting per Prob C §16064(a). However, despite an accounting waiver clause in the trust, such can still be required "upon a showing that it is reasonably likely that a material breach of the trust has occurred." 

For example, Bobby Beneficiary receives a copy of his Aunt Gertrude's trust following her death. The trust specifically waives the right to an annual accounting. Bobby is aware that Aunt Gertrude's trust owns a rental home that is currently occupied. Bobby passes by the rental property one day to discover a rotting roof, cracked driveway and chipped paint. Bobby calls the trustee, Turner, who explains to Bobby that the house is in perfect condition and there is no need to worry because the rent checks show up timely each month for the correct amount. Bobby implores Turner to inspect the property given its state but Turner declines given that the house is cash-flow positive. Undeterred by Turner's indifference, Bobby asks for an accounting because Bobby is concerned that the structural repairs are substantial and Turner does not have adequate trust assets to cover these costs.

Beneficiary Waives Right to Accounting

Many legal rights in life can be waived. For example, you may waive your Miranda rights, i.e. the right to keep quiet or speak to an attorney if subject to custodial interrogration by law enforcement. Similarly, a beneficiary may waive their right to waive an accounting.

All that suffices is a simple written statement that the beneficiary waives the right to an accounting. However, this waiver is practically illusory. The waiver can be rescinded on a whim. Prob C §16064(b) states "a waiver of rights under this subdivision may be withdrawn in writing at any time as to accounts for transactions occurring after the date of the written withdrawal."
   
In light of the inherent flimsy nature of an accounting waiver, requesting one from a beneficiary is often of little value.

The Beneficiary is the Trustee

When a person writes a trust, e.g. a married couple, they are often the settlor, trustee and beneficiary initially. In such a case, no accounting need be given. Prob C §16069. Conceptually this is quite logical because a person does not have to tell the right hand what the left hand is doing. 

A question I have seen on a few occasions is where a child is concerned about a parent's spending habits. The child is the beneficiary of the trust following the parent's death and wants to ensure there is something left when they inherit. Since the parent is trustee and beneficiary, the child is not entitled to one. However, there is nothing preventing the parent from providing an accounting. Although the accounting would not be compelled by law but rather kindness.   

Precatory Language

I dream that the beneficiary will............

People like to be given clear instructions. It can be very frustrating for the recipient if given ambiguous directions because invariably he or she will perform unproductively. Providing clear instructions is not only useful but required when writing a trust. 

California law states this requirement as follows "a trust is created only if the settlor properly manifests an intention to create a trust." Prob C § 15201. The logical question to this is, what constitutes an intent to create a trust?

California law does not require particular "magic" words to manifest an intent to create a trust. Rather, a combination of phrases or terms suffices if an intent to create a trust can be deduced from the writing.

Just about any trust, whether attorney-drafted or plucked from the Internet (yeah, bad idea to use one), will have an introductory clause that states that the settlor holds in trust for the benefit of others, certain assets that are listed at the end of the trust, typically referred to as Exhibit A or a Schedule of Assets. This satisfies the requirement of an intent to make a trust.     

What becomes problematic is if the person writing the trust does not use definitive or clear language but rather wishful or aspirational language. Hopeful verbiage such as this is known as precatory langauge. This type of language is legally unenforceable. An example of the consequences of using precatory language is the case of Chris Collias. Estate of Collias (1951) 37 C2d 587.

Collias' will read in pertinent part: 

"All the rest and residue of my estate, of every kind and description, and wherever situated, I give, devise and bequeath unto my nephew Argirios Collias a resident of Long Beach, California at the time this instrument is signed. It is my desire and wish that my nephew Argirios Collias will give half of my estate to my nearest relative heir in Greece instructing him or her to distribute said half of my estate in equal shares to all my close relatives in Greece." 

The problem with Collias' will was that he used the terms "desire" and "wish" in asking Argirios to distribute half of his inheritance to his relatives in Greece. Naturally Collias' relatives asserted that "one half the estate is left to [Argirios] Collias in trust for the use and benefit of the nearest or close relatives of the decedent in Greece." Argirios balked at this assertion and litigation ensured. The California Supreme Court held that Collias' will did not create a testamentary trust because he used precatory language, i.e. he used the terms "desire" and "wish." Thus, Argirios was free to use the inheritance as he wanted and did not have to hold half in trust for his Greek relatives. 

Another common example of precatory language is the term "hope." That is, "I hope my beneficiary uses his inheritance for educational purposes rather than a buy-in for a Texas Hold'em tournament in Las Vegas."

Naming a Trust

A common question I hear is, "what name should I give my trust?" Arguably there is no limitation as to what a person could name their trust. For example, a person could name their trust the Shakespeare Family Trust even if the person was not named Shakespeare but merely loved Hamlet, Othello and King Lear so much that he had to name their trust in Bill Shakespeare's honor. 

However, a prudent person would adhere to the following principles when naming their trust. The reason to abide by these principles is for trust funding purposes. A trust only governs assets that are subject to its control, i.e. assets that have been titled in the name of the trust. Thus, having a sensible name ensures that the trust funder understands exactly how to title the asset, e.g. on the deed, on the bank account, on the brokerage account, etc.

The 3 main components that a trust name should have is (1) the name of the current trustee (2) the actual trust's name and (3) the date the trust was signed.  For instance, assume Theo Wilshere wants to write a trust in 2013 and is pondering a name. Theo would be best served to name his trust as follows, "Theo Wilshere, trustee of the Wilshere 2013 Revocable Trust, dated March 7, 2013."

It should be noted that the trustee is the technically the legal owner of the property, so the trustee's name should always be apparent. Also, it is not required to insert the year in which the trust was written. Still, I like to include the year in the title because sometimes the date the trust was signed, e.g. 3/7/2013, is omitted on certain statements due to a lack of room.  This provides the reader with a reference point as to when the trust was executed.

Another component which is optional in California is the inclusion of the term "revocable" in the trust's title. California is unlike other states in that a trust is presumed revocable unless specified otherwise. Prob C § 15400. That is, if a trust says Smith 2013 Trust it is presumed to be revocable instead of irrevocable. Regardless, it is better to include the term "revocable" in the title to erase all doubt. Many people who ultimately read the trust are not lawyers so it is doubtful that they are aware of California's law on revocability, Prob C § 15400.

As for the trust's name, the practice I think is most prudent is the use of simply the last name and not the full name, e.g. "Wilshere 2013 Revocable Trust" not "Theo Wilshere 2013 Revocable Trust." I prefer this method because inclusion of first name can make the trust needlessly long. This is especially true for couples. I doubt a person wants to write their first and last name, besides their spouse' first and last name, each time they sign on behalf of the trust.

Finally, it is important to include the date the trust was signed. This allows the reader to know at what stage in life the settlor executed a trust. For instance, if the person was feeling ill when the trust was signed, this can serve as evidence that the settlor was not competent when the trust was signed. Also, including the date can distinguish one trust from another. This is important for clients with common last names such as Jones, Smith, Chang, Gonzalez, Brown, Davis, Kim, Lee, Garcia, etc.