California Trust, Estate & Probate Litigation

There are times when people try to implement an estate plan, but things go awry.  And that can happen when an attorney makes a mistake in drafting a California Trust or Will resulting in legal malpractice.

Bringing and prosecuting a legal malpractice case against an attorney who improperly drafted a California Living Trust or Will is complex, to say the least. It is particularly difficult because knowledge of three distinct areas of law is required for a hopefully successful outcome. First, you need to understand the law as it applies to estate planning (i.e. Living Trusts, Wills, etc.); you also need to understand the rules of civil litigation; and finally, you need to understand the rules and laws as they apply to insurance and bad faith insurance litigation.

Estate Planning: It takes years of experience to become a good estate planning attorney. Over the years, Trusts and Wills have become more complex due to multiple asset classes owned by individuals, married couples with children from previous marriages, and ever changing Trust, Will and Tax laws. Competition between attorneys that provide estate planning services is intense. What used to be only available from large and well-known law firms is now readily available across the spectrum of service providers--now large, medium, small, and solo law firms offer estate planning services. Even nonlawyers provide “assistance” in drafting estate plans. The costs for these estate plans range into the thousands of dollars to as low as $50 through several web-based providers. Unfortunately, with the intense competition between these providers, mistakes are made when attempting to convey the intent of the Trustors (the persons creating the Trust or Will) in the Living Trust or Will. This leads to beneficiaries being harmed if they do not receive the inheritance the Settlors intended. In all events, to successfully bring a successful malpractice claim in this area, one must have a good understanding of California estate plans, including Trusts and Wills.

Civil Litigation: Litigation is the process of filing a lawsuit, preparing for trial, and going to trial. The entire litigation process in California generally takes two to five years to complete. The majority of time in litigation is spent on discovery, which includes depositions, interrogatories, requests of admission, and demands to produce documents. Once discovery is completed the trial court will set a trial date. At trial a jury or a judge hears the case. The lawyers make opening statements, present evidence during direct and cross examination, and make a closing argument making their case why their client should prevail. The litigation process comes to a close with the jury or judge making a decision in favor of the plaintiff or defendant. One must not only understand the law as it relates to estate planning, but also civil litigation, to successfully prosecute a legal malpractice claim pertaining to California Trusts and Wills.

Insurance and Insurance Bad Faith Litigation: Most drafting attorneys have professional malpractice insurance, which covers the attorney up to a set amount for any lawsuit filed against them for legal malpractice. For example, if an attorney has an insurance policy of $1,000,000, then the insurance company who issued that insurance policy to the attorney will pay up to $1,000,000 for a successful litigation claim made against the attorney for legal malpractice. This is where an attorney bringing the legal malpractice lawsuit can do a lot for their beneficiary clients.

The goal is to force the insurance company to settle the lawsuit early on for the policy limits. If the goal is reached, the beneficiary obtains monetary damages for the loss they sustained by the drafting attorney’s malpractice without having to undergo the entire litigation process, which is time-consuming and extremely stressful. To implement the goal the attorney for the beneficiary simply needs to make a “reasonable” settlement offer (usually just inside policy limits) to the drafting attorney and the drafting attorney’s insurance company. If the insurance company refuses to pay the policy limit, it’s very likely the insurance company will be responsible for any judgment amount over the policy limit. This generally causes (and motivates) the insurance company to settle for policy limits.  Or if the company still refuses to settle, then it sets the stage for a bad-faith action against the insurance company down the road.  Either way, it’s a benefit to the beneficiary-plaintiff. Insurance and Insurance Bad Faith Litigation are perhaps the most misunderstood aspects of successfully bringing a legal malpractice lawsuit. You must know this area of the law.

Each of these three areas can be complex in their own right.  And in attorney malpractice cases in the California Trust and Will arena, you’ll need to combine knowledge of all three areas to be successful.

Feel free to call me if you have any questions about initiating and prosecuting a legal malpractice lawsuit against a drafting attorney. Also, if you would like the letter our firm sends to insurance companies for these types of cases, let me know.

From time to time we have clients come to our office upset that the attorney who drafted their parents’ California estate plan (i.e., living trust, will, and durable powers of attorney) got it wrong or perhaps failed to properly implement the parents’ estate plan.

In a recent case we handled an attorney drafted an amendment to a Trust for a mother. The mother intended the amendment to change the distribution scheme between her children. The original trust called for an equal division amongst the children, and now the amendment called for a different division. The mother signed the amendment, and believed that the distribution changes under the amendment would be followed after she died.

After the mother’s death, it was found that the drafting attorney did not properly draft the amendment. Due to the drafting attorney’s mistake, several of the children were significantly damaged; these children would not receive what their mother intended under the amendment because it was invalidly created.

That unfortunately led to a malpractice lawsuit being filed against the drafting attorney. The balance of this blog article outlines how we communicated with the attorney’s malpractice insurance carrier to settle the lawsuit prior to going to trial.

We want to make it clear that insurance companies do not settle lawsuits for fair value—if they settle at all. The insurance industry has taken the position that they will vigorously litigate all lawsuits even if meritorious allegations are made and liability and damages are clear. In response to this position, we needed a strategy for getting the drafting attorney’s insurance company to agree to settle for policy limits—before going all the way to trial.

To implement our strategy, we needed to know what the damages were to our clients—the children harmed by the drafting attorney’s mistake. We determined the damages were in excess of $1,000,000. Next, we needed to know how much insurance coverage the drafting attorney had for legal malpractice coverage. Through discovery we found out that the policy limit for this case was $500,000. That means that the insurance company was only required to pay the first $500,000 of any judgment for legal malpractice against the drafting attorney.

Once we determined damages and potential insurance coverage, we sent out the balance of our written discovery and took the depositions we needed to establish all the elements for legal malpractice. We were now in a position to force the insurance company to settle for $500,000 or risk being on the hook for the entire $1,000,000 in damages.

We spent a lot of time on a settlement demand letter to the opposing attorney, which we copied on the insurance adjuster. The letter set out the facts, the clear liability, and the clear damages. We gave the insurance company 30 days to think about whether they would accept or reject the offer. In this case, the insurance company ultimately accepted the settlement demand. If they had not, then we would have gone after them for bad faith for refusing to settle for a reasonable amount. In this case the $500,000 settlement amount was reasonable, because the total liability was easily in excess of $1,000,000.

As you can see, when you carefully plan your strategy in a case, you can obtain good outcomes for clients without exposing them to several years of litigation, which is exactly what the insurance company wants to do. But our proactive actions put the insurance company in a difficult position—either settle for a reasonable amount now, or likely end up paying a much larger amount for the damages sustained by the mother’s children. We (and our clients) were okay with the insurance company choosing either option.

If you would like a copy of the redacted letter I sent to the insurance company, please let me know.

We spend a great deal of our time as Trust and Will lawyers pleading with people to create a Will or a Trust as part of their estate plan.  But we rarely discuss how to get rid of those documents if the need ever arises.  The process, called “revocation,” can be a bit more difficult than you might think.

Revoking a California Will

Will revocation is an area of the law unto itself.  In California, there are two options to revoke a Will: (1) create a new Will that specifically revokes the old one, or (2) destroy the original Will by a physical act.  The options for revoking a Will can be found at California Probate Code Section 6120. 

Revocation by a New Will

The first option is the easier and most used of the two.  Whenever you create a Will you typically will find language at the beginning of the documents that says something to the effect of “I hereby revoke all prior Wills.”  This simple sentence is enough to revoke a prior Will; PROVIDED THAT, the new Will is signed with all the proper formalities required of a valid California Will.  In other words, a new, valid Will can revoke a prior Will.

This is true even if the above sentence is not included in the new Will, if the new Will makes provisions that are different and conflicting with the first Will.  So if you give your diamond ring to your daughter in Will one, but then create a new Will leaving the same ring to your son, then the new Will controls and effectively revokes the gifts in the prior Will.  Of course, you never want to rely on an inconsistency—it’s far better to clearly state what you want to have happen to the first Will.

Revocation by Physical Act

A writing is not the only way to revoke a California Will.  You can also do so by a physical act, such as burning, tearing, canceling, obliterating or destroying the Will.  The catch is (1) the physical act must be done by the Testator (that’s the person who created the Will), or at least in the Testator’s presence and at his or her direction.  Once the physical act takes place, the Will is revoked.

Revoking a California Trust

Revocation of a Trust is a bit different from a Will.  And Trust revocation always starts with the Trust document itself because most Trust documents state the method of revocation.

For example, a very common provision in a Trust allows revocation using the following language: “I reserve the right to amend this Trust by a signed writing delivered to the Trustee.”  That sentence, simple as it is, provides the basis for an amendment.  If the Trust is silent as to amendment, then the probate code provides the method to revoke at Section 15401(a)(2), which is a writing (other than a Will) signed by the settlor and delivered to the trustee—a very simple requirement.  Notice that the writing does not have to be notarized or witnessed, it just has to be a writing, signed by the Settlor and delivered to the Trustee.

Of course, a Trust can also be revoked as to a particular piece of property by the Settlor’s act of taking the property out of the Trust.  For example, if I create a Trust and transfer my house into the Trust name, I can revoke the Trust as to that asset by filing a new deed transferring my house out of the Trust.  The Trust then ceases to act over that asset.  That doesn’t necessarily mean that it won’t get put back into the Trust at some point, but once transferred out of the Trust, the Trust no longer controls that assets.

The bottom line: revoking a California Will or Trust is not difficult, but there are a few hoops to jump through if your going to do a proper revocation.

The biggest decision for anyone creating a revocable, living trust is the choice of Trustee.  A Trustee acts as the manager of the Trust assets.  They call all the shots, make all of the important decisions, and decide when and how the Trust assets will be distributed.  The Trustee is in a very powerful position, and like all positions of power, there are those who abuse their power to the detriment of the Trust beneficiaries.  This is why it is important to have a Trustee that you can trust.

Yet so many people create California Trusts without giving their selection of a Trustee much thought.  In part, this is due to the limited choices most people feel they have in selecting a Trustee.  Typically, the choice is made among the Settlor’s (a Settlor is the person creating a Trust) children.  This may work a majority of times, but it can also lead to a great deal of tension, which then sets the ground-work for lawsuits being filed by Trust beneficiaries against the Trustee.. 

In my opinion, having seen the worst case scenario of Trusteeship time and again, the following are a few of the factors you should consider in selecting your Trustee:

1. A Capable Trustee.  First, and most importantly, you need a Trustee who can do the job.  Being a Trustee is a thankless position.  It is a position of power over assets, but it comes with a large number of duties and obligations imposed by California law and the Trust document.  If a Trustee fails to perform properly, then he or she is personally liable for any damages caused. 

Therefore, you need someone who has the ability to (1) manage financial assets, (2) follow directions as outlined in the Trust terms and the California Probate Code, and (3) manage the personalities of the beneficiaries.  Each of these elements is vitally important to a well-managed Trust.  Does that mean that your oldest child should be Trustee?  Not necessarily.  The more important question is who is capable of being a good Trustee.

    2.   An Independent Trustee.  There are choices for a Trustee outside your immediate family.  This includes corporate Trustees and so-called “private professional fiduciaries.” 

Corporate Trustees are financial institutions that act as Trustees of Trusts.  Some corporate Trustees require that the Trust have a minimum amount of assets before they will agree to act.  The benefit of a corporate Trustee is that they are in the business of managing Trusts.  They tend to be good at it.  And they have a team of professionals to oversee the Trust administration.  The downside is that they also tend to be the most expensive option—charging anywhere from .75% to 1.5% of the Trust assets on an annual basis. Additionally, Corporate Trustees are unlikely to have a personal relationship with the Trust beneficiaries, which means they will not know the individual needs of Trust beneficiaries like say a family member Trustee would.

“Private Professional Fiduciaries” are individuals who make their living acting as Trustee for people.  In California, private professional fiduciaries must be licensed.  Since they are in the business, they are good at managing Trusts and they tend to charge less than a corporate Trustee.  And good private professional Trustees can help manage both the assets and the relationships between the beneficiaries.

     3.  A Well Informed Trustee.  Whatever Trustee you choose, don’t forget to find out if that Trustee is well informed about handling Trust administrations.  This goes even for family members.  Why not talk to your child who you have named as successor Trustee to see whether (1) she even wants to act, (2) she knows what her duties are, and (3) she knows what your expectations are for management of the Trust estate.  This rarely occurs, and yet it could be very beneficial to the Trust administration.

The choice of Trustee is yours, but put some thought into that choice and choose wisely. 

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.