Trust and Will law can be frustrating.  Especially when you are a helpless beneficiary looking to the Trustee to do the right thing and administer a Trust in a way that is fair and honest to all concerned.  Beneficiaries have rights, and they can pursue those rights in Court, but so often the outcome of a case depends on the gut-reaction of the judge hearing the matter.  In one case a Trustee may be fully surcharged, removed, and publicly flogged (well not flogged but you get the idea).  Yet the same case in front of a different judge may result in a hand-slap and wearing a dunce hat for a day.

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Case in point, the California Court of Appeal’s decision in Lowe v. Holk.  Lowe involved the very common claim that many beneficiaries make against their Trustees-mismanagement of Trust assets.  The Trustee had retained a large amount of real property that was either not productive or was being occupied by the Trustee and other family members.  The Settlor (who is the person who created the Trust) died in 2007 and the real property declined rapidly in value along with the real estate bust that occurred from 2007 through 2011.  As the property crashed in value, the Trustee refused to sell the real property and diversify the Trust investments (as is required under the California Prudent Investor Act).  The Trustee also distributed the most valuable property to himself and transferred another rental property to his sister, a beneficiary of the Trust, but failed to tell her that the transfer of the property had occurred.

The sister/beneficiary sued on what appeared to be some very viable, and expensive claims against the Trustee.  The claims included loss of rental income for nearly 3 years, a decline in property value, conflict of interest for the Trustee’s occupying and ultimately distributing the most valuable property to himself.

The Trial Court, however, decided that most of the claims were not worth awarding damages.  The Court did award lost rent for a period of 2 years, and gave a minimal award for payment of utilities on a property occupied by another family member.  But the Court refused to award any damages for the substantial decrease in value for the Trust’s real property and also refused to award attorneys’ fees against the Trustee—or even remove the Trustee from office!  All told the surcharge against the Trustee came to around $141,000, which may sound good but paled in comparison to the losses the Trustee incurred.

Thumbnail image for Rights Photo.jpgSo the beneficiary appealed and the Court of Appeals held…that the Trial Court was right.  Hard to believe.  In actuality, the Court of Appeals didn’t really say the trial court was right, but chose to review the case on the “substantial evidence” test.  This means that the appellate Court looks at the evidence in the light most favorable to the prevailing party and ask “could a reasonable fact-finder find for that party on this evidence.”  To put it another way, the Court gives all the benefit of any doubt to the winner and only overturnes the case if there is no substantial evidence to support the winning decision.  The appellate court does NOT retry to the case or re-evaluate the evidence.  As you can imagine, it is nearly impossible to overcome a Trial Court decision on appeal when the Appellate court uses the Substantial Evidence test.

The decision stands and the Trustee gets off with a light warning.  Meanwhile, this beneficiary loses more than just her case and a boat load of money on attorneys’ fees, she loses her rights under Trust law.  In this case, all the rules set forth about Trustee investing and managing Trust assets are rendered meaningless by the Court’s decision.   

  • LISA L.

    Why bother to have protection laws if they are not going to be upheld?
    Especially in the case of Special Needs Trusts where Trustees are
    free to abuse the beneficiary mentally, emotionally, verbally AND
    financially via ALL of these methods with written and verbal threats.
    There is NO place for these people to go for help and
    the Trustees KNOW that they can bankrupt the trust
    with legal fees and taxes defending themselves.

    What was Congress and the legal community thinking when giving so much power to ONE person just so families would not disinherit disabled family members
    or family members on SSI or Medicaid?

    Perhaps they were not thinking of a population of people that not only are
    usually unable to fend for themselves or stand up to people who are supposed to
    be helping them financially FOR THEIR OWN BENEFIT AND LIFE ENHANCEMENT?
    These people are OUR MOST vulnerable people yet we are feeding them to wolves in sheep’s clothing many times with the lack of protection that the law and courts offer them.

    I guess Trustees really can do as they please including sending threatening emails, verbally abuse and threaten the beneficiary that they can make the Trust money funds go away as well as other money meant for them and all is well with the courts?

    Is there no qualifications for being a trustee? Especially a trustee of a Special Needs Trust?

  • PB

    WHY can’t a judicial complaint be filed against the judge when he/she does not simply enforce Ca probate code??! If nothing else, does this not border on abuse of discretion? I have come to realize in many situations involving complaints,
    I presume I am going to be forced to exert effort to pressure the “enforcers” to “enforce.” It is a back-breaking effort most of the time, put has proven to reap some positive benefits when I cite law (and maybe even case law) which is applicable to the violation.I too am a beneficiary ( a special needs beneficiary, at that) with an extremely outrageous “story!”

    • davidsonkeitha

      The main problem is that Probate judges are given wide discretion under the law, so it is not always easy to say they are not following the probate code because much of the code is open to interpretation. However, you raise a great point that part of your job is to ensure the judge is fully educated on your case, the law, and how the law should be applied. Many people mistakenly believe that the judge knows everything about your case and the law beforehand, and that is not true.