April 29, 2021

Renting the Residence

In a typical estate administration case, whether a trust or probate, real property is involved. If the real property is vacant, the question then becomes  whether to rent the residence or not until the property is sold or distributed to the beneficiaries.

A recent unpublished appellate decision touched upon the co-trustees' unwillingness to rent the decedent's residence given the circumstances.

"When Loucks died in 2006, Trust assets were valued at nearly $9 million. Among the Trust's properties was Loucks's Camarillo residence. The residence was built in the 1950s, and was virtually unchanged over the next six decades: The carpet was worn, the walls were "dripping with . . . nicotine" from cigarette smoke, the septic tank was unusable, and the plumbing and electrical systems needed to be replaced. There was no hot water, no heat, and no air conditioning.

The exterior of the residence was similarly dilapidated. There was fungus and dry rot around the eaves. Shrubs and trees were overgrown. Rodent holes riddled the backyard. The pool—which was just inches from the residence—had begun to sink."

Following the property's sale, a beneficiary sued the trustees for essentially lost profits since they opted not to rent the residence from 2007-2014. 

The beneficiary's "expert witness testified that the Trust could have earned more than $330,000 from renting out the residence from 2007 through 2014."

However, the trial court disagreed and held that the co-trustees' decision to not rent the residence was reasonable under the circumstances. This decision was upheld by the appellate court. 

"Substantial evidence supports the probate court's determination that the co-trustees acted reasonably and in good faith when they declined to rent out the residence between 2007 and 2014. The evidence admitted at trial showed that the residence was uninhabitable and in need of more than $80,000 in repairs. Those repairs would have had to be completed before the residence could be rented. And once completed, there remained safety and liability concerns due to the unsecured pool at the residence."

One common theme when I've represented trustees is a beneficiary's tendency to emphasize the benefits but not adequately account for the burdens. This is natural because the beneficiary is not the responsible party, rather the trustee shoulders the liabilities. Hence the mindset of the trustee will invariably differ from that of the beneficiary.

In this case the beneficiary was adamant, as evidenced by them litigating this issue, that renting the residence was reasonable. However, the beneficiary was not responsible for renovating the property to make it habitable. Rather, the trustee was responsible for the renovations. Since the cost of renovations was significant, $80,000, the co-trustees acted prudently when they opted to forego renovation and renting the residence.     

Walstad v. Maloney, case # 56-2016-00479026-PR-TR-OXN, Ventura County Superior Court