There are some standard presumptions in the field of trusts – including a presumption that a trust is revocable rather than irrevocable, and that a trust is validly constituted.
If a person challenges or contests a trust, the burden of proof is on that person to prove any of the recognized grounds for challenging a trust, such as lack of capacity of the settlor, undue influence, fraud, or mistake. The person claiming some form of irregularity must prove their claim with some form of admissible evidence.
However, under California law, there are some statutory presumptions that shift this burden of proof substantially. Referred to as “prohibited transferee” rules, certain classes of transfers are presumed to be prohibited or the result of fraud or undue influence. If this presumption applies, then the burden of proof lies on the trustee to show the validity of the trust, rather than on the person contesting the trust. This can create a significant advantage for benefits seeking to contest a living trust.
These statutory presumptions are encapsulated under California Probate Code §§21360–21392. Essentially, if the trust was for the benefit of a prohibited transferee, the rebuttable presumption is that some form of wrongdoing occurred, which the beneficiary has the burden to disprove.
These rules were created due to the growing concerns of financial elder abuse and other types of predatory practices affecting vulnerable individuals in their estate planning.
A Presumption of Fraud or Undue Influence
Under Probate Code §21380, there is a presumption of fraud or undue influence if a donative transfer is made to any of the following persons:
- The person who drafted the instrument
- A person who transcribed or caused to be transcribed the instrument and was a fiduciary of the transferor at the time of transcription
- A care custodian of a transferor who is a dependent adult, if the instrument was executed during the time that the transferor was in the care of the care custodian, or within 90 days before or after that period
- A care custodian who commenced a marriage, cohabitation, or domestic partnership with a transferor who was dependent on the care custodian, during the time when the care custodian was providing services to the transferor, or within 90 days after those services were provided, if the donative transfer occurred less than six months after the commencement of the marriage, cohabitation, or domestic partnership
- A relative by blood or affinity, within the 3rd degree, to any of the persons listed above
- A cohabitant or employee of any of the persons described above
- A partner, shareholder or employee of a law firm in which the person who drafted the instrument, or who transcribed the instrument and was a fiduciary of the transferor, has an ownership interest
The provision goes on to state that this presumption is conclusive, but is rebuttable by clear and convincing evidence that the donative transfer was not the product of undue influence.
This means that if the person benefiting from the trust instrument is any of the persons listed above, the assumption is that there was fraud or undue influence. That person bears the burden of proving that there was no fraud or undue influence.
The common denominator in each of these relationships listed above, and the reason for the statutory presumption, is because the relationship these persons have with the transferor present great risk for coercion or manipulation, where the prohibited transferee occupies some form of authority or influence over the transferor. If a donative transfer is indicated in the trust instrument for the benefit of the prohibited transferee, and this instrument was prepared during their relationship with the transferor, the law assumes that fraud or undue influence occurred.
However, it must be noted that these relationships are not always considered prohibited transfers.
If, for instance, any of the persons listed above are actually family members of the transferor, and they naturally occupy positions of trust to the transferor – including one of providing caregiving, fiduciary, or medical and legal assistance, then the statutory presumption does not apply.
Rebutting the Presumption
The presumption of fraud or undue influence is rebuttable by clear and convincing evidence that there was no fraud or undue influence.
Some of these evidence may include:
- Independent or neutral witnesses confirming the settlor’s intentions
- Medical evidence establishing the competency of the transferor
- Evidence disproving isolation or coercion
- Evidence showing that the transferor initiated the trust voluntarily
The Independent Review Exception
Yet another exception to the statutory presumption of prohibited transfers is a trust instrument that has undergone independent review.
This is a process by which an independent lawyer – not previously involved in the preparation of the trust instrument and unrelated to either the settlors or the beneficiaries – conducts an independent review process.
Conclusion
These presumptions and exceptions are the statute’s way of balancing competing interests while at the same time providing clear rules and guidance. The law seeks to safeguard vulnerable individuals from being taken advantage of by the people around them, while at the same time preserving the settlor’s genuine intent with respect to his properties.
If you would like a review of your trust instrument, or would like to consult regarding the validity of transfers you intend to make to a caregiver, non-relative, or other potentially prohibited transferee, an estate planning lawyer can help you assess whether California’s statutory presumptions may apply and whether additional safeguards, such as an independent review, should be considered.