Ambiguity in Charitable Gifts

A gift in a will setting up a charitable trust is valid, even if the gift does not specify any particular charity or class of charitable recipient. In Estate of Clementi, The Fourth District Court of Appeals upheld an Orange County Superior Court ruling that allowed the following language from a will:

"I give the balance of my assets to a charitable foundation or trust in my
name to be run by Richard Weisz. If Richard Weisz is not alive when I die, then I
appoint his son, Frank Weisz[,] to run my charitable foundation or trust."

The court held that the general policy in California is that charitable gifts are highly favored and that a charitable gift in a will must be liberally construed to uphold its validity.

While this policy is admirable, it can create problems for the trustee who then must administer the trust with no guidance as to how to direct the funds. This is yet another example of how an estate plan must be carefully drafted in order to make sure the wishes of the client are carried out. Sometimes a person may have a charitable intent, but has no real idea who to give their estate to. At those times, the estate planning attorney should ask a lot of questions to try to get an idea of what kinds of charitable organizations may fit with the client's charitable impulse. Are there any friends or loved ones with a medical condition that they would like to donate money to? Is there a specific group of people who the client would like to help (seniors, orphans, veterans).

A crucial part of estat planning is for the attorney to ask questions and listen carefully to the client. That is the key to drafting a plan that is clear to all involved.

Gift Taxes and You

I haven't posted much on the gift tax. (actually, I haven't posted at all about the gift tax). But there is a first time for everything.

Joel Schoenmeyer posted on how to take full advantage of the Federal annual gift tax exclusion. You can read the post here. Currently, you can make a gift of $12,000 per year to anyone you want without having to pay taxes or even file a gift tax return. In 2009, the exclusion goes up to $13,000.

Under Mr. Schoenmeyer's plan, you could make a $12,000 on December 31, 2008, and then a $13,000 gift to the same person the next day on January 1, 2009, for a total of $25,000, tax free and without even filing a return. And you can do this for as many people as you want.

Many people use gifting to reduce the size of their estates in order to avoid or reduce estate tax exposure. The disadvantage of this is that, since you really can't predict when you are going to die, you run the risk of giving away too much of your estate too soon.

Thanks to Mr. Schoenmeyer for his useful post!

Be Careful with Mediation Confidentiality

Mediation of disputes in the world of Trusts and Estates is not as common as it is in civil litigation generally. Nevertheless, it can be very useful in settling things among beneficiaries, or between beneficiaries and trustees, or among heirs and executors.

In California, documents prepared during a mediation are confidential, except when they are not. The default is to protect these documents from disclosure in litigation in order to foster more open discussion, but this confidentiality can be waived.

Whether the children of Thresiamma Thottam waived this confidentiality was the Estate of Thottam matter. The children disputed the division of property after the death of their mother. They agreed to mediate the matter, and signed an agreement that protected the confidentiality of proceedings "except as may be necessary to enforce any agreements resulting from the Meeting."

During the mediation, a chart was prepared showing an allocation of the assets of the mother's trust. The children all initialed the chart. Afterwards, disputes arose over the language of the settlement agreement memorializing the distribution and incorporating a copy of the chart. One child sued the other two for breach of the settlement agreement. The other children filed motions to keep the chart out of evidence, claiming that it was confidential under California. The trial court agreed, but the court of appeal did not, and reversed the trial court's decision.

The court of appeal held that California law provides an exception to mediation confidentiality where all parties agree in writing to waive it. The court found that the agreement the parties signed waiving confidentiality where necessary to enforce any agreements resulting from the meeting constituted a valid waiver under California law. They also held that the chart initialed by all parties was just such an agreement, although they did not rule on whether the chart was enforceable.

I think there are two important lessons from this case. First, remember that by law, all writings in a mediation are confidential. Be careful not to sign anything that could constitute a waiver of this confidentiality if you want to make sure that what happens in the mediation stays in the mediation. Second, if you come to a settlement, make sure that the document memorializing the settlement is clear and unambiguous. Even though the court did not rule on whether the chart in this case was enforceable, it frightens me to think that a chart, with no terms and nothing other than initials of the children, can be used as evidence of a settlement.

Legal documents sometimes seem pointlessly long and detailed. But there is often a very good reason for it.

CA Widow Cannot Use Husband's Frozen Sperm

The California Court of Appeal for the Third Appellate District (Sacramento) today held that a widow cannot obtain the frozen sperm of her husband, who requested that the sperm be destroyed upon his death.

Technically, the court upheld the probate court's denial of the widow's motion for preliminary distribution of the frozen sperm.

Iris and Joseph Kievernagel contracted with an IVF clinic to help Iris have a baby. Joseph did not want children, but agreed to the IVF because Iris did want them, and he was worried that Iris would divorce him if he did not agree. In completing the paperwork for the IVF clinic, Joseph signed a document entitled the "IVF Back-Up Sperm Storage and Consent Agreement." The Agreement stated that the sperm sample was Joseph's sole and separate property, and that he had two options for the disposition of the sample upon his death or incapacity: donation to his wife or disposal. The box for disposal was checked. The Agreement was filled out by Iris, and signed by Joseph.

After Joseph died in a helicopter crash, Iris was appointed Administrator of his estate. She filed a petition for preliminary distribution of the sample. The court denied the petition, citing that the Agreement indicated Joseph's intent that sample be destroyed, and noting that there was no contrary evidence of Joseph's intent.

The Court of Appeals upheld the trial court's ruling. The court noted that "gametic material," with its potential to produce life, is a unique type of property that is not governed by the general laws relating to gifts of personal property or transfer of personal property upon death. It also held that Joseph's "right of procerative autonomy" allowed him to control the disposition of his sperm, and that since this was not a frozen embryo, Iris' right to procreative autonomy was not implicated. The court noted that if Iris could only become pregnant with Joseph's sperm, then her rights would be implicated, but that this was not the case.

The court punted on the issue of contract law. Throughout the decision, the court used contract law language, but in the end it based its decision on the intent of Joseph. The court did note a French court decision holding that contract law did not apply to gametic materials.

The court concluded that the intent of the donor controls the disposition of sperm on the donor's death. What if Joseph had a will or a trust that stated that Iris was to receive the sample upon his death? Presumably, the court would see this as evidence of changed intent. As practitioners, we must make sure that the intent of estate planning client is being carried out, and that the estate planning documents don't contradict or conflict with other documents.

You can read the full decision here.

NY Times Article on "Learning to Share"

Earlier this week, I attended a workshop on mediating estate plan disputes. One of the biggest topics of discussion was how involved the heirs or beneficiaries should be in the preparation of an estate plan. Opinions varied widely, but most agreed that the more likely it was that a dispute would arise once the plan went into affect (i.e. when the testator died), the more important it was that the heirs and beneficiaries be involved during the planning process - espcially if the intention was to leave someone out, or to give them less than others.

Not to be outdone, the NY Times printed this article in yesterday's edition. They discuss how children fight over their parents' estates, and how to avoid the conflict. One person profiled, Eric Zeller, started the process of discussing his estate with his children early on. He intended to leave his estate to various charitable entities rather than to his children, so throughout their lives, he talked with them about how to make their own way in the world. As they grew up, they did not have the expectation that they would get their Father's money, and they became independent.

Not everyone agrees that a parent should leave nothing to their children in order to keep them from being too dependent on their parents. But whatever your intentions are, you should make them known to your children, relatives, friends, and anyone who may believe they might get a piece of your estate. It's not a guarantee against disputes, but it's certainly better than keeping it to yourself.

What do you think?

Keep Your Special Needs Trust Up to Date When You Move!

Remember your Special Needs Trust when you or your child with special needs moves. Kevin Urbatsch, a special needs trust attorney in San Francisco, relates this article that gives useful information for people on the move who have special needs trusts.

While most benefits for those with special needs are federal, many are provided by the state (such as Medi-Cal). If you move to another state, you will need to re-visit the process of getting state-specific benefits. If you have a special needs trust that deals with the state benefits, the trust will need to be changed to reflect the new state benefits.

Thanks to Mr. Urbatsch for this useful info.

Summary Administration: It's Not for Everyone

In the recent California case of Bonanno v. Connolly, the Court of Appeals for the Second District held that a spouse who waited until after most of a large estate was administered in a probate proceeding was estopped from filing a spousal property petition under Probate Code section 13652. The case didn't lack for drama. Louis Bonanno had a daughter, Jacqueline. Louis had a girlfriend, also named Jacqueline (!). Jean and Louis had been separated for 12 years when he died intestate (without a will) in March 2003. Jean and Louis were in the middle of divorce proceedings at the time of his death. Louis was living with his girlfriend Jacqueline at the time of his death.

Not surprisingly, a big fight ensued. Connolly was appointed administrator of the Louis' estate (although Jean and Louis were still married, Jean was not entitled to priority as administrator because she and Louis were in the middle of a divorce and were not living together when he died). Jean filed a petition claiming that she was entitled to all of the joint tenancy property she held with Louis, and all of his other property. Jean also sought half of the property Louis transferred to girlfriend Jacqueline. Not to be outdone, girlfriend Jacqueline filed a peititon to determine an interest in Louis' estate, based on a palimony claim based on an oral agreement she entered into with Louis about 12 years before he died. Connolly objected to both Jacqueline and Jean's petitions.

The parties resolved their dispute in December 2003 splitting the estate among the three of them. Because of disputes over the language of the settlement agreement, a final agreement was not signed until March 2006. Connolloy administered the estate, paying off creditors and gathering the assets.

Jean, apparently having developed an affinity for the legal system, filed her spousal property petition under Probate Code section 13650 in May 2006. She claimed that she was entitled to summary administration of all the assets of the estate except those distributed to Connolly and Jacqueline under the March 2006 settlement agreement. Estate property disposed of under this summary administration is not considered part of the probate estate, and is not included in the calculation of statutory administrator or attorney fees. If granted, Connolly's (and her attorney's) fees would be reduced from $58,000 to about $23,000 each. For three years' work.

The court of appeals held that Jean was estopped from seeking summary administration under Probate Code section 13650. Most of the administration of the estate had already occurred: assets had been gathered, creditors notified and paid. It would be inequitable for Jean to get all the advantages of a full probate administration without having to pay the fees of a probate administration.

There are some good nuggets to take away from this case:

• Don't assume you know what the size of an estate is before it has been inventoried. Many clients come to me and say "what do we need to go through probate for? Grandma didn't have any money." The original estimate of Louis' estate was $600,000, but after the administratory, Connolly discovered that his estate was greater that $4 million! This included many assets and real estate no one knew about.
• A probate administration can take forever. Louis died in March 2003. This appellate court decision was filed in July 2008. Five years and four months is a long time to wait for your inheritance. And your attorney fee.
• Summary administration is not always the best way to go. Although it may save time, you cannot take advantage of some of the protections of a full probate administration - most notably the notice to creditors. In a probate, once notice to creditors has been sent, they have generally about four months to file a claim. After that four months has passed, the creditors are out of luck. No such mechanism exists under a summary administration. There is no time limit to when a creditor can file a claim, and a surviving spouse can be personally liable for the decedent's debts chargeable against the estate.