Clients frequently ask “Can I change my living trust by crossing things out and writing in new parts? The California Court of Appeals answered that question last week: not if you want your changes to stick.
In Cory v. Toscano, the person who created the trust gave “(a) To Elaine [last name omitted here for privacy] the balance remaining from the sale of my real property in Los Banos . . .”
At some later point, the creator of the trust apparently changed his mind, adding in his own handwriting the notation “^ 25% of” to the paragraph, so that the changed version said “(a) To Elaine, 25% of the balance . . .” The handwritten changes were dated and had the initials of the trust’s creator.
It’s no surprise that after the trust creator died, Elaine, whose inheritance was cut by 75%, wanted to challenge the modification to the trust. Elaine’s attorney filed a special petition requesting a court ruling on the question of whether or not the handwritten changes to the trust were protected by the trust’s “no contest” clause. The Court of Appeals ruled that the handwritten changes were not protected by the no contest clause – meaning that Elaine can challenge whether or not they were an effective modification to the trust. If Elaine wins her challenge, she gets the full value of the Los Banos property. If Elaine loses her challenge, she gets the same 25% she would have received if she hadn’t brought her challenge. She’ll have to pay attorney’s fees for her challenge – but it looks from public records like the property is worth at least $800,000, so she’s balancing spending a few tens of thousands of dollars against potentially recovering $600,000.
What can we learn from this case? The first lesson is that handwritten, informal changes are likely to cause problems. The second lesson is that piecemeal amendments to trusts are invitations for problems – even if the trust creator had asked his attorney to formalize this change, it would have been obvious to Elaine that her $800,000 inheritance just turned into a $200,000 inheritance; and the change to the trust that reduced her inheritance wasn’t protected by the no contest clause.
In California, heirs and beneficiaries are entitled to a complete copy of the “Terms of the Trust” – this includes the original document, and any amendments. It does not include previous versions of the trust if they have been entirely replaced by a restated trust. If your trust document (and amendments) show a series of changes, where some beneficiaries’ shares grow or shrink, you should know that the beneficiaries will eventually see all of the different versions. Making the changes in small discrete steps makes it tempting for a family member or friend to challenge “just the last change” and ask a judge to go back to an earlier version of the trust that’s more favorable to them.
My office practice is to avoid partial amendments whenever possible – the small amount of money saved by not restating the document is tiny compared to the potential financial and emotional burden on beneficiaries and successor trustees when all of the piecemeal amendments are eventually revealed after death. If the trust had been “amended and restated in full” to match the creator’s wishes, it might be that Elaine would never know about the $600,000 she didn’t get, she would have been happy with her $200,000 gift, there would have been no lawsuit, and the property would already be sold.
By saving a few hundred dollars in legal fees or a trip to the attorney’s office, the trust creator has now caused what must be approaching a hundred thousand dollars in legal fees for this fight, and years of delay in estate administration.
