Case Review – Pena v. Dey – Formalities and Trust Amendments

I found this case to be tragic, but ultimately necessary. The formalities of the law prevented the trust amendment from becoming effective. However, as I always, such formalities are critical  for evidentiary and record-keeping purposes.  Following the formalities protects the trust estate, the settlor’s intent, the trustee(s), and the beneficiaries.

The full published decision is available online (Pena v. Dey, Cal. App. 3d Case No. C083266). The basic story is that settlor and trustee Anderson attempted to make a second amendment to the trust by following the following trust’s amendment directions, that the amendment must “be made by written instrument signed by the settlor and delivered to the trustee.” Anderson had made a few changes to the trust by interlineation (i.e., lining through) and asked an attorney to prepare the amendment. Unfortunately, before the amendment was prepared by the attorney, Anderson passed away.

So the question before the court was whether the interlineations and an accompanying Post-It note from Anderson were sufficient to constitute an amendment to the trust. The court looked at Cal. Probate Code § 15401-2 and determined that the instruction that the amendment must “be made by written instrument signed by the settlor and delivered to the trustee” to be binding.

The court easily found that Anderson’s interlineations were a “written instrument” and “delivered to the trustee”, leaving the sole issue of whether the amendment was “signed by the settlor.” The court found that the hand-written interlineations could not be found to be part of the original trust or preceding amendment because by doing so the signature requirements would become nugatory. The court additionally found that Anderson’s Post-It note with instructions to the attorney could not constitute a signature because it was simply a note identifying enclosed documents.

The overriding concern was the competing intentions and which one to give effect to. There was the original intent of Anderson that said all amendments had to be made by signed written instrument. And then there was the intent of Anderson to modify the trust and whether that could be accomplish by an unsigned written instrument. The court found that an unsigned writing simply could not amend the trust when the trust required a signed writing.

For me, this decision is important in many ways. First, it’s the Third Appellate District, so it covers Yolo and Sacramento Counties, my main practice area. Second, it provides strong guidance on why formalities are so important under the probate code. The overwhelming majority of questions under the probate code arise after someone’s death, so following formalities is of utmost importance.

It is quite possible here that the settlor never intentionally made the trust amendment requirement be by signed writing. It’s probably just what his attorney gave him. However, the settlor assumed that formality by making the trust effective.

One of the things I always try to impress upon my clients is that although a signed writing could be sufficient to amend a trust, you should not presume it to be the best way to amend the trust. First, as mentioned in this case, a no-contest or anti-dispute clause needs to be included in the amendment so as to apply to the amendment (Cory v. Toscano (2009) 174 Cal.App.4th 1039). You can’t just assume the original no-contest or anti-dispute clause would work – it won’t apply to the amendment. Second, always have the signatures notarized – don’t invite a question as to the identity of the signer! Notarization may seem like a burdensome extra step, but it’s an easy safeguard against later disputes.

In sum, formalities matter!

Three Ways for Your Will to Comply With Cal. Probate Code § 6300

This guide is intended to help folks ensure their pour-over wills properly pour over into a revocable trust. Cal. Probate Code § 6300 revised the requirements in 2017, so it’s important that the will and trust are formed properly.

Before Execution

Pursuant to Probate Code § 6300, a testator’s will may pour over into a trust if the trust was formed prior to the will’s execution. This means the testator’s wishes will be fine as long as the trust was established before the will’s execution.

Concurrently With Execution

Pursuant to Probate Code § 6300(a), a testator’s will may pour over into a trust if the trust was formed “concurrently with” the will’s execution. This means the testator’s wishes will be followed if the trust and will are formed at the same time. This usually happens if there’s a signing ceremony where both the will and trust are executed at the same time.

Within 60 Days

The expansion of Probate Code § 6300 in 2017 allowed pour-over provisions to be allowed if the trust were executed within 60 days after the execution of the will. This usually arises if the trust is formed after the will, like if a notary is not available during the signing ceremony.

Fund Your Trust & Name Your Beneficiaries! (Part 1 of 2)

There’s no point to having a living trust if you don’t fund the dang thing! The trust operates for the benefit of your loved ones and heirs, but it’s useless unless your assets are moved into the trust.

The primary goal of the living trust for most folks is to avoid probate. And to avoid probate, you need to have the bulk of your assets either in the trust or titled with a named beneficiary. So I’m going to outline here the major things that should either be named in the trust or have designated beneficiaries.

Your Home and Other Real Property.

Retitling your home and real property in the name of your trust is always recommended to help avoid probate. Retitling your home is a fairly straightforward process: establish your trust, complete a trust transfer deed, and record the deed with the county (along with the PCOR form). And that’s it!

Of course, complications can arise with the recording of the trust transfer deed if the deed isn’t completed correctly or if there’s an obvious problem with the chain of title. You can also avoid probate on real property by using a transfer on death deed, but I generally recommend against transfer on death deeds.

Bank Accounts.

With bank accounts, I’m referring to general bank accounts (e.g., Checking, Savings, Money Market, CDs). I’m not referring to brokerage accounts or qualified retirement plans – see the next post for more on those topics. There are three ways to set up a bank account to avoid probate. The first two deal with the living trust and the third doesn’t involve it at all.

So, for putting bank accounts into a living trust, there’s generally two schools of thought. Neither are wrong. First, some folks believe that all bank accounts should be in the name of the living trust. This allows the trustee to access the bank account. The upshot here is that if you’re the original trustee and you become incapacitated, then the successor trustee can access the account. This circumstance would block whomever is your designated agent via the durable power of attorney from accessing the account.

Second, other folks believe that the living trust should be named as the beneficiary of the bank account. This means that the account would automatically move into the name of the trust upon the death of the account holder. The only caveat here is that if the account holder becomes incapacitated, then the designated agent via the durable power of attorney is the one who can access the account, not the trustee.

Finally, the third option is to just not include the living trust as the account holder or the beneficiary and to name beneficiaries outright. Although naming beneficiaries outright might allow the account to avoid the probate process, it might also lead to inequitable distributions of your estate assets if you have multiple folks you want leave inheritance to and you don’t keep on top of your accounts. Additionally, problems arise if your beneficiaries predecease you.

Tangible Goods.

Tangible goods without title are by far the easiest property to add to a living trust. Your trust should have a schedule of trust assets, likely named “Attachment A” or something similar. List on that schedule a description of all of the tangible goods which you’d like to include in the trust. That’s it!

There are two keys points here. First, you can’t include anything that has a title. So your prized collector’s Harley Davidson will need to be moved into the trust by way of a title transfer coordinated through the DMV. Second, you don’t need to include everything in the schedule, but you shouldn’t neglect this task either. As a rule of thumb, I recommend including anything with a fair market value of over $1,000 in the trust. This is generally furniture, art, jewelry, substantial electronic equipment, and tools.

In the next blog post, I’ll wrap up this topic and discuss how brokerage accounts, business interests, and insurance policies should be established in relation to your living trust and beneficiaries.

Influencing Beneficiary Behavior Through Trust Incentives

Trusts are an important estate planning tool. Trusts allow one to ensure their assets are protected from unnecessary taxation and government interference and, almost just as important, permit intentional asset distribution at defined points.

Unlike a will, where you just say who gets your stuff once you pass away, a trust allows you to establish parameters for how and when your assets are distributed. This flexibility allows the settlor (the person who established the trust) to influence the behavior of their beneficiaries. The settlor can incentivize the beneficiaries by establishing benchmarks that the beneficiary must meet to reach asset distribution. The three most common incentive goals I see are related to education, productivity, and charitable endeavors.

Educational Goals

Asset distribution tied to educational goals is a common tool I see in trusts for young beneficiaries. It is typical for parents to note in their trust that the assets may be used for “college” for their children.  However, it’s important to provide objective boundaries for what constitutes “college” expenses might be allowable under the trust.

First, define what “college” type of school are you referring to when you say “college”? Is a community college acceptable? A four-year state university? A private, unaccredited school in a remote forest? What about graduate school for advanced degrees? It’s important to define what would constitute “college”, but also take into consideration the beneficiary and what path they might pursue. Don’t rule out trade schools or college alternatives.

Second, define what “college” expenses would be payable under the trust. Is it just tuition? Tuition and living expenses? What about books, computers, student activity fees? Be clear about your intentions and what is and is not an allowable expense under the trust.

Third, provide benchmarks for the circumstances that would trigger “college” expenses to be paid. Would you want the beneficiary to receive a lump sum payout after they’ve earned the degree? Or maybe provide a payout after each successful semester or quarter? What about GPA? Should they have to maintain a 3.0 or higher?

With educational goals it’s important to remember that you are trying to incentivize certain behavior. It might seem callous to out a GPA requirement on the payout, but you’re trying to get the beneficiary to work toward a goal. You probably don’t want to be stuck in a situation where you’ve paid for 6-7 years of college expenses for the beneficiary to dropout without a degree. Be clear about your goals.

Productivity Goals

You want your beneficiary to learn a work ethic, but you also want to leave them your assets. Those goals are not mutually exclusive. Productivity goals are a good tool to incentivize the beneficiary to work to earn an income before receiving your assets.

For example, you could set up a trust to provide dollar-for-dollar matching distribution. The match would be based on whatever income is reported on W-2s for the previous year. If they earned $36,000 working a menagerie of part-time jobs, then the trustee would be authorized to distribute $36,000.

You could also add other requirements, like the work must be full-time or they must work a certain number of hours a week to earn the trust distribution. Again, you’re trying to incentivize them to work.

The key with productivity goals is to ensure that the beneficiary will engage meaningful employment based on their abilities. The difficulty though is that you can’t predict the future as to what meaningful employment might look like for the beneficiary. If the beneficiary suffers a horrible accident and has trouble holding down part-time work, would you want them to be cutoff from your trust? It’s advisable to allow trustee discretion for productivity goals in the event the beneficiary is legitimately limited from reaching the productivity goals.

Charitable Goals

Charitable goals are the final common goal for incentive trusts. Charitable goals arise when you want to ensure that your beneficiaries do good in the world. This usually arises by requiring the beneficiary to volunteer for a certain number of hours or donate a percentage of their income to defined charitable causes to receive payment under the trust.

Charitable goals also arise in the context of directing ecclesiastical work. Trusts can hold clauses that allow for payout in the event of missionary trips or seminary courses. The key with charitable goals is ensuring that the beneficiary’s charitable work is work that the trustee would support. This is where it’s important to set clear definitions of what charitable work would and would not trigger payment under the trust.

In conclusion, as I mention all the time, it’s critical that you Make Your Plan. Don’t do just what somebody else tells you to do. And don’t use one of those fill-in-the-blank forms you can find online or at an office supply store. I want to work with you to Make Your Plan to ensure your loved ones receive exactly what you want them to receive.

Problems with the Transfer on Death Deed

A transfer on death deed is a mechanism that can keep a home or other real property out of probate upon the property owner’s passing. The transfer on death deed effectively says, “When I pass away, I want this piece of property to go to so-and-so.” Transfer on death deeds are a completely legal way to transfer real property, but I generally caution against using the deeds. I caution against transfer on death deeds because they are not as dynamic as a living trust and can lead to unintended disputes after passing.

No Efficient Remedy for Predeceased Beneficiaries

To me, the most significant shortcoming of the transfer on death deed is that there’s no way to offer alternative beneficiaries if one of the beneficiaries predeceases the transferor. (see PROB § 5652(a)(4)). This is a major departure from other estate planning tools like a will or a living trust. Wills and living trusts allow you to name alternative beneficiaries in the event the intended beneficiary passes away before you.

For example, say you have two children who each have their own children and you want to leave your family’s cabin to both of your children and their families to enjoy. So you set up a transfer on death deed naming your two children as beneficiaries. Unfortunately, one of your children predeceases you and you don’t change the transfer on death deed. When you pass away, the family cabin would be left entirely to the child who survived you. Your other child would not receive any interest in the property under the transfer on death deed, leaving that child’s family with no legal interest in the family cabin. Under a will or trust, you likely would have said that your child’s family would take an interest in the family cabin if the child predeceased you.

Not Effective for Properties Held in Joint Tenancy

Transfer on death deeds are void and ineffective if a property is titled as joint tenancy or community property with right of survivorship. (see PROB § 5664) An interest in a property held in joint tenancy immediately passes to the other surviving tenants upon one of the tenants’ passing, so it makes sense that a transfer on death deed would not effect a joint tenancy.

A transfer on death deed is similarly ineffective if spouses who own a property together try to establish a transfer on death deed. When one of the spouse’s passes away, the remaining interest would automatically go to the other spouse, making the transfer on death deed void. Finally, the surviving would have to create a new transfer on death deed since they are the only remaining interest holder in the property. Establishing a living trust would solve the joint tenancy problems with transfer on death deeds.

No Way to Designate Shares

A transfer on death deed transfers the property to the beneficiaries as tenants in common in equal shares. (see PROB § 5652(a)(3)). This means that if there are two beneficiaries, each would receive a ½ interest in the property – you’re not allowed to split an interest ¾ for one person and ¼ for another person. This becomes problematic if there is reason to provide unequal distribution.

Difficult to Revoke

Finally, transfer on death deeds have statutory requirements for revocation. Unlike a will or trust that could be revoked immediately by a simple amendment, a transfer on death deed must be signed, notarized, and recorded with the county within sixty days of notarization (see PROB § 5632). Adding extra steps to the process increases the likelihood that the revocation won’t be effective because of delays, missed steps, etc.

In conclusion, I rarely recommend transfer on death deeds due to their rigid requirements and ack of flexibility. You will not find a transfer on death deed as part of BDR’s Four-Part Plan because they are not the most effective method to Make Your Plan.

Have Minor Children? Here’s Your Estate Plan.

Planning your estate if you have minor children is very different than if you have grown children or no children. You need to make sure your children will be cared for while they’re still minors and that they have financial stability when they each adulthood. The three necessary elements for your estate are a will, a living trust, and life insurance.

A Will.

Everyone needs a will. I’ve been over this before. It’s a simple two-part test: (1) Do you own stuff?, and (2) Are you going to die?. If you answered “Yes” to both questions, you need a will.

For parents of minors, the will’s function goes beyond disposing of your assets. A will also allows a parent to designate guardian(s) for their child. The guardians are the ones who will be responsible for raising the child in the event the child’s parents pass away.

Designating a guardian is an important detail that many people overlook because they think their loved ones will just figure it out. “Well, shouldn’t the kids just go to my [parents/sibling/friend]?” is a question I get all the time. The problem with not designating a guardian is that your loved ones might have disagreements about who you would’ve wanted to serve as the guardian. Then they’re going to get involved in custody dispute simply because you didn’t write down your wishes.

Of course, when determining legal guardianship after a parent passes away, the child’s other parent will be first in line to raise the child regardless of what your will says. And the courts still retain some authority to overrule your will (e.g., the guardian you proposed has developed Alzheimer’s disease and can’t care for themselves).

A Living Trust.

A living trust is an essential tool to protect your children’s future interests because it allows you to designate the ages or stages when your child can receive your assets. Imagine this scenario: Your child is 17 years old when you pass away unexpectedly. Your will designates your child as the sole recipient of your assets, which includes a house, a 401K, a car, and your bank accounts. The assets are managed by a fiduciary for a few months until your child 18, then your child receives all of your assets. Does your child have the tools and temper to handle those assets?

Do you remember when you turned 18? If you had received several hundred thousand dollars, what would you have done with it? For me, I would have stopped working, bought a new Mustang, and probably would’ve blown the rest of the money.

That’s why I recommend parents of minor children establish a living trust to control the distribution of assets to their children. The living trust can include provisions like restricting the use of the trust’s assets for college or necessary medical expenses until the child turns a certain age. Or you can designate that a child receives lump sum payments from the trust at certain ages (e.g., ¼ at age 18, ½ at age 25, and the remainder at 30).

Life Insurance.

The purpose of life insurance is to protect your loved ones’ financial interests in the event you pass away. If you pass away and leave several young children, life insurance is a critical tool to ensure there is money available to meet the children’s needs.

It’s important to ensure you name your living trust as the beneficiary of your life insurance policies. The trust will hold the proceeds from the policy and the distribution of the proceeds will occur according to the trust. If you simply name your children as the beneficiaries, then they will receive a lump sum payout when they turn 18.

A will and living trust are parts of my recommended BDR’s Four-Part Plan, which also includes an Advance Health Care Directive and a Durable Power of Attorney. Reach out today to Make Your Plan.

Debt at Death

A common estate planning goal I hear is that folks want to ensure their children and grandchildren receive as much inheritance as possible. The folks want to make sure their assets are not consumed by taxes, probate fees, and other miscellaneous costs.

But what most folks don’t want to talk about is debt and how debt is handled at death. It’s an icky subject – discussions about debt can get wrapped up in embarrassment and guilt. But debt occurs, and a plan needs to be in place to deal with it.

To be clear, this post is being written as general information only and is not legal advice for any particular situation.

Foremost, I always recommend planning to eliminate debt. The best way to protect your family from dealing with your debts is to ensure you don’t have any debts! Most folks think estate planning is only concerned with distributing assets at death, but it’s really about ensuring that your affairs are in order in case you pass away (which you will!).

I understand that folks regularly pass away carrying debt. I receive regular inquiries about how to discharge debt at death. And I regularly tell folks that most debt doesn’t just disappear at death.

It’s rare that debt is discharged at death. Some federal student loans can get discharged at death (but not private student loans), and some unsecured debt can get discharged at death. Unsecured debt is generally only potentially dischargeable if the estate has not other assets to pay off the debt.

So the worst thing you can do is hope that your heirs won’t inherit your debt. They will! So Make Your Plan!

If the debt is secured by an asset, like a mortgage is secured by a property, or an auto loan secured by a vehicle, then the loan must be satisfied or else the lender may force the sale of the asset to satisfy the debt.

If you don’t clean up the debt, or at least make a plan for it to be dealt with, then your heirs will be forced to deal with it. And your assets, that you wanted to make sure to pass on to your children and grandchildren, will get tied up cleaning up debt instead of being passed on to your heirs.

In conclusion, the key takeaway is to avoid debt so you’re heirs don’t have to deal with it at death. The debt won’t go away. The lenders will always want their money back. And unless there are no other assets to satisfy the debt, then it’s exceptionally unlikely your debt will be discharged upon death.

Christmas Eve Heart Attack? Is Your Plan Ready?

An observational study of 16 years of hospital records showed a correlation between heart attacks and the Christmas holiday season. Specifically, 10PM on Christmas Eve had the highest risk of heart attacks. The study’s authors explain that a culmination of short term risk factors including “emotional stress, heavy physical activity, cold weather exposure, and air pollution” could lead to the uptick in heart attacks.

“Well, thanks, Brian,” you’re thinking. Brian’s just coming along and putting a damper on the holiday spirit. Not at all. I’m using the opportunity to encourage folks to ensure their plan is in place. One of the key elements of BDR’s Four-Part Plan is a living will.

I am commonly asked about living wills (AKA, advanced health care directives) and why it should be in place. A living will allows you to plan for your medical care before you become incapacitated and are unable to direct your care. I always recommend folks have an advanced health care directive in place.

A living will allows you to designate an agent to act on your behalf with regard to medical decisions while you’re incapacitated. For unmarried folks, I highly encourage a living will be put in place so you have somebody to act on your behalf. A living allows you to designate a primary physician and also dictate the type of care you want in certain circumstances (e.g., prohibiting blood transfusions or establishing do-not-resuscitate and do-not-intubate orders).

I guess the point I’m trying to make here is that you can’t stop life, so you better Make Your Plan and cover yourself when it comes at you.

Case Review: Hutcheson v. Eskaton Fountainwood Lodge – Distinguishing Health Care Power of Attorney and Personal Care Power of Attorney

Hutcheson v. Eskaton Fountainwood Lodge is a great example of how a health care power of attorney serves a specific purpose whereas a personal care power of attorney serves a general purpose. The two powers of attorney can conflict at times and one will take precedence over the other.

In this case, decedent Ms. Lovenstein executed a heath care power of attorney in 2006 which became effective immediately. Ms. Lovenstein appointed her niece Ms. Hutcheson as her attorney-in-fact for health care decisions. Four years later, in 2010, Ms. Lovenstein executed a personal care power of attorney. Ms. Lovenstein appointed both her sister Ms. Charles and Ms. Hutcheson as attorneys-in-fact for personal decisions. However, the personal care power of attorney specifically excluded power for health care decisions.


The effect of the two distinct powers of attorney meant that Ms. Hutcheson had powers for both medical and personal matters, but Ms. Charles only had powers for personal matters. Can you guess what happened next?

Ms. Charles signed an agreement for Ms. Lovenstein to be admitted to Eskaton FountainWood Lodge, a licensed residential care facility for the elderly. At the time of admission, Ms. Lovenstein was suffering from dementia and seizures, and she was confused and disoriented.

So herein lies the problem – did Ms. Charles’s powers give her the authority to sign an agreement admitting Ms. Lovenstein to Eskaton FountainWood Lodge? The issues is whether Ms. Charles’s decision is a personal care or a medical decision.

To understand the interplay between the two powers of attorney, look to the statutes authorizing the powers. The Power of Attorney Law is found in Probate Code § 4000 et seq., and the Health Care Decisions Law is found in Probate Code § 4600 et seq. The Power of Attorney Law applies to decisions regarding personal care but does not extend to health care decisions, those are left to the Health Care Decisions Law.

The Court went to great length to distinguish the type of care provided by the Eskaton FountainWood Lodge and made its decision based on the level of care provided by Eskaton FountainWood Lodge. For example, the Court noted that the type of service to be provided by Eskaton FountainWood Lodge was greater than just boarding care like laundry, lodging, and meal prep; rather, the care was medical in nature because Eskaton FountainWood Lodge would be providing dementia care and a higher level of care by trained staff.

The Court did note that although residential care facilities are not primarily medical, and in some cases may provide only assistant for personal activities of daily life. The Court discusses many theories of statutory interpretation and decides that in some instances admitting a loved on to a residential care facility can be a personal decision and sometimes it can be a medical decision. In the case of Ms. Lovenstein, the admission was a medical decision because of the amount and type of care needed.

This decision comes from the Third District of the California Court of Appeals, case number C074846.

Hutcheson v. Eskaton Fountainwood Lodge is an excellent example of why you need both a health care power of attorney and a personal care power of attorney, and why the two should be drafted and executed with the help of a qualified attorney.


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Brian Russ is an estate planning attorney in West Sacramento, Yolo County, California. Call today to schedule an estate planning consult: (916) 750-5155.

Original post date: February 3, 2018