Category Archives: Uncategorized

2014 Developments in Trusts and Estates

By | Uncategorized | No Comments

New State Laws

No Need to Go on a Cruise to Get Married by the Ship’s Captain

     City clerks of charter cities are now able to perform marriage ceremonies. (Family Code section 400.1)

New Tax Cases

Better Late Than Never, But Never Late is Better

     All too often, the surviving spouse fails to divide the trust into subtrusts (e.g., a QTIP Trust and an Exemption/Bypass Trust) on the death of the deceased spouse. In Letter Ruling 201429009, the IRS reviewed a situation where, long after her husband’s death, the widow went to a new lawyer who advised her to divide the trust and fund the new subtrusts. However, before she could complete this, the widow died. The IRS ruled that the portion that should have been allocated to the Exemption Trust would be treated as if the process had been completed: “Corrective measures were immediately taken during [the widow’s] life and continued after [her] death to properly allocate assets . . . . Through a forensic review of the historical financial records, [the widow] was able to ascertain and track the assets which should have been allocated to the [Exemption] Trust . . . . It is further represented that distributions of principal made to [the widow] were from sufficient funds allocated to the Survivor’s Trust and no principal distributions were made from the [Exemption] Trust.”

Same-Sex Marriages and the IRS

     In response to the widespread recognition of same-sex marriages, the IRS stated that the terms “marriage” and “spouse” are “gender-neutral” and that it would recognize the validity of same-sex marriages regardless of whether or not the taxpayers’ state of residence recognizes the marriage. (Rev.Rul. 2013-17.)

My Dog Ate My Tax Return is Not an Excuse

Consistent with prior cases in California, the Court of Appeals held that reliance on expert advice does not constitute reasonable cause (and thus eliminate penalties) for failure to timely file an estate tax return. (Knappe v. U.S., 713 F.3d 1164 (9th Cir. 2013.)

The Bigger They Are The Harder They Fall

The IRS is asserting a gift tax deficiency against Sumner Redstone (with an estimated net worth of $6.2 billion) in connection with the settlement in 1972 of a lawsuit among his family members. That’s over 40 years ago. Think you can get rid of your financial records after 3 years? Think again. (Sumner Redstone, U.S. Tax Court case no. 8097-13.)

Back to the Future – Not

As part of his proposed budget, President Obama will ask Congress to roll back estate, gift and generation-skipping transfer tax rates and exemptions to 2009 levels. Specifically, he proposes a 45% top rate (it’s currently 40%) and exemptions of $3.5 million for estate and generation-skipping transfer taxes and $1 million for gift tax (it’s currently $5.43 million for all three taxes). President Obama will also propose eliminating “Crummey Trusts.” Instead of being able to shield up to $14,000 of gifts in trust per beneficiary each year, transfers to a trust with multiple beneficiaries would only be allowed a combined $50,000 exemption. Left untouched would be outright gifts and transfers to a trust with a single beneficiary.

Probate Procedure

By | Uncategorized | No Comments

The following article was published in the February 2014 issue of Los Angeles Lawyer. (The footnotes have been removed for ease of reading).

A Primer to Notice Requirements in Probate Court

If one were to look at Probate Code section 1001 and stop there, it would be easy to assume that the same rules that govern when, how and to whom notice is given in civil cases would apply across the board to probate matters. Such an assumption would be wrong, of course. Although Probate Code section 1001 states that the rules that govern civil actions apply “except to the extent [the probate code] provides applicable rules,” the exception is big enough to drive a truck through. There are numerous statutes that cover probate procedure in general, with other rules specifically tailored to decedent’s estates, trust proceedings, and conservatorships and guardianships.

Decedent’s Estates

The administration of a decedent’s estate begins with the filing of a petition for either appointment of a personal representative, the probate of a decedent’s will, or both, with the petitioner required to publish and serve notice of the hearing. Publication must begin at least 15 days prior to the hearing, with a minimum of three publications, and at least five days separating the first publication from the last (not counting the publication dates).

Service of the notice of hearing must be made at least 15 days before the hearing on “each heir of the decedent, so far as known to or reasonably ascertainable by the petitioner” and “[e]ach devisee, executor, and alternate executor named in any will being offered for probate . . . .” Service on all heirs is critical; failure to do so results in a void judgment that can be collaterally attacked at any time. Moreover, it is the prerogative of the court, and not the personal representative, to ultimately decide who is and who is not an heir, so that if the personal representative fails to give notice to someone the court later decides was entitled to notice, the judgment will be void.

In addition to notifying heirs and devises, if, with certain exceptions, the will involves the creation of a charitable trust, the California Attorney General’s office must also be given notice. Additional notice is required if a foreign citizen is involved, either as the decedent or as an heir. Specifically, notice of administration of an estate is to be given to “the recognized diplomatic or consular officer of the foreign country maintaining an office in the United States” if “a citizen of a foreign country” (1) dies intestate, (2) dies with a will that does not name an executor, or (3) “if it appears that property will pass to a citizen of a foreign country.”

It is critical that notice of administration of a decedent’s estate be provided to known creditors and to specified public entities. Typically, such notice is given after Letters are issued, which starts the clock on the four-month creditor’s claim period.

With regard to creditors, it is not enough to just publish the required notice of the hearing on the petition for probate; rather, “the personal representative shall give notice . . . to the known or reasonably ascertainable creditors of the decedent.” A creditor is known “if the personal representative is aware that the creditor has demanded payment from the decedent or the estate.”

For many years, only notice to known creditors was required. The relatively recent addition of the obligation to notify reasonably ascertainable creditors was in response to the U.S. Supreme Court’s pronouncement that the Due Process Clause of the 14th Amendment requires such notice.

As for public entities, three agencies have specific notice requirements. First is the Department of Health Care Services. Notice of the decedent’s death is required to be given to the DHCS if the “general personal representative knows or has reason to believe that the decedent received [MediCal benefits] . . . or was the surviving spouse of a person who received that health care.”

The second agency is the California Victim Compensation and Government Claims Board. This requirement comes into play if the “general personal representative or estate attorney knows or has reason to believe that an heir is confined in a prison . . . or is confined in any county or city jail, road camp, industrial farm, or other local correctional facility.” Finally, notice of the decedent’s death is to be provided to the Franchise Tax Board.

Once a probate is underway, more specifically, “[a]t any time after the issuance of letters,” any interested person may file a request for special notice. The person requesting notice may request notice of any or all of the following matters: petitions, inventories and appraisals, objections to appraisals, accounts and status reports.

After a request for special notice has been made, “the person filing the petition . . . shall give written notice of the filing, together with a copy of the petition . . . and the time and place set for the hearing, by mail to the person named in the request . . . .” With regard to inventories or other papers that do not require a hearing, notice of the filing and a copy of the paper filed must be served within 15 days of the filing.

Sureties who post bond for a personal representative have their own special notice provision. Thus, a person who files any of the following types of petitions must serve the surety with a notice of hearing: (1) “a petition to surcharge;” (2) “an objection to an account;” (3) a petition to suspend or remove a . . . personal representative;” and (4) a motion to withdraw as attorney of record for a personal representative.

As a general rule, notices of petitions filed subsequent to the petition for probate must be mailed at least 15 days in advance of the hearing to the personal representative, to all persons who requested special notice and to others as specified by statute,  with a number of other code sections specifying additional persons to receive such subsequent notices. For example, when the personal representative petitions the court to settle an account, notice must be mailed at least 15 days prior to the hearing to anyone requesting special notice, to “[e]ach known heir [and devisee] whose interest in the estate would be affected by the account,” to “[t]he Attorney General . . . if any portion of the estate is to escheat to the state and its interest would be affected by the account,” and “[i]f the estate is insolvent, [to] each creditor who has filed a claim that is allowed or approved but is unpaid in whole or in part.”

Dealing with property of a decedent’s estate is another fertile ground for required notices. Thus, real property may be sold only after publication of notice of the sale has been completed. Publication can be dispensed with if the property’s value does not exceed $5,000 or where the will directs that the property be sold or where the will gives the personal representative authority to sell the property. The court has the authority to shorten the time period for the pre-sale notice to five days.

Upon a showing of good cause, and “unless a particular provision governing the notice of hearing provides that the time for giving notice may not be shortened, the court may . . . shorten the time for giving a notice of hearing.” However, a court’s general ability to shorten the notice period does not apply to publication of notice, unless a specific statute provides otherwise. On the flip side, if the court finds that the statutory provisions for giving notice are inadequate in a particular situation, “the court may require that further or additional notice, including a longer period of notice, be given.” Fortunately, the impossible is not required; if a person otherwise entitled to notice cannot be located after a “diligent search, the court may prescribe the manner of giving notice to that person or may dispense with notice to that person.”

A personal representative who is granted powers under the Independent Administration of Estates Act (Probate Code section 10400 et seq.) may proceed to sell property by giving a Notice of Proposed Action to each person to whom notice is required to be given at least 15 days in advance of the proposed action.

If a hearing is continued or postponed, no additional notice is required, unless otherwise ordered by the court. Of course, notice can be waived, but the waiver must be in writing and filed with the court. The waiver can be executed by a “guardian ad litem, guardian, conservator, trustee, or other fiduciary.”

Stringent service of notice is required for petitions to prorate estate tax liability or to probate generation-skipping transfer taxes. Under both these provisions, service must be made at least 30 days ahead of the hearing in accordance with the rules that govern service of summons.

Several of the Los Angeles Superior Court Local Rules impose additional notice requirements. For example, a notice of hearing for a petition to determine title to real or personal property must contain “[a] description of the subject property sufficient to provide adequate notice to any party who might be interested in the property.” Another common situation involves petitions for special letters of administration, which the court has no power to grant “without notice to the surviving spouse, domestic partner, the person nominated as executor, and any other person whom the court in its discretion determines is entitled to notice.” And notice to the Attorney General is required in connection with a petition to determine heirs if there is a possibility of escheat.

Trust Proceedings

Unlike the administration of a decedent’s estate, there’s no one place to start a trust proceeding, although a petition asking the court to rule on one of the many facets of the internal proceedings of a trust is often employed. As a general rule, the requirements for notice involving trust proceedings are governed by the same overall provisions that govern decedent’s estates, “[e]xcept as otherwise provided.”

The most significant exception to this omnibus cross-reference can be found in Probate Code section 17203, which requires 30 days’ notice of any proceeding under the afore-mentioned Probate Code section 17200. In this regard, notice must be served on (1) all trustees; (2) all beneficiaries of the trust; (3) the Attorney General (if a charitable trust is involved); and (4) any other person “whose right, title, or interest would be affected by the petition.” It is important to note that the Probate Code expressly prohibits the court from shortening the 30-day notice period for persons included in this last catch-all category.

The notice requirements are expanded where a person otherwise entitled to notice is deceased. If no personal representative has been appointed for such person and such person’s interest in the trust has not passed to their heirs or beneficiaries under Division 8 of the Probate Code (disposition of estates without administration), then notice must also be given to (1) each of the deceased person’s heirs and devisees, as well as “all persons named as executors” in the deceased person’s will; and (2) each “person serving as guardian or conservator” of the deceased person.

As with decedent’s estates, certain persons can request special notice of proceedings, even if they would not otherwise be entitled to notice. Thus, a beneficiary may request “special notice of the filing of petitions . . . relating to any or all of the purposes described in Section 17200 . . . .” If the matter concerns a trustee’s compensation, then a creditor of the trust (or a creditor of the trustor, if the trust became irrevocable upon the trustor’s death) may also request special notice.

Additionally, such creditors can petition the court for an order prescribing special notice in the following types of proceedings: (1) “determining the existence or nonexistence of any immunity, power, privilege, duty, or right;” (2) “[a]scertaining beneficiaries and determining to whom property shall pass or be delivered;” (3) settling accounts and passing on the trustee’s actions; (4) “[i]nstructing the trustee;” (5) granting powers to the trustee; (6) “[c]ompelling redress of a breach of the trust;” (7) transferring the trust or its assets to or from another jurisdiction; (8) determining whether and to what extent the trust is liable for the debts of a settlor who is deceased; and (9) determining whether a trustee/attorney can be compensated for both roles.

The statutes dealing with the handling of creditor’s claims vis-à-vis trusts not otherwise subject to court supervision have their own special notice requirements. Under these provisions, a trustee or beneficiary may petition the court for, e.g., “[a]llowance, compromise, or settlement of any claims that have not been rejected by the trustee . . . .”

Publication of notice of the hearing on such petition must be made in the same manner as publication of notice of hearing for a petition for probate. The trustee or beneficiary is then required to serve each known creditor with notice. Notices of hearing on a petition to compromise or settle creditor’s claims of a deceased settlor must be served on the affected creditors in accordance with Code of Civil Procedure section 413.10 et seq., which govern service of summonses.

The additional statutorily-required recipients of such notice are (a) all “trustees of the trust and of any other trusts to which an allocation of liability may be approved by the court;” (b) all beneficiaries whose interests would be affected; (c) any “personal representative of the deceased settlor’s estate;” and (d) the Attorney General, if the petition relates to a charitable trust.

Finally, it should be noted that nothing prevents petitioners in trust proceedings from providing more notice than required.

Guardianships and Conservatorships

Like most of probate practice, a guardianship or conservatorship proceeding begins with the filing of a petition, with the default notice period set at 15 days. Probate Code section 1460 also sets forth a default list of recipients for guardianship and conservatorship notices regarding petitions, reports and accounts, including “(1) [t]he guardian or conservator; (2) [t]he ward or the conservatee; (3) [t]he spouse of the ward or conservatee [if any], or the domestic partner of the conservatee [if any]; (4) [a]ny person who has requested special notice . . . (5) [f]or any hearing on a petition to terminate a guardianship, to accept the resignation of, or to remove the guardian, the persons described in [Probate Code section 1510(c)]; [and] (6) [f]or any hearing on a petition to terminate a conservatorship, to accept the resignation of, or to remove the conservator, the persons described in [Probate Code section 1821(b)].” The court retains the power to permit deviations from this list for good cause.

If either the court or the petitioner knows or has reason to know that the proposed conservatee or ward “may be an Indian child,” then a lengthy list of additional notice requirements comes into play. Conversely, no notice is required to be given to a child under 12 years of age if “(a) notice was properly given to a parent, guardian, or other person having legal custody of the minor, with whom the minor resides; [or] (b) the petition is brought by a parent, guardian, or other person having legal custody of the minor, with whom the minor resides.”

Several other notice provisions are also common to both guardianships and conservatorships. For example, if “[t]he proposed ward or conservatee has developmental disabilities” and other conditions are satisfied, then “the petitioner shall . . . serve a notice of the hearing . . . [on] the director of the regional center for the developmentally disabled at least 30 days before the day of the hearing on a petition for appointment . . . .”

Similarly, with regard to certain enumerated petitions (including petitions for guardianship or conservatorship), if the guardianship or conservatorship estate consists or will consist wholly or in part of “(1) [m]oney received from the Veterans Administration; (2) [r]evenue or profit from such money or from property acquired wholly or in part from such money; [or] (3) [p]roperty acquired wholly or in part with such money or from such property,” then “notice of the time and place of hearing on a petition, report, or account, and a notice of the filing of an inventory . . . shall be mailed to the . . . Veterans Administration . . . .”

Additional provisions govern each particular proceeding. Thus, for guardianships, in addition to the persons listed in the statutes covering both guardianships and conservatorships, notice of the hearing on the initial petition for guardianship must also be given to: (1) “[a]ny person having legal custody of the proposed ward, or serving as guardian of the estate of the proposed ward;” (2) “[t]he parents of the proposed ward;” (3) the relatives named in the petition; “[t]he person having the care of the proposed ward if other than the person having legal custody of the proposed ward;” (5) if required by either Probate Code section 1461 or section 1542, “the Director of State Hospitals or the Director of Developmental Services or the Director of Social Services;” (6) “[t]he parents or other relatives of a proposed ward who has been relinquished to a licensed adoption agency;” and (7) “[t]he parents of a proposed ward who has been judicially declared free from their custody and control.” On the other hand, the court may order that notice need not be given to any person who “cannot with reasonable diligence be given the notice” or if “the giving of the notice would be contrary to the interest of justice.”

Another notice requirement is imposed with regard to a petition for guardianship of the person: “In each case involving a petition for guardianship of the person, the petitioner shall mail a notice of the hearing . . . to the local agency designated by the board of supervisors to investigate guardianships for the court.”

There are also additional notice provisions specific to conservatorship proceedings. For example, a citation must be served on the proposed conservatee. Furthermore, notice of the hearing on a petition for appointment of a conservator must be given to: (1) the conservatee’s relatives within the second degree; (2) if required by Probate Code section 1461, notice shall “be given to the Director of State Hospitals or the Director of Developmental Services or the Director of Social Services;” and (3) if the “petitioner and the proposed conservator have no prior relationship with the proposed conservatee and are not nominated by a family member, friend, or other person with a relationship to the proposed conservatee, notice shall be mailed to the public guardian of the county in which the petition is filed.”

In Los Angeles County, conservators must provide copies of all inventories and appraisals, and all accountings to the Court Investigator. The requirement to provide the Court Investigator with copies also applies to accountings when “a conservatee is a beneficiary of a trust subject to the court’s continuing jurisdiction or supervision.”

If a guardian or conservator intends to sell property, they must follow the procedures that govern personal representatives of a decedent’s estate. However, unlike personal representatives of a decedent’s estate, neither guardians nor conservators can be granted the power to act under the Independent Administration of Estates Act.

The Probate Code also imposes ongoing notification duties upon guardians and conservators. For example, no later than 90 days after being appointed (“or within any further time as the court . . . may allow”), the guardian or conservators must file an inventory and appraisal. This document, which must include “notice of how to file an objection,” must be served on: (1) “the conservatee and the attorneys of record for the ward or conservatee;” (2) “the conservatee’s spouse or registered domestic partner;” and (3) “the conservatee’s relatives in the first degree, and, if there are no such relatives, to the next closest relative, unless the court determines that the mailing will result in harm to the conservatee.”

A copy of the inventory and Appraisal must also be mailed “to the director of the appropriate department at the director’s office in Sacramento” if “the ward or conservatee is or has been during the guardianship or conservatorship a patient in a state hospital under the jurisdiction of the State Department of State Hospitals or the State Department of Developmental Services . . . .” Similar notice requirements apply with regard to accounts filed by guardians and conservators.

Once letters of guardianship or conservatorship have been issued, a request for special notice can be filed by (1) “the ward, if over 14 years of age;” (2) the conservatee; (3) “the spouse of the ward or the spouse or domestic partner of the conservatee;” (4) “any relative or creditor of the ward or conservatee;” or (5) “any other interested person.”

In Los Angeles County, two local rules impose additional requirements when a conservator resigns and when a conservatee dies. With regard to the former, the “final account of a resigning conservator will not be approved unless the successor conservator was served with a notice of hearing and copy of the proposed final account and/or petition for its approval.” As to the latter, “a notice of hearing and a copy of the petition for settlement of a final account must be given to the personal representative, if any, of the deceased conservatee, and if none, to all known heirs at law, devisees, and other successors-in-interest.”

Conclusion

Despite the cross-reference to the general rules that govern civil actions, probate practice is fraught with special notice provisions that must be identified and followed. A single misstep can result in having a hearing continued in order to provide adequate notice, or worse, having a judgment voided.