Settlement Agreement in a Trust Dispute

Santa Clara Co. Superior Court

Gregge v. Hugill (2016) ___ Cal.App.4th _____
 
In Santa Clara County Superior Court, a disgruntled beneficiary challenged the validity of a trust amendment citing a lack of testamentary capacity and undue influence. The trust provided for multiple beneficiaries but there is only 1 contestant, the disgruntled beneficiary. Just prior to trial, another trust beneficiary agreed to file a disclaimer, conditioned upon the case being dismissed, that arguably undercut the remedy available to the disgruntled beneficiary. The trial court was agreeable to this, citing the importance of familial harmony, and dismisses the matter.

The disgruntled beneficiary then appeals and the appellate court finds reversible error, principally because the disclaimant was a non-party. The opinion noted "a settlement is an agreement among adverse parties, and Bennett did not agree to settle the case." Thus, it was improper for the trial court to dismiss the matter as it deprived the disgruntled beneficiary of the right to litigate the validity of the trust amendment.    

The opinion also notes how the settlor amended his survivor's trust multiple times. 

"In 1997, William amended the survivor’s trust, designating a fixed $900,000 to fund the grandchildren’s trust, to be distributed as stated in the 1990 trust instrument."

"In 2000, William amended the survivor’s trust by eliminating Michael’s five percent residual share and increasing Patrick’s share to 35 percent."

"In 2001, William removed Michael’s children Kathleen and Cameron as beneficiaries of the grandchildren’s trust, but he restored their status one year later."

"In 2005 William again removed Cameron as a grandchildren’s trust beneficiary."

"William executed a final amendment to the survivor’s trust on June 5, 2008, two weeks after he underwent surgery to remove a subdural hematoma. The 2008 amendment restored Michael as a trust beneficiary on equal footing with his siblings, and it restored Cameron as a grandchildren’s trust beneficiary on equal footing with his sister and cousins." 

I would not advise a client to amend their trust this many times unless they agree to a restatement of their trust. The reason being is that if a trust is amended, the heirs and beneficiaries are entitled to a copy of the trust and all the amendments. They could then see how the trust changed over time, possibly because of independent decision-making or the result of an interloper. If a restatement was used, only the restatement would need to be given to heirs and beneficiaries. Hence the heirs and beneficiaries could not piece together how the trust changed over time.

Fiduciary Duty Owed to a Creditor?

In a fiduciary relationship, the fiduciary is legally obligated to act in the bests interests of the principal. This relationship can arise in various situations. For example, a lawyer owes a fiduciary duty to a client just as an executor owes a fiduciary duty to an estate beneficiary. Given the privileged status of a principal in a fiduciary relationship, it is a very favorable position for the principal. That is, the law imposes a high standard of care on the fiduciary. However, not every relationship involves a fiduciary relationship. A recent California Court of Appeal decision illustrates this point.

Vance v. Bizek  ____ Cal App. 4th ___ (2014)

Dan Bizek obtained a judgment against Sally Gordon in the amount of $987,747. Mr. Bizek then tried to attach this judgment to Ms. Gordon's interest in the Wallace and Pearl Burt Trust, of which she was a beneficiary. Of note, Pearl Burt was Ms. Gordon's mother. Ms. Gordon was also the sole beneficiary of the Pearl Burt Trust. On April 6, 2011, Mr. Bizek's petition to attach his judgment to Ms. Gordon's interest in the Wallace and Pearl Burt Trust was granted. In turn, Ms. Gordon disclaimed her entire interest in the trust on the same day so that her interest passed to her daughter, Cyndi Vance (Author's comment: a disclaimer to avoid creditor attachment is surprisingly permissible in California under certain situations). 

Ms. Vance and Mr. Bizek then filed competing petitions to ascertain the validity of the disclaimer.

The thrust of Mr. Bizek's petition was that Ms. Gordon commingled funds as she was a trustee of both the Wallace and Pearl Burt Trust and the Pearl Burt Trust. Consequently, she had, inter alia, withdrawn money from the former and deposited it into the latter. The result, Mr. Bizek argued, was that Ms. Gordon had violated her fiduciary duty citing Probate Code § 16004. The relevant portion reads "a transaction between the trustee and a beneficiary which occurs during the existence of the trust or while the trustee’s influence with the beneficiary remains and by which the trustee obtains an advantage from the beneficiary is presumed to be a violation of the trustee’s fiduciary duties." Probate Code § 16004(c).

The problem with Mr. Bizek's argument though, as the holding of the case points out, is that Mr. Bizek was not a beneficiary of the Wallace and Pearl Burt Trust. Hence, application of Probate Code § 16004 was improper by the trial court. He was merely a creditor of the Wallace and Pearl Burt Trust, not a beneficiary. Thus there was no breach of fiduciary duty by Ms. Gordon to Mr. Bizek because none was owed to Mr. Bizek for purposes of the Wallace and Pearl Burt Trust.

A takeaway from this case is to keep in mind that a fiduciary duty does not arise automatically. Rather it arises in certain situations and close attention to detail is needed when determining whether it is invoked or not.