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Making a Federal Case Out of Your Estate

Estate planning is intended to prevent disputes from arising after your death. Of course, good intentions aren’t always enough. Even the most carefully planned estate may be subject to fighting among aggrieved relatives or other would-be heirs. In some cases, these fights can tie up the courts (and your estate) for many years.

For the most part, when lawsuits do arise over a trust or estate, things are handled at the state level. In California, the superior courts act as probate courts to resolve matters like will contests or petitions to remove a trustee. The decisions from these courts may then be appealed to the California Court of Appeals, and, in rare instances, to the California Supreme Court.

Federal courts generally stay away from probate matters. As far back as 1789, when Congress created the federal courts, the probate of estates was considered a purely state affair. But this probate exception to federal jurisdiction is not without limits. In 2006, the U.S. Supreme Court said federal courts could hear cases that touched upon probate matters if the underlying dispute involved a subject (such as tort law) that was normally subject to federal jurisdiction.

Fong v. Beehler

A federal magistrate judge in California recently issued an instructive decision that illustrates how and when a probate case may be heard in federal court. The case involves a challenge to a trust. In 1993, Glenn and Annie Fong created a revocable trust as part of their estate plan. They transferred their California home and other residential properties into the trust. Upon their deaths, the Fongs named their four children as equal beneficiaries of the remaining trust assets.

Annie Fong became sole trustee after her husband’s death in 2007. Thereafter, according to one of the children, Randolph Fong, two of his siblings “took advantage” of their mother’s poor health and squandered nearly $5 million of the trust’s assets. After Annie Fong’s death, Randolph Fong sued the two siblings, who succeeded their mother as co-trustees, seeking a full accounting of the trust as well as redress for what Fong claimed were improper financial transactions.

Randolph Fong filed his lawsuit in the Superior Court of Alameda County. Fong himself lived in the State of Washington. The two sibling-trustees named as defendants lived in California and Michigan, respectively. A fourth sibling, Cynthia Young, who later filed her own lawsuit against the trustees, also resided in California.

The two defendants had the case transferred (or “removed”) from the superior court to the U.S. District Court for the Northern District of California. Fong and Young objected to this transfer. They maintained federal jurisdiction was not appropriate in this case. The magistrate judge agreed.

Under federal law, a federal court has jurisdiction in a civil lawsuit only when (1) the amount in controversy exceeds $75,000-which it did here-and (2) there is “complete diversity of citizenship between the opposing parties.” That means all of the plaintiffs are from different states than all of the defendants. That wasn’t the case here. Young, a plaintiff, is from California, as is one of the siblings named as a defendant. Therefore, the magistrate judge said, the case should be returned to Alameda County Superior Court.

Keeping Disputes Out of Court

In preparing your own will and trust, you might give consideration to the potential disagreements that may arise among your heirs, especially if they live in different states. Careful estate planning can avoid many, if not all, disputes, saving your future estate time and money. Contact the Law Office of Scott C. Soady today if you have any questions.

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