Lost Will in California

Innocently or not so innocently a lot of times the original will can not be found after death. Does that mean the estate plan will not be followed? It depends.  In many instances a photocopy will be honored as long as there is no proof of intent to revoke the will. Here are the most relevant California probate code sections. Of course it’s a good idea to talk to a California probate lawyer about this as it is a complex area of the California probate code. 

CALIFORNIA CODES PROBATE CODE SECTION 8220-8226
8220.  Unless there is a contest of a will:
   (a) The will may be proved on the evidence of one of the
subscribing witnesses only, if the evidence shows that the will was
executed in all particulars as prescribed by law.
   (b) Evidence of execution of a will may be received by an
affidavit of a subscribing witness to which there is attached a
photographic copy of the will, or by an affidavit in the original
will that includes or incorporates the attestation clause.
   (c) If no subscribing witness resides in the county, but the
deposition of a witness can be taken elsewhere, the court may direct
the deposition to be taken. On the examination, the court may
authorize a photographic copy of the will to be made and presented to
the witness, and the witness may be asked the same questions with
respect to the photographic copy as if the original will were
present.
8221.  If no subscribing witness is available as a witness within
the meaning of Section 240 of the Evidence Code, the court may, if
the will on its face conforms to all requirements of law, permit
proof of the will by proof of the handwriting of the testator and one
of the following:
   (a) Proof of the handwriting of any one subscribing witness.
   (b) Receipt in evidence of one of the following documents reciting
facts showing due execution of the will:
   (1) A writing in the will bearing the signatures of all
subscribing witnesses.
   (2) An affidavit of a person with personal knowledge of the
circumstances of the execution.
8222.  A holographic will may be proved in the same manner as other
writings.
8223.  The petition for probate of a lost or destroyed will shall
include a written statement of the testamentary words or their
substance. If the will is proved, the provisions of the will shall be
set forth in the order admitting the will to probate.

 
8224.  The testimony of each witness in a proceeding concerning the
execution or provisions of a will, the testamentary capacity of the
decedent, and other issues of fact, may be reduced to writing, signed
by the witness, and filed, whether or not the will is contested. The
testimony so preserved, or an official reporter’s transcript of the
testimony, is admissible in evidence in any subsequent proceeding
concerning the will if the witness has become unavailable as a
witness within the meaning of Section 240 of the Evidence Code.

 

8225.  When the court admits a will to probate, that fact shall be
recorded in the minutes by the clerk and the will shall be filed.

 

8226.  (a) If no person contests the validity of a will or petitions
for revocation of probate of the will within the time provided in
this chapter, admission of the will to probate is conclusive, subject
to Section 8007.
   (b) Subject to subdivision (c), a will may be admitted to probate
notwithstanding prior admission to probate of another will or prior
distribution of property in the proceeding. The will may not affect
property previously distributed, but the court may determine how any
provision of the will affects property not yet distributed and how
any provision of the will affects provisions of another will.
   (c) If the proponent of a will has received notice of a petition
for probate or a petition for letters of administration for a general
personal representative, the proponent of the will may petition for
probate of the will only within the later of either of the following
time periods:
   (1) One hundred twenty days after issuance of the order admitting
the first will to probate or determining the decedent to be
intestate.
   (2) Sixty days after the proponent of the will first obtains
knowledge of the will.

 

 

Share/Bookmark

California Trusts and Wills

Wills v. trusts or is it trusts v. wills or is it really wills AND trusts!? I get into this discussion a lot with my clients.  Many people do not realize that in a proper California estate plan you will have BOTH a will AND a trust. You can read my more formal article on the topic at http://www.californiaprobate.info/estate-planning/wills-v-trusts

A trust, as you likely already know, avoids probate after death.  This is a good thing to avoid as it’s costly and time consuming.  However, there are many reasons that you also need a simple “pour over” will as part of your estate plan. In fact, there is a whole package of documents in a proper estate plan as follows:

1) Revocable Trust;

2) Pour over Will;

3) Power of Attorney for financial affairs or “durable power of attorney;”

4) Power of Attorney for medical affairs or “living will” or “health care directive;”

5) Certified Extract of Trust;

6) General Transfer;

7) Hippa release;

8) Quitclaim deed;

9) Bank letters.

Today we are focusing on the will as this blog is about having a California trust AND will or will AND trust if you prefer.

A will serves many purposes. These purposes may include:

1) Putting assets into the trust after death if they weren’t there before death;

2) Appointing someone to sign tax returns after death;

3) Appointing a guardian of minor children;

4) Distribution of personal property like furniture, collectibles, and the like;

5) Creating a no-contest clause valid for your whole estate plan.

Thus, the will does a lot. Though it’s a separate document from the trust it is very important.  Also, though we hope it doesn’t have to be used to “pour over” assets it is a nice back up to have and helps us to complete Heggstad petitions when we need to do those.  You can read about those on many blog posts.

The point is do not think of wills and trusts as two options. They are not. They are two separate documents which go hand in hand.

Contact me with questions.  -John

California Trust Administration in Court

As I have said before there it is amazing how many questions are answered in the California probate code relating to California probate, trusts, estates, estate planning, and related matters.  I have an interesting case right now where there is confusion with some poorly written terms of a trust and there is no successor trustee named in the trust. I don’t have to tell you that the decedent did the trust himself. When will people learn there really is a reason to hire experienced estate planning attorneys to plan your estate!?  Anyway, California probate code section 1720 can solve both of my problems in this case!

I have pasted section 17200 and related sections below for your perusal. First, look at section 17200(b)(1). The Court can determine questions of construction of a trust. Or look at section (3) where the Court can determine validity of a trust provision.  Second, look at section 17200(b)(10).  It says the Court can appoint a trustee. Perfect! We need a trustee in this case.

The California legislature has written a great law here! If you have questions about a trust or ambiguities in a trust this section will likely provide a basis for you to go to Court and get the problem solved.

If you are the trustee of a trust look through this list as you will see an amazing array of issues that can be solved.

Contact me with your questions.  -John

 

PROBATE CODE SECTION 17200-17211 17200. (a) Except as provided in Section 15800, a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust. (b) Proceedings concerning the internal affairs of a trust include, but are not limited to, proceedings for any of the following purposes: (1) Determining questions of construction of a trust instrument. (2) Determining the existence or nonexistence of any immunity, power, privilege, duty, or right. (3) Determining the validity of a trust provision. (4) Ascertaining beneficiaries and determining to whom property shall pass or be delivered upon final or partial termination of the trust, to the extent the determination is not made by the trust instrument. (5) Settling the accounts and passing upon the acts of the trustee, including the exercise of discretionary powers. (6) Instructing the trustee. (7) Compelling the trustee to do any of the following: (A) Provide a copy of the terms of the trust. (B) Provide information about the trust under Section 16061 if the trustee has failed to provide the requested information within 60 days after the beneficiary’s reasonable written request, and the beneficiary has not received the requested information from the trustee within the six months preceding the request. (C) Account to the beneficiary, subject to the provisions of Section 16064, if the trustee has failed to submit a requested account within 60 days after written request of the beneficiary and no account has been made within six months preceding the request. (8) Granting powers to the trustee. (9) Fixing or allowing payment of the trustee’s compensation or reviewing the reasonableness of the trustee’s compensation. (10) Appointing or removing a trustee. (11) Accepting the resignation of a trustee. (12) Compelling redress of a breach of the trust by any available remedy. (13) Approving or directing the modification or termination of the trust. (14) Approving or directing the combination or division of trusts. (15) Amending or conforming the trust instrument in the manner required to qualify a decedent’s estate for the charitable estate tax deduction under federal law, including the addition of mandatory governing instrument requirements for a charitable remainder trust as required by final regulations and rulings of the United States Internal Revenue Service. (16) Authorizing or directing transfer of a trust or trust property to or from another jurisdiction. (17) Directing transfer of a testamentary trust subject to continuing court jurisdiction from one county to another. (18) Approving removal of a testamentary trust from continuing court jurisdiction. (19) Reforming or excusing compliance with the governing instrument of an organization pursuant to Section 16105. (20) Determining the liability of the trust for any debts of a deceased settlor. However, nothing in this paragraph shall provide standing to bring an action concerning the internal affairs of the trust to a person whose only claim to the assets of the decedent is as a creditor. (21) Determining petitions filed pursuant to Section 15687 and reviewing the reasonableness of compensation for legal services authorized under that section. In determining the reasonableness of compensation under this paragraph, the court may consider, together with all other relevant circumstances, whether prior approval was obtained pursuant to Section 15687. (22) If a member of the State Bar of California has transferred the economic interest of his or her practice to a trustee and if the member is a deceased member under Section 9764, a petition may be brought to appoint a practice administrator. The procedures, including, but not limited to, notice requirements, that apply to the appointment of a practice administrator for a deceased member shall apply to the petition brought under this section. (23) If a member of the State Bar of California has transferred the economic interest of his or her practice to a trustee and if the member is a disabled member under Section 2468, a petition may be brought to appoint a practice administrator. The procedures, including, but not limited to, notice requirements, that apply to the appointment of a practice administrator for a disabled member shall apply to the petition brought under this section. (c) The court may, on its own motion, set and give notice of an order to show cause why a trustee who is a professional fiduciary, and who is required to be licensed under Chapter 6 (commencing with Section 6500) of Division 3 of the Business and Professions Code, should not be removed for failing to hold a valid, unexpired, unsuspended license. 17200.1. All proceedings concerning the transfer of property of the trust shall be conducted pursuant to the provisions of Part 19 (commencing with Section 850) of Division 2. 17201. A proceeding under this chapter is commenced by filing a petition stating facts showing that the petition is authorized under this chapter. The petition shall also state the grounds of the petition and the names and addresses of each person entitled to notice of the petition. 17202. The court may dismiss a petition if it appears that the proceeding is not reasonably necessary for the protection of the interests of the trustee or beneficiary. 17203. (a) At least 30 days before the time set for the hearing on the petition, the petitioner shall cause notice of hearing to be mailed to all of the following persons: (1) All trustees. (2) All beneficiaries, subject to Chapter 2 (commencing with Section 15800) of Part 3. (3) The Attorney General, if the petition relates to a charitable trust subject to the jurisdiction of the Attorney General. (b) At least 30 days before the time set for hearing on the petition, the petitioner shall cause notice of the hearing and a copy of the petition to be served in the manner provided in Chapter 4 (commencing with Section 413.10) of Title 5 of Part 2 of the Code of Civil Procedure on any person, other than a trustee or beneficiary, whose right, title, or interest would be affected by the petition and who does not receive notice pursuant to subdivision (a). The court may not shorten the time for giving notice under this subdivision. (c) If a person to whom notice otherwise would be given has been deceased for at least 40 days, and no personal representative has been appointed for the estate of that person, and the deceased person’ s right, title, or interest has not passed to any other person pursuant to Division 8 (commencing with Section 13000) or otherwise, notice may instead be given to the following persons: (1) Each heir and devisee of the decedent, and all persons named as executors of the will of the decedent, so far as known to the petitioner. (2) Each person serving as guardian or conservator of the decedent at the time of the decedent’s death, so far as known to the petitioner. 17204. (a) If proceedings involving a trust are pending, a beneficiary of the trust may, in person or by attorney, file with the court clerk where the proceedings are pending a written request stating that the beneficiary desires special notice of the filing of petitions in the proceeding relating to any or all of the purposes described in Section 17200 and giving an address for receiving notice by mail. A copy of the request shall be personally delivered or mailed to the trustee or the trustee’s attorney. If personally delivered, the request is effective when it is delivered. If mailed, the request is effective when it is received. When the original of the request is filed with the court clerk, it shall be accompanied by a written admission or proof of service. A request for special notice may be modified or withdrawn in the same manner as provided for the making of the initial request. (b) (1) An interested person may request special notice in the same manner as a beneficiary under subdivision (a), for the purpose set forth in paragraph (9) of subdivision (b) of Section 17200. The request for special notice shall be accompanied by a verified statement of the person’s interest. (2) For purposes set forth in paragraphs (2), (4) to (6), inclusive, (8), (12), (16), (20), and (21) of subdivision (b) of Section 17200, an interested person may petition the court for an order for special notice of proceedings involving a trust. The petition shall include a verified statement of the creditor’s interest and may be served on the trustee or the trustee’s attorney by personal delivery or in the manner required by Section 1215. The petition may be made by ex parte application. (3) For purposes of this subdivision, an “interested person” means only a creditor of a trust or, if the trust has become irrevocable upon the death of a trustor, a creditor of the trustor. (4) This section does not confer standing on an interested person if standing does not otherwise exist. (c) Except as provided in subdivision (d), after serving and filing a request and proof of service pursuant to subdivision (a) or paragraph (1) of subdivision (b), the beneficiary or the interested person is entitled to notice pursuant to Section 17203. If the petition of an interested person filed pursuant to paragraph (2) of subdivision (b) is granted by the court, the interested person is entitled to notice pursuant to Section 17203. (d) A request for special notice made by a beneficiary whose right to notice is restricted by Section 15802 is not effective. 17205. If a trustee or beneficiary has served and filed either a notice of appearance, in person or by counsel, directed to the petitioner or the petitioner’s counsel in connection with a particular petition and proceeding or a written request for a copy of the petition, and has given an address to which notice or a copy of the petition may be mailed or delivered, the petitioner shall cause a copy of the petition to be mailed to that person within five days after service of the notice of appearance or receipt of the request. 17206. The court in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by the petition, including appointment of a temporary trustee to administer the trust in whole or in part. 17209. The administration of trusts is intended to proceed expeditiously and free of judicial intervention, subject to the jurisdiction of the court. 17210. In a case involving a charitable trust subject to the jurisdiction of the Attorney General, the Attorney General may petition under this chapter. 17211. (a) If a beneficiary contests the trustee’s account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney’s fees, incurred to defend the account. The amount awarded shall be a charge against any interest of the beneficiary in the trust. The contestant shall be personally liable for any amount that remains unsatisfied. (b) If a beneficiary contests the trustee’s account and the court determines that the trustee’s opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contestant and other expenses and costs of litigation, including attorney’s fees, incurred to contest the account. The amount awarded shall be a charge against the compensation or other interest of the trustee in the trust. The trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied.

Steve Jobs California Estate Planning UPDATE

I just saw this on PRweb. Interesting read I thought:

Estate Street Partners affirms that through Steve’s brilliant foresight, he may very well have saved his family $3B and public scrutiny with well-constructed irrevocable trusts

Boston, MA (PRWEB) October 27, 2011

Steve Jobs may not have been able to cheat death, but it appears that he has been able to legally avoid estate taxes. After Estate Street Partners examined his public financial documents and property assets he owned, it appears he used an asset protection tool such as an irrevocable trust to avoid probate and paying estate taxes. Estate taxes would have cost up to 35% of his estate. Reportedly he amassed about $8 billion after the sale of his Pixar shares to Disney and he had approximately $2 billion worth of Apple shares before his death so with good estate planning he thwarted the IRS of an estimated $3B.

No one knows for certain what precise estate planning tools Mr. Jobs used though except his family. He was a private person and appears to have owned many of his assets with some type of trust whether revocable or irrevocable. Any trust (revocable or irrevocable) would avoid probate, but if Mr. Jobs used revocable trusts, he would still pay estate taxes.

We can conclude by Mr. Jobs’s meticulous nature to detail though he would have used an irrevocable trust.

Without any trust, at Mr. Job’s net worth, his probate expenses would have been about 4-7% and his estate taxes would be 35% of the value of his estate above $5M, respectively; in other words, a whopping $450M for probate and $3.1B for estate taxes. Probate is the process through which a court determines the value of the estate and approves the distribution of assets covered by a will if there is one.

“You don’t have to be a billionaire to take advantage of the same strategies that Steve Jobs brilliantly executed. Almost anyone that has worked hard to build a nest egg needs to do similar estate planning for asset protection as well as Medicaid planning, and to avoid estate taxes and probate. John Maynard Keynes said it correctly, ‘The avoidance of taxes is the only intellectual pursuit that carries any reward’,” states Rocco Beatrice, Managing Director of Estate Street Partners in Boston, Massachusetts.

Probate and estate taxes are the only voluntary reporting systems in the entire IRS code and civil procedures. Both the probate process and the voluntary taxes applicable in death taxes are affected only to assets titled to the deceased individual’s name on the date of death. More simply, the probate and estate taxes would have applied to Mr. Jobs’s property and assets that were legally in his name at the time he passed away.

“These [probate and estate taxes] can be totally avoided by simply using an irrevocable trust. I hope, for the sake of his children and wife, that Jobs implemented an irrevocable trust as opposed to a revocable one. It [revocable trust] shouldn’t even be in the dictionary – in my opinion. Revocable trusts clearly have no protection against anything other than the probating process. That’s why we created the irrevocable Ultra Trust® for our clients,” explains Mr. Beatrice.

Whether Jobs used a revocable or irrevocable trust only his executors and close family members would know for sure, but after previewing his public records he purchased some properties under JOBS TRUST and JOBS STEVEN P TRUST so it is safe to conclude that he had some asset protection strategy in place.

At one point, he owned an airport Stockton Municipal Airport appraised at $35M and owned another parcel of land worth $52M. With assets in trust the terms of the trust are not disclosed to the public.

“A record search of assets titled to Steve Jobs’s personal name is chump change to what we will ever hope to find out about the extent of which irrevocable trust like our Ultra Trust® was used by Steve Jobs. In future years to come, we may get glimpses of the extent of his estate planning, but maybe only if there is a lawsuit from disgruntled family members or creditors who may claim that they should have part of the wealth.”

###

 

For the original version on PRWeb visit: www.prweb.com/releases/prwebirrevocable-trust/ultratrust/prweb8911441.htm

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/27/prweb8911441.DTL#ixzz1c1bfX14a

California Probate Administrator

Who should administer your California probate? If you don’t have a named Executor in your will then it falls to the California probate code and generally then to the order of preference laid out in probate code section 8461. I have pasted that section, in it’s entirety, below.  Notice “any other person” is at the end of the list so this means ANYBODY can file for probate!  Also, notice priority can be lowered by appointment of others, separation from spouse, etc….  Know these rules BEFORE you file your probate petition when there is no named Executor. Contact me to discuss your case. -John

PROBATE CODE SECTION 8460-8469

8460.  (a) If the decedent dies intestate, the court shall appoint
an administrator as personal representative.
(b) The court may appoint one or more persons as administrator.
8461.  Subject to the provisions of this article, a person in the
following relation to the decedent is entitled to appointment as
administrator in the following order of priority:
(a) Surviving spouse or domestic partner as defined in Section 37.
(b) Children.
(c) Grandchildren.
(d) Other issue.
(e) Parents.
(f) Brothers and sisters.
(g) Issue of brothers and sisters.
(h) Grandparents.
(i) Issue of grandparents.
(j) Children of a predeceased spouse or domestic partner.
(k) Other issue of a predeceased spouse or domestic partner.
(l) Other next of kin.
(m) Parents of a predeceased spouse or domestic partner.
(n) Issue of parents of a predeceased spouse or domestic partner.
(o) Conservator or guardian of the estate acting in that capacity
at the time of death who has filed a first account and is not acting
as conservator or guardian for any other person.
(p) Public administrator.
(q) Creditors.
(r) Any other person.

 

8462.  The surviving spouse or domestic partner of the decedent, a
relative of the decedent, or a relative of a predeceased spouse or
domestic partner of the decedent, has priority under Section 8461
only if one of the following conditions is satisfied:
(a) The surviving spouse, domestic partner, or relative is
entitled to succeed to all or part of the estate.
(b) The surviving spouse, domestic partner, or relative either
takes under the will of, or is entitled to succeed to all or part of
the estate of, another deceased person who is entitled to succeed to
all or part of the estate of the decedent.

 

8463.  If the surviving spouse is a party to an action for separate
maintenance, annulment, or dissolution of the marriage of the
decedent and the surviving spouse, and was living apart from the
decedent on the date of the decedent’s death, the surviving spouse
has priority next after brothers and sisters and not the priority
prescribed in Section 8461.

 

8464.  If a person otherwise entitled to appointment as
administrator is a person under the age of majority or a person for
whom a guardian or conservator of the estate has been appointed, the
court in its discretion may appoint the guardian or conservator or
another person entitled to appointment.

 

8465.  (a) The court may appoint as administrator a person nominated
by a person otherwise entitled to appointment or by the guardian or
conservator of the estate of a person otherwise entitled to
appointment. The nomination shall be made in writing and filed with
the court.
(b) If a person making a nomination for appointment of an
administrator is the surviving spouse or domestic partner, child,
grandchild, other issue, parent, brother or sister, or grandparent of
the decedent, the nominee has priority next after those in the class
of the person making the nomination.
(c) If a person making a nomination for appointment of an
administrator is other than a person described in subdivision (b),
the court in its discretion may appoint either the nominee or a
person of a class lower in priority to that of the person making the
nomination, but other persons of the class of the person making the
nomination have priority over the nominee.

 

8466.  If a person whose only priority is that of a creditor claims
appointment as administrator, the court in its discretion may deny
the appointment and appoint another person.

 

8467.  If several persons have equal priority for appointment as
administrator, the court may appoint one or more of them, or if such
persons are unable to agree, the court may appoint the public
administrator or a disinterested person in the same or the next lower
class of priority as the persons who are unable to agree.
8468.  If persons having priority fail to claim appointment as
administrator, the court may appoint any person who claims
appointment.
8469.  (a) For good cause, the court may allow the priority given by
Section 8461 to a conservator or guardian of the estate of the
decedent serving in that capacity at the time of death that has not
filed a first account, or that is acting as guardian or conservator
for another person, or both.
(b) If the petition for appointment as administrator requests the
court to allow the priority permitted by subdivision (a), the
petitioner shall, in addition to the notice otherwise required by
statute, serve notice of the hearing by mail or personal delivery on
the public administrator.

California Will Requirements

There are many issues relating to what’s a valid will in California. YES, it can be handwritten!  A formal will is typed, signed and TWO witnesses.  Be careful about documents that are in the middle; i.e. typed, signed and no witnesses or a notary.  You should not notarize a will. Just two witnesses not related to you. Here are some rules from the California probate code about this.  Contact me with questions.  -John

CALIFORNIA CODES
PROBATE CODE
SECTION 6110-6113
6110.  (a) Except as provided in this part, a will shall be in
writing and satisfy the requirements of this section.
   (b) The will shall be signed by one of the following:
   (1) By the testator.
   (2) In the testator’s name by some other person in the testator’s
presence and by the testator’s direction.
   (3) By a conservator pursuant to a court order to make a will
under Section 2580.
   (c) (1) Except as provided in paragraph (2), the will shall be
witnessed by being signed, during the testator’s lifetime, by at
least two persons each of whom (A) being present at the same time,
witnessed either the signing of the will or the testator’s
acknowledgment of the signature or of the will and (B) understand
that the instrument they sign is the testator’s will.
   (2) If a will was not executed in compliance with paragraph (1),
the will shall be treated as if it was executed in compliance with
that paragraph if the proponent of the will establishes by clear and
convincing evidence that, at the time the testator signed the will,
the testator intended the will to constitute the testator’s will.

 

6111.  (a) A will that does not comply with Section 6110 is valid as
a holographic will, whether or not witnessed, if the signature and
the material provisions are in the handwriting of the testator.
   (b) If a holographic will does not contain a statement as to the
date of its execution and:
   (1) If the omission results in doubt as to whether its provisions
or the inconsistent provisions of another will are controlling, the
holographic will is invalid to the extent of the inconsistency unless
the time of its execution is established to be after the date of
execution of the other will.
   (2) If it is established that the testator lacked testamentary
capacity at any time during which the will might have been executed,
the will is invalid unless it is established that it was executed at
a time when the testator had testamentary capacity.
   (c) Any statement of testamentary intent contained in a
holographic will may be set forth either in the testator’s own
handwriting or as part of a commercially printed form will.

 

6111.5.  Extrinsic evidence is admissible to determine whether a
document constitutes a will pursuant to Section 6110 or 6111, or to
determine the meaning of a will or a portion of a will if the meaning
is unclear.
6112.  (a) Any person generally competent to be a witness may act as
a witness to a will.
   (b) A will or any provision thereof is not invalid because the
will is signed by an interested witness.
   (c) Unless there are at least two other subscribing witnesses to
the will who are disinterested witnesses, the fact that the will
makes a devise to a subscribing witness creates a presumption that
the witness procured the devise by duress, menace, fraud, or undue
influence. This presumption is a presumption affecting the burden of
proof. This presumption does not apply where the witness is a person
to whom the devise is made solely in a fiduciary capacity.
   (d) If a devise made by the will to an interested witness fails
because the presumption established by subdivision (c) applies to the
devise and the witness fails to rebut the presumption, the
interested witness shall take such proportion of the devise made to
the witness in the will as does not exceed the share of the estate
which would be distributed to the witness if the will were not
established. Nothing in this subdivision affects the law that applies
where it is established that the witness procured a devise by
duress, menace, fraud, or undue influence.

 

6113.  A written will is validly executed if its execution complies
with any of the following:
   (a) The will is executed in compliance with Section 6110 or 6111
or Chapter 6 (commencing with Section 6200) (California statutory
will) or Chapter 11 (commencing with Section 6380) (Uniform
International Wills Act).
   (b) The execution of the will complies with the law at the time of
execution of the place where the will is executed.
   (c) The execution of the will complies with the law of the place
where at the time of execution or at the time of death the testator
is domiciled, has a place of abode, or is a national.

California Trust Tax Shelters

I am posting this as a public service. I got it from the California Franchise Tax Board web page.  Until October 31, 2011 you can get amnesty for under reported income in the past related to off shore trusts among other arrangements.  I encourage you to hire an accountant or tax attorney if you are concerned about some of your past filings.  Here is the memo from the FTB:

It is a Tax Shelter if…

Determining whether you were involved in a transaction that fits the definition of an Abusive Tax Avoidance Transaction (ATAT) is more important now than ever, as time is running out to participate in California’s Voluntary Compliance Initiative 2 (VCI 2). Taxpayers who underreported their tax liability as a result of an ATAT can avoid penalties and criminal prosecution by filing amended returns reversing their ATAT transaction and participating in VCI 2 by October 31.

We and the IRS are having great success in demonstrating that a transaction is abusive. Because of our success in identifying and litigating existing ATATs, those who create ATATs continue to create new transactions that attempt to disguise their abusive nature. It may not be immediately clear that a transaction fits into the definition of an ATAT, and taxpayers should be aware that even though they may have been told that a transaction is not “abusive,” this information could be contrary to the law. The cost of not resolving the transaction could be severe. The following information may help you make your own determination.
First, consider what the law defines as an ATAT:

  • Tax shelter (IRC Section 6662(d)(2)(C)).
  • Listed transaction (IRC Section 6707A(c)(2)).
  • Gross misstatement (IRC Section 6404(g)(2)(D)).
  • Transaction subject to the noneconomic substance penalty under R&TC Section 19774.
  • Reportable transaction that is not adequately disclosed (IRC Section 6707A(c)(1)).

Having an understanding of what each of these terms means will aid you in determining what transactions are considered “abusive” under the law. Below, you will find explanations of each of these terms, detailed examples of some common transactions that fall into these categories, and some questions that you can ask yourself to help determine if you have participated in an ATAT.

Tax Shelter (IRC Section 6662(d)(2)(C)) and Transaction subject to the noneconomic substance transaction penalty under R&TC Section 19774

A tax shelter includes a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, if a significant purpose of the partnership, entity plan, or arrangement is the avoidance or evasion of federal or California income or franchise tax. The tax shelter scheme often overlaps with transactions subject to the noneconomic substance transaction penalty. This is because a tax strategy set up for the primary purpose of avoiding taxes may also lack economic substance because the taxpayer may not be able to demonstrate a valid business purpose other than tax savings.

Taxpayers should also be aware of the step transaction, sham transaction, and substance over form doctrines, which may be applied to conclude a transaction is abusive when a tax strategy includes unnecessary or extra steps that create a tax savings, that otherwise, would not exist.

Examples of these types of transactions include:

  • Transactions involving Trusts or Related Parties

Transactions which unreasonably defer or eliminate gain on the sale of assets through the use of a private annuity or promissory note between related parties may be considered abusive. In these cases, property sales or transfers occur between related parties, where one party is a trust and actual or effective control of the trust remains with the original property owner or a related or closely affiliated party.

Another transaction involves making the taxpayer’s charitable remainder trust (CRT) a majority, nonmanaging partner in a partnership before liquidating appreciated partnership property. In the ATATs, the partnership’s income or gain is allocated to the CRT, but the sale proceeds remain in the partnership where actual or effective control of the proceeds remains with the original property owner.

  • Oil and Gas Partnerships

Promoters of these arrangements promise substantial tax deductions that are primarily intangible drilling costs in the initial year. A substantial amount of the tax benefit is derived from the use of promoter-financed notes or loans. In some cases, no actual drilling occurs or the promoter uses the funds to purchase previously drilled wells and the promoter financed loans are not expected to be repaid.

  • Transactions involving Charities

Transactions that make a bona fide charitable organization a majority, nonmanaging, nonvoting owner of a pass-through entity (PTE) before liquidating appreciated property are abusive when the PTE’s income or gain is allocated to the charity, but the sales proceeds remain in the PTE and actual or effective control of the proceeds remains with the original property owner. In the abusive situations, the proceeds are reinvested in new assets or other ventures controlled by the taxpayer or “loaned” to the taxpayer for personal use or investment.

  • Abusive Horse Breeding Schemes

In these abusive schemes, taxpayers claim to breed race horses as a farming or trade or business activity. The promoter of these schemes will charge the participant inflated fees or expenses which are largely financed by promoter granted loans that will never be collected. The participants in these schemes are not actually active in breeding or raising horses.

Reportable transaction that is not adequately disclosed (IRC Section 6707A(c)(1)) and Listed Transaction (IRC Section 6707A(c)(2))

A reportable transaction is any transaction that we or IRS determines as having a potential for tax avoidance or evasion. A reportable transaction will become a listed transaction when either we or IRS specifically identifies it as a tax avoidance transaction. These transactions can be specifically identified in several publications, including Revenue Rulings, Regulations, and Notices, and can be found by searching IRS and our websites. For example, we have identified two new “listed” transactions in our 2011 Notices:

  1. Apportioning corporations and partnerships should be aware of FTB Notice 2011-01. This notice describes transactions between apportioning corporations and partnerships (and variations using different entities and structures) undertaken to improperly inflate the denominator of the California sales factor.
  2. Corporate taxpayers who artificially increase their basis in the stock of their subsidiary, without any outlay of cash or property, prior to the corporation selling the stock are involved in a transaction known as Circular Cash Flow. This transaction is described in more detail in FTB Notice 2011-04.

Gross misstatement (IRC Section 6404(g)(2)(D))

A gross misstatement includes both the omission of income of more than 25 percent of the gross income reported on a return and the substantial undervaluation of property as described in IRC Sections 6662(e) and 6662(h)(2).

So how do you know if a tax position is an ATAT?

Ask yourself:

  1. Is the tax loss, deduction, or credit a significant amount and used to offset income from unrelated transactions?
  2. Is the taxpayer’s economic and out-of-pocket loss minimal compared to the tax benefits realized from the transactions?
  3. Does the transaction lack a business purpose other than the reduction of income taxes?
  4. Does the transaction lack a reasonable possibility of making a significant profit?
  5. Are multiple entities involved to unnecessarily complicate the transaction?
  6. Does the tax position ignore the true intent of relevant statutes and regulations?
  7. Does the transaction produce a result that is too good to be true?

If you answered yes to any of these questions, chances are you are dealing with an ATAT.

What can you do to reverse your ATAT and avoid most penalties?

Taxpayers who filed original tax returns including the ATATs described in this article or other ATATs can file amended returns reversing these transactions until October 31 and participate in VCI 2 to receive the benefits and protections VCI 2 provides. After October 31, any assessment of additional tax resulting from an ATAT may include a 40 percent Noneconomic Substance Transaction Penalty and a 50 percent or 100 percent Interest Based Penalty. With these penalties, taxpayers could pay nearly double what they would have paid under VCI 2. If you have any questions regarding VCI 2, go to ftb.ca.gov or call our hotline, 888.825.9868, 7 a.m. to 5 p.m., weekdays except state holidays.

Funding an Unfunded Trust

There are so many reasons why a trust remains unfunded or only partially funded at death. I have talked about it before. The most common situations are:

1) re-fi or reverse mortgage taken out before death. The house is usually removed from the trust to complete the loan and the title company does not put back into the trust.

2) A bank or investment account is moved to a new bank (better interest perhaps) but the trust ownership is forgotten.

3) An inheritance is received and the trust is forgotten.

4) A forgotten stock or bond is never put in the trust.

5) A business interest like a closely held corporation, partnership or limited liability company is not owned by the trust.

6) A life insurance, IRA, 401k, annuity or other asset with a death beneficiary, or “payable on death,” names the pre-deceased spouse with no contingent named. That is, the husband had his wife named on his life insurance policy as the beneficiary and she died before him. When he dies that policy will probably go to probate.

In all of these instances, and more, the family or other trusted individuals are trying to FUND THE TRUST AFTER DEATH.  There are many options of how to do this. Typically doing a full California probate is the first option that people consider. It may be the best option. The companies ask for Letters Testamentary or Letters of Administration and that is what you go do. However, there are other options.  Make sure you work with an experienced California probate and trust attorney so that you know all the options and get the proper information.

Full probates, small estate affidavits, under $100,000 petitions, and Heggstad petitions are among the options we often use.

I have become a state-wide expert on Heggstad petitions due to the frequency with which I employ this alternative for funding trusts after death. Just yesterday a fellow probate lawyer consulted me about his client’s case to see if a Heggstad was right in their case and whether it would be successful. 

Filing a Heggstad petition, pursuant to California Probate Code 850, can be an efficient way to fund the trust. You have to have certain documents in place so let me review what you have to see if you qualify for a Heggstad petition. It can avoid the full probate process which is often, but not always, preferable. The attorney fees and Court costs are much less with a Heggstad petition than with a full probate. The key is analyzing all the options to make sure you do what’s overall the best choice.

Contact me to discuss your unfunded California trust and how we can best get it funded after death!  -John

Probate Beneficiary Representation

I represent a lot of executors, administrators, trustees and personal representatives (collectively we will call them a “fiduciary”) in California probate and trust and administration cases.  Likewise I sometimes represent a beneficiary in a case. That is I make sure that the beneficiaries or an “heir at law” is represented so that the fiduciary does their job properly.

A trustee of a trust or personal representative of an estate (be-it an Executor or an Administrator) has a fiduciary duty to the beneficiaries or heirs at law. However, sadly, a lot of the fiduciaries breach that duty. I should clarify I am generally not talking about “professional fiduciaries” but rather private individuals; maybe it’s your sister, your brother, your aunt, your uncle, etc….  They are in charge of administering an estate or trust in California and you want to make sure they do things properly.

I am retained for this purpose a lot. I call it “beneficiary representation.”  I am generally not brought in to litigiate in this cases (i.e. fight) but rather just to watch and react as needed.

Several months ago I was brought in on a case where my client’s sister was to be the administrator of the estate.  My client said she didn’t totally trust her sister and just wanted to make sure her sister did things properly. I filed documents to explain that my client wanted some protection: either in the form of a bond or with court ordered blocked accounts. My client, and I, had no intention of filing a competing petition. However, my client’s sister could never get their filings right.  They were using an incompetent attorney and could not get the documents filed properly.  Finally we were forced to file a competing petition. It was frustrating as my client really was just trying to have some protection for herself.  If her sister, or her sister’s counsel, could have just filed the documents right then there would be no problem.

However, you can’t always predict what the other side will do which is why I am hired! In this case we were able to successfully file a competing petition so that someone with better organizational skills could run the probate and make sure it gets done properly in a reasonable amount of time.

In other cases I have discovered hidden assets and in others successfully defeated improper reimbursements that the fiduciary was planning to take for themselves.

If you think you might need beneficiary representation let me know. -John

Heggstad Petition Language

Being an expert on California Heggstad petitions, pursuant to California Probate Code section 850, I get a lot of lawyers asking me questions about Heggstads. That’s ok. I don’t mind. A lot of times the other lawyer realizes it is a complex petition that they should leave to the experts. In other cases I help them out. In any event I need good karma just like everybody else! 

Anyway, today I thought I would share a few paragraphs that we commonly use in a Heggstad petition. They really get at the crux of the case law; the intent of the Settlor or Grantor of the trust to include the assets in the trust before they died.  As you may have read on my website before if the Heggstad is done right the asset will be put into the trust, by Court order, retroactive to the date of death. It’s an incredible law as it can save people tens of thousands of dollars to avoid probate after death.

As a reminder Heggstad petitions rely on case law developed in the Estate of Heggstad case. As you may know laws are generally developed by statute (i.e. the California probate code) or case law (cases like Heggstad).

I have successfully performed Heggstad petitions in many counties of California. As you know I can “appear” telephonically via Court Call and thus can easily help you out with a Heggstad petition anywhere in California.  Though I am sure there was one I can not remember ever filing a Heggstad petition that did not work. I won’t say I am batting .1000 but I think I might be!  When I analyze and evaluate your case I will you my best guess on the percentage chance of success.  I know what the Court wants to see. I like to think I make the process very easy for my clients.

If you have lost a friend or loved one, you are the trustee, you are faced with an asset out of a trust, and want to get it into the trust without a full probate let’s see if a Heggstad petition will work for you.  Contact me to discuss your case.  -John

P.S. Here are those key paragraphs I mentioned above:

 11. In accordance with the Estate of Heggstad, 16 Cal. App. 4th 943, 20 Cal. Rptr. 2d 433 (1993), real property listed on a schedule of assets attached to a trust or referred to in the trust itself is real property owned by the trust and is therefore exempt from the administration of the estate in a Probate Court proceeding.  In this case, the property was specifically mentioned on the attached Schedule of Assets.
 12. Under California case law and code sections, transfer of title of an interest in real or personal property is not a prerequisite to creation of a valid trust.  It can be created either by agreement or by a unilateral declaration of the people who assumed to act as trustees.  By declaring herself as trustee of the property, a trust was created, even though at the time of the death of Settlor the assets were not titled in the name of the trust.
 13. Based on Settlor’s intent, as described herein, to include all of the assets listed on the Schedule of Assets as a part of the trust estate, the assets should be deemed to be part of the trust estate.