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.

Telephonic Court Appearances - why do lawyers shy away from them?

In an article published in the February 2016 edition of the Contra Costa Lawyer magazine, civil litigation and elder law attorney Konstantine "Kosta" Demiris provides an analysis on telephonic court appearances.  The article provides insight into the legislative history behind promoting court call appearances, the factors lawyers consider in making such appearances, as well as the pros and cons of making such remote appearances.

You may read the entire article by clicking on the link below:

http://cclawyer.cccba.org/2016/02/telephonic-appearances-and-your-practice/

Trust Accountings: Allocations at Death, Principal and Income Designations – Does any of it Really Matter?

Many trustees are aware that there are statutory requirements to provide beneficiaries with annual accountings unless the trust instrument states otherwise.  However, many trust accountings fail to provide proper designations for how assets are allocated and also fail to account for principal and income, instead just clumping everything together in the accounting.

However, principal and income designations often do matter and can be critical.  Take for example the situation of a standard A/B trust after the death of a spouse.  In most cases the trust is split into an “A” trust (“Survivor’s Trust”) and a “B” trust (“Bypass Trust”).  The “B” trust is normally irrevocable whereas the “A” trust is revocable by the surviving spouse.  Also, the “A” trust can often be spent however the surviving spouse wishes whereas the “B” trust may not. 

In many cases an unknowing surviving spouse just spends trust money without properly allocating assets to the “A” and “B” trusts or separating the assets between the two trusts.  So take the hypothetical where there is a $1 million trust all in a single bank account bearing interest at 1% annually and it is to be split between an “A” trust and “B” trust with $500,000 in each at the death of the first spouse.  Let’s also say this is a second marriage and each spouse has three children from their first marriage.  Each subtrust will generate $5,000/year in annual income.  The surviving spouse in this hypothetical is entitled to income from the irrevocable “B” trust of $5,000 a year.  However, for purposes of this hypothetical the surviving spouse is not allowed to invade the principal of the “B” trust until the “A” trust is exhausted.  What this means is that if the surviving spouse needs $50,000/year to survive, then the surviving spouse must first spend such funds from the “A” trust.  What will happen is that the “B” trust will stay at $500,000, but the “A” trust will become smaller and smaller over time.  If the two subtrusts are not properly accounted for then it is possible that both subtrusts are reduced by $20,000 in principal each.  This “mistake” would result in the beneficiaries of the “A” trust getting $20,000 more than they should and the beneficiaries of the “B” trust getting $20,000 less.

Keep in mind that not all trusts are the same and the above is merely a hypothetical example.  If you feel that your trust was not properly allocated or that distributions of income and principal were not done properly, then feel free to contact the attorneys at Demiris & Moore for a free consultation.

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

Can a No-contest Clause in a California Trust affect a separate Will, Power of Attorney, or group of contracts and deeds? The answer may shock you - YES it can.

 

                Many people believe that a “no contest clause” is limited to the legal instrument that it is written into.  For example, if there is a trust and that trust has a “no contest clause,” then a person may believe that only the trust is affected by the “no contest clause.”  In reality other instruments, such as a will, powers of attorney, or even contracts may be affected by the “no contest clause” in the trust – and vice versa, depending on the language of the "no contest clause" and the other instrument or classes of instruments identified.

                Under California Trust Law a “no contest clause” is defined as a provision in an otherwise valid legal instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.  California Law in this instance defines a “pleading” as a petition, complaint, cross-complaint, objection, answer, response, or claim.  A “protected instrument” is defined in CA Trust Law as either 1) an instrument that contains the “no contest clause” or 2) an instrument that is in existence on the date that the instrument containing the “no contest clause” is executed and is expressly identified in the “no contest clause,” either individually or as part of an identifiable class of instruments, as being governed by the “no contest clause.”  In other words, a “no contest clause” contained in a trust, could just affect the trust, but if it identifies a separate instrument (will, power of attorney, contract) in existence on the date the trust is created, then it could affect the other instrument(s).  If the “no contest clause” refers to an “identifiable class of instruments” such as “estate planning documents” or “contracts” or “deeds” then it could likely also affect those identifiable classes of legal instruments.