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Hi, my name is John T. Anderson. Welcome to my blog! I have been practicing law in California since 1975 and have been the Chairman of the Estate Planning and Probate Section of the Long Beach Bar Association since the mid-1980s. I'm also certified by the State Bar of California Board of Legal Specialization as a specialist in Estate Planning, Trust and Probate Law. On this blog, you will find articles written by me regarding estate planning and probate in California. Many of these articles address recent changes in the law and summaries of the Long Beach Bar Association’s Estate Planning and Probate Section meetings. I hope that you find these articles helpful. If you would like more information about me or my law office, please visit my website at www.trustlaw.ws or contact my office at 562.424.8619.

Monday, May 31, 2010

Damages and Parties in Probate Code §§850, 856 and 859 Cases

Probate, Trust and Estate Planning Tidbits.
by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization

Damages and Parties in Probate Code §§850, 856 and 859 Cases

Estate of Janice Helena Kraus, deceased, The Regents of U.C. et. al. v. David Kraus (2010) involved mother, Irene, and her two children, Janice and David.  Irene was rather elderly; and Janice is hospitalized, dying of brain cancer.  Irene had disinherited David from her estate plan and set forth that he refused to return to her $160,000 they (David and his wife) were to have held for her.

Janice, likewise, excluded David from her estate plan.  She left her estate via her living trust, written in 2003 and amended in 2005, to the Make-A-Wish Foundation of Greater Los Angeles and the Regents of University of California.  Janice had approximately $160,000 in bank accounts; some of the accounts had Irene as a Joint Tenant, and some others had Irene as a beneficiary.

The day before Janice died, David got her “X” on a Power of Attorney which he used to close the bank accounts and take the funds.  They were placed in accounts for David, with his daughter as beneficiary.

Janice’s attorney/Trustee wrote to David regarding the funds.  Janice’s Will provided that the Bank Accounts were to go to her Trust and the Trustee “assigned all ‘choses [sic] in action and claims’ against David to the beneficiaries.”

Irene died prior to trial, but after Janice.

David wrote a letter to the charities threatening “to expose their greed to the media.”  Further, he told them they could not bully him; he knew the law and they “have no standing in the eyes of the court”; that bringing a matter against him would forever prejudice the court against them; and, that they would “long be remembered in her court.”

The Trial Court found that David’s power of attorney was void and that David acted “wrongfully and in bad faith” converting property.  He was ordered to pay damages of $197,402 to a court-appointed representative of Janice’s estate; and, per §859, $394,804 (double damages) the personal representative.  The minute order changed the total damages to $394,804.

The appellate court reviewed Probate Code §§850-859 and reviewed the persons, including “any interested person” who could bring a §850 action. §48 defines an “interested person;” § 855 defines types of actions which may be brought; and §859 provides for recovery of twice the value of property taken in bad faith “. . . wrongfully taken, concealed, or disposed of property belonging to the estate of a decedent, conservatee, minor, or trust . . ..”

The court does not have to wait until a determination is made as to who ultimately will receive the funds or to award punitive damages.  “The statutory emphasis is not on to whom the property belongs, but whether the person in possession in bad faith wrongfully acquired it.”

The probate court did not award damages “it ordered David to hand over misappropriated funds together with a statutory penalty for his bad faith conduct.  The funds were taken out of the hands of the person who wrongfully acquired them.”

So, once again, guard against acting in bad faith.  There are consequences.
   
                _________________________________
                John T. Anderson, Section Chair
                Certified Specialist in Probate, Trust and Estate Planning
                By the California State Bar Board of Legal Specialization

Copyright © 2011 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
File Location: C:\Users\John's LT\Documents\Work\Website\Articles for Website\Word Version of Articles From Lisa\2010.05.31  Trustee Bad Faith Damages Kraus.docx

Community Property

Probate, Trust and Estate Planning Tidbits.
by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization

Community Property

A December 2008 case was referred to recently by Judge Paul.  He mentioned during our Brown Bag Luncheon that Judge Beckloff had cited the case as the most recent appellate court case dealing with the issue of community property.  The case did not involve Family Code §852 issues of transmutation because title was taken, from the outset, in wife’s name alone.  The court, in a footnote, cites Hogoboom and King’s Cal Practice Guide: Family Law.  The decision was written by Justice King.

Michael (“Husband”) and Annikkawa (“Wife”) married in 1997.  A home was purchased in 2000.  Wife took title to the real property in her name alone.  The down payment was from Husband’s earnings.  Husband agreed with the realtor that financing would be easier if the home was in Wife’s name and the Grand Deed and two Deeds of Trust were to Wife, “a single woman.”

Husband remained in the home when Husband and Wife separated.  Prior to Husband filing for divorce, Wife sold the property to ECG.  ECG purchased the property and later, after an Unlawful Detainer action, evicted Husband.  Husband filed for Joinder to bring ECG into the divorce and to set aside the sale. 

Husband testified that he had met with Wife and employees of ECG at the property.  He identified himself as Husband, told them the property was community property, and told them that he wouldn’t sell.  The two employees testified that they only spoke with Wife and that they were never advised the Husband and Wife were married.  Husband’s claims were denied by the Trial Court, which ruled ECG was a bona fide purchaser.  The Trial Court’s decision was affirmed by the Appellate Court.

Transfer of real property title of community property real property requires that both parties join in execution of the deed.  Absent that, the rule is that such a transfer is voidable by the spouse who did not join in the conveyance (Family Code §1102).  However, the deed is presumed valid if received in good faith, without knowledge of a marriage relation [Family Code §1102(c)(2)].

Husband argued that ECG at least knew he was a tenant in possession if not that he had an interest in the property and thus that he had an interest in the property, and thus they had a duty to inquire as to his interest.

The court, in what appears to be dicta, indicates that “there appears to be merit” to Husband’s contentions that ECG is “charged with whatever knowledge it would have acquired” had it made inquiry to Husband.  But the court says it does not have to “reach the issues” because Husband “did not have an interest in the property as a matter of law.”

The court reviews that there is a “form of title” presumption as a matter of public policy citing Marriage of Haines (1995) 33Cal.App.4th 277 and In re Marriage of Broderick (1989) 209 Cal.App.3d 489, codified in Evidence Code §662.  The presumption requires clear and convincing proof to rebut.

Husband argued the fact that the marriage pre-dated the purchase of the property and that the general presumption that property purchased during marriage was community property negates the presumption arising from the form of title.  The court says “the affirmative act of specifying a form of ownership in the conveyance of title “removes the property” from the more general presumption” [In re Marriage of Lucas (1980) 27 Cal.3d 808].

Husband correctly states that legislation was passed superseding Lucas (Family Code §§2581 and 2640); but the court states that those statutes are “unrelated to the analysis and holding we rely on.”  The statutes enacted involved other issues.  Some of those issues involved title held as joint tenancy presumed to be community property and the right to reimbursement for separate property contributions to community property.  In addition, the new statutes involved “division of property on dissolution of marriage or legal separate of the parties.”  This property was not acquired by the parties and it involves a dispute between Husband and ECG.

“To overcome the form of title presumption, the evidence of a contrary agreement or understanding must be ‘clear and convincing’” [Evidence Code §662, In re Marriage of Weaver (1990) 224 Cal.App.3d 478].

The fact that Husband testified that he allowed title to be in Wife’s name alone for financing purposes actually confirms that the vesting in Wife’s name alone was intentional and not inadvertent.

Husband argued that requirements for a valid transmutation were not met; but this argument, the appellate court says, is misplaced because “there are no facts suggesting a transmutation” and the court’s ruling “is not based upon and does not imply a transmutation.”  This was not a case where there was a change in the character of property already owned by the parties.

                _________________________________
                John T. Anderson, Section Chair
                Certified Specialist in Probate, Trust and Estate Planning
                By the California State Bar Board of Legal Specialization

Copyright © 2011 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
File Location: C:\Users\John's LT\Documents\Work\Website\Articles for Website\Word Version of Articles From Lisa\2010.05.31  Community Property.docx

Trustee’s Fees and Attorney’s Fees in Contested Accountings

Probate, Trust and Estate Planning Tidbits.
by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization

Trustee’s Fees and Attorney’s Fees in Contested Accountings

In two recent cases, different Appellate Courts made rulings regarding awards of Trustee Fees and Attorney’s Fees in Accountings. 

In the first case, Donahue v. Donahue (2010) 2010 DJDAR 2844, the Appellate Court reversed and remanded back to the Trial Court an award of $5 million.  The court left no doubt that Trustees are entitled to “reasonable attorney fees to defend adverse claims against the trust.”  The court here couldn’t determine the reasonableness of the award in light of established principles.   “. . . [R]easonable in amount and litigation . . . but it also must be reasonable and appropriate for the benefit of the trust.”           

Donahue was a fight between Michelle (surviving spouse) and her brother-in-law, Patrick.  Michelle is the life income beneficiary of her husband’s trust, with her three daughters as remainder beneficiaries.  Patrick filled multiple roles.  He is the successor Trustee of the trust and the “director, officer, and shareholder of the real estate investment trust in which the Trust assets are heavily invested.”

After two years, Patrick resigned as Trustee and his brother, Terence and Northern Trust Bank of California succeeded him.  Patrick initiated the court action by the filing of a Probate Code §17200 Petition to get court confirmation of this accounting.  Michelle objected to the accounting and alleges that Patrick sold 40% of the Trust’s interest in the REIT below fair market value, at a loss of $20 million.

There was a 14 day trial resulting in the court’s approval of the accounting.  Michelle’s appeal was denied.

In 2007, Patrick petitioned for more than $5 million in Attorney’s Fees and Trustee’s Fees for defending himself against un-meritorious allegations.  Patrick used three separate law firms and a 45 member legal team.  Charges included $184,000 to prepare fee petitions; $366,000 to prepare an 80 page case chronology and “case administration”; one attorney billed 3,661 hours at $1.5 million; $150,000 was charged for visual effects and multi-media; 86% of the fee request was for eight “key” individuals.  The Trial Court approved the fee request after excluding some charges that it could not “assess the appropriateness . . . .”

Patrick argued that it would be unjust to make him sell assets and borrow funds “to fend-off Michelle’s relentless attacks.”

Michelle objected to duplication in charges between two firms and her attorney argued that the $150,000 for multi-media could have paid for two weeks of trial.

Both sides objected to the Trial Court’s “failure to specify how it arrived at the amount of fees and costs . . . .”

The Appellate Court said, “Probate courts have a special responsibility to ensure that fee awards are reasonable, given their supervisory responsibilities over trusts.”  A lack of detail and explanation by the trial court thwarts meaningful appellate review.

“Reasonable compensation does not include compensation for ‘padding’ in the form of inefficient or duplicative efforts . . . .” (Ketchum v. Moses (2001) 24 Cal.4th 1122.

“A reduced award might be fully justified by a general observation that an attorney over litigated a case or submitted a padded bill . . . .” (Gorman v. Tessajara Development Corp (2009) 178 Cal.App.4th 44.

Over and again the Appellate Court emphasized “we cannot tell” in discussing the amount of work done; overlaps; multiple law firms; and not way to tell the necessity of the effort and resulting benefit to the Trust.  Maybe the great effort was to protect Patrick in his “spare no expense” strategy.

THEN, in Leader v. Cords (2010), which I previously discussed, Terry was the Trustee and he and his sister, Carol, were the beneficiaries of their parent’s Trust.  Carol died after her parents, but during administration of the Trust.  Her two children, Adam and Rachel, succeeded to her interest.  Terry delayed distribution and then, when he finally was ready to distribute, delayed an accounting, then offered to settle if previously distributed jewelry was reconsidered with some returned to him.

The Appellate Court ultimately ruled that Rachel and Adam could be entitled to attorney’s fees and costs for contesting a Trust accounting if the court finds that the Trustee acted “unreasonably and in bad faith” per Probate Code §17211(b).

These cases are a must read for Trust litigants and in particular for Trustees.  Trustees must act in good faith in their responsibilities, which includes litigation.

                 _________________________________
                John T. Anderson, Section Chair
                Certified Specialist in Probate, Trust and  Estate Planning
                By the California State Bar Board of Legal Specialization

Copyright © 2011 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
File Location: C:\Users\John's LT\Documents\Work\Website\Articles for Website\Word Version of Articles From Lisa\2010.05.31  Donahue Leader Trustee Attorney Fees.docx

Mr. Benjamin Duncan, Esq.--Tax Debt Collection


Probate, Trust and Estate Planning Tidbits.
by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization

Mr. Benjamin Duncan, Esq.--Tax Debt Collection

Appropriately, the speaker at the April 15, 2010 meeting of the Estate and Trust Council of Long Beach was Mr. Benjamin Duncan, Esq. of the Office of Chief Counsel, IRS, Deputy Area Counsel.  Last year he had a staff of 65 attorneys; he now has 90 attorneys. 

He said he has tortured us in the past on procedural issues; this year he is torturing us with collection issues.  He loves collecting taxes.

Revenue Agents determine tax liability, Revenue Officers collect taxes.  He works with Revenue Officers.  They have a lot of discretion.  Mr. Duncan’s job, in part, is to advise Revenue Officers.  It is challenging and fun.

The key is when tax owed becomes an “assessment.”  That is when the Revenue Officer gets involved.  He sees what the debtor owes, then he gets to look into everything the debtor has to see what the easiest way to collect will be.  He sees whether the debtor will be a cooperative person or if he is in for a fight.

He will send out a Demand for Payment.  Ten days later a lien goes out on “everything” that the debtor owns, the “secret tax lien.”  Then there can be a public recording of the secret tax lien and a publication of notice.

Next, a “piece of paper” is issued called a “levy.”  No court is involved.  The Revenue Officer writes it out and send it certified mail to, for example, the debtor’s bank.  The bank, who is loyal to it’s customer, will give all the money the debtor has on deposit over to the IRS or the bank is liable for the amount PLUS A 50% PENALTY.

The Revenue Officer might suggest installment payments, or the debtor might propose an Offer and Compromise.  The Offer and Compromise is just an agreement to settle the debt for some compromised amount.  The least that will be settled is 20%.

In the past, IRS could “seize” the debtor’s house, advertise, then auction it.  Many of the buyers are the same groups of people.  IRS’s sales price is usually well-below market price, in part because the Buyer still has to get the Debtor out.  Oftentimes there is damage to the house and there are expenses to sell.

With a “cooperative” debtor (one who responds, returns calls, etc.), the Revenue Officer will usually use the least intrusive method to collect; they will attempt to work things out.

With an “uncooperative” taxpayer, the Revenue Officer immediately starts looking into levy and seizure.  They have a “wage levy” they can send to the employer.  There is a formula to determine the share of each paycheck to go to IRS.

A Homestead Allowance is not superior to a Federal Tax Lien.

There are 5,000 to 6,000 tax cases in Los Angeles per year.  All but about 1,000 will be settled by the Appeals Division.  IRS will win about 95% of the cases which go to trial because the laws are stacked in the government’s favor and the Taxpayer has had numerous opportunities to resolve the matter before it gets to trial.

He spoke of the Taxpayer’s Bill of Rights and a procedure for the Taxpayer to go into Tax Court and challenge the method of tax collection being used as not being the “least intrusive.”  He says that initially collections was concerned that it would make their work much harder.  In fact, he cited a study done over a five year period (rounding-off the numbers) finding that there were three million assessments; and 300,000 tax liens recorded, with 3,000 challenged by the Debtor as overly intrusive collections.  Of these 3,000 only 30 were successful.

                _________________________________
                John T. Anderson, Section Chair
                Certified Specialist in Probate, Trust and Estate Planning
                By the California State Bar Board of Legal Specialization

Copyright © 2011 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
File Location: C:\Users\John's LT\Documents\Work\Website\Articles for Website\Word Version of Articles From Lisa\2010.05.31  IRS Duncan Tax Debt Collection.docx

Priority of Appointment

Probate, Trust and Estate Planning Tidbits.
by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization

Priority of Appointment

I LIKE THIS DECISION–not so much because of the legal position it stands for, but because it relates to mixed martial arts.  What, you say, could a case dealing with priority of appointment as personal representative of an estate have to do with Ultimate Fights and Mixed Martial Arts?

For forty-five years I have been involved with wrestling, karate and ju-jitsu.  I teach karate when I am not practicing law.  Still, what does that have to do with Estate of Charles David Lewis, Jr. Williams, as Public Administrator v. Diane Larson (2010) 2010 DJDAR 6732?

There was a fight, but that is not the answer.  Lewis died and left two minor children as his sole heirs.  The two minors reside with their mother, Larson, in Illinois. Public Administrator and Larson filed competing Petitions to Administer the Estate.

Probate Code §8461 sets forth the priority, in order, for appointment: (b) lists “children” whereas (p) is Public Administrator.  Thus, decedent’s children are second in priority and the Public Administrator is 16th.  Issue solved, right?  Well, don’t answer too quickly.  The children are minors; so we go to §8464, which states “If a person otherwise entitled to appointment as administrator is a person under the age of majority . . ., the court in its discretion may appoint the guardian . . .or another person entitled to appointment.”

Public Administrator argued that Larson was not the Guardian; and that they were in Illinois; as “another person entitled to appointment” he was in the best position to serve; and, given the choice the code gives, should be appointed.  Public Administrator was appointed Special Administrator.

Larson argued that she was the children’s natural parent, and because of that was their guardian.

The Appellate Court traced the history of the code section to Code of Civil Procedure §1368 and references Estate of Turner (1904) 143 Cal 438.  The code section read essentially the same and competing petitions were filed by decedent’s brother and by the guardian of the decedent’s minor children.

The issue was whether competing Petitions by persons of equal priority required appointment by one who was not the minor.  That court said no.  The court both there and in the current situation dealt with the language of the code and whether the “or any other person entitled to letters” referred to someone in the same class of the minors or to someone in inferior classes who were entitled to appointment “in the absence of others having superior rights.”

The court rejected the latter argument.  A person is never entitled to appointment over a person with priority unless that person is disqualified.  The legislature did not hardly intend to qualify a minor by appointment of a guardian just to allow them to compete with a person in a subordinate class.

The court in Turner further set forth if more than one person in a class petition the court can name them to serve together, or, if they cannot “agree, the court may appoint the public administrator or a disinterested person in the same or the next lower class of priority as the persons who are unable to agree.”

In Estate of Waltz (1966) 244 Cal.App.2d 217, the court followed Turner saying, “the guardian is to be considered a member of the class to which his ward belongs to and ahead of all lower classes, and the court has no discretion to appoint a person of an inferior class in preference to the guardian.”

Public Administrator attempted to distinguish the cases due to the word “must” that the appointment “must be granted to his or her guardian, or any other person . . . .”  The court said this was an “insignificant” distinction.

The court ruled that absent a finding that Larson was incompetent to serve, the court “lacked statutory authority to appoint the Public Administrator, instead of Larson” and thereby abused its discretion under §8464.

So, there you go.   So, did you figure out what that had to do with Mixed Martial Arts?  Decedent Lewis had an estate valued in excess of $10 million and owned a 28% interest in “Tapout LLC,” a clothing and marketing company associated with Mixed Martial Arts.  Tapout or “to tapout” is to pat your opponent or the mat to express that you give-up.

You learn something new every day, right?  But, I don’t suggest that the next time you are losing on a motion that you pat the table twice signifying your surrender in order to avoid further damage.

                _________________________________
                John T. Anderson, Section Chair
                Certified Specialist in Probate, Trust and Estate Planning
                By the California State Bar Board of Legal Specialization

Copyright © 2010 by John T. Anderson
All articles by John T. Anderson may be copied for personal use, only. All articles or outlines from others may be used only with their personal authorization. Any approval is for personal use, only, and for non-commercial purposes.
File Location: C:\Users\John's LT\Documents\Work\Website\Articles for Website\Word Version of Articles From Lisa\2010.05.31  Priority of Appointment Karate Tapout.docx