Post-Death Business Operations

A successor trustee occasionally is tasked with operating a decedent's business post-death. For example, I've had clients in which the decedent leased rental properties, operated a marketing corporation, operated a painting business, operated a consulting business, etc. The successor trustee has basically three options at their disposal. First, the successor trustee can continue to operate the business. In the case of leasing rental properties, past clients have sometimes taken this approach. Second, the successor trustee can sell the business to a third-party. If the business involves leasing rental properties, selling the business, i.e. selling the underlying real estate, is a common approach. Third, the successor trustee can cease business operations. If the decedent operated a sole proprietorship, past clients have typically ceased business operations because the business was intimately tied to the decedent and had limited market value. Whatever the decision made by the successor trustee, they are required by CA law to act in the best interests of the beneficiaries.   

A recent unpublished appellate decision found that the successor trustee had breached their fiduciary duty by continuing to operate the decedent's business post-death.

"Mark contends the trial court erred in finding he breached the Trust by continuing hard money lending after Howard's death.

Mark argues he had a duty to keep the disputed funds productive. (§ 16007.) But a trustee has a duty to invest trust funds prudently. (Estate of Collins (1977) 72 Cal.App.3d 663, 669.) The trial court could reasonably conclude that hard money lending is not appropriate for a fiduciary. Mark even acknowledged that it is a risky business.

Mark claims that section 4.05 of the Trust authorized him to continue his hard money investments, which provides:

"Section 4.05. On any final or partial distribution of the assets of the Trust Estate and on any division of the assets of the Trust Estate into shares or partial shares, the Trustee may distribute or divide such assets in kind, may distribute or divide undivided interests in such assets, or may sell all or any part of such assets and make distribution or division in cash or partly in cash and partly in kind. The decision of the Trustee, either prior to or on any division or distribution of such assets, as to what constitutes a proper division of such assets of the Trust Estate shall be binding on all persons in any manner interested in any trust provided for in this Declaration."

Section 4.05 of the Trust governs distribution of Trust assets. Nothing in the section authorizes Mark to engage in an inappropriately risky enterprise."

Braaten v. Braaten, San Luis Obispo County Superior Court case no. 19PR-0393

Trust and Will

Much like how an apple is different than an orange. A trust is different than a will. For example, a trust can nominate John Doe to serve as trustee and Jane Doe to be the sole beneficiary. Conversely, a will drafted by the same individual can nominate Jane Doe to serve as the executor and John Doe to be the sole beneficiary. While it is quite common for a trust and will to be aligned, i.e. a person writes a trust and pour-over will, there is no underlying requirement. A recent unpublished appellate decision highlighted the fact that a trust and will are distinct testamentary documents.

“Quadri died on September 14, 2022. She had four daughters who survived her: Kime, Shoemaker, Laura Mae Haberkorn, and Linda Cherie Kime. Quadri had no other living or deceased children.

On December 10, 1994, Quadri executed a handwritten Last Will and Testament wherein she named Shoemaker as executor. The will equally bequeathed Quadri's entire estate to her four daughters.

On April 9, 2014, Quadri executed the Floy Wanda Quadri Living Trust with herself as grantor and Kime as trustee. The trust was never funded and Quadri never executed a pour-over will.

At the time of Quadri's death, her estate consisted of a condominium, some bank accounts, and tangible personal property. These assets were not titled to the trust.

On March 8, 2023, Shoemaker filed a petition for letters of administration. Two of the three daughters signed nominations of administrator to support Shoemaker's petition. Shoemaker was unable to find Quadri's original handwritten will and for that reason filed for letters of administration.

On April 27, 2023, the probate court held a hearing regarding Shoemaker's petition. No documents or competing petitions were filed. Shoemaker was represented by counsel and Kime appeared in propria persona to oppose Shoemaker's petition.

Kime asserted that the probate court should appoint her as administrator because Quadri had named her as trustee in the 2014 trust. Kime also contended that Shoemaker, Haberkorn, and Linda Cherie Kime conspired to unduly influence and abuse Quadri. Kime asserted that five months before her death, Quadri wanted to update her trust to leave the entire estate to Kime and exclude her other three daughters. Quadri took no further steps, however, to amend and fund the trust.

Following argument by the parties, the probate court granted the petition, appointed Shoemaker as administrator with full authority, and issued letters of administration. In ruling, the court explained that Shoemaker's petition concerned an intestate probate and an undue influence argument was not relevant.”

The Court of Appeal affirmed the trial court's decision.

"The probate court did not abuse its discretion by appointing Shoemaker as the administrator of Quadri's estate. In this intestate probate, each of the four daughters is entitled to an equal share and each has equal priority to be appointed administrator. (§§ 6402, subd. (a) [intestate succession]; 8467 [priority to be appointed administrator].) Only Shoemaker filed a petition seeking to be appointed administrator. Two of her sisters supported her nomination. Appointment of Shoemaker was not unreasonable and we do not substitute our decision for that of the probate court. (Estate of Selb, supra, 93 Cal.App.2d 788, 792.)"

In the Matter of Floy Wanda Quadri, Ventura County Superior Court case no. 202300576149PRLA

Can an Email Amend a Revocable Trust?

Can emails to an estate planning attorney constitute an amendment to an individual's revocable trust? This interesting legal question was the focus of a recent appellate case:

Jerry and Mary Trotter, who were married, established the Trust as a revocable trust in 2011, and named themselves collectively as both "Trustee" and "Trustors." The Trust names Timothy, their son, as the successor trustee in the event neither Jerry nor Mary can act as a trustee. The Trust also provides that upon the death of whichever spouse survives the other, certain stock is to be distributed to Timothy, and the rest of the trust estate should be distributed in equal shares to each of several children, including Jerry's daughter from another marriage, Van Dyck.

When Jerry died in 2012, Mary became the sole trustee. According to declarations in the record, Mary intended to exclude Van Dyck as a beneficiary because Van Dyck had already inherited from Jerry's previous wife, and Mary believed Van Dyck had "been fairly provided for" in 2015. In relevant part, the Trust authorized Mary to amend the Trust "by an instrument in writing signed" by Mary and delivered to the "Trustee" — at the time, herself.

In late June 2020, Mary, Timothy, and Matthew Pribyl, Mary's estate planning attorney, exchanged e-mails about amending the Trust, excerpted below. On June 25, before her scheduled surgery on July 1, Mary e-mailed Timothy stating:

"My mind is quite clear now as [to] how to move forward on the house and will.

"I will write it out and then we need to see that the lawyer gets a copy asap and start redoing the will and trust.

"1. The house will go to you

"2. My cash assets will be divided among my five children; nothing to Wendy [¶] . . . [¶]

"The rest of selected items will be assigned to different children/grandchildren and I'm working on that list.

"Thanks, mom"

Mary underwent surgery the next day on July 1, 2020, and contracted an infection while in the hospital. She suffered two heart attacks and passed away a few weeks after her surgery. Timothy became the successor trustee, and when disputes arose about the administration of the Trust, Timothy petitioned the probate court for instructions. He sought, among other things, guidance about "whether under the express terms of the Trust, [Van Dyck], by reason of Mary's writings, has been removed as a beneficiary of the [Trust]."

Timothy J. Trotter (Timothy), successor trustee of the Trotter Family Revocable Trust (Trust), petitioned the probate court seeking guidance about whether certain e-mails from his mother, Mary Trotter (Mary), constituted a valid amendment to the Trust's beneficiaries. The court found that Mary's writings were insufficient to constitute an amendment to the Trust, and it ordered that the Trust be distributed to its original beneficiaries, including Wendy Trotter Van Dyck (Van Dyck).

The appellate court concluded "that at least two of the grounds the court relied on were proper: (1) there was no signed document amending the Trust and the electronic signature provision of the Uniform Electronics Transaction Act (UETA) does not apply because a unilateral trust amendment does not constitute a "transaction" within the meaning of the statute (Civ. Code § 1633.2, subd. (o)); and (2) Mary's writings did not adequately express an intent to amend the trust by the writings themselves."

Trotter v. Van Dyck (2024) ____ Cal.App.4th ____

Amending a Trust (validly)

Following the passing of a relative or friend, the search begins to discover if the decedent had any estate planning documents. Obviously this process is easier if the decedent previously told their family and friends that they executed estate planning documents and where to find the documents. Regardless, the documents need to be retrieved and authenticated in order to properly administer the estate.

The estate planning documents could be found in a safe deposit box, at the decedent's home or some other place. Usually all the documents are found in one place. So if one document is found, e.g. the trust, it should be expected to find the will in the same place as well.

Some attorneys (I'm not one of them) provide clients with an estate planning binder. The binder will contain all the estate planning documents, i.e. trust, will, power of attorney, etc. Occasionally I will see that the binder contains preprinted forms to amend the trust or modify the will. Fortunately I've not had a case where the estate planning binder contained an amendment of questionable validity. In a recent unpublished decision, the successor trustee encountered this issue.

"Yvonne created the Yvonne Ellias Living Trust (Trust) in 2007. She amended the Trust in 2018, naming her stepdaughter, Veronica Ellias, as trustee. Section 1.04 of the Trust provides: "Any amendment, restatement, or revocation must be made in writing and delivered to my then-serving Trustee." Yvonne passed away on February 20, 2021. The Trust became irrevocable upon her death.

 Yvonne purportedly amended the Trust twice more before she died, in June 2019 and July 2020. The amendments purportedly redistributed Yvonne's assets, including her home, from Veronica to David upon Yvonne's death. Veronica discovered the amendments after Yvonne died, inside a binder containing the original estate planning documents."

The appellate court affirmed the trial court's ruling that the purported amendments were invalid.

"Here, section 1.04 requires any modification of the Trust to be "delivered to [Yvonne's] then-serving Trustee." (Italics added.) Thus, as David concedes, for Yvonne to validly amend the Trust pursuant to its terms, she was required to deliver the amendments to Veronica. But Yvonne did not do so when she purportedly executed the Trust amendments or at any other point before she passed away. Nor is there evidence that Veronica had access to Yvonne's estate planning binder before her death such that the amendments were "effectively" delivered to her, as suggested by David. Yvonne therefore could not have amended the Trust pursuant to its terms. (See Lombardo v. Huysentruyt (2001) 91 Cal.App.4th 656, 670 [trust modification ineffective if trust requires delivery of modification to trustee and settlor fails to inform trustee of modification].)"

Estate of Ellias, Ventura County Superior Court case no. 56-2021-00556111-PR-TR-OXN

Objecting to an Accounting

A beneficiary of a trust who is dissatisfied with the performance of a trustee can request, under certain conditions, a court order to compel the trustee to submit an accounting to the court for approval. 

The accounting is essentially composed of four parts. First, the accounting will specify what trust assets existed at the beginning of the accounting period. Second, the accounting will specify the income generated from the trust assets during the accounting period, the receipts. Third, the accounting will specify the expenditures made in connection with administering the trust during the accounting period, the disbursements. Fourth, the accounting will specify the assets at the end of the accounting period. In light of the information disclosed in the accounting, one appellate stated that in "probate court, nothing speaks more eloquently or provides more insight into factual and legal issues than an accounting.” Christie v. Kimball (2012) 202 Cal.App.4th 1407, 1409.

An issue that occasionally arises is the beginning date of the accounting period. I've spoken to a handful of beneficiaries over the years who insist that the accounting period should begin the moment that the trustee exhibits signs of incapacity or has a major medical event. For example, the trustee has a stroke or heart attack. Still, a major medical event does not automatically trigger the trustee's replacement in every circumstance. Rather, the trust will specify a method of trustee succession in case of incapacity. Typically this entails the declarations of one or two medical doctors opining that the trustee is physically or mentally incapable of managing his or her financial affairs. 

A recent unpublished appellate decision focused on a beneficiary objecting to an accounting beyond the scope of the successor's trusteeship.

"On April 18, 2019, Wertz filed a petition for approval of an accounting of her administration of the Diana Engstrom Living Trust — 2007, from August 29, 2017 to January 2, 2019, and for an order approving the final distribution of the trust assets."

"On June 21, 2021, the court trial was held. The trial proceedings are reflected accurately in the court's subsequent minute order. As the court, noted Weigman asked questions about events that predated the accounting period or were irrelevant. "Objector although repeatedly . . . admonished by the Court, kept asking questions of events that allegedly occurred in 1988, 1997, 2007, etc. Further, Objector was unable to ask a relevant question approximately 90 [percent] of the time. She rambled on about conspiracies and stated on the last day of trial that if the court ruled in Petitioner's favor the stock market would crash the next day. The Court itself was asked inappropriate questions." 

In a predictable turn of events, the trial court's decision was upheld.

It is highly likely that the successor trustee initially assumed the office of trustee on August 29, 2017, since that was the beginning of the accounting period. Naturally the successor trustee would not have to submit an accounting for the period of time in which they were not the successor trustee, i.e. pre-August 29, 2017. Hence the beneficiary's objections to pre-August 29, 2017 events were beyond the scope of the trial and were properly overruled by the trial court.

Wertz v. Weigman, Case # 30-2019-01066813, Orange County Superior Court

Oral Agreement or Written Agreement

A "hand-shake agreement" or oral contract is rarely advised.

 

While the law does enforce an oral contract, it is hardly ever a prudent decision. Countless probate lawsuits have arisen from situations when an agreement could have been memorialized but instead was agreed to orally. A recent partially published appellate decision involved an oral contract to transfer a cabin's ownership. In particular, the case involved a deceased married couple's interest in a cabin on leased federal land.  

 

Capra v. Capra, (2020) ____ CA4th _____. 

 

"In 1992, Frank Jr. and Thomas attempted to transfer the Forest Service permit to themselves and Lucille as trustees of the trust, but the Forest Service would not allow three names to be on the permit. The Forest Service would allow only an individual or a married couple to be named on the permit.

The three siblings decided it made sense for Thomas to be the trustee listed on the permit because Lucille was not living in California. Plaintiffs allege that Lucille and Frank Jr. "agreed to forego their rights to act as the representative on the Permit and allowed Thomas to be the representative Trustee named on the Permit." In October 1992, the Forest Service placed Thomas's name on the permit. The permit was renewed in 2008 in Thomas's name."

The sharing of the cabin unfortunately did not end well.

"In September 2015, Thomas declared that he owned the cabin and the permit exclusively, and that the plaintiffs had no right or interest in either. He asserted the right to deny anyone access to the cabin. He closed the Bank of America account and withdrew all its money, claiming it belonged to him. He changed the door locks and asserted exclusive control over all personal property at the cabin. He has not provided access to the cabin to plaintiffs, and in some instances, he has banned others from the property."

In an expected move, Thomas was sued by his siblings for taking the position that he owned the cabin exclusively. 

My reading of this case is that a written agreement should have been executed in 1992 which specified that even though only Thomas' name would appear on the lease, the cabin was effectively a tenants-in-common arrangement with each sibling owning a 1/3 interest. A written agreement would not have definitively prevented a lawsuit, but it would have definitely decreased the odds of one. An executed agreement would have (hopefully) specified the rights and obligations of each party. This would avoid the dreaded "he said, she said" scenario which invariably arises when a disagreement happens.   

Power of Appointment

Probate Code §610(f) defines a power of appointment as a "power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property."

A recent published appellate opinion addressed whether a surviving spouse could properly exercise a power of appointment for their own benefit involving the deceased spouse's property. 

Tubbs v. Berkowitz, (2018) ___ Cal. App. 5th __.

"In 2005, Berkowitz and his wife created the Trust of which they were trustees during their lifetimes. The Trust provided that, after the death of the first spouse, the trustee (the surviving spouse) was required to allocate the Trust's assets between the surviving spouse's trust and the Marital Trust." 

"The Marital Trust also provided the surviving spouse with a general power of appointment, which is the focus of this appeal. The relevant provision stated: "At any time during the surviving spouse's life, the trustee shall distribute all or any part of the trust, including accrued income and undistributed income, to such one or more persons and entities, including the surviving spouse or the surviving spouse's estate, and on such terms and conditions, outright, in trust, or by creating further powers of appointment, as the surviving spouse shall request by an acknowledged document that specifically refers to this power of appointment." The surviving spouse's trust included an identical provision." 

"In 2011, Berkowitz's wife passed away, requiring Berkowitz to allocate the Trust's assets as described above. In April 2017, Berkowitz filed a petition to confirm his proposed allocation of assets, among other things. After Tubbs filed objections to Berkowitz's petition, Berkowitz exercised his general power of appointment and appointed all assets in the Trust to himself, effectively divesting the contingent beneficiaries (which included Tubbs) of their right to distributions upon Berkowitz's death."

Ultimately, the trial court found that the exercise of the power of appointment was proper, since the trust expressly provided the surviving spouse with the ability to do so and the appellate court agreed.   

Amending a Trust

Practically every revocable trust will contain an amendment or modification clause which details how the trust can be validly changed. For example, the settlor may want to modify the successor trustee or beneficiaries because of a change in circumstances. It is common to change a revocable trust at least once during the lifetime of the settlor(s).

A recent published appellate decision touched upon the issue of compliance with a trust amendment clause:

Pena v. Dey (2019) _______ CA4th _______

"In this case, we must determine whether James Robert Anderson, settlor and trustee of the James Robert Anderson Revocable Trust (the trust), validly amended the trust when he made handwritten interlineations to one of the operative trust documents, specifically the First Amendment to the trust (First Amendment), making Grey Dey a beneficiary. After making the interlineations, Anderson sent both the original trust instrument and the interlineated First Amendment to his attorney to have the new disposition of his trust estate formalized in a second amendment to the trust. Anderson died before the formal amendment was prepared for his signature."

"We conclude the interlineations did not validly amend the trust because the trust specifically requires amendments "be made by written instrument signed by the settlor and delivered to the trustee." (Italics added.) While the law considers the interlineations a separate written instrument, and while there can be no doubt Anderson delivered them to himself as trustee, he did not sign them. Instead, he sent them to his attorney to have them formalized into a second amendment to the trust and prepared for his signature, evidencing his intent to sign the changes to his trust at a later date. We also reject Dey's argument that Anderson effectively signed the interlineations by attaching a Post-it® note to the documents he sent to his attorney, on which he stated: "Hi Scott, [¶] Here they are. First one is 2004. Second is 2008. Enjoy! Best, Rob." We cannot conclude these lines on the note were part of the written instrument comprised of the interlineations to the First Amendment to the trust such that the signature on the note effectively signed the interlineations. Instead, Anderson signed a separate note indicating what the enclosed documents were. While there is no dispute in this case that Anderson intended Dey to receive a portion of his trust estate, there is also no genuine dispute that Anderson intended to sign this and other changes to his trust when formalized by his attorney. Unfortunately, he died before that could be accomplished. We must therefore affirm the summary judgment entered in this case."

It is clear that Mr. Anderson intended to change his trust and made a substantial effort to do so. Unfortunately he did not complete the process, i.e. signing the amendment, and that was the crux of Mr. Dey's argument. 

Objecting to a Trustee's Accounting

“Don’t throw good money after bad.” 

This idiom can commonly be used in the litigation context. It basically means that a reasonable person would not invest their time, energy and money on an endeavor in which the potential output is outstripped by the input. For example, it would be illogical to invest a substantial sum of money in trying to fix a very old car.   

The following excerpt is from a recently decided unpublished appellate opinion: 

"In 2010, Dorothy resigned as trustee of the Survivor's trust and appointed her accountant, Terry Hinricher, as successor trustee. The trust provides that upon Dorothy's death, its assets shall be equally divided among her children, Jack Goulden, Laurie Goulden, and Elliot Goulden. Dorothy died in 2014.

In 2012, Jack petitioned to compel Hinricher to prepare an accounting of the trust. (Prob. Code, § 17200, subds. (a), (b)(6) & (7)(C).) Hinricher filed the first account, to which Jack objected. The probate court referred the matter to mediation. In 2014, the parties settled the first account, and the court approved the settlement. The same year, the probate court approved the second account. In 2015, Jack signed a written approval of the third through fifth accounts, and those approvals were filed with the court.

In 2016, Hinricher petitioned for approval of the sixth account, which included trustee fees of $78,398.57 and attorney fees and costs of $9,969.23. Jack objected to the sixth account on the grounds that (1) the trustee fees were excessive, and (2) checks from the trust account were missing or out of sequence. Hinricher filed a supplement to the sixth account, which explained that the missing checks were voided.

In 2017, Hinricher petitioned for approval of the seventh account. The account showed that the entire trust estate had been distributed to the beneficiaries. Hinricher requested an order approving trustee fees of $45,065.70 for the seventh account period. He also requested an order approving attorney fees and costs of $21,916.31 incurred as a result of the ongoing litigation with Jack and Laurie. Hinricher had set aside reserve funds for final expenses, but they only covered a portion of the fees and costs. Hinricher requested that the beneficiaries be "personally charged" with the outstanding balance of the fees and costs. Elliot objected on the grounds that only Jack and Laurie should be personally charged for fees and costs because only they were involved in the litigation. No other objections were filed.

After an evidentiary hearing, the probate court approved the sixth and seventh accounts and the trustee and attorney fees. The court sustained Elliot's objection, and it ordered that the trustee fees incurred from defending the first through fifth account be charged only to Jack and Laurie. The court ordered the remaining balance of fees and costs be "charged" equally among all beneficiaries."

Here the beneficiary challenged the trustee's accounting numerous times. Each time the trustee's accounting was approved by the court. One wonders why the beneficiary consistently challenged the trustee's accounting when no wrongdoing was exposed. It is understandable if the trustee botched a prior accounting which engendered mistrust between the trustee and beneficiary. However, that was not the case here. The trustee complied with their fiduciary duties by submitting an appropriate accounting every time. Hence, one wonders why the beneficiary challenged the latest accounting when the trustee had no track record of mismanaging trust assets. In other words, it appears the beneficiary was throwing good money after bad. 

Goulden v. Hinricher, Ventura County Superior Court, Case # 56-2012-00425329-PR-TR-OXN.

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))."

Breach of Fiduciary Duty

A typical arrangement involving a marital trust is for a child to serve as the successor trustee and be a beneficiary. That is, once both parents have passed away, the child steps into the role of trustee and their beneficial interest vests. I'd say the vast majority of marital trusts I've written follow this pattern.

The child, as the successor trustee, is obligated to properly discharge their fiduciary duties or else they can incur liability.

For example, assume the parents selected just Son as the successor trustee, but named Son and Daughter as co-equal beneficiaries. Hence Son would receive 50% and Daughter would receive 50% of the trust estate.

The trust instructs the trustee to sell the marital home within 1 year of the parents passing and to make the property productive prior to the sale. The parents both pass away in a tragic hot air balloon accident on New Year's Eve. Thereafter Son becomes the acting trustee of the trust.

The marital home on January 1 was in a habitable condition and thus could be rented immediately. Son however was addicted to social media, hacky sack and recreational marijuana use so he was unable to rent the property over the next year. The property could have rented for $5,000 a month but Son's misconduct caused any rental income to go up in smoke. 

Additionally, Son did nothing to prepare to sell the house. Although he did plant many cannabis plants on the property. Son also used trust funds to pay for personal expenses such as jazzercise classes, hair gel for his mullet and sleeveless undershirts.

Come December of that year, Daughter had become exasperated that Son had done nothing to make the house productive, wasted trust funds on personal expenses and not prepared the house for sale. 

Daughter filed a petition in probate court to surcharge Son for his breach of fiduciary duty and requested that the surcharge be satisfied from Son's beneficial interest in the trust, i.e. his 50%. Thus, if granted, Son's interest in the trust would be reduced by the amount of damages he had caused the trust. For instance, if Son caused the $200,000 in damages, his interest in the trust would be reduced $200,000 and awarded to Daughter, the aggrieved beneficiary. Such a remedy is available for breach of fiduciary duty where the trustee is also a beneficiary. See Chatard v Oveross (2009) 179 CA4th 1098.

Trust Administration - Principal Place of Administration

Santa Clara County Superior Court

When a trustee provides notice of a trust's existence to the beneficiaries, it must include where "the address of the physical location where the principal place of administration of the trust is located, pursuant to Section 17002." Prob C § 16061.7(g)(3). "The principal place of administration of the trust is the usual place where the day-to-day activity of the trust is carried on by the trustee or its representative who is primarily responsible for the administration of the trust." Prob C § 17002(a). While seemingly an irrelevant clause, the place of administration can be salient. Although, it should be mentioned why an address in California is even needed to be included in the first place. 

When a trustee designates a principal place of administration, this provides jurisdiction to the applicable county superior court in case judicial relief is needed. For example, if a trustee designates an address in Campbell, CA as the principal place of administration, then Santa Clara County Superior Court would be the appropriate venue for judicial relief. Each California county (there are 58 of them) has a county superior court located in it. Thus any address in CA will have a local county superior court. Just trust me on this.

From a legal perspective, county superior courts are not all the same. One county superior court may view probate matters differently than other county superior courts. For instance, Santa Clara County Superior Court is very receptive to Prob C § 850(a)(3)(B) petitions (commonly known as Heggstad petitions). In particular, Santa Clara County Superior Court allows for these petitions to be heard ex parte (which essentially means there is a minimal waiting period for the case to be heard by the judge) and does not hyper-scrutinize the evidence needed to have the petition be granted. The difference between having a Heggstad petition be granted or not is often enormously consequential. If granted, it typically avoids the necessity of probate for the petitioner. 

Conversely, other counties take a much more stringent approach in hearing Heggstad petitions, e.g. they require a noticed hearing (which means the case will be heard in 30-60 days) and certain evidence is needed to have the petition be granted.

In light of the foregoing, I designate my office as the principal place of administration for the client to ensure that they have access to Santa Clara County Superior Court, even if the client lives outside Santa Clara County (which has happened a few times).

Transferring Trust Property

One of the primary rules when administering a trust is for the trustee to follow its terms. Probate Code §16000, Penny v Wilson (2004) 123 CA4th 596. For example, if the trust provides for an equal distribution of trust assets to 4 beneficiaries, then logically each beneficiary would receive a 25% interest. A trustee cannot simply deviate from the terms of the trust arbitrarily.

A recent unpublished appellate opinion detailed the interesting story of one trustee. 

Kiwata v. Kiwata, San Francisco County Superior Court, Case # CGC14542957   

"Years ago, Richard and Howard's parents, the Kiwatas, and their aunt and uncle, the Hironakas, acquired property in San Francisco on Collins Street. Each couple initially had a one-half interest in the property.

The Kiwatas transferred their interest into the Kiwata Family Trust, of which Richard became the trustee.

The Hironakas first transferred their interest into the Hironaka Revocable Trust and then, in late 2008 after the death of one of the Hironakas, partly into the Hironaka Family Trust (65.41 percent of the one-half interest) and partly into the Yoshiko Hironaka Surviving Spouse's Trust (34.59 percent of the one-half interest). Over several years, ending in May 2013, a series of deeds resulted in absorption of the survivor trust's interest into the family trust, such that the Hironaka Family Trust eventually owned all of the one-half interest. Upon the death of both Hironakas, Howard became the trustee of the Hironaka Family Trust, with Richard as successor trustee if Howard can no longer perform trustee duties.

In the meantime, earlier in 2013, Richard recorded two deeds. The first, recorded in February and executed by Richard as trustee, purported to transfer the Kiwata Family Trust's interest in the Collins Street property to the Richard Kiwata Family Trust. However, at his deposition, Richard conceded he never actually created the Richard Kiwata Family Trust. The second deed, recorded in March and executed by Richard as supposed cotrustee, purported to transfer 37.5 percent of the Collins Street property from the Hironaka Revocable Trust to Richard, individually. However, as just described, the Hironaka Revocable Trust by then had no interest in the property (the interest having been transferred in 2008 to the Hironaka Family Trust and Yoshiko Hironaka Surviving Spouse's Trust). Further, according to Howard's trial testimony and the trust documents, Richard was never a trustee of any Hironaka trust."

In short, for the February 2013 deed, Richard transferred a property interest to a trust that never existed. For the March 2013 deed, Richard transferred a property interest from a trust that no longer existed and was never a trustee of said trust. Naturally both deeds were declared void by the trial court for the aforementioned reasons. This decision was upheld on appeal.

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................

Trustee Removal

When a beneficiary files a petition it concludes with requests for various forms of relief, e.g. compelling the trustee to submit an accounting, instructing the trustee, determining the validity of a trust provision, determining questions of construction of a trust instrument, approving the modification or termination of the trust, authorizing or directing transfer of a trust or trust property to or from another jurisdiction, etc. Prob C § 17200.

Generally speaking, a court can only grant what the moving party has requested in the petition. For instance, if the petition asks to instruct the trustee to rent a commercial property that has been kept intentionally vacant for years, the order would presumably relate to that subject matter as opposed to something else. In simplistic terminology, "you get what you asked for." 

Still, a probate court is one of general equity. Getty v. Getty (1988) 205 Cal.App.3d 134, 141-142. Thus it can fashion remedies that it sees fit in certain situations, i.e. order something in the interests of "fairness." One example where the probate court can acts on its own motion (known as sua sponte) is removal of the trustee. Prob C § 15642(a). Although  invariably the trustee's conduct will be the primary instigator of this. Hence, it is not as if the probate court would issue orders capriciously.

For example, assume a disgruntled beneficiary petitions for an accounting by the trustee, but not for the removal of the trustee. The trustee has never provided an accounting to the beneficiary and the settlor passed away years ago. The clear language of the trust directs the trustee to provide an annual accounting to the trustee. Furthermore, the beneficiary made repeated attempts to contact the trustee prior to filing the petition but to no avail. Thus, the beneficiary has a credible argument as to why an accounting should be provided.

First, the trustee asks for, and receives, numerous continuances to file the accounting. Second, the accounting the trustee ultimately files is replete with inaccuracies and misleading statements. Third, the accounting also fails to conform to court standards. Prob C § § 1060 - 1064. Cumulatively, the trustee has failed to fulfill their fiduciary duties.

At that point, a trial court is perfectly able to remove a trustee on its own motion. However, in practice, a trustee is typically suspended and then later permanently removed.