Lintz v. Lintz is a 2014 California Court of Appeals case that is a textbook for estate planning. It's the stereotype case of an old man taken advantage of by his third wife. But she didn't just nudge him to favor her and her children, she took a blow torch to his separate property and his living trust estate plan. But she was caught dead in her tracks by the California probate court and the appellate court.
The defendant (we'll call him "husband") is the third wife of the decedent (we'll call him "husband.") They married in 1999, divorced six months later, and remarried in February 2005. It happens - don't judge. Their second marriage ended in October 2009, when husband died at age 81.
Husband had two children from a previous marriage. Wife had three children from two previous marriages, and two grandchildren. When husband and wife remarried in 2005, husband was a retired real estate developer worth millions. And he had an estate plan: the Robert Lintz Trust. But he had amended his trust many times.
The ninth amendment of his trust, in effect when husband and wife were enjoying their second marriage, named husband's children, grandchildren and former son-in-law as beneficiaries.
But in May 2005, a few months into his second marriage to wife, husband amended his trust for the tenth time. This tenth amendment gave 50% of his estate to wife, and the balance to husband's children and grandchildren.
But wait, there's more ...
Between May 2005 and 2008, husband amended his trust several more times giving more of his estate to his wife, and disinheriting his two eldest children.
But wait, there's still more ...
In June 2008, husband and wife created a joint living trust, the Lintz Family Revocable Trust. This trust was prepared by husband's attorney at husband's direction. Purportively, husband transmuted (converted) all of his property from separate to community property, and he gave wife a life interest in his estate and the right to disinherit husband's youngest child and to leave the remainder of his estate to wife's two children.
Can you guess what happened when the old man died? Yep, his oldest children, Susan and James, filed a complaint against their wife for fiduciary abuse of an elder, breach of fiduciary duty, conversion, constructive trust, and undue influence: as they say, the whole kit and caboodle.
After a 15-day trial, the probate court issued a 25-page order finding wife liable for financial elder abuse, breach of fiduciary duty, conversion of separate property funds, and ruled that wife was "in constructive trust of husband's converted funds and trust property." The court also ruled that husband had testamentary capacity to execute the trust instruments, but that wife was liable for undue influence in the procurement of his estate plan amendments. The probate court voided all trusts and trust amendments after the tenth amendment. This was a complete victory for the husband's kids.
In addition, the court concluded that much of wife's spending during her marriage to husband constituted acts of financial abuse and conversion and awarded Susan and James attorney's fees and costs for proving financial elder abuse.
WIPEOUT!
Wife appealed the probate court's ruling on the grounds that she did not exercise undue influence on husband and that the probate court's invalidation of the trust documents interfered with her marital relationship.
The appellate court discussed the different standards of legal capacity for estate planning.
Making a Will. California Probate Code section 6100.5 establishes the standard for making a will. It requires only that the person understand that he or she is making a will, what property he owns, and his relationship to those affected by the will - parents, spouse, children, etc.
Making a Trust or Trust Amendment. The appellate court said that making or amending a trust typically requires a higher standard of capacity than making a will. It cited Anderson v Hunt (2011) 196 Cal. App. 722, that California Probate Code sections 810-812 impose a different standard depending on the complexity of the act: more complicated decisions and transactions require greater mental function.
Probate Code section 812: A person lacks testamentary capacity if he doesn't have the ability to communicate, understand the rights and duties created by or affected by the decision, the probable consequences and the persons affected, as well as the risks, benefits, and reasonable alternatives.
The appellate court held that in this case, the new trust and amendments were way more complicated than a will because they involved community property decisions, provided a life estate for wife, created multiple sub-trusts involving estate tax issues, and, as a result, the higher standard of testamentary capacity was required.
To evaluate undue influence, the appellate court cited California Family Code section 721(b), which imposes a duty of highest good faith and fair dealing on each spouse.
If one spouse secures an advantage from the transaction, a statutory presumption arises under section 721 that the advantaged spouse exercised undue influence and the transaction will be set aside.
It found that section 721 applied in this case to the transmutation of husband's separate property to community property and to the huge sums of money husband transferred to wife.
The trust advantaged wife by giving her exclusive and virtually unfettered life estate in husband's property, disinheriting two of his three children, and giving her the right to disinherit his third child so the remaining estate would fall to her children.
The appellate court further applied the California Supreme Court definition of undue influence in the context of the disposition of property by will or trust as, "pressure brought to bear directly on the testamentary act, sufficient to. overcome the testator's free will, amounting in effect to coercion destroying the testator's free agency."
Wife admitted that the probate court's findings of fact were sufficient to support liability for financial elder abuse, but she argued that these findings were insufficient to void the trust and its amendments.
This is crazy. She admitted, ya, ok, fine, I financially abused my husband, but ... that can't possibly mean his new trust and new amendments to his old trust that gave me complete control aren't valid.
The appellate court explained that financial elder abuse under California Welfare and Institutions Code section 15610.30 occurs when property is taken for a wrongful use, or with intent to defraud, or by undue influence, and that the probate court used this standard to impose wife's liability for financial elder abuse. It referred to the probate court's reasoning that:
While it is not uncommon for a spouse to spend money or purchase items of which the other is unaware, and the line between such conduct and financial abuse is not always clear, what the wife did in this case was well beyond the line of reasonable conduct and constituted financial elder abuse. Much of her credit card spending and writing herself checks from husband's bank account during the marriage was financial abuse.
The appellate court reviewed the probate court's findings:
Relying on the rule of Hagen v. Hickenbottom (1995) 41 Cal. App. 4th, 182, that undue influence in a testamentary act requires showing that proven circumstances are inconsistent with the voluntary action of the testator, the appellate court agreed with the probate court's ruling to void the trust documents.
In a last-ditch effort, the wife argued that voiding the trust documents because she spent too much of her husband's money during his lifetime violates the sanctity of her marriage under the California Constitution. I mean, come on, judge, what demonstrates the sanctity of marriage more than spending my husband's money and fleecing his estate?
The appellate court rejected this argument and said the probate court did not void the trust documents because of her spending, it voided the trust documents because of undue influence. And in its final slap down, the appellate court said:
While the right to marry is protected by the California Constitution, the Constitution does not diminish a wife's fiduciary obligations to her husband, nor shield her from liability for unlawful conduct.
There are many takeaways from Linz v. Linz:
Interesting comment by the appellate court: While it is not uncommon for a spouse to spend money or purchase items of which the other is unaware, and the line between such conduct and financial abuse is not always clear, what the wife did in this case was well beyond the line of reasonable conduct ...
So while it might be acceptable for a spouse to spend her sugar daddy husband's money without his consent (or visa versa: husband spending his rich wife's money), don't cross the line. Be reasonable in your unauthorized spending. lol.
As Proverbs 24:6 says: Surely you need guidance to wage war, and victory is won through many advisers.
If you are thinking about re-marrying wife number three, you will be going to war, therefore, seek counsel.
If you are in your second, third, or fourth marriage, or if you just quit counting, and you want to protect the inheritance for your kids, be smart and seek advice from an estate planning attorney. You have many options. Here are a few:
4. Get a Pre-Nup
Pre-nups may seem unromantic and too transactional, but if you are considering a third or fourth marriage, and you have a significant estate, find a family law attorney and get one.
It's your estate, and you have the right to do whatever you want with it. But don't get stuck in an abusive situation where you lose control. Take care of your kids, afterall, you've been with them longer than your fourth spouse. With careful planning, you can provide for your children and your new spouse.