AvoidEstate TaxExplosion

Will your estate be subject to estate taxes at the time of your death? That may not be so clear. After all, Congress seems intent to keep changing the estate tax laws. In recent years, the estate tax has been set to apply only to estates that exceed $5 million in value, with an inflationary adjustment that makes the estate tax limit $5.45 million in 2016. But Democrats want to lower the estate tax limit and Republicans want to repeal it altogether. Who knows what the future holds.

That’s where Discretionary Trusts come in. If you have an estate that potentially could be above the estate tax limit when you die (and who knows what that limit will be), then you may benefit from a Disclaimer Trust.

A disclaimer is simply a declaration by the recipient of an inheritance that they don’t want the property. There are a number of rules that apply to disclaimer, but the two you should know is that (1) a disclaimer must be made in writing within nine months of the decedent’s death, and (2) you cannot control where the property goes after you disclaim it.

Legally speaking, you are not obligated to accept a gift. And if you disclaim that gift, you are saying you do not want it and will not take any control over it. By doing so, the gift will pass according to the Trust terms as if you died before the Trust settlor. That means you wash your hands of the gift and you have nothing more to do with it.

In tax planning, we use the disclaimer to our advantage by providing Trust terms that direct the disclaimed assets to a trust (aptly named the Disclaimer Trust), where the assets are held for the benefit of the surviving spouse. This allows the surviving spouse to disclaim assets for tax planning purposes, and then have the assets pass into a Disclaimer Trust to be held for the survivor’s benefit.

If you have ever heard of a Bypass Trust, then you already know what a Disclaimer Trust is. A Disclaimer Trust is just a voluntary Bypass Trust that the surviving spouse can elect to create after the first spouse’s death. Whereas Bypass Trusts are mandatory and must be created after the first spouse’s death.

In other words, a Disclaimer Trust is merely a safety valve that allows the survivor to disclaim whatever portion of the estate would be over the $5.45 million mark after the surviving spouse’s death. Once that determination is made, the assets can be disclaimed, and the Disclaimer Trust is created.

So even though Congress has no idea what it will do with the estate tax limit, you can rest assured that any future estate tax can be properly dealt with and planned for simply by including a Disclaimer Trust in your revocable living trust.

Time's Up!

When faced with a Probate Court Petition that you do not agree with, you must object. Luckily, in California you have some leeway on when you can object because our Probate Code allows interested parties to object orally at the initial hearing. In other words, you technically do not have to have a written objection before the initial hearing date.

But that does not mean that objecting orally is the best way to go. In most cases, we prefer to file a written objection at least five days before the hearing date to ensure that the objections are preserved.

Probate court is a court of equity—meaning the court can take action, issue orders, and approve petitions anytime there are no objections. Even when there are objections the court can overrule the objections and issue orders—although the law requires a trial at which to present evidence to decide most probate court matters.

The point is that if you fail to object in writing, and if you fail to show up on time at the probate court hearing, then you may be out of luck. Once the court issues orders or approves a petition, it takes a good deal of work to overturn the result—assuming you can overturn it at all.

If you are going to rely on an oral objection at a probate court hearing, then be sure to show up on time. If you want to play it safe, then file your written objection well before the hearing date so the judge will be sure to read it.

Can you unduly influence someone NOT to take action?-2

Can you unduly influence someone NOT to take an action?  In nearly all Trust and Will disputes, an undue influence claim is brought to overturn a Trust or Will that was executed while the elder was unduly influenced.  But not every Trust and Will case turns on action, sometimes inaction can be just as damaging.

For example, sometimes parents get mad at their children (sometimes you ask?  Okay it happens all the time).  And to punish the child, a parent will rush to the lawyer’s office and amend the Trust or Will to reduce that child’s share or disinherit them altogether.

A few years go by, the parent and child make amends, and the parent wants to change the Trust and Will again to return the child to his full share of the estate.  But then, another child gets wind of this intent and tries to prevent it.  Maybe the other children had no problem with this one “trouble maker” getting booted out of the estate and thereby increasing everyone else’s share.

Undue influence is the use of severe pressure that causes the elder to replace his or her own intent with that of the wrongdoer.  Influence (of the undue variety) is not illegal.  Everyone is influenced every day by the people around them.  But undue influence is more sinister in that is supplants the intent of the elder completely.

Undue influence can be used to cause a person to act, or refrain from acting, in a way that overcomes the person’s free will.  (See Welfare and Institutions Code section 15610.70).

As a result, where a parent is kept from changing a Trust to add a disinherited child back into the estate, undue influence could be used to overcome the resulting distribution.

It is not just what a parent does, but what a parent does not do, that could form the basis of a Trust or Will lawsuit.

Can a Bad TrusteeLose it All?

The ever confusing Trust and Will no-contest clause is continually being used and abused in California Trust and Will lawsuits. The irony is that a beneficiary is rarely, if ever, disinherited under a no-contest clause any more because the law is favorably skewed to prevent forfeiture. In other words, no-contest clauses simply do not apply except in the most extreme cases (and your case is not extreme no matter what you think). Not only must you meet the requirements of the Probate Code for a no-contest clause to apply, you must also be acting without probable cause—a nearly impossible standard to meet. If you don’t meet the standard, then you are not in danger of being disinherited regardless of the legal action you file.

But what about a bad Trustee, can he be disinherited under a no-contest clause if he breaches his duties as Trustee? The short answer is no, but why not?

The first rule of no-contest clauses is that you must undertake an action that is specifically listed in the no-contest clause as being a triggering event. More than that, Probate Code section 21310 specifically limits the actions a no-contest clause can affect. Actions that can be used to trigger a no-contest clause are limited to: (1) direct contests of a document (meaning you are trying to overturn a Trust, Will, or Trust or Will amendment), (2) creditors’ claims, and (3) challenging the characterization of property as being either community or separate. Further, a no-contest clause will not apply where someone acts with probable cause of success.

Notice how there is no mention of disinheritance for a bad Trustee?  That’s because there no basis to disinherit a bad Trustee just for breaching a duty to the Trust.  In fact, I have never seen a no-contest clause that includes a provision that triggers disinheritance if a Trustee/beneficiary breaches his duties as Trustee. But even if a Trust or Will no-contest clause had such a provision, it would be unenforceable because only the items outlined in the code can be enforced for no-contest clause purposes.

So that means a bad Trustee who is also a beneficiary will not be disinherited due to his bad actions as Trustee. But the Trustee is not off the hook for engaging in breaches of Trust. The Trustee can still be held liable for any damage that is caused as a result of a breach of Trust, and those damages can be taken out from the bad Trustee’s share of the Trust estate. Unfortunately, that only occurs when a court orders it.  That means the burden is on you to file your lawsuit, prove your case at trial, and get your order surcharging the Trustee for damages.

If you think you have been wrongly disinherited from an estate, please do me a favor and act quickly.  I cannot tell you how many people I have talked to who have great claims, or rather HAD great claims, only to find out that they waited too long to bring a lawsuit to enforce their rights in Court.  The statute of limitations (that pesky set of laws that sets time limits to bringing lawsuits) can have harsh results.

The problem in Trust and Will matters if that there are a number of different (often conflicting) statutes of limitations at play.  For example, let’s say you have an agreement with a decedent to leave you property in a Will, but the Will was never created.  That is a contract right, but it must be brought within a year of the decedent’s death.  If you were disinherited from a Trust, you may have a very long time before you have to bring a lawsuit, UNLESS you are served with Trustee’s notice, in which case your statute of limitations is limited to 120 days.

Have a problem with a Trustee?  You might have an unlimited amount of time to bring a claim, or you might have three years, it all depends on whether you were provided enough information to know (or where you should have known) you had a claim against the Trustee.  On the other hand, if a Trustee files for Court approval of a Trust accounting, and you do not object to the accounting, then you are forever barred from contesting the Trustee’s actions as reported in the accounting.

Not only does the statute of limitations bar your claim, there’s also the equitable doctrines of Laches, which is a legal doctrine that allows a court to stop a lawsuit where a party waited too long to file it.  Laches is based on fairness and where a party waits beyond what is a “reasonable” amount of time, then the lawsuit can be thrown out.

Confused yet?  You should be, it is a very confusing area to deal with.

The bottom line: act swiftly.  If you think you have been given a raw deal, then take action now.  My favorite potential client call of all time: “Hi, my mom died in 1975 and I want to contest the distribution of her estate”…What!!??  1975 was a while ago, why wait so long?

If you do not take action, then be forewarned, you may be giving up your rights whether you like it or not.

Ontario Office

Ontario, California 91764
909.466.1711 phone
909.354.3460 fax
http://www.aldavlaw.com/practice-areas/litigation/estate-and-probate-litigation/

Is an oral promise to make a will or trust enforceable under California law? Contrary to what many believe, California law provides for the enforcement of oral promises to make a will or trust.

How does the promise to make a will or trust arise? Generally, a parent orally promises a child, a friend, or a caretaker some or all of their assets once they die, if the child, friend, or caretaker agrees to do something for the parent. The “something” can be anything of value, but usually takes the form of the child, friend, or caretaker taking care of the parent until the parent’s death.

But what if the parent didn’t get around to writing a will or trust that states the child, friend, or caretaker gets some or all of the parent’s assets after they die? Or what if the parent never intended to write a will or trust reflecting the promise to the child, friend, or caretaker? Can the child, friend, or caretaker enforce the now deceased parent’s oral promise to give them assets? The answer is ‘yes’.

California Probate Code section 21700, entitled “Contract to make will” has a provision that allows a person to establish an oral promise by establishing that there was an agreement between the parent and the child, friend, or caretaker that the parent would leave some or all of their assets to the child, friend, or caretaker after they died.

But this is where it gets a bit tricky. The procedural hoops one must jump through to make a an initial claim to enforce an oral promise to make a trust or will under California requires the following:

  • First, one has to pay attention to the applicable statute of limitations. The statute of limitations simply tells us how long we have to file a lawsuit to enforce an oral promise. The applicable statute of limitations for filing a lawsuit to enforce an oral promise to make a will or trust is one year from the date of death of the parent. So if the parent dies on January 1, 2014, then the child, friend, or caregiver would have one year (to December 31, 2014) to file an actual lawsuit to enforce the claim.
  • Second, it gets even trickier. Before one can file a lawsuit based on a broken promise to make a will or trust, one must file a “creditor’s claim” in the estate of the deceased parent. The creditor’s claim is not difficult to complete and file, but if one fails to complete this step, and one year passes from the date of death of the parent, one is very likely barred forever from filing an actual lawsuit to enforce the parent’s promise.
  • Third, it’s still tricky. What if nobody has opened the deceased parent’s estate with the probate court? Can one simply wait until an estate is opened, whether that’s one or two years from now, and then file their creditor’s claim? The answer is very likely ‘no’. The applicable statute of limitations states that to enforce an oral promise to make a will or trust, a lawsuit must be filed within one year of the date of death of the parent. So if the probate estate is not opened, then one needs to file a petition for probate to open the parent’s estate with the probate court, file a creditor’s claim, and then file a lawsuit—all before the one year passes from the parent’s date of death.

Each of these steps must be completed before one can have their day in court to prove a claim based on an oral promise to make a California will or trust. If the one-year statute of limitations (calculated from the deceased parent’s date of death) is blown for any reason, the claim to enforce the oral promise is barred forever from being heard. Thus, it’s very important for one to understand and meet the procedural loopholes required to make a claim to enforce an oral promise.

There’s Trusts that run smoothly, there’s Trusts that have a few problems, and then there’s Trust where everything is a fight from start to finish.  Which Trust sounds most like yours?

  1. Smooth Sailing.  This is the way Trusts are supposed to work.  The successor Trustee takes over management of the Trust, the assets are collected and inventoried, assets are sold as needed, bills are paid, beneficiaries receive their fair share, and the Trusteereports his actions with an accounting.  If there is a continuing Trust for a beneficiary, then the assets are properly invested using a financial planner and an investor policy statement to be sure investments are appropriate.  And the Trust administration is complete, without Court intervention.
  2. Houston we have a problem.  The troubled trust administration is where a Trust has a few problems along the way, but nothing serious enough to force anyone into Court.  Maybe the Trustee needs a gentle reminder on what to do.  Maybe a beneficiary is being unreasonable, or a piece of Trust property is particularly hard to sell.  Whatever the problem, a few arguments back and forth, some slight corrections, and the Trust administration is back on track.  All’s well that ends well.
  3. All-out Warfare.  This is where a Trust administration goes completely off-the-rails.  A bad Trustee who refuses to follow the Trust terms, refuses to communicate and refuses to make mandated Trust distributions. Or Trust investments that are not planned out and are not appropriate for the Trust, or a Trustee who fails to account.  Any one of these scenarios can end up with the whole mess in Court, for a judge to decide.

Notice something about the last approach?  All the examples involve Trustee misconduct because the Trustee is the ONLY person who owes duties to the beneficiaries.  The beneficiaries, in turn, owe no duties to the Trustee.

Unfortunately, even though the Trustee’s duties are well outlined in the California Probate Code, when a Trustee fails or refuses to follow the rules, only a Court can make them behave.  There is no action a beneficiary can take, besides making demands, to force a Trustee’s hand other than seeking a Court order.  Once in Court, the judge can issue an order and force the Trustee to act.  Or the judge can remove the trustee, personally fine the Trustee, or any number of other actions to force compliance with the California Probate Code.

If you find yourself a beneficiary of Trust scenario number 3, you had better be prepared to fight for your rights.

3491 Concours Street, Suite 201
Ontario, CA 91764
909.466.1711 phone
909.354.3460 fax
http://www.aldavlaw.com/practice-areas/litigation/abused-estate-and-trust-beneficiary-litigation/