Trust Administration

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Magnifying GlassOne challenge that California trustees face is the prospect that confidential attorney-client communications will pass to successor trustees if they resign or are removed from office.  The attorney-client privilege belongs to the client, but the client is the office of the trustee, not the incumbent who holds that office.  Hence, the successor trustee generally gets to see the privileged communications of the predecessor, as the California Supreme Court explained in Moeller v. Superior Court (1997) 16 Cal.4th 1124.

A new opinion from the Court of Appeal, Fiduciary Trust International of California v. Klein (2017) 9 Cal.App.5th 1184, further shows the insecure nature of the attorney-client privilege in the context of California trust administration and may lead successor trustees to be more aggressive in seeking privileged communications of former trustees.

On March 23, 2017, at the request of a certified question from the U.S. Ninth Circuit Court of Appeals, the California Supreme Court answered the age-old question – “what gives”?

That is to say, what gives – the impenetrable wall of a spendthrift trust or the ability of a bankruptcy trustee to tap trust funds for the benefit of the bankruptcy estate?  The answer is neither really, but our state Supreme Court did clarify the appropriate reach of creditors into trust-protected assets in light of what the Ninth Circuit observed as “opaque” statutory provisions in the California Probate Code.

FAQsIn our Sacramento trust and estate litigation practice there are several questions that come up over and over again.  In many instances, these questions are the building blocks of our practice that lead to more complicated questions that sometimes require the filing of a lawsuit to answer.  As a starting place, below are some of the more common questions we receive from trustees and from beneficiaries.

Diver Down FlagBeneficiaries beware: don’t dive in to trust litigation too quickly.  That lesson was learned the hard way, ironically, by a diving heiress in Williamson v. Brooks (2017) 7 Cal.App.5th 1294.  The California Court of Appeal decision, which related to a trust created by the founder of Kirby Morgan Dive Systems, Inc., addresses the question of how much information a trustee must give to a beneficiary, and what consequences may (or may not) befall a noncompliant trustee.

At home caregiver_1In a recent post, we discussed the hazards, from a tax reporting perspective, of erroneously treating California caregivers as independent contractors as opposed to employees.  If a caregiver is an employee (as is often the case), her employer also must comply with the various wage and hour rules that apply to the employment relationship.

Many elders and their families simply pay caregivers a straight hourly rate for 12 or 24 straight hours of work.  This approach, though convenient, may set the stage for employment litigation against the elder.  Below, we’ll discuss the two sets of rules that apply to California caregivers depending on the nature of their work – those who employ caregivers will need to pick the right set of rules and follow them.

At home caregiverHired caregivers (also known as home care aides) permit many California seniors to remain in their homes as they age and need assistance with activities of daily living.  Yet from my window looking out at Sacramento, I can see massive liability associated with the classification and payment of such workers.  Consider that baby boomers are now entering their 70s and a 75-year-old American has a life expectancy of 12.2 years.  A growing number of seniors will need help.

Let’s say Dad has advancing dementia, perhaps caused by Alzheimer’s disease, and needs round-the-clock caregivers to help with cooking, cleaning, toileting, and dressing.  His daughter, perhaps as agent under his power of attorney or as a trustee of his trust, hires a home care agency, at a rate of $25-plus per hour, to provide multiple shifts of caregivers.  Then one of the caregivers offers to work directly for Dad (and to bring in others to do the same) at a straight hourly wage of $15 per hour.  This could save $250 or more per day, which will add up quickly as the weeks pass.

What’s wrong with this approach?  Federal and California law likely treats caregivers as employees of the elders they serve.  If the elder’s family ignores the assorted legal requirements associated with the employer/employee relationship, the elder (or his beneficiaries when he dies) may face hefty liability on two fronts.  As we’ll briefly discuss below, tax authorities may seek taxes, interest and penalties.  In a later post, we’ll explain how caregivers may sue for unpaid overtime and failure to provide meal and rest breaks – indeed, California law encourages such suits by awarding legal expenses to prevailing plaintiffs.

The Exchange of MoneySince California trustees generally can use trust funds to pay lawyers to handle disputes, litigation can drain away the funds available for distribution to beneficiaries.  Hence, an overaggressive beneficiary can pursue litigation that penalizes all beneficiaries, even those who have no responsibility for the fight.

Last week the California Third District Court of Appeal, based in Sacramento, clarified the scope of liability for litigants who act in bad faith in trust disputes.  In Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, the Court of Appeal ruled that a probate court’s equitable authority to charge the trustee’s legal expenses against a party who has litigated in bad faith is limited to the party’s share of the trust estate and does not extend to the party’s personal assets.

Digital AssetsNext time you schedule an appointment with Downey Brand’s Sacramento office to revise your estate plan you will have a new question to consider: who will manage your Facebook account when you’re gone?

Assembly Bill No. 691, which became effective on January 1, 2017, attempts to aid in that process.  It is commonly called the Revised Uniform Fiduciary Access to Digital Assets Act (the “Act”), and it establishes a scheme for designating who is entitled to access your online accounts (and what portions of those accounts) after your death.  The Act has been added to the California Probate Code at sections 870 to 884.

Woman in backseatActing as a trustee can be a thankless and time consuming job, especially when the reward at the end is nothing more than second-guessing from trust beneficiaries.  In our Sacramento-based trust and estate practice, we represent trustees who have strained relationships with beneficiaries, whether their siblings, step-relatives, or otherwise.  One useful tool to help trustees manage those relationships is the Notice of Proposed Action.

The notice procedure allows a trustee to obtain immunity from breach of trust claims without (1) obtaining an order from a California probate court, or (2) waiting three years for the statute of limitations on breach of trust claims to run.

3rd District Court of AppealA few months ago, I wrote about the anti-SLAPP statute as a powerful defensive tool in California trust and estate litigation. Adding new light to the subject is a Sacramento-based appellate court’s decision in Greco v. Greco (2016) 2 Cal.App.5th 810.

The case narrows the ability of fiduciaries to bring motions to dismiss under the anti-SLAPP statute when they are sued for how they have spent trust and/or probate assets.