Estate Plan Requires Consideration of Separate and Community Property Assets

The recent case of Wilkin v. Nelson reviewed an estate plan with respect to California's Family Code concerning separate and community property.

William and Hanako Nelson were married in 1981. In 2000, Hanako executed a trust leaving a separate property rental home to Gary and Jay Wilkin, her adult sons from a prior marriage.

At that time, Hanako also executed a pour-over will granting the residue of her estate to the trustee for administration after her death. Hanako did not advise William of her estate plan, but he later discovered she had placed her rental home into a trust for the benefit of her sons.

Hanako died in 2016. Gary, who became the successor trustee, filed a probate petition requesting that Hanako’s separate and community property assets be transferred to her trust. He claimed the pour-over will required that all of her real and personal property be declared trust assets.

William filed a petition seeking reformation of the pour- over will to confirm Hanako’s intent to transfer only the residue of her separate property estate into the trust. He cited the decision Estate of Duke which held that an unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.

Following a three-day evidentiary hearing, the probate court found that clear and convincing evidence supported equitable reformation of the will to provide for testamentary control and disposition of Hanako’s separate property only.

The paramount consideration in construing a will is to determine the subjective intent of the testator.  The modern trend is toward favoring the decedent’s intent over formalities.

A specific devise is a transfer of specifically identifiable property (Probate Code
§ 21117(a)), while a general devise is a transfer from the general assets of the transferor that does not give specific property. (Probate Code § 21117(b))

There was substantial evidence of Hanako’s actual and specific intent at the time the trust and will were drafted.

It was undisputed she wanted a trust to gift her separate property rental home, i.e., the Goleta property, to her two sons, and that she also expressed some general desire to have a will to control the disposition of her separate property. The will as drafted contained a mistake in the expression of that intent.

The drafting attorney’s testimony, although not conclusive, is entitled to much weight.  McKee testified it is fair to state that Hanako’s trust is a separate property trust. The instrument provides that the property transferred is the settlor’s separate property and shall be known as the ‘separate trust estate.

During his deposition, McKee confirmed the trust did not include any community assets. He also acknowledged that he and Hanako did not discuss the pour-over will or her community property assets during their phone call.

Once the testamentary scheme or general intention of a trust or will is discovered, the meaning of particular words and phrases is to be subordinated to this scheme, plan or dominant purpose.

In the absence of any evidence showing Hanako’s intent to include community property assets in her estate plan, it was reasonable for the probate court to interpret the evidence of her intent as it did.

Where, as here, there is a mistake in expression of the testator’s actual and specific intent at the time the will was drafted, the will should be reformed to express that actual intent.

Preference is to be given to an interpretation of an instrument that will prevent intestacy (Probate Code § 21120), but no policy underlying the statute of wills supports a rule that would ignore the testator’s intent and unjustly enrich those who would inherit as a result of a mistake.

Given the probate court’s finding that Hanako intended at the time the trust and pour-over will were drafted to provide for testamentary control and disposition of only her separate property, the decision to reform the pour-over will to conform to that actual and specific intent was well within the court’s discretion.

LESSONS:

1.         Married couples should always consider the status of assets as community or separate property at the creation of the estate plan.

2.         An unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.