Second District, Division 6’s Holding Designed to Promote Trust Administration by Trustees.
Probate practitioners, pay attention—we have a recent unpublished case that should be of interest in your area of expertise.
In Kasperbauer v. Fairfield, Case No. B200076 (2d Dist., Div. 6 Jan. 26, 2009) (unpublished), trust beneficiaries obtained orders substituting a successor trustee for Mr. Fairfield, prior trustee for over 24 years, and for an accounting. The trial court ordered the withholding of $75,000 from the trust to cover Fairfield’s anticipated fees and costs associated with preparation of the accounting. The trust corpus was ordered distributed even though the accounting was not complete. Following distribution, Fairfield sought additional funds, with the trial court adopting a referee recommendation that beneficiaries return $250,000 of the trust distribution to provide a fund from which to pay Fairfield’s fees and costs in completing and defending the accounting. Beneficiaries appealed, arguing that the interim award of fees/costs was unauthorized and premature.
Justice Perren, writing on behalf of a 3-0 panel of the Second District, Division 6, rebuffed beneficiaries’ challenges on appeal and affirmed the lower court’s probate rulings.
Beneficiaries could not surmount the abuse of discretion deferential standard of review. (Terry v. Conlan, 131 Cal.App.4th 1445, 1461 (2005).)
Although beneficiaries argued that there was no authority for the interim award of attorney’s fees to Fairfield, the appellate panel found that the Probate Code was studded with provisions allowing the trustee to hire, pay, and seek reimbursement for attorneys to assist trust administration—sections 16247, 16243, and 15684. (Hollaway v. Edwards, 68 Cal.App.4th 94, 97 (1998).) Beneficiary countered that trust assets could not be used to compensate attorneys after the trustee is discharged. Not so, said the Court of Appeal. Fairfield had a fiduciary duty to complete/defend his accounting such that section 16247 permits such compensation. “Nothing in the Probate Code or case law requires that attorneys who aid a trustee in trust administration must await a final adjudication of the beneficiaries’ claims against the trustee to receive compensation.” (Slip Opn., at p. 6.)
Justice Perren also dismissed the argument that the probate court does not have authority to order the beneficiaries to return a portion of trust distributions to compensate trustee’s attorneys in the ongoing dispute over the accounting. Beneficiaries argued that the unappealed prior order of distribution was res judicata and could not be collaterally attacked. Wrong—this principle is limited to heirs, legatees and devisees and does not impact the rights of adverse claimants such as trustees. (Slip Opn., at p. 7.) Although relying on In re Bissinger’s Estate, 60 Cal.2d 756, 762 (1964) for an opposite result, the 2/6 panel indicated that Bissinger actually “teaches that a probate court has the power to settle all disputes relating to the trust matters that come before it”—which cut against beneficiaries’ argument to the contrary. Beyond that, any adverse result would have been ameliorated by the doctrine of extrinsic fraud or mistake; after all, beneficiaries’ counsel did concede during oral argument a hearing that any liability for future fees did rest with the beneficiaries, with trustee having a right to rely on the representation in not opposing the distributions of trust assets (a representation that he did apparently rely upon).
Furthermore, the Probate Code also has another remedy available to trustees in Fairfield’s position: an equitable lien on trust property as against the beneficiaries. (Probate Code, sec. 15685; McLane v. Placerville & S.V.R. Co., 66 Cal. 606, 622-623 (1885).) “Fairfield’s right to indemnification for expenses reasonably incurred in defending the accounting is conferred by section 15685. To the extent he is entitled to indemnity, he has a lien upon the Trust property and the trial court was authorized to order [beneficiaries] to return Trust assets to pay such expenses.” (Slip Opn., at p. 10.)