Many spouses choose to execute a joint estate plan. For example, they may sign wills at the same time and promise to distribute property a certain way after the first spouse dies. Such agreements may be enforceable under California law, but it is important to follow certain procedures in the event the surviving spouse deviates from the plan. Things can get especially complicated when different family members in different states are involved.
Stepchildren Unsuccessfully Challenge Stepmother’s Trust
Here is a recent example. This case involves the application of California law to a complaint made before a federal court in New York. A husband and wife executed a joint estate plan in 1995. They agreed the surviving spouse would inherit all of the deceased spouse’s property, and upon the surviving spouse’s death, any remaining property would go to the husband’s two children from his first marriage. At the time of this agreement, the husband’s property included two apartments in New York City.
The husband died in 1998. The wife probated her husband’s will and, according to its terms, received all of his property, including the two apartments. Four years later, the wife created a revocable trust under New York law and transferred both apartments into it. She served as co-trustee together with her attorney. Unlike her will, which left her probate estate to her stepchildren, the trust provided a university located in New York would receive all of the trust assets upon her death.
The trust eventually sold the two apartments and used the funds to purchase a residence in Monterey County, California, where the wife lived until she died in February 2012. Seventeen months later, in July 2013, the stepchildren sued the attorney, now serving as sole trustee of the trust, in Manhattan federal court, alleging their stepmother “had defeated the intent of the agreement” with their father by moving her assets into the trust. The university named as the trust beneficiary was also listed as a defendant, together with the New York Attorney General, who has a statutory duty in that state to represent charitable beneficiaries.
The New York court initially dismissed the complaint, explaining the stepchildren needed to join their stepmother’s probate estate as a party. Since no such estate had been opened-as all of the stepmother’s assets were in the trust-the stepchildren did so, probating the stepmother’s will in Monterey County, California, where she lived at the time of her death. The stepchildren then moved to refile their lawsuit in New York.
But the judge said that would be futile, as the stepchildren still could not sustain their claim under New York law. The problem is that the stepchildren did not file their lawsuit until over a year after their stepmother’s death. California law sets a one-year statute of limitations on any “action to enforce the claim to distribution” arising from an agreement such as the one between the husband and wife in this case. In other words, the stepchildren should have filed their lawsuit by February 2013 and not waited until July 2013.
Before the trial court, and later on appeal to the U.S. Second Circuit Court of Appeals in New York, the stepchildren argued their complaint should be tried under New York’s statute of limitations, which is six years. But as the Second Circuit explained, New York law actually requires applying the stricter California statute of limitations. In a case where a “nonresident plaintiff”-neither the stepchildren nor the probate estate are residents of New York-sues for events that arose in another state, the other state’s statute of limitations applies if it is shorter. Put simply, the stepchildren could only bring their complaint if it complied with both New York and California’s statute of limitations.
Need Help from an Estate Planning Lawyer?
Even if the case above did not fail on procedural grounds, the Second Circuit noted nothing in the original agreement between the husband and wife limited the surviving spouse’s ability to transfer property into a trust. Indeed, the court said the wife “could have consumed all of the assets during her lifetime.” The lesson here is if you want to ensure certain people benefit from your estate plan, you should consider adopting appropriate restrictions. An experienced California estate planning attorney can advise you on the best way to achieve your objectives. Contact the Law Office of Scott C. Soady today if you would like to speak with someone right away.