Attorney-Client Privilege in Trust Administration

Few areas of the law are as well-known to the public as the attorney-client privilege. The privilege allows for client communications with their lawyer to be held in strict confidence. Evid C §§952, 954. A lawyer may only disclose this information under very specific circumstances. The following two major cases addressed the applicability of the attorney-client privilege in trust administration cases.

Moeller v. Superior Court (1997) 16 C4th 1124

George Moeller and Grace Todd Moeller, husband and wife, created a trust in which George served as the initial trustee. George later resigned as trustee and Sanwa Bank assumed the office of trustee. The trust owned a parcel of land which was leased to a chrome plating business. 

During its operations, the business  severely contaminated the soil. This contamination appreciably depleted the trust estate whereby Sanwa Bank decided to resign as trustee because of presumably insufficient funds. Prior to its resignation, Sanwa Bank rendered a final accounting and deducted various fees from the trust. George's son Roger, Sanwa Bank's successor, objected to the accounting. 

Roger requested various documents from Sanwa Bank as support for the accounting it had rendered. Sanwa Bank responded that it had given Roger the appropriate documentation and the documents that were not provided was privileged information, i.e. communications from Sanwa Bank and its attorneys. Roger then petitioned to have this information disclosed nonetheless.

Roger's case weaved its way through the California court system before eventually ending up in the California Supreme Court. It held that "a successor trustee, unless the trust instrument otherwise provides, assumes the power to assert the attorney-client privilege as to confidential communications between an attorney and a predecessor trustee on the subject of trust administration, so long as the predecessor was acting in the official capacity of trustee rather than in a personal capacity."

In plain English, the Court held that Roger could request documents detailing the communications Sanwa Bank had with its attorneys because he was the successor trustee. 

Wells Fargo Bank v. Superior Court (2000) 22 C4th 201

William Couch established a trust in October 1991. He served as the sole trustee until his death in March 1992. Upon his death, Wells Fargo and Rosa Couch, William's surviving spouse, became the successor trustees. Years later, certain trust beneficiaries became agitated that the trustees were allegedly not making proper distributions. Consequently, the trust beneficiaries petitioned to have both trustees removed. During litigation, the trust beneficiaries asked for documents detailing the communications from Wells Fargo and its attorneys, O'Melveny & Myers, a prominent international law firm. Wells Fargo naturally balked at this request, citing the attorney-client privilege.

Like Moeller, Wells Fargo Bank meandered through the California court system before eventually landing in the California Supreme Court. However, the Court this time held that the petitioners were not entitled to discover client communications between Wells Fargo and its counsel because there is "no authority in California law for requiring a trustee to produce communications protected by the attorney-client privilege, regardless of their subject matter."

The distinguishing feature between these two cases is the person requesting the discovery of client communications. In Moeller, the successor trustee asked to discover the otherwise privileged communication. Conversely, in Wells Fargo, the beneficiaries requested to discover trustee communications with its lawyer.

California Notary

A notary is an integral part of the estate planning process. The following 5 questions focus on this issue.

1. What does a notary do?

A notary attests the authenticity of a signature. In regular English, the notary confirms that the person signing the document is who they claim to be by requiring proof of identity.

For example, if John Baker sells his home, he needs to execute a deed. Since the deed requires a notarized signature, John will need to submit proof to the notary that he is John Baker when he signs the deed.

2. What does a notary not do?

Essentially, anything other than attesting the authenticity of a signature.

A notary does not need to be a licensed attorney to become a notary. Unfortunately, many people believe that a notary is automatically an attorney or can give legal advice regardless. The reason being is that in some countries a notary must be an attorney. For example, a notary in Mexico must also be an attorney. The result has been that numerous individuals have been swindled by unscrupulous California notaries who provided legal advice. This can often happen in the immigration field because the clients are unfamiliar with California law and unwittingly heed the advice of the notary. This is most certainly criminal as one cannot practice law without a license. Yes it is a crime to practice law without a license. The law is rather clear on this "no person shall practice law in California unless the person is an active member of the State Bar. Bus & P C § 6125. Moreover, it is likely erroneous given the lack of formal legal training by the notary.

However, many attorneys double as notaries to service their clients more efficiently. In case you are wondering, I am not a notary. I have a colleague who is a notary that handles it for me.  

3. What does a notary need as proof of identity of the signatory?

There are various ways for a notary to verify a signatory's identity. The most common method for this is proof of a driver's license.

4. Why does a notary need to be involved in the estate planning process?

A notary needs to be involved for execution requirements. Various documents require that the person signing the document have their signature be notarized. For example, since a deed must be recorded to give notice to third-parties, a notarized signature is basically required. CC §§1214;1217;1189;1181. Furthermore, a power of attorney and advance health care directive can be executed via a notary. Prob C §§ 4121; 4673-4675. Alternatively, these two documents can also be attested by 2 witnesses. Prob C §§ 4121; 4673-4675.

Of particular relevance is the fact that a revocable trust does not require a notarized signature. Many people assume that a trust must be notarized. This is simply not true. There is no California law that mandates that a trust be notarized. The reason for the notarization is out of custom and because since there are no witness requirements, a notarized signature is proof to third-parties that the settlor, the legal term for a person who creates a trust, actually signed the document. Otherwise, a nefarious character could draft a fabricated trust in order to steal the identity of another person. Thus, the notarized signature reduces the potential for fraud.

5. How much can a notary charge per signature in California?

A notary may charge up to $10 per signature. Govt C § 8211(a). Before you tell me that I'm wrong because you were charged more than that, keep in mind that a notary may also charge the cost of travel.

Trust Litigation

An elementary trust law is the duty of loyalty owed by the trustee to the beneficiary. Prob C § 16002(a). Essentially the trustee must prioritize the interests of the beneficiary over theirs.  He, she or it cannot pursue an action that would further their own interests at the expense of a beneficiary. A corollary to this law is the ban on trustees requiring exculpation in exchange for a trust distribution. Prob C § 16004.5.   

For example, assume the trust owns rental property. The trustee has mismanaged the property for years but still has received rent from the tenants, albeit not market value because of his mismanagement. In particular, the trustee failed to repair the roof, maintain adequate plumbing and failed to tend the landscape properly. The trustee informs the beneficiary that he will make a required distribution of $25,000 but conditions distribution on the beneficiary absolving him of any liability for his mismanagement. On one hand, the beneficiary would like to pursue legal action against the trustee for breaching his fiduciary duty of care. Prob C § 16040. Conversely, the beneficiary is aware that if they sue the trustee, litigation will stall the $25,000 distribution for the foreseeable future. In a sense, the beneficiary is stuck between a rock and a hard place. Fortunately, the California Probate Code does not allow for a trustee to engage in such shenanigans. The relevant statute says "a trustee may not require a beneficiary to relieve the trustee of liability as a condition for making a distribution or payment to, or for the benefit of, the beneficiary, if the distribution or payment is required by the trust instrument." Thus, the trustee is prohibited from orchestrating such an arrangement. Thereby, the beneficiary would be entitled to receipt of the $25,000 and would retain the right to sue the trustee for breach of fiduciary duty, i.e. the duty of care.  

Although the Probate Code does allow for the beneficiary to voluntarily release the trustee of liability. Prob C § 16004.5(b)(2). It is difficult to imagine why a beneficiary would exculpate a trustee. A trustee cannot threaten to withhold a required distribution in a dispute, which deprives them of the strongest bargaining chip. On the other hand, a beneficiary's trump card is their ability to enforce fiduciary duties. Since the trustee cannot play their trump card, withholding of a required distribution, the beneficiary has superior leverage and thus should be very hesitant to release the trustee of liability. 

Small Estates involving Real Property

If a homeowner passes away, it is often the case that the beneficiaries will have to go through probate in order to pass title unless the property is held in joint tenancy or in trust. An exception to this general rule is where  the gross value of the decedent’s real and personal property in California does not exceed $150,000. Prob C § 13151.  The valuation limit used to be $100,000 but this was increased to $150,000 on January 1, 2012. Thank you California legislature.

The petition is usually filed in the county where the decedent owned real property and may be filed once 40 days have elapsed since the decedent's death. Prob C §13151. The form for this procedure is Judicial Council Form DE-310. The petition will need to include a completed Inventory and Appraisal (Judicial Council Forms DE-160, DE-161), verifying the value of the property. Prob C §13152(a)(2), (b). Once filed, the petitioner needs to serve notice on the heirs, executors and/or trustees. Prob C § 13153. If the  petition is appropriately completed and notice is served on the correct parties, the probate court judge will sign the form and this form should be recorded with the county recorder's office. This order is conclusive for passing title. Prob C § 13155.

One key aspect of this procedure is that it relates to real property, as opposed to personal property. If the decedent had only personal property in their estate, e.g. a bank account and some stocks, this procedure would not be needed. Instead, the beneficiaries could utilize the small estate affidavit to collect the asset(s). Still, if the decedent had a mixture of real and personal property, the petition to determine succession to real property could be used to collect both types of property. 

If the beneficiary is the decedent's spouse, the spouse should not use this procedure because there is a valuation limit of $150,000. Instead, the spouse should use the spousal property petition.

The following examples illustrate when the petition to determine succession to real property is used and not used.

Lionel Ozil's estate consisted of a bank account, stocks and bonds worth $125,000. Since his estate is worth less than $150,000, the small estate affidavit could be used to collect these assets.

Thierry Van Persie's estate consisted of a home in Campbell, CA worth $500,000, held in joint tenancy with his brother Arjen, and a bank account worth $50,000. Since the home was held in joint tenancy, the beneficiaries do not have to use the petition to determine succession to real property for the Campbell home. As for the bank account, since it is under $150,000, the small estate affidavit can be used.

Theo Chamberlain's estate consisted of a home in Campbell, CA worth $250,000, held as a tenant in common with his brother Alex and a 2,000 shares of ATT stock worth $8,000. Since the home was held as a tenant in common by Theo, probate would be required albeit formal probate would not be required because the value of the estate was less than $150,000.  That is, the petition to determine succession to real property could be used to transfer Theo's interest in the property to his beneficiaries.