Fiduciary Duties of a Trustee

A trustee is required to discharge a number of fiduciary duties for the benefit of the beneficiaries. The California Probate Code spells out these duties, e.g. the duty of loyalty, the duty of impartiality, etc. If a trustee breaches a fiduciary duty, the trustee becomes liable for damages which can take the form of many different remedies. Typically, money damages are the most common remedy awarded for a breach of a trust.

A recent unpublished appellate decision upheld a trial court's ruling that a trustee had breached her fiduciary duties. The factual summary is quite easy to follow.

"In January 2009, Eddie Copeland Neighbors (the Settlor) created the Trust for the benefit of her two daughters, Jackson and Marsha Josiah (Josiah), who were to share equally in her estate. The principal asset of the Trust was the Settlor's residential home in Sacramento (the home), which was transferred to the Trust. 

In July 2010, around the time that the Settlor was placed in a long-term care facility, Jackson and her husband began living in the home. 

In June 2015, the Settlor passed away and Jackson and Josiah became the successor cotrustees of the Trust. Shortly thereafter, in August 2015, Jackson recorded a grant deed transferring title of the home from the Trust to herself and her husband. 

In September 2017, Josiah filed a petition alleging that Jackson engaged in self-dealing and breached her fiduciary duties by transferring title to the home and by residing in it without paying rent to the Trust. Josiah sought, among other relief, an accounting of the Trust's assets, an order removing Jackson as a successor cotrustee, an order requiring that the home's title be returned to the Trust, an order requiring Jackson and her husband to pay rent for the period during which they resided in the home after the Settlor's death, and an order allowing Josiah to sell the home. Jackson opposed the petition."

Probate Code 16002(a) provides that a "trustee has a duty to administer the trust solely in the interest of the beneficiaries." This duty is breached if a trustee engages in "self-dealing." Self-dealing can be described as a trustee using trust property for their own personal benefit instead of for the beneficiary's benefit. From this case, the trustee engaged in self-dealing by conveying the settlor's home to herself instead of herself and her sister, which the trust required. That is, the trustee used trust property to benefit herself instead of the beneficiary.

Due to the trustee's misconduct, the trial court made a number of orders. "The court's order provides that (1) the home is an asset of the Trust; (2) Jackson owes $79,650 for the fair rental value of the home for the period from July 1, 2015, through March 31, 2019; (3) Jackson is entitled to a credit (offset) of $73,921.43 toward the fair rental value for mortgage payments, taxes, and other expenses she paid with her personal funds; and (4) as long as Jackson continues to occupy the home, fair market rent (less any offsetting credits) shall continue to accrue. The court ordered Jackson removed as a successor cotrustee, but denied Josiah's request to require Jackson to vacate the home so that it could be sold."

Josiah v. Jackson, Sacramento County Superior Court case # 34-2017-00219410.

Estate Tax in 2021

Since the estate tax exemption amount is currently pegged to inflation, the IRS recently announced the exemption amount for 2021 as detailed below:

Year                   Amount Excluded        Maximum Tax Rate
 
2001                   $675,000                      55%

2002                   $1M                             50%
 
2003                   $1M                             49%
 
2004                   $1M                             48%
 
2005                   $1M                             47%
 
2006                   $2M                             46%
 
2007                   $2M                             45%
 
2008                   $2M                             45%
 
2009                   $3.5M                          45%
 
2010                   Repealed                      0%
 
2011                   $5M                             35%
 
2012                   $5.12M                        35%
 
2013                   $5.25M                        40%
 
2014                   $5.34M                        40%
 
2015                   $5.43M                        40% 
 
2016                   $5.45M                        40%  
 
2017                   $5.49M                        40%         
 
2018                   $11.18M                      40% 

2019                   $11.4M                        40% 

2020                   $11.58M                      40% 

2021                   $11.7M                        40%

Intentional Interference with an Expected Inheritance

A California Court of Appeal decision in 2012 was the first to recognize in this state the tort of intentional interference with an expected inheritance ("IIEI"). Beckwith v. Dahl (2012) 205 CA4th 1309.  

The Court required a showing of the following five elements: (1) an expectancy of an inheritance, (2) the plaintiff would have received the inheritance but for the defendant's wrongdoing, (3) there was intent on the defendant's part, (4) the conduct in question  must be wrong for some reason other than the fact of the interference and (5) the defendant caused the plaintiff damages.

I remember reading this decision in 2012 and wondering what kind of fact-pattern would give rise to an IIEI claim. Well a recent appellate decision provided such an example.........

Gomez v. Smith, (2020) ____ CA4th _____.

"Frank Gomez and plaintiff Louise Gomez rekindled their love late in life, over 60 years after Frank broke off their first engagement because he was leaving to serve in the Korean War. Frank's children from a prior marriage, defendants Tammy Smith and Richard Gomez, did not approve of their marriage. After Frank fell ill, he attempted to establish a new living trust with the intent to provide for Louise during her life. Frank's illness unfortunately progressed quickly. Frank's attorney, Erik Aanestad, attempted to have Frank sign the new living trust documents the day after Frank was sent home under hospice care. Aanestad unfortunately never got the chance to speak with Frank because Tammy and Richard intervened and precluded Aanestad from entering Frank's home. Frank, who was bedridden, died early the following morning. 

Louise sued Tammy and Richard for intentional interference with expected inheritance, intentional infliction of emotional distress, and elder abuse. Tammy filed a cross-complaint against Louise for recovery of trust property. Following a court trial, the trial court issued a statement of decision finding in favor of Louise as to her intentional interference with expected inheritance cause of action and in favor of Tammy and Richard as to the remaining causes of action. The trial court also ruled against Tammy on her cross-complaint. Tammy appeals the judgment in favor of Louise; she does not appeal the trial court's ruling with regard to her cross-complaint. Richard did not file a notice of appeal."

In my career, I've been asked to do in-person visits (pre-Covid in case you are wondering). I can think of maybe two home visits over the years. Fortunately I was never confronted by a disgruntled relative at the doorstep who essentially blocked me from meeting with my clients.    

Breach of Fiduciary Duty

Every so often an appellate opinion, whether published or unpublished, will have portions that are worth mentioning in terms of less-than-stellar behavior. 

Here are some excerpts:

"Two weeks before their meeting, Lovett learned through his own research that Ruby was entitled to a share of the real property owned by her grandmother's trust. The record is silent as to whether he informed Ruby about his discovery. Instead, Lovett prepared an "Agreement" which purported to give him as a fee 85 percent of the value of any real property "left behind" in Yvonne's name which he recovered for Ruby." 

An 85% finder's fee was unconscionably high as determined by the probate court. 

I am baffled that the agent would think that this was proper. Their rationale, presumably, was that this sort of "arrangement" had worked in the past without retribution.

"(b) If any interest in real property is found, and that real property is found to have any equity value, I agree for services rendered on my behalf that I ask for the first 15% of any value, if any value is found, come to me Ruby R. Revell as beneficiary, and I relinquish any right to any percentage of value up to and above 15% in any real property found to have any equitable value for services rendered on my behalf."

A very crafty way of drafting such an arrangement to put it charitably. 

Large numbers capture one's attention when reading. So instead of using a large number to reflect his fee, 85%, the agent used a small number, 15%, to reflect her fee. This drafting style can hardly be seen as laudable. The proper way to draft an agreement is to make the terms clear and understandable, not opaque and misleading.

"On December 29, 2011, Lovett drafted another letter to Gary Ryan on BLG's letterhead. He forged Burlison's name on the letter and copied himself on the letter to make it look like the letter was really been written by Burlison."

Succinctly stated, forgery is never good. 

"He falsely told Ryan that Ruby was not entitled to information and that she had to wait for her money from the State, when all along he had it in his possession not subject to any court or state order."

When a litigant acts in such a cavalier fashion, a bad result is almost a certainty. This case was no different.

Revell v. Burlison Law Group, APC et al., Los Angeles County Superior Court, case #
BP140980. The above quoted language is from the unpublished appellate opinion regarding this case.

Undue Influence

In the U.S., a person is generally free to write their trust in a manner they see fit. For example, this person could leave everything to their child or nothing to their child (disinheritance). California does not have a forced heirship scheme whereby a next of kin must be included in the distribution of the estate. Countries that practice civil law, e.g. Germany and Italy, have forced heirship law. Conversely, the U.S. is a common law jurisdiction.

However, the validity of a trust or will can be challenged if the product of "undue influence." For example, a disgruntled father disinherits his son and leaves his entire estate to a "dear friend" significantly younger than him. "California courts have long held that a testamentary document may be set aside if procured by undue influence." David v. Hermann (2005) 129 Cal.App.4th 672, 684. 

Undue influence was the focus of a recent unpublished appellate opinion. One intriguing aspect of the case was that the respondent had apparently engaged in similar behavior with another individual.

 "The court also found that how Uriostegui came to inherit the Prescott family's assets was, as one witness put it, "eerily similar" to how she inherited the Olive Street property from Downen. In particular, Downen wrote letters about her son that were similar to the letters Prescott wrote Gregory. The letters in both cases were written by ailing senior citizens who would soon leave their estates to Uriostegui, asserted the authors were "of sound mind" (as if "to provide support for the gifting of entire estates to a non-family member"), used similar adjectives to described the respective sons ("disrespectful, lying, drug dealing, attributing bad-mouthing to connected family, wishing them both dead, and thieving"), and included "the theme of engendering mistrust to those that would be a natural heir." The court found: "The similarities in language and the resulting isolation [of immediate family members] are all evidence of a common scheme/plan and they also solidify [Uriostegui's] identity as someone capable of exerting the undue influence that she exerted in Prescott's last years."

Another noteworthy characteristic of the case was the methodology of one expert witness. 

"The court also relied on the testimony of Dr. Susan Bernatz, a forensic neuropsychologist, who provided expert testimony on Prescott's testamentary capacity and the indicators of undue influence. Dr. Bernatz analyzed undue influence using a model she developed and referred to by the acronym SCAM (susceptibility, confidential relationship, actions and tactics, and monetary loss)."

Whenever a litigant has the term "scam" associated with them, in whatever fashion, it highly likely will not portray them in a positive light. 

Los Angeles County Superior Court case # 16STPB03890

Witness Credibility

A contested court proceeding typically involves the testimony of witnesses to the event or events in question. One side will naturally have their witnesses which they will use to bolster their argument. Conversely the other side will have their witnesses too. Each side can cross-examine the other's witnesses to undercut their credibility. Ultimately a decision has to be made as to a witness' credibility, i.e. is the witness' testimony a reliable source of information or not. The person entrusted with the responsibility to determine witness credibility is the trial judge. People v. Jackson (2014) 58 Cal.4th 724, 749. 

A recent unpublished appellate decision involved a trial judge making a determination as to witness credibility.

The decedent had allegedly executed a trust and quitclaim deed. The trust named decedent's girlfriend as the remainder beneficiary. Decedent's daughter challenged the validity of the trust and quitclaim deed.

If the trust and quitclaim deed were deemed valid, then decedent's girlfriend would be a beneficiary of decedent's estate. On the other hand, if the documents were deemed invalid, decedent died intestate and his estate would be distributed to his heirs. Decedent's daughter would be an heir. Decedent's girlfriend would not be an heir. Thus, who inherited from decedent's estate turned on whether or not decedent's purported trust was valid or not.

A primary point of contention was whether or not decedent signed the trust and quitclaim deed. Decedent's girlfriend claimed that decedent had signed the trust and quitclaim deed. A forensic document examiner testified that decedent had not signed the trust and quitclaim deed. While the documents reflected a signature, it was not decedent's signature. The trial judge then made the determination that decedent's girlfriend was not a credible witness while the forensic document examiner was a credible witness.

A footnote from the unpublished appellate opinion provides some context for this determination:

The court noted, "namely, [Jozelle] testified at her deposition that she did not know about the [p]urported [t]rust until after [d]ecedent's death, but at the unlawful detainer hearing she testified that [d]ecedent showed her the [p]urported [t]rust; and although [Jozelle] testified during her deposition that she never had any documents pertaining to the title of the [property], she testified during the trial that she helped [d]ecedent prepare the [q]uitclaim [d]eed and wrote portions of it."

Superior Court of San Diego County, Super. Ct. No. 37-2015-00005361-PR-LA-CTL