FX: 949.553.2477Trust Litigation in California: Problems and Solutions from a Complex Trial
At a Glance
- Trust LItigation in California: Problems and Solutions
- Trustee Reimbursement and Fee Standards
- Trust Contests and Trustee Liability
Introduction to the Case
Three beneficiaries of a trust, Nancy, John, and Thomas became engaged in litigations relating to a petition relating to undue influence, lack of capacity, and fraudulent misrepresentation of the trust by Thomas, the trustee. There were three teams involved in this dispute:
- Team Nancy (compromising of Nancy, her two children, and John);
- Team Hitchman (the professional fiduciary interim co-trustees appointed in replacement of Thomas);
- Team Thomas (the major beneficiary of the Trust, and the Trustee at the time of the settlor’s death)
Team Nancy filed a petition, alleging undue influence, lack of capacity, and fraudulent misrepresentation.
Team Nancy filed for Thomas's removal as trustee, citing undue influence, elder abuse, and fraud.
Thomas was suspended as trustee, due to an inadequate accounting, and the Hitchmans were appointed interim co-trustees.
Throughout the course of the litigation of the trust, it became apparent that Team Nancy and Team Hitchman were one of the same in their pursuit against the main and major beneficiary, Thomas.
Are Trustees Required to be Impartial to All Beneficiaries of a Trust?
Yes, unless a trust instrument provides otherwise, trustees owe a duty to all trust beneficiaries and must treat all equally while doing their best for the entire trust as a whole, and if they fail to do so then they risk exposure to liability for breach of trust. A breach of a trustee’s duty to be impartial may look like the trustee doing the following:
- not providing for a genuine opportunity for a beneficiary to counter preconceived negative views or to hear their side of a conflict;
- performing their duties consistent with the expressed desires of a single beneficiary rather than all beneficiaries;
- reviewing draft litigation materials provided by one beneficiary against the other; and
- not conducting a cost-benefit analysis for all beneficiaries before pursuing litigation.
IN THE CASE:
The Court ruled that Team Hitchman breached their fiduciary duties owed to the Trust and all of its beneficiaries, mainly Team Thomas because:
- Team Hitchman never extended a genuine unconditional invitation to meet with Thomas, in his capacity as a beneficiary, to hear his side, as Team Hitchman repeatedly extended to, and repeatedly participated with, Team Nancy;
- Team Hitchman performed their duties as interim co-trustees lock, stock, and barrel consistent with the expressed desires of Team Nancy;
- An attorney for Team Hitchman was given the opportunity and took the time to review draft pleadings by Team Nancy; and
- Team Hitchman did not conduct a cost-benefit analysis before pursuing the litigation because pursuing such litigation benefited Team Nancy.
76 Am.Jur.2d (2005) Trusts, § 359; Hearst v. Ganzi (2006) 145 Cal. App. 4th 1195, 1208; Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 16 Lines 10–17, Pg. 98 Lines 9–17, Pg. 66 Lines 23–27, Pg. 99–100 Lines 23–2, Pg. 65 Lines 21–4.
What are Trust Contests?
Actions that challenge the validity of a trust are actions that “contest the trust,” or trust contests. Just like form should not be ranked over substance, so should labels not be given more weight than content. In determining whether an action is contesting the trust, a court will look to the substance of that action and its “practical effect.”
IN THE CASE:
Team Hitchman alleged in their petition that the Trust they were appointed to administer was the result of the fraud committed by Team Thomas, and that but for this fraud committed by Team Thomas, the Trust would not have been executed. This means that the substance and practical effect of the petition, especially the fraud cause of action, makes it clearly and undeniably a cause of action that challenged the validity of the Trust, otherwise known as a trust contest.
Estate of Stoker (2011) 193 Cal. App. 4th 236, 241, as modified on denial of reh'g (Apr. 4, 2011); Silberman v. Swoap (1975) 50 Cal.App.3d 568, 571 [123 Cal. Rptr. 456]; Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 22 Lines 23–27, Pg. 74 Lines 9–14.
Are Trustees Able to Participate in a Trust Contest? How About Disputes Between Beneficiaries?
No, trustees may not participate in a beneficiary’s trust contest as trustees “cannot be heard to deny the validity of the trust under which he has admittedly acted and the benefits of which he has received and holds.” Thus, trustees may only defend against trust contests or participate in the dispute between two beneficiaries if the trustee conducted a reasonable and legitimate good faith investigation before taking a position.
IN THE CASE:
The Court ruled against Team Hitchman in that it would not have been appropriate for them to file or join in a contest of the very same instrument they were appointed by the court to administer. The Court further stated that Team Hitchman should not have joined in the dispute between Team Nancy and Team Thomas since Team Hitchman conducted no such reasonable and legitimate good faith investigation of the facts. This was shown by Team Hitchman’s very little amount of time spent reviewing records and documents before the decision to file a petition against Team Thomas was made.
England v. Winslow (1925) 196 Cal. 260, 267; emphasis added; In re Hite's Estate (1909) 155 Cal. 448, 456; Jolly v. Eli Lilly & Co. (1988) 44 Cal. 3d 1103, 1104–1109; Jolly v. Eli Lilly & Co. (1988) 44 Cal. 3d 1103, 1104–1109; Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 22 Lines 13–22, Pg. 23 Lines 7–10, Pg. 19 Lines 2–4, Pg. 164 Lines 9–16, Pg. 198 Lines 21–27.
How Judges Evaluate Witnesses in Trust Litigation?
The Court process is stressful and intimidating for witnesses, and many come with their own biases. In the Decision regarding the case at hand, at least one witness was better received by the Judge due to the witness’s demeanor, tone, body language, and overall presentation of the totality of the evidence.
Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 152 Lines 6–12.
Conclusion
This case underscores the need for trustees to act impartially, avoid aligning with specific beneficiaries, and understand the consequences of participating in trust contests. It also reminds parties that courtroom presentation can matter as much as legal arguments.
C. Tucker Cheadle Law specializes in Trust and Estate Planning and works with clients throughout California, specifically in San Diego County, Santa Clara County, Santa Maria County, Orange County, Los Angeles County, Santa Barbara County, San Bernardino County, Redding County, Yolo County, San Jose County, San Luis Obispo County, and Napa County.
Contact us today at 949.553.1066 to discuss Trust Litigation and how the expertise of C. Tucker Cheadle could be the perfect solution for your situation.
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