April 21, 2017

Trust Accounting

A beneficiary is generally free to contest a trustee's accounting without fear of consequence. However, there is an exception to this rule.

Probate Code § 17211(a) provides that "if a beneficiary contests the trustee's account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney's fees, incurred to defend the account. The amount awarded shall be a charge against any interest of the beneficiary in the trust. The contestant shall be personally liable for any amount that remains unsatisfied."

An example of a contest done without reasonable cause and in bad faith was recently illustrated in an unpublished case. The case originated in Orange County Superior Court, Case #  30-2011-00494819.

A source of scrutiny for the contestant was proof of the actual cashed checks. Of note, Morgan was the trustee and Winslow was the beneficiary.

"Morgan also explained that in attempting to obtain cancelled checks for trust expenses and distributions to beneficiaries, her inquiries with the bank showed the process would be "time consuming and tedious," so she instead provided Winslow with copies of invoices, check registers showing the payments, and bank statements showing the checks cleared. She noted that Winslow did not subpoena copies of the checks. Winslow did not claim or provide any evidence that trust beneficiaries did not receive or deposit distributions Morgan made to them. 

"Winslow returned to Morgan's use of a paid assistant in cleaning the trust property, noting, "I haven't seen a company check that she actually paid money to her." When the trial court asked, "Why would you need to see the check," Winslow responded, "Because, for some reason, she doesn't want to provide copies of the checks and I believe a copy of the checks [showing who they] were made out to [would] tell me, `Yes, that person was paid.'" The court observed, "How does it help you if she was paid. . . . [D]oesn't [it] help you if she wasn't paid. That means there's more money in the trust." (Italics added.) Winslow responded, "Well, I just want it." She added as a jumbled explanation, "I know if the accounting is correct and the items are legitimate — so if I sum them up, I could get the money that I need." At that point, the court asked rhetorically, "Or are you nitpicking everything in depth?"

"Following the conclusion of the parties' testimony and closing arguments, the trial court granted Morgan's petition to approve her accountings. Finding Winslow's accounting contest was unreasonable and in bad faith, the court awarded Morgan on the trust's behalf $60,059.33 in attorney fees and costs under section 17211. Winslow moved for a new trial, which the trial court denied in July 2014, further sanctioning Winslow $1,750 under section 17211. Winslow now appeals."

The trial court's decision was upheld on appeal in an unpublished appellate opinion.