Being a Beneficiary Can Cost You: How the "American Rule" for attorneys' fees can feel Un-American.
Beneficiaries have all the legal rights, and none of the legal obligations, when it comes to California Trusts and Wills. But beneficiaries, at times, have one very practical obligation—paying to enforce their rights.
For beneficiaries of California Trusts, it’s every beneficiary for him or herself. That means there is no governmental oversight of Trustees until the matter is brought to Court. And every Trust has the potential to wind up in Court if not managed properly. But just because you may have the right to challenge a Trustee in court does not mean that it comes free of charge.
Most beneficiaries don’t know this, but our judicial system follows the “American Rule” when it comes to attorneys’ fees. That means each party to a lawsuit pays his or her own fees and generally does NOT get them reimbursed even if successful in the lawsuit. You read that right, you can win your lawsuit, but still be out the attonreys’ fees it took to get you there. Seems unjust, and un-American (remember “justice for all”), but that’s the American Rule for attorneys’ fees.
Contrast that with the English Rule (used in Great Britain and many other Countries) where the losing party to a lawsuit pays the winner’s attorneys’ fees and costs.
There are a few exceptions to the American Rule even in our own judicial system. For example, parties in a contract can agree that the winner gets his attorneys’ fees. There are also a few statutes that only apply to very limited cases where fees can be shifted so the winner is compensated. Such as with Trust accountings, where the losing party can be forced to pay the winner’s fees if the losers acted in “bad faith” (which can be a tricky standard to prove in court).
The problem is that California Courts are reluctant to shift fees even where doing so is authorized by statute. In other words, the default rule that everyone pays their own fees, actually weighs against fee shifting even where authorized. It’s just human nature, when everyone pays their own fees, why should the Court shift the burden of paying in a particular case? And where the Court can exercise discretion and award fees to the winner, the Court typically will not do that because it goes against the norm.
What does that mean to you, the Trust or Will beneficiary? It means you have rights, but it may cost you to enforce those rights. And you may as well assume that you will not be reimbursed for your attorneys’ fees.
Given the American Rule, is it still worth enforcing your rights as a beneficiary? Only you can decide that question. It obviously is worth it to some people or else there wouldn’t be a backlog of Trust and Will cases congesting our Court system. But before you go head-long into litigation, be sure to consider your own practical burden of being a beneficiary.