California Estate Lawyer Blog

I have represented three sisters against their brother over their mother’s will.

I’ve represented a child who was adopted and thought she had a great relationship with her presumed half-sister and then found out the sister wanted all of the deceased father’s estate. We had to find tissue and get DNA testing to resolve that matter despite all of the family photographs.

I’ve represented cousins against a decedent’s lover, who got the decedent to leave his entire multi-million dollar estate to the lover. We showed up for trial at 1PM. The judge sent us to discuss settlement … three different times I announced that I would proceed with the trial because there could be no settlement, and three different times the other side blinked. We finally settled at 7:30 PM (kudos to the judge and his staff for staying so late).

I’ve had to represent a probate estate against a former business partner to get what was due the decedent pursuant to the buy-sell agreement.

I’ve represented grandchildren against their father, who was named as trustee by the grandparents, to get him to account and give up the money, many years after it was supposed to have been distributed to the grandchildren.

And there have been so many more……

So is there a human cost to estate planning; yes there is…. It can be minimized if there is harmony in the family and the choices of individuals to serve roles (e.g. executor, trustee) are good choices. But if there is not, or there is a bad actor influencing the situation, the cost can indeed be a high one.

Trust contests are very similar to will contests with similar allegations of incompetency and/or undue influence. The difference is that there may be only a very short time to decide if you are going to file a contest.

There is a procedure in the Probate Code (§16061.7) where the trustee gives notice to all beneficiaries that the trust has become irrevocable and a copy of the trust is provided; if that procedure is properly followed, then a contestant has only 4 months in which to bring a trust contest.

If the contestant waits too long, or there is a no contest clause, then they may be out of luck. That’s not to say that if you can prove the entire trust is invalid (and therefore the Probate Code §16061.7 notice is invalid) you can’t win; you might. It just makes a hard job harder.

Suppose a will is being offered for probate (the process by which the decedent’s debts are paid and the assets distributed) and someone thinks (a) the writer of the will was mentally incompetent when they wrote it or (b) the writer of the will was being unduly influenced at the time (in other words, without the influence, the will would have been written differently).

Their best option is to file a will contest to try and prove their theories as to why the will should not be subject to probate. They might have an earlier will that benefits them and they want to offer that document for probate.

All of the above amounts to a will contest which boils down to litigation in the probate court. I’ve represented both sides. Sometimes it is a niece against an uncle, three sisters against a brother, brother against brother.

At the end of the trial, if there is not an agreed settlement that addresses the issue, the court will decide which will works; that will determine who gets what.

But wait, what if the will has a “no-contest” clause? If it does, the contestant may be jeopardizing any inheritance that is given the contestant in the will. Of course, if the contestant gets nothing in the will, there is no risk (generally) in bringing the contest.

What if, despite everyone’s good intentions, there is conflict after the death?

What if an heir or beneficiary or someone who thinks that they should have been made an heir or beneficiary complains?

What if a trustee never accounts to the beneficiaries and enriches himself at the expense of the others?

That is when we get into another part of what I do, probate and trust litigation. This is where there is a high price paid, both dollars and emotionally, for resolution of the hurt caused by the estate planning (or lack thereof).

Patterns occur in estate planning just like in other fields. The following are typical patterns that I deal with:

1. Parents with minor children

At the very least, a will is required because if the parents die together (car crash) it is in a will where you designate guardians. There are two kinds of guardians: of the person (who will have physical custody of the child) and of the estate (who will handle the financial affairs of the child). The guardians can be one in the same or two different people.

If the guardians are not set forth in a will, then a court will decide… most parents want to make that decision themselves.

2. Parents with Adult children

Usually the easiest situation, if there is no conflict within the family. Generally, the distribution is for each of the children to get an equal share of the estate. If one of the children dies before distribution, it is typically provided that the deceased child’s share will go to their children, or if there are none, to the surviving siblings.

If there are conflicts between parents and children, uneven distributions may occur or there may be an outright disinheritance. It is the parents’ choice if they want to do that; it usually sets up conflicts between the siblings after the parents die. Not the parents’ problem, they won’t be around to deal with the conflict. But it is a human cost.

3. Blended Families

More and more I see parents who have had prior marriages, with children from those marriages. Sometimes there is a big age difference between the couple. In any event, there is the issue of who gets what.

Some families (the minority of those I counsel) simply say that they want all of the children (including step children) to share equally and that is that…. Fairly simple.

Predominantly, however, each parent has separate property that they brought into the marriage, and they want their progeny to benefit from that property, not the progeny of the other spouse.

This can lead to some serious drafting issues.

For example, if the other spouse is likely to remarry after a death, do you want her to give the deceased spouse’s wealth to the new paramour?

Or even if there is no new love, is there a concern that the surviving spouse may take everything and give it to her own children (in my world, it is always assumed that the wife survives the husband, even though in the real world that is not always the case) to the exclusion of the deceased spouse’s children? More human cost.

In such circumstances, it is appropriate to recommend the use of a trust, which splits into two trusts after the first death. One trust holds the decedent’s property; the other trust holds the survivor’s property.

The decedent’s trust will provide that the income from the decedent’s property is paid to the survivor to further provide support. But upon the survivor’s death, the decedent’s trust requires that property to go to the decedent’s children; the survivor has complete control over her trust and can do with it as she fits.

4. Special Needs

Sometimes a couple will consult with me concerning one of their children who has public assistance (such as SSDI). If that child receives outright their share of the parents’ estate, the public benefits may be jeopardized. A Special Needs Trust may be created to address this issue.

A Special Needs Trust keeps the money out of the hands of the disabled child thereby safeguarding the public benefits. But it is available to provide what the public benefits do not; items separate from food and shelter.

When the disabled child no longer needs the public benefits, the trust can be distributed to that child; or if that child has died, the trust can be distributed to the surviving siblings.

What is my role as an estate planner in California? I gather personal and financial information from my clients in order to assess what estate planning product or products are best suited to their needs.

During our conversation, which usually lasts an hour, I learn about family conflicts. I am sometimes asked what they should do about their conflict. I will venture an opinion, but I always emphasize that it is just an opinion.
At the end of the conversation, if I have not already done so, I explain the different tools and techniques that I think are suitable to their situation. Once we have agreed, we adjourn.

I then draft the documents (typically it will include a will for the husband, a will for the wife, a revocable trust, a power of attorney for healthcare for each and a power of attorney for financial affairs for each).

Once the draft is complete I send it to my clients for their review and approval. Once satisfied, they return to my office to sign the documents (in front of witnesses for the wills, in front of a notary for the trust and other documents).

What happens next is up to them. I encourage clients to discuss their estate plans with their beneficiaries (usually children). That way, if there is going to be any pushback, it can happen while the parent is alive and able to discuss the situation (as opposed to making it a surprise for the child after the parent has died).

I was reading the State of California Court of Appeal, opinion in the Estate of Steven Wayne Stoker, Deceased (2011) out of San Luis Obispo County, a case that involved efforts by one party to invalidate a trust, while researching the issue of enforceability of the four month statute of limitations provided by California Probate Code §16061.8, when I came across this gem:

"Gretchen Landry, a friend of decedent's, testified that in 2001 decedent took his original copy of the 1997 will, urinated on it and then burned it. We hesitate to speculate how he accomplished the second act after the first. "

I had to smile .....and share.

I will be appearing on Lisa Caprelli's Business Experience radio show (Sunday nights, 8PM, KLAA AM830) on September 2, 2012 as a featured guest. During the show I will be interviewed concerning my business experiences and advice that I give to business owners.

The Business Experience show presents success stories and challenges to its listening audience. Lisa Caprelli connects businesses and entrepreneurs with the right networks to help market, grow and brand.

Please listen in; I expect it to be very interesting and informative.

The estate tax marital deduction is used to reduce the gross taxable estate of a decedent for purposes of calculating estate tax. It generally is the value of property that passes from a deceased spouse to a surviving spouse (this includes the deceased spouse's one-half share in community property in community property states).

Be aware, however, the marital deduction is not available for property passing to a non-US citizen spouse unless the property is held by a special trust, referred to as a "QDOT" (Qualified Domestic Trust).

The theory behind allowing the marital deduction property to pass estate tax free to the surviving spouse is straightforward... the government will get its tax when the surviving spouse dies, so it does not need to tax the property on the death of the deceased (i.e. first to die) spouse.

The above is a vast over-simplification of a complicated topic, but it gives you an idea about the marital deduction for estate tax purposes.

The short answer, if you have minor children, is yes.

Even though you may have created a revocable living trust and you have been diligent about funding it, a revocable living trust is essentially a vehicle for managing assets. It is not the place where you name guardians for minor children.

Generally, a minor (anyone under 18 years of age) cannot directly own property or enter into contracts in California. Further, as every parent will tell you, young minors are incapable of living on their own.

In California, if a minor loses their parents (e.g. both die), the person responsible for then raising the minor is referred to as a "guardian". There are two types of guardians, a guardian of the "person" and a guardian of the "estate".

A guardian of the person has the responsibility to take care of the physical person of the minor, while a guardian of the estate has the responsibility to take care of the finances of the minor (to the extent that the finances are not managed by a trustee or custodian).

The place for a parent to nominate guardians is in a will. If you have minor children, and you want to have some say over who will care for your children in the event that you and your spouse die while the children are minors, even though you may have a trust, you must nominate those who you would choose as guardians in a will. Otherwise, it will be up to the court to decide (and you might not like the court's choice) who the guardians will be for your children.

Even if you are satisfied that you don't need a will or trust because your estate is not large or you are satisfied with the disposition of your assets without a will, if you have minor children, do them a favor: nominate guardians for them in a will and don't leave their care to chance.

I have explained why trusts need to be funded in order to avoid probate in the previous two posts. But simply having a funded trust does not mean that you don't need to also have a will.

No one is perfect; while we all have the best of intentions to fully utilize the trust that we have created and to keep it funded, mistakes happen. Perhaps we purchase Whiteacre 5 years from now and forget to take title as trustee. Or we make an investment in a company, and similarly forget to take title as trustee. In those cases, even though a trust exists, a probate will occur.....

If there is no will directing that the assets that should have gone into a trust go into the trust after probate, the assets will be distributed to your heirs (perhaps not a desirable consequence). However, by having a "pour-over" will, even though the assets will have to go through a probate, they will, at the conclusion of the probate, be distributed to the trust, to be administered by the trustee in accordance with the directions of the creator of the trust.

Think of it is way: The trust is a receptacle intended to hold title to all of your assets. The "pour-over" will is the pitcher that fills the receptacle (trust) with those assets that had to be probated and were delivered to the trust after the probate.

A trust is not enough; you must also have a "pour-over" will to complement it.

When assets are transferred to a trust, the assets become the "principal" of the trust or its "corpus". Upon the death of the creator of the trust, the principal/corpus is controlled by the terms of the trust and the trustee directs how those assets are to be handled after the death of the creator.

As an example, let's say Ted and Susan are husband and wife and the creators of the Ted & Susan Trust. Let's also say that Ted and Susan own the following assets:

Blackacre (their residence),
Bank Account 1, and
Bank Account 2.

If all Ted and Susan do is create the Ted & Susan Trust, without transferring ownership of Blackacre, Bank Account 1 and Bank Account 2 to the trust, there will likely have to be a probate upon a death.

Why? Because the trustees of the trust (in this case, assume Ted and Susan are co-trustees) don't own the property on behalf of the trust.

To properly fund the trust, a deed would have to be recorded transferring ownership of Blackacre from Ted and Susan, husband and wife as joint tenants (or as community property) to Ted and Susan, as Co-Trustees of the Ted & Susan Trust. Once that deed is recorded, Blackacre is controlled by the trust and is no longer required to be the subject of a probate proceeding.

Similarly, once the Ted & Susan Trust has been created, the financial institutions where Bank Account 1 and Bank Account 2 are held, need to be notified of the creation of the trust. The financial institutions will then adjust their records (sometimes by assigning new account numbers) to reflect the fact that the co-trustees own the accounts on behalf of the trust. Once that has been accomplished, those accounts will no longer be required to be the subject of a probate proceeding.