This Section and its working committees (Guardianship / Conservatorship Project and Elder Law) deal with all issues relating to estate planning and the probate of decedents' estates, the avoidance of probate, and the protection of incompetents and their assets through guardianships and conservatorships.

Beverly Hills Bar Association Legislative Updates California Court of Appeal

January 2005 Case Update Estate of Noble TCM 2005-2 (1/6/05) Decedent died in 1996 and owned 116 shares of Glenwood State Bank, a closely-held company. During the 15 months prior to his death, two transactions of small blocks of Gleenwood stock between 3rd parties which occurred at between $1,000 to $1,500 per share. Some 1 Year after decedents death, the Bank offered to purchase the Decedent’s 166 shares for a price of $9,483 per share. The estate relied upon prior transactions to determine the value while the IRS used the subsequent sales to value the stock. The tax court agreed with the IRS, and used the subsequent sale. They stated that (1) nothing material had occurred between the date of death and the date of the sale to the bank to warrant its exclusion, and (2) the only adjustment that should be made should be for inflation between the date of death and date of subsequent transaction. The reason for using the subsequent sale instead of the prior transaction is the fact that it involved the exact number of shares, i.e. Decedent’s property and it likely involved a strategic purchase whereas the prior sales did not. Thus a price of $9,400 was employed. Conservatorship of McDowell H026400 Cal App 6th 1/06/05 This case deals with Probate Code §21350 and the definition of a Care Custodian. Under Probate Code §21350, a transfer to a Care Custodian is presumptively invalid . The court looked to the factors in order to determine if the beneficiary was a Care Custodian or not. The court said that one key factor was whether the individual was a professional or occupational caregiver. The fact that they receive compensation for these services is irrelevant. They also looked to the fact that there was a pre-existing relationship. Because there was a friendship prior to the time that the Decedent needed a caregiver, the beneficiary was not blocked from recovery under Probate Code §21350. In Re Marshall U.S. Court Appeals 9th Circuit 12/31/04 02-56002 This case involves the never ending legal saga of Vickie Lynn Marshall aka Ana-Nicole Smith over the estate of her deceased husband J. Howard Marshall and his son E. Pierce Marshall. Here, Mrs. Marshall/Smith filed bankruptcy proceedings in California. The probate of the Estate of Mr. Marshall was being heard in Texas State Court. Smith filed a claim under the California Bankruptcy court for a tort against the Son under the will of Marshall. Smith stated that she had jurisdiction because of diversity since she was in California and the Son was in Texas. The son E. Pierce Marshall, filed an action in 9th Circuit court to dismiss the tort action for lack of jurisdiction since all probate cases must be heard in State courts (this is known as the Probate Exception to Federal Jurisdiction). The court agreed with E. Pierce Marshall and stated that the Probate Exception applied. Despite the fact that the matter is a Federal Diversity Suit, because this matter involved the property of trust which is being probated in Texas, it is a state matter. Beverly Hills Bar Association Trusts and Estates Section Paul L. Basile, Jr. Tyre Kamins Katz Granof & Menes Los Angeles, California   Federal Laws and Regulations Regs. §20.2032-1, T.D. 9172. Final Regulations regarding late elections of alternate valuations have been issued. Generally, the Regulations provide that alternate valuation may be elected on the last-filed estate tax return filed on or before the due date (including extensions to file actually granted). If no timely return is filed, the election may be made on a late-filed return provided the return is filed no later than one year after the due date (including extensions to file actually granted). The preamble states that the same rule will apply to QDOT elections under IRC §2056A. However, there is no actual change to those Regulations. California Laws and Regulations Federal Cases Kooyers v. Commissioner, T.C. Memo 2004-281. This case deals personal trusts created to avoid income taxes. Mr. and Mrs. Kooyers worked as missionaries in New Guinea. They lived a frugal life and established a sizeable investment portfolio. After their return from the field, they settled in California. The Kooyers attended a seminar on “complex trusts” conducted by National Trust Services. As a result of what they learned at that seminar, they established a series of trusts. The primary trust was the OMK Family Trust. That trust created a series of subsidiary trusts including the OMK Company Trust and the OMK Charitable Trust. The Kooyers assigned all of their assets, including the right to their lifetime services, to the OMK Family Trust. The OMK Family Trust then agreed with the missionary organization established by the Kooyers to continue their work in New Guinea to provide the services of Mr. and Mrs. Kooyers in exchange for compensation to be paid to the OMK Family Trust. The OMK Family Trust paid substantially all of the living and other expenses of the Kooyers. Mr. and Mrs. Kooyers, as the result of attending some meetings with associates of National Trust Services in the Cayman Islands, to have the OMK Family Trust invest in certain funds administered in the Cayman Islands. The funds were in reality a Ponzi scheme and the Kooyers lost essentially all of their investment. The Internal Revenue Service audited the Kooyers’ and the OMK Family Trust’s income tax returns and prepared a Notice of Deficiency which denied most of the deductions for living expenses taken by the OMK Family Trust. The Tax Court upheld most of the findings in the Notice of Deficiency. The Court described a series of cases where the taxpayers established family trusts using forms, materials, and step-by-step instructions bought from the promoters of trust schemes. The Court determined that the OMK Family Trust was not any different than those trusts described in the cited cases. It, therefore, held that the OMK Family Trust should be disregarded. (It held the same with respect to the OMK Company Trust and the OMK Charitable Trust. It might have held differently with respect to the OMK Charitable Trust if any evidence about it had been submitted; however the record was silent on that issue.) The Court held that the OMK Family Trust was no more than a method to attempt to deduct personal consumption expenses, that the Kooyers attempted to assign their personal services income to the Trust, that the Trust was a grantor trust, and that the Trust lacked substance. The only ray of light for the Kooyers was that the Court held that the purported “interest” received from the Cayman Islands investments was, in reality, a return of capital and, therefore, not taxable. California Cases Bontá v. Arnold, ___ Cal.App.4th ___. This case deals with reimbursement of the California Department of Health for Medi-Cal benefits from a special needs trust after the death of the beneficiary. Etoria Hatcher was the recipient of Medi-Cal benefits. Prior to applying for those benefits, Hatcher was to receive a settlement from a lawsuit. Brenda Arnold was Hatcher’s daughter (her sole child) and her conservator. Arnold established a special needs trust for Hatcher pursuant to Probate Code §3600 et seq. with court approval. The special needs trust included the required provision that, upon Hatcher’s death, notice was to be given to the Department of Health (together with other state agencies) and the Department of Health was to be reimbursed from the special needs trust for benefits advanced under Medi-Cal. Probate Code §3605. Arnold was permanently and totally disabled and received disability benefits from the Social Security Administration. Hatcher died but Arnold did not give the Department of Health the required notice. She instead distributed the remaining assets in the special needs trust to herself as the sole heir of Hatcher. The Department of Health discovered Hatcher’s death and filed this lawsuit for reimbursement. On cross-motions for summary judgment, the trial court ruled that the Department of Health should be reimbursed. The Court reversed the trial court’s ruling and held that Arnold was not required to reimburse the Department of Health despite the provisions of the special needs trust. Federal law provides that recovery may be had from a decedent’s estate except when there is a surviving spouse (and then recovery may be had upon the death of the surviving spouse), or when there is a child who is under age 21, or is blind, or is permanently and totally disabled. 42 U.S.C. §1396p(b)(4) and §1396p(b)(2)(A). California law follows federal law in this respect. Welfare & Institutions Code §14009.5. The Court ruled that a special needs trust should be treated the same as a decedent’s estate for purposes of reimbursement. Therefore, as Arnold was permanently and totally disabled and was the sole beneficiary of the special needs trust, there was no right of reimbursement. Embree v. Embree, ___ Cal.App.4th ___. This case deals with the statute of limitations for claims against a trust. Alvin Embree, the decedent, and Joanne Embree, his former wife, divorced. As part of the marital settlement agreement, Alvin agreed to pay Joanne spousal support of $1,800 per month. The support obligation would end upon the remarriage of Joanne or the death of either Alvin or Joanne. However, Alvin agreed that he would provide in his will that should he die before Joanne, his will or trust would include an annuity which would meet the spousal support obligation. Alvin subsequently remarried. Upon his death, Alvin’s trust distributed the family home (apparently, Alvin’s only asset) to his widow and children. The Trustee elected to not give the notice prescribed in Probate Code §19100. Nineteen months after Alvin’s death, Joanne filed a lawsuit to collect the agreed-upon annuity from the beneficiaries of Alvin’s trust. The Court ruled that Joanne’s claim was time barred under Civil Code §366.3 as she waited more than a year to file her claim. Even though Family Code §4502 provides that a family law judgment is “enforceable until paid in full”, that provision only exempts such judgments from the renewal requirement of the Enforcement of Judgments Law (Civil Code §680.010 et seq.) and not from the Probate Code provisions governing claims against estates and trusts. Probate Code §9100 [claims against probate estates] and §19103 [claims against trusts].