For a trustee, payment to the wrong party on death or incapacity requires immediate payment out of your pocket to the correct party. This requirement exists because you cannot safely rely upon the belief that earlier designations or documents are in effect. For example, durable powers of attorney are automatically revoked on death, payment designations can be changed without your knowledge, and wills and living trusts can be revoked and replaced with entirely different documents unknown to the existing beneficiaries.
On Death or Incapacity of Trustor...
You’ll Pay Up if You Pay the Wrong Party
The law is quite simple: a trustee’s liability to heirs of the decedent mean that, on death or incapacity of a trustor, you’ll pay up if you pay the wrong party.
A cautionary tale follows through the lawyer for Erin Brockovich (the story made famous in the movie Erin Brockovich starring Julia Roberts, who received numerous awards, including an Oscar and Golden Globe).
Ms. Brockovich’s attorney, Ed Masry, made estate planning history in Masry v. Masry (2008) 166 Cal. App. 4th 738. Mr. and Mrs. Masry had prior marriages and children from those marriages. They had a family trust naming one another and all of their children. Common to all living trusts, there was a revocation provision. After he died, his new lawyers waited as instructed, then delivered a letter to his wife informing her that the trust had been revoked: she had been disinherited and all his property went to his children from his prior marriage. She sued claiming that he could not revoke the trust without her permission. She lost at trial and on appeal.
Mrs. Masry never knew of the revocation because neither her husband nor his attorneys ever told her. The attorney-client privilege is absolute, and an attorney preparing an amendment to a will, trust or any other document is prohibited from telling anyone, even a trustee or other party with a copy of the earlier document. See Pham v. Cheadle (2016) 246 Cal.App.4th 653, 668.
In this situation, if a trustee had made payments to Mrs. Masry, the trustee would be required to pay Mr. Masry’s children from the trustee’s personal funds and then ask Mrs. Masry for a refund. However, it could potentially get even worse. If the children are over the age of 65, they are “elders” under California Elder Abuse and Dependent Adult Civil Protection Act, Welfare & Institutions Code Section 15600 et seq. Under this law, an elder can pursue a variety of remedies. If successful, the elder is awarded attorney’s fees and costs, possibly treble damages, which the trustee would need to pay for out-of-pocket. Remember, the trustee’s liability to heirs of the decedent means that, on death or incapacity of a trustor, you’ll pay up if you pay the wrong party.
For these reasons, even if the trustee believes that the correct document has been received and the beneficiaries have been identified, it is necessary to have the beneficiaries agree that they are the only beneficiaries, the document is the final estate planning document, and none of them will be requesting any changes to the document.
This process is especially relevant because there is a significant case entitled Wilkin v Nelson (Cal. Ct. App. – February 26, 2020), which is the first California case to allow equitable reformation of an estate plan, namely the will. C. Tucker Cheadle testified as the expert witness in this case.
The Court of Appeal adopted Tucker Cheadle’s expert opinion on two important issues:
- Equitable reformation or modification of a trust on the standard of care in drafting estate planning documents
The Court implemented Tucker Cheadle’s expert opinion that if the trustor of the specific trust at issue wanted her community property assets to be transferred into the trust, the trust should have been amended to permit the transfer of the community property assets.
- The intent of the trustor
The Court implemented Tucker Cheadle’s expert opinion that the purpose of having a trust is to bypass probate, so if the trustor wanted the property to be passed by a non-probate mechanism, the trustor would not depend on the probate of a will to transfer the property.
Call Tucker Cheadle at 949-553-1066 to discuss the trustee’s liability to heirs of a decedent, along with any trust or estate planning expert witness needs.
A review of any materials on this web page, any preliminary comments or an introductory meeting does not constitute legal, income tax or accounting advice upon which reliance can be placed. The attorney client relationship can only be created by a written retainer agreement following a check of potential and actual conflicts of interest with other clients.