Peter Myers' Blog

The Five-Trust Solution for Same-Sex Married Couples in California

Unique estate planning issues are experienced by same-sex married couples.  After considerable internal deliberation among our firm's five (5) estate-planning lawyers, we believe we have found a default solution.  The solution involves preparing up to five (5) separate trusts to facilitate compliance with both federal and California law. 

Background

Many same-sex couples who had been together for an extended period of time took the opportunity to marry their partner during the brief five-month window in 2008 when, prior to the passage of Proposition 8, same-sex marriage was legal under California law.  Thus, unlike the overwhelming majority of opposite-sex marriage couples, many same-sex marriages in California occurred later in the individuals’ lives. These marriages have been deemed valid under California law, but remain invalid under federal law and the Defense of Marriage Act. As a result, the treatment of the community property of same-sex married couples is treated differently under federal law and California law.

This blawg suggests a 5-trust solution for such couples.

Separate (federal)/Separate (state) Trusts: 2 Required

Due to the fact that both spouses often enter into the marriage later in life, they possess greater separate property at the time of the marriage than average opposite-sex couples that married young. When opposite-sex couples with separate property engage our firm to draft an estate plan, we are able to fund a trust with both spouses’ separate property as the income from either is reported by the couple in their jointly-filed tax return. However, same-sex couples are not afforded this luxury and must file separately under federal law. Thus, same-sex couples must segregate this property as it is treated as separate property under both California and federal law, the income of which reportable only by one spouse. Segregation is achieved through the establishment of two “separate” property trusts, each containing the separate property of one spouse.

Separate (federal)/Joint (state) Trusts: 2 Required

Property held in the name of one spouse acquired as a result of the labor of that spouse expended during the marriage is considered community property under California law and separate property of the spouse under federal law. Under California Family Code §§ 1100 and 1102, such property much be managed and controlled by both spouses. However, income derived from this property is considered separate for taxation purposes under federal law (reportable individually), although reportable as community for taxation purposes under California law (thus reportable jointly in a California state tax return). Therefore, two “hybrid” trusts must be established to segregate this property with both spouses as co-trustees of each trust, one containing the community property held in the name of one spouse and the other containing community property held in the name of the other spouse.

Joint (federal)/Joint (state) Trust: 1 Required

Any California community property held in the names of both spouses will be treated as community property under California law and jointly-held property of two individuals under federal law. Thus, a final fifth “community” trust must be established to hold such property.

In conclusion, under this proposed solution, five similar and interrelated trusts are established to accommodate the five different characterizations of property held by same-sex married couples.

Gray Areas

Getting involved in elder law can be perilous. 

I have finally concluded a case made my blood curdle.  You think you are doing the right thing, and then, blam!  Proving once again that no good deed goes unpunished.

It all started last June.  I represented an Italian nephew (he happened to be a professor) that was appointed a successor co-trustee of his Great-Aunt's trust.  Great Aunt - San Mateo; Nephew - Roma.  What fool set up that estate plan, you ask?  Let's just call him the successor co-trustee (!) and the Great Aunt's own lawyer.  Yup, Mr. Elmer Fool, Esq. 

Little did I know that I would get hauled into a problem where Elmer was trying to have his own client, the Great Aunt, declared incapacitated so he could take over as co-trustee.  Nephew did not want to go along with the plan.  So Baker & McKenzie figures 'Myers can handle it,' so they refer it to me.  How is it that these iron filings constantly end up stuck to my sympathy magnet?  Since the nephew lived in Rome, I'm blaming the Pope.

Step #1:  attend the hearing.  There's Elmer, arguing a private professional Trueheart should step in.  Normally a good idea, but Elmer won't relinquish his role as successor co-trustee or as lawyer for the Great Aunt, taking the position she is incapacitated, and no other lawyer is allowed to meet with her to defend her, because - after all - she is a represented party.  So Elmer and Trueheart are appointed temporary co-trustees.  I convince the Court to allow me to meet Great Aunt, and Court insists the Court Investigator be present and "run the meeting."  Fine, cool.

Court Investigator and I meet with Great Aunt.  She seems fine, with it, understands the proceedings, wants lawyer out of her life and wants my client in.  Doesn't know private fiduciary from Adam, doesn't want her in her life.  Meeting concludes, hopefully Investigator will get the report in and all will be righted.

Investigator goes on vacation.  No report filed.  Great Aunt starts calling me.  Great Aunt has Nephew call me, and then has neighbor call me: "please come over.  I need to speak with you."  I explain to nephew and neighbor we need an independent lawyer, not me, to meet with her to avoid appearance of conflict of interest.  All agree, and I am to show up on a weekend day (since I am busy during the week) with independent lawyer to meet with Great Aunt.

I check the WealthCounsel directory, find a lawyer a few miles away, and beg her to meet me at the house on a Saturday.  She agrees.  Perhaps the world will be righted and everyone can have their own lawyer again. 

Nothing remarkable about the meeting - she meets, I use the opportunity to interview the neighbor and the caregiver.  Before I leave, I chat with the Great Aunt for minute, with the lawyer present, and all is well.

Elmer has a secret grapevine to the home.  Caregiver is in Elmer's pocket.  She calls Elmer, who then proceeds into court with finger waving, accusing me of all manner of ill will.  Magically, Great Aunt is drugged the afternoon of the hearing (alleged UTI) and cannot attend.  Judge Impetuous decides I have "crossed the line" and "engaged in elder abuse" by trying to get Great Aunt her own lawyer.  Elmer demands an apology from me, and Great Aunt's world is again in turmoil.  Judge Impetuous demands new lawyer return her fee, and consign Great Aunt to the court's special "panel" of court-annointed attorneys.

The Investigator returns from vacation weeks later, and several weeks later submits his report, then several weeks later the attorney is appointed, and several weeks later the attorney asks me to introduce him to his new client.  OK, fine.  I again travel to San Mateo to introduce Great Aunt to an independent lawyer.  No mischief from caregiver this time.  But two months have passed and nothing but money has been spent.

In the meantime, Great Niece (who is a lawyer) arrives from Rome and the contours of a settlement are worked out with the private professional Trueheart and the Great Aunt. 

Great Nephew and I discuss disqualifying the judge, who has decided he and I have conspired to commit elder abuse against his Great Aunt by trying to get her a lawyer.  I file the motion, don't charge the client.

But wait!  Fiduciary Trueheart now decides she needs her own lawyer.  There aren't enough professionals on the payroll.  The whole process begins again, and tens of thousands of dollars in attorneys fees later, we end up exactly the same place we did at interim settlement.  Its the story of adding lawyers to cases.  Everybody's got a right to.  In bankruptcy and estate practice, everybody's got a right to spend someone else's money.

Scroll forward.  My client predeceases his Great Aunt.  Everybody petitions for their fees - Elmer, Fiduciary, fiduciary's lawyer, court-appointed lawyer and me.  Everybody else (but me) gets their fees approved by the Court.  My fees are determined to be "personal to" the now-deceased Great Nephew.  No fees for Peter. 

Elder law is tricky.  You can be mercenary.  There are ways to get paid.  Trueheart's lawyers filed a conservatorship petition, for example, and the successful filer can get their fees reimbursed.  I could attack everyone else's fee request, for example, and claim I create some benefit for the trust.  None of which I find very efficient (the conservatorship wasn't really necessary, since a trust existed), so I try to avoid it.  But this was one of those cases where you cannot do the right thing AND get paid at the same time.  If you practice elder law, get used to it.

Moral of the story:  when not in Rome, do not do what the Romans do. 

All Set Up - or All Screwed Up?

I attended my wife's company picnic on Sunday and, as often happens when people learn what I do, the conversation drifted to an estate issue.  Bob (not his real name) had "it all set up."  He was agent (under a power of attorney) over his 90+ year-old Aunt's modest middle-class estate: a home (owned outright), and two $100K CDs.  Easy enough.  Aunt needed some in-home care and one of the CDs (at Washington Mutual)was about the expire.  His issue (hint: not the issue):  whether to roll the CD from WAMU to Wells Fargo or another bank because of the problems he had been hearing about WAMU.  So how does one respond?

Cars and Shrinks: Matters of the Heart

When car-service technicians service your car, are they servicing the car itself or its owner?  I ask this because I took my car in yesterday and, during a 15-minute wait at the counter, I noticed a stack of 'customer evaluations' of the auto technicians that the HR manager must have temporarily placed on the counter.  OK, I'm a bit sleuth-like, so I glanced out of the corner of my eye to read, among things, the criteria by which auto mechanics are evaluated. 

The form was far more interesting than any of the comments that customers had supplied.  You want to know what it asked? 

Grieving Kids

Lately I have been reflecting on grief.  Specifically, I have been reflecting on memories of the grief of loss.  The reason I think this is important and relevant is because the ways that we are treated during our childhood, specifically the ways we are shown to experience grief and loss, have effects on our psychological well-being over our entire lifetime.

So, for my probate and trust administration clients, or for anyone else out there who has recently experienced the sudden loss of a loved one, I am going to share my personal experience of losing my mother when I was a child.  Perhaps there is something in what I say or how I express my feelings that will help some parent or aunt or uncle out there who is in a position to comfort a child who has experienced the sudden loss of a parent or other close family member.

Lions and Tigers

Life insurance professionals working with lawyers.  There is interest in this subject.  I should have written about it earlier.  Here's some more Q&A from the life insurance agent world:

Question:  I am a life insurance marketing manager with an agent who has a business-owner client in the Napa, Ca. area who is seeking an estate planning attorney to draft an ILIT for a life insurance policy. This, of course, could expand to other estate and business planning issues. Having saved the Worth magazine edition listing the top 100 attorneys in America, I found your name and vistied your website and blog. was wondering if you could give him an idea of the cost of drafting a simple ILIT. He says he always has clients who ask but never knows what to tell them.

Q & A: How Do I Know if the Trustee Absconded With Assets?

I recently received this question from a reader of my blog:

I believe that my trustee absconded with trust assets.  I am aware of accounts that were titled in the name of the trust that never appeared in the trustee’s accounting.  It is possible that these accounts were re-titled or closed prior to the grantor’s death, but I suspect that the trustee simply took them for herself.

The only way to prove how these accounts were titled is to demand documentation, but I expect that the trustee will refuse to provide documentation, claiming that these accounts were non-trust assets.  Is there any procedure, short of a probate court petition, whereby beneficiary can demand production of documentation of estate assets that were (supposedly) not trust assets on the date of death?

Should I Disinherit My Estranged Child?

A good friend of mine Josh Coleman is, among other things, a world-famous therapist in the genre known as 'control mastery theory,' which is a branch of psychotherapy that relies upon nurturing and developing the client's own subconscious plan for mental health.  Just as the body has built-in processes for healing, so does the mind.  As you might imagine, such a philosophy dovetails well with the client-centric estate planning we espouse in our firm and on this blog.  So I am always interested in what Josh has to say about issues of estate planning.

In Dr. Coleman's October newsletter, he posted an answer to the question a client posed whether or not to leave an estranged child out of a will.  I cannot do justice to his answer without quoting it in full, so - with Josh's permission - you will see the entire Q&A reprinted below.

Measuring Out My Life With Coffee Spoons

The Love Song of J.Alfred Prufrock could well have been written by an old man contemplating his estate plan.  In Prufrock, T.S. Eliot (1888-1965) weaves together the following lines:

For I have known them all already, known them all:—
Have known the evenings, mornings, afternoons,
I have measured out my life with coffee spoons;
I know the voices dying with a dying fall
Beneath the music from a farther room.
So how should I presume?

The narrator of the poem is reflecting on his long life, and all throughout the City of his narration there is yellow fog, yellow smoke, that is mysterious and unknown, and which nevertheless settles about the house in a sort of restless peace. 

Hey, Daddy, What's a "Trust Mill?"

This question popped up on one of my listserves and Jim Wood, a registered Legal Document Assistant ("LDA") in San Ramon, wrote an excellent response.  With Jim's permission, I have re-posted it here.

Way to go, Jim!