August 29, 2018

Professional Fiduciary - Trustee

A professional fiduciary is commonly used to serve as the trustee of a special needs trust. The rationale is that the professional fiduciary is equipped to navigate the myriad of rules and regulations regarding a special needs trust. This would include applicable federal law, state law (namely the probate code) and the California Rules of Court. In short, an expert is needed and a professional fiduciary fits that mold. However, not all professional fiduciaries follow the appropriate rules. In such a case, the consequences can be acute and expensive.

In a recently decided published appellate opinion, the California Court of Appeal upheld a $93,036.75 surcharge issued against a professional fiduciary.

Scott v. McDonald (2018) _______ CA4th _______

The opinion was not especially kind to the professional fiduciary in regards to her request for trustee compensation:

"The trust instrument provides, "The Trustee shall receive just and reasonable compensation, to be paid from the Trust, for [her] services in an amount to be determined by the Court on the occasion of the Trustee's court accountings or such other times as that issue may be brought before the Court with jurisdiction over the Trust. The Trustee may receive interim compensation on account, in accordance with the order of the Court with jurisdiction over the Trust."

Trustee did not file the required accountings with the court because she was unaware the trust was court supervised. Trustee did not look at the trust instrument to understand her authority under the trust. Trustee continued to serve as trustee of the trust when her professional fiduciary license was suspended from 2008 to 2010. Trustee did not keep accurate time records for her fees. Trustee breached her fiduciary duty by making disbursements for rent, clothing, vehicle expenses, and vacations. Trustee also breached her fiduciary duty by making a final distribution to Mother in the amount of $15,574.85, which was then commingled with Mother's personal funds and primarily spent on living expenses and household items.

Given Trustee's mismanagement of the trust estate, failure to make the required court filings, and continued service when she lacked a license, the probate court could reasonably conclude that Trustee was not entitled to compensation because any compensation for the service rendered would be inequitable due to Trustee's multiple failures in administering the trust (Cal. Rules of Court, rule 7.776(2))."