Unmarried couple raised two children together and for all intent and purpose, lived as husband and wife for 25 plus years without a legal marriage.”Husband,” a physician, was about to lose his malpractice insurance because his out-of-state insurance company was going bankrupt.To make matters worse, he was in the midst of a large malpractice case against his surgery center.
Fearing for his assets, he and his business attorney concocted an asset protection plan.The plan, endorsed by “husband’s” counsel, required that each of the mates amend their existing revocable trusts.The changes involved making each trust irrevocable, and for the benefit of the other “spouse.”In effect, “husband” became the beneficiary of “wife’s” trust and “wife” became the beneficiary of “husband’s” trust.

 

As the plan was devised, if the injured patient got a judgment against “husband,” “husband” would hold up the last amendment and show that, per the amendment, the trust was irrevocable and no longer for his benefit, making him judgment proof.
The couple agreed that the revised trusts would be used only to protect against creditors.For all other purposes, they would treat their trusts as those the last amendment did not exit.

Eventually, after 25 years of dealing with the “husband’s” controlling nature and backhanded deals, and with her children fully grown, the “wife” left the “husband” to start fresh.Embittered, in a ultimately futile attempt to hold “wife” captive, “husband” filed an action in probate court to enforce “wife’s” last amendment, claiming per its written terms that the last amendment made the “wife’s” trust irrevocable. “Husband’s” petition in probate court against “wife” claimed that “wife” breached her fiduciary duties by not using the assets in her “trust” for husband’s exclusive benefit.

Husband refused to settle and the case proceeded to trial. CJT represented “wife,” and immediately had wife file a petition to rescind the last amendment to her trust.CJT counsel asserted three primary defenses, namely, that the last amendment was (1) a sham and therefore not enforceable; (2) the last amendment was based on a mistake of law, because neither “husband” nor “wife” believed it could be enforced against the other; and (3) it was established for an invalid purpose (to defraud a possible creditor).”Husband’s” counsel argued that the terms of the last amendment were clear, the amendment expressly stated it was irrevocable, “wife” understood what she read and that she could not now attempt to set it aside.CJT trial counsel called the “husband” as the first wife and cross-examined him.The husband’s testimony was inconsistent and he was discredited.CJT counsel then called the drafting attorney, who walked a fine line between protecting his own interests and telling the truth. CJT called the accountants used by “husband” and “wife” to show that neither of them filed the correct tax returns if the trusts were in fact irrevocable.CJT was able to admit into evidence a variety of exhibits, consisting primarily of refinance documents, showing that the couple represented to lenders, after the amendments were signed, that there trusts were still revocable.

 

Ultimately, through careful examination, CJT counsel was able to get the drafting attorney to admit that there were in fact oral agreements limiting the ability to use the last amendments against each other.CJT finished its case with “wife,” who told the truth, remaining calm and consistent in her testimony.”Husband’s” counsel put on his case, calling “wife” on cross-examination as the initial witness, followed by “husband.”"Wife’s” testimony remained reliable and consistent, while “husband’s” testimony on cross-examination again proved unreliable.The trial concluded.Six weeks later the court produced an 18-page statement of decision, finding that “wife” had proved all three defenses and granted wife’s decision to rescind her trust.

Youngest adult daughter, youngest daughter’s husband and their five children five move in to take care of 90-year old, mildly impaired father. For five years, youngest daughter and her family systematically spend half a million dollars using father’s credit cards. The other adult children and impaired father have no idea about the financial elder abuse.

When the other adult children finally get wind that the youngest daughter may be taking advantage of their father, they seek the Court’s help to hold youngest daughter accountable as Trustee of father’s Trust. Youngest daughter disregards the Court’s rulings to turn over information to other children. The other adult children hire Carico Johnson Toomey LLP (“CJT”) to protect their father and recover the Trust funds badly need for their father’s care. CJT petitions the court for issuance of citation to compel youngest daughter’s appearance before the Court. Youngest daughter disregards the citation. CJT obtains information that youngest daughter has liquidated approximately $650,000 of father’s money, his entire life savings, and hid the proceeds in Nicaraguan real estate and gold bullion stashed somewhere in Canada or California. CJT traces the wire transfer transactions through a series of bank accounts. CJT then successfully petitions the Court to freeze bank accounts. The financial institutions, with funds frozen, provide full cooperation to CJT and the accountholders, unknowing participants in the embezzlement, turn over tapes of phone conversations and provide affidavits confirming the elder abuse committed by youngest daughter. .

CJT persuades Probate Court to issue bench warrant for youngest daughter’s arrest for violation Court’s order to freeze funds. The bail is initially set at $25,000 but then CJT is able to convince the Court to increase it to $1,000,000.

CJT also convinces Court to issue Order freezing the Nicaraguan property and placing a “constructive trust” over the foreign real property in favor of father’s Trust. CJT also convinces the Court to freeze the youngest daughter’s home in Lake Arrowhead. Court removes youngest daughter as Trustee without the need for trial.

CJT attorneys meet in person with a special FBI agent and an Assistant U.S. Attorney, and by phone with a U.S. Customs agent, in effort to coordinate seizure of foreign assets. CJT brings in Canadian counsel in an effort to cut off access to safety deposit boxes where gold may be hidden in Canada and brings in Nicaraguan counsel in an effort to re-transfer the Nicaraguan property.

With all escape roots cut off and jail time eminent, the youngest daughter returns $450,000 in gold bullion directly to CJT and consents to full cooperation in the return of the Nicaraguan property. CJT forces the youngest daughter to an “asset examination” under Probate Code 2616, which reveals the account numbers for the credit cards being used by youngest daughter to defraud the impaired father. While youngest daughter attempts to take the 5th Amendment to avoid answering CJT questions, she is successful in doing so on only a few occasions. CJT does not stop until every stone is unturned and all foreign assets are returned.

Husband and wife are citizens of Foreign County but lawful permanent residents of the U.S, residing in the South Bay. They have no existing estate plan and no children. Husband is estranged from his parents and siblings, all of whom are still living abroad. Husband dies unexpectedly from a heart attack at age 60. Until the time of his death, Husband had handled all of the finances for the couple. Following his death, Wife discovers for the first time that all of the important stock, which constituted 80% of their wealth, had been held in Husband’s name alone. The stock had been acquired over a 10-year period through the exercise of employer-granted stock options from Husband’s employer. The funds used to exercise the stock options came from the couples’ joint account, while Husband and Wife were living together but before they were legally married. Husband and Wife, unfamiliar with California laws, thought they had a common law marriage prior to their civil marriage in California. To Wife’s surprise, after Husband’s passing, Wife learns from us that California does not recognize the concept of common law marriage.

Without an estate plan, the separate property of Husband would ordinarily be distributed under the California rules of intestate succession 50% to Wife and 50% to Husband’s parents. This is directly contrary to Husband’s stated desire and belief that Wife would receive everything.

Wife engages us to assist her in carrying out her Husband’s intent. Through fact gathering, we are able to piece together enough evidence to prove that the funds used to purchase the stock options came from the couples’ joint earnings before marriage. With Wife’s help, we also obtain documents establishing Wife’s position that Husband and Wife had both intended to leave each other all of their respective assets. In this case, important evidence included the joint tenancy deed to their home purchased before marriage and beneficiary designation forms with past employers.

Over the objections of Husband’s estranged parents, we the concept of a "resulting trust" to successfully argue that half of the stock belonged to Wife before Husband’s death, since the stock was purchased with money the joint account where the pooled their pre-marital salaries. [Martin v. Kehl (1983) 145 Cal.App.3d 228] Of the remaining 50% belonging to Husband, 25% of it passed by operation of law under the California rules of intestate succession to Wife as the surviving spouse. [Probate Code 6401(c)(2)(B)] As for the final 25% of stock, the court found enough proof to hold that Husband and Wife had entered into a valid oral agreement to leave each other all of their assets, which oral agreement they had both relied upon and executed in full. Based on such oral agreement, Wife was entitled the remaining 25% under the concept of a "constructive trust." [Probate Code 21700; Byrne v. Laura (1997) 52 Cal.App.4th 1054; Marvin v. Marvin (1976) 18 Cal.3d 660; Alderson v. Alderson (1986) 180 Cal.app.3d 450]

In this case, Wife ended up with all of the assets as intended by Husband. Of almost equal importance was the manner in which the assets were conveyed to Wife. By successfully arguing that 50% of the stock was in fact Wife’s to begin with, we were able to reduce the value of Husband’s estate by 50% of the stock for federal estate tax purposes. Had all 100% of the stock been included in Husband’s estate for federal estate tax purposes, then Husband’s estate would have exceeded the federal estate tax applicable exclusion amount. Because Wife was not a United States citizen, these excess assets passing from Husband to Wife would not have qualified for the federal estate tax marital deduction and Wife would have paid a federal estate tax of 45% on those assets. By successfully arguing that Wife owned the assets from inception, we were able to reduce the size of Husband’s estate and entirely eliminate the federal estate taxes.

Public Employer sought to demote a long term government employee. The instances of poor performance and abuse of sick leave dated back years. The issue in the case was that employer had not engaged in any substantial progressive discipline. Although there had been several warnings, there had been no documentation of the poor performance or no attempt to put the employee on a plan to improve his performance with set goals.

The employee appealed his demotion and the case was tried in arbitration. On behalf of the employer, through the examination of 8 witnesses, substantial documentary evidence, and cross-examination of the employee, we were able to establish that there was good cause for the demotion and prevailed in the arbitration. The employee’s demotion was upheld. Winning the case sent a message to the other government employees that the stereotype of a government employee was no longer acceptable.

Clients had previously been appointed as Conservators for their elderly mother who no longer had the capacity to manage her own affairs. Mother’s estate was conservatively valued at $10,000,000, containing income producing rental properties in an affluent area of Los Angeles, her own valuable residence and a significant amount of cash. Mother had an old Will, but did not have a Trust or the other estate planning documents typically appropriate for such a large estate.

Mother’s existing Will left all of the assets to the two children. Unfortunately, as the property passed by way of the Will, Mother’s estate would need to go through the Court’s probate process upon her death, a process which is lengthy, public and often costly. The statutory (Court awarded) attorneys’ fees for a probate of this size would be in excess of $100,000. The fees involved in administering a Trust of this size would generally significantly less, an obvious benefit to the Mother’s heirs.

CJT was requested by the Court’s own reviewing attorney handling the Conservatorship matter to associate as co-counsel with the children’s existing attorney for the purpose of preparing a Petition for Substituted Judgment, a Court procedure whereby the children, as Conservators, are able to establish a Trust for their Mother. The primary purpose of such a procedure is to avoid the costs and delays related to a probate on the Mother’s later death.

CJT prepared the petition and proposed Trust for approval of the Court. CJT recognized an opportunity to at the same time potentially save the heirs of the estate a significant amount of estate taxes. At the time of matter, Mother’s estate tax liability would have been excess of $3,500,000.

Under the same Petition for Substituted Judgment procedure CJT was able to request and receive authorization from the Court to make gifts to Mother’s children and grandchildren which removed both cash and real property assets from Mother’s estate.

CJT was able to receive Court authorization for the Conservators to make annual exclusion gifts to each of the children and grandchildren for a period of 5 years. The annual exclusion amount is the maximum amount that you may give to any individual you like without incurring a gift tax. The amount is currently $13,000 per year. Conservators were now able to effectively remove $52,000 in cash from Mother’s estate each year for a period 5 years (for a total of $260,000 over the 5 years). This cash would otherwise be in Mother’s estate upon her death and subject to estate tax at a rate of 45%. These gifts alone would save $117,000 of estate taxes upon Mother’s death.

More significantly, CJT was able to receive authorization from the Court to make immediate gifts from Mother’s real estate interests to her children, which had a number of significant benefits. Mother’s cash and income far exceeded her expenses, so her lifestyle and standard of care would remain the same. The Court authorized a gift to each child of 10% of each of Mother’s two rental properties. First, this had the effect of immediately removing 20% of the accumulating income from the properties from Mother’s estate and directing it to her children. In an estate of this size each dollar of net income removed saves 45 cents of estate tax upon her later death.

Second, due to the way in which assets are valued for purposes of the estate tax, a huge potential tax savings was created. Mother now owned just 80% of each property. Upon her death, Mother’s estate would in turn own only 80% of each property. But for purposes of estate taxes, the value of an 80% interest in a real property is actually far less than 80% of the whole. This is due to a concept known as Lack of Marketability (marketability being your ability to sell an item). Basically, because the property is partially owned by other people, in practice it is much more difficult to sell that 80% interest. Who would want to buy just 80% of a building? Certainly no one would pay you 80% of the full value of that building because they could not be sure of what the owners of the other 20% would do or agree to do. Because of this, it is widely recognized that partial or fractional ownership of an item is not as valuable as owning the entire item. To get someone to buy your 80% in the property you would need to reduce the price, essentially giving them a discount. The standard discount for this “Lack of Marketability” is in the order of 15%. So, for example, Mother now owns 80% of a building, the whole of which is worth $3,000,000. Many would think that owning 80% of that would be worth $2,400,000. In reality, because it cannot be readily sold, you would likely have to discount the sale of your 80% interest by 15% or so. A 15% discount on $2,400,000 is $360,000, so your 80% is only worth $2,040,000. This is the value you would report to the IRS on the estate tax return. The $360,000 reduction in value saves another $162,000 in estate taxes. And in the end, the children would still own the entire property together. This concept of “fractionalizing” the real property provided the same type of discount on when the 10% gifts were made to the children, reducing the value of the gift by the same 15%. In the above example, a 10% gift of the property would generally be valued at $300,000. But with the same discount, the value for gift tax purposes is only $255,000. Every individual is allowed to give up to $1,000,000 in gifts (on top of the annual exclusion gifts) during his or her lifetime. CJT was able to get Court approval to make gifts of the real estate for this whole $1,000,000. The discounting concept above allowed CJT to remove property with an actual value of almost $1,200,000 from the estate.

The actions of CJT led to, conservatively, likely estate taxes savings, to the beneficiaries upon Mother’s death, in excess of $500,000, while also providing them with immediate cash from the annual exclusion gifts and income from the properties.

Client Business is a business specializing in the import and sales of certain goods. Due to the economic downturn, Client Business was no longer earning a profit and was in the process of winding down its business. During the winding down period, Client Business and Client Officer (an officer of Client Business) were sued by Overseas Manufacturer for failure to pay certain invoices. In an attempt to pierce the corporate veil, Client Officer was sued in his personal capacity. This means that if Overseas Manufacturer was successful, it could enforce its judgment against Client Officer’s personal assets. Both Client Business and Client Officer retained CJT to defend them in the matter. Overseas Manufacturer was successful in obtaining and Order for Attachment to Client Business’s property in the amount of approximately $250,000. Although Client Business was closing down business, Client Officer was very concerned that a judgment in the case would be enforced against him personally.

In an attempt to have Client Officer dismissed from the litigation, the parties agreed to mediation. At mediation, CJT argued that there was no basis to hold Client Officer personally liable, and therefore, Overseas Manufacturer could only recover against Client Business. Since Client Business had closed business and was winding down, Client Business’s assets at that point were as great as they were ever going to be. Any further litigation would reduce those assets, and consequently, reduce any amount Overseas Manufacturer would be able to collect. With this in mind, Client Business offered approximately $40,000, which was everything Client Business had left, and Client Officer offered an additional $25,000 out of his own pocket for a full settlement and release of all claims. Overseas Manufacturer rejected the offer on the ground that even if Client Business was winding down and had no assets, Overseas Manufacturer could go after Client Officer personally for any deficiency. This deficiency likely would have been the full $250,000 judgment. In all, Overseas Manufacturer turned down approximately $60,000 at settlement.

In forming a focused and cost-effective defense, CJT filed a Motion for Summary Judgment to have Client Officer dismissed from the case on the grounds that Overseas Manufacturer had no evidence to allow it to pierce the corporate veil and sue Client Officer personally. By that point it had become clear that Overseas Manufacturer did not want to spend much time or money litigating the case. In fact, it had conducted almost no discovery and CJT believed it had absolutely no evidence to support its claim against Client Officer. Since Client Business was finished winding down and, by that time, had no assets left, CJT determined the most fiscally prudent strategy was to defend only Client Officer. To file a Motion for Summary Judgment on behalf of both Client Business and Client Officer would have been very time-consuming and likely would have cost Client Officer an additional $15,000. If Client Officer was dismissed from the lawsuit, the best Overseas Manufacturer could do was obtain a worthless judgment against Client Business. Moreover, to successfully oppose the Motion for Summary Judgment, Overseas Manufacturer would be required to conduct extensive discovery and prepare very costly and voluminous Opposition papers. CJT predicted Overseas Manufacturer would not be willing to do that.

CJT’s strategy paid off. When the deadline for Overseas Manufacturer to file its Opposition approached, Overseas Manufacturer simply dismissed Client Officer from the case. It did not have any evidence to sue Client Officer personally and did not want to spend the money to litigate further. As CJT had predicted, Overseas Manufacturer’s entire position in the case was only a bluff. Client Officer was dismissed from the case and Client Business was completely wound down with no assets left. In essence, Overseas Manufacturer left approximately $60,000 on the table at settlement, but due to CJT’s strategy, ultimately was not able to collect a single penny from either Client Business or Client Officer.

CJT’s legal knowledge, ability to detect Overseas Manufacturer’s bluff, and strategy to file a Motion for Summary Judgment on behalf of Client Officer only saved Client Officer tens of thousands of dollars. Not only was Client Officer spared from expending funds to defend Client Business, but all the money that would have been spent settling the matter at mediation was saved. Further, CJT’s efficient and well-researched Motion for Summary Judgment allowed Client Officer to get out from underneath the threat of a judgment exceeding a quarter of a million dollars.