NEWS AND COMMENTARY

Published on: December 31, 2015

Sale of “Soul Train” Host’s Home Leads to Estate Planning Nightmare

An important part of the estate planning process is taking inventory of what you own. If you own or operate a business, for example, you need to make sure it is clear which assets belong to the business and which belong to you as an individual. If you create a revocable living trust as part of your estate plan, it is imperative that any assets you move into the trust are properly re-titled in the name of the trustee.

If you fail to take these steps when creating your estate plan, there may be unnecessary delays or litigation involving your trust and estate. This can not only deplete any assets you wish to leave to your heirs, it can also place the people charged with carrying out your estate plan in danger of being held personally responsible if something goes wrong. A recent California case illustrates one such scenario.

Disputed Ownership, Boundaries May Leave Trustees Liable

Published on: November 24, 2015

What are Irrevocable Trusts?

by Scott C. Soady

When lawyers talk about trusts and estate planning, they generally mean revocable living trusts. These are flexible estate planning tools whereby a person (known as a settlor) transfers assets to a trustee. In living trusts, the settlor and trustee can be the same person. Basically, if you create a living trust and name yourself trustee, you continue to manage your assets during your lifetime, but upon your death those assets do not pass as part of your probate estate. These trusts are “revocable” because you retain the right to amend or revoke them at will during your lifetime.

There are also irrevocable trusts in estate planning. As the name implies, these trusts cannot be amended or revoked by the settlor once made. So why would anyone choose to make a trust irrevocable? The two main reasons are taxes and creditors. A revocable trust may keep assets out of your probate estate, but they remain subject to taxation and creditor claims. For example, if you place your assets in a living trust, someone who sues and obtains a monetary judgment against you individually can still enforce it against the trust assets. The trust is not a liability shield.

Similarly, any assets in a revocable trust remain part of your taxable estate. For most people this is not a big deal, as only wealthy estates are subject to federal estate tax (and California no longer imposes its own inheritance tax). Still, there are cases where an irrevocable trust can help minimize your tax burden and maximize the benefits to your designated heirs.

Published on: November 23, 2015

California Court Upholds L.A. Clippers Sale in Trust Dispute

by Scott C. Soady

Two years ago, the Los Angeles Clippers made national headlines not for their on-the-court performance but because of an audio recording of the team’s owner, Donald Sterling, making remarks deemed “deeply offensive” to minorities by the National Basketball Association. After the recording became public, NBA Commissioner Adam Silver suspended Sterling and threatened to cancel his franchise if he did not immediately sell the team. Subsequently, Sterling authorized his wife to negotiate a sale of the Clippers. In May 2014, Sterling’s wife accepted an offer from former Microsoft CEO Steve Ballmer to purchase the team for $2 billion.

But that was not the end of the matter. After initially agreeing to the Ballmer sale, Sterling changed his mind and refused to sign a binding term sheet committing him to the deal. The team itself was part of Sterling’s revocable living trust, where Sterling and his wife served as co-trustees, so his approval was necessary. Sterling’s wife responded by filing a lawsuit seeking to remove her husband as co-trustee, citing his lack of mental capacity.

The trust itself required “certification by two physicians who regularly determine capacity” before removing Sterling as trustee. A neurologist diagnosed Sterling with cognitive impairment secondary to primary dementia Alzheimer’s disease.” A second physician confirmed this diagnosis, adding Sterling was “at risk of making potentially serious errors of judgment, impulse control, and recall in the management of his finances and his trust.”

Published on: August 14, 2015

Late Actor’s Estate Prompts Litigation Between Sister, Biological Daughter

by Scott C. Soady

Many people avoid making a will because they assume they will die without leaving a probate estate. And while estate planning can help keep many assets out of probate, you should always prepare for unexpected claims that may arise after your death. For example, if your death is the result of medical malpractice or a defective product, a probate estate may be necessary to pursue civil litigation against the responsible parties. Recently a California appeals court addressed such a case involving the estate of a one-time Hollywood star whose death prompted an extended legal fight between his sister and a biological child he later acknowledged as his own.

In re Estate of Johnson

Troy Donahue was a well-known Hollywood actor during the 1950s and 1960s best remembered for co-starring in the 1959 film A Summer Place with Sandra Dee. Although married four times, Donahue died unmarried in 2001. In 1987, Donahue met a woman who claimed to be his biological daughter. She was adopted at birth in 1964. Donahue nevertheless accepted the daughter as his own and maintained a relationship with her and her children until his death.

Donahue, whose real name was Merle Johnson, died without a will. Donahue’s obituary reported the cause of death was a heart attack. But the daughter later received information suggesting the use of the prescription drug Vioxx caused her father’s death. In 2005, the daughter hired a lawyer to join a class action against Vioxx’s manufacturer. But this required opening a probate estate for her father in California.

Published on: August 13, 2015

What Happens If a Spouse Gives Away Community Property Without the Other Spouse’s Consent?

by Scott C. Soady

California is a community property state. This means that unless a married couple specifies otherwise, property acquired during their marriage belongs to both spouses. (There are some exceptions, such as property inherited by one spouse from someone else.) Accordingly, when one spouse dies, his or her estate owns one-half of any community property belonging to the couple, while the surviving spouse retains ownership of the other half.

Married couples should discuss how to dispose of their community property as part of the estate planning process. It is important for one spouse not to unilaterally dispose of such property, especially when both spouses are still alive. In fact, California law expressly prohibits a spouse from giving away community property “for less than fair and reasonable value” without the written consent of the other spouse.

Failure to follow this rule can lead to complicated litigation after a spouse’s death. Here is a recent example which is discussed for informational purposes only and should not be considered an accurate statement of the law. This case arises from the aftermath of a tragic 2009 incident. A woman murdered her daughter and grandchildren before killing herself. The daughter was estranged from her husband at the time of her death. We previously discussed a California court decision from last August dealing with the daughter’s estate.

Published on: August 5, 2015

What Happens When Your Spouse Undermines Your Estate Plan?

by Scott C. Soady

Even the best laid estate plan does not execute itself. It is essential that your chosen fiduciaries carry out your wishes. If they depart from your plan, even inadvertently, it can have repercussions that last years, and in some cases decades.

Failing to Follow the Will as Written

Here is a recent example. Actually, “recent” is misleading given the decedent in this case died over 25 years ago. The decedent was a married man with three children. He signed his first will shortly after his marriage in 1942. Forty years later, in 1982, he signed a new will, which he amended once in 1987.

Published on: August 4, 2015

California Supreme Court Says Judges May Consider Outside Evidence to Correct “Mistakes” in Wills

by Scott C. Soady

A last will and testament is supposed to express your wishes regarding the disposition of your estate. But sometimes a will is not clear about a testator’s wishes. If there is ambiguity in the language of a will, a California probate court may look to “extrinsic” evidence-facts or information outside the text of the will itself-in determining what the testator really meant.

That said, a court should not rewrite a person’s will to mean something it doesn’t actually say. For that reason, the California Supreme Court held in 1965 probate judges may not consider extrinsic evidence when interpreting an unambiguous will. In that case, Estate of Barnes, the testator’s will provided for the distribution of her estate to her husband, but he predeceased her. The will made no provision for such a scenario, and the Supreme Court said the probate court could not consider extrinsic evidence to ascertain the testator’s intent.

The Supreme Court Alters Course

Published on: June 26, 2015

Is a Promise to Leave Your Estate to Someone Legally Enforceable?

by Scott C. Soady

A probate court in New York recently addressed an unusual will contest. An 82-year-old Roman Catholic nun died in 2012, leaving a surprisingly large estate worth over $2 million, the product of a 1982 personal injury settlement. The sister signed a will in 1994 dividing her estate among her siblings, her congregation and various other Catholic charities.

The congregation actually contested the will. When the sister entered the congregation back in 1959, she signed a declaration agreeing to abide by the order’s requirements, which included a “vow of poverty.” To that end, the sister signed a will in 1979 leaving her entire estate to the congregation. This will, of course, predated the 1982 personal injury settlement and the subsequent 1994 will which, if valid, revoked the 1979 document.

Among other arguments, the congregation maintained admitting the 1994 will constituted a breach of contract, as it violated the sister’s 1959 vow of poverty. In June 2015, a New York probate judge denied the congregation’s motion for summary judgment on this issue. Without addressing the underlying breach of contract claim, the judge held under New York law, the purported 1959 contract did not affect the admissibility of the 1994 will.

Published on: June 25, 2015

Dealing With Break Ups in Your Estate Plan

by Scott C. Soady

Estate planning is often a snapshot of your life at a particular moment. The beneficiaries or agents named in your will and other estate planning documents reflects your relationships at that point in time. And as those relationships change, so should your estate planning.

Say you draft a will and name your best friend as executor. If you later have a falling out with her, it is probably a good idea to revise your will and name a new executor. Or suppose you leave a relative a large inheritance in your will. If you later learn that relative is irresponsible with money, you might decide it prudent to revoke your gift.

How Divorce Affects A Previously Signed Will

Published on: June 17, 2015

Distinguishing Marital and Separate Assets in Estate Planning

by Scott C. Soady

In making an estate plan, it is important to make a complete list of all assets you own. This is especially helpful to your future executor or trustee, who will be responsible for marshaling your assets after your death and distributing them as you direct. Confusion over the ownership of assets can lead to litigation, as this recent California case illustrates.

Estate of Quon

A married couple had three children. In 1968, the father purchased a 5% interest in a company whose sole asset is an apartment complex in Glendale, California. The company’s majority owner previously worked as the couple’s accountant. In 1972, the majority owner issued formal stock certificates to the husband alone, who made all the financial decisions for the couple.