Trusts & Estates Law Blog

U.S. Supreme Court Ruling Regarding Inherited IRAs Highlights the Benefits of IRA Trusts

Posted in Taxation

Last Thursday, the United States Supreme Court ruled in Clark v. Rameker that funds held in inherited individual retirement accounts (IRAs) are not “retirement funds” for bankruptcy purposes.

In October 2010, the Clarks filed for bankruptcy and claimed that Heidi Clark’s $300,000 inherited IRA was exempt from their bankruptcy estate under Section 522 of the Bankruptcy Code (which provides that tax-exempt retirement funds are exempt from a bankruptcy estate). The bankruptcy trustee and creditors objected to this, taking the position that the funds were not “retirement funds” within the meaning of Section 522. The Bankruptcy Court agreed with the trustee and creditors.

The district court ruled that inherited IRAs are exempt because they retain their character as retirement funds, but the US Court of Appeals for the Seventh Circuit reversed that ruling. The Supreme Court agreed with the Seventh Circuit, holding that the funds in an inherited IRA are not set aside for the debtor’s retirement and, thus, are not “retirement funds” under the exemption in Section 522.

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Estate Planning 101: What is a “Sweetheart Trust?”

Posted in Estate and Trust Planning

HilaryLWhen discussing your estate planning needs with your attorney, after you discuss basic terms and concepts, your attorney will likely talk to you about the different types of revocable living trusts that may be appropriate for you.  If you are married, this may include a discussion about a revocable living trust structure commonly referred to as a “Sweetheart Trust.”

The Sweetheart Trust derives its name from the high level of control and discretion the surviving spouse maintains after the death of the first spouse. Initially, while both spouses are alive and competent, either spouse can revoke his or her share of the trust and the terms of the trust can usually be modified with the consent of both spouses.  When one spouse dies, all trust assets remain in the same revocable trust for the lifetime of the surviving spouse.  During the surviving spouse’s lifetime, he or she can terminate the trust, change its terms, add or remove beneficiaries, and otherwise manage the trust as he or she sees fit.  Because the surviving spouse has complete and absolute control over the trust after the first spouse dies—in essence, an unconditional gift—this type of trust is called a Sweetheart Trust. Continue Reading

Celebrity Trusts & Estates: Paul Walker Leaves His $25 Million Estate to His Teenage Daughter

Posted in Estate and Trust Planning

It was recently revealed that the late Paul Walker left his entire estate—valued at approximately $25 million—to his 15-year-old daughter, Meadow.

As reported, Paul Walker named his father as the executor of his will and his mother, Cheryl, as the guardian of Meadow’s person and now-$25 million estate. Prior to his death, Meadow lived with her father but now lives in Hawaii with her mother, Rebecca Soteros. Already, this decision is causing people to wonder why Paul would name someone other than Meadow’s biological mother as Meadow’s guardian.

In California, a deceased parent’s nomination of a guardian of the person for a minor child usually has very little practical effect when the other parent survives. This is primarily due to two considerations. First, since the surviving parent typically has custody of the child, it is not uncommon for the nomination of a guardian of the person of the minor child to take effect only upon the death of both parents. Second, under the California Probate Code, one parent can make the nomination only if the other parent (a) joins in the nomination, (b) consents to the nomination, (c) is dead, (d) lacks legal capacity, or (e) is in included in the category of parent whose consent is not required for an adoption. Also, the California Family Code requires that the preferences of the child be given “due weight” if the minor is able to form an intelligent choice. Given all this, it is unlikely that Cheryl will be appointed the guardian of the person for Meadow without either Rebecca’s consent or a strong showing that Rebecca is unable to take care of Meadow.

On the other hand, it is very possible that Cheryl will be appointed as the guardian of the estate for Meadow. California law allows a parent to nominate a guardian of the estate to oversee the management of any assets given to a minor child by that parent—regardless of whether the other parent is willing or able to manage the assets. This means that it is perfectly acceptable (and not all that unusual in these types of family situations) for Paul to nominate someone other than Rebecca to manage Meadow’s massive estate.

Although most people are focusing on who is going to be Meadow’s guardian, perhaps the more interesting question is why Paul did not establish a testamentary trust for his teenage daughter. Based on available information, when Meadow turns eighteen the guardianship will terminate and Meadow will have complete control over her $25 million estate—something most eighteen-year-olds are ill-equipped to handle. Had he instead left his fortune to Meadow in trust, Paul could have set more appropriate parameters on Meadow’s access to his assets, such as keeping the assets in trust until Meadow is older. Given the fact that Paul went to the effort to create a will, it is curious why he did not, instead, avail himself—and his estate—of the protections afforded by a trust.

As we continue to watch this story unfold, no doubt we will see more instances where better estate planning could have saved Paul’s family unnecessary conflict.

Celebrity Trusts & Estates: Another Battle in the Saga of Bing Crosby’s Right of Publicity Comes to an End

Posted in Probate and Elder Abuse Litigation

Over thirty-five years after Bing Crosby’s death, the California Court of Appeal put an end to the continuing battle over the Crooner’s right of publicity.

I Can’t Begin to Tell You

In 1930, Harry Lillis Crosby—nicknamed Bing for his love of a newspaper parody, “The Bingville Bugle”—married first wife, Wilma Wyatt (known professionally as Dixie Lee). The mother of his first four sons, Wilma died in 1952. In her Will, Wilma gave her community property to her two sons, which was held for their benefit in a trust known as the Wilma Wyatt Crosby Trust (the “Wilma Trust”).

Over the next several years, Bing was regularly the topic of gossip as he romanced several of Hollywood’s most beautiful women. In 1957, Bing married Kathryn Grant, a young actress and singer that Bing met on the Paramount lot. Together they had three children and remained married until Bing’s death on October 14, 1977 on a golf course in Madrid.

Bing left the residue of his estate to a trust for the benefit of his wife, Kathryn. Subsequent to Bing’s death, HLC Properties, Limited (“HLC”) was formed for the purpose of managing Bing’s interests, including his right of publicity.

Pennies from Heaven

Under the common law of California, there exists a “right of publicity” in a person’s name, likeness and identity. In 1971, the California Legislature established a statutory right of publicity in a person’s “name, voice, signature, photograph, or likeness.” After a controversial California Supreme Court decision in 2007, the California Legislature clarified that the right of publicity is freely transferable “by means of trust or testamentary documents.”


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Trusts & Estates Case Alert: Another California Appellate District Adopts Anderson v. Hunt Reasoning in Assessing Capacity to Execute a Trust Instrument

Posted in Estate and Trust Planning, Probate and Elder Abuse Litigation

EdCThe California Court of Appeal for the Sixth Appellate District issued a ruling Tuesday in Lintz v. Lintz, 2014 Cal. App. LEXIS 27 (6th Dist. January 14, 2014) adopting the reasoning of the Second Appellate District regarding the standard for legal capacity to execute a trust instrument (as announced by the Second Appellate District in Anderson v. Hunt, 196 Cal. App. 4th 722 (2d Dist. 2011)).

In Lintz, the Court concluded that the probate court erred by applying the testamentary capacity standard (i.e., Probate Code section 6100.5) to the trusts and trust amendments in question instead of the “sliding-scale contractual standard” outlined in Probate Code sections 810 through 812. In this case, as the Court noted, the trust instruments were “unquestionably more complex than a will or codicil. They addressed community property concerns, provided for income distribution during the life of the surviving spouse, and provided for the creation of multiple trusts, one contemplating estate tax consequences, upon the death of the surviving spouse.”

Celebrity Trusts & Estates: Casey Kasem Conservatorship Battle Highlights the Need for Clarity Regarding Control over Visitation

Posted in Probate and Elder Abuse Litigation

Family Drama

Casey Kasem’s three adult children from his first marriage have spent the last several months in L.A. County Superior Court fighting their stepmother, Jean, for control of their father’s personal affairs through a conservatorship proceeding.

Casey’s daughter Julie originally filed a petition seeking to be appointed conservator of her father based on claims that Jean had been isolating the beloved American Top 40 host since he became essentially bedridden this past summer due to advanced Parkinson’s Disease. The petition alleged that their stepmother (best known for playing the wife of Nick Tortelli on “Cheers”) has refused their visits despite their father’s requests. Since such accusations of isolation are considered a form of elder abuse in California, Jean naturally denied these claims, saying that unspecified “disturbing” conduct by the stepchildren would make visits in the family home an “intolerable and unpleasant experience for us all, including specifically [for] Casey.”

Despite the accusations of abuse, the children’s request for an emergency conservatorship was denied on November 19, 2013. At that hearing, the judge indicated that Casey was “receiving either good to excellent care” and found “no good cause for a temporary conservatorship.” However, the independent court investigator’s report confirmed that Casey wants to see his children. In light of this, the court instructed each side to set aside its “bad blood” and attempt to resolve their problems. Predictably, Jean’s initial offer to allow the children to see their father for one hour per month under heavy security was rejected by the children. Jean and Julie announced at the December 20, 2013 hearing that they have reached a settlement regarding visitation, though the details were not revealed. Casey’s other daughter, Kerri, has so far been unwilling to agree to the restrictions Jean wants to place on visitation and says she may file a petition to see her father without those restrictions.

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Avoiding Acceleration: How to Put the Brakes on Due-on-Sale Clauses when Funding Your Revocable Living Trust with Encumbered Real Property

Posted in Estate and Trust Planning

When it comes to setting up a revocable trust, most people are primarily concerned with avoiding the time and expense associated with the probate process. To avoid probate, it is crucial that legal title to any real property is transferred to the trustee of the trust. In discussing the importance of funding the trust with real property, many clients want to know whether or not the transfer to the trust will trigger an acceleration of the debt on the property under a “due-on-sale” clause. Although the question is fairly common, the answer is not as straightforward as you might expect.

 Transfers of a Personal Residence

Under federal law, due-on-sale provisions are regulated by the Garn-St. Germain Depository Institutions Act of 1982 (Garn Act). The Garn Act, as interpreted by the Code of Federal Regulations, prevents a lender from enforcing a due-on-sale clause when a home is transferred to a revocable trust in which the borrower is a beneficiary and the home is occupied (or will be occupied) by the borrower. As far as California law is concerned, a due-on-sale clause cannot be enforced if the property transferred into the revocable trust is “residential property” and the borrower is a beneficiary of the trust. Here, “residential property” is defined as “any real property which contains at least one but not more than four housing units.” Therefore, under both federal and California law, transferring your personal residence into your revocable living trust will not trigger a due-on-sale clause.

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Uncertainty Surrounding the Repeal of Proposition 13 May be a Reason to do Tax Planning Now to Avoid Increases in Property Taxes Later

Posted in Taxation

HilaryLThere has been a lot of talk lately about repealing parts of Proposition 13.   Passed in 1978, under this initiative, property tax increases are severely limited. The resulting loss of tax revenues was devastating to the public school system and other infrastructure in California.  Democrats who now have a supermajority in the state legislature are looking at their supermajority as an opportunity to turn that around.   In addition, recent polls show that a majority of Californians are in favor of a repeal of Proposition 13 as it relates to commercial (non-personal residence) properties.  For an extended read about the recent polls of Californians who are in favor of a repeal of Proposition 13 see the following SFGate: Poll Finds Support for Prop. 13 Change .

In addition, Proposition 13 has recently even come under attack by its usually staunch supporters due to a perceived abuse of loopholes (See LA Times Article).   In response to this perceived abuse, Assemblyman Tom Ammiano has introduced a bill to plug the “loophole.”

The basic rule of Proposition 13 is that increases to the property tax are limited to not more than 2% each year until sold or otherwise transferred, for example by gift or inheritance;  such sales or transfers are referred to as a “change of ownership.”  It is not quite that simple, however.  Property passed to children under the parent/child exemption is exempt from reassessment for a home regardless of value, and for other property up to $1 million in assessed value. Assessed value is the amount for which property is assessed on the property tax bill, not the fair market value of the property.  Since property tax increases are so severely limited under Proposition 13, that $1 million exemption can cover a lot of property if the property has been held for a long time.

In addition, if property is held in an entity,  such as a corporation, partnership or LLC, then until more than 50% of the property changes hands, or one person gains control (obtains more than 50%), transfers of interests within the entity are not deemed to be a “change of ownership.”  The parent/child exemption does not apply to these transfers; so once more than 50% of the entity is transferred to the children, or one person obtains control, there will be a “change of ownership” and a reassessment even if the interests do pass to children.

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When Applying the 120-Day Statute of Limitations Under Probate Code § 16061.8, When is a Trust Contest “Brought?”

Posted in Probate and Elder Abuse Litigation

When it comes to heading-off potential lawsuits, one of the most powerful weapons in a trustee’s arsenal is the “notification by the trustee.” By sending this notice to beneficiaries and heirs, the trustee can cut the timeframe for filing a trust contest down to a mere 120 days. Because of this, a solid understanding of the procedural issues involved with the notification is critical for both the trustee and potential contestants.

In handling a trust contest, it is important to recognize that procedural issues in probate cases are governed by both the Probate Code and the Code of Civil Procedure. This can lead to somewhat complicated—and not always obvious—consequences. What’s more, guidance from the courts regarding the overlap of these two codes is scant. Luckily, in the past few months the Courts of Appeal have issued two opinions specifically discussing procedural issues involving the 120-day statute of limitations triggered by a trustee’s notice.

From these cases, we learn that a trust contest is “brought” at the time it is filed (not when it is served) and that the 120-day window is not extended simply because the notice is sent by mail.

The Notification:

With a typical revocable trust, the trust becomes irrevocable when the settlor dies. The trustee then has sixty days to give notice to the beneficiaries and heirs that the trust is now irrevocable. The Probate Code also requires the trustee to include the following information: (1) the identity of the settlor and date the trust was signed; (2) the trustee’s contact information; (3) the “principal place of administration” of the trust (usually the trustee’s residential or business address); (4) that the recipient is entitled to a copy of the trust; and (5) any additional information the trust requires the trustee to include. Finally, since the trust is now irrevocable because of the settlor’s death, the notice must also include the following warning (in its own paragraph and in not less than 10-point boldface font):

“You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is mailed or personally delivered to you during that 120-day period, whichever is later.”

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Don’t Make the Grave Mistake of Killing Your Appeal from an Order of the Probate Court

Posted in Probate and Elder Abuse Litigation

BrendanBIn most California civil cases, a party generally must wait until a trial court issues a final judgment before he or she can get through the doors of the Court of Appeal.  While there are a few exceptions, this rule (sometimes called the one-final-judgment rule) prevents litigants from complaining to the appellate court about every ruling in a given case in piecemeal fashion.  Even when they receive an appealable judgment, parties to an appeal often find that getting a decision from the reviewing court takes endurance and patience; e.g., the time from the notice of appeal to the decision frequently takes over a year.

Things work a bit differently in probate court.  In that forum, parties can appeal from a multitude of rulings that a trial court may issue well before any final judgment.  And litigants who feel like they are growing old dealing with other types of appeals may find less waiting when it comes to probate appeals.  That is because probate appeals are subject to statutory preference (i.e., hurry-up-and-get-it-over-with rules) under section 44 of the California Code of Civil Procedure.  Still, it is a good idea to file an application for calendar preference (to remind the appellate court that yours is one of those cases) in order to speed things along.

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