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California Trust Beneficiaries | 5 Lessons for 2019

5 Lessons CA Trust Beneficiaries.jpgYou're the beneficiary of a trust in California. You want to ensure that the distribution of trust assets is smooth and timely. And while the chances are good that distribution to beneficiaries will go off without a hitch, there is still potential trouble to look out for. What are the top five factors to keep in mind if you're the heir to an estate and are concerned about a bad trustee or possible trust litigation?

1. Beneficiaries Frozen Out & Disinherited

Disinheritance can come as a shock, both at the emotional level and to a beneficiary's financial security. You've been wrongfully excluded from a trust - it's not what the trust maker would have wanted, and it's certainly not what you want. Your elderly parent or grandparent was isolated and exploited in order to change estate plans. Your future has been upended, so where do you go from here?

Talking to an experienced estate and trust litigation attorney is a good start. If you resolve to take legal action, we begin with an analysis of how and when the wrongdoing occurred and how the will or trust was hijacked by the wrongdoer. These facts will be relevant in the litigation process, where we'll address questions of capacity and undue influence. Did the elder have the capacity to change a trust document? Were there conditions like Alzheimer's or dementia that would have left the elder vulnerable to undue influence?

Undue influence frequently plays a role in unjust disinheritance. It's a form of manipulation wrongdoers use to upend estate documents and then loot trust assets. California Welfare & Institutions Code 15610.70 defines it as "excessive persuasion that causes another person to act or refrain from acting by overcoming that person's free will and results in inequity."

What are the main elements of undue influence?

  • Vulnerability: Is the victim vulnerable? (Due to incapacity, illness, advanced age, impaired cognitive faculties, etc.)
  • Authority: Did the wrongdoer exercise apparent authority? (fiduciary/trustee, family member, care provider, medical professional, lawyer, etc.)
  • Actions & Tactics: Did the wrongdoer control necessaries of life (medication, food/water, interactions) and/or use affection/intimidation/coercion to affect estate changes? These changes will often be made in secret and in a hurry.
  • Equity of Result: What are the economic consequences of the estate change? Did it diverge from the trust maker's original intent for beneficiaries? Would an unbiased, objective observer consider these changes appropriate?

It's important to retrace your steps and look back at the circumstances that led to you getting frozen out as a beneficiary of the trust. Did any of these factors play a role in the disinheritance? Undue influence is a more common phenomenon than many might think, and sometimes it takes a well-versed trust litigator to nail it down and put the wrongdoer on notice.

2. Trustee Stonewalling

When you realize you've been frozen out of a trust and denied distribution of assets, a common response by a rogue trustee will be to give you the silent treatment. They'll ignore you, expect you to forget they've committed breach of fiduciary duty, and pretend you'll go away. But you won't go away - you're a beneficiary whose rights to a trust have been violated. You're going to hold them accountable.

Let's go back to the California Probate Code, specifically Section 16002. Here it's stated that the trustee has a "duty of loyalty" to beneficiaries and must "administer the trust solely in the interest of the beneficiaries." That's perfectly reasonable, and it's meant to align with the original intentions of the trust maker. When there's a conflict of interest between a trustee and beneficiary, we need to take a long, hard look at what the trustee is up to. Section 16004 states that the trustee is not allowed to "use or deal with trust property for the trustee's own profit." And when the trustee also holds beneficiary status, they still have "a duty to deal impartially" with beneficiaries.

An abusive trustee will ignore these duties to beneficiaries and use trust funds for their own benefit. Sometimes they think they're riding a gravy train - the trustee will expend trust assets on everything from luxury vehicles to exotic vacations. They're living large spending money from the trust, money that belongs to the rightful beneficiaries. Sometimes they'll settle down in a family home without paying rent. Not only that, but when the bad-faith trustee is finally brought to court, they'll pay for their defense from the trust itself, further draining assets.

So when a trustee misappropriates trust funds and tries to keep beneficiaries in the dark, they're going to be made to answer. If a trustee refuses to give an accounting, then we will secure a probate court order that compels the trustee to hand over a clear accounting of the trust to the court. Should the trustee fail to present an accounting, we can take further action.

One particularly powerful tool is an ex-parte petition to prevent the wrongdoer from using money from the trust to fund their own legal defense. An ex-parte filing goes a long way in helping safeguard the integrity of the trust - so its assets won't be squandered by the problem trustee on legal fees to defend their own bad behavior.

Trustee removal is also an effective method of dealing with uncooperative problem trustees. These grounds are outlined under California Probate Code Section 15642:

What are the grounds for removing a trustee?

  • 1) Where the trustee has committed a breach of the trust.
  • 2) Where the trustee is insolvent or otherwise unfit to administer the trust.
  • 3) Where hostility or lack of cooperation among cotrustees impairs the administration of the trust.
  • 4) Where the trustee fails or declines to act.
  • 5) Where the trustee's compensation is excessive under the circumstances.
Source: CA Probate Code Section 15642

No more broken promises and no more excuses - the trustee can be found in contempt by the court and removed from the equation entirely. The rogue trustee's records will be transferred, and they'll be surcharged. We can also request the appointment of a new temporary trustee, and an 850 Heggstad Petition can be filed with the court for the recovery of wrongfully transferred trust assets.

3. Elder Financial Abuse

Another major lesson for trust beneficiaries concerns the persistent and rising threat of elder financial abuse. While awareness of the problem has grown in the media and society, so too has the rate of exploitation. This year the U.S. Treasury Department released figures on suspected cases of elder financial abuse nationwide. The latest numbers - over 24,000 suspected cases - have doubled over the past five years. There are demographic reasons underlying this increase - each day in America, 10,000 citizens from the Baby Boomer generation turn 65. Along with this milestone comes another eventuality, a massive and unprecedented $30 trillion wealth transfer to younger generations.

Now that Boomers are paying more attention to their trusts and estates, there are plenty of bad actors searching out an opportunity to take advantage of our seniors. The elderly are targets of convenience for con-artists, identity thieves, scammers and estate hijackers. As the Wall Street Journal and American Bankers Association have shown, people over age 50 hold a substantial 61% of bank accounts and make up to 70% of bank deposits. The elderly, sick and lonely fall prey to all kinds of fraud, including fake phone calls from "the IRS," pleas for help (and cash) over social media from phony "grandchildren," and online romance scams.

It's worth reminding, though, that the most prevalent form of elder financial exploitation is perpetrated by family members of elders. A well-regarded National Center on Elder Abuse report ranks family members first:

Who commits elder financial abuse?

  • 1) 57.9% - Family members
  • 2) 16.9% - Family and friends
  • 3) 14.9% - Caregivers
Source: National Center on Elder Abuse

We've litigated many elder financial abuse cases from each of the above three categories. It could be a stepmother, a neighbor, or a caretaker, but they're all engaged in wrongful taking of estate and trust assets through manipulation, coercion or outright theft. Many times these stories are connected to substance abuse, with one family member addicted to alcohol or drugs. The addict, often unemployed, will isolate the elder (who might suffer Alzheimer's or other cognitive decline) and then shift estate assets and property into their control through undue influence. Other beneficiaries are excluded from the will or trust and don't know where to turn.

The facts of these cases and others fall under the California Elder Abuse and Dependent Adult Civil Protection Act, which has proven a key weapon for advocates of abused elders and beneficiaries. This law enables victims to pursue civil litigation against wrongdoers with the option of a jury trial. Along with these features, the act provides for both the awarding of compensatory damages to the plaintiff and payment of attorney's fees and costs.

4. Wrongful Transfers & House Disputes

It's our experience representing disinherited trust beneficiaries that battles over houses are becoming ever more common. With house prices remaining high in places like the Bay Area and Los Angeles, the family home becomes the object of conflict, up to and including lawsuits. Wrongdoing will typically occur when an ailing elder is unduly influenced to make a deathbed transfer of assets, leaving original beneficiaries frozen out. The perpetrator could be a caretaker or an addicted child. Other times house transfers are the product of outright fraud.

A dispute over a house in a trust starts with the question, "Who is the rightful owner?" Ownership is confirmed by legal title, most often in the form of a deed. There's a difference between title and possession of a property, though the two can coincide. In addition, legal title is frequently the name of the owner of the property as documented in public records. You can find legal title in the name of the grantee on a deed.

How do I know who is the rightful heir to a house?

  • Timeline: When was the house transferred? Before or after the death of the decedent?
  • Promises: Did the trust maker long promise the house to one beneficiary in particular? Was this stated in the trust?
  • Identity: Who is the beneficiary of the house now? A child? A caregiver?
  • Financial means: Is the house beneficiary able to pay for the house they're staying in?

In some of these ownership disputes and other scenarios, the wrongdoer is also a trustee who controls distribution of trust assets to beneficiaries. Rogue trustees will view themselves as the sole beneficiaries of the trust and even settle into the family home. Whatever their viewpoint, they're violating fiduciary duties by failing to transfer the home to the rightful beneficiaries. The situation amounts to one of the beneficiaries unlawfully occupying trust property. The financial and emotional aspects of these fights are distressing to the disinherited. Tensions between parties can make resolution seem remote. After all, at some point the house as the main trust asset will likely be sold, which means the tenants have to move.

Sale of the house is the most viable path towards settlement between opposing sides. They can reach an agreement on how the proceeds of the sale will be split by percentage. Once the sale goes forward, each litigant can receive their payment via escrow.

5. Trust Mediation Works

No matter what side you're on, the litigation process can be painful. Trustees, beneficiaries and excluded heirs not only depend on their lawyers to advance their interests, but they also must pay them. They all discover that as a case moves forward, whatever assumptions about its progress may quickly dissipate. The "fog of war" also applies to litigation. A case might not turn out as ironclad as it first appeared. And even if it originally seemed strong, potential deficiencies can reveal themselves later on. Civil litigation is tough, and these are some of its unavoidable realities.

When I'm working with clients, they'll frequently ask me the same question: Will the other side see our willingness to pursue mediation as a sign of weakness? This is a perfectly understandable concern. What's important to keep in mind is that mediation in estate, trust and elder financial abuse cases represents a well-treaded path to resolution. Out of all the civil litigation matters in California, only three percent actually go to trial. That means the vast majority are resolved outside the courtroom through mediation.

Mediation usually takes place after legal action has already been taken by one or more sides, i.e. after a complaint is filed with the court. To put it in the language of boxing, the fighters have already engaged and exchanged blows. But the process doesn't have to begin like that. Instead of filing, litigants can decide that initial-stage mediation is a wiser course. Since 97% of cases are resolved before trial, taking the case to mediation makes sense for your bottom line. As time goes on, costs only increase, so it's better for a client to mediate earlier rather than later.

No two cases of estate, trust or elder financial abuse litigation are exactly alike. There's always variations that characterize every story. Conflicts between beneficiaries and trustees over estate and trust assets can be cantankerous grudge matches. Family members will battle over items and property valuable to them not only financially, but also emotionally. In these disputes, neither side wants to concede an inch to the other, which means that everyone digs in for a fight. That said, even the following contentious cases can and do regularly go to mediation:

  • Will and trust contests;
  • Allegations of breach of fiduciary duty;
  • Conservatorship disputes;
  • Undue influence claims;
  • Disputes regarding capacity to form a trust or a will;
  • Trustee removal disputes;
  • Disputes regarding advance health care directives; and
  • Pretermitted heir disputes.

What should a client expect at mediation? A mediator is a professional, often a retired judge, and one of the first things they'll do is ask you to tell them your story.

A good mediator's opening statement will go something like this:

"Don't' expect to get your best-day results at a trial. Mediation is a process of give and take, weighing risk and reward, factoring in financial and emotional costs of trial and finding a way toward closure - for finality."

At the same time, don't think that it will turn out to be your worst day, either.

In addition, it's important to note that you, the client, don't have to go to mediation, nor are you under any legal obligation to accept mediation results. A top trust and estate mediator I've worked with on California cases has remarked that in all her years serving as a trial judge, she never saw the parties to a trial happy. Trials can be exhausting, and appeals can place additional strain on a client's emotional well-being.

Are there times when mediation fails and trial is necessary? This does happen. If a rogue trustee or caregiver is stubborn enough or truly believes they're right, we'll be ready for litigation so that a judge or jury can decide. Should a trial be necessary, we represent beneficiaries across California, including in Los Angeles, Orange, Santa Clara, San Mateo, Alameda, Contra Costa and Sacramento Counties.

No matter the venue or time, mediations will come with a context of emotional drama. The task of each party involved isn't to deny these emotions, but to focus on a practical resolution of the conflict so that each side can go home in peace with an equitable settlement reached.

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