1. The Law of Prohibited Transferees
If you’re like me, you would think that lawyers who draft Wills shouldn’t add themselves as beneficiaries (“I leave my entire estate to my beloved son…lawyer”). Unfortunately, a few bad apples ruin the bunch, and a few bad lawyers disagreed with my opening sentence. Thanks to them, we now have sections of the California Probate Code designed to prohibit certain people from taking under a Will or Trust—referred to as “prohibited transferees.” The law is intended to lock the gates to an estate from people who are in a position to take advantage of the Will creator.
Who are these “prohibited transferees”? Some are obvious like the lawyer drafting the Will or Trust is a prohibited transferee. So is anyone related by blood or marriage to the lawyer drafting the Will or Trust, and anyone in partnership with the lawyer drafting the Will or Trust. We don’t want to benefit the lawyer, his or her family, or his or her business partners. It also extends to others such as caregivers of a decedent and fiduciaries (people who may already be acting as trustee, agent, or conservator for the person who creates the Will or Trust).
But the law provides an exception to this rule where the prohibited transferee is related by blood or marriage to the Will or Trust creator. So I can draft a Will for my mom and I am still allowed to take a gift under her Will because we are related.
2. The Court clarifies family relationships relating to Prohibited Transferee law
The California Court of Appeal for the Second District recently clarified what it means to be related to the person creating a Trust or Will, in Estate of Oligario Lira (decided December 26, 2012, published January 22 2013). Oligario Lira married his wife, Mary Terrones, in 1968. Oligario had three children from a prior marriage and Mary had six children from a prior marriage. On February 21, 2008, Mary filed for divorce from Oligario, but the marriage was not legally terminated by the Court under February 21, 2010. After the divorce filing, but before the legal termination, Oligario created a new Will (on January 6, 2009) naming his three natural children, and three of his stepchildren as beneficiaries. The Will was created by his step-grandchild who was an attorney.
Oligario died on July 20, 2010, and a dispute arose between his natural child, Mary Ratcliff, and his stepson, Robert Terrones. Mary’s main claim was that Robert was a prohibited transferee because Robert was related to the attorney who drafted the Will and Trust. Under PC Section 21350(a)(2), such a relationship precludes Robert from inheriting under the Will.
Robert argued that he was exempt from the rule of prohibited transferee because he was related by marriage to the decedent (Oligario). Just as I can create a Will for my mom and receive a gift, so too can Robert receive a gift from a Will created by his lawyer-son if Robert was related to Oligario.
The question turned on whether or not Oligario and Robert were related for purposes of this issue. Robert argued that at the time the Will was signed, he was still related to Oligario by marriage. Only after the marriage was legally terminated would that relationship end. Mary argued that at the time of Oligario’s death Robert was not related and that should be the time for measuring family relations, not the time of signing the Will.
The trial court sided with Robert and the Appellate Court agreed. Writing for the Court, Justice Perren held that the statute is properly interpreted to measure family relationships at the time the Will is signed. Here, since the Will was signed before the court had legally terminated the marriage, Robert and Oligario were still related by marriage. The fact that they were no longer related by marriage at the time of Oligario’s death is irrelevant (according to the Court).
A rather shocking result for Mary, who did not consider Robert as a family relation after the divorce. But one wonders if the Court was swayed by the longevity of this marriage. It lasted from 1968 to 2010 (42 years), and there could have been some relationship between Oligario and Robert that had nothing to do with their legal status as “family” members.
Sometimes the law and feelings about family members don’t mix well. A great result for Robert, who unlocks the gates to his share of this estate.
 The Prohibited Transferee Sections of the Probate Code starting as 21350, were replaced effective January 1, 2011 with Probate Codes section 21380. The new code section continues the old law, with the only real difference being that prohibited transferees can try to overcome the prohibition if they can prove by clear and convincing evidence that the decedent wanted them to have the stated gift.