Decedent’s Children Hit a Wall In California Probate Court: Undue Influence Presumption Applied To Declare Home Community Property

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In Estate of Wall, the California Court Of Appeal, Third Appellate District, analyzed the intersection of the Family Code and Evidence Code in a probate dispute involving community property, affirming a judgment applying the Evidence Code rule that title controls at death and the Family Code undue influence presumption to a transaction between spouses.

The Facts of Estate of Wall

Decedent Benny Wall died intestate in 2016.  Decedent’s surviving spouse, Cindy, petitioned the California probate court to determine a home, titled in decedent’s name, was community property.  Decedent’s children objected, and a trial was held.

The Children’s Testimony

Decedent met Cindy in 2007. They married in 2008. Decedent believed his prior wife took advantage of him, but he said he had learned from the experience and would not be taken advantage of again.

In 2010, decedent and Cindy decided to buy a home. Decedent took title to the home, as “Benny M. Wall, a married man as his sole and separate property.” Decedent used $99,205.83 from his separate property account for the down payment and financed the balance of the $134,000 purchase price.

During the marriage, decedent’s income came only from separate property sources: pension benefits earned pre-marriage and social security benefits. He deposited that income into his bank account and made mortgage payments from that account.

In 2013, decedent refinanced the home. He did not include Cindy on the loan, and the 2013 deed of trust listed the borrower as, “Benny M. Wall, a married man as his sole and separate property.”

Decedent’s Sister’s Testimony

Decedent’s sister testified to decedent receiving an inheritance from his father, and that the marriage was not close. She also testified that decedent told her that Cindy had signed a deed indicating she had no interest in the home and decedent wanted his assets to go to his children.

Wife, the Mortgage Broker, And the Real Estate Agent’s Testimony

Cindy testified that:

  • In 2008, she wrote decedent a check for $3,500 to use toward the future purchase of a home.
  • In 2010, she and decedent decided to buy the home as joint owners. They applied for a loan as joint borrowers but were denied because she still had a home mortgage from her previous marriage.

 

The mortgage broker testified that:

  • When decedent and Cindy were denied a loan, she suggested decedent apply for the loan himself and add wife’s name to the title later. She recalled that decedent and Cindy agreed to do this.
  • Decedent then applied as the sole borrower and was approved. Afterward, the mortgage broker sent a congratulations card to decedent and Cindy congratulating them on their purchase. The mortgage broker testified she understood they both were owners.

 

The real estate agent also testified that he understood that decedent and Cindy were buying the house together, though he did not know how they took title.

Cindy testified that a few days after they signed documents at the title company, she was told by the escrow officer that she needed to sign a quitclaim deed.  She didn’t know what it meant, but decedent encouraged her to sign, and said he would add her to the title later.  Cindy signed the quitclaim deed, whereby she “remise[d], release[d], and forever quitclaim[ed]” the home to decedent. Decedent told her the quitclaim meant nothing, and she was the owner of the property.

Throughout the marriage, decedent reiterated that she was an owner and it was “their home.”  Cindy paid for improvements and helped with the bills because she believed she was an owner of the home.  Cindy’s son and nephew rented rooms in the house, and she and decedent agreed she was entitled to half the rent. But for convenience, checks were written to decedent, who deposited them into his separate property bank account.  Cindy testified that decedent’s actions led her to believe she was financially contributing to paying down the mortgage on their home and was an owner of the property.

Wife also testified her marriage to decedent was close and intimate.

The California Probate Court Decision – Home Is Community Property

The California probate court granted the wife’s petition and determined that the home was community property.

The California probate court cited to In re Marriage of Valli, which explained in a concurrence that:

[T]he statutes in the Family Code governing community property, including the section 760 presumption, are sufficient unto themselves. . . . Future courts resolving disputes over how to characterize property acquired during the marriage in an action between the spouses should apply the community property statutes found in the Family Code and not section 662 [of the Evidence Code].

The probate court acknowledged the dispute was not between spouses but concluded Valli still applied because the children essentially stood in the shoes of decedent. Accordingly, the community property presumption of Family Code section 760 applied.

How Do You Determine The Character Of Real Property In a California Probate Matter?

On appeal, the children first contended Evidence Code section 662, and not Family Code section 760, should apply when determining the character of real property in a probate matter.

Family Code section 760 provides that:

Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

Evidence Code section 662 provides that:

The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.

Family Code section 760 and Evidence Code section 662 give rise to conflicting presumptions in this case.

Here, the probate court relied on Justice Chin’s concurrence in Valli in determining the community property presumption prevails.  Valli applied the Family Code section 760 presumption in a dissolution proceeding between spouses.

The California Appeals Court stated:

Recently, in In re Brace (2020) 9 Cal.5th 903, our Supreme Court concluded Valli’s holding that the community property presumption prevails is not limited to dissolution actions, though it reiterated, “form of title controls at death. . . .” (Id. at pp. 927-928, 931.) The Brace court considered whether Family Code section 760 prevailed over Evidence Code section 662 in disputes between a married couple and a bankruptcy trustee. (Id. at p. 911.) Concluding it did, the court explained, “we see no basis in the text, purpose, or history of Family Code section 760 to confine Valli’s holding in this way. It would carve a major hole in the community property system to hold that Evidence Code section 662, a general statute that addresses the import of legal title—and not Family Code section 760, a statute that specifically addresses the characterization of property acquired during marriage—governs the characterization of property acquired during marriage for all purposes other than divorce.” (Id. at pp. 928.) But the court went on to explain that its approach “does not undermine the stability of title in the context of probate,” adding that that “[c]ourts have consistently held that for property titled in joint tenancy, the form of title controls at death.” (Id. at p. 931.) And it added: “Our decision today does not alter the well-established default rule that form of title controls at death. . . .” (Id. at p. 934.)

The California appellate court held that the probate court’s reliance on Valli was misplaced, stating “while the probate court’s reasoning that the children stand in the shoes of the decedent has some intuitive appeal, it collides with the Brace court’s teaching that form of title controls at death.”  The Court found that Evidence Code section 662 applied to the probate action over Family Code 760.

California Family Code 721 – The Undue Influence Presumption And Spouses

Family Code section 721, subdivision (b) provides in pertinent part:

[I]n transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.

Section 721 can apply in the probate context.  See Lintz v. Lintz. In analyzing Lintz and 721, the California appellate court stated:

[W]hile the Lintz court did not consider the intersection of Evidence Code section 662 and Family Code section 721, other courts have. Those courts make clear that when the two presumptions conflict, the undue influence presumption prevails.  We therefore conclude the probate court properly concluded the Family Code section 721 undue influence presumption applied.

The children argued that if  Family Code section 721 is applicable in this context, it still should not apply here where there is no showing of unfair advantage. They reason that the presumption has largely applied where the disputed property was once characterized as community property or was purchased or financed with community funds. But here, the home was always the decedent’s separate property, and was purchased with his separate funds and titled in his name alone, and the status as separate property was never changed during the marriage.

The California appellate court swatted down this argument, noting that the presumption has been applied in near identical circumstances:

Just as in Marriage of Starr, here, wife presented evidence that she and decedent decided to buy the home together. It was only after they were denied a loan that decedent, at the broker’s suggestion, applied for the loan by himself. Wife later signed the quitclaim at decedent’s assurance that it meant nothing and that she would be added to the title later. While the children presented some contrary evidence, the wife’s evidence constitutes substantial evidence of constructive fraud to support the probate court’s finding of undue influence under Family Code section 721.

The judgment of the California probate court finding that the home was community property was affirmed.

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