April 4, 2009

Disqualification of an Inheritance under California Probate Code Section 21350: California's Care Custodian Code: Part II

How could Ken be disqualified as Bob's beneficiary?

In our example posted on March 11, 2009, the contestant of Bob's Will (Bob's second cousin) who is attempting to circumvent Bob's gift to Ken, will attempt to convince the court that Ken is a Care Custodian as described under Probate Code Section 21350 and invalidate Bob's intent to bequest Bob's property to Ken.  

Should the cousin prevail, it is logical to infer this to be an unfair resolution and that Ken logically should be able to receive Bob's property as both were such good friends.  It is apparent that Bob appreciated Ken, especially in light of all Ken's assistance during those last months of Bob's life.  It also makes sense that without other family, Ken would be the logical choice as a beneficiary of Bob's estate.

Probate Code Section 21350 provides for specific situations in which a gift to certain persons will be invalidated.  One such circumstance in which a transfer would be deemed invalid is that from a dependent adult to the "care custodian" of that dependent adult.

The question would then be, what is a care custodian?  In addition to the obvious defining attributes of what might constitute a care custodian such as the administrator or an employee of facilities providing services to dependent adults (nurses, health care workers, etc.), California Welfare and Institutions Code Section 15610.17  includes in the definition those "persons providing health services or social services to elders or dependent adults".

Now the question becomes, what would constitute health or social services?  As a result of conflicting opinions in the lower courts, the matter was brought to the California
Supreme Court in Bernard v Foley (2006) 39 C4th 794, 47 CR3d 248.  In the court's decision they found that an unrelated person may be a disqualified care custodian if that person provided "substantial, ongoing health services" to a dependent adult.  

There is a previous case wherein the court dismissed the notion of invalidating the transfer to a care custodian if the care giving was a direct result of a preexisting friendship and relationship.  The Bernard Court apparently didn't agree with the whole friendship exception and added that it doesn't matter if the care giving relationship naturally arose out of a preexisting friendship as in the case of Bob and Ken.

Then one must ask themselves, what exactly are those health and social services that, if performed by a potential beneficiary of a testamentary gift, would disqualify the potential recipient and invalidate the gift?  The caregivers in Bernard assisted the dependent adult by doing her laundry, helping her to and from the bathroom, administering oral medication, cleaning the bedroom and typically performing such acts that one would hope a lifetime friend would do for you in your time of need.

In our hypothetical, there is a very good chance that Ken would be considered a care custodian and Bob's gift to Ken will be invalidated as a transfer from a dependent adult to a care custodian of that dependent adult.  If Ken is determined to be a disqualified beneficiary, Bob's cousins, some whom he has never met, will receive and share Bob's property.

You might try to say that the ne-er do well cousins are violating the Will's no-contest clause and therefore will lose their right to receive the estate.  However, a no-contest clause will not be enforceable against a beneficiary who brings the contest on the grounds of the invalidity of a transfer to a disqualified person.

This is not an isolated case.  With the age demographics as they are these days and other contributing factors, it is not that unusual to find people leaving their estates to friends rather than remote relatives.  Despite the fact that you care for and love your lifelong buddy and want to recompense your relationship with a bequeathing gesture,  should your friend lend a helping hand in those last days, such acts of compassion and kindness could very well be penalized. 

The code's intent is to limit, reduce if not eliminate the instances of abuse to elders and dependent adults.  Many in this category are manipulated and unduly influenced to transfer their property to persons who are not the objects of their love and affection.  Of course, in enforcing and interpreting the code, the good Samaritan and lifetime friend has been penalized.

A qualified estate planning professional will be able to advise you on how to avoid an unwanted care custodian consequence.  One method is to obtain a Certificate of Independent Review from a lawyer other than the drafting attorney.  However, the downside of this solution is that you would need to hire two attorneys. One attorney would draft the documents and the other would interview you and review your estate plan to make certain your testamentary wishes are not the result of menace, duress, undue influence or fraud.  Absent any of the aforementioned, the reviewing attorney will sign a Certificate of Independent Review.

Assuming Ken is found to be a disqualified transferee, who would receive Ken's assets?  


March 11, 2009

Los Angeles Probate Case Heard By California Supreme Court: The Possible Implications of Testamentary Transfers to Your Friend: Part I

California's Custodian Care Statute - Probate Code §21350

Do you think there are any restrictions or limitations on whom you choose to receive your property at your death? Often when people execute a Living Trust or Will to designate who is to receive their property when they die, they don't give a second thought to the possibility that the intended recipient will not be allowed to take delivery of the property.

After all, isn't it logical to believe you can give what you own to whomever you desire? It's your property, you worked hard for it and you should be able to give it to anyone you want, right?

Well, the good news is, for the most part, absent a bequest that is illegal or harmful you can distribute your assets to anyone. The bad news is, if certain conditions exist, your intended beneficiary might not be allowed to accept your gift.

Consider the following example.  Bob and Ken are life long friends. Both are widowers and until the death of their respective spouses, the two couples enjoyed a close relationship. And even now, Bob and Ken remain very close. Ken has three adult children but Bob has no family except some distant relatives back east that he barely knows.

One day, Bob suffers a stroke. Ken is the ever diligent friend and stays by Bob's side. He runs errands for Bob, picks up groceries, drives Bob to medical appointments, makes certain Bob takes his prescribed medications administer, assists Bob to and from the restroom and picks up around the house a little.

Bob hadn't changed his Last Will and Testament since his wife passed away so he contacted his estate planning attorney and changed the beneficiary of all his worldly possessions to Ken.

Unfortunately, Bob doesn't make it through this illness and passes away. The executor of Bob's Will files a petition for probate in the local probate court that title to Bob's home and other assets can be legally titled and transferred to Ken.

During the probate process, Bob's second cousin, twice removed who had never met Bob personally, inserts himself into the probate proceeding and contests the probate petition and particularly the distribution of Bob's estate to Ken.

You might be thinking, wait a minute, these guys have known each other for years and were the best of friends long before Bob's stroke. Ken was the epitome of a friend.  How dare this stranger show up and attempt to thwart Bob's testamentary intent.

The cousin will allege that Ken is a Care Custodian as defined in the California Supreme Court in Bernard v Foley (2006) 39 C4th 794, 47 CR3d 248 and therefore be disqualified from receiving any of Bob's assets under California Probate Code §21350.

Probate Code §21350 codifies situations where donative transfers will be invalidated.  One such situation is a transfer from an elder or dependent adult to a care custodian.

Welfare & Institutions Code §15610.17 includes in its definition of a care custodian those persons "providing care or services" for elder or dependent adults.

The Court in Bernard v Foley found that an unrelated person may be a disqualified care custodian if that person provides "substantial, ongoing health services" to a dependent adult.  They further stated that it doesn't matter if the care-giving relationship naturally arose out of a preexisting friendship as in the case of Bob and Ken.

The friends of the decedent in the Foley case were found to be care custodians and therefore disqualified persons. The transfer of the decedent's property to them was invalidated by the court. The care and services provided by Foley and his girlfriend to the dependent adult was doing her laundry, lending assistance to and from the bathroom, administering oral medication, cleaning the bedroom and other such similar tasks.

Why would Bob's gift to Ken fail?


March 9, 2009

Los Angeles County Courthouse and Probate Department Not Unaffected By Economic Climate

The Metropolitan News-Enterprise reported last week that Charles McCoy, Los Angeles County Presiding Judge, speaking to a group of attorneys, espoused the importance of ensuring the court's long-term fiscal survival. The article stated that Judge McCoy told the attorneys that so far, the court has not had to invade too much of the court's accrued reserve, but he warned that this year some moves needed to be made.

The article went on to state that resources will be shifted to the Los Angeles probate and family law departments resulting in the central civil section judges at the Stanley Mosk courthouse experiencing an increase in caseload.

In a related editorial, the National Law Journal recently reported that due to the state's budget crisis, courts will be shortening their hours and furloughing employees.  This attorney has experienced first hand the shortened hours introduced in both the Riverside and San Diego County courthouses. 

Additionally, California probate reforms will be delayed.  After unearthing corruption in the administration of probate estates, $17 million was alloted to probate court reform.   The allocation of the funds for the probate reform will be put on the back burner this year as it was last year, in light of the financial crisis.  

California is the largest court system in the nation receiving approximately 9 million court filings annually. 
January 21, 2009

Los Angeles County Raises Probate Filing Fees January 1, 2009

Filing fees for probate first filings for the last eight months of 2008 were $320.00. As of January 1, 2009, those probate filing fees were raised to $350.00.

Prior to March 28, 2008, the initial filing fee paid at the time of filing a Petition for Probate was based on the estimated value of the estate. If the value of the estate was overestimated and a higher probate filing fee was paid at the time the Petition for Probate was filed, the estate would receive a refund at the end of the probate when the value of the estate was definitely determined.

If the value of the estate was underestimated causing a lesser probate filing fee being paid at the time the Petition for Probate was filed, the estate would owe the difference to the court. This method of calculating the probate filing fee was referred to as a graduated filing fee and was only utilized in probate cases.

On March 28, 2008 the Second Appellate District of the California Court of Appeal invalidated the graduated filing fees in probate cases finding them against the California Constitution as an estate or inheritance taxation. Henceforth, probate filing fees were to be the standard unlimited civil filing fee.

The pre-March 2008 filing fee was based on the inventory value of the estate. The old graduated filing fee was calculated as follows:

The fee was $320.00 for estates or trusts under $250,000;
$385.00 for estates or trusts of at least $250,000 and less $500,000;
$485.00 for estates or trusts of at least $500,000 and less than $750,000;
$635.00 for estates or trusts of at least $750,000 and less $1,000,000;

And so on.

Los Angeles County Court Filing Fees



January 5, 2009

New FDIC Insurance Coverage and the Revocable Living Trust: To What Extent Are Your Bank Deposits Protected?

In October of 2008, the Federal Deposit Insurance Corporation (FDIC) raised the deposit insurance coverage provided by at qualifying banks from $100,000.00 to $250,000.00 per depositor. This increase in coverage is temporary and will expire in December 29, 2009 at which time the limit will return to the $100,000 amount. However, the increase will be permanent as to some retirement accounts.

FDIC is the insurance that protects your deposits in any given bank, up to the coverage amount in the event your bank fails.

The $250,000 limit applies separately to certain types of accounts held at the same institution.

  1. The sums of all accounts an individual owns at a bank that are in that individual's name alone are insured up to the $250,000 limit.
  2. Joint owners of accounts are insured up to $250,000 for each joint owner.
  3. The aggregate of certain types of retirement accounts and IRAs are insured up to $250,000.
  4. The $250,000 coverage for revocable living trusts (RLT) is applied to each beneficiary.

Scenario Coverage
An account or accounts in Husband's name alone $   250,000
An account or accounts in Wife's name alone $   250,000
An account or accounts Husband and Wife own jointly $   500,000
An account or accounts owned by Husband and Wife's RLT $1,000,000
Total $2,000,000

As you can see, coverage is increased and exposure to loss is diminished when deposits are spread over the different categories of coverage and the above example does not take into consideration IRA or retirement account insurance coverage.

Calculating the Revocable Living Trust FDIC Coverage*

FDIC coverage for Revocable Living Trusts is $250,000 per beneficiary. To determine the amount of coverage as to the Revocable Living Trust account, you will take the number of grantors multiplied by the number of beneficiaries and multiply that amount by the $250,000 coverage limit.

For a Revocable Living Trust with two joint Grantors (Husband and Wife) naming three beneficiaries (children), the coverage would be calculated as follows:

Joint Trust - Husband and Wife are Owners and neither is considered a beneficiary. There are three children beneficiaries. Owners times beneficiaries: Two owners times 3 beneficiaries times $250,000 is $1.5 million in insurance.

If the Husband and Wife have separate trusts, each one would become the beneficiary of the other's trust so the calculation would be a little different.

Separate Trusts - Husband and Wife are Owner's of each of the prospective trusts and not considered a beneficiary of their own trust. However, with separate trusts, each spouse becomes a beneficiary of the other's trust. And we still have the three children beneficiaries of both trusts: Owner times beneficiaries (4) times $250,000 is $1 million in insurance.  This is the coverage for each separate trust, for total coverage of $2 million.

Under the old law, a beneficiary of a Revocable Living Trust had to be a 'qualifying' beneficiary wherein a relationship must have existed between the owner and the beneficiary such as spouse, children, parents, grandparents, brothers or sisters.

Now a beneficiary qualifies as long the beneficiary is either an individual or a non-profit organization such as a charity.

*Where each account owner with combined revocable trust deposit balances of more than $1.25 million and more than five named beneficiaries, coverage is the greater of $1.25 million or the aggregate of all beneficiaries' proportional interests in the trust deposits, limited to $250,000 per beneficiary.