Trust, Estate, & Elder Law Litigation Services

Trust, Estate, & Elder Law Litigation Services

Trust, estate, and elder law litigation is an area that all parties wish to avoid, but there are situations when beneficiaries contest the financial plans made by a Trustor or when unscrupulous individuals appropriate funds from a trusting individual's business or personal funds, something that is known as "elder financial abuse." There are numerous precautions that can and should be taken in order to avoid such situations. Otherwise, litigation must be pursued to either retain funds, determine the competency of the Trustor, follow out the wishes of the Trustor, or recover funds that are missing from trusts or other financial instruments.

		Click here to read about the contesting of Wills and trusts, "no contest" clauses, and appropriate steps to take to ensure the proper disposition of your Will or trust instruments.
		Click here to read Pat Wilkinson's article: "A Recent Elder Financial Abuse Case," published in the September 2000 issue of the Legal Network News, and which was handled by our firm. The article discusses a case of inappropriate financial maneuverings by a family friend who was also the bookkeeper for the family's businesses, the options that were available to the family and attorneys, and the actions that were taken to successfully defend this case.
		Click here to review a case study: "Ensuring an "Integrated Estate Plan." It involves a client with a Revocable Living Trust (RLT), several additional trust instruments, a "no contest" clause included in the RLT, and a beneficiary who chooses to dispute the Trust.

Contesting Wills and Trusts

We've all seen disturbing court battles over Wills and estates, and the ensuing litigation battles are reported throughout our media. Will and Trust disputes routinely arise when there is a disgruntled beneficiary who challenges the asset protection planning instruments instituted by the Trustor on the grounds of “undue influence” or “lack of mental capacity.”

To begin with, when an individual prepares a Will, they seek out the services of an attorney. In most cases, an attorney who prepares a trust instrument or Will for a client does not conduct a competency test because it is “obvious” that the client is competent. If an attorney does conduct a competency test, they generally conclude, as a result of the test, that the client is competent.

However, even with detailed notes in the client’s file to the effect that the client was competent, and there are notes concerning the test that was administered and the questions and answers that were given, the attorney is ill equipped to fend off a challenge to a client's Will or Trust they've administered when a disgruntled heir files a Motion Seeking a Determination that the Proposed Action by a beneficiary does not constitute a “contest” within the meaning of a “no contest” clause in the instrument (see sidebar information on this). The issue arises as to “why the attorney didn’t refer the client to a geriatric specialist” to determine the issue of capacity. This attack places the attorney who drafted the trust instrument or Will on the witness stand to testify as to his or her credentials, background, and experience in determining a client's capacity—a scenario most attorneys do not welcome.

The purpose of a “no contest” clause is to discourage beneficiaries from challenging Wills, Trusts, and other “dispositive” instruments by disinheriting all beneficiaries who challenge the instrument(s). The challenge is usually that the Testator was under “undue influence” from someone else or was not “mentally competent” when the instrument was prepared.

The "contest" referred to at left means that a beneficiary can dispute the dispositions of a Will or Trust as long as their dispute is not perceived as a "challenge" to the Will or Trust. A "no contest" clause is used to prevent challenges to a Will or Trust. Regardless of the attack concerning the competence of either the attorney or Trustor, the no contest clause acts as a potential danger to the beneficiary disputing the Will or Trust as they may well be disinherited due to the "no contest" clause. The following is an example of the “no-contest” clause that many attorneys have been using in Revocable Living Trust documents.

“Except as otherwise provided in this instrument, the Trustor has intentionally and with full knowledge omitted to provide for his heirs. If any beneficiary under this Trust, singly or in conjunction with any other person or persons, contests in any court the validity of this trust or of a deceased Trustor’s last Will or seeks to obtain an adjudication in any proceeding in any court that this trust or any of its provisions or that such Will or any of its provisions is void, or seeks otherwise to void, nullify, or set aside this Trust or any of its provisions, then that person’s right to take any interest given to him or her by this Trust shall be determined as it would have been determined if the person had predeceased the execution of this Declaration of Trust without surviving issue. The provisions of this paragraph shall not apply to any disclaimer by any person of any benefit under this Trust or under any Will.”

Whether the attack is on the Will, the Trust, an IRA or a Family Limited Partnership, it will attack the capacity of the testator (the person in whose name the Trust or Will is made) at the time the instrument is executed—either because the testator was not competent or because he or she was under “undue influence.” Hence, the common method of attack is to file a P.C. Section 21300 Petition to determine whether or not that "if" the beneficiary actually claims the asset, the claiming of this asset would subject him or her to the no contest clause. If the court rules that the beneficiary would be subject to this clause, then disinheritance is automatic and the beneficiary may decide not to challenge the disposition.

However, Probate Code provides a method by which a beneficiary can obtain a court determination as to whether or not his or her proposed action constitutes a “contest” within the meaning of the Will or Trust’s “no contest” clause. This is a lengthy and time-consuming process, which necessitates a trial and an appeal. Therefore, it has settlement clout because it can force the estate to incur large litigation fees. The estate attorney may well decide that it is worth settling the case for at least the amount that it would cost to litigate the matter. However, it is possible that this litigation expense can be avoided with a tightly drafted “no-contest” clause.

In many cases, "no contest" clauses are not included in trust instruments or Wills and when they are, "cookie-cutter" clauses may be used. In order to avoid litigation, estate planning attorneys may wish to consider broadening the “cookie-cutter” “no contest” clause he or she uses in any Will and or Trust. More importantly, to circumvent the argument that the Trustor or decedent didn’t really mean to designate a particular person named on the IRA account or to break up a Family Limited Partnership because the beneficiary does not want his funds to be “tied up,” the estate's attorney may wish to insert a no contest clause into any buy-sell agreement, IRA agreement, 401(k) Agreement, or Family Limited Partnership he or she drafts because as a general rule these instruments will not contain a “no contest” clause and if these documents were not executed at or about the same time as the trust instrument or Will, it will be more difficult to argue an “integrated estate plan.”

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A Recent Elder
Financial Abuse Case

by Patricia Jo Wilkinson, Esq.

A recent EADACPA case Bush v. Pulokas, which the law firm of Wilkinson & Wilkinson, in Claremont, California tried before Los Angeles Superior Court Judge, Robert Martinez, in the Pomona district, resulted in an award of general damages prayed for in the amount of $200,000, Attorney’s Fees and costs incurred in both the lawsuit and the conservatorship and punitive damages in the amount of $300,000.

The defendant was a longtime friend and confidant of the family and the bookkeeper of the family businesses. The husband and wife were married for 25+ years and had executed a prenuptial agreement prior to their marriage. This prenuptial agreement designated the family home in Pasadena, California as the separate property of the wife. It was the second marriage for both the husband and wife and both had children from prior marriages. As the years passed the husband and wife aged considerably and finally entered a nursing home in 1991. From 1991 until 1998, the bookkeeper assumed an ever larger role in the business and personal finances of the Bush’s. Our law firm represented the wife.

In May of 1996 the Pasadena home was sold for approximately $500,000 in net proceeds which was wired into a joint checking account of the husband and wife. The bookkeeper coordinated the sale of this home with the real estate agent. After the proceeds were deposited into a joint account in the name of the husband and wife, the funds began dwindling rapidly. One year later, our client, the wife, learned that she was "running short of money" and she visited the bank with her daughter and attorney to withdraw her separate property funds and discovered that only $169,000 remained in her account and that the remainder of her funds had been transferred to "other" accounts to which she was not a signator.

At that point in time, our law firm asked for an accounting from the bookkeeper and the bookkeeper promptly hired counsel. Our law office filed for a conservatorship over the wife at her request and asked that her daughters be appointed conservator over her. The husband battled to become his wife’s conservator, but he was in such ill health and died within a relatively short period of time, that the court appointed the daughters.

Simultaneously, we filed a lawsuit against the bookkeeper for conversion, financial elder abuse and constructive trust on the funds from the Pasadena house. We also hired a forensic accountant to trace the proceeds into the various bank accounts.

At the time of the trial both the husband and wife were deceased. Hence, proving our case was accomplished entirely through the forensic accountant. The problem we faced was the fact that the husband was on all of the bank accounts and the bookkeeper had merely had the husband sign all of the checks transferring the separate property funds out of the joint bank account. Hence, the defense was "the husband told me to move the funds. I was only doing what I was told to do."

This might have been a good defense, but we traced some of the proceeds directly to cash withdrawals by the defendant, and so we could prove that at least some of the money had been used for the personal benefit of the defendant.

However, it was the thorough research of the law which led us to victory.

After our case in chief the judge stated that he was considering granting the motion for non-suit unless we submitted briefs which showed that we were entitled to the relief we sought. Since we knew at the outset that this would be a problem, we had thoroughly briefed the legal issues of—separate property, transmutation of separate property, agency/fiduciary duty, termination of agency, attorney’s fees and punitive damages and the intent required under EADACPA. We also attached a copy of the Welf. & Inst. Code Section 15610.30 to the Opposition for Motion for non-suit.

Once the judge was clear that the defendant had an ongoing fiduciary/agency relationship with the wife with regard to the sale of the house and the proceeds, then the law provided that the defendant could not accept orders from a second fiduciary duty to the wife.

Once we thoroughly briefed the law, the only issue remaining was the amount of the damages.

What makes these fiduciary abuse cases so difficult to prove is that our witnesses are deceased. The attorney actually went to the bank with the wife to try to retrieve the funds from her bank account. Hence, there was a hearsay issue, with regard to whether or not the statements made to the attorney out of court by the plaintiff were admissible.

Again, after thorough briefing, these statements were admissible to prove the plaintiff’s lack of donative intent with regard to these separate property funds.

In summary, for those attorneys who try these types of cases, it is wise to hire a forensic accountant to trace the funds, even though it is somewhat costly.

Also, it is invaluable to thoroughly research the law prior to trial and include the law in your trial brief or under separate cover.

The rewarding part was that all of the attorney’s fees, costs and punitive damages were recovered and a constructive trust placed on approximately $100,000 of the remaining funds which had been frozen in the conservatorship proceeding.

Patricia Jo Wilkinson is an attorney with Wilkinson
and Wilkinson, practicing law in Claremont.

CALIFORNIA ADVOCATES FOR NURSING HOME REFORM ~ 1610 BUSH STREET SAN FRANCISCO CA 94109 ~ 415/474-5171

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Case Study: Ensuring an "Integrated Estate Plan"

A client with a five-year-old Revocable Living Trust (RLT), which is funded by his home and rental property, pays a visit to his attorney. The RLT does not include the client’s beneficiary designation accounts, joint tenancy accounts, or IRA accounts. The RLT does include a “no contest” clause, (shown at right). Here are the factors leading to the client requesting the amendment:

		The attorney and client discuss in depth the ramifications of the beneficiary designation accounts and joint tenancy accounts, and the client unequivocally states that the distribution, which would obtain on his death with these jointly titled accounts, is NOT what he wishes
		The client has children from two prior marriages who do not get along well and a “Marvin Partner”
		The client wishes to protect his assets from his children’s creditors and reduce his estate taxes

The client employs the attorney to draft an Amendment to the Revocable Living Trust, which will accurately reflect his distribution wishes, a Pour-over Will, a Family Limited Partnership, and a Dynasty Trust for the benefit of his children and grandchildren. The amendment does not include a “no contest” clause.

What the amendment does is change the disposition as to the trust assets ONLY by reference to a specific paragraph. Hence, the first attack by any disgruntled beneficiary will be that since the amendment does not include a “no contest” clause, the no contest clause in the five-year-old Trust does not apply to him or her since his or her asset is only mentioned in the amendment.

“Except as otherwise provided in this instrument, the Trustor has intentionally and with full knowledge omitted to provide for his heirs. If any beneficiary under this Trust singly or in conjunction with any other person or persons, contests in any court the validity of this trust or of a deceased Trustor’s last Will or seeks to obtain an adjudication in any proceeding in any court that this trust or any of its provisions or that such Will or any of its provisions is void, or seeks otherwise to void, nullify, or set aside this Trust or any of its provisions, then that person’s right to take any interest given to him or her by this Trust shall be determined as it would have been determined if the person had predeceased the execution of this Declaration of Trust without surviving issue [without having any children or grandchildren, etc.] The provisions of this paragraph shall not apply to any disclaimer by any person of any benefit under this Trust or under any Will.”

The counter argument to this would be to have the amendment state “that all other provisions contained in the Trust dated [a specific date] remain the same” other than the specific paragraph, which was amended. Without this wording, the argument that the no contest clause does not apply to the amendment, carries more weight than it would otherwise.

Now—suppose the Trustor, the client, dies unexpectedly. One of the children named on the joint tenancy account—which the Trustor directed be funded into his RLT account—files a Probate Code Motion seeking a Declaratory Relief Adjudication that his claim of ownership to the joint tenancy account does not constitute a “contest” within the meaning of the “no contest” clause in the Trust instrument. The Trustor, prior to his passing, wrote to all of the financial institutions upon advice of counsel, asking each to transfer title to his RLT. All beneficiaries were notified and said that they would “take their name off the accounts” if the institution so required.

The problem for the attorney, is that any disgruntled heir, whether a joint tenant, a named beneficiary of an IRA or a Totten Trust, can bring a Probate Code Motion to have a judge determine whether or not that “if” the beneficiary filed a civil action to claim the asset, such a filing would constitute a “contest” within the meaning of the “no contest” clause.

Fortunately, the client’s attorney foresaw potential challenges to the Trust provision—due to the complicated Trust and account scenario—by not only amending the Trust to reflect the client’s wishes, but he added additional language to the “no contest” clause. In this case, the deceased client clearly intended the disposal of all of his property in the Trust estate when the “trustee” is directed to divide the Trust estate “including any assets subsequently added to the Trust estate” in a specific manner.

The attorney also included the following assignment language to the Revocable Living Trust (shown at right).

To further safeguard from a beneficiary contesting the Trust instrument, the attorney included an “Attachment A,” which lists all of the assets the client formally “assigned” to the Trust and which also includes the disputed joint tenancy or beneficiary designation account. This goes a long way toward proving the client’s intent with regard to the disputed account. The client’s intent was also clearly indicated by the individual transfer documents sent to each financial institution requesting title transfer to his Revocable Living Trust.

“I hereby assign all of my right, title, and interest in and to the following assets, which I now own or may own in the future: Any...assets which otherwise would be subject to probate. These assets, together with any other property, which become subject to this Trust, including assets that require formal documents of transfer, shall constitute the Trust estate” and “The trustee may accept additions to the Trust from any source, by inter vivos or testamentary transfer. All such original and additional property is referred to here collectively as the Trust Estate...”

Another way in which the attorney could have evidenced the client’s intent with regard to the joint tenancy or beneficiary designation account, would have been to include the following language in the amendment to the RLT:

“It is my intent to have all of my assets, whether titled as Joint Tenancy or by specific beneficiary designation be allocated to this declaration of Trust and be distributed in accordance with the terms of this declaration.” OR, “It is the Trustor’s intent to have all of his assets, whether titled as Joint Tenancy or otherwise, be allocated to this declaration of Trust...”

One way in which to broaden any “no contest” clause, is to add the following phrase:

“I wish any court asked to construe this no contest clause to give it the broadest possible interpretation possible under the then prevailing law in the state of California.”

Therefore, when a Trust disposes of the “trust estate” and where the joint tenancy account is clearly a part of that trust estate plan—whether it be by the written instruction to the financial institution or the assignment of that account to the Trust, and where our client’s intent is clearly evidenced in the amendment to the Trust executed along with his integrated estate plan—then any action to claim such an account as the beneficiary’s own money may be determined a “contest” to the Trust instrument, no matter whether the attack in on our client’s mental competency or “undue influence.”

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