Recently in Estate Planning/Probate Category

May law firm that represented now-deceased spouses in preparing their wills and trusts represent trustees against wife's personal representative?

Law Firm.jpgRulings on motions to disqualify opposing counsel have in recent months and years regularly found their way into the appellate courts. Some of these reviews have been by way of appeal as appealable injunctive orders. Others have taken the petition for writ of mandate route. The latter route was taken in Fiduciary Trust International of California v. Superior Court (filed 7/31/13) 2013 DJDAR 10119. And again, as was the case in the last disqualification case that appeared in this blog (June 26, 2013), the appellate court disagreed with the trial court. But this time it determined that disqualification should have been granted, rather than not.

Sandler & Rosen (S&R) drafted wills and trusts for Willet and Betty Brown concerning a joint estate worth more than $200 million. In short, the trusts generated substantial income and Betty became the marital trust income beneficiary for life upon Willet's death; upon Betty's death, the principal of the trust went into an Exemption Equivalent Trust that benefitted the parties' four adult children. But after Willet died, Betty revoked her will that had previously benefitted all four of the children, and transferred the large majority of her assets to a trust that benefitted her daughter, the only of the four children that was hers by blood.

After Betty's death, her personal representative, Fiduciary, and the marital trust trustees disputed who was required to pay the $27 million in estate and inheritance taxes due on Betty's assets. The Brown's estate plan indicated that upon the latter of the couple's death the Marital Trust would pay the estate and inheritance taxes. After Willet's death, Betty established a new trust that would, upon her death, distribute a significant majority of the trust assets to the one daughter mostly to the exclusion of the other children. Yet taxes due on her estate still were directed to be paid by the Marital Trust. In light of Betty's changes, the Marital Trust trustees argued that it would be unfair to pay the full amount of taxes owed on the assets of Betty's trust as the other 3 children would pay death taxes on funds they will never receive.

S&R represented the Marital Trust in this tax dispute. Fiduciary moved the court to disqualify S&R. The trial court determined that any communication that occurred at the time S&R prepared the estate plan (about 20 years earlier) were unlikely to be used in the current dispute and denied the motion to disqualify. The Court of Appeal, Second Appellate District, Division Seven, disagreed, finding that based upon the undisputed substantial relationship of the subject matter involved in both representations, and because the previous representation was "direct and personal" rather than "peripheral or attenuated," disqualification was virtually automatic not allowing the trial court to inquire into any actual breach of confidentiality that would affect the present dispute.

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Does laches bar beneficiary's action filed after settlor's death contesting capacity to amend trust when issue known long before death?

1221950_to_sign_a_contract_1.jpgIn Drake v. Pinkham (published 6/21/13) 2013 DJDAR 8028, appellant and respondent were the surviving daughters of mother, the settlor of a revocable trust. Their father and mother had a living trust that provided upon one's death there would be a split into a survivor's trust to support the survivor, and a family trust that would give equal shares to the two daughters upon death of the surviving spouse. Father died first. When settlor-mother died in 2009, appellant petitioned the probate court to invalidate two amendments mother had made to the survivor's trust--one executed in 2001, the other in 2004--primarily claiming the mother lacked mental capacity and was unduly influenced by respondent-sister. These amendments eliminated appellant as a beneficiary of the survivor's trust, and named respondent acting co-trustee with the mother and sole successor trustee.

In an earlier action in 2005, appellant had petitioned the court to appoint her as an acting co-trustee of the survivor's trust, replacing the mother, based on the mother's alleged inability to act as trustee and the alleged undue influence of respondent over mother. This petition met with mother's objection: she denied she was incapable to act as trustee and that, while respondent did assist her, respondent did not control her. She additionally pointed to the 2001 and 2004 amendments which excluded appellant as beneficiary and made no provision for her to serve in any trustee position. Rather than challenge the amendments, appellant reached a settlement agreement in which mother as sole acting trustee of the family trust agreed not to dispose of any family trust property without the consent of both daughters.

Back to the present action, respondent moved for summary judgment on the grounds that applicable statutes of limitation, principles of res judicata and the doctrine of laches barred the petition. The trial court granted summary judgment finding that some of appellant's causes of action were barred by res judicata and the remaining were barred by the statute of limitations. It did not reach the issue of laches. The Court of Appeal, Third Appellate District, affirmed, finding the petition barred by laches.

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Amendments to revocable trust must follow procedure specified in trust instrument to exclusion of statutory method

Dissents appear in published opinions of the California Court of Appeal, Fifth Appellate District about as frequently as meteors crash to Earth. King v. Lynch (filed April 10. 2012) 2012 DJDAR 4516) is such a cosmic event. The court majority affirmed the trial court's invalidating amendments to a trust, even though those amendments comply with the revocation method established in Probate Code section 15401, subdivision (a) (2). The majority found the trust specified a modification method, and thus, under section 15402 the trust could only be amended in that manner.

The trust in question provided that, during the joint life of the two settlors, who were also the initial trustees, the trust "may be amended" by a writing signed by both settlors and delivered to the trustee. Nowhere does the instrument explicitly state this is the exclusive method of amendment.

After one of the settlors, Edna, suffered a severe brain injury, leaving her incompetent, an amendment to the trust was executed by her co-settlor, Zoel. That amendment stated that because Edna could no longer serve, Zoel was appointed as sole trustee. Two further amendments were executed by Zoel changing monetary bequests to the settlors' beneficiaries. These three amendments are the subject of the challenge in this case. The trial court found all three of these amendments invalid, and was affirmed on appeal.

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Interested Beneficiary May Act As Personal Representative of Estate in Will Contest Under California Probate Code

Contract.jpgWills, Trusts & Estates Prof Blog (December 30, 2010) quotes Voltaire concerning the advantages animals have over humans; one advantage is "no one starts lawsuits over wills."

In Estate of Bartsch ( filed March 22, 2011) 2011DJDAR 4140, Norman Bartsch Herterich claimed he was the decedent's only son and sole heir to the entire estate in spite of a will that listed no children, failed to list him as a beneficiary and had a disinheritance/no contest provision. San Francisco Superior Court's probate court approved an interim award of attorney fees and costs incurred by executor Arndt Peltner, who also was a 14 percent beneficiary under the will admitted to probate, over Herterichs objection. The Court of Appeal, First Appellate District, Division One, affirmed.

Herterich contends on appeal the award of attorney fees was improper under Probate Code section 11704 because Peltner is both an executor and an heir, making him not impartial. He claims paragraph (b) allows the personal representative to act "as a party to assist the court," which precludes defending against a probate contest especially where that asserted executor has a beneficiary stake. He views this statutory language as a statement limiting Peltner's participation because to say otherwise would make the language surplusage.

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