California’s Newest Tort-Intentional Interference with Expected Inheritance

In Beckwith v. Dahl, a California Court of Appeal linked California to a majority of other states by recognizing the tort of intentional interference with expected inheritance (IIEI).

To state a claim for IIEI, the court required the plaintiff to allege:

1. An expectancy of an inheritance
2. Proof amounting to a reasonable degree of certainty that the bequest or device would have been in effect at the time of the death of the testator if there had been no interference.
3. The defendant had knowledge of plaintiff’s expectancy of inheritance and took deliberate action to interfere with it.
4. Defendant’s underlying conduct was wrong for some reason other than the interference itself.
5. Plaintiff was damaged by the defendant’s interference.
6. Defendant’s conduct induced or caused the testator to take some action that deprived the plaintiff of his expected inheritance.

If defendant’s conduct was directed only at the plaintiff, the court stated that the plaintiff does not have a cause of action for IIEI.

For each of the elements of an IIEI claim, future courts will flesh out what specific conduct does or does not satisfy it. If a child tells his mother to disinherit his sister, will this be enough? Or must the child say something bad to the mother about his sister? Or must the bad statement by the child to the mother about his sister be objectively false? Or must the bad statement by the child to the mother about his sister be outrageous?

Will there be different standards for defendants who are related to the testator than for those who are unrelated. Will there be different standards for defendants who have helped the testator? Will there be different standards for defendants where the plaintiff has failed to stay in touch with the testator? Will it be relevant whether the defendant knows the lawyer who prepared the estate planning documents, or whether the defendant is already a client of the lawyer who prepared the estate planning documents? To what degree will the testator’s health status be relevant

Anticipating a Contest

Bill is elderly and widowed. He has two children, Mike and Carl. Bill wants to create a revocable trust through which he will leave all his assets to Mike. Bill tells Mike to call an attorney to ‘arrange it.’
If Mike complies and if the attorney who is brought in also complies, Mike’s involvement in arranging for the creation of the documents could be used by Carl (after Bill’s death and as part of a contest of the trust)as evidence that Mike unduly influenced Bill. Mike would be better off telling Bill to contact the estate planning attorney.
Further, Bill should bring neutral witnesses with him to the attorney’s office to document that Bill understood and desired the documents that he was signing. The estate planning attorney could  document Bill’s intent by having Bill provide a hand-written explanation of why he was leaving his assets to Mike and of why he was not leaving anything to Carl.
A geriatric psychiatrist could also be hired by Bill to evaluate Bill’s cognitive abilities and to create a written report of the results. 

 

Valuing a Business in a Buy-Sell Agreement

John and Mike each own 50% of a business. They sign a buy-sell agreement providing that if one of them dies, the other one will buy out the deceased owner’s share at a specified price and on specified terms. The drafting attorney or attorneys suggest that the business be valued by a qualified appraiser, but John and Mike do not want to pay for an appraisal so they set an arbitrary figure as the value. They tell the attorney(s) that they will update the figure from time to time to reflect changes in the business’s value. As years go by, John and Mike continue to ignore the issue, in part because they still do not want to pay for appraisals of the business, so the initial arbitrary figure for the business’s valuation stands.

Ten years later, John dies. Mike will either be paying too much or too little to buy John’s share. Mike will be angry if he has to pay more than John’s share is worth. John’s beneficiaries will be angry if Mike pays them less than what John’s share is worth. The two sides will be likely to go to separate attorneys, and one side may try to attack or set aside the valuation in the buy-sell agreement. The two attorneys representing the two sides will be the big winners.

What if the buy-sell agreement did not set a price? What if the buy-sell agreement provided that when one owner dies, each side will pick an appraiser, and that the two appraisers will agree on a third appraiser, and that the valuation done at that point by the third appraiser will set the buy-out price of the deceased owner’s interest?

Using this method, John and Mike still don’t have to pay for an appraisal when the agreement is drafted. Using this method, John and Mike don’t have to pay for future appraisals to periodically update the buy-out price. Using this method, when one owner dies, a fair price will be arrived at, which will lessen the possibility that the two sides will hire lawyers to fight eachother.

Has Real Estate Been Removed From Trust During A Refinance?

When a person creates a revocable living trust, his or her attorney typically prepares quitclaim deeds on each piece of real estate which ,when recorded, transfer the real properties to the person as trustee of his or her trust. The purpose of these transfers is to avoid probate. But many people refinance their real properties in order to obtain a lower interest rate, and when they do, sometimes the escrow removes the property from the trust because certain lenders choose not to lend to a trust, even when it is revocable by its creator.

Some people do not realize that they have signed papers during the refinance which remove the property from their trust. Some people realize that it has been removed but assume that the escrow will transfer the property back into the trust after the refinance has been completed. In most cases, the escrow will not do this.

Most attorneys who prepare revocable trusts also prepare for their clients a pour over Will. This document transfers to the trust any assets that have been left out. Stated differently, if a client with a revocable trust inadvertently removes a property from his or her trust during a refinance, it will go through a court process called probate at the client’s death in order for the property to get back into the trust. The time delays, filing fees, and attorneys fees of a probate can be avoided if the person contacts the attorney after the refinance has been completed so that the property can be deeded back into his or her

Health Care Powers of Attorney and Trustee Succession on Incapacity

The Trustee is the manager of the trust’s assets, and the trusteeship changes on any  of the following three events: death, resignation or incapacity. Death is proven by a certified copy of a death certificate. Resignation is proven by the written document of resignation. Incapacity in trusts that I draft is proven by letters from two doctors who have examined the Creator/Trustor.

But doctors are reluctant to write such a letter for someone other than their patient. They are worried that they may be violating their patient’s privacy rights under a federal law called HIPPA. But if the patient has a durable power of attorney for health care, his or her doctors will be more willing to consult with and write a letter (ie. one documenting the patient’s incapacity) for the agent (attorney-in-fact) designated in the health power.

In order for the health power to be recognized, it should contain specific language waiving  the patient’s privacy rights under HIPPA. In addition, there is a section of the health power which needs to be separately signed by the patient and which states that the agent’s authority begins immediately. Doctors are less likely to honor a health power which springs into effect upon the patient’s later incapacity, and are more likely to honor a health power which gives the agent authority that is effective immediately upon the signing of the health power.

IRS will be looking for Gift Tax Returns

When one donor makes a gift in one calendar year of more than $13,000 to any one donee, the donor is required to file a federal gift tax return, form 709, with the IRS. The amount of the gift in excess of $13,000 to each donee will reduce the donor’s exemption equivalent, the amount the donor can give during life and at death combined without paying gift or estate tax. Only if the prior years taxable gifts plus the current year’s taxable gifts exceeds the donor’s exemption equivalent will there be an actual gift tax due with the return.
In Re Does is a case in which the U.S. District Court on December 15, 2011 granted the IRS permission to summons from the California Board of Equalization information on transfers of real property between nonspouse relatives. The IRS will then check and see whether gifts by these donors which were in excess of $13,000 were reported by the donors on gift tax returns.
The IRS was granted the summons in part because it presented to the court the results of a survey indicated that between 50% and 90% of individuals who transferred real property to their children or grandchildren for little or no consideration failed to file form 709. The court found this survey sufficient to support a reasonable belief of failed compliance by this class of taxpayers.

Benefits of a Special Needs Trust

If a child has a disability, he or she may qualify for special programs such as Medi-Cal or SSI. These programs typically require that the child have very little or no assets in order to qualify. Sometimes, the government entity even keeps track of the value of the benefits provided.

When the parents die, they may leave assets directly to the child or in an irrevocable trust for the needs of the child. Either way, the child will be disqualified from the program that he or she is on if the program requires him or her to have very little or no assets. Sometimes, the government entity may seek to recover from the inherited assets the value of benefits previously provided.

The parents can create and transfer their assets to a revocable trust to avoid probate. The trust can provide that the child’s share of the assets pass to a special needs trust. Such a trust says that the child can only get benefits from the trust for things that are above and beyond the benefits that he or she is entitled to from the government program.

Using a special needs trust to hold assets earmarked for a child with a disability is a way to prevent the child from becoming disqualified from a government program when the parents have died because the special needs trust will not be considered a resource of the child.