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California Trust Beneficiary Rights | Doing the Right Thing
Is there ever a time when the spirit of the law “will assert itself … where right and justice would be defeated but for its intervention.”[1] Fortunately, yes. An October 2018 California Fourth District Court of Appeal case gives us a near perfect example.[2]
Josephine, a widow and an Orange County, California resident, updated, amended and restated her Trust in 2003 to refine its terms regarding a life estate in Josephine’s residence that would be effective at her death. The Trust provided that the Trustee, Rosie, shall retain Josephine’s residence for the use and benefit of Paul, the longtime family friend, for the remainder of his life. The Trust required Paul to pay only for “ordinary maintenance expenses.”
The residence was to be sold at Paul’s death or at his leaving the residence and the proceeds sold and distributed to the Orange County Catholic Diocese to be used for the benefit of abuse and needy children and the needy elderly. The appellate record epitomizes the kindness of Josephine – she wanted to take care of a longtime family friend who had lived in the residence of 40 years and ultimately provide for abused and needy children and the needy elderly. She sounds like the kind of person that we all can admire.
Josephine died in 2007. Josephine’s niece, Rosie, became the designated successor trustee of Josephine’s trust, and retained the same attorney who prepared the Trust to help her administer the estate.
Paul was living in the residence when Josephine died. Paul was in failing health and displaying signs of dementia. Josephine’s estranged daughter, Mary Ann, moved into the residence to take care of Paul. She bathed him, fed him, ran errands for him, monitored his medication, paid his bills and cleaned the house. Josephine did not expressly approve of the move in. Paul was unable to pay for the residence’s ordinary maintenance expenses. The Trustee, Rosie, paid these expenses and thought that she was doing the right thing and doing what she thought her aunt Josephine wanted her to do. There is no question that Rosie did not follow the exact requirements of the Trust in administering it after Josephine’s death. Her conduct fell below the standard of care required of a trustee under the Probate Code.
Paul died and in an unfortunate turn of events the Orange County Catholic Foundation sued the Trustee for damages for breach of trust and breach of fiduciary duty. The Foundation claimed that the Trustee should have evicted Paul – in the words of their lawyer – “kick him out.” The Foundation also claimed that the Trustee should have been charging Mary Ann rent for the period she resided in the residence after Paul’s death. The Appeals Court in somewhat of an understatement with regard to Paul notes the Foundation’s position to be “both unrealistic and not particularly charitable.”
There are other factors in the case but its lessons best rest in its explanation of the Probate Court’s equitable powers. The court notes that the remedies of a beneficiary against a trustee are exclusively in equity and the court has wide play in reserving its conscience in formulating its decrees. The court explains that equity “has its origins in the necessity for exceptions to the application of rules of law in those cases where the law, by reason of its universality, would create injustice in the affairs of men.” Ultimately the trial court in its good judgment excused the Trustee from liability and found her actions neither unreasonable nor in bad faith.
This is a case, in my opinion, where the stringent application of the law regarding Trustee liability would defeat right and justice but for the intervention of equity. I admire the court’s conscience. Factually, the Trustee’s delay in the sale of the Residence ultimately benefitted the Foundation by an increase in the market value of the Trust. This probably made the court’s decision easier. That said, the case is an important reminder that “doing the right thing” counts.
We at Hackard Law work to do the right thing in representing our clients in probate, estate and trust litigation. We serve clients in most of California’s major urban areas including Sacramento, Contra Costa, Alameda, Los Angeles and Santa Clara. We take substantial cases where we think that we can make a significant difference and there is a respondent or defendant who can be made financially accountable for their wrongdoing. If you would like to speak with us about your case call us at 916 313-3030. We’ll be happy to hear your story.
[1] Hirshfield v. Schwartz (2001) 91 Cal.App.4th 749, 770.
[2] Orange Catholic Foundation v. Rosie Mary Arvizu, October 17, 2018, G055189, C.A. 4th.