Using Age Provisions in a Will or Trust

February 13, 2015

Prince Harry, the younger son of Prince Charles, the Prince of Wales, and his former wife, the late Diana Spencer, turned 30 last year. This milestone means Prince Harry will receive more than $17 million from his late mother's estate, according to the modified terms of a trust established as part of her estate plan.

Diana, Princess of Wales, made a last will and testament in 1993 and amended it in 1996. She left the bulk of her estate in trust for her two sons, Prince Harry and Prince William (now the Duke of Cambridge). Originally, the trust assets were to be paid to each prince when they turned 25. But the executors of the estate obtained a “variance” from an English probate court, modifying the terms to delay distribution until the children turned 30.

Age Provisions in Trusts

Setting aside the unusual decision by the British authorities to alter the term of a valid will, age provisions of this sort are quite commonplace in estate planning in the United States. Most trust instruments make a distinction between distributions of income and principal. For example, you might specify that a beneficiary can start receiving the trust's income at the age of 21, while delaying distribution of principal until the person reaches the age of 25.

A common estate planning practice is to divide distribution of trust principal into thirds. Let us say you want to leave a large inheritance to a child. Your trust could specify the child will receive one-third of the inheritance at the age of 21, the second third at age 25, and the final distribution at age 30. Meanwhile, the child could still receive an annual distribution of the trust income to provide for his or her expenses.

If you have more than one child or beneficiary subject to an age-specific distribution, you should consider the nature of your present assets. It is generally easier to divide liquid assets, i.e., cash. If your estate includes a significant amount of real property or other physical assets, your successor trustee will be responsible for ensuring there is an equal distribution to all beneficiaries.

Selecting a Trustee

Remember, if you leave any assets in trust, you must also nominate a trustee to administer those assets until your children reach the designated age for final distribution. The trustee is responsible for administering all trust assets in the best interests of your beneficiaries. Your trust may also authorize the trustee to make distributions of income (or principal) at any time for the beneficiary's benefit. It is common practice to allow such distributions for the child's “health, support, maintenance and education,” as the trustee judges appropriate.

Establishing a trust and nominating a successor trustee is just one part of the estate planning process. Even if you will not leave a large estate like the late Princess Diana, it is still important to make sure your children and other loved ones will be provided for after your death. If you need to speak with an experienced California estate planning attorney, contact the Law Office of Scott C. Soady today.

How a Conservatorship Can Protect You (and Your Assets)

January 31, 2015

During your lifetime, it may be necessary for a court to appoint a conservator to oversee your affairs when you are no longer able to do so. A conservatorship can apply to both a person—i.e., someone to make healthcare decisions for you—and to the property contained within your estate. While you can nominate a conservator as part of your estate plan, the final decision rests with a California probate court. You can also sign a power of attorney granting another person control over your financial affairs, without the need for a separate court order.
California courts will look at whether a potential conservator exercised “undue influence” over a person. For example, an unscrupulous individual might use a conservatorship as a means of using an elderly relative's assets for their personal gain. Similarly, other persons or groups with an interest in a person's estate might use the conservatorship process to manipulate the situation for their own advantage.

In re Conservatorship of Person and Estate of Melanson


Here is a recent example from a case
decided by the California Court of Appeal. This case is discussed here for informational purposes only, and should not be construed as a complete statement of California law.

Mary Melanson and her late husband established a trust in 1994. The original trust terms provided that, upon both of their deaths, most of the couple's property would go to Catholic Extension, an Illinois-based charity that provides support for Roman Catholic dioceses. In 2009, following her husband's death, Melanson amended the trust to name Catholic Extension as a co-trustee. Catholic Extension then assumed control of most of Melanson's finances.

The following year, Melanson expressed concern to family members about Catholic Extension's management of the trust assets. She feared Catholic Extension officials would force her to leave her home and enter a nursing facility. By this time, Melanson relied more and more upon her nephew, Ralph Zehner, to assist her with personal matters. In 2012, Melanson revoked her 1994 trust—and Catholic Extension's role as co-trustee—and formed a new trust with Zehner as the successor trustee. Under the new trust, Catholic Extension would still receive the majority of Melanson's assets after her death, with Zehner receiving the rest.

Catholic Extension moved to take control of Melanson's assets. It filed a petition with a California probate court seeking to rescind the 2012 trust, restore the 1994 trust, and appoint conservators of its choosing for Melanson's person and estate. Zehner, with Melanson's approval, filed his own petition seeking appointment as conservator.

The probate court, and later the Court of Appeal, sided with Zehner. Although there was a presumption of “undue influence” given that Zehner was a beneficiary of Melanson's amended trust, the court found he overcame that presumption. Testimony showed Melanson was clearly dissatisfied with Catholic Extension's handling of her affairs, and Zehner, her closest living relative, was capably assisting her. Further, there was no evidence Melanson lacked the legal capacity to revoke her prior trust and make a new one.

Always Plan Ahead

Whenever a person holds substantial assets, disputes can arise between potential beneficiaries. A good estate plan is always the best defense. If you need the services of an experienced California estate planning attorney, contact the Law Office of Scott C. Soady today.

California Appeals Court Expands Protections Against Elder Financial Abuse

January 30, 2015

On September 3, a California appeals court issued a landmark decision on the subject of financial abuse of the elderly. California maintains strict laws designed to protect persons aged 65 and above, who are more susceptible to fraud. In this case, the appeals court found the law could apply to potentially harmful financial transactions not yet completed.

Bounds v. Superior Court of Los Angeles County

This case involves an unusual legal remedy known as a writ of mandamus. In California, a mandamus proceeding is brought by a petitioner against a lower court, and the defendant or respondent is designated the “real party in interest.” If granted, the writ is a command issued by the appellate court to the superior court.

The petitioner in this case was an 88-year-old woman diagnosed with Alzheimer's disease. Through a living trust, she controlled a business and real property in Los Angeles County. In early 2013, she entered into an agreement to sell the real property and some of the business's equipment to two buyers. The parties signed a letter of intent and proceeded to open escrow.
The petitioner did not consult with an attorney until after signing the letter of intent. At that point, an attorney advised her to renegotiate the terms of the deal, believing the buyers' offer was substantially below market value. The buyers balked, and the petitioner decided to terminate the escrow. The buyers sued the trust for performance of the sale.

The petitioner, acting for herself and the trust, filed a cross-complaint against the buyers, accusing them of elder financial abuse. The cross-complaint said the buyers took advantage of the petitioner in her weakened mental state, intentionally low-balling their offer and misleading her into believing the sale would resolve her business's financial problems.

The buyers filed a demurrer—an objection—to the cross complaint, which a Los Angeles Superior Court judge sustained. The petitioner then filed a petition for a writ of mandamus with the 2nd District Court of Appeal, seeking an order to vacate the Superior Court's decision. The appeals court granted the writ of mandamus, reinstating the cross-complaint without deciding the merits of the case.

California law says elder financial abuse occurs when a person “takes, secretes, appropriates, obtains, or retains real or personal property of an elder . . . for a wrongful use or with intent to defraud, or both.” Here, the buyers argued they did not “take” the petitioner's property—the sale never closed—and they could not be liable under the statute. The appeals court declined to read the law so narrowly. The court explained, the whole purpose of the law is “to protect elderly individuals with limited or declining cognitive abilities from overreaching conduct that resulted in a deprivation of their property rights.” It would make no sense to require the victim to wait until she was already victimized to enforce her rights under the law.

Here, the letter of intent and subsequent escrow were enough to “significantly impair” the value of the petitioner's property. It also limited her ability to borrow against the property. These are part-and-parcel of the “property rights” the elder financial abuse law is designed to protect, according to the appeals court. Therefore, the petitioner can proceed with her cross-complaint.

Always Get Advice

The potential for elder financial abuse highlights the importance of careful estate planning. It is not enough to simply create a trust or will. You should also execute a power of attorney so a competent agent can act on your behalf in the event of your mental or physical disability. It is never a good idea to enter into any transaction disposing of trust property without the advice and assistance of an attorney. Contact the Law Office of Scott C. Soady today if you have questions about this or any other California estate planning matter.

Understanding a Successor Trustee's Potential Liability

January 15, 2015

A person who makes a living trust usually names himself or herself as the initial trustee. The trust instrument should also name successor trustees to act in the event the trust's maker dies or becomes incapable of managing their own affairs. In many cases, the successor trustee is a spouse or other family member. But a successor trustees can also be a corporation. Many banks and financial companies provide “corporate trustee” services, which can be useful if the trust assets include a substantial investment portfolio.

If your trust contemplates naming a corporate successor trustee, it is important the trust instrument define the scope of that trustee's liability. A recent California appeals court decision illustrates the importance of such language. This case is discussed for informational purposes only and should not be construed as a complete statement of California law on this subject.

Sommerfield v. Wells Fargo Bank, N.A.

Jean and Jane Sommerfield, a husband and wife, created a joint living trust with themselves as the trustees. Jean Sommerfield died in 2007. Jane Sommerfield is in her 90s and in poor health. Over the years, she transferred decision-making power over her finances and healthcare to her children, including her son, Larry Sommerfield, who holds his mother's power of attorney.

In 2009, Jane Sommerfield agreed to name Wells Fargo Bank as successor trustee of the trust. Wells Fargo named one of its employees, Jann Watenpaugh, as the trust officer. Acting in this capacity, Watenpaugh advised Larry Sommerfield in late 2009 to switch his mother's health insurance coverage from an existing preferred provider organization (PPO) plan to a less expensive health maintenance organization (HMO). Sommerfield never responded to Watenpaugh's advice. Watenpaugh then went to Sommerfield's sister, who also held her mother's power of attorney for financial matters, and she agreed to the switch.

This led to confusion. In 2011, Larry Sommerfield was unable to obtain medical care for his mother under the HMO plan. He moved his mother out of the HMO and into a new PPO plan. Sommerfield then sued Wells Fargo to recover the cost difference between the new PPO and the original PPO, which he said was approximately $25,000.

A trial court granted summary judgment to Wells Fargo, finding there was “no evidence of damages” Sommerfield could recover. Furthermore, the court absolved Wells Fargo of any liability under the terms of the trust. A California Court of Appeals panel disagreed with the trial court on both issues and reversed the ruling in a decision released in August of this year.
Regarding the question of trust liability, the appeals court focused on the plain language of the trust, which said, “No trustee (other than a corporate trustee) shall be liable to any beneficiary or any heir of either of Grantors for that trustee's acts or failure to act, unless the act or failure to act constituted willful misconduct, gross negligence, bad faith or fraud.” By excluding corporate trustees, Wells Fargo was subject to the general, higher standard of care for trustees under California law, whose job it is to “administer the trust with reasonable care, skill, and caution under the circumstances.” If Sommerfield can prove Wells Fargo violated this standard with respect to his mother's health insurance, he can recover the damages sought.

Selecting the Right Successor

Selecting a successor trustee is a critical part of estate planning. You must ensure the person—or corporation—you designate to manage your affairs is competent and will act in your best interests. As with any such matter, you should consult with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady today if you have any questions.

Dealing With People to Whom You Owe Money – After You Die

January 14, 2015

The administration of an estate includes not just distributing a person's property, but collecting any debts owed to the deceased. This is why it is important to make a will naming an executor who can act in your name after you are gone. The executor stands in your place and can take any legal action to collect what is owed to you—and, by extension, the designated beneficiaries of your estate.

Here is an illustration from a recent California case of a situation where an executor must act to protect a deceased individual's property interests. This case is discussed for information only and should not be taken as a statement of the law in California. The deceased in this case passed away in 2010. Sometime prior to his death, he and his wife divorced. In the course of divorce proceedings, the couple's marital residence was sold. The husband's share was deposited into a client trust account maintained by his divorce attorney. For some reason, the attorney never released the funds to his client.

After the man's death, his executor sought payment of the funds, totaling more than $300,000. The executor obtained a court order directing the attorney to pay over the funds and provide a full accounting of his trust account. The attorney did not comply. Instead, he filed for bankruptcy.
This created a significant hurdle for the estate's recovery. Bankruptcy is governed by federal, not California law. Once a person or business files a bankruptcy petition, a federal bankruptcy judge enters what is known as an automatic stay—an order preventing any creditor from pursuing further collection against the bankruptcy filer until the judge directs otherwise.

This led to more confusion. While the bankruptcy petition was still pending, the probate court held a hearing on the estate's motion to double the attorney's liability as punishment for failing to comply with the previous orders. Although the probate court granted this motion after the bankruptcy stay was lifted, a California appeals court later held this was inappropriate. The probate court had no authority to conduct further proceedings while the stay was in effect. The appeals court therefore negated the double-liability award.

Getting Your Own Affairs in Order

This case illustrates just one example of the type of legal problem an estate may face. It also emphasizes the importance of careful estate planning. A will enables you to designate the person you believe most capable of managing your affairs. If you do not make a will, you forfeit the ability to make that choice.

It is also critical to your estate planning to maintain a current accounting of any assets and debts you have, including moneys owed to you. Such an accounting will make it much easier for your executor to quickly get up-to-speed on the financial condition of your estate. There are too many cases where an estate must be initiated years after a person's death because some previously unknown debt or property was discovered and requires administration.

A qualified California estate planning attorney can advise you on all of these issues. If you have any questions, contact the Law Office of Scott C. Soady in San Diego today.

Dealing With Real Property During Probate

December 14, 2014

It is common practice in estate planning for an individual to make specific gifts of property. Perhaps you wish to leave your house to your children or a particular family heirloom to a sibling. But what happens if the property described in your will is no longer part of your estate at the time of your death? In such cases, the gift is moot; your executor cannot distribute property that is not there.

A more complicated question may arise if your will specifies a distribution of property that conflicts with actions taken during your lifetime. A Connecticut court recently addressed such a situation. A woman left a piece of real estate in her will to a local church. However, shortly before her death, she entered into a contract to sell the property to another person. The woman's executor wished to proceed with the sale. The church sued to enforce the gift made in the will.

A Connecticut appeals court ultimately ruled for the church. Although the woman signed a contract to sell the house, the terms of the agreement were not fulfilled by the time of her death. Specifically, the putative buyer failed to secure mortgage financing. This meant the woman still owned the property on the day of her death, and Connecticut law required it be distributed in accordance with the terms of her will. The executor could only sell the property with the consent of the church, which was the designated beneficiary.

Planning Ahead to Avoid Confusion Later

California probate law requires an executor to follow the instructions contained in the deceased individual's will. Even if the deceased expressed his or her intentions to dispose of the property in a different way prior to death, what matters post-death is the signed will. The executor, after all, is acting as a fiduciary for the deceased under the terms of the will.

If a will does not direct a specific distribution of real property, the executor must petition a probate court for permission to sell during the administration of the estate. In some cases, this may be necessary to pay the expenses of the estate. For instance, if the deceased's home was his or her only asset, a sale may be required to provide sufficient funds for the payment of any debts, taxes, funeral expenses and court costs. Even where other assets can cover these expenses, a sale may still be preferable depending on the will's distribution of the remainder (or residue) of the estate. Say the deceased had four children, and left her residuary estate to all of them in equal shares. It might make more sense to sell the home and divide the cash proceeds four ways than to convey the property to all four children as co-tenants.

As always, the executor is bound by the terms of the will. It is in your interest—and the interest of your beneficiaries—to make your wishes as clear as possible in writing. If circumstances change, such as deciding to sell a property, it is incumbent you review and revise your estate plan accordingly. If you need to consult with an experienced California estate planning attorney, contact the Law Office of Scott C. Soady today.

Winding Down Your Business Through Estate Planning

December 12, 2014

A comprehensive estate plan can address the disposal of your personal assets, such as your home or retirement accounts, and any business interests you may hold. Many Americans are self-employed or participate in a business partnership. Winding down these business arrangements is a critical component of the estate planning process.

As with property, you may transfer your ownership of a business to another through a will or trust. In some cases, however, this may not be practicable. If you are a self-employed professional, such as an attorney or physician, and you do not have a surviving partner or successor, it is essential that you leave your executor or trustee with instructions on how to terminate your business—informing clients, disposing of confidential files, et cetera. If you are in a partnership or similar arrangement, such as a multi-member limited liability company, you should also make sure any agreements governing such businesses contain appropriate language dealing with your or a partner’s death.

A Family Legal Dispute

A recent California case involving the disposition of a disputed partnership illustrates what can go wrong in the process of winding down a deceased’s business. This case is discussed for informational purposes only, and should not be considered a complete statement of California law. The case involves the law practice of an attorney who passed away in 2010.

The attorney, Joseph Galligan, previously created a joint living trust with his wife as part of his estate plan. Galligan's wife died two months prior him, leaving a successor trustee to administer the trust. The trust directed the successor trustee to divide the couple's assets among six of their eight children. The trust made no provision for the other two children, including Patrick Galligan, also an attorney.

Patrick Galligan claimed he was a 50 percent owner of his late father's law practice, Galligan & Biscay. Joseph Galligan's the firm was essentially dormant at the time of his death. According to the trustee, the firm had “little or no economic value.” Nonetheless, Patrick Galligan filed a creditor's claim against the trust, arguing his 50 percent share was worth upwards of $800,000. The parties to the ensuing litigation ultimately settled in 2011. In exchange for releasing all further legal claims against it, the trust agreed to give Patrick Galligan full ownership of the law practice and $30,000.

Galligan, now acting as owner of the law practice, filed a second lawsuit against two of his siblings in late 2011, alleging they contributed to the destruction of the firm's business. A California superior court threw out the lawsuit, citing the terms of the 2011 settlement, and awarded the two siblings attorney fees. On August 19 of this year, a California appeals court panel upheld the dismissal but reversed the awarding of attorney fees.

Taking Care of Business

Careful attention to the disposal of business interests during the estate planning process can help head off disputes such as those in the Galligan case. If you operate your own business, or participate in a business partnership, it is critical to make sure all interested parties are on the same page with respect to succession. If you need assistance on this or any other estate planning question, contact the Law Office of Scott C. Soady today.

Delaware Sparks National Debate Over New Probate Laws for “Digital Assets”

December 7, 2014

“Digital assets” remain an unsettled area of estate planning law. While it is long-established that a person may leave physical assets, such as books or photo albums, to someone else via a will or trust, that is not necessarily the case for digital copies of the same items stored in an email or social media account. In fact, many popular online services, like Facebook and Apple's iTunes, expressly restrict a person's ability to transfer their account to another person.

At least one state has taken a step towards liberalizing the rules governing digital assets after death. On August 12, Delaware Gov. Jack Markell signed the nation's first law governing “fiduciary access to digital assets and digital accounts.” The new law requires an estate executor or trustee to “have the same access as the account holder” to online accounts owned by the deceased. The fiduciary may then order the service provider to copy, deliver or even delete the account in question.

The Delaware law is based on the Uniform Fiduciary Access to Digital Rights Act, a proposal adopted by the Uniform Law Commission (ULC), a nonprofit organization of legal professionals who draft and lobby for model state legislation. Delaware is thus far the only state to consider or adopt this particular uniform act.

It should be noted the Delaware law's impact is limited to residents of Delaware. As a spokesman for Gov. Markell told the news website Ars Technica, “If a California resident dies and his will is governed by California law, the representative of his estate would not have access to his Twitter account under” the Delaware law. However, if a California resident created a living trust based in Delaware, and transferred his or her digital assets to said trust, the successor trustee might try to take advantage of this law.

It is unclear if or when California's legislature might consider adopting its own version of the Delaware law. Suzanne Walsh, the attorney and ULC member who spearheaded the development of the model legislation, told Ars Technica that “California is the most important” state in influencing other states to act in this area.

But there are a number of issues for California officials to consider before following Delaware's lead. For instance, there are concerns with giving executors or trustees access to a deceased individual's email account, especially if that person held a sensitive position, such as an attorney or physician, which implicates the privacy rights of still-living clients. Although the ULC model act states fiduciaries should not be granted access to any such confidential communications, the potential for confusion must still be considered before California and other states act.

Even without formal legislation, California residents can still be proactive in addressing the future of their digital assets. The first and most important step is to review the terms of service (or license agreement) for any digital account you hold. Every company has a different policy regarding fiduciary access. Second, you should keep a list of any passwords or information needed to access your digital accounts in a secure location. Finally, you should periodically review your estate plan to ensure you have the proper fiduciaries in place to manage all of your assets, digital or otherwise. If you need assistance, please contact the Law Office of Scott C. Soady in San Diego today.

Failure to Leave a Will Can Lead to More Than Just “Sibling Rivalry”

December 5, 2014

It is important to make a last will and testament before your declining health renders you incapable of doing so. In a deteriorating physical or mental state, you may be subject to the undue influence of others who may wish to take control of your property for their own benefit. And while the law in California and other states will not recognize a will signed as the result of undue influence, settling this may require long and often costly litigation which can deplete your estate and deprive your chosen beneficiaries of the fruits of your labors.

Green v. McClintock

Here is a recent example from another state. This involved the estate of Kenneth Green, who died of cancer in 2010. Green and his brother, Albert, had fought for years over the disposition of their mother's estate. She died in 1995 without leaving a will. She did, however, leave a substantial farm in Allegany County, Maryland, and other cash assets. Neither brother bothered to open an estate for their mother until 2002, when Kenneth Green decided to take action.
The mineral rights under the Allegany farm belonged to a corporation. The president of the corporation advised Kenneth Green to obtain sole title to the farm. He also advised Green to make a will of his own, which the company's lawyer did for him in 2003.

Albert Green claimed 50% ownership of the Allegany farm. This led to litigation with Kenneth Green, who claimed the entire farm for himself. The brothers settled in 2004. Kenneth Green kept the farm while his brother retained other assets from their mother's estate.

Meanwhile, Kenneth Green's 2003 will excluded his brother and his family entirely. Kenneth Green wished to leave his entire estate to Betty McClintock, a longtime friend and co-worker. The 2003 will reflected as much.

By 2009, Kenneth Green was dying of cancer. In August of that year, Albert Green and his son, Andrew, took Kenneth Green from his hospital in Maryland to their farm in Kentucky. Andrew Green had his uncle sign a power of attorney and a new will, both naming him (Andrew) as agent and excluding McClintock. Shortly thereafter, Andrew Green used the power of attorney to transfer the Allegany farm and Kenneth Green's other assets to Albert Green.

After Kenneth Green's death, McClintock and Andrew Green each tried to probate the 2003 and 2009 wills, respectively. A Maryland circuit court eventually ruled for McClintock. It found Andrew Green committed fraud and exercised undue influence over his uncle. A Maryland appeals court upheld that decision in an opinion issued August 1 of this year, nearly four years after Green's death.

Preventing Family Disputes

It is notable this family feud began not with Kenneth Green's death, but with his mother's. Her failure to make a will led to litigation between her sons, which continued with the probate of Kenneth Green's estate. The lesson for the rest of us is to always make a will and make sure all family members are aware of your express intentions. If you need the assistance of an experienced California estate planning attorney, contact the Law Office of Scott C. Soady today.

Can a Creditor Challenge a Trustee's Mismanagement?

November 5, 2014

When you create a living trust, you transfer personal assets to a trustee, who then manages those assets on your behalf. In most cases, this won't be a problem, since you can name yourself as trustee during your lifetime. But when someone else serves as trustee, he or she owes a duty, not only to you as the person creating the trust, but to any persons you name as beneficiaries of your trust. Under California law, a trustee may not misuse (or co-mingle) trust assets for his or her personal benefit to the detriment of any beneficiaries.

Recently, a California appeals court addressed a question that apparently had not been considered before: Does a trustee owe a creditor a duty to avoid self-dealing? The appeals court answered no, reversing a lower court's decision to the contrary.

Vance v. Bizek

Wallace and Pearl Burt each had a daughter from a prior relationship. The Burts created a joint living trust, known here as the “WPB Trust,” naming both daughters, Sally Gordon and Linda Larsen, as co-trustees. The trustees were to use the income from the trust to support their parents during their lifetimes, and upon their deaths, both daughters (or their heirs) would receive an equal share of the remaining assets.

In 2011 a man named Don Bizek obtained a judgment of just under $1 million against Gordon arising from her conduct as trustee of another trust. Bizek asked a California probate court to enforce this judgment against Gordon's share of the WPB Trust. (By this time Wallace and Pearl Burt were both deceased.) The court granted Bizek's petition, and Gordon responded by disclaiming her interest in the WPB Trust. This meant her 50% share would go to her daughter, Cynthia Vance, who was not a party to Bizek's case.

Vance then filed her own petition with the probate court, seeking a declaration her mother's disclaimer was valid, and therefore Bizek could not pursue a creditor's claim against the WPB Trust assets. The court sided with Bizek, holding Gordon's disclaimer void because, while serving as trustee of the WPB Trust, she improperly transferred some of the trust's assets to herself while her mother was still alive. As the probate court saw it, Gordon's actions constituted an “acceptance of beneficial interest” in the trust.

The Court of Appeals disagreed. In a decision issued on August 12 of this year, a three-judge panel said Gordon's actions did not constitute an acceptance of her share of the trust. She simply exercised control over her mother's assets, during her mother's lifetime, in a situation akin to a power of attorney. More to the point, Bizek could not challenge Gordon's co-mingling of trust and personal assets. California law allows a trust beneficiary to challenge a trustee's mismanagement. But Bizek was not a beneficiary of the WPB Trust; he was a purported creditor. Gordon owed him no fiduciary duty.

Making Sense of Trusts

Cases like this make trusts sound complicated. But this is an exceptional situation, albeit one that highlights the importance of working with an experienced California estate planning attorney and selecting the right trustee. If you are considering creating a living trust, contact the Law Office of Scott C. Soady in San Diego today.

How Does a “Survivorship Clause” in a Will or Trust Work?

November 3, 2014

In making a will or trust, you should consider the possibility your chosen beneficiaries will not outlive you. It is therefore common practice to include a survivorship clause, specifying that a gift will lapse unless the recipient survives you. Some survivorship clauses require the recipient survive you by a specific period of time, say 30 or 60 days, in order to inherit.

A common survivorship clause scenario involves a married couple that dies simultaneously, for example in a car accident. The spouses may structure their wills or trusts to dictate which spouse is deemed to have survived the other. Absent such provisions, California law will presume each spouse predeceased the other. This means any estate will be distributed assuming there was no surviving spouse.

Marble v. Fibiger

Another survivorship clause scenario was the subject of a recent California appeals court decision. This case is discussed here for informational purposes only and should not be construed as a general statement of California law on the subject. In this case, one daughter died with 60 days of her mother, and the surviving daughter argued her sister's estate should not inherit from the mother's estate due to a survivorship clause.

Kenneth and Doris Porter established a joint revocable trust in 1990. Kenneth Porter died in 2006. The trust was then divided into what is known as an A/B trust. Part of the trust remained under Doris Porter's control. The other part, representing Kenneth Porter's assets, went into a bypass trust, which became irrevocable upon his death. Doris Porter would receive the income from the bypass trust assets, and upon her death, the trust assets were to be divided among the couple's two children, Cynthia Ayala and Lora Fibiger.

Doris Porter died in January 2009. Fifty-eight days later, Ayala died of cancer. The original trust contained a 60-day survivorship clause. Fibiger, the surviving daughter and now sole trustee of the trust, argued this meant her sister's share of the bypass trust had elapsed. Furthermore, Ayala also signed a document just before her death releasing her share of the bypass trust to Fibiger in exchange for a one-time payment.

Ayala's son and executor, Chris Marble, challenged both the application of the survivorship clause and the release his mother signed as a product of Fibiger's undue influence. A probate court agreed with the Ayala estate on both issues. Fibiger, acting as trustee, appealed.
With respect to the survivorship clause issue, the Court of Appeals agreed with the Ayala estate and the probate court. The survivorship clause referred to Kenneth Porter's death, not that of his wife. Ayala's gift fell under the bypass trust, which only came into existence as a result of Mr. Porter's death—and that trust simultaneously became irrevocable. Therefore, the court concluded, Ayala only had to survive her father—who died three years before her—by 60 days. The timing of her mother's death was irrelevant. (The appeals court went on to overturn the probate court's decision on the undue influence question, finding there was no evidence Fibiger abused her position or forced her sister to sign away her rights to most of the bypass trust assets.)

Draft Carefully

In a case like the one described above, the courts apply the written terms of the trust itself rather than a general principle of law. That is why it is essential any trust, will or other estate planning document be carefully drafted to avoid ambiguity or misunderstanding. Contact San Diego estate planning attorney Scott C. Soady today if you have any questions.

What Happens When an Equal Distribution of Property Is Not So Equal?

November 1, 2014

If you have multiple children, you may wish to structure your estate plan so that each child receives an equal share of your property. Sometimes this is easier said than done—or written. If your will or trust contains conflicting or ambiguous language regarding the division of property, a probate court may have to attempt to determine what your actual intent was. This adds time and money to the cost of administering your estate, which ultimately reduces the amount of any gift left to your children.

Estate of Ellis

Here is a recent example from Iowa. In 2012, a longtime married couple passed away within a couple weeks of one another. They left three surviving adult children. According to each of their wills, upon both of their deaths, the couple left several parcels of real estate to their children. The will contained specific descriptions and estimated acreage for each gift.

The problem was that the descriptions did not match the acreage. The couple clearly intended to leave each child about 210 acres of property. But following the actual property descriptions, one child would receive 259 acres, another would receive 239, and the third just 140.

The executor of the estates asked the probate court to “construe and interpret the wills” such that each child would actually receive an equal amount of property. The court agreed. One child—the one who would take 259 acres if the will were construed according to the property descriptions—understandably appealed. But the Iowa Court of Appeals agreed with the probate court. The appeals court said the wills were ambiguous—because the property descriptions did not match the stated acreage amounts—and the probate court properly resolved the matter by following the clearly manifested intent of the deceased couple to divide their property among the children equally.

Make Sure Your Will Reflects Your Intentions

This is an Iowa case and a California court might resolve the same situation differently. However, even California probate courts look to the intent of a person making a will when attempting to resolve any ambiguity or contradiction in the precise wording. The best way to avoid such issues is to double-check any property distributions to make sure they match your intended distribution pattern. Furthermore, you should periodically revise and update your will to account for changes in your assets.

Before making any decisions about your will, you should always consult with an experienced California estate planning attorney who can advise you on the best way to avoid potential conflicts and ambiguity. Contact the Law Office of Scott C. Soady in San Diego today if you need assistance.