Wills and Trusts

• Will and Trust Administration
  • Probate
  • Trust Administration
• Will and Trust Litigation
  • Will Contest
  • Trust Disputes
  • No-Contest Clause
  • Trustee Problems
  • Trustee as Fiduciary
  • Trustee Duties
  • Aiding and Abetting Breach of Trust
  • Prudent Investor Rule
  • Remedies of Breach of Trust
  • Removal of Trustee
  • Accounting and Surcharge Issues

Will and Trust Administration

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Probate

The administration of a decedent’s estate usually begins in one of three ways. If the decedent left a will, the will is offered for probate. If the decedent did not leave a will, then the his or her next of kin may file a petition with the court to be appointed as the administrator of the estate. If nobody acts on behalf of the decedent, the county public administrator’s office will petition the court for appointment as the personal representative the decedent’s estate. Once the decedent’s personal representative is appointed, the court’s clerk issues letters of administration. Those letters give the personal representative the power and authority to administer the estate.

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Trust Administration

The administration of a trust usually begins at the time the trust is created. The trust instrument usually names someone to serve as a trustee, or successor trustee, to administrate the trust according to its terms. The trustee's actions are governed by a statutory framework that sets forth his or her obligations in the form of duties, the standard of care necessary to measure compliance with those duties, and the powers that enable the trustee to carry out the duties and conduct the affairs of the trust. Under both California and common law, the trustee is under a duty to administer the trust strictly by its terms. Failure to do so may render acts of the trustee non-binding. In addition to following the trust’s terms, the trustee must be aware of his or her statutory duties.

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Will and Trust Litigation

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Will Contest

A will contest is an action to prevent the admission of a will for probate or to revoke a will that has been admitted to probate. People interested in contesting wills are usually the disappointed and distraught family members of the decedent. If you are considering a will contest it is important to immediately consult an attorney to evaluate the merits of your case.

Any “interested person” has the right to contest a will either before or after it is offered for probate. Probate Code §48(a) defines “interested persons” as an heir, devisee, child, spouse, creditor, beneficiary, anyone having a property right or claim against the estate that may be effected, anyone having priority for appointment as representative, or a fiduciary of the above.

The statutory grounds for contesting a will are (1) due execution, (2) lack of testamentary intent or capacity to make a will, (3) undue influence, fraud, duress, (4) mistake, and (5) revocation. There are also other grounds for contesting a will, such as, it contains improper bequests to a disqualified person, was improperly executed, or appears to have been signed by someone other than the decedent.

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Trust Disputes

Trust disputes or trust contests can be initiated in a variety of ways. An interest person may bring an action to determine the validity of a trust, to interpret trust provisions, to set aside conveyances to trusts, to impose constructive trusts on express trust assets, to include or exclude beneficiaries, and to remove trustees. Many of the same claims asserted in will contests can be made in trust contests, particularly lack of capacity, undue influence, duress, fraud, and mistake. Trusts that were improperly created, executed, or funded may also be set-aside.

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No-Contest Clause

Before contesting a will or trust, it is important to determine whether or not they contain a no-contest clause. If one exists, the consequence of going forward with a contest must be evaluated. Diligent attorneys will usually devise strategies to obtain similar results without triggering the no-contest clause and file a “safe harbor” petition asking to court to rule in advance on whether or not the proposed action would trigger the no-contest clause. For obvious reasons no-contest clauses have less effect on disinherited heirs.

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Trustee Problems

One of the fastest growing areas in probate litigation involves renegade trustees who ignore their duties. Trustees have a fiduciary relationship with the trust beneficiaries. As such, they owe the beneficiaries a number of duties.

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Trustee as Fiduciary

It has long been held by the courts, that a trustee is a fiduciary of the highest character whose duty demands uncompromising integrity. Here are a couple of other points various courts have said about this topic:

A trustee is bound to act in the highest good faith towards his beneficiaries and may not obtain any advantage by the slightest misrepresentation. “Concealment, threat, or adverse pressure of any kind is unlawful as long as the confidential relationship exists,” and any violation of these duties constitutes a fraud against the beneficiaries. See, Estate of Vokal (1953) 121 CA2nd 252.

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Trustee Duties

The extent of a trustee's duties and powers are determined by the trust instrument and applicable laws. Any deviation from trust terms or the law, absent an acceptable excuse, may constitute a breach of trust. Below are a list of the most common duties:

Duty of Loyalty
A trustee may not seek any advantage from a beneficiary. Nor may a trustee wield power for his or her own “aggrandizement, preference, or advantage” to the detriment of the beneficiaries. A breach of the duty of loyalty may be established by showing that the trustee placed his or her interest above those of the beneficiaries. Estate of Gump (1991) 1 CA4th 582. In Gump, the trustee threatened beneficiaries that the costs of audit would be charged solely to their income shares, in an attempt to pressure them into dropping objections to the trustee’s account. As a result, the reimbursement of the trustee’s litigation costs were denied even though the trustee had prevailed on most of the account issues.

Duty to Avoid Conflicts of Interest
A trustee has a basic fiduciary duty to avoid conflicts of interests. The basis underlying this duty reduces the likelihood that a trustee will actually breach the duty of loyalty by requiring them to avoid tempting situations. Conflicts may arise in situations where the trustee may profit from the use of trust assets. When a trustee obtains an advantage from a transaction between a trustee and a beneficiary, while in the process of administering the trust, the transaction is presumed to be a violation of the trustee’s fiduciary duty. The following are specific types of conflicts:

A. Self-Dealing
A trustee may not deal with himself or herself as an individual, even if the proposed transaction is fair and made in good faith. Trustees who temporarily diverted trust funds to themselves are guilty of self-dealing. Improper self-dealing is a breach of trust.

B. Conflicting Personal Interests
A trustee may be removed when there are irreconcilable conflicts between the trustee’s personal interest and those of the trust. A beneficiary, however, may serve as a trustee despite the inherit potential conflict of interest.

C. Conflicting Duties
In the cases where the trustee is also an officer or director of a company in which the trust has an ownership interest, the trustee might find himself or herself in a conflict with the fiduciary duties owed to the beneficiaries and shareholders.

Duty of Impartiality: The trustee has a duty to deal impartially with all beneficiaries of a trust and must act impartially in investing and managing trust property, while at the same time considering the differing interests of the beneficiaries. Blindly following the recommendation of the majority of beneficiaries, over objections of the minority, does not satisfy duty of impartiality. Impartially means that the trustee does not favor one beneficiary over the other.

Duty of Disclosure: The trustee has the duty to keep all of the trust beneficiaries reasonable informed of the trust and its administration. See, Probate Code §16060. The trustee is also under a common law duty to fully disclose all material facts. See, Van de Kamp v. Bank of America (1988) 204 CA3rd 819. Finally, the trustee must furnish to each beneficiary all material information necessary to protect the beneficiary’s interest in the trust.

Duty Not to Delegate: The trustee has the duty to render personal services and not to delegate to others acts that the trustee should be reasonably expected to perform. The trustee cannot transfer his or her authority to others nor delegate the entire act of administration to a co-trustee or another person. If a trustee gives up control of the trust to another, whether an advisor or co-trustee, the trustee becomes the responsible for any losses, irrespective of motive and whether the surrender of control actually caused the loss. This duty does not prevent the trustee from employing an agent when appropriate.

Duty to Keep Trust Assets Separate: The trustee must properly identify trust assets and keep those assets separate from his or her own. If a trustee ever combines trust assets with his or her personal assets, the trustee is in effect defeating the trust’s purpose.

Duty to Enforce or Defend Claims: The trustee has a general duty to take reasonable steps to enforce claims of the trust. The trustee does not have to enforce every claim. The standard is whether a prudent trustee would take steps to enforce a claim in such circumstances. The trustee must consider the costs of enforcing the claim, the chance of success, and the likelihood of collecting a judgment. The trustee also has the duty of taking reasonable steps to defend actions that may result in a loss to the trust.

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Aiding and Abetting Breach of Trust

A trust beneficiary may bring legal actions against third parties who, for their own financial gain, actively participated with the trustee in a breach of trust, whether by indicating, aiding, or abetting the breach, or by receiving trust property from the trustee in a knowing breach of trust.

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Prudent Investor Rule

Unless the settlor of a trust provides otherwise, the trustee has a duty to comply with the prudent investor rule. This rule has been codified as the Uniform Prudent Investor Act and is found in Probate Code §§16045 - 16054.

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Remedies of Breach of Trust

If a trustee commits, or threatens to commit, a breach of trust, a beneficiary or co-trustee may commence a proceeding to: (1) compel or enjoin the trustee from breaching the trust, (2) compel the trustee to compensate for the breach, (3) appoint a receiver or temporary trustee, (4) remove the trustee, (5) set aside acts of the trustee, (6) reduce or deny compensation of the trustee, (7) impose an equitable lien or a constructive trust on trust property, or (8) trace and recover wrongfully dispose of trust property.

When a trustee’s breach of duty causes loss, a beneficiary, successor trustee, or co-trustee may seek damages against the trustee to redress the loss. The object of the damages awards is two fold: (1) to compensate for losses sustained as a result of the breach, and (2) to induce trustees to comply with their obligations by making them disgorge any profit or by imposing a penalty. If a trustee is found to have committed a breach, he or she may be charged with any loss or depreciation in the value of the trust estate resulting from the loss, plus interest.

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Removal of Trustee

Trustees may voluntarily resign, they may be removed pursuant to terms of the trust, and they may be removed by court order.

Removal By Terms of Trust
According to Probate Code §15642, trustees may be removed in accordance with the terms of the trust. Some trust instruments contain terms giving one or more persons the power to remove a trustee. Some of those powers are limited to specific circumstances and others are more broad. The power is often linked to the power to appoint a successor trustee.

Removal By Court
The court may remove a trustee by its own motion or pursuant to a petition seeking removal filed by settlor, cotrustee or beneficiary.

Grounds for Removal
Pursuant to Probate Code §15642(b) a trustee may be removed for any good cause including, but not limited to, any of the following reasons:

A. Breach of trust;

B. Insolvency of the trustee or other unfitness to administer the trust;

C. Hostility among cotrustees that impairs administration;

D. The trustees failure to act or declining to act;

E. Excessive compensation;

F. The sole trustee is a disqualified person, See Probate Code §21350(a);

G. Other good cause.

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Accounting and Surcharge Issues

The scope of a trustee’s duties to account and report information is governed by Probate Code §§16060 - 16064, 15800, 15802 - 15805, and by the specific provisions of the trust instrument.

Scope of Duty
The trustees duties vary depending on whether the trust is a revocable trust, an irrevocable trust, or a testamentary trust. Finally, the duties can be made more stringent or relaxed by the terms of the trust instrument.

Account to Beneficiaries
When the trustee is required to account, but not required to submit the account for court approval, the content and presentation requirements of the account must comply with the format set out in Probate Code §16063. According to Probate Code §16063(a) the account must contain all of the following:

A. A statement of receipts and disbursement of principal and income;

B. A statement of assets and liabilities;

C. Information concerning the compensation of the trustee its agents;

D. The relationship of the agents to the trustee;

E. A statement that the recipient may petition for court review;

F. A statement that claims against the trustee for breach of trust may not be made after 3 years from receipt of a report or account disclosing facts giving rise to the claim.

Compelling an Account
Generally a beneficiary may request financial and other information concerning a trust from the trustee, with a few exceptions. The beneficiary has the right to file a petition to compel a trustee to report information and to account if: (A) The trustee failed to submit a requested report or account within 60 days after a written request; and (B) no report or account has been made within 6 months preceding the written request.

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