Bay Area Estate Planning Attorney Blog

Reminder: Trusts 101 September 19th

noreply@blogger.com (David Little) — Thu, 25 Aug 2011 18:30:00 +0000

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!

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

noreply@blogger.com (David Little) — Wed, 02 Mar 2011 19:35:00 +0000

I don't usually re-post articles, but in this case, I just couldn't help myself. I cam across this website.

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

Trust and Estate litigation is about half of my practice (the other half is split among probate, estate planning and trust administration). I can't say I feel threatened by this, because the kind of dispute that someone would pick JabberJury to resolve is likely not the kind of dispute that really needs a lawyer, and very probably not the kind of dispute that I would take on as an attorney.

With that said, I think it is a great idea. My heretical thought for the day is that people are often too quick to get lawyers involved, and the lawyers do too much work that provides too little benefit for their clients. Perhaps things like JabberJury will evolve into something really useful.

I've Moved to a New Site!

noreply@blogger.com (David Little) — Wed, 09 Jun 2010 12:18:00 +0000

Same great blog, but a new URL. Check out http://caltrustlawyer.blogspot.com/. Be sure to update your RSS feeds.

See you there!

Spoiling for a Fight: Estate Planning and the Family Dynamic

noreply@blogger.com (David Little) — Tue, 05 May 2009 19:39:00 +0000

Estate planning and litigation help each other out. As an attorney, having experience in estate planning will make you a better litigator because, among other things, it helps you understand and spot the issues. There is little doubt (at least in my mind) that being a litigator makes you a better estate planner because it gives you a front row seat to what doesn't work, and why.

In Teselle v. McLoughlin, the estate plan was big and complex. It also was amended. One of the amendments may have removed property from the trust, or maybe it didn't. When the settlor died, the successor trustee distributed the property that may or may not have been removed from the trust as though it was still in the trust. Litigation ensued.

Complaints were filed. Demurrers were filed. Amended complaints were filed. More demurrers were filed. Finally, a motion for summary judgment was filed (after over two years of litigation). The motion was granted (in part because the plaintiff was one day late in filing their opposition!). An appeal was filed. The appeals court held that the summary judgment should not have been granted, so back to the trial court we go.

Most of the controversy is from the language surrounding the piece of property. The original trust called for the property in one brother's trust to be exchanged with property in the other brother's trust on the death of either brother. The one brother amended his trust, and removed a piece of property from the list to be exchanged with the other brother's property. When the first brother died, the trustee exchanged the removed property anyway, and then sued to get it back when they concluded that the property should not have been exchanged. The defendant argued that removing the property from the list in the trust did not mean the property was no longer in the trust and subject to the exchange agreement.

During the course of the litigation, the drafting attorney signed a declaration that the property was removed in the amendment because the brother intended to sell it. It was never sold. The attorney declared that the brother never intended to remove the property from the exchange agreement as long as he owned it.

Could clearer drafting have avoided this litigation? Maybe. The parties did seem very committed to fighting with each other, and there were (many) other issues in the lawsuit, but communicating the intent of the settlor is the most important job of an estate planner. Part of that is looking for the potential red flags of future litigation. Honestly, if the family is not getting along, it may not matter how carefully the plan is drafted. But it's better to know in advance because it may help the attorney counsel the client against a gift that may cause conflict.

Confusing Facts, Not so Confusing Law

noreply@blogger.com (David Little) — Thu, 30 Apr 2009 16:59:00 +0000

It's been said that bad facts make bad law. It can also be said that confusing facts make confusing law. Or at least hard-to-read law.

Darrell Prindle shot and killed his estranged wife Angela in May 2002. He also shot and injured several others, including Angela's sister Jessica. Angela's mother Earline opened a probate in July 2002. In May 2003, Jessica sued Darrell and Earline (as administrator for Angela's estate) for negligence in failing to warn her that Darrell would return to the residence. Earline notified Traveler's insurance of the lawsuit and asked them to defend the estate. Jessica made a policy limits demand against Traveler's for $100,000. Travelers rejected the claim and refused to defend the estate. Jessica did not make a claim against the estate before the exipration of the deadline.

The matter went to trial, and the judge found the estate liable to Jessica for $7 million. The estate assigned their insurance bad faith claim against Travelers for failing to defend and indemnify to Jessica in exchange for Jessica's agreement not to execute the judgment against the estate. Jessica and the estate then sued Travelers for bad faith (which if successful would open Travelers to liability in excess of the policy limits of $100,000). Jessica finally made a late creditor's claim against the estate for the $7 million, and also filed a petition to allow the late claim. The estate asked the court to approve the late filing of the claim, or at least to acknowledge that the estate's actions constitute a waiver of the claim filing requirement.

Some background is in order. Typically, a creditor has four months from being notified of a probate to file a claim against the estate. If they fail to meet that deadline, they can file a petition for the court to approve a late claim. The court here held that the estate did not have the power to allow the filing of a late claim, but also found that the estate's actions constituted a waiver.

This case is all about insurance. The estate had only about $16,000 in it, so there was no way they would be able to pay the $7 million judgment. Travelers argued that because Jessica's claim was not timely filed, they were off the hook. The court disagreed. Because Travelers refused to indemnify and defend the estate, Travelers is on the hook for the $7 million judgment just as much as Earline is as administrator of the estate. The court held that the estate waived the right to refuse a late claim by Jessica (because they were aware of the claim before the deadline expired), so Travelers, as the insurer of the estate, cannot use the late filing as a defense to their obligation to pay.

I suppose the rule here is that when an estate waives the claim filing deadline, that waiver can extend to others who might benefit from the claim filing deadline, such as an insurer.

The other lesson is that Travelers could have gotten out of this for $100 grand, but is now on the hook for $7 million.

Safe Harbors and Jilted Children

noreply@blogger.com (David Little) — Wed, 29 Apr 2009 18:42:00 +0000

Chris and Cindy adored their parents James and Mildred. James and Mildred did what a lot of married couples do in their later years, they created a trust to benefit them during their lifetimes, minimize the affect of estate taxes on their deaths, and distribute their assets to their children. This is the story of how all that planning can be threatened by undue influencers, and how the family can fight back.

Mildred died in 1994, about two years after they created the trust. The trust was split into three trusts: one revocable trust for James, and two irrevocable trusts designed to minimize estate tax exposure. Chris was named as the successor trustee to his father James.

Enter Flora Ibarra. A few months after his wife's death, James became romantically involved with Flora, and she then moved in with him and became his full-time caregiver. Eventually, Flora got James to amend his revocable trust nine times, giving Flora and her family greater shares of his estate, and removing Chris as successor trustee. James also exercised a power of appointment he had over the assets in one of the irrevocable trusts, and sold property in the trust to his revocable trust (which now had Flora and her family as beneficiaries). Flora also isolated James from his children Chris and Cindy. Finally, in one of the amendments to his trust, he added a long and draconian no-contest clause that would disinherit anyone who tried to challenge the provisions of the trust.

James died in 2006. Chris and Cindy did not find out about this until they got a probate notice and a notice of change of trustee. Chris then learned of the nine amendments to the revocable trust. Chris was now trustee of the two irrevocable trusts, which still named him as successor trustee, so he began to look into the assets of those trusts. The trust over which James had the power of appointment had no assets, and the other irrevocable trust had about $177,000 in it. Chris knew that prior to his mother's death, the trusts had over $7 million in assets.

Chris believed Flora Ibarra unduly influenced James to change his revocable trust and take the money out of the irrevocable trusts using his power of appointment to benefit her and her family. He sought to contest the changes, but he knew that the no-contest clauses would disinherit him. He filed a "safe harbor" petition, which asked the court whether his proposed challenges would be a contest subject to the no-contest clause.

Chris was smart, though. His challenge was as trustee of the irrevocable trusts, not as a beneficiary of his father's revocable trust. As trustee, he had a duty to marshall the assets of the irrevocable trusts, which had been siphoned off for Flora's benefit using the power of appointment. Flora, naturally, argued that this was a contest, and he should be disinherited.

The court disagreed with Flora. A trustee has a duty as a fiduciary to administer the trust, and cannot be subject to a no contest clause for exercising that duty. The probate code (at section 21305(b), if you're interested), specifically states that a pleading challenging the exercise of a fiduciary power is not a contest.

Although all the drafting under the sun cannot protect an estate from the Flora Ibarras of the world, the probate code and the courts do their best to keep the undue influencers in check.

Bradley v. Gilbert.

Notice is Notice, or, When Probate Attorneys Attack

noreply@blogger.com (David Little) — Tue, 28 Apr 2009 16:00:00 +0000

Sometimes, in a the middle of an otherwise mundane appellate court opinion, you get a snippet if the flavor of the underlying litigation. In Estate of Kelly, there was just such a whif.

The rule of law should keep most probate attorneys on their toes. Stanley Kelly died leaving an estate of over $1 million. His father, E. George Kelly, petitioned the court for letters of administration (which is what you do so you can probate the estate). George also notified Human Rights Campaign, Inc. (HRC) that it was the beneficiary of several of Sanley's bank accounts. George filed a petition stating that Stanley died without a will or trust (i.e., he died intestate), and asking the court to approve distributing Stanley's estate to himself as the sole heir. HRC responded with a petition to probate a handwritten (or "holographic") will by Stanely leaving his entire estate to them. George claimed that the time period for HRC to admit the holographic will had expired, and so they could not receive Stanley's estate under the will. The court held that the clock never started ticking on the time period for admitting the holographic will because George never gave HRC notice of the petition for letters of administration. George argued that he did six different things that communicated to HRC that he was probating Stanley's estate, all of which effectively notified HRC that he was the administrator. The court was having none of it, and held that Notice means Notice. The only thing that starts the clock ticking for someone to admit a will to probate is Notice using the proper Judicial Council form. Sorry, George, but HRC gets to admit to probate Stanley's holographic will giving his $1 million estate to them.

Now for the interesting part. The factual statement in the opinion contained this passage: "The bigger picture was that the Administrator and his counsel had superfiduciary duties 'not to mislead the court, and they have duties to make sure that the estate is probated and tha tit follows the wishes and intent of the decedent.' The court rejected the argument that counsel for the administrator was placed in an adversarial position; his duty was to probate the estate, not to obtain a distribution for [George] Kelly." In other words, counsel, remember who your client is! The attorney George hired represented the Estate of Stanley Kelly, not George as sole heir. Somehwere along the way, this attorney lost sight of this, and fought for George over the estate. I can't help but think that court was, in part, bringing counsel back in line by using the "strict construction" of the notice requirements of Probate Code section 8226.

Although I love the phrase "superfiduciary duties," I must admit I fear that it is going to start showing up fairly regularly in pleadings.

Back with More Trouble from the Astors

noreply@blogger.com (David Little) — Sun, 26 Apr 2009 22:13:00 +0000

Yes, yes, it's like ducks in a barrell, but the Astors have been so good to the world of estate planning and litigation that I feel almost duty-bound to report.

The N.Y. Times today had this article on the similarities between the recent fighting over Brooke Astor's will, and the fight nearly 50 years ago over her husband Vincent's will. Vincent Astor's half brother, John Jacob Astor VI, was left out of Vincent's will, so he contested it. John VI argued that Vincent was unduly influenced to change his will, which Vincent had done 26 times. Allegations of drunkenness, lack of mental capacity, and other sordid behavior flew freely. In the end, John VI, who was born to John Jacob Astor IV's second wife four months after he died in the Titanic, settled with Vincent's estate for $250,000. Vincent's estate was worth hundreds of millions of dollars, so the settlement was, really, "go away" money. In fact, Brooke Astor's long time attorney Louis Auchincloss claimed that the $250,000 was less than the cost of the attorney's fees if the matter had gone to trial.

Two-hundred fify thousand dollars in attorney's fees? In 1959!? The very rich are different from you and me.

New Firm Announcement!

noreply@blogger.com (David Little) — Fri, 30 Jan 2009 17:42:00 +0000

I am pleased to announce that, starting February 4, 2009 Iwill begin my new job with the Law Offices of Margaret M. Hand! I am excited about this opportunity to work with one of the more prominent Trust and Estate practitioners in California, and I am eager to get started.

You will be able to reach me at: (510) 444-6044. My new email address will be david@handlaw.com

What this means for this blog is as yet unclear. My postings recently have been less frequent, partly because I have been more busy. I may shut the blog down entirely, rename it, or continue as before. We'll see!

I will keep you posted.

More Ammo for Estate Planners: Estate of Schellenbarger

noreply@blogger.com (David Little) — Tue, 30 Dec 2008 21:19:00 +0000

In California, if you die without an estate plan (or "intestate" in legal jargon), California law determines who gets what, no matter how unfair it may be. That's what the Court of Appeals for the Sixth Appellate District (Los Angeles) has held in Estate of Schellenbarger.

Mom and Dad were married briefly in the early 1960s. They had a daughter Michele. In 1962, when Mom was pregnant with their son Lesley, Dad left and moved to Michigan. Lesley was born in 1963. Mom and Dad got divorced in 1964. Dad never saw his son Lesley.

Lesley died intestate in 2004. He had no wife, domestic partner, children, or issue of deceased children. Under California law, his estate would go to his parents if living. The court appointed Mom administrator of Lesley's estate. She also petitioned the court to deny Dad from taking any of Lesley's estate as an intestate heir. The trial court denied the peitition, and the court of appeal affirmed. "'[C]an a bad guy luck into an inheritance, and is there an equitable way to avoid it?' [the trial court] answered the second question with a 'no.'" The court of appeals observed that there is no provision in the intestate succession law to deny a parent from inheriting because they were not present as a parent. "We accordingly reject the argument that the failure to pay child support or the lack of a meaningful parent-child relationship affects Clifford's rights as an intestate heir. If that were the rule, it would rewrite the laws of succession."

Estate planning attorneys often talk about how you lose control over your estate if you do not have an estate plan. Here it is in black and white. The only way to avoid your estate from falling into the wrong hands is to have an estate plan, whether it's a will or a trust.

And don't think you can put it off because you're relatively young. Lesley died at age 41. A major reason for having an estate plan is because you cannot plan with any accuracy when you might die.

So, if you don't have an estate plan, or if you do have a plan that's out of date, make a resolution to take care of it in 2009.

Still. Here.

noreply@blogger.com (David Little) — Wed, 17 Dec 2008 03:48:00 +0000

I realized when I went to post this that it has been nearly six weeks since my last post. Part of that is good news. I have been so busy with work that I haven't had the time that I have had previously to devote to this. The rest of it is laziness. Anyway, onward.

I am pleased to announce an article I wrote in the MacArthur Metro, a local newspaper here in Oakland. You can read it here. It's entitled "How Safe is My Money," and it's a brief piece about the economy and what you can do to protect your nest egg. Not directly about estate planning, but close enough.

It's the holidays, so future posts will be somewhat infrequent. Don't despair, we're all busy these days.

The Future of Same Sex Couple Planning (married or not)

noreply@blogger.com (David Little) — Wed, 05 Nov 2008 21:04:00 +0000

Yesterday, California voters passed Proposition 8, which amends the California Constitution to limit marriage to a union between a man and a woman. What does this mean going forward? Here are some observations:

All Previous Same-Sex Marriages Are Still Valid

All same-sex weddings performed between the California Supreme Court's decision in In re Marriage Cases (2008) 43 Cal. 4th 757, on May 15, 2008, and midnight, November 3, 2008 will remain valid. California Attorney General Jerry Brown said yesterday that, because Proposition 8 was not retroactive, it will not apply to same-sex couples who got married in California before Election Day. Attorney General Brown also said that the State of California would defend the validity of the marriages if they are challenged.

Estate Planning is Unchanged

As I have previously posted, most estate planning tools are developed to deal with federal law, particularly federal tax law. The federal Defense of Marriage Act (or DOMA, 1 USC sec. 7) was passed by Congress in 1996 and essentially prohibits the federal government from recognizing same-sex marriage. This means that even legally married same-sex couples cannot take advantage of federal tax laws including unlimited tax-free transfers between spouses, joint filing of tax returns, etc.

From an estate planning prospective, this means that, legal same sex marriage or not, special estate planning is needed for same-sex couples to get around the restrictions of DOMA.

Registered Domestic Partnerships are Unaffected

The text of the amendment, which is only one sentence long, refers only to marriage. Same-sex couples can still register as domestic partners in California. Under California law, registered domestic partners are given all the same rights and duties (including community property and California tax filing) as married couples.

Conclusion

Legally, at least, life goes on pretty much as it did before. Symbolically, it's quite a different story.

Keep Those Beneficiary Designations Updated!

noreply@blogger.com (David Little) — Tue, 04 Nov 2008 00:44:00 +0000

I have been doing some research on Federal preemption of California community property law by ERISA. If you are still awake after reading that, you'll love what's next:

In Emard v. Hughes Aircraft the Federal Ninth Circuit Court of Appeals held that ERISA law does not preempt California community property law. While that might not move you to dance in the streets with joy, consider the facts of the case. Wife married Husband 1 in 1975 and named him as the beneficiary of the life insurance policy she received from her job at Hughes Aircraft in 1981. Wife and Husband 1 divorced in 1985. Wife then married Husband 2 in 1986. She never changed her beneficiary designation even though she purchased additional insurance through Hughes while she was married to Husband 2 (that means Husband 1 was the named beneficiary on the new policy as well). Wife died in 1995 without an estate plan. Husband 2 sued Husband 1, among others, to get the benefits of the life insurance policy she purchased while married to Husband 2.

This case is significant not because of the issue of federal ERISA preemption, but because it shows what a mess can be created if you do not keep your beneficiary designations current. Think of how much in attorneys fees were generated in suing for the benefits, losing, and then appealing.

Remember: you should review your designations every year, and certainly when you get married, divorced, widowed, or when you have children. This is probably not the first thing on your mind when these events occur, but the consequences of ignoring it can be pretty serious.

My Schedule for the Week of Nov. 3

noreply@blogger.com (David Little) — Thu, 30 Oct 2008 17:49:00 +0000

Starting today, I will be posting about conferences and seminars I will be attending or presenting. Here's my schedule for the week of November 3 through 8:

Nov. 4 - Bernstein Private Wealth Symposium
Hotel Nikko, San Francisco 8:30 - 1:30. You can read more about it here. The Bernstein symposium will focus on the roots of the current financial mess, and the potential for opportunities. Since much of estate planning is about preserving wealth for future generations, this should be informative.

Nov. 6 through 8 - State Bar of California Taxation Section Annual Meeting
Grand Hyatt, San Francisco. This is a three day event covering all manner of topics related to taxation. I will be attending seminars on taxation related to estate planning, wealth transfer and other trust and estate related issues.

These two conferences should provide a host of topics for future posts. Stay tuned!

DOMA Challenged on First Amendment Grounds

noreply@blogger.com (David Little) — Mon, 27 Oct 2008 23:28:00 +0000

Charles Merrill has filed a lawsuit with the Federal Tax Court claiming that the Defense of Marriage Act violates the Establishment Clause of the First Amendment to the U.S. Constitution. This comes to us from the Tax Prof. Blog.

The Establishment Clause is an interesting choice. I would have picked the Equal Protection Clause, since restricting marriage to a man and a woman would seem to deny same sex couples a fundamental right (to take advantage of certain tax laws such as the unlimited marital deduction). But what do I know?

I will try to follow this as best I can.

Death, Divorce and the Surviving Spouse

noreply@blogger.com (David Little) — Mon, 27 Oct 2008 16:03:00 +0000

Recent case law is a trove of potential blog topics. Estate of McDaniel (2008) 161 Cal.App.4th 458 (if you're keeping score) addressed the intersection of death and divorce. The court held that the wife was not a "surviving spouse" where the husband died after the two had instituted divorce proceedings, divided their property pursuant to a stipulated judgment, but where the final termination of the marriage was not yet in effect.

Husband and wife entered into a stipulated judgment in July 2005 dividing their property and dissolving their marriage, with the final termination to become effective in October 2005. In the meantime, the couple tried to reconcile and signed, but did not file, a dismissal of the dissolution action. Husband died in a motorcycle accident in September 2005.

The court held that because the couple had separated their community property, confirmed their separate property, and accounted for and waived their marital property rights, the wife was not entitled to inherit husband's estate because she was not a surviving spouse pursuant to probate code section 78.

Estate planning is geared toward expecting the unexpected. That extends to estate planning's intersection with family law. Here, had the couple filed the dismissal of the divorce before husband's untimely death, the court would likely have held that wife was entitled to inherit the estate. As an attorney, this is obvious, but I'm sure that husband and wife's priorities were a little different.

Gifting with Depressed Asset Values

noreply@blogger.com (David Little) — Sun, 19 Oct 2008 00:31:00 +0000

The Wall Street Journal strikes again. In October 18's Money Matters column, Anne Tergesen writes about taking advantage of depressed asset prices and low interest rates to make gifts during your lifetime. This would take the assets out of your estate, and if done properly allow you to transfer the assets tax free.

Among other things, Ms. Tergesen writes that a transferring a depressed asset, such as shares of stock, to a family member could be a benefit when the asset price rebounds. The methods include Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATS). Read the column to get a brief overview of what these instruments are, and then call an attorney for more information.

Obama and McCain on Estate Taxes

noreply@blogger.com (David Little) — Thu, 16 Oct 2008 17:52:00 +0000

Yesterday was the last debate between Barack Obama and John McCain before the election. Although they did not tread much new ground in their comments, one area that was covered (at least a little bit) was taxes.

And speaking of taxes, what are the candidates positions on the estate tax? As I posted previously, Obama favors freezing the estate tax at the 2009 level ($3.5 million exemption, 45% rate), whereas McCain's plan is for a $5 million exemption and a 15% rate, which matches the capital gains tax rate.

A major issue, on which both candidates seem to agree is portability. Basically, it means that married couples could use their spouse's exemption in their estate. This was reported on in yesterday's Wall Street Journal. Here's how it would work: Currently, each spouse's estate gets an exemption (for 2008 it is $2 million, increasing to $3.5 million in 2009) before the estate tax is assessed. When one spouse dies, and they leave their estate to the surviving spouse, it passes free of taxes (note: this is for opposite-sex spouses only at the federal level, courtesy the Federal Defense of Marriage Act.) to the surviving spouse. The surviving spouse, however, only gets to use their exemption. For example, if Husband dies and leaves his $2 million estate to Wife, and Wife has an estate of her own of $2 million, she will now have an estate of $4 million, but currently only a $2 million exemption. If Wife were to die this year, she would have estate tax exposure on the $2 million she inherited from her Husband. With portability, she could use her husband's $2 million exemption and avoid estate tax exposure. This would make estate planning somewhat less complex for opposite-sex married couples.

The primary purpose of estate planning should not be tax avoidance, but in reality, it plays an major role. Even with portability, there are many non-tax reasons for trusts of various complexity. That's a post for another time.

Forfieted Deposit as Damages in Failed Probate Sale

noreply@blogger.com (David Little) — Fri, 10 Oct 2008 21:57:00 +0000

In Estate of Felder, the California Second Appellate District upheld the award of $48,000 as damages for a buyer's withdrawal from the purchase of real property in a probate sale. The $48,000 was the amount of the buyer's deposit.

California Probate Code section 10350 allows the seller to recover damages from a buyer who pulls out of a transaction involving real or personal property after the court has approved the sale. The damages can include the difference between the original buyer's purchase price and the price the property later sold for, plus expenses made necessary by the purchaser's breach, and other "consequential" damages. The court here held that the first buyer's breach caused a total of over $55,000 in damages. The court ordered that the buyer forfeit his $48,000 to cover the damages caused by the breach, even though the actual damages were higher.

The buyer appealed, claiming that the court had no authority to order the forfeiture of the deposit. The Court of appeals upheld the lower court's order, noting that "The estate was entitled to retain the entire $48,000 as statutory damages and not as a deposit."

If you are involved in a probate sale of real property, you can get damages if your buyer withdraws after you have received court approval of the sale. If you are buying property subject to a probate court approval, BEWARE, you could be on the hook for serious damages if you cancel after the court has approved the sale.

Estate Planning During Economic Catastrophe

noreply@blogger.com (David Little) — Tue, 07 Oct 2008 15:27:00 +0000

I'm not an alarmist, but like you, loyal readers, I'm a little freaked by all the economic news. On the TV last night I watched esteemed economics professors using phrases like "classic bank run." And this was on News Hour on PBS!

So, what does this have to do with estate planning? Well, during times like this, you might be inclined to put your estate plan on the back burner. Don't. Here's why: your need for an estate plan doesn't go away because of economic uncertainty. If you don't have a plan, you should still get one. If you do have a plan that is out of date, you should still get it updated.

The fact is that estate plans can be expensive, and during times like these, you probably want to hang on to as much cash as you can for security. Here are some tips for keeping as much of that cash as possible, while still getting a plan in place:

Get a Will Instead of a Trust

Estate planning attorneys like to recommend trusts because they are more flexible than wills, they avoid probate (which can be expensive, time consuming, and is a public court record), and they can be set up to assist you if you become incapacitated. Because they can do so much more than a will, they are much more complicated documents. Because they are much more complicated documents, they are more expensive to prepare. If you want an estate plan, but cannot afford a living trust, a will might do for now. Let's look at the following scenario:

A married couple in their late 30s with two children under the age of 5. They own their own home worth about $550,000 (titled as community property), each have about $100,000 in separate 410(k) plans from current and previous employers, and each have $500,000 life insurance policies with 30-year terms naming the other as beneficiaries. They also have about $35,000 in checking and savings accounts. All of their assets are in California and are community property.

In a perfect world, an estate planner would recommend a living trust that is split into two trusts on the death of the first spouse (one for the surviving spouse, and another funded with the deceased spouse's estate that bypasses the surviving spouse to ensure something for the children), and trust for the children that will pay the money outright to them when they turn 25 or graduate from college. Such a plan would avoid probate, would ensure that there is some money to be inherited by the children when the surviving spouse dies, and would ensure that they children don't get the money before they are ready to handle it. In the world of living trusts, this is a more simple plan, but it is still a pretty complex document. It can also be very expensive to prepare.

Can you achieve the same result with a will? Not really, but you can come close. With the wills, you can create a trust with your estate, but you cannot split the estate into two trusts on the death of the first spouse. Because the assets are all community property each spouse's estate is half of each asset. That becomes tough to split when it is not held in cash (like the house). Although each spouse could leave their estate to their children in trust (rather than to each other), it would likely result in the liquidating of the estate assets in order to properly fund the trust. Since the surviving spouse would probably want to stay in the house, each spouse should give their estate to the other spouse. The house would automatically transfer to the surviving spouse because it is titled as community property. The surviving spouse would receive the insurance proceeds and 401(k) as beneficiary.

Their might not necessarily be a probate on the death of the first spouse. Assets held jointly (like the house) do not go through probate. Assets with beneficiary designations (like the life insurance and the 401(k)s) also don't go through probate. If a person's probate estate is less than $100,000, then probate can be avoided. Here, the actual assets subject to probate are less than $100,000, so probate can be avoided on the death of the first spouse. (The surviving spouse will probably not be able to avoid probate because the house will no longer be held jointly, and the proceeds from the life insurance will be held by the surviving spouse alone.)

To keep the will-based plan as simple as possible, they could leave their estates to each other, and if their spouse does not survive them to their children in a California Uniform Transfers to Minors Act (CUTMA) account. This holds the money in an account, and distributes the money to them outright when they reach an age between 18 and 25. The will can also name guardians for their children while they are still minors. They can execute durable powers of attorney for financial decisions in the event they become incapacitated, and advance health care directives for their medical decisions.

This is much more simple, and less expensive, to prepare than a living trust. It has some drawbacks, but it is far better than no plan at all.

If you are considering an estate plan, but are uncomfortable with the expense of getting a living trust, a will may be a good alternative. Once the ecomony picks up, and you feel better about spending the money on your estate plan, it can always be amended to include a trust.

Don't let economic uncertainty keep you from putting together that you know you should have.

Witness Requirement for California Wills relaxed

noreply@blogger.com (David Little) — Thu, 25 Sep 2008 16:37:00 +0000

Wills are relics of an ancient era, and the laws surrounding them are often incompatible with our modern world, and sometimes internally inconsistent. For example, if you print out your will from a computer or pre-printed form, it must be signed by you and two other people, who either saw you sign the will or can acknowledge your signature, and who know that the document they are signing is your will. You can also handwrite your own will. If you do, then you don't need anyone to witness your signature. Also, if you execute a living trust, your signature doesn't necessarily need to be witnessed by anyone in order be valid. Why is the law so much more strict for pre-printed wills?

The State of California recently took steps to make my rhetorical question moot. On July 1, 2008 Governor Schwarzenegger (I am never going to get used to that) signed into law a revision of Probate Code section 6110 relxing the formal witnessing requirements of a pre-printed will. In the latest issue of the California Trust and Estates Quarterly, published by the State Bar of California's Trust and Estates section, Silvio Reggiardo III writes about the changes. Basically, a pre-printed will no longer has to be signed by two witnesses in order to be valid, if the person trying to enforce the will (usually the executor) can show by clear and convincing evidence that the person who wrote the will intended that the document be their will despite the lack of witness signatures.

Here's how it would work: Joe prints out a will using a pre-printed will drafting program. He signs it, but no one signs the will as a witnesses, even though two if his friends saw him sign the will. Joe dies, and the executor of the will submits the will to the court for probate. The executor presents the evidence from the two friends who saw Joe sign the will, and there is no evidence of any other document that was intended to act as Joe's will. It is up to the judge to determine whether this meets the "clear and convincing evidence" standard, which is greater than the "preponderance of the evidence" standard used in civil courts, but less than the "beyond a shadow of a doubt" standard in criminal courts. If the judge decides that the evidentiary standard is not met, then the will is not valid, and Joe's estate is distributed per California law applying to people who die without a will.

While this change in the law helps modernize will execution standards, it is still more onerous than the standard for executing a trust. This is yet another reason why a living trust is superior to a will. Trusts are much more flexible, and are less likely to be invalidated on arcane technical grounds.

Ambiguity in Charitable Gifts

noreply@blogger.com (David Little) — Mon, 22 Sep 2008 18:02:00 +0000

A gift in a will setting up a charitable trust is valid, even if the gift does not specify any particular charity or class of charitable recipient. In Estate of Clementi, The Fourth District Court of Appeals upheld an Orange County Superior Court ruling that allowed the following language from a will:

"I give the balance of my assets to a charitable foundation or trust in my
name to be run by Richard Weisz. If Richard Weisz is not alive when I die, then I
appoint his son, Frank Weisz[,] to run my charitable foundation or trust."

The court held that the general policy in California is that charitable gifts are highly favored and that a charitable gift in a will must be liberally construed to uphold its validity.

While this policy is admirable, it can create problems for the trustee who then must administer the trust with no guidance as to how to direct the funds. This is yet another example of how an estate plan must be carefully drafted in order to make sure the wishes of the client are carried out. Sometimes a person may have a charitable intent, but has no real idea who to give their estate to. At those times, the estate planning attorney should ask a lot of questions to try to get an idea of what kinds of charitable organizations may fit with the client's charitable impulse. Are there any friends or loved ones with a medical condition that they would like to donate money to? Is there a specific group of people who the client would like to help (seniors, orphans, veterans).

A crucial part of estat planning is for the attorney to ask questions and listen carefully to the client. That is the key to drafting a plan that is clear to all involved.

Gift Taxes and You

noreply@blogger.com (David Little) — Fri, 19 Sep 2008 13:27:00 +0000

I haven't posted much on the gift tax. (actually, I haven't posted at all about the gift tax). But there is a first time for everything.

Joel Schoenmeyer posted on how to take full advantage of the Federal annual gift tax exclusion. You can read the post here. Currently, you can make a gift of $12,000 per year to anyone you want without having to pay taxes or even file a gift tax return. In 2009, the exclusion goes up to $13,000.

Under Mr. Schoenmeyer's plan, you could make a $12,000 on December 31, 2008, and then a $13,000 gift to the same person the next day on January 1, 2009, for a total of $25,000, tax free and without even filing a return. And you can do this for as many people as you want.

Many people use gifting to reduce the size of their estates in order to avoid or reduce estate tax exposure. The disadvantage of this is that, since you really can't predict when you are going to die, you run the risk of giving away too much of your estate too soon.

Thanks to Mr. Schoenmeyer for his useful post!

Be Careful with Mediation Confidentiality

noreply@blogger.com (David Little) — Thu, 18 Sep 2008 16:54:00 +0000

Mediation of disputes in the world of Trusts and Estates is not as common as it is in civil litigation generally. Nevertheless, it can be very useful in settling things among beneficiaries, or between beneficiaries and trustees, or among heirs and executors.

In California, documents prepared during a mediation are confidential, except when they are not. The default is to protect these documents from disclosure in litigation in order to foster more open discussion, but this confidentiality can be waived.

Whether the children of Thresiamma Thottam waived this confidentiality was the Estate of Thottam matter. The children disputed the division of property after the death of their mother. They agreed to mediate the matter, and signed an agreement that protected the confidentiality of proceedings "except as may be necessary to enforce any agreements resulting from the Meeting."

During the mediation, a chart was prepared showing an allocation of the assets of the mother's trust. The children all initialed the chart. Afterwards, disputes arose over the language of the settlement agreement memorializing the distribution and incorporating a copy of the chart. One child sued the other two for breach of the settlement agreement. The other children filed motions to keep the chart out of evidence, claiming that it was confidential under California. The trial court agreed, but the court of appeal did not, and reversed the trial court's decision.

The court of appeal held that California law provides an exception to mediation confidentiality where all parties agree in writing to waive it. The court found that the agreement the parties signed waiving confidentiality where necessary to enforce any agreements resulting from the meeting constituted a valid waiver under California law. They also held that the chart initialed by all parties was just such an agreement, although they did not rule on whether the chart was enforceable.

I think there are two important lessons from this case. First, remember that by law, all writings in a mediation are confidential. Be careful not to sign anything that could constitute a waiver of this confidentiality if you want to make sure that what happens in the mediation stays in the mediation. Second, if you come to a settlement, make sure that the document memorializing the settlement is clear and unambiguous. Even though the court did not rule on whether the chart in this case was enforceable, it frightens me to think that a chart, with no terms and nothing other than initials of the children, can be used as evidence of a settlement.

Legal documents sometimes seem pointlessly long and detailed. But there is often a very good reason for it.

CA Widow Cannot Use Husband's Frozen Sperm

noreply@blogger.com (David Little) — Mon, 15 Sep 2008 22:35:00 +0000

The California Court of Appeal for the Third Appellate District (Sacramento) today held that a widow cannot obtain the frozen sperm of her husband, who requested that the sperm be destroyed upon his death.

Technically, the court upheld the probate court's denial of the widow's motion for preliminary distribution of the frozen sperm.

Iris and Joseph Kievernagel contracted with an IVF clinic to help Iris have a baby. Joseph did not want children, but agreed to the IVF because Iris did want them, and he was worried that Iris would divorce him if he did not agree. In completing the paperwork for the IVF clinic, Joseph signed a document entitled the "IVF Back-Up Sperm Storage and Consent Agreement." The Agreement stated that the sperm sample was Joseph's sole and separate property, and that he had two options for the disposition of the sample upon his death or incapacity: donation to his wife or disposal. The box for disposal was checked. The Agreement was filled out by Iris, and signed by Joseph.

After Joseph died in a helicopter crash, Iris was appointed Administrator of his estate. She filed a petition for preliminary distribution of the sample. The court denied the petition, citing that the Agreement indicated Joseph's intent that sample be destroyed, and noting that there was no contrary evidence of Joseph's intent.

The Court of Appeals upheld the trial court's ruling. The court noted that "gametic material," with its potential to produce life, is a unique type of property that is not governed by the general laws relating to gifts of personal property or transfer of personal property upon death. It also held that Joseph's "right of procerative autonomy" allowed him to control the disposition of his sperm, and that since this was not a frozen embryo, Iris' right to procreative autonomy was not implicated. The court noted that if Iris could only become pregnant with Joseph's sperm, then her rights would be implicated, but that this was not the case.

The court punted on the issue of contract law. Throughout the decision, the court used contract law language, but in the end it based its decision on the intent of Joseph. The court did note a French court decision holding that contract law did not apply to gametic materials.

The court concluded that the intent of the donor controls the disposition of sperm on the donor's death. What if Joseph had a will or a trust that stated that Iris was to receive the sample upon his death? Presumably, the court would see this as evidence of changed intent. As practitioners, we must make sure that the intent of estate planning client is being carried out, and that the estate planning documents don't contradict or conflict with other documents.

You can read the full decision here.