The appellate decision in Yeh v Tai (2017) 18 CA5th 953 completely misses the main issue in the case but still makes an important point about breach of fiduciary duty claims against a deceased spouse.
Here’s what happened: Decedent and Spouse purchased a residential condominium. The initial purchase agreement listed them as joint tenants, but Decedent took title in his own name and Spouse signed a quitclaim deed to obtain a more favorable loan.
Although Decedent allegedly had promised Spouse she would retain her interest in the property and be placed back on title, he instead established a revocable trust that named his children from a former marriage as beneficiaries and transferred the property to the trust.
Three days before his death, Decedent told Spouse the property was “all hers, and she could sell or keep the property after his death.” Spouse didn’t discover that this was untrue until the trustee served her with the required statutory notice that the trust had become irrevocable on Spouse as Decedent’s heir under Prob C §16061.7.
About 18 months later, Spouse brought an action against Decedent’s children to recover the trust property. The trial court dismissed the action because it wasn’t brought within a year after Decedent’s death.
The court of appeal reversed, holding that the 1-year limitations period in CCP §366.2 for claims based on a liability of a decedent didn’t apply. Under Fam C §1101, breach of fiduciary claims brought after the death of a spouse are governed only by equitable principles of laches. As the more specific and later-enacted provision, Fam C §1101 controls over CCP §366.2. The 1-year limitations period in CCP §366.3 for claims based on a decedent’s promise or agreement to distribution from an estate or trust also didn’t apply, because the alleged promise to put Spouse back on title wasn’t a promise to distribute from an estate or trust.
So far, so good. But then the court held that the 120-day notice period in Prob C §16061.8 didn’t apply because Spouse’s petition wasn’t a contest of the trust, because Spouse wasn’t a beneficiary of the trust as defined in the trust’s no contest clause.
Here the court is clearly wrong. A decedent’s heirs are given notice because they may be entitled to trust property if the trust is invalid. A common type of trust contest is a claim by a decedent’s spouse that trust property belongs to the spouse as community property. Whether a spouse is defined as a beneficiary of the trust in the trust’s no contest clause (if any) affects only the enforceability of the no contest clause against a claim by the spouse, and then only if the spouse has an interest in the trust. On these facts, Spouse’s claim should have been dismissed because she brought the action after the 120-day notice period.
Nevertheless, it’s worth knowing that there’s no statute of limitations for breach of fiduciary duty claims against a deceased spouse under Fam C §1101.
The result might be different if the deceased spouse used another vehicle to convey marital property to a third party such as a revocable TOD deed or joint tenancy not subject to the 120-day notice period. For some, this would be another reason not to use them. In trusts we trust!
For more on this problem, check out CEB’s California Trust and Probate Litigation §15.14 and Crossover Issues in Estate Planning and Family Law §§8.56-8.57. Also check out CEB’s Practice Under the California Family Code: Dissolution, Legal Separation, Nullity §18.57. For more puzzles and paradoxes in marital property law, see Denham, Keeping Up With the Joneses: A Primer on Marital Property for Estate Planners in the June issue of CEB’s Estate Planning & California Probate Reporter.
Other CEBblog™ posts you may find interesting:
- How to Set Up Power Over a Client’s Digital Assets
- The Times They Are A-Changing (for Estate Planners)
- Make Sure Your Client’s Will and Lifetime Decisions Are In Sync
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