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DECEMBER 2023 NEWSLETTER

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I hope you all had a wonderful 2023. All is good on my end. I’m doing a lot of reading (100+ books this year), Wordle-ing (still 99% wins), walking, and working on creative pursuits. I hope you all have a very Happy Holidays and are looking forward to 2024.

The estate tax exclusion for 2023 is $13.61 million; and
The annual gift tax exclusion is $18,000. That’s a lot of inflation!

Just a reminder that on January 1, 2026, the estate tax exclusion will drop in half to $5 million, inflation adjusted (so at least $7 million), unless Congress affirmatively acts to retain the higher exclusion. We’ll have to see what happens in the next election cycle and whether Congress will be able to agree on new tax measures. I’m not optimistic.

How to Amend Your Trust

There have been a number of cases before the California appeals courts about how to amend a revocable trust. If the trust instrument doesn’t specify a particular process for modifications, then Probate Code Section 15402 requires the creator of the trust (settlor) to follow Probate Code Section 15401, which basically says the settlor has to write out the changes to the trust (a trust amendment) and deliver it to the trustee. And, in most cases, since the settlor is also the trustee, then it’s easy to comply with the rule.

But, what if the trust instrument describes a way that the trustee “may” use to modify the trust, and that method is different than the Probate Code? Is the procedure specified in the trust the only way to amend the trust? Or is the “may” simply permissive, and the settlor can follow the rules in the Probate Code instead? In this years’ case, the trust document said the settlor may execute a trust amendment in writing and deliver the amendment to the trustee by certified mail (even though the settlor was also the trustee)! At the settlor’s death the family found a signed trust amendment in an envelope in the settlor’s closet, that was addressed to the settlor’s attorney. Is that trust amendment valid?

In this case, the Court said no. The Court felt that they could not ascertain the settlor’s intentions with the trust amendment because he didn’t follow the procedures and he never talked about the amendment with his attorney. But, the Court also acknowledged that the appeals courts are split about whether the stated method is required. There are actually at least three cases that discuss this issue. We’ve been waiting for the California Supreme Court to make a final decision for over a year. Hopefully 2024 will settle the issue once and for all.

On a personal note, I have many clients who ask me to: “Just review Mom’s trust to see if it’s ok”, or “My aunt just needs to change the order of the trustees”. As a strict policy, I do not amend trusts that were drafted by other attorneys. As you can see here, the words in a trust matter. And even a small word (such as “may” vs. “shall”) can impact intended future changes to a document. I strongly advise anyone who wants to modify their trust to go back to the attorney who prepared the original document, or if that’s not possible, to consider amending and restating the entire document (which I know can be significantly more expensive) to ensure that it reflects their wishes and cannot be challenged due to a technical mistake.

Who is a Child?

We have another set of recent cases regarding who is a child, and when can they inherit. For instance, in one case a husband and wife separated, and the wife became pregnant with her boyfriend’s child. After the husband and wife reconciled, the husband agreed to raise the child as his own and the husband was listed as a parent on the child's birth certificate. The child didn’t establish a relationship with wife’s ex-boyfriend until he became an adult. Later, the ex-boyfriend died intestate (without a will). Could the child inherit from his biological father if his listed parents were married and living together when he was born? Interestingly, the answer is no. Under Family Code Section 7540, the child of spouses who cohabitated at the time of conception and birth is conclusively presumed to be a child of the marriage. Under case law, the child was barred from proving that there was a parent-child relationship with wife's ex-boyfriend because of this presumption.

In another case, a man dropped of his toddler (Judy) at his friend's (Charles) house to “babysit” but never came back. Judy lived with Charles for her entire childhood, moving from Kentucky to Indiana. Charles held out Judy as “his child”, but she was never adopted. After Charles’ death, one of Charles’ relatives died in California. And, the relative died intestate (again, without a will). Judy found out about the death, and claimed that she should inherit from Charles’ relative. In this case, Judy was allowed to inherit as if she was Charles’ daughter, and the Court followed California law, even though Judy lived in Indiana. Under California law, a person is presumed to be the natural parent if he receives the child into his home and openly holds the child out as his natural child. It would take very strong evidence to overturn that presumption, and in this case the other interested heir wasn’t able to prove that Judy shouldn’t inherit Charles' share.

What do I take from these cases? Despite the advances in DNA, the presumptions in California parentage law are of primary importance. If you have a unique parenting situation, put your wishes in writing! These cases only occurred because the deceased relatives died intestate. Any will or trust would have overridden these presumptions.

Corporate Transparency Act

I don’t prepare LLCs, but I do want to make everyone aware that if you have an LLC, Limited Partnership, Corporation, or other type of business structure, you need to take a look at the new Corporate Transparency Act, which becomes effective January 1, 2024. There are significant reporting requirements to FinCEN, both initially and upon certain changes in status (including adding a new owner or changing an address). If you have a small business, you must speak with your business attorney about these requirements and how to ensure compliance going forward.

Zolla Law Firm

Like many, I will be on vacation in late December. During my break, I will be returning emergency messages and scheduling appointments for later in January. Have a wonderful Holiday, and I’ll look forward to speaking with many of you in the New Year.

This Newsletter is for information and discussion purposes only. Before any action is taken, professional advice, based on your specific situation, should be obtained.