Are California Trusts that Favor Spouses Presumptively Invalid
November 12, 2016
When Wife works with her Sacramento estate planning lawyer to favor her Husband over her children from a prior marriage in her trust, does California law presume that Husband exerted undue influence over the Wife to gain a benefit? Until 2014, most California trust and estate lawyers would answer that question in the negative. Favoring a current spouse over other potential beneficiaries is a common and natural choice in estate planning.
Yet a California Court of Appeal based in San Jose took the opposite position in Lintz v. Lintz (2014) 222 Cal.App.4th 1346. The Lintz case casts a shadow over millions of “honey I love you” wills and trusts in the Golden State. Until the California Legislature or Supreme Court resolves this question, step-children will invoke Lintz in an effort to gain the upper hand over step-parents. This post will discuss the inconsistency that Lintz recently has created in California law.
California Undue Influence Law Before Lintz
As discussed in a prior post, the California Legislature recently enacted a definition of “undue influence” that centers on the concept of “excessive persuasion.” (See California Welfare and Institutions Code section 15610.70, effective January 1, 2014.) Our law presumes that people make voluntary choices when drafting wills and trusts and when naming pay-on-death beneficiaries on accounts and life insurance policies. In order to invalidate a will, trust or beneficiary designation on an undue influence theory, a contestant must prove, by clear and convincing evidence, that the bad guy/gal overcame the free will of the person making the testamentary transfer.
In cases going back a century, California appellate courts fashioned an exception to the general rule. Family members and anyone else may be presumed to have exerted undue influence if (1) they had a relationship of trust and confidence with the alleged victim, (2) they actively procured the challenged act (e.g., a trust amendment that favored them), and (3) it would give them an undue profit. When undue influence is presumed, the alleged influencer must prove the absence of undue influence by a preponderance of the evidence to avoid invalidation of the transfer.
Hence, even though the law treats spouses as having relationships of trust and confidence with one another (meeting the first element of the burden shifting standard), the long established common law rule would not presume that Husband unduly influences Wife unless he actively procures the estate planning change that favors him and excessively profits from that change.
Lintz Court Presumes Undue Influence Based on Family Code Section 721
In January 2014, just two weeks after the new statutory definition of “undue influence” took effect, the California Court of Appeal issued its decision in Lintz v. Lintz.
Lois Lintz was the third wife of Robert Lintz, a wealthy real estate developer. They were married for six months in 1999, then remarried in 2005. Robert had three children and two grandchildren from his prior marriages. From 2005 through 2008, Robert executed several trust amendments that increasingly favored Lois and her children over his children and grandchildren.
After Robert died in 2009 at the age of 81, his two eldest children brought various claims against Lois, including financial elder abuse and undue influence in connection with the recent trust amendments. A judge in Monterey County Superior Court ruled in favor of Robert’s children after a 15-day bench trial. The Court of Appeal affirmed the decision.
With regard to undue influence, the appellate court began with a discussion of Family Code section 721(b), which prohibits a spouse from taking “any unfair advantage of the other.” Accordingly, “[i]f one spouse secures an advantage from the transaction, a statutory presumption arises under section 721 that the advantaged spouse exercised undue influence and the transaction will be set aside.”
The Lintz court ruled that the undue influence presumption in section 721 applied with equal force to the actions that Robert took to favor Lois immediately (e.g., the “huge sums of money” he transferred to her) and to the estate planning changes that would benefit her only after he died. Likening the family trust to a contract between Robert and Lois, the appellate court ruled that the trial court should have presumed that the trust amendments were invalid because they advantaged Lois. The conclusion that undue influence should have been presumed only weakened Lois’ position as the appellant on appeal.
The court found the evidence probative of undue influence. Robert was helpless, fearful of Lois, and unable to exercise his free will with respect to his money. Lois took an increasingly active role in procuring the trust amendments, misinformed his lawyers of his testamentary wishes, and ultimately discontinued the services of his long-standing lawyers under the pretext of a fee dispute. Lois’ lawyer drafted the final estate plan so as to disinherit all but the youngest of Robert’s children while giving her discretion to disinherit that child who Robert adored. Meanwhile, the plan favored Lois’ children even though Robert had expressed great dislike for one of them.
While such facts strongly support the invalidation of the trust amendments that favored Lois, the Court of Appeal’s broad invocation of Family Code section 721 will ripple through California trust and estate litigation for years to come. If taken at face value, the Lintz opinion requires all trial courts in California to treat any inter-spousal testamentary transfer (i.e., a transfer operative at death) as presumptively void even though such transfers to children and other close family members are presumptively valid.
Other Authorities Contradict Lintz, Leaving the Law Unsettled
The Lintz court, however, was not writing on a clean slate. As the California Supreme Court observed over 120 years ago in Estate of Langford (1895) 108 Cal. 608, 623, “the mere fact that the will of the husband is changed to gratify the wishes of the wife does not raise a presumption of undue influence on her part.” In subsequent cases, California appellate courts consistently took the view that marriage alone did not create a presumption of undue influence with respect to wills and trusts favoring the surviving spouse to the detriment of others. For example, the court in Estate of Greenhill (1955) 99 Cal.App.2d 155, 167 stated that “activity on the part of [surviving wife] in procuring execution of the will must be shown to raise a presumption of undue influence.” The Lintz court did not discuss, or attempt to distinguish, this earlier, deeply-rooted case law.
In broadly interpreting the scope of Family Code section 721 to include the creation and amendment of revocable trusts, the Lintz court also overlooked how the California Legislature has dealt with the issue. In Probate Code section 23180, the Legislature has deemed that donative transfers to certain categories of people are presumptively void as the product of undue influence, with the disqualified recipients including (1) lawyers and other persons who draft the transfer documents, and (2) “care custodians” who provide services to elders and other dependent adults. However, under Probate Code section 23182, the invalidity presumption does not apply to spouses and other close relatives of the person making the transfer. Given the inclusion of spouses in this statutory safe harbor specific to the probate setting, how can Family Code section 721 take it away?
The Sun Will Come Out, Tomorrow
Lintz will retain precedential value until the Supreme Court or our Legislature says otherwise. For now, it provides an arrow in the quiver for step-children who are unhappy that their late father or mother changed an estate plan to benefit a step parent. Estate planning attorneys should consider the possible impact of Lintz when they advise clients in blended families, keeping in mind that the case increases the risk of an expensive and divisive will or trust contest.