Probate Code section 859, our subject in a recent post, packs a punch in California trust litigation. It awards double damages against someone who in bad faith wrongfully takes property from an elder, in bad faith takes property through undue influence, or who takes property through the commission of financial elder abuse.
While the
While institutional trustees may have once slept soundly considering themselves immune from class action lawsuits relating to the purchase or sale of securities on behalf of a trust, the Ninth Circuit’s recent ruling in Banks v. Northern Trust Corp. (9th Cir. 2019) 929 F.3d 1046, sounds a rousing wake up call for every trustee who professionally manages multiple trusts.
Federal law generally prohibits class actions relating to (1) misrepresentations of material fact in connection with the purchase or sale of a security, and (2) the alleged use of any manipulative device in connection with the purchase or sale of a security. Thus, for the most part, cases involving these types of allegations can only be brought individually. While institutional trustees have always had to be careful in what representations they make in the purchase or sale of securities, the potential for massive liability from class action litigation has largely been a non-issue.
However, the court in Banks v. Northern Trust Corp. clarified that this general rule does not apply to claims brought against a trustee by beneficiaries of an irrevocable trust. Therefore, institutional trustees with a large volume of trust administration files, and especially those associated with an institution that provides investment products, should now be on high alert for the potential for class action claims to be brought against them.
No contest clauses are an ever-evolving area of the probate law in California. The Court of Appeal further refined the rules governing no contest clauses in a decision issued last week, Aviles v. Swearingen (2017) 16 Cal.App.5th 485. In brief, in order for a no contest clause to apply to a trust amendment, the no contest clause must be stated in the amendment or the amendment must expressly reference the no contest clause set forth in a prior document.
The takeaway from the case for estate planners is that if your client wants a no contest clause, then you must mention the no contest clause in every trust amendment that you draft for the client. It is not good enough to simply include a no contest clause in the client’s trust and then refer back to that trust, generally, in later amendments. Each subsequent amendment must either contain its own no contest clause or must expressly reference the no contest clause of the original trust instrument.
While financial elder abuse is a serious problem in California, not just anyone can sue to protect an abused elder. This is especially true if the elder does not want to bring suit in the first place. On April 19, 2017, the California Court of Appeal reinforced an important issue related to standing to bring financial elder abuse claims in the case of Tepper v. Wilkins (2017) __ Cal.App.5th __. While an elder is still alive, only the elder or a qualified “personal representative” has standing to file suit for financial elder abuse.
Beneficiaries beware: don’t dive in to trust litigation too quickly. That lesson was learned the hard way, ironically, by a diving heiress in Williamson v. Brooks (2017) 7 Cal.App.5th 1294. The California Court of Appeal decision, which related to a trust created by the founder of Kirby Morgan Dive Systems, Inc., addresses the question of how much information a trustee must give to a beneficiary, and what consequences may (or may not) befall a noncompliant trustee.
Since California trustees generally can use trust funds to pay lawyers to handle disputes, litigation can drain away the funds available for distribution to beneficiaries. Hence, an overaggressive beneficiary can pursue litigation that penalizes all beneficiaries, even those who have no responsibility for the fight.
Last week the California Third District Court of Appeal, based in Sacramento, clarified the scope of liability for litigants who act in bad faith in trust disputes. In Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, the Court of Appeal ruled that a probate court’s equitable authority to charge the trustee’s legal expenses against a party who has litigated in bad faith is limited to the party’s share of the trust estate and does not extend to the party’s personal assets.
As a trust litigation attorney in Sacramento, I seldom see overlap between bare knuckle political campaigns and family inheritance disputes. So, on the eve of a big election, it seems fitting to report on a new case that bridges political and family conflicts.
Sometimes stepmothers are just misunderstood.
Babbitt v. Superior Court (2016) 246 Cal.App.4th 1135, recently decided by the California Court of Appeal, involves one of the fact patterns that we often see in California trust litigation: children from a decedent’s prior marriage have conflict with their biological parent’s surviving spouse. In other words, after dad passes away, stepmom and the kids do not play nicely.
In addition to bark, the Probate Code can have bite too. Some Probate Code sections have provisions that are punitive in nature and are designed to keep fiduciaries and others dealing with trust property in line. These statutes have sharp teeth.
Take, for example, California Probate Code section 859, which concerns property taken from a trust, an estate, a minor, an elder, or other vulnerable persons through the use of undue influence, in bad faith, or through the commission of financial elder abuse. This statute might be triggered if Junior tricked Mom into leaving him the $1.2 million family home in Granite Bay to the exclusion of Sister. In such an instance, section 859 permits the assessment of damages against the offending person in an amount double the value of the property that was taken, and allows for the court’s discretionary award of attorneys’ fees. This means that Sister might be able to recover $2.4 million against Junior along with the attorneys’ fees she spends pursuing him.
The California Court of Appeal blocked Donald Sterling’s last second shot at undoing the sale of the Los Angeles Clippers. Donald sought to overturn the results of an eight day trial that occurred in July 2014. The opinion, issued on November 16, 2015, should be of interest to settlors, trustees, and beneficiaries of “ordinary” trusts in California that do not hold a $2 billion NBA franchise.
The Court of Appeal hammered Donald for procedural deficiencies with his appellate briefs before ruling against Donald on all three issues on appeal. The court held that: (1) Donald was properly removed as trustee on the basis of his incapacity; (2) the trial court appropriately allowed the sale of the Clippers despite the pending appeal; and (3) Donald’s effort to revoke his trust was ineffective to stop the sale of the Clippers.