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self-study / Will/Trusts

Top 5 trusts and estates cases of 2020

Ciarán O’Sullivan

Ciarán has litigated trusts and estates disputes in trial and appellate courts since 1998. He is a member of the executive committee of the California Lawyers Association's Trusts and Estates section.

2020 was a big year for published trusts and estates cases, including California Supreme Court decisions. The following article contains only this author's selection. A summary of every 2020 case issued in this practice area can be found on the California Lawyers Association's website, under the trusts and estates section's new case alerts.

Barefoot v. Jennings, 8 Cal. 5th 822 (2020) (former beneficiaries can use Section 17200 to contest the validity of the trust amendments that removed them as beneficiaries)

No case in recent memory quite unnerved the trusts and estates bar as much as when the 5th District Court of Appeal announced in 2018's Barefoot v. Jennings (27 Cal. App. 5th 1) that only current trust beneficiaries and trustees could avail themselves of the wide-ranging and flexible trust litigation procedure provided by Probate Code Section 17200.

Barefoot was a standard lack of capacity/undue influence/fraud case where one sibling, Joan, accused her sister Shana of procuring numerous trust amendments that benefitted Shana, and resulted in her becoming trustee. The amendments that Shana had procured reduced the Joan's future share of the trust to zero and revoked her nomination as trustee. Joan filed her contest of the amendments under Section 17200, which by its terms applies only to trustees and beneficiaries. Like thousands of similarly situated contestants before her, Joan implicitly asserted standing based on the theory that if the offending amendments were in fact invalidated she would return to her position as a beneficiary, and hence Section 17200 applied to her. But when Shana moved to dismiss for lack of standing to bring an action under Section 17200 the trial court granted it, stating that the plain language of 17200 applies only to current beneficiaries and trustees.

On appeal, the 5th District affirmed. Section 17200 provides that "a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust or to determine the existence of the trust," and the panel agreed with the trial court that it applied only to current trustees or beneficiaries. It also noted that nothing in Section 17200 or elsewhere precluded a contestant in Joan's position from asserting the same causes of action in a civil complaint, and it observed that many such contestants already do so.

Although some practitioners agreed that the language of the statute compelled this result, most were unpleasantly surprised, and the commentary was almost uniformly critical. The opinion, if taken to its logical conclusion, would undercut the way trust litigators had practiced for decades, and would force a large category of trust litigants out of the probate departments and into civil divisions of the courts, where many were uncomfortable. Numerous bar associations urged the Supreme Court to grant review, which it did. In a first for the California Lawyers Association, the recently formed umbrella organization for the former State Bar sections filed an amicus curiae brief urging reversal of the Court of Appeal, and even participated in oral argument.

In reversing, the Supreme Court analogized the motion to dismiss in Barefoot as akin to a demurrer to a complaint on standing grounds, where the allegations of the complaint are deemed to be true. It also noted that the policy underlying the Probate Code generally is to give the probate court jurisdiction over all disputes between trustees and beneficiaries, and the cases since its enactment have tended towards broadening its jurisdiction. It concluded that if the contest in question would result in the contestant becoming a beneficiary, she has standing, and the probate court has jurisdiction under Section 17200. Echoing the arguments of amicus CLA the court rejected the argument that granting standing to former beneficiaries would result in chaos arising from persons with no interest in the trust claiming standing. Section 17206, the court said, bestowed on the trial court any powers necessary to manage the litigation as appropriate and to preserve trust assets while issues of standing were adjudicated. Business as usual as resumed.

Estate of Ashlock, 45 Cal. App. 5th 1066 (2020) (where the court finds a taking or withholding of property in bad faith Section 859 provides for recovery of twice the value of the property in addition to recovery of the property itself)

Probate Code Section 850 et seq. "provides a mechanism for court determination of rights in property claimed to belong to a decedent or another person," and allows specified persons to file a petition to obtain such a determination. Section 856 provides for recovery of wrongfully taken or withheld property. Where the court finds that the property in question was taken or withheld in bad faith Section 859 provides that "the person shall be liable for twice the value of the property recovered by an action under this part ... in addition to any other remedies available in law."

Section 859 is colloquially referred to as the "double damages" provision, but there has been uncertainty as to whether it meant that the successful petitioner recovered the property at issue plus its value again in damages, or whether it meant recovery of the property plus twice the value of that property. Some call the latter "triple damages." Prior to Estate of Ashlock the cases were split.

In Estate of Kraus, 184 Cal. App. 4th 103 (2010), the trial court and the 2nd District construed Section 856 as providing for reconveyance of the property withheld, and Section 859 as providing for a statutory penalty of twice the value of that property in addition to the recovery of the property for bad faith conduct. By contrast, in Conservatorship of Ribal, 31 Cal. App. 5th 519 (2019), the 4th District, in rather summary fashion, concluded that "[i]f the Legislature had intended damages to be tripled, it would have written something akin to 'the person shall be liable for [three times] the value of the property recovered by an action under this part.'" Essentially, the Ribal court viewed Section 856 as providing for damages, and 859 as doubling them.

Estate of Ashlock has now probably resolved this split of authority. After a 53-day bench trial the court found respondent Stacey liable under Section 859 for having misappropriated estate property in bad faith. The value of the misappropriated property was approximately $5 million, and the trial court ordered her to return that property under Section 856, and to pay the estate twice the value of the misappropriated property, approximately $10 million, under Section 859. Stacey appealed, arguing that the "compensation" award under Section 856 was subsumed in the double damages award under Section 859.

The Court of Appeal affirmed, construing Section 856 as providing for reconveyance of the property withheld, and Section 859 as providing for an additional statutory penalty of double damages. In so holding the Court of Appeal rejected Ribal's reasoning as being based on the erroneous premise that Section 856 provided for "damages," when it in fact provided for return of property. The fact that Section 859 is punitive "in nature" also supported the conclusion that an award of double the value of the property, in addition to ordering its return, was appropriate.

After Estate of Ashlock and Estate of Kraus, we now have two thoroughly reasoned opinions holding that a finding of bad faith under Section 859 means return of the property taken, plus double its value in damages. Conservatorship of Ribal is unlikely to be persuasive in future cases.

Conservatorship of O.B., 9 Cal. 5th 989 (2020) (new standard of review on appeal of judgments and findings requiring proof by clear and convincing evidence)

In Conservatorship of O.B. the Supreme Court announced a new, less deferential, standard of appellate review of trial court findings and judgments that must be supported by clear and convincing evidence. As a result, the chances of obtaining reversal of such findings and judgments on appeal have somewhat increased, if only slightly.

O.B. had autism spectrum disorder. She lived with her great-grandmother in Lompoc. Her mother, who lived in Orange County, petitioned for appointment as limited conservators of O.B.'s person. At trial O.B. offered the testimony of the probate investigator and of her great-grandmother, who both opposed the conservatorship as unnecessary. A psychologist offered expert testimony that O.B. was not a candidate for a conservatorship. On the other hand, O.B.'s mother testified that O.B. needed significant assistance with daily tasks, could not care for herself, and was susceptible to undue influence by others. Based largely on the mother's testimony and its own observations of O.B. the trial court held that clear and convincing evidence supported the need for a conservatorship, and granted the petition.

On appeal O.B. argued that insufficient evidence supported a judgment requiring clear and convincing evidence. In affirming, the Court of Appeal noted that on appeal "the clear and convincing test disappears ... [and] the usual rule of conflicting evidence is applied, giving full effect to the respondent's evidence, however slight, and disregarding the appellant's evidence, however strong." In other words, on appeal the standard of review is that of substantial evidence, just like for a finding requiring only a "preponderance of the evidence."

In a much-watched case that drew numerous amici, including from plaintiff- and defense-side personal injury bars (an award of punitive damages requires findings of malice, fraud and oppression by clear and convincing evidence), the Supreme Court granted review, reversed and remanded. It held that trial court findings and judgments under higher burdens of proof at trial logically deserved closer scrutiny on appeal. Henceforth, the standard applied on review of a finding requiring clear and convincing evidence should be "whether the record, viewed as a whole, contains substantial evidence from which a reasonable trier of fact could have made the finding of high probability demanded by the clear and convincing standard of proof."

Conservatorhip of O.B. applies to civil cases generally, but there are few areas of the law where the clear and convincing evidence standard is more prevalent than trusts and estates cases. It applies in conservatorship proceedings, findings of undue influence, presumption of title disputes, reformation of instruments based on fraud, mistake, and a host of other scenarios. Logically, the new standard gives less deference on appeal to the trial court's determinations, but it is difficult to predict its precise effect in a given appeal, and too soon for appellants to start celebrating. In point of fact, on remand from the Supreme Court, and notwithstanding the new less deferential standard of review, the Court of Appeal affirmed the trial court again, concluding that the mother's testimony alone constituted substantial evidence from which a reasonable finder of fact could have found it highly probably that O.B. lacked capacity. Only time will tell how much difference the new standard makes to appellate practice.

Arace v. Medico Investments LLC, 48 Cal. App. 5th 977 (2020) (Upon a finding of financial elder abuse, an award of attorney fees is mandatory regardless of whether damages are awarded)

Decedent Miller had lived at a residential care facility owned by Medico. Medico's administrator Colon obtained a power of attorney over Miller's finances and health care. When plaintiff Arace, a relative of Miller's, discovered this she demanded the surrender of the power of attorney and return of any of Miller's money taken by Colon. Colon complied, and returned the money. After Miller's death Arace sued, in her fiduciary capacities, on behalf of Miller's estate, and obtained a judgment for elder abuse, both financial and neglect. The jury awarded damages only for neglect, which carried no award of attorney fees. And although she received no damages for financial elder abuse, the jury nevertheless awarded Arace attorney fees and costs.

The Court of Appeal affirmed. Here, the wrongdoer had returned the wrongfully taken property upon demand and therefore no damages were awarded. Nevertheless, the court held that the absence of damages is irrelevant because under Welfare and Institutions Code Section 15657.5(a), an award of attorney fees is mandatory where financial elder abuse is found by a preponderance of the evidence.

This decision underscores the utility of the financial elder abuse statutes. As the court said, the Legislature enacted the Elder Abuse Act to protect elders, and one of the ways it does so is by providing enhanced remedies which encourage private civil enforcement. Those remedies include reasonable attorney fees and costs, and where elder abuse is proven attorney fees and costs should be available regardless of whether damages are awarded.

Han v. Hallberg (S256659): The Case that Did Not Happen (When a partnership interest is held by a trust does the death of the partner/trustee trigger a buy-out provision in a partnership agreement?)

Han v. Hallberg, 35 Cal. App. 5th 621 (2019), and Presta v. Tepper, 179 Cal. App. 4th 909 (2009), both concerned what happens when a partner who has devised his partnership interest to himself as trustee of a revocable trust dies, where the partnership has a buy-out provision. Han v. Hallberg said that a living trust may be considered a "person" for purposes of a partnership, and may associate in a partnership in place of an individual, based on the language of the Uniform Partnership Act, which allows trusts to be partners in a partnership. Therefore, the death of the human partner does not trigger a partnership buyout provision. By contrast, Presta v. Tepper had said that the partner's family trust was not a separate legal entity, and when the partner died the buy-out provision was triggered. The Presta court read the same UPA language as providing that a trust could be a partner only "to the extent a 'trust' qualifies as a 'legal or commercial entity." Some trusts, such as real estate investment trusts are, but others, like the typical family revocable living trust, are not.

The Supreme Court granted review in Han v. Hallberg on two issues: (1) can a trust be a partner in a partnership?; and (2) does the death of a partner who has transferred his partnership interest to a trust trigger the buyout-on-death term in the partnership agreement? Yet after the parties had fully briefed the case on the merits the Supreme Court granted respondent's motion to dismiss, stating that appellant had conceded that "[a]n ordinary express trust can be a general partner." We are back to living with a direct conflict between Presta and Han.

In this author's view Han v. Hallberg is the better-reasoned case. Its holding comports with the notion familiar to most trusts and estates lawyers that a trust is akin to a separate entity, even if it can act only through its trustee. It is in the spirit of decisions like Moeller v. Superior Court, 16 Cal. 4th 1124 (1997), which held that the holder of the attorney-client privilege for communications between a trustee and his attorney is the then-current occupant of the office of trustee rather than the individual involved in the communications. And its reading of the relevant provisions of the UPA seems more sound that that of the Presta court.

But, arguably, Presta v. Tepper may be more in line with the reasonable expectations of those who allow their fellow partners to transfer their partnership interests to their family trusts, most of whom probably think that the transfer to trust is merely to effect a non-probate testamentary transfer of the value of the partnership interest. Han v. Hallberg, however, makes clear the right to continue as an active partner is also transferred and preserved after death. Partnership attorneys and estate planners may need to re-examine their documents in light of the continuing conflict between these cases. 

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