Attorney-Client Communications

One of the requirements I have for any client is for there to be a clear channel of communication between the parties (I'm positive other attorneys require the same). This is a bilateral relationship. If the client inquires, I respond in a timely fashion. If I inquire with the client, I expect the same. For a productive attorney-client relationship, both sides need to uphold their end of the bargain. Otherwise, there can be serious ramifications.

This segues into a recent unpublished opinion that dealt with an attorney-client relationship that lacked communication and the client suffered the serious consequences.

Crabill et al. v. Brown, San Diego County Superior Court, Case # 37-2010-00151394-PR-TR-CTL

The summary of the case is as follows:

"Defendant Frank Brown appeals from the denial of his motion to vacate an order assessing over $250,000 in penalties arising from a breach of his duties as a trustee. Brown's motion, filed approximately 14 months after the penalty assessment order, claimed he simply forgot to disburse payments as the trustee and did not read his mail to receive notice of the subsequent court proceedings. The probate court denied the motion, finding that the time periods for statutory relief had long since passed and equitable relief was not warranted. Brown now contends the court abused its discretion in denying his motion because he presented compelling evidence that he had a satisfactory excuse for not appearing, acted diligently in seeking to set aside the order and, if he had appeared, had a meritorious defense. We see no abuse of discretion and accordingly affirm."

Some notable excerpts from the case include: 

"Crabill and Smidebush allege that over the course of the next year they sent letters to Brown's attorney seeking their distributions. Brown's attorney told them that he forwarded their letters to Brown but did not receive any response. Ultimately, in June 2014, Brown's attorney informed counsel for Crabill and Smidebush that he no longer represented Brown."

"The motion to vacate sought relief pursuant to Code of Civil Procedure sections 473, subdivision (b) and 663. In support of his motion, Brown declared that after the court's final disbursement order, he believed he did not need to take any further action in regard to Smidebush because he had sent her a check for her distribution years earlier. He claimed he never paid Crabill because he wanted to directly hand her a check, but her family prevented him from seeing her. After several months of attempting to personally deliver a check to Crabill, he "came to believe" he had sent the trust disbursement, although he now recognizes he was mistaken. He attributed his mistake to "old age, medical issues and memory loss problems." He listed a broad range of medical issues, including a serious car accident, that "distracted from any trust-related matters."

"Brown further declared that he never saw any mail concerning trust issues because he does not have a "secure home mailbox," and that it was possible the mail "was inadvertently discarded or lost." He also explained that during the entire time period, he believed he was still represented by his former attorney."

Notice from a Trustee

When a revocable trust becomes irrevocable, the trustee is required to provide notice of it to beneficiaries and heirs. See Prob C § 16061.7. The notice must inform the recipient that he or she is entitled to a complete copy of "the terms of the trust" or that the trustee provide the recipient with an actual complete copy of "the terms of the trust." See Prob C § 16061.7(g)(5). Prob C § 16060.5 defines "the terms of the trust" to include all amendments in effect at the time of the settlor's death.

[Author's comment: my standard practice when doing a trust administration is to always include a copy of the trust with the Prob C § 16061.7 notice. Naturally any person will be curious to know if they are to inherit anything. Hence they will want to read the trust, or at least try to read it. There is no sense in playing "hide the ball" because a beneficiary or heir will always be entitled to a copy of the trust.] 

A natural dilemma arises when the trustee is in possession of a document that amends the trust but is of dubious validity. For example, the document is incoherent, lacks a signature or references assets not in the trust.

The imprudent approach is for the trustee to unilaterally decide which documents to provide beneficiaries and heirs. An example of this can be found in the the following case (unpublished appellate opinion, Anderson v. Anderson (2016) ___ Cal.App.4th _____ : 

"Alice died in December 2013. On January 9, 2014, Joan, as successor trustee and acting with the assistance of her daughter, Connie, sent Tom a notice pursuant to section 16061.7. The notice stated that it included a "true and complete copy of the trust agreement." The notice included a copy of the January 11, 1996 restatement and the 1999 amendment, but did not include a copy of the second amendment executed in 2013, though Joan and Connie were in possession of a notarized copy of the second amendment at the time the notice was prepared." 

The prudent approach is for the trustee to file a petition to determine the validity of the questionable documents. The probate code specifically allows a trustee to perform such an action. See Prob C § 17200.     

As one would expect from the above quote, Tom was displeased that the trustee provided him with an incomplete set of documents. Tom filed a petition for "removal of Joan as trustee, the appointment of a replacement trustee, an accounting, an order requiring the successor trustee to prepare a new notice pursuant to section 16061.7 that would include the second amendment, and damages for breach of the trustee's duties."

One wonders if this situation could've been de-escalated had Joan originally served all the documents on Tom and then filed a petition to determine the validity of the 2nd amendment................

Recording a Deed

If you don't have time to do it right, when will you have time to do it over?" Albert Einstein. 

When it comes to writing and funding a revocable trust, there are no repeats or do-overs. I am pretty sure that nobody has been risen from the grave who amended or finalized their trust to ensure a smooth administration. So if a person wishes to expend the money necessary to create a revocable trust, then naturally they want to start and complete the task appropriately. The focus here is on trust funding, i.e. the recording of the deed that transfer the person's interest in their home to their trust. 

One of the primary reasons to write a revocable trust is because the transfer of real estate from a dead to living person is usually optimally achieved through such an instrument.  Other methods used to transfer real property include a gift deed and probate but both of those methods have numerous failings, e.g. cost, lack of control, tax disadvantages, liability issues, etc.

Once the deed has been executed, the next step is to record the deed. This is a very important step because it provides notice to third-parties, i.e. everybody in the world, who were not a party to the transaction. For example, "every conveyance of real property or an estate for years therein acknowledged or proved and certified and recorded as prescribed by law from the time it is filed with the recorder for record is constructive notice of the contents thereof to subsequent purchasers and mortgagees." CC § 1213. In regular English, the statute means that if a deed is properly recorded, a buyer will be imputed to have constructive knowledge of the transfer, i.e. they ought to know of the transfer. Even if the purchaser is unaware of the conveyance, the law assumes that they know about it because the deed has been recorded.

The deed recording usually occurs after the revocable trust has been executed. This is logical because the trust cannot hold assets until it is created. Similarly, a person cannot deposit money into a bank account until it is opened.  Thus, once the trust has been formed, assets can transferred into it. Although, a deed can be transferred into a trust pending formation if (1) the deed was executed in anticipation of the trust's creation and (2) the trust is actually formed. Luna v. Brownell (2010) 185 CA4th 668.  

Researching recorded deeds in California is actually quite easy. In law school, we learned about the grantor-grantee index. This was the prior method used to research recorded deeds. I will spare you the boring details. Fortunately this antiquated system has been replaced by online searches. Many commercial companies offer subscriptions to research recorded deeds for California's 58 counties. Furthermore, numerous counties also offer free online real property searches but the results will just show names and not the actual document. For example, Santa Clara County has a very good recorder's website, although you cannot view the documents on your computer. In order to view the documents, you must go to the computers at the recorder's office, 70 W Hedding Street San Jose, CA 95110.

Failure to record a deed can prove disastrous. For example, the deed can be lost  and a Heggstad petition might be required to transfer the real property into the trust. Or worse, the Heggstad petition can be denied and probate might be required. 

Trustee Duties

When a person undertakes the role of a trustee, he, she or it is agreeing to perform a role that is rife with potential liability. There are countless stories of disgruntled beneficiaries suing the trustee for breach of fiduciary duty, or in non-legal speak, the trustee made a mistake and the beneficiary filed a lawsuit against them. The following are some helpful reminders that should aid just about any trustee.

1. Provide an accounting

The trustee is required to account, at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed. Prob C §16062. One notable exception to this rule is that no annual accounting is required if the trust instrument waives it. Prob C § 16064(a). However, the norm is for the trust to require an accounting to be rendered annually.

For reasons unknown, trustees often fail to provide an accounting to the beneficiary. First, this seems largely silly because almost any irrevocable trust will have to file a federal and state tax returns. The threshold to file a tax return is quite low. During the process of completing a trust tax return, the trustee will invariably have all the necessary information to render an accounting. Prob C § 16063. Hence, it is not as if the trustee has to labor through hours of tedious bookkeeping just to formulate an accounting. Rather, much of the necessary information will already be included in the tax return. Second, the trustee can be compelled to give an accounting to the beneficiary  when the trustee has not rendered a report or account within 60 days after a beneficiary's written request or in the 6 months preceding that request. Prob C §17200(b)(7)(C). Ultimately, if the trustee is required to give an annual accounting, he, she or it will give one whether done freely or coerced by court action. Clearly, a trustee who voluntarily renders an accounting will avoid the troubles that are the by-product of judicial involvement.

2. Seek outside help when needed

Many trustees refrain from the assistance of counsel, a tax preparer or a property manager when administering the trust. This is acceptable as a trustee is not compelled to retain outside help. They may execute their duties as they see fit. 

However, many tasks we do in life are delegated to another party. For example, I do not cut my own hair, I have a barber; I do not prepare my taxes, I have an accountant; I do not tinker with my car, I have a mechanic; I did not purchase a home by myself, I hired a real estate agent; I did not try to heal my knee, I went to a doctor, etc. In light of this, it is difficult to assert that a trustee, who is often a family member that is not a lawyer, can competently undertake all the responsibilities of the trustee by themselves. In particular, many attorneys refrain from being a trustee because of the liability and responsibility involved. This indicates that being a trustee is no simple task. When a person is confronted with a difficult task, the prudent person enlists outside help to assist them. A trustee is no different than the person who wants to sell their home. Each person can do it themselves or they can seek the advice and assistance of a professional.

By no means am I advocating that a trustee must have legal counsel, an accountant, etc. in order to perform their duties competently. Conversely, I am stressing that the trustee should at the outset talk to a professional in order to appreciate the full scope of their duties. This provides the trustee with an informed viewpoint that is necessary to make a reasoned decision about what needs to be done. Most non-lawyer trustees do not seek assistance of a professional at the beginning and subsequently botch the trust's administration. At that point, the trustee is basically compelled to seek counsel to avoid further troubles. The saying "an ounce of prevention is worth a pound of cure" is very apropos for non-lawyer trustees.           

3. Read the trust document in its entirety

The most elementary rule for a trustee is to follow the terms of the trust. Prob C § 16000. The only way a trustee can truly follow the terms of the trust is to read the trust document from start to finish. While this sounds basic, it is often overlooked. Regardless, in order to fully appreciate the responsibility a trustee has, the trustee needs to know what they are instructed to perform. The trustee cannot act in a cavalier fashion and deviate from what the trust dictates. The following case is an example of a trustee that did not follow the terms of the trust and the consequences.

Joseph Gilmaker wrote a testamentary trust, that is a trust that arises at death, in which the trustee was instructed to maintain a bank account that did not exceed the amount insured by Federal Deposit Insurance Corporation. During the 1960s, the amount insured by the FDIC was up to $10,000. Still, Bank of America, the trustee, allowed the bank account to grow in value to $49,000. The petitioner then had the trustee removed because it had failed to follow the terms of the trust. Estate of Gilmaker (1962) 57 C2d 627.

A key aspect for a trustee when reading a trust is to not substitute their own judgment for the settlor, the person who wrote the trust. The trustee is to execute what the settlor has written down, rather than what the trustee unilaterally decides. If the trustee is confused as to how to follow the trust or a particular interpretation of a trust term, the trustee may petition a competent probate court for approval or instructions. Prob C § 17200. 

4. Timely provide copies of the trust document upon appropriate request

No person likes to be kept waiting regardless of the reason. In today's world, where information can be exchanged so expediently from one side of the globe to the other, the notion of patiently waiting has steadily eroded. People now, in this case beneficiaries, often demand the receipt of a trust or trust-related document very quickly. 

The California Probate Code spells when a beneficiary is entitled to a copy of the trust document. The applicable law states "the trustee shall provide a true and complete copy of the terms of the irrevocable trust, or irrevocable portion of the trust to each of the following, to any beneficiary of the trust who requests it and to any heir of a deceased settlor who requests it, when a revocable trust or any portion of a revocable trust becomes irrevocable because of the death of one or more of the settlors of the trust." Prob C § 16061.5(a)(1). Furthermore, a trustee needs to provide a copy of the trust document to a beneficiary when there has been a change of trustee of an irrevocable trust. Prob C § 16061.5(a)(2).

I have heard of countless stories of trustees remaining idle in the face of a beneficiary's request for a copy of the trust. Instead of providing a copy of the trust or supplying the legal justification for not providing a copy of the trust, the trustee will simply ignore the beneficiary's request. This is not a prudent move to put it mildly. By giving the silent treatment to a beneficiary, the trustee is most likely stoking their frustration because it indicates an insensitivity or hostility to their request. It is quite simple to respond to a request with a simple "yes" or "no" while concurrently providing a justification for either answer. 

Regardless, even if the beneficiary cannot cite valid legal grounds to request a copy of the trust, California law says that the duty of a trustee to provide information cannot be waived.  Prob C §16068; Salter v Lerner (2009) 176 CA4th 1184. Thus, even if the beneficiary could not obtain a copy of the trust document, they could still request information relating to the trust's administration. A beneficiary could then piece together how the trust is set up or at the very least understands its inner-working. 

Obtain a Copy of a Trust

If you are the beneficiary of a living trust, you are entitled to receive a full and complete copy of the trust upon request to the trustee in certain situations. The following is one example of such.

The applicable law states:

"the trustee shall provide a true and complete copy of the terms of the irrevocable trust, or irrevocable portion of the trust to each of the following, to any beneficiary of the trust who requests it and to any heir of a deceased settlor who requests it, when a revocable trust or any portion of a revocable trust becomes irrevocable because of the death of one or more of the settlors of the trust." Prob C § 16061.5(a)(1).

The follow-up question to this is, "when does a trust become irrevocable?" In almost all cases, a trust becomes irrevocable when the settlor (the person who drafted the trust) passes away. For example, Samuel  drafts a revocable trust and names himself trustee and beneficiary while he is alive. Upon Samuel's passing, the remainder beneficiary is his nephew Bobby while his brother Thaddeus is the successor trustee. Bobby may request a copy of the trust document from Thaddeus after Samuel passes away. Prob C § 16061.7(g)(5).

The ability to request a full and complete copy of the trust stems from the trustee's duty to keep the beneficiaries of a trust reasonably informed of the trust and its administration. Prob C § 16060. Of note, the duty imposed under Prob C § 16060 cannot be waived. Salter v. Lerner (2009) 176 Cal.App.4th 118.

Furthermore, failure to provide a full and complete copy of the trust to the requesting beneficiary by the trustee is a breach of trust and hence grounds for removal. Prob C §15642(b).

The moral of this story (or blog post) is if you are a trustee, you should comply with the beneficiary's request to provide them with a copy of the trust document if the trust has become irrevocable.