California appellate court overturns probate court on validity of trust amendments and lis pendens issues.
The California Court of Appeals has overturned a probate court decision that had favored an elderly man’s caregiver over the rightful trustee and beneficiary, his daughter. The case centers on the validity of trust amendments and the strategic use of lis pendens, i.e., constructive notice of a lawsuit that affects possession of real property (Lucy Mancini Newell v. The Superior Court of Los Angeles County, No. B339383, Court of Appeals of California, Second District, Division Seven).
Lucy Mancini Newell discovered that her father, Arthur Mancini, had amended his trust to name his caregiver, Neneth Rollins, as the trustee and sole beneficiary, effectively disinheriting Newell. Newell challenged these amendments, alleging fraud and undue influence, and sought to impose a constructive trust on a property in Van Nuys purchased by Rollins using trust assets.
Fraud or Undue Influence Assumed
The primary issue in the case was the validity of the trust amendments. Under California Probate Code Section 21380, a donative transfer to a care custodian of a dependent adult is presumed to be the product of fraud or undue influence. Rollins, as the caregiver, had to prove otherwise by clear and convincing evidence.
Another critical issue was the Court’s determination as to what may constitute a “real property claim” within the meaning of California Code of Civil Procedure Section 405.4, so that a lis pendens may be properly recorded against real property that was purchased using trust assets. Newell recorded a lis pendens against the Van Nuys property purchased by Rollins utilizing trust assets. The probate court initially granted Rollins’s motion to expunge the lis pendens, but the Court of Appeals reversed this decision, stating that Newell’s petition, if successful, would affect the title to the property, thus constituting a “real property claim”.
Newell alleged Rollins acted in her capacity as trustee when she used trust assets to purchase the property. In fact, the grant deed states: “Neneth D. Rollins, Successor Trustee of the Mancini Family Trust dated April 16, 2002, as amended and restated,” holds title to the property.
“Remain vigilant and engaged earlier in any amendment process to identify potential undue influence or fraud, especially when a new beneficiary or trustee is introduced under suspicious circumstances.”
The trial court ruled Newell’s petition did not state a “real property claim” because, if Lucy Newell were to succeed on this claim, the named trustee and beneficiaries of the Mancini Family Trust may change, but the ownership of the property in question would continue to be held by the trustee. “The issue, however,” the appellate court held in reversing the trial court’s decision, “is whether Newell’s petition would, if meritorious, affect title to the Van Nuys property. And it would. The trustee of a trust holds title to real property.” Unlike a corporation, “a trust is not a legal entity,” but a “fiduciary relationship with respect to property.” Thus, if Newell is successful in having Rollins removed as trustee and a new trustee were appointed, that would affect title to the Van Nuys property since there would be a change in the owner of the property.
Notes for Estate Planners
The Court of Appeals’ opinion emphasized the need for planners to:
- Remain vigilant and engaged earlier in any amendment process to identify potential undue influence or fraud, especially when a new beneficiary or trustee is introduced under suspicious circumstances.
- Clearly understand the provisions of Probate Code Section 21380 and ensure that any changes to a trust are well-documented and that the transferor’s intent is clear and free from undue influence.
- Understand that recording a lis pendens can protect a client’s interests in real property during litigation, but the underlying petition must clearly articulate how it affects the title or possession of the property to state a “real property claim” within the meaning of CCP §405.4. In cases of misappropriated trust assets, seeking a constructive trust can ensure that the property is used for the benefit of the rightful beneficiaries.
- Understand the high standard of clear and convincing evidence required to rebut the presumption of fraud or undue influence when this elevated burden of proof may be applicable to a matter. Understanding the procedural aspects of probate court, including motions to expunge lis pendens, is essential to protect your client’s ability to potentially recover trust assets, as is being prepared to argue the merits of your client’s real property claims and demonstrate their probable validity.
Conclusion
This ruling reinforces the need to protect clients, particularly vulnerable people, against undue influence, and ensure that there is a source for potential recovery with the procedural safeguards provided by a lis pendens. Clients can feel more secure knowing that the law presumes transfers to caregivers are scrutinized for potential fraud, and that beneficiaries have a stronger legal standing to challenge suspicious amendments to trusts.
Kaden J. Kennedy is a Partner at The Estate Lawyers. He is an experienced business, real estate, and trust and estate trial lawyer and a Super Lawyers® Rising Star.