Whether they make joint or separate estate plans, married couples often make trusts or wills that provide benefits to the survivor after the first spouse dies. California Family Code § 721(b) imposes an important limitation on such plans. It provides that, “in transactions between themselves,” spouses are in a fiduciary 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.”
This statute came into play in Lintz v. Lintz (2014) 222 Cal. App. 4th 1346 [167 Cal. Rptr. 3d 50]. That case involved a common situation where two people, each with children from a prior marriage, married each other. Each thus came to the new marriage with separate property, with the husband in this case having a worth of millions of dollars. During their marriage, husband made a series of amendments to his preexisting individual trust, which amendments increasingly advantaged his new wife upon his death, all to the disadvantage of his own children. Ultimately, husband and wife executed a joint trust, which purportedly designated all their property (including his substantial separate property) as community property, gave wife an exclusive life interest in husband’s estate if he died first, gave wife the right to disinherit husband’s youngest child, and left any residue of the estate to wife’s children. After husband’s death, two of his children challenged the joint estate plan and certain amendments to husband’s individual trust.
The Lintz court held that, if one spouse gains an advantage from the execution of, or an amendment to, an estate plan, a presumption arises that the transaction was the result of the advantaged spouse’s undue influence over the other spouse. Given that “[a]n advantage results to one spouse when that spouse gains or when the other spouse is hurt by the transaction,” the presumption arose in this case because the joint estate plan changed husband’s considerable separate property into community property and then gave wife substantial interests in that property. Although the presumption of undue influence can be overcome by the advantaged spouse establishing that the disadvantaged spouse “acted freely and voluntarily, with ‘full knowledge of all the facts, and with a complete understanding of the’ transaction,” wife did not meet that burden of proof in this case. The Lintz court therefore affirmed the trial court’s voiding of the trust documents at issue because of wife’s presumed undue influence over husband.