Judges bound to follow letter of the law, no matter the result

Often, judges will try to get the right result, even if it means doing legal gymnastics to get there.  But not always.  In Estate of Irving, 2011 Cal.App.Lexis 1515, Irving Duke made a will that provided for a gift of his entire estate to his wife.  He also provided that if he and his wife died simultaneously, then his estate would divided equally and distributed to two charitable beneficiaries.  There was no provision for what would happen to his estate if he outlived his wife.  Mr. Duke outlived his wife by five years, and died without issue (children, grandchildren, etc.).  Based on a strict reading of the will, there was no place for his property to go, meaning by outliving his wife, his will created an intestacy.

The charities filed a petition for probate of Mr. Duke's estate and asked the court to rule that Mr. Duke intended that his estate was to be distributed to them.  In support of this, they introduced evidence of Mr. Duke's intent including copies of annuity agreements favoring the charities, and testimony from witnesses of conversations where Mr. Duke confirmed his intent to give his estate to the charities.  Mr. Duke's  nephews, who would receive his estate if there was an intestacy, objected.

The court ruled that the language of will was unambiguous, even if it didn't make sense, and even if it appeared that Mr. Duke's intent was to give his estate to the Charities if he outlived his wife.  Becuause the language was clear, the court could not consider extrinsic evidence to determine Mr. Duke's testamentary intent. 

The court was not happy with its own ruling, as evidenced by this closing language:

Recognizing “that a will is to be construed according to the intention of the testator, and so as to avoid intestacy” (cites), perhaps the rule regarding the admission of extrinsic evidence should be more flexible when a testator's conduct after an event that would otherwise cause his will to be ineffective brings into question whether the written word comports with his intent. ... Perhaps it is time for our Supreme Court to consider whether there are cases where deeds speak louder than words when evaluating an individual's testamentary intent.

Wow.  They are practically begging the charities to appeal their decision, and for the California Supreme Court to reverse it.

For all you estate planners out there, let this be a lesson to you: draw a diagrm of your plan.  It will help you find holes like this one.  It is too expensive and time-consuming to rely on a ruling from the California Supreme Court to fix your error.  Assuming there is an appeal.  And the court Supreme Court agrees with the Court of Appeals' plea.

CEB Drafting Revocable Trusts October 28

Just a reminder that I will be moderating an all-day panel discussion on Drafting Revocable Trusts, put on by Conitunuing Education of the Bar.  Check out CEB's web site for more details.  Registration starts at 9:00 a.m. and runs to about 5 p.m., and is located at the Bar Association of San Francisco's offices at 301 Battery Street, San Francisco.

I hope to see you there!

The Future

I'm a little sheepish about jumping on the Steve Jobs-in-memoriam bandwagon, but I feel compelled to express a few thoughts.  His impact on the world we live in today can scarcely be overstated.  You've heard or read it before, about how we now communicate, buy and listen to music, play video games and even watch video, has been irreversibly changed.  Good or bad, it will never be the same.

What does this have to do with estate planning? Or even the law?  Well, there is no question that the economy over the last few years has had an impact on the way we do things as well.  I believe that these changes are also irreversible.  For estate planning, as people have become more price-sensitive, they have become more likely to try to do this themselves.  Rather than paying an attorney a few thousand dollars for an estate plan, they are more likely to use web sites like LegalZoom and Rocket Lawyer, or storefront document preparers, or programs like WillMaker.  Good or bad, it will never be the same.

Steve Jobs had a relentless vision of a future that made everything better for everyone.  He wasn't constrained by the past.  The technological and economic transition we are now in is an opportunity for estate planning attorneys to look at the example of Steve Jobs and make the changes necessary to thrive in the future.

Good or bad, it will never be the same.

Automatic (for the most part) changes in 401k beneficiaries

Always with their finger on the pulse, the WSJ recently published this article on changes that occur to 401k beneficiaries when a participant spouse gets divorced, remarries or dies without changing the name of his or her former spouse as beneficiary.  The rules surrounding IRAs and 401k plans are incredibly complex, and for 401k plans, there is the additional complexity of ERISA laws, which preempts California community property laws in most cases.

Wall Street Journal on Disinheriting a Child

The WSJ published an excerpt from a new guide by Rachel Emma Silverman on how to effectively give one of your children less money than the rest.  I work strenuously to talk clients out of this because it will in most cases cause resentment between the child who gets less and any other children or beneficiaries.  Nevertheless, clients sometimes have good reasons for doing it.  Ms. Silverman does a good job of summarizing what to think about if you are considering an unequal distribution plan.

Ensuring Another Bite at the Apple

This post is NOT about Steve Jobs.

Instead, it is about the court's propensity to allow parties to fix problems with their pleadings, rather than using their powers to dismiss an action for good.

Frank Dito was 94 when he married 28-year-old Elenice, who was from Brazil.  Elenice worked as a housekeeper for Frank and his then wife Roseana.  Frank and Elenice married two years after Roseana died.  The two signed a prenuptial agreement.  Frank and his former wife Roseana had an estate plan that Frank never updated after Roseana died.  When Frank died in 2007 (when he was over 100 years old), Frank and Roseana's daughter filed a petition for probate of Frank's pourover will, which identified Roseana as his wife.  Elenice filed petitions to set aside the prenuptial agreement as unenforceable, and to take a share of her husband Frank's estate as an omitted spouse.  The court ruled that Elenice was the surviving spouse of Frank, that she was entitled to a share of his estate as an omitted spouse, and that the prenuptial agreement was unenforceable.

After the court's ruling, Frank's daughter filed a petition alleging that Elenice committed financial elder abuse against Frank, and that under the Probate Code, she should be deemed to have predeceased Frank, taking nothing under his estate.  Elenice demurred on the grounds that Frank's daughter's petition was barred by the doctrine of Res Judicata because the court had already concluded that Elenice was an omitted spouse and was entitled to a share of Frank's estate.  The trial court agreed, and sustained the demurrer without leave to amend.  Frank's daughter appealed.

The appellate court reversed the lower court's ruling.  Res Judicata only works where the same "primary right" is at stake.  Here, the appellate court found that the primary right in the first action was whether Elenice was entitled to a share of her husband Frank's estate as an omitted spouse.  The primary right in the second petition was that of Frank not to be abused or defrauded.  Since the two actions arose from different primary rights, the doctrine of Res Judicata did not apply.

The appellate court did find other reasons for the trial court to sustain Elenice's demurrer, but those reasons could be cured by amendment to the petition, and so the appellate court held that the demurrer should be sustained with leave to amend.

In my 10-plus years as a litigator, I cannot remember a single instance of a court sustaining a demurrer without leave to amend. Not that it hasn't happened to me.  I just can't think of any right now, which suggests to me how rare it is.  Courts are very averse to taking away someone's day in court, and will usually only throw something out entirely in extreme situations, such as where a statute of limitations has expired.  Courts are much more willing to pull the trigger once a case has been argued on its merits.

Estate of Dito, 2011 Cal.App. LEXIS 1104.

Reminder: Trusts 101 Seminar September 19

On Mondy, September 19, 2011 I will be speaking on drafting revocable trusts and ethical issues for estate planning attorneys at the Oakland Marriot. In addition, Veronica Cerruti will be giving an overview of trusts, and will talk about irrevocable life insurance trusts. Daniel Newbold will speak on using trusts for tax reduction, and grantor trusts. Wrapping it all up, Christing Beraldo will speak on trusts for the disabled. It is part of the all-day seminar "Trusts 101" put on by National Business Institute. For more information, click here.


Hope to see you there!

ABA Journal Blawg 100 Nominations

The ABA Journal is putting together its Blawg 100 list of the best legal blogs.  As you know, I've worked tirelessly to promote the proper use of the California Probate Code through this blog.  Don't be shy, go the site and submit a "friend of the blog" brief for California Trust & Estate Lawyer!

More Speaking Engagements in October

On Friday, October 28, 2011 I will be moderating Trusts 101, an all day panel discussion put on by Continuing Education of the Bar. It will be held at the Bar Association of San Francisco, 301 Battery Street. Topics will include:

• The basic elements of a revocable living trust
• Tailoring the trust to your client’s needs
• Trustee selection and duties
• The correlation of will and trust
• Trust accounting and taxes

For more information, go to CEB CLE Programs.

Mental Capacity and Trusts

Trusts are essentially contracts. The creator of the trust contracts with the trustee to hold certain property for someone's benefit. In California, revocable trusts have almost completely replaced wills as the method to dispose of a person's property when they die. The problem is, the mental capacity necessary to execute a will is different than the mental capacity necessary to execute a contract. Testamentary capacity to make a will is quite low. To execute a will, you basically have to know: (1) what your property is, (2) who the people you are giving your property to are, and what you are giving them, and (3) that you are making a will and what that means. Capacity to enter into a contract is higher. When someone is alleged to lack the capacity to execute a trust, which is essentially a will substitute, which standard do you use?

The answer, of course, is it depends. Mom and Dad executed a trust in 1992. Mom died in 1993. Dad, who had started a relationship with Girlfriend while Mom was still living, amended the trust to make substantial gifts to Girlfriend. Not surprisingly, when Dad died, Children petitioned to have the amendments set aside on the grounds that Dad lacked capacity, and was unduly influenced by Girlfriend to make the gifts to her. Girlfriend claimed the lower will capacity was all that was needed, whereas the Children alleged the higher contract standard applied.

The California Court of Appeals for the Second District (Los Angeles) held that, where a trust or trust amendment closely resembles a will in content and complexity, the lower testamentary capacity for wills is proper. In other words, if the trust is a will substitute, the level of capacity needed to execute it should be no higher than that necessary to execute a will.

Although trusts have been used as will substitutes in California for over 20 years now, the law is still catching up in the reconciliation between the law of wills and the law of contracts.

Andersen v. Hunt, Case No. B22107

Upcoming Speaking Dates

It's embarassing that I haven't posted since March, but my day job just keeps getting in the way.

Anyway, Mark your calendars for September 19, 2011. I will be presenting for the National Business Institute on revocable living trusts and ethical considerations for estate planners. Here are the particulars:

September 19, 2011
Marriot City Center
1001 Broadway, Oakland, CA 94607
8:30 a.m. to 4:40 p.m.

The seminar is entitled "Trusts 101" and is directed toward estate planning attorneys, financial planners, accountants and trust officers.

For more information, visit .

How much is enough? The Clear and Convincing Evidence Standard

How much proof do you need to meet the "clear and convincing" evidence standard to show a person intended a writing to be their will? In Estate of Stoker, the court of appeals for the Second Appellate District shows us in, shall we say, colorful detail.

The fact start out ordinary enough. Steven Stoker signed a will and trust in 1997. He died in February, 2008. His will nominated Destiny Gularte as the executor of his will. She petitioned the court for probate in March 2008, and sent a notice to the beneficiaries of the trust per Probate Code section 16061.7 and 16061.8, notifying them that they had 120 days to contest the trust.

In April 2008, Steven's daughter Denine petitioned the court to probate a later, handwritten will, signed in August 28, 2005. That will revoked the 1997 trust and gave his estate to his two children equally. There were no witness signatures to this will, but there were two witnesses to Steven's signing of the will. One witness testified at trial that Steven told her to get pen and paper. He then dictated the 2005 will to her, he then signed it and told her this was his last will and testament. Another witness saw Steven sign the will.

This was not all, though. Perhaps feeling the need to drive home the point unequivocally that he intented to revoke the 1997 will, he then, in front of the witnesses, proceeded to urinate on the original of the 1997 will, and then burn it.

The court first held that the petition to probate the 2005 will was sufficient to constitute a contest of the 1997 trust, since the will states specifically that it revokes the trust.

The court then got to the fun part. The Probate Code in California was amended in 2009 to allow wills that do not necessarily follow the formalities required for a valid will if it can be shown by clear and convincing evidence that the testator intended the will to be his or her last will when they signed it. (Prob. Code section 6110 (c)(2).) The court of appeal upheld the trial court's ruling that the clear and convincing evidence standard was met, that Steven Stoker intended to revoke the 1997 will, and that he also intended the 2005 will to be his last will.

Now you know what it takes to meet the clear and convincing evidence standard to show that an otherwise defective will (no witness signatures) was intended to be the testator's will. I will not, however, go so far as to counsel my clients to urinate on and then burn the wills they intend to revoke. If they want to do that it is up to them. I will say, though, that if they do decide to take that extra step, the Court of Appeals for the Second District will conclude that it meets the clear and convincing evidence standard.

Will JabberJury.com Render Litigators Obsolete? - Law Firm Business - Strategist

I don't typically re-post articles, but in this case I just couldn't help myself.

Will JabberJury.com Render Litigators Obsolete? - Law Firm Business - Strategist

Litigation is about half of my practice (the other half is a mix of estate planning, probate and trust administration). Somehow, I don't feel threatened by the likes of JabberJury. This is probably because the kind of dispute that someone would try to resolve through this web site is likely not the kind of dispute that needs a lawyer, and is very likely not the kind of dispute that I would take on, anyway.

With that said, I think JabberJury is a great idea. My heretical thought for the day is that too many people are too eager to hire lawyers to resolve their disputes, and the lawyers are often do too much work that has little benefit to their clients. Maybe as sites like JabberJury evolve, they can turn into something that really is a benefit to everyone.

More on the estate tax

This Sunday New York Times article talks about the new estate tax law. It hits the typical highligthts - $5 million estate tax exemption, portability for (opposite sex) married couples. One topic of interest is gifting. The new tax law increases the lifetime gift tax exemption to $5 million, matching the estate tax exemption. The problem is one of timing, though. This law is set to expire at the end of 2012, with the 2001 law coming back into effect if Congress doesn't act. This means - and stop me if you've heard this before - the estate tax gift tax exemptions will go back to $1 million.

If you are one of those who are able and inclined to give away $5 million in the next two years, you could concievably be in a bind if the gift tax exemption goes back to $1 million. In this case, you may have to pay gift tax on $4million. Several things have to happen for this nightmare scenario to play out, though. First, you have to give away $5 million dollars by December 31, 2012. Second, Congress must let the law lapse and the gift tax exemption return to $1 million. Third, you have to die after 2012 while the the exemption is less than $5 million. Fourth, do you really need me to go to fourth?

As you might have thought by now, and as I've posted before, the universe of people this applies to is exceedingly small. Most people don't have $5 million to give away. Most people who do have $5 million don't want to give it away. Most people who do have $5 and want to give it away probably won't do it in the next two years.

Making sure you don't inadvertently expose your estate planning client to unnecessary taxes is important, but it is not the only thing we do as estate planners. Keeping a perspective on all this, and planning for your client in the real world, is just as important.

Speaking engagemetns in 2011

Time to mark your calendars. I am working on two engagements in 2011:

September 19, 2011, Oakland, California. I will be speaking on trusts. The topics include revocable trusts, irrevocable life insurance trusts, using trusts to reduce tax exposure, grantor trusts, ethics, and special needs trusts. The seminar runs all day, and is sponsored by National Business Institute. More details will be posted to their website www.nebi-sems.com .

I am also working on a talk about estate planning and divorce with Merrill Lynch in Castro Valley in May. I will post more details as they become available.

Hope to see you there!

CEB Recent Developments, 2010

I attended the CEB Recent Developments program in San Francisco on Friday. Here are some highlights:

Hearsay Rule - Evidence Code section 1260 provided an exception to the hearsay rule for an unavailable witness regarding the existence of a will. This permitted admission of a statement by a decedent regarding their will, but there was no mention of whether it applied to trusts. The authorities were mixed on whether it did. As amended, Evidence Code section 1260 explicitly excepts from the hearsay rule statements regarding whether the declarant has or has not made or amended a revocable trust. Arguably, other exceptions to the hearsay rule could be used to bring in such statements, but now you don't have to argue - they are specifically excepted.

Certificate of Independent Review There have been major changes to the presumed invalidity of transfers to "disqualified persons." These changes apply to instruments that become irrevocable on or afer January 1, 2011. One change regards who can prepare a certificate of independent review. An exception to the persumed invalidity of certain transfers (such to a care custodian of a dependant adult) is if an "independent attorney" prepares a certificate of independent review. Under the new law, the attorney who drafted the will or trust containing the transfer can perpare the CIR, but only as to a gift to a care custodian. (see new Probate Code section 21384(c).)

And speaking of care custodians - the definition has been narrowed to allow gifts to persons who assist a depdent adult "without remuneration" and had a personal relationship with the transferor: (1) at least 90 days before providing the services, (2) at least six months before the depedent adult died, and (3) before the depdent adult was admitted to hospice care (if they were admitted to hospice care. (see new Probate Code section 21362.)

Remember, these new rules apply to instruments that become irrevocable after January 1, 2011. That means that they apply to instruments you may have already drafted. It also means that the old rules apply to instruments that became irrevocable through the end of last year.

I could go on all day, but I won't. I will cover some more highlights in my next post.

Collateral Source Rule and Conservatorships

The Collateral Source Rule comes up most often in personal injury lawsuits. Let's say you have auto insurance and you are in an accident that is not your fault. The person who hit you (i.e., the "tortfeasor") is liable for the full amount of the damages he or she cause you. The fact that you have insurance that would pay the claim does not reduce what the tortfeasor would owe. The insurance is a "collateral source" of funds to compensate your for your damages, and the person who hit you cannot benefit from your diligence in maintaining insurance.

What does this have to do with conervatorships, or anything under the Probate Code for that matter? The so-called Collateral Source Rule has been stretched to include such things as government benefits payments. In Conservatorship of McQueen, 2011 Cal.App.Lexis 38, The First District Court of Appeals upheld the Alameda County Superior Court holding that Ida McQueen's SSI and Medi-Cal benefits were a collateral source, and that they should not be considered in determining the measure of damages in a breach of trust action. Ida McQueen received means-based government benefits. She was a life beneficiary of a testamentary trust established by her father that included a house as a trust asset. The defendants sold the house and distributed the proceeds to various family members and paid some expenses of the administration of the estate of Ida McQueen's father.

At trial, the defendants argued that if they distributed the proceeds of the sale to Ida McQueen, she would lose her SSI and Medi-Cal benefits, and so could never benefit from the sale of the house. In other words, she can have the benefits, or the sale proceeds, but not both. Since she is already getting the benefits, they should be allowed to keep the sale proceeds. The jury found the defendants liable for improperly selling the house and taking the proceeds. The court ordered that the defendants repay a portion of the sales proceeds to Ida McQueen as damages.

The appeals court upheld this verdict, finding that the SSI and Medi-Cal benefits were a collateral source of funds for Ida McQueen, and so should not be taken into consideration when measuring damages. The wrongdoers here should not benefit from their improper sale of the house because Ida McQueen is receiving benefits, which would be replaced by the sales proceeds. Ida could establish a special needs trust to place the proceeds in, and retain her benefits. Medi-Cal has a lien on the trust assets and can receive an amount equal to the benefits they have paid to Ida McQueen when she dies. This is analogous to the auto insurance-personal injury scenario above because a personal injury plaintiff who receives insurance money and damages from the defendant can be made to compensate the insurer and so avoid a double recovery.

The overall policy is that wrongdoers cannot benefit from their wrongs because the plaintiff has other sources of recovery for the damages caused by the wrongdoers. The court here has made clear that this extends to government benefits.

Finally! Clarity in the Estate Tax! Sort of.

First of all, Happy New Year to everyone. We have 351 days left to make this year a success.

Now to the immediate matter at hand. As you may have heard, Congress has finally acted on the estate tax, passing a bill that levies a tax on estates greater than $5 million at a maximum 35 percent rate. That means that if your estate is worth less than $5 million, and almost everyone's is, you don't have to worry about this tax. At least for the next two years. Yes, rather than passing a permanent tax bill, the government instead passed a temporary bill that expires in 2012, at which time, the pre-2001 law ($1 million exemption [adjusted for inflation from 2001], maximum 55 percent rate) comes back into effect unless Congress does something. Again.

Now, why would our government pass a tax bill that was set to expire in 2012? I can't think of anything in particular that's happening in 2012. Please email me with your ideas.

Anyway, one aspect of this temporary bill is a thing called "portability." In short, in every married couple, each spouse has a separate estate tax exemption. Under portability, the surviving spouse can apply the unused portion of the deceased spouse's exemption to his or her estate when he or she dies. Unless the law changes. Or the surviving spouse gets remarried. Maybe.

To illustrate, let's say Spouse One and Spouse Two have a total estate of $3 million, all community property. Spouse One dies with an estate worth $1.5 million. The remaining $3.5 million can be used by the surviving spouse when he or she dies, for a total exemption of $8.5 million. One catch is, the surviving spouse has to die while there is still a portability law on the books. So, if this law expires after 2012, the surviving spouse loses the additional $3.5 million exemption. Another catch is if the surviving spouse remarries and then outlives his or her second spouse. This apparently immortal surviving spouse can now only use the portability of the second deceased spouse. So, if the second deceased spouse dies with an estate worth $5 million, the hearty surviving spouse gets no additional exemption.

We should all have these problems. There are many esoteric arguments being made about how best to address the potential traps in portability. One such "trap," using the example above, anticipates the surviving spouse wins the lottery, makes lifetime gifts of $8.5 million assuming they can be made tax free, and then the law expires, or he or she gets remarried and loses the portability. Most people don't make $8.5 million in lifetime gifts, even if they have the money, so this is a planning argument that most likely will occur only in a vacuum. Or a CLE presentation.

The bottom line is, most estates will not be taxable with a $5 million exemption amount. Or even a $1 million exemption amount. Most people don't win the lottery. So, portability won't mean anything to most people. As estate planners, the best we can do is understand the issues and plan for them as they come up. Your typical client with an $800,000 estate is likely not going to need to plan with portability in mind, and will not be affected if the $1 million exemption (adjusted for inflation from 2001) comes back in 2013.

So read the new tax law, understand it, and move on. There are more immediate issues that most estates must deal with. Like family dynamic.