ARTICLES/CASES - PROBATE AND TRUST LITIGATION

Tales of Two Courts
Legal changes in marital status can have a dramatic impact on existing estate plans
By Howard S. Klein

Matters that involve a combination of probate law and family law issues are common. Crossover issues can arise when clients require services regarding property ownership, estate planning, incapacity, family court proceedings (including marital dissolution, legal separation, and nullity), and death. The convergence of probate and family law issues can be confusing to the lawyer who practices in one area but not both. The Family Code contains the statutory law of marriage, dissolution, separation, and nullity, while the Probate Code addresses the capacity issues relating to those topics. In addition, the effect of marriage or divorce upon an existing estate plan is covered in the Probate Code, while the determination of permissible estate planning during a family court proceeding is set forth in the Family Code. Thus, practitioners must consult both codes for an understanding of many crossover issues.

A subsequent marriage, for example, generally has a dramatic effect on existing wills and trusts. The omitted spouse who married the decedent after execution of a “testamentary instrument” (defined to include the decedent’s will or revocable trust) will normally receive the equivalent of an intestate share of the “decedent’s estate” (defined to include a probate estate and all property held in a revocable trust that becomes irrevocable on the death of the settlor).[1]

However, certain conditions mandate that the omitted spouse will take no share of the estate. These conditions include: a showing that the decedent’s failure to provide for the omitted spouse was intentional, so long as the intention appears on the face of the testamentary instrument;[2] evidence that the decedent provided for the spouse in other ways;[3] proof that the surviving spouse made a valid waiver of probate rights;[4] or a showing that a valid premarital agreement contains a waiver of probate rights.[5]

Like subsequent marriages, judgments of marital dissolution and nullity and judgments of legal separation that terminate the marital property rights of a party may alter existing wills and nonprobate transfers, including living trusts. With regard to wills, unless a testator’s will expressly provides to the contrary, dispositions, powers, and nominations favoring the former spouse are revoked by such judgments.[6] The revoked will, however, is subject to revival by the testator’s remarriage to the former spouse.[7]

For estate planning documents other than wills, a change in the spousal status of the beneficiary is key. For example, a nonprobate transfer to the transferor’s former spouse in an instrument executed before or during the marriage fails if, at the time of the transferor’s death, the former spouse is not the surviving spouse.[8] The exceptions to the rule occur when there is clear and convincing evidence that the transferor intended to preserve the transfer[9] or a court order maintaining the transfer exists at the transferor’s death.[10] “Nonprobate transfers” is a term that not only applies to living trusts but also to Totten trusts (bank accounts that designate a beneficiary), Payable-on-Death (P.O.D.) accounts, and like accounts described in Probate Code Section 5000, but not life insurance policies.[11] The term “surviving spouse” has been defined as a spouse whose marriage has not been dissolved or annulled and whose marital property rights were not terminated by court order.[12] A legal separation order not terminating property rights does not affect a will or nonprobate transfer.[13]

Incapacity issues arise in estate planning when a person under conservatorship—the conservatee—wishes to make a will or trust, or when the conservatee’s conservator wishes to make a will or trust for the conservatee. The starting point for analysis is the law stating that nothing shall be construed to deny a conservatee the right to make a will.[14] Furthermore, a person who has a mental disorder may still have the legal mental capacity to execute a will or trust.[15] However, an individual is not mentally competent to make a will if the individual did not have sufficient mental capacity to 1) be able to understand the nature of the testamentary act, 2) understand and recollect the nature and situation of the individual’s property, or 3) remember or understand the individual’s relations to his or her living spouse, descendants, and parents and those whose interests are affected by the will. Also, an individual is not mentally competent to make a will if the individual suffers from a mental disorder, such as delusions or hallucinations, that interferes with the testamentary act.[16]

Further, a court’s determination that a person is of unsound mind or lacks the capacity to make a decision to do a certain act, such as the execution of a will or trust, must be supported by evidence of a deficit in at least one of several specified mental functions—including alertness and attention, information processing, thought processes, and the ability to modulate mood and affect—and by evidence of a correlation between any deficits and the act in question.[17]

When the conservatee lacks the capacity to make estate planning decisions, the Probate Code’s “substituted judgment” provisions[18] come into play. These provisions enable the conservator or other interested person to petition the probate court for an order authorizing or requiring the conservator to take action on behalf of the conservatee for one or more of the following purposes: 1) the benefit of the conservatee or the estate, 2) the minimizing of prospective taxes or expenses of administration upon the conservatee’s death, or 3) the making of gifts that the conservatee would have been likely to make.[19] In addition, the provisions include a nonexclusive list of 13 possible substituted judgment acts and activities.[20] These involve several with real implications for the conservatee’s spouse and children, such as making gifts to the spouse and the children; conveying or releasing the conservatee’s contingent and expectant interests in property, including marital property rights; creating, revoking, or modifying trusts; and making a will.

The court may make a substituted judgment order only if the court determines two pairs of issues. First, the court must find that either the conservatee is not opposed to the proposed action or, if opposed to it, lacks legal capacity for the proposed action. Second, the court must determine that the proposed action will have no adverse effect on the estate, or that the estate remaining after the proposed action is taken will be adequate to provide for the needs of the conservatee and those persons legally entitled to be supported by the conservatee.[21] The duty to support the conservatee’s spouse and children can factor heavily into the probate court’s decision whether to grant substituted judgment powers.

Another issue involving incapacity arises when a conservatee wishes to marry. Like the right of a conservatee to make a will, the capacity to marry is unaffected by conservatorship, absent an order to the contrary.[22] An unmarried adult not otherwise disqualified is capable of consenting to and consummating marriage.[23] Thus, unless the order establishing the conservatorship disqualifies the conservatee from marrying, or there is a subsequent order to that effect,[24] the conservatee retains the right to marry. Like the determination of a person’s lack of capacity to make a will, a judicial determination that a person lacks the capacity to marry must be supported by evidence of a mental function deficit, which by itself or in combination with other mental function deficits significantly impairs the person’s ability to understand and appreciate the consequences of his of her actions regarding the marriage, and there also must be evidence of a correlation between those deficits and the act of marriage.[25] If, after marriage, the conservator seeks to establish the validity of the marriage, the conservator may initiate a family court proceeding for this purpose and to have the marriage declared valid.[26]

Restraining Orders and Estate Planning

Arguably the most frequently encountered crossover issue between family law and probate is the effect of the filing of a family law proceeding on the right of a party to that proceeding to initiate estate planning or to revise existing estate planning documents. This is because of the Standard (or Automatic) Temporary Restraining Orders—Family Law (called ATROs) that appear on the back of the Judicial Council form Family Law Summons. The ATROs are binding upon the petitioner when an action for dissolution, legal separation, or nullity is filed and are binding upon the respondent upon service of the petition and summons.[27] One ATRO precludes any transfer, encumbrance, or disposal of community or separate property without the written consent of the other party or an order of the court, except in the usual course of business or for necessities of life. It further requires the parties to give each other five business days’ prior notification of proposed extraordinary expenditures and to account to the court for all extraordinary expenditures made after the ATROs are in effect. Another ATRO precludes cashing, borrowing against, canceling, transferring, or changing beneficiaries of any insurance policies. Thus, if certain estate planning activities occur after the effective date of the ATROs and without the consent of the spouse or court approval—such as, for example, creating and funding a living trust for the benefit of persons other than the spouse, or replacing the spouse with another beneficiary on a life insurance policy—the party performing those acts is in contempt of court.

Under Family Code Section 2040, some activities are expressly not restrained by the ATROs: 1) the creation, modification, or revocation of a will, 2) the revocation of a nonprobate transfer, including a revocable trust, pursuant to the instrument—provided that notice of the change is filed and served on the other party before the change takes effect, 3) the elimination of a right of survivorship to property—provided that notice of the change is filed and served on the other party before the change takes effect, 4) the creation of an unfunded revocable or irrevocable trust, and 5) the execution and filing of a disclaimer pursuant to Probate Code Sections 260 et seq.[28]

The ATROs, along with these unrestrained activities, suggest some estate planning strategies to consider when divorce is imminent or even after a dissolution petition has been filed. For lawyers representing a client who is about to be involved in a dissolution or is already a party to one, these strategies include:

• Preparing a new will that revokes the former will and designates a different executor and new beneficiaries.
• Revoking an existing living trust (after giving the requisite notice) and then returning the revoked trust’s assets to the parties.
• Severing any joint tenancies of the spouses (after giving the required notice), so that the former joint tenancy assets will be held by the parties as tenants in common, with each party having testamentary power over his or her one-half share.
• Terminating P.O.D. and similar accounts, so that the client’s spouse is not the beneficiary in the event of the client’s death during the dissolution proceedings, and the client has testamentary power over those assets.
• Withdrawing half of the contents of jointly held bank accounts, while leaving the other half to the control of the other spouse.
• Preparing a new unfunded revocable trust together with a pour-over will to add the client’s assets to the new trust at the client’s death. With the unfunded trust and pour-over will, no transfers will be made to the new trust during the family court proceedings, thus preserving the status quo. However, if the client dies during the proceedings, his or her will adds to the new trust all assets belonging to the client that were formerly in the revoked trust, together with the client’s share of the joint tenancy, P.O.D., and similar assets over which he or she acquired the right of testamentary disposition. While those assets would have to be administered in the decedent’s estate—that is, a probate estate—at least they would pass to the client’s desired beneficiaries and would be under the stewardship of the client’s desired fiduciaries. The family court will likely scrutinize any and all of these transactions for compliance with the interspousal fiduciary duties of Family Code Section 721. But they are permissible within the language of Family Code Section 2040 and, more critically, they do not affect the status quo of the marital assets during the pendency of the family court proceedings.

Death and Family Court Proceedings

A marriage is dissolved by death as a matter of law. Moreover, if there is no entry of a bifurcated judgment terminating marital status before death, any pending action abates upon the death of a party, and the family court is divested of jurisdiction regarding status or anything else.[29] Judgment, however, may be entered on any issues already decided by the family court.[30] Except for those issues, no further order is possible regarding property rights, support, attorney’s fees, or costs.[31]

A wholly different result occurs if death follows entry of the judgment terminating marital status. Under this circumstance, the family court’s jurisdiction to decide any remaining issues, most importantly the division of community property, is unaffected.[32] The deceased spouse’s estate will be substituted as a party to the dissolution proceeding.[33] However, the status judgment does not divest the probate court of its jurisdiction over issues of succession, family allowance, probate homestead, and other purely probate matters.

The impact of the death of a party to a dissolution proceeding absent entry of a status judgment is not the same as the death of a party during a nullity proceeding. This proceeding involves a completely different issue: whether a valid marriage existed in the first place. Thus, the nullity proceeding survives the party’s death.[34]

An issue related to these jurisdictional considerations is the effect of the death of a party to a family court proceeding upon the characterization of marital property, particularly property held in joint tenancy by the spouses. Absent entry of a bifurcated status judgment of dissolution or a judgment of legal separation, the right of survivorship is applicable to joint tenancy property unless a party rebuts the title presumption or establishes a transmutation of the property into some other form of ownership.[35] By contrast, when death follows a judgment on status, the community property presumption continues to apply to property held in joint form.[36] Further, the deceased spouse’s community share passes through the probate estate to his or her devisees and heirs, and not to the surviving spouse, absent rebuttal of the community property presumption or establishment of a transmutation.[37]

The death of a party to a family court proceeding has varying effects upon existing orders for spousal support and child support. According to the Family Code, death of either the supporting or supported party terminates an existing spousal support order unless the parties have “otherwise agreed” in writing.[38] Some court decisions, however, make it unclear what “otherwise agreed” really means. For example, a court held that the failure to list death or remarriage of the supported spouse as terminating events meant that the parties had “otherwise agreed” that death or remarriage should not be terminating events—although one might argue that the parties’ failure should not rise to the level of agreement.[39] Similarly, a court held that the failure to list death as a terminating event along with a requirement in the lower court’s judgment that the supporting spouse maintain life insurance in the amount of the present value of the support obligation meant that death and the life insurance requirement were “otherwise agreed” to as nonterminating events.[40]

Practitioners should be aware that, even if spousal support terminates due to the death of the payor spouse, a family court order for the purchase of an annuity or life insurance policy or establishment of a trust to provide for the supported spouse remains enforceable.[41] However, the obligation to pay medical insurance premiums to provide proper healthcare for a supported spouse has been held to be in the nature of spousal support and terminates by operation of law upon the supported spouse’s death.[42]

The death of a party paying court-ordered child support usually has an opposite effect to the death of a spousal support payor. Unless otherwise provided in the support order, child support does not terminate at the death of either the supporting spouse or the supported spouse, since the order is based on the child’s support needs during minority.[43] Child support is chargeable against the estate of the deceased obligor parent. The enforcement of this right following the death of the obligor parent requires that the party receiving the child support timely file a creditor’s claim in the decedent’s estate of the obligor.[44] In addition, and perhaps counter intuitively, the child support payment is modifiable following the death of the payor spouse.[45]

Securing future child support payments after the death of the obligor parent may pose a challenge. Several potentially helpful Probate Code procedures can be used to secure the future payment of a debt that is not yet due, such as future child support payments. These include a court-approved agreement of the parties, the deposit of an amount in a financial institution, the distribution of an amount to a distributee who assumes personal liability, the appointment of a trustee to receive payment of the debt, and the distribution of estate property to a distributee subject to a bond conditioned on payment of the debt.[46] The child support obligation is enforceable against the deceased obligor’s share of community property held with a subsequent spouse.[47] Further, property that was put into a supporting parent’s living trust before his or her death is properly chargeable for that parent’s child support obligation.[48]

Incapacity in Family Court Proceedings

When an incompetent person or a person for whom a conservator has been appointed is a party to a family court proceeding, either a conservator of the estate or a guardian ad litem must appear in court on behalf of the person.[49] Thus, if an incapacitated person is already a party to a family court proceeding, his or her attorney should either petition the probate court for the appointment of a conservator of the estate or make a motion to the family court for the appointment of a guardian ad litem.

The California Supreme Court held in the landmark case of In re Marriage of Higgason[50] that a dissolution may be brought on behalf of a spouse under conservatorship by the spouse’s guardian ad litem, provided there is a showing that the spouse is capable of exercising a judgment and expressing a wish that the marriage be dissolved on account of irreconcilable differences, and the spouse has already expressed that wish. In Higgason, Mrs. Higgason signed and verified the dissolution petition and the two order-to-show-cause declarations and gave her deposition expressing her desire to divorce. The court held that her actions met the test. Family lawyers may ponder, what else could constitute expressing a wish? For example, what if the impaired spouse left the other spouse for protracted periods, or consulted a family lawyer about commencing a dissolution, or set up a residence separate and apart from the other spouse, or unequivocally stated orally or in writing that he or she wanted a divorce but took no further steps?

Higgason is a marital dissolution opinion, but its reasoning should apply equally to legal separation proceedings. The Durable Power of Attorney Act provides a formal measure to nominate a conservator and thereby creates a rebuttable presumption in favor of the designated attorney in fact or conservator nominee for appointment as guardian ad litem.[51] The conservator may commence a nullity of marriage proceeding for a party of unsound mind.[52]

Note that if the conservator is the conservatee’s spouse, and the conservator files a proceeding for marital dissolution, legal separation, or nullity, the conservator must file a notice with the probate court and serve it within 10 days of filing the action. The court may then issue an order to show cause why the spouse should not be removed and replaced as conservator.[53]

Community Property

The issue of the management and control of community property when one spouse retains legal capacity but the other spouse lacks legal capacity or is under conservatorship is of significant interest to the family court and the probate court. An analysis of this issue begins with the Probate Code’s provision that the spouse with capacity has the power to manage and control the community property, and the community property is not part of the conservatorship estate unless the spouse with capacity consents to its inclusion in the conservatorship estate.[54] However, a tension exists between the well spouse’s management of the community property and the duty of a spouse to support his or her spouse.[55] That statutory duty of support is nonwaivable and cannot be limited or rescinded by contract.[56]

Matters become complicated if the spouse with capacity fails or refuses to apply the community income, which he or she manages and controls, for the support of the incapacitated spouse. Under any circumstances, these matters can be handled in probate court, since conservatorships are a creature of the Probate Code.[57] They may also be resolved in family court if the Higgason[58] burden of proof can be met or if the matter is already before the family court.

The Probate Code provides a panoply of relief to the incapacitated spouse under conservatorship.[59] Some of these forms of relief—and their Family Code analogs if the conservator files an action in family court—include:

• The probate court can issue an order that the well spouse who has management and control of the community property must apply that property to the other spouse’s support.[60]
• The probate court can issue an order that the well spouse must pay pendente lite support to the other spouse.[61]
• Income and expense declarations and property declarations must be filed by the well spouse when petitions under the appropriate Probate Code sections are filed.[62]
• The probate court has the power to determine the character of the property of the parties if that issue is raised[63]—a power comparable to that in Family Code Sections 2550 and 2551.
• The six circumstances for support and maintenance in conservatorship proceedings under the Probate Code[64] are comparable to the 14 Family Code circumstances,[65] since the sixth circumstance of the Probate Code is “any other relevant factors which [the court] considers just and equitable.”
• If the well spouse refuses to comply with any support order under an appropriate Probate Code section or in a separate support action, the probate court may divide the community property equally so that the conservatee’s community share can be administered in his or her conservatorship proceeding and not by the well spouse.[66]
• The probate court’s orders are enforceable by execution, contempt, and any other order deemed appropriate by the court.[67]

Assuming that issues involving the rights of the spouse with legal capacity and the incapacitated spouse can properly be before the family court, is the family court or the probate court the preferable forum for the determination of these matters? In In re Marriage of Caballero,[68] the court of appeal, without discussing the provisions of Probate Code Sections 3000 et seq., held that a determination of the property and support rights of a person under conservatorship is more properly resolved under the Family Law Act than under conservatorship law. The court’s conclusion was based on the fact that 1) the incapacitated spouse may obtain immediate temporary spousal support consistent with the parties’ standard of living during marriage, and support orders may be effective as of the date of filing, and 2) support payments must first be paid from postseparation earnings (the supporting spouse’s separate property), then from community and quasi-community property, and only lastly from the supported spouse’s separate property. The Caballero court also reasoned that the supported spouse has the right to recover fees and costs incurred in seeking his or her family law rights. Also, the court noted that the family court may issue immediate ex parte restraining orders to preclude conduct contrary to the incapacitated spouse’s property rights—and in fact family law summonses contain ATROs regarding property transfers and related matters. Moreover, the family court has the authority to provide appropriate compensation for the well spouse’s exclusive possession and use of the family residence while the other spouse receives care elsewhere.

Finally, Caballero asserts that family court provides the only satisfactory forum to obtain an accounting of property and obligations—including full financial disclosure and cooperation with complete discovery within a short period of time—and the family court’s “power and experience in the determination of community property rights after fully-developed adversarial proceedings” are of “substantial importance.” Still, parties should consider the extensive experience of probate court judges in protecting conservatees, who are generally unable to protect themselves.

When family law issues collide with probate issues, the probate lawyer must look to the Probate Code, the Family Code, and case law, or must seek to associate counsel who are familiar with California family law. The prudent family lawyer must realize the possible effects of family court proceedings upon the client’s existing estate plan and should either consult with the client to modify that plan or refer the client to a qualified probate lawyer, with instructions about the possible effect of the ATROs. Of course, serious ethical considerations confront the probate lawyer who has represented both spouses in family estate planning and then is asked to represent either party against the other in family court proceedings.[69]