FX: 949.553.2477When Trustees Get Paid: Legal Standards for Trust Fees and Reimbursement
At a Glance
When can trustees be reimbursed for litigation costs?
- 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 Hitchman’s 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.
When Are Trustees Entitled to Reimbursement?
A trustee may be reimbursed for litigation-related costs only if the litigation:
- Was necessary for the preservation of the trust
- Benefited the trust as a whole
- Was not pursued for the benefit of one beneficiary over others
- Was supported by a good faith investigation
- Included clearly documented, itemized costs
In the Morgan Trust case, Team Hitchman failed these requirements. The Court found they could not justify their legal fees, having insufficient records and evidence distinguishing administrative vs. litigation costs.
Sources: Dingwell v. Seymour (1928) 91 Cal. App. 483, 513.; Doolittle v. Exchange Bank (2015) 241 Cal. App. 4th 529; Terry v. Conlan (2005) 131 Cal. App. 4th 1445; Zahnleuter v. Mueller (2023) 88 Cal. App. 5th 1294, 1305; Whittlesey v. Aiello (2002) 104 Cal. App. 4th 1221, 1231; Jolly v. Eli Lilly & Co. (1988) 44 Cal. 3rd 1103, 1104-1109; In re McCabe's Estate (1950) 98 Cal. App. 2nd 503, 505; Estate of Moore (2015) 240 Cal. App. 4th 1101, 1110; Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 24 Lines 18–24, Pg. 24 Lines 6–11, Pg. 25 Lines 12–17, Pg. 19 Lines 2–4.
Who Has the Burden of Proof?
Trustees must prove the necessity and reasonableness of every reimbursable cost. Beneficiaries, in turn, bear the burden of proving that a trustee breached fiduciary duties to block reimbursement entirely.
In this case, the court emphasized that Team Hitchman failed to meet its burden in most instances, especially where records lacked specificity or separation of administrative versus adversarial expenses.
Sources: Whittlesey v. Aiello (2002) 104 Cal. App. 4th 1221; In re McCabe's Estate (1950) 98 Cal. App. 2nd 503. Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 23 Lines 22–26, Pg. 24 Lines 6–24, Pg. 204 Lines 1–5, Pg. 211–212 Lines 23–2.
Are Professional Trustees Held to Higher Standards?
Yes. Professional fiduciaries are expected to discharge their duties with greater care and legal knowledge than lay trustees. In this case, Team Hitchman’s status as professional co-trustees increased their liability due to failure to meet these standards.
Source: Moeller v. Superior Court (1997) 16 Cal. 4th 1124. Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 15 Lines 6–12.
How Are Compensable Damages Determined?
When a trustee breaches fiduciary duty, compensable damages include:
- Attorney’s fees paid unnecessarily by a beneficiary
- Any detriment proximately caused by the trustee’s misconduct
In this case, Team Thomas’s legal costs defending against Team Hitchman were deemed recoverable as compensable damages.
Source: Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 204–205 Lines 16–2.
What About Exemplary Damages?
Exemplary (punitive) damages require proof of oppression, fraud, or malice by clear and convincing evidence. The court found this standard potentially met due to Team Hitchman’s actions, though specific findings would depend on further proceedings.
Sources: Civil Code section 3294(a). Proposed Statement Of Decision / Morgan Trust 2014–00726771, Pg. 10 Lines 8–14, Pg. 201 Lines 6–13.
C. Tucker Cheadle Law is a Trust and Estate Planning firm and works with clients throughout California, specifically in Orange County, Los Angeles County, San Bernardino County, San Diego County, Yolo County, San Jose County, Santa Barbara County, Tucker County, San Luis Obispo County, Amador County, and Napa County. Contact us today at 949.553.1066 to discuss the legal parameters around when a trustee gets paid and if you feel something isn’t right with your unique situation.
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