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.

When Does a “Revocable” Living Trust Become Irrevocable?

October 31, 2014

A revocable living trust is a flexible estate planning device that allows you to transfer your property to a trustee--usually yourself--thereby reducing those assets subject to a court-supervised probate after your death. Your trust document names a successor trustee to assume responsibility for the trust assets after your death. And as the name implies, a revocable living trust may be modified or revoked at any point during your lifetime.

But what about after your lifetime? Does a successor trustee have the right to modify the terms of your trust? That was the question before a California appeals court recently, which had to decide whether the spouse of a deceased trust grantor could alter the distribution of assets he specified.

Wright v. Tufft

James and Mary Tufft signed a revocable living trust in 1997. Although they served as co-trustees, all of the assets in the trust were originally the separate property of James Tufft (as opposed to marital property owed by both of them). The Tuffts had no children together but each had children from prior relationships. James Tufft’s trust stated that upon the death of both his wife and himself, all trust assets would be divided among his two daughters; Mary Tufft’s own three children would not inherit anything from the trust.

However, about 10 years after her husband died, Mary Tufft, now serving as sole trustee, modified the trust to name one of her children, Linda Wright, as successor trustee and naming her children as beneficiaries, while disinheriting her late husband’s children.

Mary Tufft died in 2012. Wright then asked a California probate court to name her successor trustee pursuant to her mother’s amendment. Margaret Tufft, one of James Tufft’s children, objected to the petition. She argued, under the terms of the original trust, she was the lawful successor trustee to Mary Tufft, and her stepmother had no authority to alter that. Furthermore, the trust became irrevocable upon James Tufft’s death, and therefore Mary Tufft also could not alter the distribution or beneficiaries.

The probate court agreed with Margaret Tufft and rejected Wright’s petition. The California Court of Appeals, in a decision issued on July 28 of this year, agreed that Linda Wright had no claim to be the successor trustee. The appeals court said nothing in the language of the trust authorized Mary Tufft, acting as the surviving trustee, to appoint her daughter as she did. Nor was there any provision giving Mary Tufft the power to revoke or amend the trust in any substantial way after her husband’s death. There was nothing ambiguous here. James Tufft clearly intended for his own children to receive the trust assets after he and his wife died.

Drafting a Proper Trust

As this case shows, the common practice in drafting a revocable living trust is that it becomes irrevocable after the settlor’s death. But careful drafting of the trust is essential to avoid any confusion on this point. That is why, if you are thinking about creating a living trust for your own assets, you should work with an experienced California estate planning attorney. Contact the Law Office of Scott C. Soady today if you have any questions.

Is a Will Necessary When There Is No Probate Estate?

October 12, 2014

A last will and testament is a document that applies only to your “probate estate.” A probate estate may not include all of your assets. In some cases, you might not even own any assets subject to probate.

Probate Assets

Generally, any asset titled solely in your name is a probate asset. For example, this would include your bank account or a house owned by you alone. After your death, these assets become part of your probate estate and may be disposed of according to the terms of your will. If you leave no will, your probate estate is subject to California's intestacy law, which distributes property to your closest surviving relatives.

Non-Probate Assets

If you own an asset together with other persons in a “joint tenancy,” this is a non-probate asset. Let's say you are married and you and your spouse own a house as joint tenants with right of survivorship. When you die, your spouse automatically becomes the sole owner of the property. The house does not pass to your probate estate because of the joint tenancy. The same would apply if you and your spouse co-owned a checking account.

Similarly, an asset is also non-probate if it is paid over to someone other than your estate after your death. This commonly includes life insurance policies or retirement accounts. If you name your spouse as beneficiary of your life insurance, for instance, then the policy itself does not pass to your probate estate.

Finally, any assets you transfer to a trust falls outside of your probate estate. Many people choose to set up such living trusts—which you may revoke or amend at any point during your lifetime—specifically to avoid probate. Instead of an executor or personal representative overseeing your probate estate, your trust names a successor trustee to manage or distribute any assets after your death.

Do I Even Need a Will?

So let's say you die without any probate assets. Does this mean you do not need a will? Not necessarily. If you choose to establish a living trust, there is always a chance you will neglect to transfer one or more assets into the trust. To cover your bases, you can sign what is known as a “pour-over” will, which is basically a last will and testament that leaves any remaining probate assets to your trust.

But what if you have no assets at all? A will is still advisable as you may acquire assets in the future. It may also be necessary to establish an estate after your death for other purposes, such as paying any debts. A will does not only distribute property; it allows you to appoint a personal representative to manage your interests.

Regardless of your asset situation, you should speak with an experienced California estate planning attorney who can advise you on the best course of action regarding a will or trust. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

The Dangers of Using a Pre-Printed Power of Attorney

October 10, 2014

A power of attorney is a legal document whereby a person, known as the “principal,” grants to another person, known as the “attorney-in-fact,” the authority to act on his or her behalf in certain financial matters. The attorney-in-fact is an agent and therefore owes a fiduciary duty to the principal. California law requires an attorney-in-fact to keep his or her personal property separate from any owned by the principal and managed by the attorney-in-fact. This is to prevent self-dealing, where an attorney-in-fact may attempt to enrich him- or herself at the expense of the principal.

As it is a binding legal document, it is always best to retain a qualified California estate planning lawyer to prepare a power of attorney. Although pre-printed power of attorney forms are widely available, they may offer insufficient protection for principals, especially when such documents are subjected to the laws of another state. A recent decision by an appeals court in the State of Washington, called upon to interpret a pre-printed power of attorney signed in California, illustrates the problems that may arise.

Boyd v. Pandera

Edith Clark had seven children, including daughters (and half-sisters) Mary Pandera and Ethel Boyd. In Clark's declining years, she lived with Pandera. In 2000, they lived in Las Vegas, Nevada. In late 2001, Boyd and Pandera decided to move Clark into a nursing home near San Diego, California. The nursing home required Clark to sign a power of attorney designating an attorney-in-fact. Clark and her daughters obtained a pre-printed form from a local stationary store and executed it in the presence of a notary public. Clark named Pandera as her attorney-in-fact.

Clark only resided in the nursing home a few days before returning to live with Pandera in Nevada. The California power of attorney remained in effect. Two months later, the pair moved to Hawaii to live with Pandera's son. While in Hawaii, Clark received an inheritance from her deceased brother's estate. Pandera, exercising her power of attorney, used the money to purchase a house in Hawaii, which she titled in her name. She said this was to “repay” her for caring for her mother the past several years.

Pandera and Clark eventually moved back to the U.S. mainland and lived in a town just outside Spokane, Washington. It was there Clark died in 2009. She did not leave a will.

By this time, Pandera and her half-sister Boyd had been fighting over their mother's care for some time. The probate court in Washington named Boyd executor of Clark's estate. In that capacity, Boyd sued Pandera, claiming she improperly gave herself the Hawaii house in violation of Clark's power of attorney. The probate court agreed with Boyd and ordered Pandera to pay damages to the estate.

But on July 24 of this year, the Washington Court of Appeals reversed that decision. The appeals court said Washington law, which applies in this case, does not require an attorney-in-fact to keep her property separate from that of the principal, nor does it prohibit the principal from making gifts to the attorney-in-fact. The language in the pre-printed power of attorney form Clark used was, as the appeals court saw it, merely a required notice stating California law on the subject: “The language was not an express provision and, thus, did not set the standard of fiduciary care in this case.”

Make Sure Your Estate Plan Is State-Appropriate

As this case demonstrates, probate laws vary from state to state. That is why it is never advisable to use a pre-printed form tailored to a single state's laws. And if you have relocated to California from another state, that is why you should consult with a local estate planning lawyer who can ensure your power of attorney and other documents are properly updated to reflect this state's laws. Contact the Law Office of Scott C. Soady in San Diego today if you have any questions.

Collecting Payments After Your Death

September 26, 2014

Although you might think of an estate plan simply as a way to dispose of your existing assets, in fact your future estate might also be responsible for collecting additional income generated after your death. If you work in the entertainment industry, for example, your estate may still collect residual payments for years—even decades—after you're gone. According to a recent report by the entertainment website Deadline Hollywood, the Screen Actors Guild (SAG-AFTRA) currently holds more than $40 million in unpaid residuals that belong to living and deceased members. In these cases, the union simply cannot locate the person or his or her estate to make the payments.

What Is a “Residual”?

A residual is any payment made to a performer in a television show or movie for the rebroadcast of that work. For actors, residuals are governed by a series of labor agreements between the studios and SAG-AFTRA. Since the 1970s, residuals have been unrestricted, meaning the performer must receive a payment for each rebroadcast without limit. This means residual payments may continue well after the performer's death.

Although SAG-AFTRA is responsible for administering these payments, residuals are the personal property of the performer, who may leave them to anyone in a will or trust. If a performer fails to make an estate plan, residuals would then pass under the intestacy laws of the state governing the person's estate.

Under SAG-AFTRA rules, neither the union nor the studios are obliged to split residual payments among multiple beneficiaries. So if a performer chooses to name multiple beneficiaries, those persons must agree upon a single “nominee” to receive the residual payments after the performer's death. The nominee is then responsible for dividing the residuals as specified by the performer's will or trust. This nominee may be a bank or other corporate trustee.

Unclaimed Property

As the Deadline report noted, SAG-AFTRA has been unable to locate the estates or beneficiaries of many well-known deceased performers, such as comedian Andy Kaufman, who died in 1984. A Deadline writer managed to locate Kauffman's daughter, who said she was unaware SAG-AFTRA had continued to collect her father's residuals. While SAG-AFTRA has an entire department dedicated to locating heirs and estates, it is apparently overwhelmed by the sheer number of “missing” recipients.

It is important to note that while performers may earn residuals in perpetuity, once a studio makes a payment, SAG-AFTRA only has to hold it for three years. If it remains unclaimed by a performer's estate, the union may simply keep the money. This mirrors California's unclaimed property law, which requires banks and other financial companies to turn over a customer's account to the state controller if there has been no contact for three years.

Locating and collecting unclaimed property is actually a common duty of estate executors and trustees. That is why it is essential you prepare a proper estate plan and designate a person or persons to ensure every asset in your name is properly accounted for. Contact the Law Office of Scott C. Soady in San Diego today if you have questions about this or any other estate planning matter.

Establishing Paternity for Probate Purposes

September 25, 2014

When the law speaks of “heirs,” it refers to those individuals entitled to inherit a person's estate in the absence of a valid last will and testament. For example, if you live in California and die without a will or a spouse, but you do have children, those children are your heirs and inherit your estate. “Children” includes your biological offspring, as well as any children you legally adopted during your lifetime.

But what about children whose paternity is unsettled? California law states, for purposes of inheriting an estate, paternity must be “established by clear and convincing evidence that the father has openly held out the child as his own.” A court may also enter an order during the father's lifetime establishing paternity, whether or not he acknowledges a child as his own. If for some reason the father was unable to acknowledge paternity, it may be established after his death, also by the “clear and convincing evidence” standard.

Different States Have Different Rules

In some states, it is not enough for an alleged father to simply acknowledge a child as his own. An appeals court in Georgia recently dealt with such a situation. The deceased, James Hawkins, died without a will or spouse. He had, however, acknowledged his girlfriend's son as his child. In fact, Hawkins was not the biological father. He did acknowledge paternity on an official state form, but the document was not notarized. Georgia law requires a “sworn statement” to prove paternity, and both a trial court and the Georgia Court of Appeals agreed the un-notarized form did not qualify.

One of the appeals court judges noted this case illustrated the problem with “administrative legitimation,” which has been permitted in Georgia since 2005. The judge explained the process enables couples to “create a wholly fictitious father-child relationship, which is tantamount to an adoption without any of the procedural and due process safeguards of the adoption statutes for the actual, biological father.”

Plan Ahead to Avoid Confusion Later

Like Georgia, California allows a person to acknowledge paternity via a properly notarized form. But unlike the case discussed above, California does not necessarily require written proof paternity in order for a child to inherit. As a California Court of Appeal panel noted in a 2011 decision, the law only requires a putative father “acknowledge” the child as his own: “A written acknowledgment [is] not required, and proof by way of a word or act will suffice.” Again, a court would look at all of the available evidence in determining whether a parent-child relationship existed

Of course, issues regarding legitimacy only matter if you die without a will. If you make a proper estate plan, you can leave your estate to whomever you wish, regardless of your specific legal relationships. A good estate plan is especially important if you have property in different states—say you live in California but own real estate in Georgia—and you want to avoid a complicated examination of your family situation under possibly conflicting state laws. If you have any questions about this, or any other estate planning issue, contact the Law Office of Scott C. Soady in San Diego today.