Probate: Trust Beneficiary Obtaining Concrete Substantial Benefits On Behalf Of The Trust Was Entitled To Have $721,258.28 In Attorney’s Fees, Expert Fees, And Costs Paid From The Trust

2/6 DCA Has Nice Discussion Of Similarities And Differences Between The Substantial Benefit Versus Common Fund Theories Of Fee Recovery.

          Generally, trust beneficiaries must pay their own attorney’s fees incurred in challenging a trustee’s conduct, even if they ultimately succeed. (Leader v. Cords, 182 Cal.App.4^th 1588, 1595 (2010).) However, a court in its equitable discretion can order a trust to pay for the fees incurred by a trustee beneficiary providing a substantial benefit to the trust or the trust beneficiaries. (Serrano v. Priest, 20 Cal.3d 25, 38 (1977) [our Leading Case No. 3].) These principles were applied by the 2/6 DCA to affirm a substantial attorney’s fee, expert fees, and costs award in favor of a trust beneficiary who provided concrete pecuniary and nonpecuniary benefits to the trust.

            In Smith, Jr. v. Szeyller, Case No. B281758 (2d Dist., Div. 6 Jan. 16, 2019) (published), one trust beneficiary expended hefty sums to challenge the conduct of some trustees to a $14 million trust estate, given that they had apparently spent over $2 million on expenditures, gambling, and gifts from a survivor’s trust accounts during the last year of the wife (who was a co-trustee along with one of the trustees accused of making extravagant expenditures). The litigating trust beneficiary (Don) eventually obtained a settlement by which the trustees froze accounts, had a referee appointed to do accountings, and had the challenged trustees pay some past due tax penalties/interest on behalf of the trust. The lower court also ordered that the trust, in proportion to beneficiaries’ interests, pay Don’s $721,258.28 in attorney’s fees, expert fees, and costs based on the “substantial benefit” doctrine. A nonparticipating beneficiary along the way (Donna) challenged this award, although she failed to contest or object to the fees even through being provided notice of same.

            The 2/6 DCA affirmed. It found that Donna’s failure to object largely gutted her challenges to what Don had accomplished for the trust. With respect to fees, her failure to object had large impacts. The appellate court did believe that Don produced concrete benefits for the trust, and it noted that Donna only had to pay a small amount of the fees given her more limited beneficiary interests in the operative trust, sub-trusts, and related accounts. In doing so, the reviewing court reminded us that, although the substantial benefit doctrine is an outgrowth of the common fund doctrine, the substantial benefit doctrine applies to both pecuniary and nonpecuniary benefits while the common fund doctrine applies only to pecuniary benefits.