Gold Diggers Beware

By Lynda Chung

In the world of trust and estate litigation, claims of undue influence are nothing new. These suits usually concern a caregiver, mistress, or other interloper coercing an unfair share of an inheritance from the deceased.  However, far less common are undue influence cases brought against the wife of the deceased. That is … until a case earlier this year made it clear that marriage is not a license to steal. Indeed, all would-be “gold-diggers” should take note, as this decision is a potential game changer.

In this case, the deceased took the defendant as his third wife in 1999. After divorcing six months later, the couple remarried in 2005. The deceased was a retired real estate magnate worth millions, and had multiple children and grand children from previous marriages, while the defendant had two children of her own. Needless to say, this type of blended-family can be a powder keg when it comes to inheritance.

At the time of his marriage, most of the decedent’s real estate holdings were kept in a trust, which provided for his children and grand children. However, in mid-2005 (after remarrying Wife No. 3), he began introducing a series of amendments to the trust, providing his wife with more and more of his inheritance, and finally giving her the power to disinherit his own children altogether after his death.

Upon his death, his eldest children brought a suit alleging the defendant unduly influenced the deceased into modifying his trust, and that the way in which she freely spent her husband’s money constituted a breach of fiduciary duty. The court found that the deceased “did not know the extent of [defendant’s] spending,” and that “while it is not uncommon for a spouse to spend money or purchase items of which the other is unaware, and the line between such conduct and financial abuse is not always clear, what [defendant] did in this case went well beyond the line of reasonable conduct and constituted financial abuse.”

Widespread financial conflict in blended families is already quite common, but the result of this decision could have far reaching implications for future situations in which a new spouse attempts to disinherit the rest of the family. 

Can You Enforce The Arbitration Clause In A Trust Against A Beneficiary Who Is Challenging The Trust? A Recent California Court Of Appeal Case Says No.

By Lynda Chung

Lynda Chung

Over the years some arbitration clauses in different contracts have withstood the litigants’ challenges.  Some arbitration clauses have not.   In a recent California Court of Appeal cases, McArthur v. McArthur (2014) 2014 S.O.S. A137133, the trustee attempted to enforce the arbitration clause in the amended trust document (the “Amended Trust”) created by her mother against the beneficiary who was the trustee’s sister.  The Amended Trust required mediation, and if necessary, arbitration of “any claim or dispute arising from or related to the Trust as amended.”  The Court of Appeal held that the arbitration clause in the challenged the Amended Trust is not enforceable against the beneficiary who was not a party to the Amended Trust.

In McArthur, in 2001, the settlor (the mother of the plaintiff and the defendant) created a trust which purported to distribute her assets upon death to her three daughters equally.  In January, 2011, the mother amended the Trust, giving a greater portion of the trust property to Kristi, the respondent, and also naming Kristi the trustee of the Trust.  The mother died in August, 2011.  Thereafter, Pamela, another daughter, filed a petition to invalidate the Amendment on the grounds that her mother lacked capacity when she executed the Amendment and that Kristi committed financial elder abuse against their mother.  The trustee moved to compel arbitration of Pamela’s claims pursuant to the arbitration provision in the 2011 Trust, and Pamela objected to the motion on the grounds that she was not a party to the Amended Trust.  The trial court agreed with Pamela, and the trustee appealed.

Noting two inconsistent cases from Arizona (holding that the arbitration clause is unenforceable against the beneficiary who was not a party to the trust agreement) and Texas (holding that the arbitration clause was enforceable), the California Court of Appeal held that the arbitration clause in a trust instrument is not binding on a beneficiary who never agreed to it.  “It is illogical to suggest that Pamela’s claim of entitlement to benefits under ‘the trust’ as it existed before the 2011 amendment amounts to acceptance of an arbitration clause first appearing in the 2011 amendment, a document she specifically challenges as invalid.” (Emphasis in original.)

It should be noted that the holding of this case was obviously limited to the beneficiary who was not a party to the Trust and who challenged the very instrument containing an arbitration clause.  If the disputes were of a different nature, for example, a fee dispute between the beneficiaries and the trustee who accepted her fiduciary position upon review of the terms of the trust, the result would have been different because the trustee’s acceptance of the trusteeship implies her acceptance of the terms of the trust, including the arbitration clause.

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You Are "Related" To Your Step-Children Until Divorce Is Final

By Lynda Chung

Lynda Chung

California court of appeal decides that you are "related" to your stepchildren until your divorce to the step-children's parent is final.

In Estate of Oligario Lira (2013) 2013 DJDAR 948, the settlor married a woman named Mary in 1968.  The settlor had 3 children from his previous marriage, and Mary had 6 children from her previous marriage.  In 2008, after 40 years of marriage, Mary filed for divorce.  In 2009, after Mary filed for divorce, but before the divorce was finalized, the settlor executed his will and trust, naming his 3 children and 3 of his 6 stepchildren as beneficiaries.  The settlor named Robert, a stepson, as the successor trustee.  The settlor died in 2010.

After the settlor's death, one of the settlor's natural children challenged the settlor's will and trust on the ground that the settlor's gift to the stepchildren, including Robert, was a prohibited transfer under Probate Code section 21350.  Section 21350(a) presumptively disqualifies gifts to the drafter of a will as well as the drafter's relatives and employees.  In this case, the attorney who drafted the will was a step-grandchild of the settlor and was related to the settlor's stepson, Robert.  The reported decision does not clarify whether Robert was the drafting attorney's father or uncle.

The Court of Appeal validated the gift to the stepchildren.  Section 21351(a) provides an exemption to the prohibited transfers under Section 21350(a).  Under Section 21351(a), if the settlor is related by blood or marriage to the beneficiary or the person who drafted the instrument, the gift is valid even if the beneficiary is related to the drafting attorney.  Here, the settlor was related to Robert by marriage because, according to the California Court of Appeal, the gift was made when the settlor executed the will, and not when he died, and when the settlor executed the will his divorce from Robert's mother had not yet been finalized.

While will contests are not unique to blended families, what makes this case unique is the fact that the drafting attorney was related to the settlor's stepchildren.  Had the settlor hired a lawyer unrelated to his stepchildren, there would have been no case as the settlor was free to leave his assets to anyone, including his stepchildren.  The only reason why the will was challenged was because the drafting attorney was related to the stepchildren beneficiaries.  However, because the stepchildren were still considered family while the divorce was pending, the exception to the prohibited transfer applied and the settlor's gift to his stepchildren was held valid.

Word to the wise – There are many estate planning lawyers out there.  Think twice before you hire an attorney related to your beneficiaries if you want to safeguard your will.  Hiring an attorney related or associated with your beneficiaries may, at a minimum, raise suspicion that your beloved beneficiaries unduly influenced you to procure the will.

 

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Should Chipotle Lower Their Counters?

Posted By
Lynda Chung

In a decision that came down a few days ago, the Ninth Circuit Court of Appeals held that Chipotle Mexican Grill violated the Americans with Disabilities Act because its food preparation counters were too high for for wheelchair-bound customers, meaning that such customers could see the food on display or how it was assembled. (Antoninetti v. Chipotle Mexican Grill, Inc. (2010) 2010 DJDAR 11537.)

Both the disabled plaintiff and Chipotle agreed that all, except for the tallest wheelchair-bound persons, could not see the food preparation counter or the food on display, such as salsa, guacamole, cheese, lettuce and tortilla. The Ninth Circuit found that Chipotle's 45-inch tall wall violated federal regulations which require that a main counter height not exceed 36 inches.

While I sympathyze for the plaintiff for not being able to see the food preparation, I wonder whether there were reasons why the counter in the restaurant was 45-inch tall. Perhaps that was the optimal height for the average-height employee assembling food while standing. Maybe federal regulations should not apply to this scenario as lowering the counter may create problems for the workers who are on their feet all day wrapping burritos.