Bar to Review Rules on Estate Gifts to Lawyers

Tough new measures are under study by the State Bar of California that would prevent attorneys from preparing wills and trusts that bequeath them substantial gifts from their clients’ estates.

State Bar President Harvey Saferstein said he has asked a committee that reviews the professional code of conduct for the state’s 135,000 lawyers to decide if the bar should adopt provisions to discipline attorneys for drafting wills and trusts that bestow large gifts of stock, money or property on them.

Such measures have been endorsed by the American Bar Assn. and adopted in 38 states, but not in California so far.

Saferstein acknowledged that such a change might be necessary when he and top level State Bar officials, including Chief Trial Counsel Robert Heflin, met with The Times this month to discuss estate planning and probate issues.

The interview followed a Times investigation that revealed how Laguna Hills lawyer James D. Gunderson prepared numerous wills and trusts making himself the recipient of millions of dollars in cash, stock and real estate from his elderly Leisure World clients, despite a state Supreme Court ruling that anything more than a “modest gift” from a client’s estate raises questions of impropriety. Gunderson has denied any wrongdoing.

Saferstein said he asked the rules committee to determine if an American Bar Assn. guideline prohibiting lawyers from preparing wills and trusts that bequeath them gifts is better than California’s current rule.

“I have asked my board committee on rules to look at the ABA’s model rule and to look at (our rule), and to see if we can change it,” Saferstein said.

The ABA code reads: “A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer . . . any substantial gift from a client, including a testamentary gift.”

The State Bar of California Rules of Professional Conduct simply state that “a member (lawyer) may accept a gift from a member’s client, subject to general standards of fairness and absence of undue influence.” The rules add that California lawyers “shall not induce a client to make a substantial gift” to them or their relatives.

The most authoritative interpretation of the California rule is an oft-quoted 1962 California Supreme Court decision, Magee vs. State Bar of California. In that decision, the state Supreme Court held that “there is no rule that attorneys should never draw wills in which they receive gifts.”

But justices went on to say that “even though an attorney may be acting only to carry out the wishes of his client in drawing a will containing a gift to himself, he should send the client to another lawyer when the circumstances support an inference of wrongdoing.”

The decision provided some guidelines and warned that anything more than a “modest” gift to an attorney raises the question of impropriety. Justices said the $20,000 inheritance in the Magee case was a “substantial” gift, and noted that the attorney had been forced to relinquish his claim to the money.

To uncover improper gifts, Heflin said, the State Bar might need to recommend further oversight obligations on judges and probate examiners to look into situations they believe are questionable or to report them to the bar for investigation.

“Do they have, does the probate examiner have, an obligation, when they see a certain scenario, to notify us, or to notify the judge to notify us?” Heflin said. “I mean that maybe that’s something that can be looked at . . . so these things would not go undetected. I see that as the real lapse here.”

State Bar officials suggested that it might be helpful for a panel of probate experts to analyze what some lawyers did step by step to see how they bequeathed themselves enormous gifts. If they managed to get these gifts under the nose of the probate court, they said, the bar might want to look at it a little more closely, because examiners have a checklist they follow as they review probate cases, and the list should perhaps include a question about gifts to the deceased person’s attorney.

The problem is that there is already little time for judges or examiners to check for suspected wrongdoing given the number of cases pending in probate courts and the volume of trusts that are created.

State Bar officials said, for example, that registering all durable powers of attorney with the court to have them reviewed would create an enormous burden and an expensive bureaucracy.

“Then there’s a question of when you get to the point where rules and regulations can help and then you get to that point where you simply can’t legislate against dishonesty,” Saferstein said. “Those kind of people in our society they’re gonna have to catch.”

Historically, the State Bar has not received many complaints of wrongdoing by estate planning and probate attorneys. But Saferstein acknowledged that the low number could be because people are ignorant, potential complainants are dead, and there is not always a way to review wills and living trusts.

“I think that we don’t have a mechanism now for going out ourselves and reviewing wills or trust documents,” he said. “To see if there’s any potential impropriety, for us to get involved it has to come by way of complaint from somebody. This is not the sort of thing that would otherwise come to our attention.”

However, Heflin and Saferstein warned that complaints could increase as legal issues of all types related to the elderly proliferate in the years ahead as the population continues to age. They pointed out that one of the fastest-growing segments of the population in the nation right now is those between the ages of 80 to 85.

One problem the State Bar already has been dealing with is the proliferation and marketing of living trust seminars that are not necessarily run by attorneys. Such trusts are often set up outside the purview of a court. Unfortunately, the bar is restricted to dealing only with lawyers.

Already the State Bar has education programs for those interested in determining whether setting up a living trust is better for their estates than going through probate proceedings.

Saferstein and Heflin also said the state probate code is in constant flux with at least 100 proposals a year to revise it going through various bar committees. They said they saw no need to overhaul the system because the entire code section has been rewritten from cover to cover over the years.

WILLS AND TRUSTS: A user’s guide to estate planning and probate issues. A5

User’s Guide to Estate Planning

Question: What is estate planning:

Answer: One part involves planning for the management and disposition of your property both during your lifetime and after your death. Another part is planning for your personal and health care in the event that you become no longer able to provide for such care.

Q: What is involved in estate planning?

A: The form of your estate plan will depend upon your particular circumstances. Major questions concern who will receive your property upon your death and the manner in which your property will be distributed. Depending on your circumstances, you should determine who should administer your estate after your death; who should be the guardian of your children; how can federal estate and other taxes be minimized; how your executor or trustee will pay estate taxes if any are due; how should you and your spouse hold title to your assets; who you want to take care of you if you cannot care for yourself; who you want to manage your estate if you cannot; and who should receive the proceeds of your life insurance or your retirement benefits.

Q: What is included in my estate?

A: Your estate consists of all property or interests in property which you own. Your estate may also consist of money held in bank accounts, stocks or bonds, real property (including your home), life insurance or retirement benefits. The value of your estate is important in determining the resources you will have available in the event of your incapacity, and whether your estate will be taxed after your death. Generally, federal estate taxes are incurred only in estates valued at more than $600,000.

Q: Who needs estate planning?

A: Almost every individual, regardless of the value of his or her estate, needs estate planning. If your estate has a small value, your estate planning may only focus upon who is to receive your property upon your death. If your estate is larger, a lawyer can discuss with you different ways to preserve your property for your heirs. Estate planning often involves ways to reduce or defer the amount of estate taxes which otherwise might be payable on your death.

Q: Who should help me with my estate planning documents?

A: Wills and trusts are legal documents which should be prepared by a qualified attorney. Some individuals may be able to rely on a fill-in-the-blanks statutory will form available by sending a check or money order for $2 to: Will Forms, State Bar of California, P.O. Box 420411, San Francisco, CA 94192-0411. Many other professionals--certified public accountants, personnel managers, pension consultants, life insurance agents--can assist you within their area of expertise in planning your estate. If you decide to hire a lawyer, you should understand what services are to be provided and how much they will cost. California law requires that a lawyer explain, in advance and in writing, the nature of the services to be rendered, the cost of those services and the payment terms.

Q: What is a will?

A: A will is a traditional legal document in which you identify those individuals (or institutions) who (or which) will receive your property and possessions on your death. These individuals and institutions are commonly referred to as beneficiaries. In a will, you appoint or name an executor, who may be an individual or an institution. After your death, your executor will manage your affairs and will insure that your property is distributed in accordance with the provisions of your will. In a will you may also name the guardian(s) of the persons or estate of your minor children, make specific gifts to individuals or charities or even include burial instructions.

Q: What is a “living trust” or “family trust”?

A:”Living trusts” or “family trusts” are technically known as revocable inter vivos trusts, which may be amended or totally revoked at any time during your lifetime, as long as you remain competent. They are written agreements between the individual creating the trust (the “trustor”) and the person or institution that will manage the assets held in trust (the “trustee”). In the written agreement, you give the trustee the right to control your property; identify the beneficiaries who are to receive income or principal; and, set forth the provisions which will guide the trustee in the management and distribution of the trust property. Often the major purpose of a living trust is to avoid probate.

Q: What is probate?

A: Probate is a court-supervised process which has as its ultimate goal the transfer of property from an individual who has died to that individual’s beneficiaries who are identified in a will. Probate has advantages and disadvantages. Disadvantages of probate include its public nature and, sometimes, the expense. Also, many probates are very lengthy, particularly when compared to the time required to administer the estate of a person who has created and funded a revocable inter vivos trust. An advantage of a living trust is that it may enable you to avoid a conservatorship, where a court appoints an individual to take care of you and your property if you are unable to do so for yourself.

Q: Whom should I name as my executor or trustee?

A: After an individual’s death, the executor of a will and the trustee of a living trust serve almost identical functions. Both the executor and the trustee are responsible for insuring that the decedent’s wishes, as expressed in the will or trust, are fully implemented. Although the executor of a will is generally subject to direct court supervision, a trustee generally is not. Persons often named as an executor or trustee include a spouse, adult children, other relatives, family friends, business associates or an institution. In deciding who should act as an executor or trustee, you should select someone who is responsible, well-organized and experienced in maintaining books and records. If an individual (other than a close relative) or an institution acts as a trustee, you generally will have to pay an annual fee to that person or institution. Because fees charged by trustees may vary, you might want to “shop around” before you decide whom to name.

Q: Does estate planning involve tax planning?

A: Often the creation of a will or a revocable inter vivos trust will involve substantial tax planning, particularly for larger estates. Estate planning generally focuses upon federal estate (death) taxes, but also may encompass income, gift, real property or qualified retirement plans taxes. Federal estate taxes are imposed upon an estate which has a value of $600,000 or more. Although significant federal estate taxes can be saved by proper estate planning, the planning usually must occur before death.

Q: What if I become unable to care for myself?

A: If you become incapable of managing your estate or of providing for your own care, you should determine, in advance who you want to care for you and your estate. Conservatorships are court-supervised proceedings which allow the court to appoint who is to care for you and to manage your estate Alternatives to a conservatorship are a durable power of attorney for property and a durable power of attorney for health care. A durable power of attorney does not involve a court proceeding and may be effective immediately or if you become incapacitated. In a durable power of attorney, you appoint another individual (the “attorney-in-fact”)to make health care or property decisions on your behalf. The attorney-in-fact manages your assets and functions much as a conservator, but without court supervision. Under a durable power of attorney for health care, the attorney-in-fact makes health care decisions when you can no longer make such decisions.

Source: State Bar of California