The standards for when an accounting is due vary considerably.  For example, trustees must account yearly, on change of trustee, and at termination of the trust, unless the trust modifies or waives the duty to account, subject to certain limitations.  Conservators must account within one year of appointment, and then every two years thereafter, unless required to do so more frequently by court order.  In some situations, third parties have a legal right to demand an accounting from you, irrespective of these deadlines.

The actual content of what must be set forth in an accounting is, for the most part, the same for all fiduciaries.  A fiduciary must explain all payments, identifying the payor, payee, amount, and purpose, made during the accounting period.  A fiduciary’s accounting must reflect gains and losses on sales of non-cash assets during the accounting period, based on the value of those assets at the beginning of the fiduciary’s accounting period.  A fiduciary must be prepared to defend the truth of each item in his or her accounting with documentary evidence.  It is easy to see how the accounting process can become quite daunting.

There are several general pre-emptive steps a fiduciary can take to make the duty to account easier to manage and fulfill:

1. Obtain copies of all bank statements for the accounting period.  For conservators, you will also need to have original statements for certain months in the accounting period.
2. Pay recurring expenses, such as monthly utilities, using online payments.  Whenever possible, pay for goods and services by check, and write descriptive information about the purpose of the transaction on the memo line.  If you are a fiduciary pursuant to a court order, you can ask the court to authorize cash allowances, and waive your duty to account for those allowances.  Absent court order, try to avoid ATM withdrawals of cash, or checks to cash, unless absolutely necessary, because these are nearly impossible to prove.
3. Avoid using the assets you are managing as a fiduciary as your own.  If you believe you are entitled to personal reimbursement from the assets you are managing, discuss this with your attorney before doing so.
4. Keep an itemized, periodically updated log of all account activity for your personal reference. 

By following these steps, you and your attorney will be able to quickly and confidently generate and defend your accounting.

All of these people – trustees, executors, attorneys-in-fact, and agents – are “fiduciaries” with respect to the person whose benefit they are charged with serving.  A fiduciary owes duties involving good faith, trust, special confidence, and candor towards another.  Trustees owe these duties to trust beneficiaries; executors, to the heirs under a will; attorneys-in-fact and agents, to their principal.  Without knowing it, many people already have a fiduciary relationship with someone else in their lives; spouses, for example, owe fiduciary duties to each other.  Put plainly, fiduciaries must exercise the highest level of care and trust to the persons to whom they owe duties.

In choosing the right fiduciary, it is important to consider the seriousness of the responsibility and duties involved.  This is as much a practical question as a legal one.  If your eldest child is heavily in debt and has a track record of financial missteps, he or she may not make a good fiduciary.  If you have children from at least two different relationships, and intend on leaving a share of your estate to all of them, you should consider whether these children get along with each other prior to choosing one of them as a fiduciary.  If you have a child with special needs, for whom constant care and supervision will be required, you should consider who in your family, if anyone, would be attentive enough to cater to those needs.  In all cases, you should consider your family’s dynamic and relationships, and perhaps discuss the “job” with your prospective nominees prior to naming them in your trust, will, or other document.  Sometimes, it may be prudent to nominate a private professional fiduciary or a financial institution, as opposed to a family member.

There is no general answer to the question of “who should be your fiduciary?”  You must take the time to carefully analyze the facts of your specific situation before choosing a fiduciary.  Doing so can help save your estate and your family’s relationships down the road.

In some instances, the elderly witness is disqualified from testifying based on incapacity.  A person may be disqualified to be a witness if he is incapable of expressing himself concerning the matter or incapable of understanding the duty to tell the truth.  (Evid. Code, §701)  The party objecting to a proffered witness has the burden of proving the witness’ lack of capacity.  (Comment to Evid. Code, §405) 

However, a more common situation is when an elderly witness is not “incapacitated,” but suffers from some form of cognitive impairment.  If a witness is not disqualified based on incapacity, his testimony on a particular matter is admissible if the witness has personal knowledge of the matter.  Against the objection of a party, such personal knowledge must be shown before the witness may testify concerning the matter.  (Evid. Code, §702(a))  The court may exclude the testimony of a witness for lack of personal knowledge only if no jury could reasonably find that the witness has such knowledge.  (Comment to Evid. Code, §701)  Therefore, the Evidence Code has made a person’s capacity to perceive and to recollect a condition for the admission of his testimony concerning a particular matter instead of a condition of his competency to be a witness.  (Comment to Evid. Code, §701)  If there is evidence that the witness has the capacity to perceive and recollect, the determination whether he in fact perceived and does recollect is left to the judge or jury.  (Comment to Evid. Code, §701) 

When preparing for trial involving an elderly witness, the attorneys should be prepared with medical evidence to support their respective positions regarding capacity and, if the witness actually testifies, be prepared to question the witness regarding his personal knowledge of the matter

The attorney-client privilege can only be raised by the “holder of the privilege.”  The holder of the privilege is usually the client, but this changes if the client becomes incapacitated or deceased.  For example, if a client is incapacitated, and a court has appointed a conservator for the client, then the conservator is the holder of the privilege.  If a client is deceased, then the successor-in-interest (such as a trustee or executor) is the holder of the privilege.  In this way, the client’s fiduciary succeeds to the attorney-client privilege previously held by the client.

 Additionally, when a fiduciary (such as a conservator, personal representative, or trustee) hires an attorney, the privilege belongs to the office of the fiduciary rather than the person serving as the fiduciary.  Thus, if the fiduciary is removed or resigns, the new fiduciary becomes the holder of the privilege, and effectively succeeds to the attorney-client privilege previously held by the prior fiduciary.

 It is easy to see how, over the course of protracted fiduciary litigation, communications with your lawyer that you believed were confidential at the time they were made might be subject to disclosure at a later time.  Accordingly, it is especially important for attorneys and clients involved in fiduciary litigation to keep attorney-client privilege issues in mind when they begin their relationship.  Clients in these cases should (obviously) still speak honestly and candidly with their lawyer, but should exercise discretion to direct those communications to matters at issue before the court. 

 Fiduciaries should be aware that a lengthy, emotionally-driven, “venting” e-mail filled with inflammatory comments that is sent to a lawyer today could come back to haunt them tomorrow.

Joint Tenants

Joint tenancy is a form of ownership that includes a “right of survivorship.”  At the first spouse’s death, his or her interest passes to the surviving spouse by operation of law.  In other words, the property passes without probate administration, and passes to the surviving spouse irrespective of the terms of the deceased spouse’s will.  While this is a convenient and inexpensive method of passing real estate to a surviving spouse, joint tenancies can have negative tax consequences.  Upon the death of the first spouse, only the deceased spouse’s interest in the joint tenancy receives a “step-up” in basis for capital gains tax purposes.  For a married couple that has owned a home in the Bay Area for decades, this can result in increased capital gains taxes if the surviving spouse sells the residence.

Community Property

California utilizes the community property system for property owned by married couples.  If an asset is community property, then each spouse owns one-half of that asset.  The general presumption is that property acquired during marriage, and the income earned from that property, is community property.  Unlike property held in joint tenancy, each spouse has testamentary control over their one-half interest in the community property, which means that the property will pass according to the terms of the deceased spouse’s will.  There is no right of survivorship and the property may be subject to probate administration.  Holding property as community property is advantageous from a tax standpoint because upon the death of the first spouse the deceased spouse’s one-half interest and the surviving spouse’s one-half interest in the property receive a step-up in basis.

Community Property with Right of Survivorship

Community property with right of survivorship combines the ease of administration provided by a joint tenancy with the tax advantages of community property.  It allows the surviving spouse to avoid probate with respect to jointly-held assets while at the same time obtaining the step-up in basis afforded to community property.  Upon the death of the first spouse, the deceased spouse’s property passes to the surviving spouse by right of survivorship, without administration.  In addition, both the deceased spouse’s one-half interest and the surviving spouse’s one-half interest in the community property receive a step-up in basis.  For married couples without a living trust, this is often the preferred manner of taking title.

The New York Times recently ran an in depth piece analyzing the various sides of one such dispute involving a former Oscar-winning actress – Love and Inheritance:  Anatomy of a Family Feud.  Although the amount of money at stake in this story is much higher than the usual dispute, the actions and emotions of the various family members are quite common.

Estate planning involves more than determining who will get your estate when you die.  It can also be used to plan for the possibility of incapacity — to make plans now that willdetermine how your health care and finances will be managed if you experience poor mental or physical health in the future.  Here are a few simple tools for incapacity planning:

Power of Attorney

A power of attorney is a document that authorizes someone you nominate, called an “attorney-in-fact,” to make financial decisions for you.  Powers of attorney can be “springing,” meaning that your nominee’s authority as attorney-in-fact only begins after you become incapacitated, or “immediate,” meaning that your nomination takes effect immediately and remains effective should you become incapacitated.

Advance Health Care Directive

An advance health care directive authorizes someone you nominate, called an “agent for health care,” to make medical decisions for you.  The advance health care directive can also state your preferences for end-of-life and post-death decisions, such as whether to use artificial means to prolong your life, and for what purposes, if any, your organs can be donated.

Nomination of a Conservator

Estate planning also allows you to nominate someone to serve as your conservator if a court finds that a conservatorship is necessary and appropriate.  A “conservatorship” is a legal determination that a person should not make medical or financial decisions for him or herself, or is substantially unable to resist fraud or undue influence.  As a result of this determination, the court appoints a “conservator” to make decisions for that person, giving preference for appointment to that person’s nominee.  This nomination can be made in a separate document, but is typically included as a provision of the advance health care directive or power of attorney.

The consequences of failing to nominate an attorney-in-fact, health care agent, or conservator in advance of incapacity can be serious.  Having an attorney-in-fact and health care agent can eliminate the need for a court-supervised conservatorship should you become incapacitated.  In the event a conservatorship is still necessary, nominating a conservator greatly increases the likelihood that the person you want to serve as your conservator will be appointed.  Proper planning for incapacity can potentially save tens of thousands of dollars in legal fees, saving money for your care and for your heirs.

What is a Will?

A will is a legal document that gives specific instructions to be carried out upon a person’s death.  The person who makes the will is called the “testator” and the person appointed to carry out the intentions of the testator is called the “executor.”

What types of Wills are there?

In Californiathere are basically three types of wills.  A “holographic will” is handwritten by the testator.  Although California recognizes holographic wills, they must meet specific legal requirements to be valid.

A statutory will is a “fill in the blank” form in which the testator inserts his or her personal information
and testamentary instructions.  A statutory will can be found on the California
State Bar website.

The third type is a will drafted for the testator by an attorney.

What is a Will used for?

A will commonly names an executor and designates beneficiaries – those individuals or charities that
will receive the testator’s estate at the testator’s death.  A will can also be used to create a trust, known
as a testamentary trust, and to appoint a guardian for the testator’s children.  And, as seen in the movies, a will can also
be used to disinherit a person who would otherwise inherit from the testator, so that the person receives nothing.

What are some of the things that a Will cannot be used for?

A will does not cover certain assets like life insurance, retirement plans, 401(k)s, or IRAs.  A will does not affect transfer on death or payable on death accounts.  A spouse’s community property is not affected by a will, nor is a spouse’s separate
property.  A will also does not affect assets that belong to a living trust.

Can a Will be challenged after the testator dies?

Yes.  A will can be contested in court after the testator’s death.  Anyone with legal standing — typically a spouse, child, or former beneficiary — has legal standing to file a contest.  Although wills can contain a clause that disinherits anyone who contests a will (called a “no-contest” clause), these clauses are only effective as to certain types of contests and are often inadequate to deter a contest.

The scope of information that can be discovered is construed liberally to include non-privileged information that is itself admissible evidence or reasonably calculated to lead to the discovery of admissible evidence.

Depending on the facts of each case, when developing a discovery plan we consider using the following discovery “tools.”  First, depositions can be noticed for critical witnesses.  A deposition is the examination of a witness under oath.  Second, written discovery can be served on parties, requiring the opposing party to provide written responses under oath.  Written discovery may consist of interrogatories (written questions), requests for admissions (admitting the truth of a fact or the genuineness of a document), and requests for production of documents (demand for production of documents in the possession of the opposing party).  Third, we frequently use business record subpoenas to obtain documents from nonparty witnesses.

In trust and estate cases, discovery presents unique challenges.  Some of these are whether an individual with cognitive impairment should be deposed, whether medical or financial records are protected from disclosure by the right to privacy, and whether the attorney-client privilege has been waived so that an attorney’s file is “discoverable.”  Because these difficult issues often take several months to resolve, identifying them early in the discovery process ensures that we are prepared well in advance of trial.

For trust administration – the process of carrying out the terms of a trust after the death of the settlor – we charge on an hourly basis.  We require a $2000 deposit and ask our clients to replenish the deposit each month.  The cost of a trust administration varies greatly; some can be completed in a month or two, while others may last several years.  The cost can vary from a few thousand dollars to tens of thousands of dollars.  That being said, most of our trust administrations cost between $3000 and $6000 and last less than one year.  Once again, all of the terms of our arrangement are explained in a written fee agreement.

We typically require a $5000 deposit to initiate a conservatorship proceeding.  Of this deposit, over $1000 is used to pay the initial filing fee and a fee to pay for a court investigator.  Our experience has been that few conservatorships can be completed for less than $5000.

Unless we are representing a client on a contingency-fee basis, we usually require a deposit of at least $5000 to represent a client in litigation.  As explained in our litigation fee agreement, we charge on an hourly basis.  We cannot guarantee what the total amount of attorneys’ fees and costs will be in a litigated matter; however, we are usually able to provide clients with an estimate of what it might cost to take a case through trial.