Trusts and Estates

2015 Case Alerts

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FirstMerit Bank, N.A. v. Diana L. Reese

Filed November 19, 2015, Fourth District, Div. Two
Cite as E061480

FirstMerit Bank sought to enforce a money judgment against Reese by applying for an order under Code Civ. Proc., § 708.510 assigning Reese’s interest in two trusts to FirstMerit, and an order restraining her from otherwise disposing of her right to payment under the trusts.  The trial court denied the motion because a debtor’s interest in a trust is specifically not subject to such an assignment order.

The court of appeal affirmed.  The onlymeans by which a judgment creditor may enforce a money judgment against a beneficiary’s interest in a trust is by a lien under Code Civ. Proc., § 709.010.  However, such an order must be sought from the court with jurisdiction over the trust.  In this case the trusts were administered in Ohio.  Therefore, even if FirstMerit had utilized the correct procedure, the California court had no jurisdiction to impose such a lien.

Sterling v. Sterling

Filed November 16, 2015, Second District, Div. Eight
Cite as B258151

Donald Sterling appealed probate court orders concerning the sale of the Los Angeles Clippers, an NBA team and a major asset of the Sterling Family Trust.  First, the appellate court found that Donald Sterling was properly removed as trustee pursuant to the terms of the trust, which was supported by evidence presented by physicians as to his lack of capacity and his inability to manage his finances and withstand undue influence.  Second, the appellate court found that Probate Code section 1310(b) authorized the probate court to instruct the trustee, Rochelle Sterling, to sell the Clippers notwithstanding the stay on appeal of the probate court’s order, because the risk of loss to the trust estate if the sale fell through was extraordinary or imminent given the $2 billion purchase price as compared with other offers and valuations.  Third, the appellate court held that it was not improper for the trustee to wind up the affairs of the trust, even after Donald revoked the trust.  The trustee’s winding up of the trust included seeking the best possible result for the beneficiaries in selling the Clippers, in accordance with her duty of loyalty as trustee.

Doolittle v. Exchange Bank

Filed October 20, 2015, First District, Div. Three
Cite as A143422

Susan Doolittle filed petitions to invalidate her mother’s restated trust on grounds of lack of capacity, undue influence, and financial elder abuse.  The trust’s no contest clause directed the trustee to defend a contest at the expense of the trust estate.  Susan and the trustee, Exchange Bank, filed competing petitions for instructions to address the trustee’s authority to use trust funds to pay for litigation expenses.  The trial court found that the defense directive is not a no contest clause, and authorized the trustee to use trust funds to defend against Susan’s petitions. 

The appellate court affirmed.  The Doolittle trust specifically directed the trustee to defend against claims challenging the validity of the trust at the expense of the trust.  The appellate court determined that since the clause on defense of claims was not a no contest clause itself, it was not necessary to first make a determination that Susan’s claims were asserted without merit or probable cause before it granted authorization for fees to defend the trust.  Assuming Susan has probable cause for her claims, the residue will be reduced by defense costs.  If the rule were otherwise, there would be no means to implement the trustor’s intentions until after the litigation is adjudicated, which would render the defense directive meaningless.

Conservatorship of Kevin A.

Filed October 1, 2015, Fifth District
Cite as F070914

Kevin A. appealed from an order granting the petition of the public conservator to reestablish LPS conservatorship for a one-year period, finding him gravely disabled. Although Kevin A. had previously remained in conservatorship for a number of years, a jury in 2013 found him not gravely disabled, terminating the conservatorship. Following a hearing in which Kevin A.’s apparent request to replace his attorney was denied, Kevin A.’s attorney waived a jury trial over Kevin A’s objection.

The court of appeal reversed. A proposed conservatee must waive the right to a jury, and in accepting the attorney’s waiver over Kevin A.’s express objection, the court made no specific finding that Kevin A. lacked capacity to decide for himself whether to proceed before a jury. The case is distinguishable from precedent where counsel’s waiver of a jury was upheld, because the proposed conservatee there, unlike Kevin A., expressed on the record a desire for a court trial.

Conservatorship of Moore

Filed September 30, 2015, Second District, Division Six
Cite as B253538

After doctors diagnosed 82-year-old Lester Moore with dementia and alerted his daughter that he could no longer manage his own affairs, his attorney William Salzwedel prepared documents in which Moore modified his trust to disinherit family members, and appointed Salzwedel as temporary trustee and agent under a durable power of attorney, replacing Moore’s daughter. Salzwedel also vigorously opposed the daughter’s petition for a conservatorship and an adjudication of her father’s capacity to execute the documents. Before Salzwedel’s ultimate removal as trustee and attorney he paid himself $148,000 in trustee fees, representing 32% of the estate, and incurred $32,000 in litigation expenses. The court surcharged Salzwedel $70,000 in attorney’s fees and $25,000 in expert medical fees incurred in unsuccessfully opposing the daughter’s petition, all of which were found to be excessive and of no benefit to Moore’s estate.

The Court of Appeal affirmed. An attorney cannot put on blinders and follow the orders of a client he knew suffered from mental impairment. To the extent that the trust did not stand to benefit from the litigation there was no basis for recovery of legal expenses from trust assets. Salzwedel put his own financial interests before those of his client and failed to safeguard his client’s person and financial interests. It was irrelevant that Moore did not object to the fees, or that they were incurred before adjudication of his capacity. The client’s wishes or objectives did not trump the attorney-trustee’s duty to prudently spend trust money and avoid conflicts of interest. Also, since Salzwedel served as both attorney and trustee, he was required to obtain advance approval of his fees from the court. The court referred Salzwedel to the State Bar for possible discipline

Conservatorship of Christopher B.

Filed September 28, 2015, Court of Appeal, Third Appellate District
Cite as C077467

Christopher B. was charged with making criminal threats and other serious felonies. After concluding he was incompetent to stand trial, the court committed him to a state hospital for the maximum confinement of three years and suspended the criminal proceedings. At the end of the three years, the state hospital concluded he could not be restored to competency, and recommended a Murphy Conservatorship, a renewable one-year civil commitment for criminal defendants who are otherwise incompetent to stand trial for a serious felony involving physical violence, and who do not have the prospect of restoration to competency. Because the criminal complaint proceedings were stayed, the district attorney could not file an information, so instead he obtained a grand jury indictment on the same charges, and the probate court then established the Murphy Conservatorship. At a review hearing in the criminal matter, the court dismissed the “case.” When it realized that it should have dismissed only the complaint and not the indictment, the court endeavored to correct its mistake by clarifying that it had not dismissed the indictment. Defendant/conservatee appealed the order establishing the conservatorship, arguing that because the court dismissed the entire criminal case, a prerequisite to his conservatorship no longer existed.

The Court of Appeal reversed. After the trial court dismissed the entire case, including the indictment, it lost jurisdiction to reverse itself. Trial courts may correct clerical errors and interim orders, but not final judgments that do not result from clerical errors. Even though the judgment of dismissal was the result of a mistake, the act of dismissal is one the court intended to perform. The trial court had no jurisdiction to correct a judicial error. Since the trial court dismissed the indictment as well as the complaint, there was no basis to establish the Murphy Conservatorship.

In the Matter of Tower Park Properties, LLC

Filed September 28, 2015, U.S. Court of Appeals, Ninth Circuit
Cite as 13-56045

After the sole beneficiary of the Mark Hughes Family Trust obtained a Probate Court order removing the trustees of the trust, he objected to a Bankruptcy Court settlement agreement previously entered between those removed trustees and a bankrupt entity that owed a sizeable debt to the trust. The Bankruptcy Court overruled the beneficiary’s objections on their merits. On appeal, the District Court found that the beneficiary lacked standing to object.

The Ninth Circuit affirmed, holding that the beneficiary was not a “party of interest” under the Bankruptcy Code who has standing to object to the Bankruptcy Court settlement. As a trust beneficiary he had no “legally protectable interest” in the bankruptcy proceeding. Under California law only the successor trustee of the trust, the person positioned to take legal recourse to protect the trust assets, possessed such interest.

Estate of Duke

Filed July 27, 2015, California Supreme Court
Cite as S199435

Testator’s holographic will provided that his wife would receive his estate, but if he and his wife died simultaneously, charities would receive his estate.  The will did not provide for disposition of the estate if wife predeceased testator – which is exactly what occurred.  The charities claimed they should receive the estate because testator provided for them if his wife was deceased at the time of his death.  Testator’s nephews claimed that the will failed, and they were entitled to receive the estate as testator’s intestate heirs.  The probate court granted the nephews’ motion for summary judgment, finding that the will was unambiguous, and declined to consider extrinsic evidence of testator’s intent.  The appellate court affirmed, based on Estate of Barnes (1965) 63 Cal.2d 580.  The California Supreme Court reversed, and abrogated the Barnes rule that extrinsic evidence may never be introduced to reform an unambiguous will.  Extrinsic evidence may be introduced to reform an unambiguous will if clear and convincing evidence establishes an error in the expression of the testator’s intent, and also establishes the testator’s true intent, at the time the will was drafted.

Katzenstein v. Chabad of Poway

Filed June 15, 2015, Fourth District, Division One

Cite as D066340

The trustee petitioned for an order confirming that the proceeds of two life insurance policies belonged to the trust.  Chabad of Poway, a charity, filed an “Objection and Counterclaim” to the trustee’s petition in which it alleged that the settlor had irrevocably pledged the proceeds to the charity, and also sought affirmative relief against the trustee for unjust enrichment and breach of contract.  The trial court, in an unsigned minute order, struck the Objection and Counterclaim on the basis that a party may not seek affirmative relief in an answer or objection, and the charity appealed.

The court of appeal dismissed the appeal for lack of jurisdiction because the order appealed from was not signed.  The court noted that under the Code of Civil Procedure an order striking an answer and counterclaim is not an appealable order, and the same is true in equivalent proceedings under the Probate Code.  Probate Code section 1300(d) did not make the order appealable because the order did not deny the payment of a claim.  Code of Civil Procedure section 581d’s requirement that a dismissal “be in the form of a written order signed by the court” applied in proceedings under the Probate Code, and mandated dismissal of the appeal because there was no signed order of dismissal to appeal from.

Peterson v. Wells Fargo Bank

Filed May 8, 2015, Second District, Div. Five 
Cite as B250925

The order for distribution of testator’s estate gave his widow a life estate in real property. It also provided that if she remarried, the property would be sold and proceeds distributed one-third to widow and one-third to each of decedent’s two sons; at her option the property could be sold, and proceeds distributed in the same proportions; and upon widow’s death prior to sale, the property would pass in equal shares to decedent’s sons. Widow deeded the property to herself and encumbered it. After widow’s death, payments were not made on the loan, and the lender initiated foreclosure proceedings. In response, the sons brought an action for cancellation of the widow’s deed to herself. The lower court entered summary judgment on the cancellation claim, and the Second District affirmed, reasoning that widow’s interest in the property was a life estate, subject to certain limitations, and not a fee subject to conditions subsequent.

Novak v. Fay

Filed April 28, 2015, Second District, Division Five
Cite as B256889

An attorney representing a client on a contingency basis brought a petition to determine the client was a pretermitted spouse. A settlement was reached and approved by the probate court under which a trust established by the deceased spouse was to make various payments. The client then died. The attorney filed a petition to enforce his claim for fees against the trust. The trial court denied the attorney’s petition, finding that the proper procedure to recover attorney’s fees was by a creditor’s claim against the client’s estate and that such a claim and the attorney’s petition were both time barred. The appellate court reversed and remanded with instructions, noting that the attorney’s beneficial interest and the lien attached to it came into being at the time of the settlement and its approval by the probate court. Under Probate Code § 9391, the holder of a lien against property in the decedent’s estate may commence an action to enforce the lien without first filing a claim if in the complaint the holder expressly waives recourse against all other property in the estate.

Sefton v. Sefton

Filed April 24, 2015, Fourth District, Division One
Cite as D065898

Plaintiff’s grandfather died in 1966, leaving a Will executed in 1955. The grandfather’s Will created a testamentary trust for the benefit of Plaintiff’s father, for his lifetime. The Will empowered the father to appoint three-quarters of the Trust to the father’s then living issue by his own Will, and in default of such an appointment, the property would be distributed to the father’s then living issue on the principle of representation. The father died in 2006, leaving a Will that did not appoint any of the Trust to Plaintiff. In a prior appellate decision, Sefton I, the court determined that powers of appointment at the time of the execution of the grandfather’s Will and at the time of the grandfather’s death were governed by California common law rather than the subsequent statutory scheme and that the power of appointment conferred by the grandfather was nonexclusive because it did not expressly give the donee of the power any right of exclusion. Sefton I thus remanded the case to the trial court to determine the plaintiff’s share. In response, the trial court determined that plaintiff was entitled to a “substantial share” equivalent to seven percent of a one-seventh share. The appellate court reversed and remanded. Held, under applicable common law, the father’s attempted appointment, which excluded plaintiff, was invalid and void and the appointive property therefore passed according to the grandfather’s testamentary scheme, which provided that in the event of default of appointment, such property should pass to the father’s then-living issue on the principle of representation.

Estate of Amine Britel

Filed April 23, 2015, Fourth District, Division Three
Cite as G049161

Decedent died intestate. Parent of minor child born out of wedlock brought petitions to administer the estate of Decedent and to determine heirship. Evidence was admitted that the Decedent was 99.9996 percent likely to have been the parent of the minor child. Nonetheless, both petitions were denied by the trial court on the basis that the Petitioner had not met her burden under Probate Code § 6453(b) to establish by clear and convincing evidence that the Decedent had openly held out the minor as being his own. The judgment was affirmed on appeal. Held, the statutory requirement of “openly held out” requires an unconcealed affirmative representation of paternity in open view.

Paul v. Patton

Filed April 9, 2015, Sixth District
Cite as H040646

Decedent retained attorney to draft an amendment to a revocable trust. The decedent executed the amendment, which as drafted class=”anchor” named decedent’s children and spouse as beneficiaries. After decedent’s death, decedent’s children petitioned to modify the amendment, alleging it failed to implement the decedent’s instructions by incorrectly including decedent’s spouse as a beneficiary entitled to receive an interest in decedent’s brokerage accounts and real and personal property. In connection with the probate proceeding, the drafting attorney admitted the amendment did not reflect the decedent’s stated intentions. After the probate proceeding was settled, the decedent’s children sued the attorney for legal malpractice. The decedent’s attorney successfully demurred to the complaint on the ground, inter alia, he owed no duty to decedent’s children. The appellate court reversed on the basis that decedent’s children should have been granted leave to amend to allege such a duty. Held, applying the six so-called Biakanja/Lucas factors to these facts, it cannot be said as a matter of law that the attorney did not owe decedent’s children a duty.

Herting v. California Dept. of Health Care Services

Filed March 27, 2015, Sixth District
Cite as H040220

Following the death of beneficiary of Special Needs Trust, Trustee sought to avoid reimbursement to the Department of Health Care Services for medical expenses paid on behalf of the beneficiary, citing 42 U.S.C. § 1396p(b)(1)(B) and Welfare & Institutions Code § 14009.5(b)(1), on the ground Trust assets were allegedly exempt from such reimbursement rights because the beneficiary was under 55 years of age when the services were provided. Noting that the Special Needs Trust provided for reimbursement to the state upon the beneficiary’s death and that such a provision is required for a disabled beneficiary of a Special Needs Trust under the age of 65 to be eligible for public assistance under Medicaid, the appellate court affirmed the trial court’s ruling granting the Department’s claim. Held, statutes and regulations governing recovery from a Special Needs Trust do not exempt beneficiaries under age 55, either directly or by making them subject to estate recovery provisions.

Ukkestad v. RBS Asset Finance

Filed  March 16, 2015, Fourth District, Div. One
Cite as C065630

Settlor established a Trust which recited that all of his “right, title and interest” to “all of his real … property” is included in the Trust’s assets.  After the Settlor’s death, the Co-Trustee brought a petition under Prob. C. § 850 for an order that two parcels held in the class=”anchor” name of the Settlor were part of the Trust.  In reversing the trial court’s denial of the petition, the appellate court noted that a Heggstad petition will lie if the owner of the real property is the settlor creating the trust with him or her as trustee and if the transfer of the real property complies with the statute of frauds. Held, the recital in the Trust satisfied the statute of frauds because it could be established by extrinsic evidence that the Settlor held title to the parcels.

Siegel v. Fife

Filed February 26, 2015, Second District, Div. Five
Cite as B253746

Settlor’s trust gives the trustee broad discretion to pay principal for the settlor’s care, maintenance, support, or desires. After the settlor became conserved, the trustee began to sell assets to generate liquidity. Remainder beneficiary objected to the sale of settlor’s residence on the basis that it was to pass to her upon the settlor’s death and that the abatement statutes would preclude the sale. The probate court approved the sale. The Second District affirmed, reasoning that the trustee has the “sole and absolute” discretion to invade principal for the settlor’s care, that the rights of the remainder beneficiary were of secondary importance, and that nothing in the abatement statutes would preclude the sale.

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