Mr. Harlan discussed the 1969 case of Juan Abel Vargas. Mr. Vargas had two sets of families. Upon his death, the estate was worth approximately $2 million. There were two trials and two appeals.
Wife #1 was appointed to be personal representative. The trial judge divided the estate between the two wives.
Wife #2, the court found, was a good faith putative spouse.
Many Estate Planners never consider that the parties may divorce. However, 50% do get divorced. Discuss the consequences of dissolution in every estate plan. Discuss Spousal Property Agreements and Transmutations. A valid transmutation is a transfer of property rights between spouses which results in a change of ownership. You need:
1. A writing
3. With an express declaration of transmutation (consideration is not required)
This eliminates “pillowtalk” which was law pre 01/01/1985. So Family Code §§850-851 were enacted. Intent must be clear (see handout re:1990-present cases).
Earlier cases failed to find transmutation. Bibb found Transmutation based on the use of a Grant Deed. A Quitclaim Deed was presumed NOT to transmute.
McDonald found no special words were required to transmute. No Parol Evidence (though this may no longer be the rule).
Estate of Starkman (UPS heir). Agreement said all was Community Property unless clearly identified as Separate Property and no Separate Property was listed. The Trial Court found no transmutation. All the property had been transferred to community property but there was no express declaration of intent to transmute from Husband’s Separate Property to Community Property.
Marriage of Holtemann (2008) A three year marriage. A Spousal Property Transmutation Agreement was signed. Transmutation was specifically mentioned. Not signed in contemplation of sepration, solely to be effective on death. Clearly “Transmute Separate Property to Community Property.” The Trial Court said in the divorce that it is a transmutation. It can’t be one way in a dissolution and another on death, although Husband could get reimbursement under Family Code §2640 for the value of the assets at the date of marriage.
Estate of Lund. When someone says they read and understand the terms, the court will hold them to it.
Look closely at Community Property or Spousal Property Agreements. The courts have said they will look at “unconscionability” at the date of enforcement and not just the date of execution. So, a vast difference in resources may be unconscionable.
Family Code §2640 provides for off-the-top reimbursement for separate property contributions to the spouse who put separate property into assets. See Pre-Nuptial and Spousal Agreements: do they have a clause to waive this? Discuss and disclose the effect of this waiver to your clients.
Is there a valid transmutation of Spouse’s Property or Community Property in the Spousal Property Agreement?
1. Form (Quitclaim Deed may not fly)
2. No magic language
3. Free of actual and constructive fraud
4. Full and complete knowledge of facts
“Change” or “gift” and “intent to transmute” are transmuting terms.
Marriage of Burkle. $500 million was at-issue. Then, while together, $2.5 billion. Then they separated again. Wife tried to set aside a Post-Nuptial Agreement. This case sets out what must be included in an agreement to be valid.
Spousal Property Agreements:
1. Discuss effect of dissolution of marriage.
2. Suggest seeing separate family lawyers
3. Have a detailed CYA letter which describes the legal effect, on death and on dissolution.
4. Discuss Family Code §2640 reimbursement–what are they waiving if they do this?
5. Have somebody look over old Spousal Agreements–what you did 15-20 years ago may not be valid today or have the same legal effect.
Has client sign-off on her explanation of the effect of Transmutation at death and at dissolution
Revocation, Modification, and Amendment of Trusts
The Masry Case:
Ed Masry was a shrewd attorney. This case is worth reading. Ed unilaterally acted relative to the trust he and his wife had. Read the Probate Code. It provides differently regarding unilateral amendment versus revocation and whether or not a manner specified in the trust is exclusive ONLY if specified as such or not.
If you do not specify that the language in the Trust is the exclusive method to revoke then that method OR the method set forth in the Probate Code may be used. (Not so of amendments). So, discuss methods of amendment and revocation; application to all or specific assets of the trust; should it be specified as to the “exclusive method.”
King v. Lynch. This was after the Masry Case. Wife was still alive but had a mental illness. Husband did three later amendments unilaterally. The unilateral three, the court said, were not valid because the Probate Code says that if a method is provided for in the trust, you must use it. You cannot go to the code to amend unless no method is provided in the Trust.
Barry Harlan: ATRO’s (Automatic Temporary Restraining Orders in Dissolutions)
Immediately effective upon the Respondent upon service of Summons and Complaint in a dissolution to preserve the status quo. It is valid upon filing on the Petitioner. As of January 1, 2013 another restriction was added: You cannot apply for a passport.
1. It is clear that you may:
a. Create a new Will
b. Create a new Revocable or Irrevocable Trust but you cannot fund it without permission from the other party.
c. Give notice and sever joint tenancies (then do a will)
d. Give notice and revoke a trust
2. Fiduciary Duty between Husband and Wife. What you can and cannot do is spelled-out. There is a timeline.
3. If you have represented Husband and Wife you cannot plan for either now without the consent of the other.
Kira Masteller: Amend the Trust as to that person’s share, create new Healthcare and Financial Power of Attorney documents. Record a Revocation of Power of Attorney if the Original Power of Attorney was recorded. Beneficiary changes on investments or benefits are a problem. Life Insurance Companies usually require the spouse to sign-off on a change.
Be careful with married couples. Don’t represent either during dissolution, wait until it is over.
John T. Anderson, Section Chair
LB Bar Assoc. Estate Planning, Trust, and Probate Law Section
Certified Specialist in Estate Planning, Trust, and Probate Law by the
State Bar of California Board of Legal Specialization