The Wayward Will of Irving Duke: How Language can be Fatal to A California Will or Trust

Posted by Keith A. Davidson on December 19, 2011

The trickery of the English language can be fatal in the enforcement of Wills and Trusts, as California’s Second Appellate District reminds us in its recent decision in Estate of Irving Duke.  Justice Suzukawa writes the opinion about Mr. Duke’s Will, where his two nephews—who are not even mentioned in the Will—receive Mr. Duke’s entire $5 million fortune to the exclusion of the two named charitable beneficiaries in the Will—City of Hope and Jewish National Fund.  The charities were supposed to divide the $5 million equally between themselves.

The Wayward Will

But what is “supposed” to happen and what actually happen under the law can, sometimes, be very different.  So what went wrong?  The English language—it can be tricky (see my earlier blog post on this topic).  The terms of the Will were the real culprit, and the Will was drafted by Mr. Duke by his own hand (called a “Holographic” Will).  The Will terms stated:

“I hereby give, bequeath and devise all of the property of which I may die possessed, whether real, personal or mixed, whether heretofore or hereafter acquired to my bellowed wife, Mrs. Beatrice Schecter Duke…

 

Should my wife Beatrice Schedcter Duke and I die at the same moment, my estate is to be equally divided…one half to be donated to the City of Hope in the name and loving memory of my sister, Mrs. Rose Duke Radin….One half is to be donated to the Jewis National Fund to plant trees in Israel in the names and loving memory of my mother and father…”

 

Irving Duke’s wife, Beatrice, died in July 2002, and Irving died in November 2007 (over five years later).  They had no children. 

After Irving’s death, the charities proceeded to file for probate thinking they were the rightful heirs of the estate given that Beatrice had died before Irving.  But Irving’s two nephews (referred to as the “Nephews”) had another idea.  They asked the Court to clarify who in fact were heirs of the Estate.

The Nephews’ Interpretation of the Will

The Nephews said that Irving and Beatrice did not die “at the same moment” as the Will language stated, therefore the gift to the two charities were not valid because the necessary condition of Irving and Beatrice dying “at the same moment” did not occur—Beatrice died many years before Irving.

The Charities’ Interpretation of the Will

The charities naturally disagreed and wanted to provide evidence to the Court to demonstrate that the Dukes wanted to benefit these charities.  In fact, Mr. Duke had given the City of Hope a gift of $100,000 on January 7, 2004 and another $100,000 on January 30, 2004.  He told the City of Hope representative at that time that he was “leaving his estate to the City of Hope and to the Jewish National Fund” and said in such a way as though his Will had already been prepared to that effect.

The Court Sides With the Nephews

The Nephews argued that the Court was not permitted to consider any evidence outside the terms of the Will itself because—get this—the Will terms were not ambiguous.  The Trial Court agreed saying that:

(1) the Will terms were not met,

(2) therefore the gift could not go to the charities, and

(3) since the Will contained no provision for the distribution of the estate if Beatrice died before Irving (rather than “at the same moment”), the estate instead defaulted to Mr. Duke’s “heirs-at-law”, which were the two Nephews. 

The charities appealed—looking for someone to see the true intent of Mr. Duke.  But the appeal was lost because the Trial Court was right. 

Under California law, Courts are not allowed to look beyond the Will document itself unless that is necessary to interpret an uncertain term in the Will.  (See PC 6111.5.)  Since the Will terms are presumed to be the full statement of the Decedent’s desires, the terms must be enforced as written. 

In Mr. Duke’s case, the Court presumes that he only wanted the charities to take the estate if he and his wife died at the same moment.  And since they did not do so, that term did not arise and the gift is not enforced.  In other words, there are no uncertain terms in Mr. Duke’s will.  He outlined a scenario of he and his wife dying simultaneously that never occurred.  And the Court does not have the power to re-write the Will terms just because it thinks that is what Mr. Duke wanted. 

Justice Suzukawa does point out that it is difficult to imagine that Irving only wanted the gifts to charity to take effect if he and his wife died simultaneously.  Especially since Irving made two gifts of $100,000 to the City of Hope after his wife’s death.  But the Court was compelled to follow an earlier California Supreme Court case (Estate of Barnes—a nearly identical case with the same result), which took the option of siding with the charities “out of [the Court’s] hands.”

The bottom line is: words make a difference.  Had Irving’s Will been unclear on its face, then outside evidence could be used to interpret his intent.  But when the language is clear on its face (albeit confusing, or even unfair, in its application) then the Will is enforced as written—exactly as written.  

Sofia's Gift: A lesson in turning a family dispute into a generous gift for others.

Posted by Keith A. Davidson on September 01, 2011

Trust and Will litigation tears families apart.  It may be that family relationships aren't too good to begin with if litigation arises, but taking matters to Court doesn't help.  And as lawyers we have little to no ability to repair family relationships.

In one case, out of the many hundreds I have handled over my career, a client of mine chose to make a bold statement after a family dispute arose.

Her name is Sofia.  Sofia—who didn't have a lot of money—worked as a registered nurse.  While her mother was alive, Sofia helped her with her care.  While Sofia’s father was alive, Sofia sold her home and gave the proceeds of the sale to her parents because they were in need of money at that time.  Her parents, in turn, put Sofia on the deed to their home so that she could be repaid after their deaths.  Over 15 years later, both parents passed away and the house passed to Sofia.

Sofia's brothers and sisters were not too happy about the arrangement and a nasty dispute arose over the property.  But in the end Sofia won out because she had given a large sum to her parents and in return, they gave her their home when they were done with it.

The whole ugly affair did not sit well with Sofia.  So she decided to make a bold statement with the house she received from her parents, she gave the entire thing-100%-to charity.  This was a substantial gift for anyone, as it was for Sofia.  The house was worth around $350,000 and had no mortgage.  That is a large amount of money for a single working woman, something to tuck away for retirement and future care. 

Instead, Sofia gifted the entire home to the Ronald McDonald House charities, which provides housing free of charge to parents who have very sick children in the hospital.  Ronald McDonald House was planning on building a new home in Long Beach, California, and Sofia’s gift kicked-off their fund raising for the new Ronald McDonald house with an entirely unexpected gift.  The home was sold by the charity and now is being used for their charitable purpose.

Sofia's one requirement in making the gift was that it be dedicated to the memory of her parents, David and Teodora Pacheco, and their grandchildren, because they loved their many grandchildren unconditionally.  The kitchen of the new Ronald McDonald house charity will be dedicated to Sofia’s parents, primarily because her mother loved cooking and it was a central part of any family gathering.  A plaque will read “David and Teodora Pacheco Kitchen in honor of their grandchildren.”

Sofia had no obligation to make this gift.  The house was hers and she should have used it to provide for her retirement.  But for the first time in my 11 year career as a California Trust lawyer, Sofia demonstrated the power of personal sacrifice.  She did not have money to spare and could not afford such a generous gift, but she made the gift anyway.  It was important to her to turn a family dispute, one that she alone could not repair, into a lasting tribute to her parents.

Give a Little After You're Gone: The benefit of charitable giving at death.

Posted by Keith A. Davidson on August 29, 2011

Most of us are not capable of giving billions to charity, like Warren Buffet and Bill Gates  But charities, to be successful, don’t need billions (they’d love to have billions, I’m sure, but most operate on far less than that).

Most people make modest charitable gifts to their favorite charity, university or church during their lifetime.  But the amount of gifts each of us is able and willing to make during our lifetime is somewhat limited by our resources.  For example, you can't give your house to charity while you’re alive because you need it to live in; giving it away would be absurd.

What if I told you that you could make a very large charitable gift (large being relative to your own individual resources) to your favorite charity, university or church and never feel the pain of losing your hard-earned assets?  It can be done as part of your California Trust or Will  planning by leaving a charitable gift upon your death.

Think of the power you have.  Making a gift to charity at death is often referred to as “planned giving” or charitable estate planning.  Charitable planning can take many forms, and can get pretty fancy if you want, but it can also be extraordinarily simple by just naming a charitable beneficiary in your Trust or Will.

Now I am not suggesting that you leave all you have to charity (unless you want to), and cut out your children or other heirs entirely.  But I am suggesting that by making a little room in your California Will or Trust for a charitable cause, you can give a gift far bigger than you are able to give during your lifetime and still have plenty left over for your children.

For example, let's say you have a home, a rental house and some money in the bank.  During your lifetime, you live in your home--you don't want to give that up.  And you rely on rental income from your rental, while the money in the bank acts as a safety net in case you need more care and assistance as you grow older.  So there is not much room in your finances for a large charitable gift while you are alive.

But upon your death, if you gave let's say a quarter of your rental property to charity, that could be a significant gift.  Even if the rental home is only worth say $200,000, one-fourth of that would be $50,000!  Could you imagine giving $50,000 to charity during your lifetime?  No.  But as part of your estate plan, a generous gift can be made to the charity of your choosing and your children still receive the remainder of your assets.

Do you think $50,000 is too much?  Make it $10,000, that's still a larger gift than you can make while alive.

There are many good causes out there that would be overjoyed to receive a gift of $10,000.  And they often remember your gift by any number of recognitions. Also, your children can participate in the charitable gifts, including having them make decisions on how the money is spent and the programs that are sponsored by your gift. 

The point is, giving “till it hurts” is much easier to take when you are not here to feel the “hurt.”  And making some room for charity in your Trust and Will is a great way to leave a legacy that will be long remembered by those in need, without hurting those you love.

Know Your Non-Profits: The different types of charities

Posted by Keith A. Davidson on August 09, 2011

Non-profits, charities, 501(c)(3)’s, foundations, private foundations, family foundations—what do all these terms have in common?  They are typically used to refer to the same thing, an entity that is recognized as not-for-profit under Internal Revenue Code Section 501(c)(3).  But not all charities are created equal.  There are different types of charities based on the type of activity they engage in and the primary source of their charitable contributions.

The three basic types of 501(c)(3) charities are (1) private foundations, (2) private operating foundations, and (3) public charities.

  • Private Foundations.  A private foundation is a charitable entity that does NOT receive a bulk of its charitable contributions from the general public.  Foundations are usually formed to provide grants to other public charities.  They can receive contributions from any source, but they typically are funded by a single family or a small group of corporate or individual donors.  Under Section 501(c)(3) of the Internal Revenue Code, all charities begin life as a private foundation unless and until they can establish that a bulk of their contributions come from the general public.

Because private foundation status is the easiest level of non-profit to obtain, it also has the least tax advantages.  When individuals make contributions to a private foundation, the income tax deduction may be limited.  For example, if you were to give a private foundation real property that you bought long ago for $50,000, but the real property now has a market value of $500,000, your charitable deduction would be limited to $50,000.  When giving that same real property to a public charity, your deduction would be $500,000—the full market value.  So the type of charity you’re giving to can make a difference.  These rules apply for any appreciated property (including business interests), but do not apply to cash gifts or “marketable” securities (i.e., stocks listed on a stock exchange). 

Furthermore, private foundations are required to contribute a minimum of 5% of their annual net worth to a qualified 501(c)(3) charity each year.  So if you are involved with a public charity, you want to seek out private foundations who desire to support your cause because every private foundation is required to make minimum grants to public charities each year.

Private foundations are often created by individuals or even businesses that wish to support charitable causes, but don’t necessarily want to engage in the actual charitable activity directly.  It can be a great way to build good-will in the community.  For example, the Ronald McDonald House charity, or the In-N-Out Foundation.  These are great examples of charities created by businesses.

  • Private Operating Foundations.  Private foundations that choose to engage directly in charitable activities are referred to as private operating foundations.  They are somewhere between a private foundation (which is just a grant-making charity as discussed above) and a full-blown public charity.  Operating foundations do not qualify for public charity status because their contributions are not derived primarily from the general public.  But they do engage directly in a charitable activity.  For example, someone who begins operating a animal rescue/shelter charity may not have enough contributions from the general public to qualify as a public charity, but since they are actually engaging in their charitable purpose (i.e., rescuing and sheltering animals), they qualify as an operating foundation. 
  • Public Charities.  This is the type of organization most people think of when talking about a charity.  A public charity is an organization that directly engages in their charitable purpose and receives a bulk of their support from the general public.  They are not funded by any one individual or business, but rather, a whole segment of the general public.  They can still receive large donations from individuals or businesses, but those contributions cannot exceed more than 50% of their overall income.

Public charities are the most beneficial entities from a tax perspective.  A large amount of their income is exempt from tax and the income tax deduction individuals receive for making gifts to public charities are very generous. 

  • How can knowing your charities help business?  Knowing about the different types of charities can be helpful in a number of ways.  First, if you are going to make a gift to charity, the best tax benefits you will receive come from giving to a public charity.  If that is a concern to you, then you will want to find out what type of charity you are giving to.

You can also leave gifts to charities as part of your estate plan (under your Trust or Will), which is a great way to leave a legacy and provide a greater charitable contribution than you may be able to give during your lifetime.

If you do work for a public charity, or as a business you help support a public charity, you would want to seek out private foundations that share you charitable purpose.  Since you know that every private foundation must make minimum grants to public charities each year, finding a private foundation may lead to a great charitable contribution for your public charity.  How do you find charities?  Ask the IRS, by going to www.irs.gov and clicking on the “Charities & Non-Profits” tab at the top of the page.  You can search for approved charitable organizations.

Also, as an individual or business you may want to create a private foundation to help benefit charitable causes you care about.  It’s relatively easy to do and helps build good-will in the community.  For example, my firm created the Albertson & Davidson Children’s Foundation to help support children’s causes in our community.  It is a private foundation that is funded by contributions from my firm and contributions from clients, vendors and friends of the firm.  Each year our foundation will provide grants to public charities that support children’s causes. 

But a foundation does not need to be limited to a single cause.  It can be a general charitable purpose and provide grants to a wide range of public charities—the sky’s the limit when it comes to being charitable!