Probate Code section 859 double damages may be punitive in nature but are not "punitive damages"

In the recent case of Hill v. Superior Court, the Court of Appeals held that the Probate Code section 859 provision that authorizes courts to award double damages are not punitive or exemplary damages as the term is defined by Code of Civil Procedure section 3294.   That Code of Civil Procedure section is a section that makes exceptions to awards against a decedent's successor-in-interest.  The Court of Appeal pointed out that each side had only one case on point to argue in support of each side's respective position.  The parties involved a petition by children who were co-executors against their stepfather for Probate Code section 859 damages.  They were arguing that the stepfather wrongfully and in bad faith concealed assets belonging to the decedent's estate.  The stepfather argued that CCP 3294 is an exception that bars double damages as "punitive damages."  At the trial court level the stepfather prevailed on his argument, but was overturned on appeal as the double damages were determined not to be "punitive damages."

For those who are not probate law practitioners, under Probate Code section 859, if a person dies and that person's executor, trustee, beneficiary, or heir was to wrongfully and in bad-faith take or conceal money from the person who died (or was to take or conceal money from that person's trust or estate), then Probate Code section 859 allows for a potential award of double damages, attorney's fees and costs.  This ruling made the distinction that such double damages could possibly be punitive in nature or may have a punitive effect but they are not "punitive damages" and thus do not fall within the CCP 3294 exception.  A full copy of the Court of Appeal decisions can be found by clicking on the link below:

http://scocal.stanford.edu/opinion/hill-v-superior-court-27801

Notification by trustee - Legal Requirements

Many trustees are likely familiar with the duty to send out a notification by trustee under California Probate Code section 16061.7 upon a revocable trust becoming irrevocable or a change in trustee to an irrevocable trust.  However, some trustees do it carelessly without following the strict requirements of statute.  The consequences of failing to properly send out a notification by trustee  may result (should result) in the 120-day notice period not coming into play.  

A copy of the statute can be found by clicking on the link below: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=prob&group=16001-17000&file=16060-16069

The statute requires specific terms be complied with under Probate Code section 16061.7(g).  Otherwise, failure to comply with the terms presumably makes the notice defective under the statute.  For example,  the statute states all of the following shall be provided in the notice:

(1) The identity of the settlor or settlors of the trust and the date of execution of the trust instrument.

(2) The name, mailing address and telephone number of each trustee of the trust.

(3) The address of the physical location where the principal place of administration of the trust is located, pursuant to Section 17002.

(4) Any additional information that may be expressly required by the terms of the trust instrument.

(5) A notification that the recipient is entitled, upon reasonable request to the trustee, to receive from the trustee a true and complete copy of the terms of the trust.

This means that failure to include a trustee's phone number, failure to provide the proper address of the physical location of the trust administration under Probate Code section 17002, and any of the other requirements could force the trustee to start the process all over.  Also problems can arise in regards to the "terms of the trust."   The "terms of the trust" are in part defined by statute and in part undefined.  Such "terms of the trust" can actually include more than just the trust document itself.  Many people are not aware of the legal significance of this and the fact that failure to provide the "terms of the trust" violates the mandatory notice provisions of Probate Code section 16061.7.

Furthermore, under Probate Code section 16061.7(h) a specific statutory warning must be provided in certain circumstances. The warning must be set out in a separate paragraph in not less than 10-point boldface type, or a reasonable equivalent, that states:

"You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is mailed or personally delivered to you during that 120-day period, whichever is later."

Trustees and beneficiaries with questions concerning such matters should hire experienced counsel well-versed in this specific area of practice, like the attorneys at Demiris & Moore.

Creditor Cannot Force an Assignment Order Against a Beneficiary who does not Consent

FirstMerit Bank N.A. v. Diana L. Reese

CA Fourth Appellate District, Division Two

Filed November 19, 2015

                In this recent case, the California Court of Appeals held that a creditor cannot sue to obtain an order assigning a beneficiary’s right to inherit from a trust to the creditor when the beneficiary does not consent to such an assignment.  In the case at hand, the creditor was owed money (about $150,000) from the Defendant.  The Defendant was alleged to be the beneficiary of a trust that provided distributions of principal and income of $11,000/month from one trust and monthly distributions of principal and income of $10,498.78.  It does not appear the Defendant ever executed an assignment of her interest.  The trust was a spendthrift trust.

                The creditor wished to tap into the trust distributions and have the trust assign the distributions directly to the creditor.  However, the Court of Appeals held that under CA law an assignment order must include an order that assigns a right to payment outright and not simply directing a judgment debtor to make payment of funds that the judgment debtor may receive from a third party (trust).  Those funds are already able to be levied upon pursuant to a writ of possession, one they fall into the hands of the judgment debtor.  Simply put, although the Defendant owes money – the creditor can only collect from the Defendant and not from the trust (spendthrift).  Plaintiff tried to get around this by arguing that it is permitted to seek an order requiring Defendant to turn over funds already distributed to her.  The Court of Appeals pointed out such argument misses the point: once the trustees have distributed the funds they are not subject to an assignment order, but can “be levied upon pursuant to a writ of possession once they fall into the hands of the judgment debtor.”

http://cases.justia.com/california/court-of-appeal/2015-e061480.pdf?ts=1447974028

Recently Court of Appeals Case Decision finds that Specific Trust Instructions Authorize Trustee to Use Trust Funds in Defending Terms of the Trust During a Trust Contest

Doolittle v. Exchange Bank

In a matter filed for publication on October 20, 2015, a California Court of Appeal held that a trustee is authorized to use trust funds to defend a trust (and pay agents and professionals who may be required to defend the trust at their going rates) when instructed in writing by a trustee to do so even during an action to contest the validity of the trust.  Unlike past cases limiting a trustee’s ability to use trust funds to defend a contest in Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221 and Terry v. Conlan (2005) 131 Cal.App.4th 1445, the case at issue had an explicit directive to the trustee to defend claims challenging the validity of the amendment and claims for financial elder abuse (against a beneficiary) at the trust’s expense. 

This case will be helpful to estate planning attorneys and potential clients to review as it provides heuristic guidelines on how to draft a trust and how not to draft a trust. 

 

California Attorney/Trustee Surcharged for Excessive Fees Upheld on Appeal

In the Conservatorship of the Person and Estate of Lester Moore

Friend v. Salzwedel

William Salzwedel, a California licensed attorney, had his attorney fees/trustee fees and costs surcharged by $96,077.14.  In the decision, the Second Appellate District Court of Appeals upheld the trial court’s ruling, which held that Mr. Salzwedel put his own financial interests ahead of the interests of his client, an elderly person suffering from dementia.

                Mr. Salzwedel was hired by Lester Moore, an elderly man who was subject to a conservatorship petition against him.  Mr. Moore was found by his doctor’s to have impaired capacity (he was previously determined by his treating physicians to suffer from dementia and lacked the ability to handle his affairs).  During the conservatorship proceedings Mr. Salzwedel then amended Mr. Moore’s estate plan by having Mr. Moore modify his trust to name Mr. Salzwedel as the temporary successor trustee; obtained Mr. Moore’s resignation as trustee; and created a durable power of attorney appointing Mr. Salzwedel as Mr. Moore’s agent under the power of attorney also known as his attorney-in-fact.  Mr. Moore’s new estate planning disinherited his family in favor of what the Court determined to be one of Mr. Salzwedel’s “allies.”  During his tenure as trustee, Mr. Salzwedel billed at his attorney rate.  His total fees were $148,015.11.

                The billing matters were brought before the Court by Mr. Salzwedel who filed a petition to settle his accounting that were objected to by the temporary conservator.  The trial court ruled before the evidentiary hearing that the fees ($148,015.11) were disapproved absent a showing that the services benefitted Mr. Moore in the amounts charged and a showing that Mr. Moore had the capacity to contract for and approve the fees when the services were rendered.  Mr. Salzwedel used a “spare-no-expense strategy,” which the Court of Appeals stated calls for close scrutiny on questions of reasonableness, proportionality, and trust benefit and that where the trust is not benefited by the litigation or does not stand to be benefitted if the trustee succeeds, there is no basis for the recovery of expenses out of the trust assets.

                Of the fees, $70,044.99 were attorney fees/trustee fees, $25,015.13 were medical expert fees (part for a “celebrity psychiatrist” who didn’t even render a written report or testify), and $1,017.02 were costs.

Konstantine “Kosta” Demiris obtains favorable decision for trustee/beneficiary in million dollar litigation involving claims of undue influence and breach of trust.

 

In re: the Cooper Living Trust;

Alameda County Superior Court Case No. RP 13699706

Date Decision Rendered: July 21, 2015

Date Decision Became Final: September 21, 2015

 

Summary

After nearly two years of litigation, Konstantine “Kosta” Demiris obtained a trial verdict denying the relief requested by Suzi and Joseph Cooper against his client, trustee/beneficiary Stefano Cooper to 1) invalidate the First Amendment to the Cooper Living Trust (“Trust”) as a result of alleged undue influence to return nearly $1 million in current assets and 2) for an additional $255,000 to be returned by Stefano as trustee for improper distributions and allocations.  The Court instead ordered that $66k – a fraction of the demand made - be returned to the subtrust that named the three siblings as equal beneficiaries.

 

Factual Background

Claim of Undue Influence to Invalidate Subtrust

In fall of 2013, Suzi Cooper and Joseph Cooper sued their brother Stefano Cooper on the 119th day after receiving a 120-day notification by trustee from him as required by law under Probate Code section 16061.7 concerning the Trust becoming irrevocable.  Of great import was the fact the Survivor’s subtrust portion of the trust (the mother’s portion) became irrevocable upon the mother’s death and changed the beneficiary designations from all siblings as equal beneficiaries to name Stefano as the 100% beneficiary.  This change occurred about a month before the mother of the beneficiaries and co-settlor of the Trust died.  She had been suffering from cancer.  The change resulted in about $750,000 of assets at date of allocation being allocated to Stefano instead of equally to the siblings as the trust had previously required.  The change also named Stefano as trustee of the subtrust, which previously named the siblings in succession and had no mention of Stefano as successor trustee.   By the trial date in summer of 2015, the subtrust assets had nearly doubled in value to $1.5 million.

 

Claim of Improper Distributions and Allocations of Trust Funds

Suzi and Joseph also sued their brother for improper distributions and allocations made by their mother 5-years after the date of their father’s 2008 death in 2013.  The assets consisted of real property appraised at around $750k and various accounts of about the same value for a total of about $1.5 million in 2008 and somewhat the same in 2013 (although the real property’s present value has skyrocketed with the housing bubble to nearly double).  The mother did not make allocations at date of death, but instead did so after hiring her attorney to change the Trust.  She allocated the home to her subtrust and the assets to the bypass trust.  She used the bypass trust’s liquid assets to pay for her health, education, support, and maintenance or (“HEMS”) needs during her life after her husband’s death, which lasted for about 5-years and resulted in about $255,000 being spent.  The mother (an Italian immigrant with a 3rd grade level of education, who was a housewife of a successful American and who had no idea about trust administrations) never accounted to the beneficiaries although she had a technical duty to render annual accountings for the bypass trust under the terms of the Trust.  Upon review of the allocations made it appeared about $133k was improperly allocated to one subtrust (Stefano), which required about $66.5k being returned to the other subtrust (all three siblings).

 

After substantial discovery involving subpoenas of medical records and financial records; written interrogatories, requests for admission, and for production of documents; and depositions of the estate planning attorney, the mother’s neighbors and friends; and perhaps most importantly - the depositions of the siblings - the claim for undue influence to invalidate the amendment to the Trust was affirmatively dismissed by the siblings.  However, the siblings continued in pursuit of the return of $255,000 to their subtrust arguing their mother failed to account for those funds and should be held liable through Stefano for her technical breach of trust and the matter went to trial.  Although a confidential mediated offer that was reasonable was made to the siblings and left open they refused to accept it.  Kosta Demiris notified opposing counsel that he believed, at most, the Court would award the siblings $66k, the actual number that appeared to be the difference in proper allocations under the Trust.  Konstantine Demiris communicated a simple cost-benefit analysis to the opposing parties, which showed that trial on such a matter made no sense and should be resolved informally, but the siblings were intent on “having their day in court.”

 

The Court, in its written trial decision denied the $255,000 claim and instead issued an order for the return of $66k to the bypass trust (Stefano is a 1/3 beneficiary of that subtrust) as a result of a technical miscalculation on the part of the mother in making the allocations – the expected decision - a fraction of the siblings’ demand. 


The decision became final on September 21, 2015 (September 19, 2015 is technically 60-days but falls on a Saturday sending the final date to the following Monday), 60-days after the Court’s order was issued and notice of the decision was sent to the parties.

Konstantine "Kosta" Demiris speaks at CCCBA Law Student Mixer at John F. Kennedy University College of Law

On August 20, 2015, Konstantine "Kosta" Demiris was invited by Eliza Gryko to speak at the Contra Costa County Bar Association ("CCCBA") Law Student Mixer at John F. Kennedy University College of Law in Pleasant Hill, CA.  Eliza Gryko is the co-section leader of the CCCBA's Student Section, in addition to being a registered nurse, professionally licensed California fiduciary, and 2016 JD candidate.

The topics discussed were networking and mentoring.  Kosta's speech focused on how networking and mentoring are necessary elements in the development of a lawyer.  He used real-life examples involving sports and, amongst other things, Steve Urkel and Laura Winslow.   Kosta discussed the need for law students who are aspiring lawyers to adapt to the legal world and reach out to fellow students, lawyers, and other professionals in all arenas.  He stressed the need to sacrifice and be willing to give, even when there doesn't appear to be any immediate reward in sight.  

Kosta's speech was part autobiographical, discussing his travails from working as a deputy county counsel and practicing an array of legal areas, to finding his niche and becoming a recognized member of the Contra Costa County legal community; a business partner of a Bay Area litigation firm handling will, trust, conservatorship and general civil litigation; and his service on various prestigious boards including the Elder Law Section, as President of the Barristers Section, and as a delegate representing the CCCBA in the Conference of California Bar Associations.

Kosta discussed his fortune to work along some of the great attorneys and Judges in Contra Costa County, well-respected members of the community, and hard-working people who have helped him by sharing something incredibly valuable and priceless - their own personal experiences.  Kosta's speech concluded with an acknowledgment of the wisdom of the famous Greek storyteller, fabulist, and slave, Aesop, who many revere today and hold in high esteem.  Kosta's speech followed that of Cole Peters, Esq., a personal injury and worker's compensation attorney who shared his personal experiences in transitioning from being a law student to a lawyer in private practice.

Konstantine "Kosta" Demiris Successfully Obtains Court Order Invalidating Trust, Powers of Attorney, Advance Health Care Directive, and Monetary Settlement for Plaintiffs in Case Involving Elder Abuse

Sacramento County Superior Court Case #34-2013-00148491-PR-TR-FRC  Heston v. Heston/The matter of the Heston Trust

In this case, Walnut Creek trust lawyer and elder abuse litigation lawyer, Konstantine "Kosta" Demiris, represented the Plaintiffs, two of the surviving children of the deceased Barbara J. Heston, who filed suit against their brother Paul Heston and his wife Janet Heston.  After about two-years of elder abuse litigation, trust litigation, and litigation involving the purported durable power of attorney and advance health care directive of Barbara J. Heston, Plaintiffs prevailed by court order on July 15, 2015 invalidating the trust, general transfer of property to the trust, power of attorney, and advance health care directive, they also obtained a monetary settlement.

Factual Summary

Medical records and depositions of Barbara Heston’s treating physician and treating psychiatrist revealed that Barbara suffered from Alzheimer’s dementia, physiological changes to her brain, and was determined during the relevant periods before, during, and after execution of the purported trust and deed to real property to lack the required legal mental capacity to execute the legal documents and legal instruments.

The underlying civil complaint alleged elder abuse, including financial elder abuse, isolation, and abandonment.   In the trust petition, Plaintiffs petitioned the Court to invalidate Barbara J. Heston’s purported trust, general transfer of property to trust, and deed transfer of her home which disinherited her church, children, and all her grandchildren to give everything she owned to Paul.  The petitions to invalidate the probate power of attorney and advance health care directive alleged that the procurement of the power of attorney and advance health care directive were improper as Barbara lacked capacity and was unduly influenced to execute those instruments.

A special thank you from Derek M. to Kosta Demiris

I am writing this recommendation in regards to Mr. Kosta Demiris who represented my wife in a civil litigation case recently involving the settlement of her father’s estate.  Over the past 9+ months Mr. Demiris has been the consummate professional, hardworking, dedicated, and most importantly has his client’s best interest at heart.  Mr. Demiris controlled demeanor, confidence, and his wealth of legal knowledge regarding our case is to be commended. His strategy with our case was spot on and there is no doubt the very positive outcome we received would not have been possible without the formidable talents of Mr. Kostas Demiris.

With that said, I highly recommend Mr.Demiris. If you are looking for legal counsel to represent you and your best interests there is no better attorney than Mr. Demiris.

- Derek M.