December 1, 2016

Trustee-Attorney of a Trust Part II

Marin County Civic Center (the courthouse is in here, trust me)
An old adage goes that oil and water do not mix. The same could roughly be said of an attorney simultaneously acting as the trustee. While the situation is not expressly prohibited by California law, it invariably involves a precarious position. A recent unpublished California Court of Appeal opinion is an example of this.

Amster v. Mulberg, Marin County Superior Court, Case # PRO 1400334

Client was the beneficiary of a large irrevocable trust. According to the opinion, it was a multi-million dollar trust. Client removed the original trustee, a bank, and replaced them with her personal counsel, Trustee-Attorney. According to the opinion, the Client required considerable attention: 

"She was often unreasonable and even volatile, sending [Mulberg] between 8,000 [and] 10,000 emails during the period he served the Trust as trustee. Ms. Amster expected him to return telephone calls on weekends and after regular business hours."

The appeal revolved around the compensation Trustee-Attorney had paid himself for his work. The relevant part of the trust read:

"Any Trustee serving hereunder shall be entitled to be paid reasonable fees for services rendered in such capacity . . . and to charge such fees to income and principal of any trust created hereunder in such proportions, or entirely to income or principal. . . . If any Trustee is an attorney or an accountant who regularly charges clients based upon customary hourly rate, he or she may charge such rate as his or her Trustee's fee provided that the total fees paid for an annual period do not exceed that a Qualified Corporate Trustee would charge for the same services." 

The trial court found that a corporate trustee would charge a fee of 1% per annum. It then included a multiplier of 1.75% for the trustee fee because the Client was difficult to put it diplomatically. Consequently, the trial court found that under such a scenario a corporate trustee would've charged $227,897.59 for its services.

The problem for Trustee-Attorney is that he received $495,119.75 in trustee fees from the trust. The trial court then surcharged Trustee-Attorney $267,222.16, the difference between the permissible corporate trustee fee and the fee Trustee-Attorney charged. This decision was upheld on appeal. 

The opinion also noted multiples instances in which Trustee-Attorney breached his fiduciary duties. For example, he paid himself as both an attorney and trustee without Client's consent, a violation of Prob C § 15687(a). Furthermore, Trustee-Attorney hired his son, an associate at his law office, to perform legal work for the trust. Since Client did not consent to this arrangement, this violated Prob C § 15687(a).