So, You’re the Trustee of an Estate…Now What?

An essential aspect of estate planning is the Trustee, who will be tasked to carry out wishes. This is such an important role that potential Trustees are usually asked if they would be willing to take on the responsibility before being named in a Trust. Occasionally, however, Trustees are surprised to find that they have been named. Regardless of how the role comes to you, the Trustor (sometimes called “Settlor,” “Grantor,” or “Trustmaker”) trusted you and believed you to be responsible. Selection as Trustee is an honor, but attorneys know that it can be quite an undertaking.

Governor Gavin Newsom Signs Sweeping Conservatorship Reform Bill

On September 30, 2021, Governor Gavin Newsom signed California AB 1194 amending numerous statutes pertaining to conservatorships.  The following are highlights:

Internet Posting of Fees of Licensed Professional Fiduciary:  On or before January 1, 2023, an individual licensed as a professional fiduciary (LPF) by the State of California, and who has an internet website, is required to post on their website a schedule or range of the LPF’s fees, including, but not limited to, the LPF’s hourly rate for services rendered.

Bringing Down the Hammer – California Appellate Court Upholds $1,000 Per Day Sanction For Failure To Timely File Accounting

As trusts and estates litigation counsel, we often have matters where a fiduciary, either as a trustee, conservator, personal representative, or agent under a power of attorney, fails to provide financial information when properly requested, or to provide an accounting if one is required under law.  The result is that the person seeking the accounting may be left with no alternative but to file a petition with the court for an order compelling the fiduciary to submit an accounting, most commonly by requesting that the accounting be filed within the court proceeding.

Frequently, the fiduciary will appear at the initial hearing on the petition and request additional time to submit the accounting.  In my experience, courts have been generous with such requests, granting a 60- to 90-day continuance to allow the fiduciary to prepare the accounting.  Usually, that is sufficient time – and should be – for a fiduciary to gather the information to prepare and submit an accounting within the additional time allowed by the court.  At this point, the fiduciary usually has been on notice for some time, first with the initial request for an accounting, then there is the additional time between the filing of the petition and the court hearing, and then, the additional 60-90 days requested at the hearing.  There should be a very good reason – maybe a flood? – for the court to grant a further extension of time.

Well, in the case of Conservatorship of Norma Farrant, published on August 2, 2021, in the Court of Appeal for the Second Appellate District, Division Six, the fiduciary’s claim of loss of records through a “flood” was not sufficient to cause the court to forego imposing a sanction of $121,000 for the fiduciary’s failure to file an accounting ordered by the court.  In November 2017, Diana Farrant, daughter of the conservatee Norma Farrant, filed a petition with the court requesting that the conservatee’s son, Duane Farrant, file an accounting of his transactions as agent under a power of attorney granted by Norma Farrant to her son in 2008.  Diana’s petition requested that Duane be ordered to account for the period September 2014 through January 2018.  At the hearing, at which Duane appeared, the court ordered him to do a “formal account” and set a due date of March 30, 2018.  In a minute order of July 10, 2018, the court noted that no accounting had been filed, and ordered Duane to appear in person or by video court call on October 16, 2018.  Duane did not appear, but was represented by counsel which, one should take note, was not sufficient for the court because the minute order directed Duane’s appearance, not appearance by counsel on his behalf.  The court imposed a new due date of December 14, 2018, and warned Duane’s counsel, “Now, make no mistake, Mr. Dickens, the hammer is coming down very hard if I don’t get a good accounting.  There are no more excuses.  There is no more delay . . . This is the last . . . continuance that he’s going to get to get this accounting filed . . .”

At the next hearing, January 29, 2019, the accounting still had not been prepared.  Duane’s counsel explained that his client was working diligently to get the information, but they had to subpoena records from the banks because there “was a flood” and a lot of Duane’s records were damaged.  Counsel for the conservator strenuously objected to any further continuances, to which the court replied that it had “heard about every excuse in the book as to why [the accounting] hasn’t’ been provided.”  The court then imposed a sanction of $1,000 per day until the accounting was filed.

On May 31, 2019, Duane filed an accounting that was woefully inadequate, failing to report all of the rental income received by Norma, and excluding her pension income.  Duane was granted additional time to December 20, 2019, file an amended accounting, which was further extended to January 30, 2020, at which time the court determined that Duane had failed to file an amended accounting.

In June 2020, the conservator filed an objection to the accounting Duane had initially filed.  In addition to surcharging Duane $63,448.90, the court ordered Duane to pay sanctions to his mother in the amount of $121,000 for the 121-day period between January 29, 2019, and May 31, 2019, when Duane filed his accounting.

The Court of Appeal upheld the trial court’s imposition of sanctions of $121,000.00, rejecting Duane’s argument that the maximum amount which the court could impose was $1,500.00 under Code of Civil Procedure section 177.5.  The court found that statute did not apply because it relates to sanctions payable to the court, and the sanctions ordered by the trial court were payable to Duane’s mother’s conservatorship estate.

The judge warned the fiduciary that the hammer would be coming down very hard if the fiduciary did not file the accounting.  It did. Very hard.

Is the Britney Spears Conservatorship “Toxic”?

Britney Spears says so.  After thirteen years of conservatorship, on June 23, 2021, Britney appeared remotely at her conservatorship hearing and relayed her emotional plea to the judge to terminate her conservatorship without the need for any further evaluation.

The June 23, 2021, Hearing: ”I’m [Not] A Slave 4 U”

At the hearing on June 23, 2021, and after years of relative silence, Britney expressed to the judge that she felt that the conservatorship was “abusive” and that she wanted her life back.  According to partial transcripts of the court proceeding, Britney stated that she wanted the ability to make her own personal decisions including the decision to get married and have children.  She also wanted control over her financial affairs.  At present, her father James Spears serves as co-conservator of the estate with Bessemer Trust, a financial institution.  According to the New York Times Presents: Framing Britney Spears documentary, Britney has always been opposed to the appointment of her father James Spears as conservator, but he has remained as conservator of her estate nonetheless.  According to Variety, even after Britney’s testimony on June 23, 2021, the court declined Britney’s renewed request to remove James Spears as her conservator of the estate.

Why is Britney Spears Under Conservatorship When it is not her “Prerogative”?

Fans and loyal supporters have long questioned why Britney is under conservatorship.  The #FreeBritney movement has been vocal about the restrictions that the conservatorship places on Britney’s civil liberties and has questioned whether this conservatorship is really in Britney’s best interests.  Conservatorships are designed to protect the most vulnerable members of our population from harm.  When thinking of persons who may require a conservatorship, most people probably envision older persons who may be struggling with memory issues or may be unable to adequately take care of themselves.  At forty years old, accomplished and talented pop superstar Britney Spears is not a typical conservatee.  After the initiation of the conservatorship, Britney released her album “Circus” which performed very well with multiple hit songs and had two residencies in Las Vegas.  Her conservatorship estate has been performing so well financially that in court filings discussed in the New York Times documentary, Britney’s prior co-conservator Andrew Wallet contended that the fees for his services as co-conservator should be increased as the conservatorship should be viewed as a “hybrid business model.”

The Probate Code has stringent requirements for the imposition of a conservatorship, including consideration of whether there are less restrictive alternatives available.   While it is unclear why the court determined that Britney initially needed a conservatorship, the court ultimately determined that Britney was unable to manage her own affairs and/or was susceptible to undue influence, and that a conservatorship of both her estate and person was the least restrictive option in order to protect her interests.

Next Steps – “Stronger Than Yesterday…”?

While Britney has clearly expressed her desire to terminate the conservatorship, termination of a conservatorship is a process.  Britney’s court-appointed counsel will first need to file a petition.  Under Probate Code section 1861(b), a petition to terminate a conservatorship “shall state facts showing that the conservatorship is no longer required.”  The petition to terminate the conservatorship could be opposed if others believe that the conservatorship remains necessary to protect Britney’s interests.  If anyone objects to the petition to terminate the conservatorship, then the court will have to set the matter for trial.  While Britney requested that the conservatorship be terminated without any further evaluation performed, it is unlikely that this will actually occur.  The court will likely require an evaluation to ensure that any issues which initially warranted the establishment of the conservatorship no longer exist.  What position will her conservators, family, friends, and doctors take? Will they too join the #FreeBritney movement?

But I’m Too Young to Have a Will!

Planning for the end of one’s life, or potential incapacity, is probably something an individual in their 20’s, 30’s, or even 40’s does not want to contemplate.  Even those in their later years might find it a difficult topic to discuss.  However, there are several important reasons why one should strongly consider having a Will prepared, and perhaps other estate planning documents, such as an Advance Health Care Directive or Durable Power of Attorney for Financial Management, despite their being a member of Generation X, Y, or Z.  These scenarios are based on personal experience with cases handled by me and which could have been avoided with a bit of planning.

Children.  If you have minor children, a Will is a tool that allows you to nominate a guardian of the person – the individual who will have the care, custody, and control of your child – and a guardian of the estate – the individual who will manage any funds your child may inherit from you or receive as a result of your death, such as life insurance benefits.  If both parents die simultaneously (the most common situation being an automobile accident), their loved ones are often so grief-stricken that they let their emotions override common sense.  If there is no nomination of a guardian by the parents, their surviving child or children could find themselves at the center of a bitter and contested guardianship proceeding.  Usually, this involves the family of one parent having a different view than the family of the other parent on who should raise the child.  Naturally, there are fears that there might be an additional loss if a child is going to live with the “in-law” rather than stay within the “core” family.

Parents can avoid this potential tug-of-war and provide much-needed guidance by giving thoughtful consideration as to whom would be best suited to take over the parenting of their child if both parents die while their child is a minor.  The individual might not even be a family member.  It could be their close friends with a child the same age as their child.  Who would facilitate continued contact with surviving family members? Who would have the same values as the parents? With whom would the child be most comfortable?  There are a number of considerations, but do not leave that to grief-stricken grandparents, aunts, or uncles.  Planning now could save emotional – and financial – toll in the future.

Ability to Choose.  One might think that they simply do not have enough assets to worry about who will receive those assets at their death.  Take, for example, a single person with no children who has saved money and has purchased a home.  That person is very close to one parent, but has long been estranged from the other parent.  If that person does not have a will, the laws of intestate succession will apply and the person’s estate will be divided between both parents, even the parent with whom the individual has had no relationship for many years.  Having a Will gives one the ability to choose who will receive an individual’s assets upon their death.

Incapacity Planning.  Having an Advance Health Care Directive or a Durable Power of Attorney enables one to designate their selected individual to make decisions when they are unable to do so.  Even college-bound adults in their teens should consider having such documents in the event of an unexpected medical event that might render them unable to give medical consent or make medical decisions.  Tragedies can occur and planning in advance could avoid unnecessary delay in medical decision-making.  Having such documents in place also can assist in making financial or other decisions if the individual is unable to make such decisions due to incapacity.  The planning can also avoid the time and expense associated with the establishment of a conservatorship proceeding.

These three documents – a Will, an Advance Health Care Directive, and a Durable Power of Attorney for Financial Management – should be considered as smart planning tools, whatever one’s age.  Proper planning now can avoid heartache and legal fees in the future.

Lest We Forget, Conservatees Have Personal Rights

Conservatorship proceedings are commenced for a variety of reasons, but the most common circumstance is when an elderly person requires assistance, either with their medical care, or their financial affairs, or both, and that individual does not have an alternative in place which would eliminate the need for a conservatorship.

The establishment of a conservatorship does not deprive a conservatee of all of their personal and legal rights.  Unless the court makes a specific determination otherwise, a conservatee retains the legal right to marry or to enter into a domestic partnership (Prob. Code, § 1900); to make a will (Prob. Code, § 1871(c)); to vote (Prob. Code, § 1910); and to make medical decisions (Prob. Code, § 2354(a)).

One of the legal rights often overlooked by a conservator is that the conservatee retains a number of specific personal rights.  Under Probate Code section 2351, a conservator has the care, custody, and control of the conservatee.  What does that entail?  The following aspects of a conservatee’s personal affairs are specifically identified as not being within the control of the conservator:  the right to receive visitors, telephone calls, and personal mail.  If a conservator wants to control those aspects of a conservatee’s personal life, a court order specifically granting such control to the conservator is required.

Yes, that’s right.  Absent a court order, a conservator has no authority to determine what visitors the conservatee may receive, who may have telephone calls with the conservatee, and what personal mail may be received by the conservatee.  Oftentimes, especially in the case of conservatorships involving significant family conflict, a conservator, even those who are licensed by the State of California as a licensed professional fiduciary, will arbitrarily make these decisions “on behalf of” the conservatee.  A conservator who is a sibling might say, “You can’t see Mom!” or “You can only call Dad between 1:00 p.m. and 2:00 p.m. on Sundays!” Greeting cards from the disfavored family member that are intended for the conservatee mysteriously disappear.

Unless a conservator has a specific order allowing the conservator to make such personal decisions on behalf of the conservatee, it is the conservatee who continues to have the right to determine what visitors, phone calls, and mail he or she shall receive.

These personal rights were recently considered by the Fourth District Court of Appeal in Conservatorship of Navarrete (2020) 58 Cal.App.5th 1018.  In Navarrete, the mother and older brother of a 33-year old woman with cerebral palsy filed competing petitions seeking appointment as conservator of the person. As the court commented, “Lurking behind this dispute…” was an accusation that the proposed conservatee’s father had sexually assaulted and raped her, and that she feared her father.  The court ultimately appointed mother as conservator of the person and, after further hearings, granted the father visitation and ordered joint counseling between father and the conservatee.  The conservatee, her attorney, and mother all objected to the court-ordered visitation and counseling.

The trial court stated that, in ordering visitation, its job was to make an assessment from the standpoint of what would be in the conservatee’s best interest.  The trial judge commented that, if his adult son told him he never wanted to see him again, it would be “too horrible to imagine, but he would have the right to say so.”  The trial judge admitted that he could not conclude whether the sexual abuse had actually taken place, but also expressed concern about efforts of mother to alienate father from the conservatee.

Conservatee appealed the visitation order arguing that the court exceeded its authority in ordering her to attend joint therapy sessions with her father, that such order violated her state and federal constitutional rights, and that, even if the visitation order was permissible, the trial court abused its discretion to determine forced visitation was in her best interest.

The appellate court reviewed Probate Code section 2351 addressing a conservatee’s personal rights and stated that such rights were so important that the Legislature gave the court the power to intervene to ensure that a conservatee may exercise them. The court stated that, if the conservator was interfering with the conservatee’s decision to receive visitors, the court may order the conservator to “stand aside” and let the conservatee make the decision for themselves.  Such determination is to be made based on what is in the conservatee’s best interest.

The appellate court acknowledged that the Navarrete case did not fit squarely into the provisions of Probate Code section 2351 in that the case involved a court order requiring the conservatee to receive a visitor against the conservatee’s express will. The court commented upon the court’s involvement in visitation between a minor child and a parent, and that there was no case under the Probate Code involving forced visitation between an adult child and a parent.  The court stated that an adult’s disability does not put them in the legal position of a minor.  The appellate court also noted that, in the context of family law orders, the family court did not retain the right to order visitation between adult disabled children and their parent, stating that visitation is a form of “custody” and, under the Family Code, the court’s authority did not extend to a child who had reached the age of majority.  The appellate court determined that, because the conservatee was an adult, notwithstanding her disability, the trial court overstepped its role by intervening in the dispute between the conservatee and her father based on the court’s own judgment as to the conservatee’s best interest. Because the appellate court determined that the court exceeded its authority in ordering forced visitation, it did not reach the other questions on appeal.

It is all too easy for a conservator to substitute his or her determination for that of a conservatee as to what visitors a conservatee may receive, who may telephone, and what mail may be distributed.  The conservator may believe that these personal rights are not as important as the right to marry, make a will, or make medical decisions.  As to those latter rights, a conservator will bring to the court’s attention by the appropriate petition any concerns about the conservatee’s ability to make such decisions.  But, personal rights are very important as they most impact a conservatee’s daily life.  A conservatee may express that he or she wishes to receive a certain visitor and the conservator may disagree that such a visit is appropriate.  If that is the case, the conservator’s authority does not extend to prohibiting visits from that individual.  The conservator who does so exceeds his or her statutory authority.  Instead, the course of action open to the conservator is to petition the court for specific orders relating to the conservatee’s personal rights and whether the court should intervene in the exercise of those rights.

Election Results – What Could They Mean to You? Tax Updates for a Biden Presidency

2020 has been a year to remember for so many reasons: a global pandemic, the race to a vaccine, and an election with record-breaking voter turnout.

President-elect Joe Biden and his running mate Vice President-elect Kamala Harris campaigned on a platform of detailed proposals, including changes to certain areas of tax law. Here are some reforms that we might see during a Biden presidency, and the effects those changes might have:

Eliminating the step-up in tax basis

Biden has proposed that the current step-up in tax basis upon death be eliminated. This means that a beneficiary would take the decedent’s basis.  Here’s an example of how the step-up works now, and how it would change under the new proposal.

Let’s say that my neighbor purchased her San Francisco home in 1949 for a whopping $50,000, and the property has appreciated throughout her long life. If she decides to sell her house prior to passing away, the $50,000 purchase price would get a full step-up to the current value of $1,050,000, and that would incur $1,000,000 in long-term capital gains.

However, if she decides to bequeath the house to her children and they sell it after her death for the same amount ($1,050,000), they would not need to pay any capital gains tax because the basis is the fair market value (selling price).  This would be a huge tax break for my neighbor’s children. (For the purposes of this article, this example excludes the $250,000 homeowner exemption.)

Biden proposes getting rid of this exemption, so in our example, the $1,000,000 in capital gains tax would need to be paid regardless of whether the house was sold before or after my neighbor’s death.  It would still be possible to defer the tax by holding the property as a rental.  However, Proposition 19 (passed in the 2020 California elections) would reassess this property as fair market value increasing the property tax from around $600 per year to around $15,000 per year.

Reducing the exemption

Currently the estate tax exemption is $11,580,000 per person and is set to increase to $11,700,000 in 2021.  The exemption is scheduled to “sunset” in 2026 and decrease to around $6,000,00 per person.  This means that for 2020 up to $11,580,000 (or $23,160,000 if  married) can be passed to beneficiaries (reducing this amount by taking into account lifetime gifts) without paying any estate taxes for estates under this amount.  Currently 99.8% of Americans fall under the exemption.

Biden campaigned on lowering the exemption to around $3,000,000 per person, which would mean that beneficiaries of Americans with estates of $3 million ($6 million for couples) could face paying estate tax on their inheritances.

These proposals are based on Biden’s campaign promises and interviews. We will continue to update you as the Biden presidency progresses. If you’re interested in discussing your options, please contact us here at Weintraub Tobin.

The Split Roll Initiative on the November 2020 Ballot

In 1978 California voters approved Proposition 13, a landmark measure that set—and has kept—property taxes at a low rate. This November’s ballot includes a proposition known as the “split roll” initiative that would make significant changes to Proposition 13.

Currently, California treats commercial and residential properties almost identically when it comes to property taxes. A homeowner and a business owner pay taxes on the value of the property based on its fair market value when it was acquired, with increases in property taxes limited to a maximum of 2% per year. This keeps property taxes low for both homeowners and businesses, especially for those who bought property a long time ago in now-pricey regions like the Bay Area. The Split Roll initiative proposes that California treat commercial property differently than residential properties. Under the proposal, businesses would have their properties reassessed to market values every three years.  Nothing would change for residential properties and the ballot measure preserves fundamental Prop 13 protections for homeowners and residential rental properties.

For many cities, the distinctions between residential and commercial can become blurred, especially with mixed-use properties such as buildings that have retail on the first floor and residential units on other floors.  For these blended properties, the Split Roll initiative ensures that only the portion of the property that is used for commercial and industrial purposes would be subject to reassessment.  The measure even provides an exclusion from reassessment for the commercial share of mixed-use property provided seventy-five percent (75%) or more of the property, by square footage or value, is residential.

Backers of the initiative, led by a coalition of civil rights groups and community organizations, argue that if the Split Roll initiative passes, the state will have more funding for cities, counties, special districts, schools, and community colleges. Those who oppose the Split Roll initiative argue that the measure would have indirect effects on the state’s economy by increasing taxes paid by many businesses, thereby increasing their costs of operating in California relative to other states. This would influence some businesses’ decisions about whether to expand in or move out of California. The initiative is included on the November 2020 ballot.

Estate Planning 101: Back to Basics

The COVID-19 pandemic has focused us all on necessities and on trying to prepare for an uncertain future. This article outlines why an estate plan is one of those necessities.

I Don’t Have an Estate Plan; What Would Happen if I Died?

It’s important to have an estate plan for several reasons.  During your life, you want to ensure that you control your assets and that if you are ever incapacitated, your estate is controlled by a trustee that you have selected. When you pass away, you want to be sure that your assets are distributed to your beneficiaries in accordance with your wishes. This is especially important if you have charitable bequests, young children, or want to distribute specific assets to certain beneficiaries or in specific ways such as by age or in trust.

The Tale of Choupette the Cat and Other Common Issues in Trust and Estate Litigation

When Karl Lagerfeld passed away in February of 2019 in France, many speculated that his cat, Choupette, was well provided for as part of his estimated $150 million estate. This pampered feline was much loved by Mr. Lagerfeld during his life, and appeared in photoshoots and featured in many high-end fashion magazines. However, over a year after Mr. Lagerfeld’s death, certain media outlets have reported that the administrator of Mr. Lagerfeld’s estate has “disappeared.” Based on these reports, many question whether Choupette will ever be able to dig her claws into her alleged inheritance.

In fact, the failure of a fiduciary to expediently administer an estate and to provide information to beneficiaries is a frequent source of trust and estate litigation. While in California the laws relating to inheritance are different than in France, it is common for beneficiaries to question the actions of a fiduciary managing the estate, particularly when a substantial period of time has elapsed, no information has been provided, and no distributions have been made.

If Mr. Lagerfeld’s estate was being administered under California law, several steps should have already been taken in the administration of the estate. If Mr. Lagerfeld left a will, the custodian of the will would have been required to submit the original will to the superior court of the county in which the estate of Mr. Lagerfeld may be administered. A petition for probate would have been filed to admit the will for probate and also to appoint a personal representative to administer Mr. Lagerfeld’s estate. A noticed hearing would have been held to admit the will and appoint a personal representative.

After the appointment of a personal representative, an inventory and appraisal is required to be filed. If the estate is not in a condition to be distributed after one year in an estate for which a federal estate tax return is not required, or after eighteen months in an estate for which a federal estate tax return is required, a status report is required to be filed. A petition for final distribution would ultimately be filed which typically includes a full accounting of the personal representative’s actions.

Depending on the nature of the estate, the personal representative may have to sell real property, address complex tax issues, engage in litigation, manage business interests, and/or deal with substantial creditor claims. In the event that the fiduciary has violated fiduciary obligations in failing to provide information or otherwise, legal action can be taken to compel information and to redress breaches of fiduciary obligations. However, it may simply be that the size and complexity of the administration requires additional time to complete. In either scenario, it is important for beneficiaries to remain reasonably informed regarding the estate administration in order to adequately protect their rights.