June 16, 2017

Breach of Trust and the Statute of Limitations

Probate Code § 16460(a)(2) provides that if "an interim or final account in writing or other written report does not adequately disclose the existence of a claim against the trustee for breach of trust or if a beneficiary does not receive any written account or report, the claim is barred as to that beneficiary unless a proceeding to assert the claim is commenced within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim."

So you better file your petition on time.............

A recent unpublished appellate opinion touched upon this issue. Kathleen, a trust beneficiary, was a party to a trustee removal petition filed by another beneficiary, her sister Kelly Sue. The petition was filed in 1987. 

The 1987 petition stated that the trust was established for educational purposes to benefit the settlor's children, which included Kathleen and Kelly Sue.

The 1987 petition stated that "the entire trust is to be distributed in equal shares to all living beneficiaries on December 5, 1998, when the youngest beneficiary turned 25 years old." 

In 2015, Kathleen filed "an amended petition for redress for breach of trust, for fraud and punitive damages, conversion, constructive trust, injunctive relief, and declaratory relief." The petition alleged that Kathleen never received any distributions from the trust.

Kelly Sue was the respondent in the 2015 petition.

Kelly Sue's demurrer was sustained without leave to amend (a coup de grace in litigation) because Kathleen had failed to timely file suit, i.e. the statute of limitation had run. See Probate Code § 16460(a)(2). The reason being is that Kathleen's claim accrued on December 5, 1998. She did not file suit until 2015, more than 3  years after her claim had accrued. 

Kathleen argued that she lacked actual knowledge of wrongdoing by Kelly Sue. The California Court of Appeal was unmoved. "Kathleen cannot toll the statute of limitations by claiming she was unable to discover the claim by the distribution date. Her own allegations in the amended petition demonstrate she had actual knowledge of the existence of the trust; her status as a beneficiary of the trust; and the contents of the removal petition, which attached to it was the trust as an exhibit. In addition to her actual knowledge, Kathleen had constructive knowledge of the trust and its terms because she admits she was a trust beneficiary. As a beneficiary, she was entitled to request a copy of the trust and related information, through which she should have reasonably discovered the distribution date. Kathleen was also on inquiry notice as a trust beneficiary, and could have obtained information about the trust, as she eventually did in 2013 through public records. Unlike the situation in Quick, where the existence of the trust and the petitioner's status as a beneficiary were hidden from the plaintiff, thereby tolling the statute of limitations, here, Kathleen had actual and constructive knowledge of the trust and its terms."

Dunphy v. Wilken, Orange County Superior Court Case # 30-2015-00779480