An Estate Planner’s Guide to Family Law Presumptions
With the potential for divorce and trust and probate litigation, estate planners need to consider various presumptions that apply to testamentary documents, property characterizations, marital-property transfers and attempted transmutations. This article provides an overview of the California presumptions in these areas so estate planners can evaluate the various risks and safeguard their clients’ testamentary wishes.
As estate planners, we prepare carefully crafted estate plans for clients who typically have a clear view of their family dynamics and ultimate wishes. We aim to be thorough and to provide multiple contingency plans so our clients’ wishes are carried out upon their deaths. However, it cannot be ignored that, with the high rates of divorce, our clients’ assets often are being apportioned and distributed not upon their deaths, but upon dissolution of their marriages. With the high rates of divorce, as well as growth in the areas of trust and probate litigation, it is perhaps more important than ever for estate planners to understand the various presumptions that apply to testamentary documents, property characterizations, marital property transfers, and attempted transmutations. This article provides an overview of the California presumptions in these areas to enable estate planners to evaluate the various risks and safeguards that can be put in place to ensure that their clients’ estate plans accomplish their testamentary wishes.
II. Capacity In Marital Property Transactions
The first presumption to bear in mind when preparing testamentary documents is the presumption that everyone is sane and has capacity. To rebut that presumption, a contestant must prove by a preponderance of evidence that a testator lacked capacity when he or she signed the instrument, made the conveyance, or entered into the contract.1 On this issue, the testimony of the drafting attorney is entitled to great weight.2
Many practitioners mistakenly believe that the same low threshold for testamentary capacity also applies to the execution of all trusts. But, there are, in fact, two capacity standards that can apply to testamentary documents.3 The first and lower standard for capacity applies to wills, codicils, and simple trusts or trust amendments.4 Courts evaluating capacity under this lower “testamentary capacity” standard consider the following factors as of the time the person executed the documents: (1) whether the person understood the nature of the testamentary act, (2) whether the person understood and could recollect the “nature and situation for the individual’s property,” and (3) whether the individual could remember and understand his or her relations to a living spouse, descendants, parents, and any others who would be affected by the testamentary document.5 A court also will consider whether the person suffered from a mental disorder involving delusions or hallucinations that resulted in him or her devising property in a way that he or she otherwise would not have done.6 This testamentary capacity standard “is exceptionally low.”7 “It has been held over and over in this state that old age, feebleness, forgetfulness, filthy personal habits, personal eccentricities, failure to recognize old friends or relatives, physical disability, absent-mindedness, and mental confusion do not furnish grounds for holding that a testator lacked testamentary capacity.”8
The second standard of capacity, the sliding-scale “contractual capacity” standard, applies to trusts and trust amendments that are more complex than ordinary wills.9 When a family trust addresses community property concerns, provides for the creation of multiple trusts, or contemplates estate tax consequences, the contractual capacity standard—outlined in the Due Process in Competence Determinations Act (“DPCDA”) and codified in Probate Code sections 810 through 813—applies.10 To have capacity under the DPCDA, a person must be able to:
communicate verbally, or by any other means, the decision, and to understand and appreciate, to the extent relevant, all of the following: (a) The rights, duties, and responsibilities created by, or affected by the decision[,] (b) The probable consequences for the decision maker and, where appropriate, the persons affected by the decision[, and] (c) The significant risks, benefits, and reasonable alternatives involved in the decision.11
This contractual capacity standard also applies when evaluating whether someone has the required capacity to enter into an ordinary contract or make a conveyance.12 The party alleging a lack of capacity under this standard need only present evidence that a deficit in one or more enumerated mental functions significantly impaired the individual’s ability to “understand and appreciate the consequences of his or her actions with regard to the type of act or decisions in question.”13 The enumerated mental functions are grouped into four basic categories: (1) alertness and attention; (2) information processing; (3) thought processes; and (4) ability to modulate mood and affect.14
III. Marital Property Characterizations
Estate planners preparing estate planning documents for married couples should be aware of general presumptions affecting the characterization of marital property. California is a community property state that characterizes marital property as either separate property, community property, or quasi-community property.15 Separate property consists of both property owned by a married person before marriage and property acquired after marriage by gift, bequest, devise, or descent, as well as any rents, issue, or profits derived therefrom.16 Community property, in turn, consists of any property that a married person acquires during marriage while domiciled in California, regardless of where the property is situated.17 Three presumptions arise from these property classifications.
The first, the “community property” presumption, creates a rebuttable presumption at both divorce and death that all property acquired by spouses domiciled in California during marriage is community property.18 This presumption can be rebutted by proving by a preponderance of the evidence that a spouse had a separate property interest in the property.19 “[V]irtually any credible evidence may be used to overcome [the presumption], including tracing the asset to a separate property source, showing an agreement or clear understanding between parties regarding ownership status and presenting evidence the item was acquired as a gift.”20 It is generally accepted that the appropriate standard of proof for overcoming a community property presumption is preponderance of the evidence.21
The second presumption is the “joint title” presumption, which presumes that property acquired during marriage in joint form, such as tenancy-in-common or joint tenancy, is community property.22 This presumption, codified at Family Code section 2581, applies only at dissolution of marriage or legal separation (not at death).23 In contrast to the community property presumption, tracing and oral agreements cannot overcome the joint title presumption.24 Rather, the joint title presumption can be rebutted only by clear and convincing evidence of “a clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property or proof that the parties have made a written agreement that the property is separate property.”25 When there is a conflict between this presumption and the community property presumption at divorce, the joint title presumption controls.26
The final presumption with respect to property characterizations is the “form of title” presumption. The form of title presumption, codified at Evidence Code section 662, creates a presumption that title is as it is reflected in the documents through which the parties acquired title. This presumption applies when there is a division of property at dissolution of marriage or death.27 The form of title presumption supersedes the community property presumption and is based on a public policy favoring the stability of titles to property.28 The form of title presumption can only be rebutted with clear and convincing proof of “an agreement or understanding between the parties that the title reflected in the [instrument] is not what the parties intended.”29
Notwithstanding the foregoing presumptions, even if property is deemed community property, a spouse may establish a right to reimbursement for separate property funds expended on that community asset by tracing the funds. Spouses have a right to reimbursement for the use of separate funds used for “down payments, payments for improvements and payments that reduce the principal of a loan used to finance the purchase or improvement of the property.”30 However, there is no right to reimbursement for “payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.”31 The reimbursement amount is limited to the net value of the property at the time of the division of the property.32 Married couples also can contractually waive their right to reimbursement for separate property contributions to a community asset—provided they do so in a signed writing.33
On the other hand, when community funds are used towards payments on separate property assets, depending on the purpose of the payment, the community may obtain a proportionate interest in the separate property asset rather than a mere right to reimbursement. If community funds are used to make payments of principal on separate property assets, such as payment of the principal portion of a mortgage, the community receives a proportionate interest in the property.34 If community funds are allocated towards improvements on separate property, the community only has a right to reimbursement of such funds.35
Though the foregoing marital property presumptions lay the groundwork for determining the characterization of marital property, spouses may attempt to circumvent the presumptions by using transmutation agreements. Transmutation agreements must comply with strict requirements to alter property characterizations.
IV. Transmutation In Marital Property Transactions
A common misconception among practitioners is that one can effect a change in the characterization of property by simply adding a spouse on a title, or by inserting a trust provision stating that all property transferred to the trust is community property. Indeed, there are rigid requirements to accomplish an effective transmutation of the characterization of property from community to separate, from separate to community, or from the separate property of one spouse to the separate property of the other spouse. These transmutation requirements apply to all gifts between spouses that are “substantial in value taking into account the circumstances of the marriage.”36
For a transmutation occurring after January 1, 1985, to be effective, Family Code section 852 (“section 852”) requires an agreement changing the characterization of property to be “made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.”37 To constitute an “express declaration,” the writing need not contain the words “transmutation,” “community property,” or “separate property.” But, the writing must “expressly state that the characterization or ownership of the property is being changed.”38 Further, the writing itself must constitute the express declaration because extrinsic evidence cannot be considered in determining whether a writing constitutes an express declaration under section 852.39 Transmutation requirements are strictly construed; a party cannot satisfy the writing requirement of section 852 with the part-performance exception that may apply under more general statutes of frauds, nor may a party use the doctrine of equitable estoppel to circumvent the writing requirement of section 852.40 A spouse alleging transmutation has the burden of proving by clear and convincing evidence that a transmutation occurred.41
A deed stating the characterization of real property generally meets the requirements for a valid transmutation. For example, a deed signed by the husband “grant[ing]” his separate property to himself and his wife as joint tenants constituted a valid transmutation because the words “grant” and “give” are interchangeable.42 However, courts are more stringent in cases involving transfers of other property. In a dissolution action ending a four-year marriage with an age discrepancy of almost thirty years, a husband’s direction to “transfer” separate property stocks into his wife’s name and “journal” stocks in her account following the husband’s stroke was not a transmutation because there was no express statement that the characterization or ownership of the property was being changed.43 The court concluded that the husband could have merely intended to transfer the management of the stocks without changing the character of the property.44 Similarly, when a husband purchased a life insurance policy on his life using community funds and named his wife as the sole owner and beneficiary of the policy, the policy remained the community property because nowhere in the policy did the husband state he was relinquishing his community property interest.45 And, a husband’s signed modification of a partnership agreement adding his wife as an owner also did not meet the transmutation requirements because it did not expressly declare that he was transmuting his separate property into community property.46
The transmutation statutes also apply to provisions in trust agreements that purport to change the characterization of spousal property. For example, a trust provision stating “Settlors agree that any property transferred by either of them to the Trust . . . is the community property of both of them unless such property is identified as the separate property of either Settlors” was insufficient to effectuate a transmutation.47 A court reaching that conclusion noted, however, that the express declaration requirement might have been satisfied if the clause had instead specified that any property transferred to the trust by either spouse “becomes” or “is changed into” community property.48 Similarly, a statement in a trust agreement that “[t]he Settlors declare . . . that all property listed on schedule A [description of the Property] is the community property of the parties” was not a valid transmutation for two reasons: first, because it did not expressly state that the character or ownership of the property was being changed, and second, because it could not be inferred from the trust document that the settlor “was aware that the legal effect of her signature might be to alter the character or ownership of her beneficial interest in the property.”49 In contrast, a transmutation agreement in which the husband agreed that his property is “hereby transmuted” from his separate property to community property met the express declaration requirements. 50
There is one exception to the transmutation requirements: they do not apply if a spouse gives written consent to a non-probate transfer of community property at death. In response to the seminal transmutation case, Estate of MacDonald,51 the legislature enacted Probate Code sections 5010 through 5032, which permit non-probate transfers of community property with the written consent of the spouses. Estate of Petersen is illustrative of this legislative workaround of the transmutation requirements for non-probate transfers.52 There, a husband and wife purchased annuity contracts and took title as joint tenants. The annuity contracts explicitly provided each spouse with a right of survivorship.53 The court held that although the contracts were insufficient to transmute community property funds used to purchase the contracts into separate property, the annuity contracts constituted the written consent required to accomplish a non-probate transfer of community property at death (under Probate Code sections 5010 through 5032).54
As a result of the rigid transmutation requirements, it is crucial that those preparing community property agreements or other transmutation agreements state clearly in those agreements that the characterization of the property is being changed. Counsel should not rely on general provisions in the trust to accomplish a transmutation.
V. Undue Influence: Impact On General Property Presumptions
Even when transmutation requirements are met, practitioners must consider whether a transaction is subject to attack at death or dissolution on the ground of undue influence. Under section 721 of the Family Code, spouses occupy a “confidential relationship [which] imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other” in interspousal transactions. Courts have interpreted that statute as creating a presumption of undue influence when one spouse obtains an advantage over the other spouse in an interspousal transaction.55 There is conflicting authority, however, as to whether the presumption arises when a spouse simply gains any advantage in the transaction or whether an unfair advantage is required to trigger the presumption.56
A presumption of undue influence supersedes both the Evidence Code section 662 form of title presumption and the Family Code section 2581 presumption that all property acquired during marriage is community property.57 Otherwise, these two record title presumptions “would in every case inevitably defeat the spousal protection intended by the Legislature in enacting section 721.”58
Once a presumption of undue influence arises, the advantaged spouse has the burden of showing by a preponderance of the evidence that the transfer was (1) “freely and voluntarily made, with a full knowledge of all the facts, and with a complete understanding of the effect of the transaction” and (2) not the result of undue influence.59 Undue influence is defined as “excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity.”60 In determining whether a transaction was the result of undue influence, courts consider four factors: (1) the vulnerability of the victim, (2) the influencer’s apparent authority, (3) the actions or tactics used by the influencer, and (4) the equity of the result.61 However, an inequitable result alone is insufficient to prove undue influence.62 There must be evidence that the influence used to procure the instrument “amount[s] to coercion destroying the free agency of the party claimed to have been unduly influenced.”63
A presumption of undue influence attaches to any interspousal transaction that benefits one of the spouses, including deeds, community property agreements, and certain trust agreements. For example, in Marriage of Delaney, the wife (who was a probate legal assistant) handled the spouses’ legal and financial matters because the husband had a learning disability that affected his reading comprehension.64 The husband owned a residence as his separate property. While obtaining a bank loan on his residence, the husband executed a grant deed conveying the residence to himself and his wife as joint tenants.65 The husband did not understand that he was transferring any ownership in the house until he later received a property tax bill that listed both his and his wife’s names.66 In their dissolution proceeding, the wife failed to rebut the presumption of undue influence that attached to the transfer of the residence because the husband had entrusted her with their legal and financial matters, she did not explain the consequences of the transfer to her husband, and she previously had obtained an interest in a property from her former spouse as a result of a loan on the property.67
But compare Marriage of Matthews, which also involved a dissolution action concerning a dispute over the characterization of a residence. In Marriage of Matthews,68 the wife, a Japanese immigrant who claimed she had a rudimentary comprehension of the English language, signed a quitclaim deed transferring the couple’s residence into the husband’s name alone to obtain a more favorable interest rate. She later contended the residence was community property, arguing that a presumption of undue influence arose because the interspousal transaction benefited her husband.69 The court held that, although the presumption of undue influence attached to the transaction, the husband was able to rebut the presumption with evidence showing his wife had a more than adequate command of the English language, had managed both her and her husband’s financial affairs, and made a conscious decision to execute the quitclaim deed.70
Recently, a presumption of undue influence was applied to trust agreements benefiting a single spouse. In Lintz v. Lintz,71 the husband, a wealthy real estate developer, had three children from a previous marriage. Following his second marriage to his third wife, he signed a tenth amendment to his trust that left half of the trust estate to the third wife and left the other half to his children and grandchildren.72 A series of additional trust amendments followed, each leaving a greater percentage of the trust to the third wife.73 The husband and third wife then prepared a family trust as settlors and trustees, designating all of the husband’s property as community property, and giving the third wife both a life estate in all of the trust property and the power to disinherit one of the children.74 During the marriage, the wife also spent large sums of the husband’s money without his knowledge.75 After the husband died, his children brought an action against the third wife. The court held that “[t]he presumption [of undue influence] should have been applied to the transmutation of [the husband]’s separate property to community property and to the huge sums of money decedent transferred to [the third wife]. It also should have been applied to the [family trust], which was a contract between [the husband] and [the third wife] both as settlors and as trustees.”76 By failing to note whether the presumption applied to the husband’s amendments to his individual trust, the court left unresolved the argument that a spouse’s amendment of an individual trust will not be considered an interspousal transaction subject to the presumption if the other spouse is not acting as trustee of that trust.
To ensure that their clients’ desires are met, estate planners must competently advise them about the foregoing presumptions in the event their testamentary documents become the subject of litigation, whether for the purposes of separating assets after a dissolution or in a trust or probate proceeding. Practitioners also should ensure that any property agreement meets the rigid transmutation requirements. And, until courts clarify whether unfair advantage is required to trigger the presumption of undue influence and what constitutes an interspousal transaction, estate planners should take care in drafting transmutation agreements and trust agreements. Estate planners must equip clients with the legal tools—and facts—to rebut a presumption of undue influence where it may apply. Furthermore, when one spouse is disproportionately advantaged in the estate planning documents, practitioners should consider advising spouses to retain independent counsel to help safeguard estate plans from attack on the ground of undue influence.
The article entitled “An Estate Planner’s Guide to Family Law Presumptions” authored by Lorin B. Bender was published in the California Trusts and Estates Quarterly Volume 24, Issue 4, 2018 published by the California Lawyers Association Trusts and Estates Section.
- Estate of Fritschi (1963) 60 Cal.2d 367, 372; Estate of Locknane (1962) 208 Cal.App.2d 505, 510; Prob. Code, section 810, subd. (a).
- Estate of Goetz (1967) 253 Cal.App.2d 107, 114.
- See Andersen v. Hunt (2011) 196 Cal.App.4th 722, 731.
- Id. at p. 736 (stating trust amendments merely reallocating the percentage of assets among beneficiaries should be subject to the lower capacity standard in Probate Code section 6100.5).
- Code, section 6100.5, subd. (a); see Anderson v. Hunt, supra, 196 Cal.App.4th at p. 736.
- Code, section 6100.5, subd. (a).
- Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529, 545.
- Andersen v. Hunt, supra, 196 Cal.App.4th at p. 727.
- Lintz v. Lintz (2014) 222 Cal.App.4th 1346, 1352–53 (Trusts that “addressed community property concerns, provided for income distribution during the life of the surviving spouse, and provided for the creation of multiple trusts, one contemplating estate tax consequences upon the death of the surviving spouse,” should be evaluated under “the sliding-scale contractual [capacity] standard in Probate Code sections 810 through 812.”).
- Code, section 812.
- Code, section 812.
- Code, section 811, subds. (a)–(b).
- Quasi-community property is property acquired by spouses while they reside in a non-community property state that would be community property if the marital couple had been domiciled in California. Quasi-community property is treated as community property in California and therefore will not be discussed separately in this article. See Prob. Code, sections 66, 100–01.
- Code, section 770, subd. (a).
- Code, section 760.
- In re Marriage of Haines (1995) 33 Cal.App.4th 277, 290 (interpreting predecessor statute to Family Code section 2581); In re Marriage of Peters (1997) 52 Cal.App.4th 1487, 1491.
- In re Marriage of Haines, supra, 33 Cal.App.4th at p. 290; Wilson v. Wilson (1946) 76 Cal.App.2d 119, 125–27.
- See In re Marriage of Haines, supra, 33 Cal.App.4th at p. 291.
- Property acquired before 1975 is additionally subject to the “married woman presumption,” which states that property titled in a married woman’s name alone or titled in her name and a third party’s name is her separate property. See Fam. Code, section 803.
- Code, section 2581.
- In re Marriage of Haines, supra, 33 Cal.App.4th at p. 291; In re Marriage of Weaver (2005) 127 Cal.App.4th 858, 865–66, overruled on other grounds in In re Marriage of Haines, supra, 33 Cal.App.4th at p. 300.
- Code, section 2581; In re Marriage of Weaver, supra, 224 Cal.App.3d at p. 865.
- In re Marriage of Haines, supra, 33 Cal.App.4th at pp. 301–02.
- In re Marriage of Brooks and Robinson (2008) 169 Cal.App.4th 176, 184–85, disapproved on other grounds by In re Marriage of Valli (2014) 58 Cal.4th 1396, 1405; In re Marriage of Haines, supra, 33 Cal.App.4th at p. 292.
- In re Marriage of Brooks and Robinson, supra, 169 Cal.App.4th at p. 185.
- Code, section 662; In re Marriage of Brooks and Robinson, supra, 169 Cal.App.4th at p. 189.
- Code, section 2640, subd. (a).
- Code, section 2640, subds. (b)–(c).
- See In re Marriage of Moore (1980) 28 Cal.3d 366, 371–72.
- See In re Marriage of Frick (1986) 181 Cal.App.3d 997, 1019–20.
- Code, section 852, subd. (c).
- Transmutations made prior to January 1, 1985 may be established by oral agreements. See, e.g., In re Raphael’s Estate (1949) 91 Cal.App.2d 931, 938–40.
- Estate of MacDonald (1990) 51 Cal.3d 262, 272–73.
- Id. at p. 273.
- In re Marriage of Benson (2005) 36 Cal.4th 1096; see In re Marriage of Campbell (1999) 74 Cal.App.4th 1058.
- See Marriage of Weaver, supra, 224 Cal.App.3d at p. 486–87.
- Estate of Bibb (2001) 87 Cal.App.4th 461, 466–69.
- In re Marriage of Barneson (1999) 69 Cal.App.4th 583.
- Id. at pp. 591, 593–94.
- In re Marriage of Valli, supra, 58 Cal.4th at pp. 1400–01.
- In re Marriage of Lafkas (2015) 237 Cal.App.4th 921.
- In re Marriage of Starkman (2005) 129 Cal.App.4th 659, 662–66.
- Id. at p. 665.
- Cecconi v Cecconi (Bankr N.D. Cal 2007) 366 BR 83, 129–30.
- Marriage of Holtemann (2008) 166 Cal.App.4th 1166, 1172.
- Estate of MacDonald (1990) 51 Cal.3d 262.
- Estate of Petersen (1994) 28 Cal.App.4th 1742.
- Id. at p. 1748.
- Id. at p. 1753.
- In re Marriage of Fossum (2011) 192 Cal.App.4th 336, 343–44; see also In re Marriage of Bonds (2000) 24 Cal.4th 1, 28.
- See In re Marriage of Delaney (2003) 111 Cal.App.4th 991 (presumption arises any time one spouse gains advantage to disadvantage of other spouse in transaction); but see In re Marriage of Burkle (2006) 139 Cal.App.4th 712, 717 (presumption of undue influence did not apply to post-marital agreement in which (1) both spouses were represented by independent counsel and obtained advantages, (2) there was full disclosure of assets, and (3) agreement contained acknowledgment by both sides that neither was obtaining unfair advantage).
- In re Marriage of Delaney, supra, 111 Cal.App.4th at p. 998.
- Id. at p. 997.
- In re Marriage of Fossum, supra, 192 Cal.App.4th at pp. 344–45; see also David v. Hermann (2005) 129 Cal.App.4th 672, 684.
- Code, section 86; Welf. & Inst. Code, section 15610.70, subd. (a).
- Welf & Inst. Code, section 15610.70, subd. (a)(1)–(4).
- Welf & Inst. Code, section 15610.70, subd. (b).
- In re Kreher’s Estate (1951) 107 Cal.App.2d 831, 839.
- In re Marriage of Delaney, supra, 111 Cal.App.4th at p. 994.
- Id. at pp. 999–1000.
- In re Marriage of Mathews (2005) 133 Cal.App.4th 624, 627.
- Id. at p. 628.
- Id. at pp. 631–32.
- Lintz v. Lintz, supra, 222 Cal.App.4th at p. 1350.
- Id. at p. 1356.
- Id. at p. 1353.