Probate: Trustee Defending Against Invalidity and Undue Influence Claims By A Beneficiary Was Not Entitled To Attorney’s Fees Reimbursement

Trustee Had To Stay Neutral, Not Taking the Position Of One Beneficiary Or The Other In Non-Neutral Fashion.

            In Zahnleuter v. Mueller, Case No. C093909 (3d Dist. Mar. 7, 2023 published, originally issued as an unpublished opinion on Feb. 9, 2023), a trustee sought reimbursement for attorney’s fees in defending the validity of a third amendment to a trust and undue influence claims by certain beneficiaries from the trust (trustee had to bear the entire $201,164.15 in fees, surcharged against his interest in trust assets).  The lower court denied the fees, deciding that the dispute relating to the third amendment was not allowed as reimbursable under the trust documents and was not allowable because trustee was taking a non-neutral position by representing one beneficiary’s position in relation to the third amendment over the position vis-à-vis other beneficiaries.

            The Third District affirmed.  The trustee’s fee expenditures did not benefit the trust, rather than the trustee as far as taking sides with a beneficiary as far as the third amendment was concerned.  In that regard, the trustee must look to the beneficiary whose interest the trustee is vetting to recover fees.  (Whittlesey v. Atello, 104 Cal.App.th 1221, 1227-1231 (2002); Terry v. Conlan. 131 Cal.App.4^th 1445, 1462-1464 (2005).)  The main controversy was not a challenge to the existence of the trust, but who would control and benefit from it.  Trustee was not being neutral in the dispute, bolstered by the fact the third amendment itself indicated that the trustee was not authorized to defend the third amendment at the expense of the trust estate.