Blended families, although increasingly common, still seem (to this author at least) to generate an outsized share of legal problems in the estate planning and administration field. In the blended family arena a new California case gives us one more deadline to add to our post-death checklist regarding possible creditors and claim periods under California law when there is a surviving spouse. Let me add some background notes before telling the tale:
- A “blended family” as used here is one in which a couple marries, and one or both of them bring into the marriage children from prior relationships. Think of The Brady Bunch or Yours, Mine and Ours for happy versions.
- California law has long codified, in its Family Code, the concept of spouses being in a fiduciary relationship with each other. That status has a role in the story here.
- California has also long had two statutes, Code of Civil Procedure (CCP) Sections 366.2 and 366.3, which have defined the limitation period on claims against a decedent to being one year from date of death, regardless of the duration of the limitation period against living parties. This period applies whether the decedent’s estate goes through probate, is administered under a trust, or passes via any of the other myriad options available under California law. In probate, for example, if we wait a year and a day to start our court proceedings, there is existing California case law that lets the representative dispense with notice to creditors since the CCP 366.2 period already expired before the action was commenced. It is the creditor’s burden, in California, to file the action before the one-year anniversary if the creditor wishes to pursue its claim.
- Despite the statutory language, there have always been a few recognized “supercreditors”, of which the Internal Revenue Service is the most common. The IRS has consistently maintained that its claims are not subject to CCP 366.2, and a number of respected legal academics have opined that this position is correct in the interplay of state and federal law. Other government agencies may also be “supercreditors”, but traditionally no other species of claimant has attained that status.
To this rarefied list of “supercreditors” we can now add spouses, thanks to the decision in Francine S. Yeh v. Li-Cheng Tai, et al. (2017) 18 Cal.App.5th 953. Ms. Yeh (“Yeh”) was the surviving spouse of Shu Hsun Tai (“Shu”). Shu had children from a prior marriage. While married, the couple purchased a condominium in California as joint tenants. For financing purposes Yeh conveyed her ownership interest to Shu, and he apparently promised to transfer the title back into both names when that financing was secured. Not only did Shu not do so, he thereafter conveyed title to the condo into a separate property trust that he created for his children’s benefit, excluding Yeh from it. Three days before his death (while still a California resident), Shu again promised Yeh, in response to her question, that she would have full rights to the condo property.
Needless to say, Yeh was not pleased to learn the true news after her husband’s death, but she was not quick to act to protect her interests. In fact, Yeh waited some 18 months after Shu’s death to file a civil action under California Family Code Section 1101, claiming that he breached his fiduciary duty to her as a spouse by this unilateral conveyance made contrary to his promise to her. Yeh asked the trial court to order the trust beneficiaries to convey the property to her, but their demurrer to her complaint was sustained under the CCP 366.2 analysis.
Undeterred, Yeh appealed that ruling, and the Second District Court of Appeal reversed the trial court. It held that a breach of fiduciary duty claim under Family Code Section 1101, brought by a surviving spouse against a deceased spouse (or successors in interest), is not subject to the CCP 366.2 (and CCP 366.3) limitation period. In this circumstance the longer limitations period provided under Family Code Section 1101(d) – three years from when the surviving spouse had actual knowledge that the transaction or event occurred, triggered here by the first spouse’s death – would apply. The appellate court, in reaching this result, applied the familiar maxim that a specific statute takes precedence over a general statute where there is conflict between them, and where the specific statute was enacted after the more general one. Yeh was permitted to continue her action, and time will tell if her substantive claims will prevail here.
As a planning attorney, even if I represent only Mr. Hsu or someone like him when he prepares and funds his separate property trust, this case makes me consider the need to warn him in writing of the appellate court’s decision here and the risk of a Family Code 1101(d) claim after his death if I’m not having his spouse sign a quitclaim deed in conjunction with the property transfer. Taking it further, as seems inevitable, the holding here can presumably apply in any marital situation where the surviving spouse, even when not omitted, receives less than what he/she claims the decedent promised. That post-death administration checklist just grew a little bit longer.
Kelley R. Carroll is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California and Reno, Nevada. Kelley is a certified specialist in the areas of estate planning, trust and probate law (California Board of Legal Specialization). He may be reached at firstname.lastname@example.org or www.portersimon.com.
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The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters.