Estate planning for unmarried couples in a long-term relationship presents a unique set of legal challenges. California does not recognize “common law” marriages, but in 1976, the state’s Supreme Court held that unmarried couples could enter into binding legal contracts (either express or implied) allowing them to “pool their earnings and to hold all property acquired during the relationship in accord with the law governing community property.” These so-called Marvin agreements-named for actor Lee Marvin, the defendant in the 1976 case-allow courts to look at the overall nature of a non-marital relationship and grant equitable relief in certain cases.
Marvin agreements can also affect California estate planning. Recently, the California Court of Appeal opined for a second time in a dispute between a former unmarried couple over the fate of a living trust they established to hold their common home. The case is discussed here for illustrative purposes only and should not be construed as a binding statement of California law.
An Ex-Partner Still Owes a Fiduciary Duty
Robert Kimball and Elizabeth McClutchey entered into a relationship sometime in the 1980s. They lived together from 1989 until their relationship ended in 2005. They never married. In 1999, the couple purchased a home on Costabelle Way in La Jolla. Kimball sold some of his company stock to finance the purchase.
The couple decided to create a trust for purposes of purchasing the home, primarily because McClutchey, then working as a prosecutor in San Diego, did not want her name appearing in public land records. An estate planning attorney drafted what became known as the Costabelle Trust. McClutchey and Kimball were the settlors of the trust, but only Kimball was named trustee, again to keep McClutchey’s name out of any public records. The trust declared that any “community property” transferred into the trust would remain such.
In 2006, after McClutchey and Kimball ended their relationship and she moved out of the Costabelle home, Kimball executed a deed transferring the property from the Costabelle Trust to his personal trust. McClutchey subsequently sued Kimball for breach of contract-referring to an implied Marvin agreement to treat the home as community property-and breach of the Costabelle Trust. A jury ruled in favor of McClutchey on her breach of contract claim and awarded damages, but in 2010, the Court of Appeal reversed the verdict after determining the property was governed by the trust. In California, trusts are generally interpreted and enforced by a probate judge, not a civil jury. The appeals court thus returned the case to the trial court for an interpretation of the Costabelle Trust.
The probate court determined McClutchey possessed a one-half interest in the Costabelle property under the terms of the trust and awarded her damages. This time, the Court of Appeal upheld the decision. The appeals court noted there was “substantial evidence” that Kimball breached his fiduciary duty to McClatchey as trustee of the Costabelle Trust. Kimball, the court said, “openly denied her such interest and deprived her of any use of or benefit from the property after March 31, 2007.” She was therefore entitled to “the reasonable and fair market value of her share of the rental value of the Costebelle property during the time in which Kimball had the exclusive use and possession of the property and denied her any benefit from the asset.”
Protecting Your Interests
As this case demonstrates, trust disputes need not only arise after the death of a settlor. When two people, married or unmarried, co-mingle assets in a trust, it’s important both parties understand their legal duties to one another outside of any romantic relationship. You should always work with a qualified California estate planning attorney in creating any trust. Contact the Law Office of Scott C. Soady in San Diego if you have any questions.