Trusts and Estates

2017 Case Alerts

Francine S. Yeh v. Li-Cheng Tai, et al.

Cite as B280003 
Filed December 21, 2017 
California Court of Appeal, Second District, Div. 5 

By Golnaz Yazdchi 
Sheppard Mullin Richter & Hampton LLP

Francine S. Yeh and her husband, Shu Hsun Tai, purchased a condominium as joint tenants. To obtain a better interest rate on the loan, Francine signed a quitclaim deed to transfer the condominium to Shu’s name. Shu promised Francine that he would put her name back on the title to the property. Francine and Shu remained married until Shu’s death. Three days before Shu died, Shu told Francine that the property was all hers. After Shu’s death, Francine learned that Shu had transferred the condominium to a trust he established during their marriage without Francine’s knowledge, naming his children from a prior marriage as beneficiaries. About 18 months after Shu’s death, Francine filed an action alleging that Shu breached his fiduciary duties to Francine during the marriage, and sought an order to void the deed transferring the condominium to the trust, directing the beneficiaries of Shu’s trust to convey the property to Francine, and for attorney’s fees. The trial court sustained the beneficiaries’ demurrer without leave to amend on the grounds that Francine’s claims were time barred because they were brought more than a year after Shu’s passing.

The Court of Appeal reversed. It held that when a spouse brings a breach of fiduciary duty claim against a deceased spouse under Family Code section 1101, the limitations period provided in Code of Civil Procedure sections 366.2 and 366.3 do not apply. The limitations period provided under Family Code section 1101, subdivision (d) applies instead. It provides in pertinent part that an action be commenced within three years of the date a petitioning spouse had actual knowledge that the transaction or event occurred, and further, that an action may be commenced on the death of a spouse without regard to the three-year time limit. Acknowledging the conflict between the Family Code and the Code of Civil Procedure, the court reasoned that when two statutes of limitations are applicable, the specific statute takes precedence over the general statute. Because Francine brought her claim under the Family Code, its statute of limitations applied.

Conservatorship of Lee C.

18 Cal.App.5th 1072 Third District

By Golnaz Yazdchi
Sheppard Mullin Richter & Hampton LLP

Lee C. (L.C.) was charged with corporal injury to a cohabitant. The trial court found L.C. incompetent to stand trial and committed him to a state hospital. The hospital reported that L.C. would not be restored to competency in the foreseeable future and recommended that the court consider initiating a Murphy conservatorship investigation. A Murphy conservatorship is a type of Lanterman-Petris-Short (“LPS”) conservatorship for individuals who: (1) have been found incompetent to stand trial; (2) have a pending complaint, indictment, or information, after a finding of probable cause, for a felony involving death, great bodily harm, or a serious threat to the physical well-being of another person; and (3) are presently dangerous. L.C.’s counsel subsequently requested a preliminary hearing to determine whether there was probable cause to support the charges prior to the defendant’s competency hearing. The trial court found probable cause to support the charges against L.C. and referred the case to the Public Guardian to investigate a Murphy conservatorship.

The Public Guardian objected to the referral, claiming (1) the preliminary hearing violated L.C.’s due process rights because it was held while L.C. was incompetent; (2) the corporal injury charge was insufficiently serious as it did not involve death, great bodily injury, or a serious threat to the well-being of another; and (3) there were no funds to pay for L.C.’s placement at a state hospital. The court overruled the Public Guardian’s objections. The Public Guardian thereafter submitted an investigation report and concluded that although L.C. was a danger to others, the criteria of a pending information and a charge of a felony involving death, great bodily injury, or a serious threat to the well-being of another, were not satisfied. On that basis, the Public Guardian stated that it would not petition for appointment as conservator.

The People requested a hearing on the Public Guardian’s refusal to file a Murphy conservatorship petition. The trial court found that the Public Guardian’s failure to file was an abuse of discretion and ordered the Public Guardian to file the petition. The Public Guardian complied with the court’s order and filed for a Murphy conservatorship over L.C., but prayed that the petition not be granted. Notwithstanding county counsel’s representation that he and his client (the Public Guardian) did not believe the petition had merit, the court ordered county counsel to proceed to a trial. The People then sought to disqualify county counsel due to county counsel’s reluctance to file and prosecute the petition. The trial court agreed, disqualified county counsel, and instead appointed the district attorney to prosecute the Murphy conservatorship petition. The Public Guardian appealed.

The subject of the appeal was whether the trial court’s order compelling the Public Guardian to file and prosecute the petition for a Murphy conservatorship was lawful. The Court of Appeal held that the term “initiate conservatorship proceedings” as it relates to the initiation of Murphy conservatorships, means to refer a case to the conservatorship investigator for investigation—but it is the investigator, not the court, who decides whether to file a petition for conservatorship. In this case, the Public Guardian was the conservatorship investigator. Had the Legislature intended to provide the court with the authority to order the conservatorship investigator to file a Murphy conservatorship petition, as opposed to ordering an investigation, it could have said so in the statutory scheme. It did not. The Court of Appeal vacated the trial court’s orders compelling the Public Guardian to petition for a Murphy conservatorship, compelling the Public Guardian to proceed to trial, and disqualifying county counsel and appointing the district attorney to prosecute the Murphy conservatorship petition over L.C. Furthermore, the court held that the Public Guardian abused his discretion in determining that the pending charge was invalid, and that the felony charge was insufficient as a matter of law to support a Murphy conservatorship. Thus, the case was remanded to allow the Public Guardian to exercise his discretion and decide whether to file a petition for a Murphy conservatorship in accordance with the applicable law.

Marriage of Steiner

Cite as D071155
Filed November 30, 2017, Fourth District, Div. One

By Matthew R. Owens
Withers Bergman LLP

Patrick, an active duty service member, named his wife, Alicja, as beneficiary of his $400,000 life insurance policy issued under a federal statute, the Servicemen’s Group Life Insurance Act. As part of their status-only dissolution judgment, Patrick and Alicja stipulated to an order requiring Patrick to maintain Alicja as beneficiary of the policy. Patrick later changed the policy’s beneficiary to his sister, Mary, who ultimately received the proceeds upon Patrick’s death. Mary requested an order granting her the policy proceeds because the federal statute preempted state law, including the stipulated order. The trial court granted the request, finding the federal statute gave Patrick the right to change the policy beneficiary at any time without notice to Alicja and that Patrick’s exercise of that right did not trigger the fraud exception to federal preemption. The appellate court affirmed. Under the supremacy clause of the United States Constitution, state law is preempted to the extent it conflicts with a federal statute. The federal statute at issue here established an order of precedence for identifying policy beneficiaries and gave first priority to the person Patrick identified. The federal regulations implementing the statute allowed Patrick to change the named beneficiary at any time without the knowledge or consent of the previous beneficiary. Since Patrick had the right to change the beneficiary, his exercise of that right did not constitute fraud, nor did his failure to notify Alicja.

Hutcheson v. Eskaton Fountainwood Lodge

Cite as C074846
Filed November 28, 2017, Third District

By Matthew R. Owens
Withers Bergman LLP

Barbara executed a health care power of attorney, naming her niece, Robin, as agent with authority to make health care decisions, including the power to authorize admission to health care facilities. Four years later, Barbara executed a personal care power of attorney, naming her sister, Jean, and Robin as agents for personal matters and litigation. The personal care power of attorney expressly excluded health care decisions. Jean admitted Barbara to a residential care facility and signed an admission agreement containing an arbitration clause. When Barbara died after choking on her lunch at the facility, both Jean and Robin sued the facility for elder abuse and other claims. The facility moved to compel arbitration under the admission agreement. The trial court denied the motion because Jean lacked authority to admit Barbara to the facility under the personal care power of attorney. The appellate court affirmed. The facility was a health care institution authorized by law to provide health care. The facility provided health care to Barbara by, among other things, providing dementia care — a higher level of care that required specialized training of the facility staff. A health care decision, if made pursuant to a power of attorney, must be made under a health care power of attorney. The facility had a copy of Barbara’s health care power of attorney naming Robin as agent, and was therefore obligated to seek Robin’s consent to the arbitration clause before relying on any authority Jean may have had. Since Jean lacked authority to execute the admission agreement, the agreement and its arbitration clause were void.

Estate of Reed

Cite as A148678
Filed November 8, 2017, First District, Div. Five

By Matthew R. Owens
Withers Bergman LLP

William and Daniel were beneficiaries of their father’s estate. Four years after William was appointed personal representative of the estate, Daniel filed a petition seeking his removal. After trial, the court entered an April 2015 order removing William, appointing a successor personal representative, and announcing it would file a statement of decision. William did not appeal the April 2015 order. The court filed its final statement of decision in April 2016. When William appealed the statement of decision, both Daniel and the successor personal representative argued the statement of decision was not an appealable order and that William forfeited his appellate rights by failing to timely appeal the April 2015 order.

The appellate court held the statement of decision was appealable. Although a court’s final ruling is typically embodied in an order or judgment, this statement of decision contained an order removing a fiduciary, which is an order made expressly appealable under the Probate Code. The April 2015 order, on the other hand, was not a final appealable order because it referenced a forthcoming statement of decision, so William’s failure to appeal did not render his later appeal untimely.

People ex rel. Harris and Becerra v. Shine

Cite as A148505
Filed October 23, 2017, First District, Div. Five

By Daniel C. Kim
Weintraub Tobin Chediak Coleman Grodin Law Corporation

Robert and Eva Lindskog established a revocable trust in 1995, which they later amended to make an irrevocable gift to create a charitable foundation. William Shine became the sole trustee in 2004 and later appointed two of his friends as co-trustees. The Attorney General audited the trust and, based on its findings, petitioned for removal of the trustees, appointment of a receiver, and an accounting. The Attorney General alleged, inter alia, that Shine engaged in prohibited self-dealing, falsely reported a $7 million charitable donation, failed to accurately account for income and expenses, and improperly loaned trust funds to personal acquaintances. The trustees agreed to relinquish control and the court appointed David Bradlow as temporary trustee during the litigation. Shine petitioned the court to instruct Bradlow to reimburse Shine’s past defense costs, and his future attorneys’ fees and costs of the anticipated trial, from the trust. The court granted the petition, finding that although the Attorney General appeared to have a strong case, the trust contained an indemnity provision allowing for payment of fees absent willful misconduct or gross negligence.

The appellate court reversed. The court focused on Shine’s entitlement to pendente lite fees. Although the issue is not well-developed in case law, courts have discretion to award interim fees in certain circumstances. Courts are to first assess the probability that the trustee be entitled to reimbursement of attorneys’ fees and then balance the relative harm to the interests of the other parties, including those of the trust beneficiaries. When evaluating potential harms, the court should investigate the ability of the trustee or former trustee to repay fees if ultimately determined not to be entitled to the costs of defense. The appellate court found the trial court had failed to review the issue under the appropriate standards and remanded for reconsideration.

Aviles v. Swearingen

Cite as B281420
Filed October 23, 2017, Second District, Div. Six

By Daniel C. Kim
Weintraub Tobin Chediak Coleman Grodin Law Corporation

Margaret Chappell created a trust in 2010 and amended it three times before succumbing to cancer in 2016. The original trust gave everything to her boyfriend, Jose Aviles. The subsequent amendments changed the distribution provisions with the third amendment naming Tracy Swearingen the sole remainder beneficiary and successor trustee. The third amendment also incorporated by reference the unchanged provisions of the second amendment, including a no contest clause. After Chappell died, Aviles filed a petition to invalidate the third amendment on the grounds that it was the product of undue influence and financial abuse. Swearingen opposed the petition and filed her own petition to disinherit Aviles based on his violation of the no contest provision. She argued the no contest provision in the second amendment was incorporated by reference into the third amendment. The trial court denied the petition to disinherit Aviles, ruling that the third amendment was not a “protected instrument” under the applicable statutes because it did not contain a no contest clause or expressly reference the no contest clause in the second amendment.

The appellate court affirmed. Under California law, a no contest clause and its application to future trust amendments is strictly construed. The applicable statutes require that a “protected instrument” either contain the no contest clause or that the instrument be in existence on the date that the instrument containing the no contest is executed and is expressly identified in the no contest clause. The appellate court also rejected Swearingen’s argument that the applicable statutes did not apply because there was a contrary provision in the trust. Lastly, the court could not find that Chappell unequivocally intended the no contest provision to apply to trust amendments that are the product of fraud or undue influence.

Estate of O’Connor

Cite as B272085
Filed October 13, 2017, Second District, Div. One

By Daniel C. Kim
Weintraub Tobin Chediak Coleman Grodin Law Corporation

Betty established the Betty Lou O’Connor Trust naming as equal beneficiaries her two living children, Tom and Kelli, and her deceased son’s two children. In the last several years of her mother’s life, Kelli visited her five to six times a week and helped manage her affairs. She assisted Betty in opening two joint accounts at Wells Fargo. After Betty’s death, the parties disputed ownership of the accounts. Tom claimed the accounts were trust assets in which he had an interest; Kelli claimed they were solely hers based on the right of survivorship. The trial court found that Betty had indicated to Kelli that the money in the Wells Fargo accounts was for Kelli’s use and that both Betty and Kelli had “withdrawal rights” in the accounts. Wells Fargo confirmed that the accounts had been set up with Betty as the primary joint owner and Kelly as the secondary joint owner. The trial court concluded there was a presumption that the accounts were joint tenancy accounts with a right of survivorship and that Tom had failed to rebut the presumption. The sole issue on appeal was whether Betty intended to create joint accounts with the right of survivorship in favor of Kelli when she opened the accounts, thus excluding them from the trust.

The Court of Appeal affirmed. Survivorship interests in multiple-party accounts are governed by Probate Code section 5302, which states in relevant part: “[s]ums remaining on deposit at the death of a party to a joint account belong to the surviving party… as against the estate of the decedent unless there is clear and convincing evidence of a different intent.” Although Tom argued that no sufficient writing supported the joint tenancy nature of the accounts, a writing is not required to create the right of survivorship under California’s multiple-party account law. Moreover, Tom was unsuccessful in overcoming the presumption by clear and convincing evidence. Although Tom cited various contradictory statements made by Kelli regarding ownership of the accounts, the appellate court agreed with the lower court’s finding that there was insufficient evidence that Betty herself did not intend the accounts to be held in joint tenancy.

Steward v. Superior Court

Cite as E067316
Filed October 12, 2017, Fourth District, Div. Two

By Daniel C. Kim
Weintraub Tobin Chediak Coleman Grodin Law Corporation

Anthony Carter, 78, named Maxine Stewart as his agent for health care. After being admitted to the St. Mary Medical Center, Carter was advised, inter alia, that he should be placed in hospice care, receive a gastronomy tube, and have a pacemaker placed to correct irregularities in his heartbeat. Stewart canceled the heart surgery, suspecting that the irregularities were due to sleep apnea, and sought second opinions. While those opinions were pending, the hospital’s ethics committee convened, Stewart’s power of attorney was voided, and the hospital proceeded with the surgery. Sometime shortly thereafter, Carter went into cardiac arrest, allegedly due to complications from the pacemaker, and ultimately died. Stewart brought suit and alleged numerous causes of action as the personal representative of Carter’s estate. Respondents moved for summary adjudication and the court granted the motion as to the causes of action for elder abuse, fraud by concealment, and medical battery, while allowing other claims to proceed to trial. Stewart appealed and sought a writ of mandate.

The appellate court issued the peremptory writ of mandate and vacated the trial court’s grant of summary adjudication. The court found that there were triable issues of material fact as to the claims for elder abuse, fraud by concealment, and medical battery. The court held that elders have the right to autonomy in the medical decision-making process and that deprivation of this right can constitute actionable “neglect” under California’s elder abuse laws. Further, the court found that a reasonable jury could find that the hospital failed to provide medical care for physical and mental health needs and failed to protect the elder from health and safety hazards. Additionally, the court found that there were multiple triable issues of fact which would not warrant summary adjudication of the fraud by concealment claim, including the possibility that the hospital could have intentionally concealed the ethics committee meeting and the surgery from Stewart. Lastly, although the hospital argued it was not liable for medical battery caused by the surgery because the surgeons were independent contractors, the court found that there were triable issues of fact regarding the hospital’s involvement in proceeding with the surgery. Accordingly, the trial court’s order granting summary adjudication was vacated.

Urick v. Urick

Filed October 5, 2017, Second District, Div. Five

By Daniel C. Kim
Weintraub Tobin Chediak Coleman Grodin Law Corporation

Allyne Urick created a trust and named her two children, Willis and Dana, and Dana’s son, Trentyn, as the primary beneficiaries. After Allyne died, Dana filed a petition to reform the trust on the grounds that the drafting attorney misrepresented its terms and that the trust did not reflect Allyne’s wishes. Although she was named as the trustee, Dana filed her petition as a trust beneficiary, and sought a reformation that benefited her and her son, Trentyn, and disinherited Willis. In response, Willis filed a petition for instructions as to whether his sister’s reformation petition violated the “no contest” clause of their mother’s trust. In her capacity as trustee, Dana then filed an anti-SLAPP motion to strike Willis’s petition, arguing that the filing of the reformation petition was a “protected activity.” The trial court granted the anti-SLAPP motion, finding that Willis’s petition for instructions arose out of the type of protected litigation activity contemplated by the anti-SLAPP statutes and that Willis had failed to show a probability of prevailing in his petition.

The Court of Appeal reversed. Although Dana had successfully established that Willis’s petition arose from her protected litigation activity (the filing of her reformation petition) and fit squarely within the plain language of the anti-SLAPP statutes, the appellate court took a different view of whether Willis had demonstrated a probability of prevailing on the merits. Unlike the lower court, the appellate court determined that Dana had very little evidence that her mother intended to name Dana and her son, Trentyn, as sole beneficiaries and to disinherit Willis. Additionally, the court found that Willis was likely to prevail in his argument that Dana’s actions violated the “no contest” clause of the trust since the reformation petition was a direct contest sought by a beneficiary without probable cause. In finding that Willis had successfully shown a reasonable probability that he would prevail on the merits, the appellate court reversed the trial court’s order granting the anti-SLAPP motion.

Conservatorship of the Person of K.W.

Filed August 3, 2017, First District, Div. 5
Cite as A148614

By Julie R. Woods
Hartog, Baer & Hand, APC

K.W. was conserved under the Lanterman-Petris-Short Act as gravely disabled as the result of a mental disorder, unable to provide for his basic needs for food, clothing, or shelter, and incapable of accepting treatment voluntarily. When his conservator petitioned for reappointment, K.W. demanded a jury trial. The psychiatrist who diagnosed K.W.’s bipolar schizoaffective disorder testified as an expert that K.W. was gravely disabled. His testimony included his personal observations of K.W., medical records from the county health department and its locked facility where K.W. was receiving treatment, and conversations with K.W.’s former outpatient psychiatrist and social worker. The jury found K.W. was gravely disabled due to a mental disorder, and the court reestablished the conservatorship. K.W. appealed, contending the trial court erred in permitting the jury to consider hearsay testimony from an expert witness, and arguing the court should retroactively apply the new rule fromPeople v. Sanchez(2016) 63 Cal.4th 665.

The court of appeal affirmed. BeforeSanchez, when an expert’s opinion was based on hearsay, a jury received a limiting instruction to consider hearsay statements only to evaluate the expert’s opinion, but not as proof the information in the statements was true.Sanchezheld that out-of-court statements used as the basis of expert opinion testimony are hearsay. When an expert offers case-specific out-of-court statements to explain the bases for his or her opinion, those statements are necessarily considered by the jury for their truth, and are hearsay. Here, although the case-specific hearsay was problematic, other expert testimony was based on the witness’ own experiences, and the medical opinion of K.W.’s incapacity was unimpeached. The court found it was not reasonably probable that the jury would have reached a different result absent the improperly admitted hearsay testimony, and the error was harmless.

Mahan v. Charles W. Chan Insurance Agency, Inc. et al.

Filed June 2, 2017, First District, Div. Four
Cite as A147236

By CiarĂĄn O’Sullivan
The Law Office of CiarĂĄn O’Sullivan

Fred and Martha Mahan created a revocable Children’s Trust and funded it with two second-to-die insurance policies on their lives, valued at a total of $1 million, and sufficient funds to pay the annual premiums well into the future. Two decades later, Fred, a lawyer at the end of his career, was in cognitive decline and Martha was diagnosed with Alzheimer’s disease. Taking advantage of the couple’s vulnerability, defendant insurance agents and brokers surrendered one policy and replaced the other with a single life policy requiring premium payments of $800,000, on which defendants earned $100,000 in commissions. To pay the increased premiums, the Mahans were forced to sell property and transfer additional money to the trust. The trial court sustained defendants’ demurrer to the Mahans’ financial elder abuse action on the grounds that the trust was not an elder who was protected by the Elder Abuse and Dependent Adult Civil Protection Act, and the Mahans voluntarily paid the premiums; defendants’ actions did not deprive the Mahans of property within the meaning of the Act.

The Court of Appeal reversed. Liability under the Act may flow from transfers made voluntarily. The fact that the Children’s Trust owned the policies did not negate the claim, because defendants’ actions deprived the Mahans of property rights in a number of ways. They made the Mahans’ estate plan more expensive and less valuable, caused them to lose value in their insurance policies, and forced them to spend more money to pay new premiums and defendants’ commissions. Furthermore, defendants’ actions were perpetrated by means of undue influence. Therefore, the Mahans’ complaint properly stated a cause of action for financial elder abuse.

Hilliard v. Harbour, et al.

Filed June 1, 2017, First District, Div. Two
Cite as A146330
By CiarĂĄn O’Sullivan
The Law Office of CiarĂĄn O’Sullivan

78-year-old James Hilliard owned a controlling interest in the James Crystal Companies. In 2003 the Companies entered a security agreement with Wells Fargo Bank, and over time the Bank ultimately loaned the Companies approximately $18.9 million. The loan was in continuous default beginning in mid-2004, but the parties repeatedly amended the Agreement to allow Hilliard additional time to repay the loans. Although Hilliard made significant repayments on the Companies’ behalf, he failed to make the final payment because he could not liquidate certain assets by the deadline. The Bank then sold the debt to a third party, which obtained a $17 million judgment against the Companies. Hilliard sued the Bank for financial elder abuse, alleging that the Bank had always ignored prior deadlines, and he had no reason to believe that Bank would actually sell the loan. The trial court sustained the Bank’s demurrer on the grounds that Hilliard lacked standing to sue for the harm suffered by the Companies.

The Court of Appeal affirmed. Any alleged misrepresentations by the Bank were intended to induce action on the part of the Companies, not Hilliard personally. Hilliard would have an individual cause of action if the damages resulted from a special duty the Bank owed to him as a shareholder of the Companies. That was not the case here. Hilliard’s argument that the Bank breached a duty owed to him personally simply because he is an elder, and elder abuse is by definition a personal claim, is circular. Regardless of the fact that he is an elder, Hilliard’s claim originates from his status as a shareholder, and the claim for breach of duty belongs to the
Companies. EADACPA does not confer a claim for elder abuse in such circumstances.

Higgins v. Higgins

Filed May 9, 2017, Second District, Div. 5
Cite as B265865

By Julie R. Woods
Hartog, Baer & Hand, APC

After reporting complaints about her short-term memory to her doctor, Maria Higgins added her stepson, W. Clive Higgins, as joint account holder to her checking and savings accounts. Clive later transferred additional accounts of Maria’s into accounts owned by him and his wife, Lupe Higgins, in trust for Maria. When Clive died, Lupe changed the ownership of the accounts to her name alone. When Maria later died, Lupe paid Maria’s funeral expenses and the pecuniary bequests set forth in Maria’s estate plan from the accounts. Lupe also transferred some of the funds to her own family and used the remaining funds for her own purposes. Arthur Higgins, Maria’s executor and successor trustee of her trust, brought an action for constructive trust. The trial court found no constructive trust could be imposed for a wrongful act by Clive because once he was added to Maria’s account as a joint holder, he had a legal right to do as he pleased with the funds and could make Lupe a joint owner. The trial court could find no legal obligation for Lupe to restore the funds and entered judgment in her favor.

The appellate court reversed, holding that Arthur had established all conditions necessary to impose a constructive trust. So long as all parties are living, an account belongs to the parties who have a present right to payment, in proportion to their contributions, unless there is clear and convincing evidence of a different intent. Clear and convincing evidence showed that Clive and Lupe intended to create irrevocable trust accounts in which Maria had a present beneficial interest in the funds on deposit, and that Lupe continued to hold the funds in trust for Maria after Clive’s death. One who wrongfully detains something, or who gains it by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is an involuntary trustee of the thing for the benefit of the owner. Because Lupe repudiated the trust by removing Maria’s name from the accounts and using the funds for her own purposes, the court found that Arthur was entitled to a constructive trust as a matter of law.

United States v. Harris

Filed April 20, 2017, U.S. Court of Appeals, 9th Cir.
Cite as 16-10152

By Catherine M. Swafford
Withers Bergman, LLP

After being convicted of theft from an employee benefit plan, Michael Harris was sentenced to jail and ordered to pay $646,000 in restitution. Harris was the beneficiary of two irrevocable trusts. One of the trusts provided that the trustee shall pay income in the trustee’s absolute discretion for Harris’ support, and the other trust provided the trustee may distribute income and principal in the trustee’s absolute discretion for his support. The district court granted the government’s application for a writ of continuing garnishment for any property distributed from the trusts to Harris.

The Ninth Circuit affirmed. Present and future interests in trust distributions fall within the definition of property under federal law, and are subject to garnishment. Despite the trustee’s discretion with respect to both trusts, California law allows Harris to compel distributions from the trusts. Accordingly, a federal government lien may attach to Harris’ right to receive trust distributions. Further, disclaimers and spendthrift clauses do not prevent attachment of federal liens.

Tepper v. Wilkins

Filed April 19, 2017, Second District, Div. 7
Cite as B269900

By Julie R. Woods
Hartog, Baer & Hand, APC

Belinda Wilkins Tepper sued her three siblings, Geoffrey Wilkins, Martha Wilkins, and Derek Wilkins, on behalf of her 88-year-old mother, Eileen Wilkins, claiming her siblings’ actions individually and as trustees of Eileen’s revocable living trust constituted financial elder abuse. Tepper was not a trustee of Eileen’s revocable trust. Tepper did not allege that she had been personally aggrieved by the actions of her siblings or that she possessed the ability to file suit as Eileen’s conservator or attorney-in-fact. Tepper’s siblings demurred to her first amended complaint, asserting Tepper lacked standing to pursue an action on Eileen’s behalf. Eileen retained her own counsel and intervened in the action, joining the demurrer to Tepper’s amended complaint. The trial court sustained the demurrer without leave to amend and dismissed Tepper’s elder abuse action on standing grounds.

The court of appeal affirmed. The trial court did not err in ruling Tepper lacked standing to bring the elder abuse action. Simply being an elder’s child is not sufficient to confer standing. Probate Code Section 48 defines an “interested person” as a child with an interest in a trust estate or estate of the decedent that may be affected by the proceeding. Tepper did not claim to have any interest in her mother’s revocable living trust, and even if she were named as a beneficiary, her interest would be merely potential and subject to change. Wilkins, not Tepper, was the real party in interest in the elder abuse action; Tepper was not aggrieved by the alleged conduct or otherwise beneficially interested in the controversy. Tepper did not proceed as her mother’s conservator or guardian ad litem, and therefore, she lacked standing to complain for financial elder abuse on her mother’s behalf.

United States Small Business Administration v. Bensal

Filed April 4, 2017, U.S. Court of Appeals, 9th Cir.
Cite as 14-17404

By Catherine M. Swafford
Withers Bergman, LLP

Michael Bensal and Bensal & Coburn Investments LLC (“BCI”) obtained two loans from Millennium Bank. The Small Business Administration (“SBA”) guaranteed one of the loans. BCI defaulted. Millennium assigned the loans to First Bank & Trust (“FBT”), which sued BCI and Bensal and obtained a judgment. FBT assigned its right to collect the judgment to SBA. Thereafter, Bensal’s father died. Bensal was class=”anchor” named as a beneficiary of his father’s trust. Bensal disclaimed his interest in the trust. SBA filed a lawsuit in federal court seeking to void Bensal’s disclaimer under the Federal Debt Collection Procedures Act (“FDCPA”), arguing he fraudulently transferred his interest in the trust to prevent SBA from collecting the debt. The district court granted SBA’s motion for summary judgment, and ordered that Bensal’s interest in the trust be transferred to SBA to satisfy the judgment.

The Ninth Circuit affirmed. Bensal contended the disclaimer was effective under California Probate Code section 283, which provides that a disclaimer is not a voidable transfer. However, section 283 directly conflicts with, and is preempted by, the FDCPA. The disclaimer constituted a voidable transfer under the FDCPA because Bensal had an unqualified right to receive and dispose of his interest in the trust. In addition, the judgment assigned to SBA was a debt within the meaning of the FDCPA because SBA was a party to the underlying loan contracts.

Pizarro v. Reynoso

Filed March 28, 2017 , Third District
Cite as C077594

By Catherine M. Swafford
Withers Bergman, LLP

Melissa Reynoso served as trustee of her grandfather’s trust. The trust authorized Reynoso to sell real property to her mother, Karen Bartholomew, for $100,000 below the property’s appraised value. Reynoso agreed to help Bartholomew purchase the property. Reynoso obtained a personal loan, conveyed the property to Bartholomew, and the trust received the loan proceeds. Bartholomew’s son, Anthony Pizarro, and brother, Keith Jensen, filed petitions alleging that Reynoso breached her fiduciary duties, and that the sale must be set aside as a sham. During the litigation, Bartholomew turned against Reynoso and knowingly testified falsely. The trial court denied the petitions, finding the sale was valid and Reynoso did not breach her fiduciary duties. Additionally, exercising its equitable power over trusts, the trial court charged Bartholomew’s and Jensen’s shares of the trust with Reynoso’s attorney fees and costs. To the extent their trust shares were insufficient, the trial court held Bartholomew, Jenson, and Pizarro personally liable for the fees and costs.

The appellate court affirmed in part and reversed in part. Pizarro forfeited any arguments on appeal concerning the sale because his brief lacked clarity and failed to follow appellate procedure. The court properly exercised its equitable power to charge Reynoso’s attorney fees and costs against Bartholomew’s and Jensen’s trust shares. The court has the equitable power to charge a beneficiary’s share with the trustee’s attorney fees and costs if the beneficiary, in bad faith, brings an unfounded proceeding. While Bartholomew did not bring the petition, the court had the equitable power to charge her trust share because she took an unfounded position and acted in bad faith. However, the court could not order the litigants to personally pay the attorney fees and costs because such an order is beyond the court’s equitable power over trusts.

Carmack v. Reynolds, et al.

Filed March 23, 2017, Supreme Court of California
Cite as S224985

By Julie R. Woods
Hartog, Baer & Hand, APC

Under his parents’ spendthrift trust, Reynolds is entitled to receive an initial distribution of $250,000 and periodic distributions from trust principal amounting to over one million dollars. Reynolds filed for Chapter 7 bankruptcy before receiving the trust’s first payment. The trustees sought a declaratory judgment on the extent of the bankruptcy trustee’s interest in the trust. The bankruptcy court held that the bankruptcy trustee could reach only up to 25 percent of Reynolds’s interest in the trust under Probate Code section 15306.5, and the bankruptcy appellate panel affirmed. The bankruptcy trustee appealed to the Ninth Circuit, which asked the California Supreme Court if Probate Code section 15306.5 limits a bankruptcy estate’s access to a spendthrift trust to 25 percent of the beneficiary’s interest, where the trust pays the beneficiary entirely out of principal.

The California Supreme Court held the Probate Code does not impose an absolute limit on a general creditor’s access to trust principal. A bankruptcy trustee, standing as a hypothetical judgment creditor, can reach a beneficiary’s interest in a trust that pays entirely out of principal in two ways under the section 15306.5 exception to spendthrift provisions. First, it may reach up to the full amount of any distributions of principal that are currently due and payable to the beneficiary, even though they are still in the trustee’s hands, unless the trust instrument specifies that those distributions are for the beneficiary’s support or education and the beneficiary needs those distributions for either purpose. Separately, the bankruptcy trustee can reach up to 25 percent of any anticipated payments made to, or for the benefit of, the beneficiary, reduced to the extent necessary by the support needs of the beneficiary and any dependents.

Fiduciary Trust International of California v. Klein

Filed March 21, 2017, First Appellate District, Div. Three
Cite as A144558

By Julie R. Woods
Hartog, Baer & Hand, APC

After their removal, former trustees Klein, Reynolds, and Pair sought to withhold documents relating to their two prior trust accountings on the basis of attorney-client privilege from successor trustee Fiduciary Trust International of California (FTI) and sole non-contingent trust beneficiary Hughes. FTI demanded the former trustees produce documents that included communications between the former trustees and their legal counsel. The probate court permitted the former trustees to withhold only 45 of the 234 documents identified in their supplemental privilege log, because FTI as successor trustee now held the attorney-client privilege. Both parties appealed. Both took issue with how the court distinguished confidential attorney-trustee communications concerning advice and guidance on matters of trust administration and those concerning matters on which the trustee seeks guidance out of concern for possible charges of breach of fiduciary duty.

The appellate court affirmed in part and reversed in part. The character of the relationship between the trustee and counsel determines whether the communication is privileged. To assert the attorney-client privilege as the basis for withholding documents from the successor trustee, the predecessor trustee must have hired a separate lawyer, paid for the advice out of its personal funds, and taken steps to preserve the confidentiality of the communication. The party claiming the privilege has the burden to establish the preliminary facts necessary to support its claims of privilege by distinguishing his own interests from those of the beneficiaries. Here, the former trustees did not make a prima facie showing the 45 withheld documents were privileged when they merely stated the documents concerned their defense of a petition for removal or surcharge. On remand, the trial court must reconsider the privilege status of the 45 documents.

Yale v. Bowne

Filed February 9, 2017; mod. 3/10/17, Second District, Div. Two
Cite as B260762

By Julie R. Woods
Hartog, Baer & Hand, APC

Valerie Yale sued estate planning attorney Robert R. Bowne, II for malpractice. During her marriage to Bryan Knight, Yale removed her house from her trust and vested title in her class=”anchor” name as separate property to obtain a line of credit. The lender required Yale and Knight to co-sign on the loan. This required that title to the house be conveyed from Yale as trustee of her separate trust to her as her separate property, then to her and Knight as community property. After the loan was recorded, Yale encountered problems in deeding the house back to herself, and Bowne completed the transfers as she wanted. When Yale subsequently had Bowne update her estate plan, she expressly instructed him to maintain her assets as her separate property. When she transferred property to her new trust, she read the words “community property” in two deeds, but did not ask Bowne about the effect of that term. Later, during divorce proceedings, Yale discovered her property might not have been restored as her separate property in her estate plan. In Yale’s legal malpractice action against Bowne, the trial court instructed the jury that it could find comparative fault on Yale’s part. The jury found Bowne was 90 percent negligent and Yale was 10 percent negligent. Yale appealed, contending the jury instruction on comparative fault was erroneous.

The appellate court affirmed. The facts and circumstances supported the trial court’s giving of the jury instruction. Comparative fault principles may apply in malpractice actions if the lawyer’s breach of duty causes damage to the client and if the client’s own deficient conduct results in sharing responsibility for the harm caused. Bowne breached the standard of care when he failed to follow Yale’s express instruction to maintain her assets as separate property. But Yale had sufficient knowledge to ask Bowne about the clauses in the deeds before she signed them and chose not to question Bowne. Because Yale contributed to the harm for which she sought damages, the trial court correctly instructed the jury on the principles of comparative fault.

Zanowick v. Baxter Healthcare Corporation, et al.

Filed March 9, 2017, U.S. Court of Appeals, Ninth Circuit
Cite as 15-56034, 15-56047

By Julie R. Woods
Hartog, Baer & Hand, APC

Richard Zanowick sued defendants, alleging that their products exposed him to asbestos which led to his terminal mesothelioma. Richard’s wife, Joan Clark-Zanowick, also sued defendants for loss of consortium. Richard died, and Joan failed to file a timely motion to substitute a new party for Richard within 90 days as required by Rule 25(a)(1), Federal Rules of Civil Procedure. Joan moved to dismiss the action voluntarily without prejudice, or alternatively, to substitute a new party or extend the deadline. Defendants contended that Rule 25(a)(1) required dismissal with prejudice. The district court granted Joan’s motion to voluntarily dismiss the action without prejudice pursuant to Rule 41(a)(2). Defendants appealed.

The Court of Appeals affirmed. The panel held that Rule 25(a)(1) permitted the district court to allow a late substitution if requested, and did not require the district court to dismiss the federal action with prejudice. The district court did not abuse its discretion in granting the Rule 41(a)(2) motion for dismissal without prejudice.

Williamson v. Brooks

Filed January 31, 2017, Second District, Div. Six
Cite as B265745

By Catherine M. Swafford
Withers Bergman, LLP

In 2008, William Morgan established an irrevocable subtrust for Beverly Morgan. William told Beverly about the subtrust at least twice in 2009. Thereafter, Beverly was unable to pay her mortgage. She decided to quitclaim her house to her sister, Connie Morgan. At the time, the house was worth less than the mortgage. In 2012, Connie sold the house for $48,000 less than the mortgage. The same year, Beverly contacted co-trustee Thomas Brooks for the first time to discuss the subtrust. Thomas and co-trustee Barton Clemens subsequently resigned. Successor trustee Joanne Williamson sued Thomas, Barton, Connie, and William for damages. Williamson alleged Thomas and Barton failed to keep Beverly informed about the subtrust, and had she been made aware of it, she would have used subtrust assets to prevent the loss of her home. The trial court denied the petition.

The appellate court affirmed. Williamson failed to prove breach of fiduciary duty because she did not establish damages. Trustees may be held liable for losses incurred by a trust. They are not liable for personal damages suffered by beneficiaries, or opportunities lost for not distributing trust assets. Williamson failed to prove the subtrust was harmed and suffered damages. Moreover, Beverly was informed about the subtrust and had ample opportunity to obtain more information about it before she quitclaimed the house to Connie.

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