August 29, 2013

A. Initial Contact with Family

1. The initial contact is usually a telephone call from a family memberor other interested person advising that a relative has died. The deceased may or may not have been an estate planning client.
2. Determine the relationship between the deceased and the caller.
3. Be careful about disclosing confidential information until you have determined the relationship between the caller and the deceased. Find out if the caller is a beneficiary, an heir who is not a beneficiary, the designated successor trustee or some other person.
4. Obtain initial information for a case -client information sheet. (See attachment to Outline)
5. Advise the prospective client to deliver the estate planning documents if you do not already have copies. Ask the prospective client to bring the original will to the initial meeting, if it is in the caller’s possession.
6. Conduct a conflict check for the potential client as soon as possible.
7. If the prospective client is the successor trustee and there are other beneficiaries suggest an initial meeting without the other family members present.

B. Identifying the Players

1. Who is the client? The attorney (or other advisor) does not represent “the Trust” because a trust is not a separate legal entity.

• When a trustee or other fiduciary hires an attorney for guidance in administering a trust, only the fiduciary, in his or her capacity as fiduciary, is the client. (Borissoff v. Taylor & Faust (2004) 33 C4th 523; Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1130; Fletcher v. Superior Court (1996) 44 Cal.App.4th 773, 777 [52 Cal. Rptr. 2d 65].) The trust is not the client, because "a trust is not a person but rather 'a fiduciary relationship with respect to property.' " (Moeller, at p. 1132, fn. 3, quoting Rest.2d Trusts, § 2, italics in Moeller.)
• The trust beneficiaries are not the clients, because fiduciaries and beneficiaries are separate persons with distinct legal interests. (Borissoff v. Taylor & Faust (2004) 33 C4th 523; Wells Fargo Bank v.Superior Court (2000) 22 Cal.4th 201, 212.)

2. If the client is the trustee and there are other beneficiaries or heirs, advise them that:

• You represent only the trustee and not the other family members; and
• You represent the client only as a trustee and not as a beneficiary.

3. If representation will be joint (e.g. co-trustees), potential conflicts of interest should be discussed and informed written consent should be obtained before proceeding with the representation. (See Cal Rules of Prof Cond §3-310)

4. Consider the attorney-client and work product privileges and the attorney's duty of confidentiality in deciding whether to include other beneficiaries and family members in conferences.

5. Note that an attorney-client relationship, with a duty of confidentiality, may exist even if an engagement agreement or other formal arrangement is not entered into and the attorney declines to represent the prospective client. (Bus & P C §6068(e)(1); State Bar Committee on Prof Resp & Cond Formal Opinion 1993-133; Goldstein v Lees (1975) 46 CA3d 614, 120 CR 253.

C. Identifying the Effective Documents

1. If possible obtain and review the trust instrument and other documents before the first meeting

2.  Review not only the trust instrument, but also all other estate planning documents, including the decedent’s will and codicils, any other revocable or irrevocable inter vivos trusts that were established by the decedent, and any powers of attorney if the trust or will was made or modified by an attorney in fact.

• If there are irrevocable trusts which hold life insurance there may be potential for a sale or loan between the revocable and irrevocable trusts to facilitate payment of estate taxes or other liabilities by the revocable trust.
• Review irrevocable trusts for errors that may cause their assets to be included in the decedent's gross taxable estate.

3. Carefully review and analyze the effectiveness of any trust amendments that may have been made by the settlor's attorney in fact (agent) under a power of attorney.

• Amendments made by an attorney in fact are valid only if they are expressly authorized by the trust instrument and are expressly authorized by the power of attorney. (Prob C §4264(a); Prob C §15401(c))
• An attorney in fact may not change trust beneficiaries unless the power of attorney expressly authorizes him or her to do so. (Prob C §4264(f).) This limitation precludes the attorney in-fact from selecting beneficiaries other than those designated by either the principal in his or her existing estate plan or the laws of intestate succession, unless the power of attorney expressly authorizes the attorney-in-fact to do so. (Schubert v. Reynolds (2002) 95 CA4th 100, 107.)

4. Obtain and review other documents which may affect the character or administration of trust assets.

• Pre-nuptial agreements
• Post-nuptial agreements
• Property transmutation agreements
• Corporate Buy-Sell Agreements
• LLC Operating Agreements
• Partnership Agreements

5. Prepare a summary of the trust, the will, and other estate relevant documents for later reference.

6. Attached to the outline is a sample list of documents that it is helpful to obtain at or before the initial meeting.

D. Particularly Significant Trust Provisions

I. General Dispositive Provisions

a. Determine if there are specific gifts of assets.

b.  Determine if gifts to beneficiaries are outright or in continuing trusts.

1. Are the continuing trusts separate share trusts or sprinkling family pot” trusts.
2. Do the continuing trusts provide special or general powers of appointment to the beneficiaries?
3. Do the continuing trusts have the same trustee(s) as the administrative trust?
4. Do the beneficiaries of the continuing trusts have the ability to change trustees or affect trust administration?

II. Administrative Provisions

a.  Prorata or Nonprorata Distributions

1. Does the trust grant the trustee the power to distribute assets on a nonprorata basis or limit or prohibit such distributions? California law provides that if the trust instrument is silent, the trustee may distribute assets either pro rata or non-pro-rata. (Prob C§16246.
2. The trustee must be careful not to make distributions in a manner that potentially violates his or her duties to deal impartially with beneficiaries, to avoid conflicts of interest, and to exercise discretionary powers reasonably. (Prob C §§16003, 16004,16080, 16081.)
3. If a beneficiary requests a prorata distribution, a trustee who refuses the request is vulnerable to a claim for breach of fiduciary duty, particularly if the trustee is also a beneficiary of the trust.
4. A non-prorata distribution of a particularly desirable asset to the trustee in his or her individual capacity may benefit the trustee to the detriment of other beneficiaries.

b. Payment of Interest and Net Proceeds of Specifically Given property

1. Does the trust waive the requirement that interest be paid on pecuniary gifts?
2. If the instrument does not waive interest, a pecuniary gift bears interest beginning 1 year after the settlor's death. (Prob C §§12003)
3. Generally, if property is specifically given to a beneficiary, the trustee must distribute the net income and principal receipts of that property to the beneficiary who is to receive the property. (Prob C §16340(a).)

c. Tax Clauses

1. Determine how the trust and will provide for payment of estate taxes.
2. Trusts often provide that specific gifts pass free of estate tax.
3. If the trust and will do not provide how estate taxes are to be paid, federal and California law provide for equitable proration. (Prob C §20110.)
4. Equitable proration applies to the entire gross estate, not just property contained in the trust. (Prob C §§20111-20117.)

d. Principal and Income Allocation.

1. Does the trust direct the trustee in exercise of discretion in allocating receipts and disbursements between principal and income?
2. If the trust does not provide otherwise, allocations must be made in accordance with the Uniform Principal and Income Act (UPAIA) (Prob C §§16320 - 16375). (Prob C §16335(a)(3).)

e. Prudent Investment Standard

1. Does the trust modify the trustee’s duty to invest trust assets in accordance with the Uniform Prudent Investor Act ( (Prob C §§16045-16054)?
2. Even if the trust modifies the application of the Uniform Prudent Investor Act (e.g by eliminating the obligation to diversify), the trustee still has a duty to act with reasonable care, skill and caution. (Prob C §§1607,16010(a).)

f. Accounting and Trustee Liability Provisions

1. Does the trust waive or modify any accounting requirements?
2. If the trust does not provide otherwise, the trustee must account at least annually and at the termination of the trust to all beneficiaries entitled or authorized to receive current distributions of income or principal.(Prob C § 16062.)
3. Does the trust limit the period in which beneficiaries may object to an account? (See Prob C §16461(c), (d).)
4. Does the trust limit the trustee’s liability for breach of trust? (See Prob C §16461.)
5. A provision in the trust instrument is not effective to relieve the trustee of liability(1) for breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary, or (2) for any profit that the trustee derives from a breach of trust. (See Prob C §16461(b).)

g. Clauses Governing Trustee Compensation. Generally if the trust instrument provides for the trustee’s compensation, the trustee is only entitled to be compensated in accordance with the trust instrument. (See Prob C §16680.)

E. Identifying Trust Assets

1. The trustee has a fiduciary obligation to take and keep control of and to safeguard the trust assets. (Prob C §16006.) It is essential that an inventory of the trust assets be assembled as soon as possible.

2. The trustee should take steps to assure that the trust assets are adequately insured.

3. The trustee has a fiduciary obligation to take reasonable steps to enforce claims that are part of the trust property. (Prob C §16010.) This obligation may require the trustee to collect assets which are outside the trust but to which the trust is entitled (e.g. assets passing to the trust under the decedent’s will, life insurance proceeds, retirement benefits, )

4. The trustee has no legal authority to deal with assets outside the trust. These assets must be identified where they may be included in the decedent’s taxable estate.

5. The trust funding schedule attached to many trust instruments may help identify the assets transferred to the trust, but the schedules are usually outdated.

6. Listing assets on a schedule attached to the trust may be legally sufficient to allow the described assets to be considered held by the trust. (Prob C §850(a)(3)(B); Est. of Heggstad (1993) 16 CA4th 943, 20 CR2d 433 (holding that listing property on a schedule attached to a trust was sufficient when the trust instrument included language demonstrating the decedent's express intent to hold property in trust).

7. Appraisals of Trust Property

8. Potentially problematic Assets

• Hazardous Waste Problems
• Wasting assets
• Assets subject to regulatory controls or restrictions
• Assets subject to options, transfer restrictions or other contracts
• Real property interests located out of state