A California trustee can be excused from liability for breaches of trust if a judge determines that it would be equitable to do so.

We see many situations where a family member trustee strays from the requirements of the trust instrument. Still, if the trustee does not favor himself or herself, and the beneficiary is not appreciably harmed, then the trustee may get a pass from the court under California Probate Code section 16440.  That’s the lesson of Orange Catholic Foundation v. Arvizu (2018) 28 Cal.App.5th 283, published last month by the California Court of Appeal.

When attorneys advise errant trustees, how vulnerable are they to breach of trust claims by injured beneficiaries?  A case published last week by the California Court of Appeal provides a defensive roadmap to attorneys who are sued for such claims, along with an occasion for golf metaphors.

In Cortese v. Sherwood (2018) 26 Cal.App.5th 445, the appellate court ruled that attorney John Sherwood was protected by California Civil Code section 1714.10, which was enacted in 1988 to combat the use of frivolous conspiracy claims brought as a tactical ploy against attorneys and their clients.  Since the plaintiff failed to obtain the court’s approval before suing the attorney, as the statute required, she could not bring her claim against him.  She could not get off the first tee.

Hands TiedCalifornia trust litigation often stems from disagreements and hostility among family member co-trustees.  Rather than picking one of their kids to serve as sole successor trustee when they die or become incapacitated, Mom and Dad often appoint two or more of their children to act together as successor co-trustees.

Having more than one child serve as co-trustee can work out well or turn into a nightmare.  In this post we’ll discuss the challenges associated with sibling co-trustees and how controversy might be avoided.

Magnifying GlassOne challenge that California trustees face is the prospect that confidential attorney-client communications will pass to successor trustees if they resign or are removed from office.  The attorney-client privilege belongs to the client, but the client is the office of the trustee, not the incumbent who holds that office.  Hence, the successor trustee generally gets to see the privileged communications of the predecessor, as the California Supreme Court explained in Moeller v. Superior Court (1997) 16 Cal.4th 1124.

A new opinion from the Court of Appeal, Fiduciary Trust International of California v. Klein (2017) 9 Cal.App.5th 1184, further shows the insecure nature of the attorney-client privilege in the context of California trust administration and may lead successor trustees to be more aggressive in seeking privileged communications of former trustees.

FAQsIn our Sacramento trust and estate litigation practice there are several questions that come up over and over again.  In many instances, these questions are the building blocks of our practice that lead to more complicated questions that sometimes require the filing of a lawsuit to answer.  As a starting place, below are some of the more common questions we receive from trustees and from beneficiaries.

Diver Down FlagBeneficiaries 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.

Woman in backseatActing as a trustee can be a thankless and time consuming job, especially when the reward at the end is nothing more than second-guessing from trust beneficiaries.  In our Sacramento-based trust and estate practice, we represent trustees who have strained relationships with beneficiaries, whether their siblings, step-relatives, or otherwise.  One useful tool to help trustees manage those relationships is the Notice of Proposed Action.

The notice procedure allows a trustee to obtain immunity from breach of trust claims without (1) obtaining an order from a California probate court, or (2) waiting three years for the statute of limitations on breach of trust claims to run.

Double Damages_2xIn 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.

Referree holding red cardIn California trust administrations, the trustee is in the driver’s seat. The trustee marshals the assets, deals with creditors, and (except in the case of ongoing trusts) gets them distributed out to the beneficiaries in fractional shares per the terms of the trust. But what happens when the trustee favors himself as a beneficiary, disfavors a family member he/she dislikes, or simply falls asleep at the wheel?

As illustrated by the Donald Sterling case recently discussed here, petitions to remove trustees are common in California trust litigation. Courts will suspend or remove trustees if the petitioner provides sufficient evidence that removal is necessary to protect the beneficiaries. This post will discuss trustee removal under California law from the beneficiary’s perspective. With apologies to The Sound of Music, “how do you solve a problem like trustee-a?”

Trustee fees are common flash points in the administration of family trusts. Trustees may put in hundreds of hours cleaning out and selling the family home, dealing with accountants, lawyers, and realtors, and otherwise working to distribute assets out to the beneficiaries. A diligent trustee provides a valuable service and should be compensated for his or her time.

From the beneficiary’s perspective, however, it may come as a surprise that Junior has obtained a handsome trustee fee by writing a check to himself. The beneficiary may feel that Junior should act as a volunteer and/or may believe that Junior has acted improperly in trust administration such that he deserves no fee.