April 24, 2015

Beneficiary's Objections to a Probate Petition

When a trust beneficiary objects to a trustee's petition, the objection(s) must be limited to the scope of the petition. Otherwise, the objection will be disregarded.  "Evidence offered on an unpleaded claim, theory, or defense is irrelevant because it is outside the scope of the pleadings." California Bank & Trust v. Lawlor (2013) 222 Cal.App.4th 625, 637, fn. 3.

The following example illustrates this point.

Bobby is the lifetime beneficiary of a trust established by his late affluent uncle who lived in Monte Sereno, CA. To guard against trustee malfeasance, the trust required that an annual accounting be filed with the local probate court. The trust's main asset was a duplex in Santa Clara that produced a steady stream of income. Still, Bobby believed that the trustee, Tom, was not charging market-rate rent given the recent surge in rent. Bobby demanded that Tom increase rent for each unit but Tom objected, citing that tenant turnover was quite low over the years. Tom believed that if he charged at or near market-rate rent, he could cherry-pick the right tenants. These tenants would then stay at the property for years instead of leaving after a year. The transactions costs of finding new tenants, i.e. cleaning and repairing the unit, were quite high. Hence, Tom believed his strategy was prudent because ultimately it reaped a greater profit for the trust. The short-term cost of charging at or near market-rate rent was eclipsed by the long-term gain of avoiding costly tenant turnover.    

When Tom filed his accounting, it indicated that rent was $2,200 for each unit. Upon receiving the accounting petition, Bobby scoured Craigslist for duplex rentals in Santa Clara. He found that most duplex rentals in Santa Clara rented for $2,400 a month. In Bobby's objection to the Tom's accounting petition, he argued that Tom should be removed as trustee for breach of fiduciary duty. In particular, Bobby argued that Tom's refusal to charge more in rent was preventing the trust property from being productive and not in furtherance of the purposes of the trust. See Probate Code § 16007.

The problem with Bobby's objection is that the accounting petition was not the proper avenue to seek removal of Tom as trustee. While Bobby could object to the contents of the accounting petition, e.g. he could object if Tom could not substantiate expenses and costs. He was not in a position to seek removal of Tom as trustee because the pleadings were limited to the accounting. If Bobby wanted Tom removed as trustee he would have to file his own petition under  Probate Code § 17200(b)(10). Bobby could not piggyback on Tom's accounting petition for purposes of seeking his removal.