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Hi, this is Keith Davidson from Albertson & Davidson.  In this video, I want to talk about remedies that the court can use to fix your trust problem.  Under Probate Code section 16420, the court has a right to take certain actions against trustees in order to fix whatever problem you’re having with your trust.

Number one on that list is that the court can compel the trustee to take a certain action.  So, for example, if you’re entitled to a distribution of a house from a trust and the trustee refuses to make that distribution, the court has a right to order the trustee to take that action and distribute that asset.  And typically, that’s something that we’ll do on a petition for instructions.  So we’ll file a petition for instructions, that’s the name of the petition, and we’ll ask the court to compel the trustee to take an action.  And we’re allowed to do that and the court’s allowed to take that action under Probate Code section 16420.

The next thing the court can order the trustee to do is not take an action.  So let’s say the trustee is going to do something that will harm the trust.  Maybe they’re going to sell a property at below market value.  The beneficiary can come in and ask the court to not allow that action to take place.  And that’s called enjoining the trustee and the court can do that.

The third item the court can do is require the trustee to pay damages back to the trust for whatever harms the trustee has caused to the trust estate.  We’ll talk in a separate video about how you get to the amount that the trustee has to pay back.  But, for purposes of this video, you should know that the court can order the trustee to pay money back to the trust.  That’s one of the remedies the court has.

Number four is that the court can order the appointment of a temporary trustee or what we call a receiver to manage the trust estate under the court determines whether the main trustee should be permanently removed.  By appointing a temporary trustee, the court can have a neutral third party step in, make sure that everything’s safe during the litigation, and see whether or not whether the trustee should be permanently removed.  This is a common remedy that we ask for in a lot of our trust cases, and this is something the court has the power to do under the Probate Code.

Number five follows that up, which is the court has the right to permanently remove a trustee.  That typically takes a trial, a removal trial, where you have to go and present evidence.  But if the court is persuaded that this trustee should be removed for breaching their fiduciary duties, then the court has the power to apply that remedy and remove the trustee.

Number six, the court has the right to set aside trust actions.  So whatever action the trustee has taken, the court can set that aside.  There’s one exception, however, if the trustee has sold assets to a third party in an arms’ length transaction and that third party has paid full value in that transaction, for whatever asset or whatever the situation was, then the court cannot set aside that action.  Because, the law presumes that this innocent third party didn’t know what was going on with your trust, didn’t understand that there was a problem.  They shouldn’t be penalized for that, the trustee should.  So, instead, the trustee would just have to pay damages back to the trust rather than setting aside an action.  But barring that, the court can set aside trust actions as one of the remedies.

Number seven, the court has the right to reduce the compensation of the trustee as a remedy.  So if a trustee has breached his or her fiduciary duties to the trust and they’re requesting fees, the court has the right to reduce those fees, or even eliminate them altogether, if that was necessary to meet the ends of justice to make the trust whole.  That’s one of the remedies has.

And, number eight, the court has the right to impose an equitable lien, sometimes also referred to as a constructive trust, and to allow you to go out and trace assets.  So if the trustee has taken assets out of the trust, put them in their own accounts, put them in their own name, the court has the right to force the trustee to give those back to the right beneficiaries.  And that’s usually done through an equitable lien, constructive trust, or by allowing the beneficiaries to trace the assets and see where they ended up and pull them back into the trust.

So those are the remedies that the court has to try and fix your trust problem.

We have talked about trustees’ fees, executors’ fees, and attorneys’ fees on this blog before…and here we go again.  In Marc Alexander’s and William M. Hensley’s blog on California attorneys’ fees (which I read regularly) they mentioned a recent Fourth Circuit Appellate Court decision called Kunit vs. KingstonKunit involves a trustee removed from office for committing breaches of trust–happens all the time.  The trustee then asked the court to be reimbursed over a hundred thousand dollars in attorneys’ fees.  The trust beneficiaries naturally objected arguing that a removed trustee should receive no reimbursement for his attorneys’ fees.

The trial court decided that some of the trustee’s attorneys’ fees should be reimbursed to him out of the trust—those fees incurred for the normal administration of the trust (approximately 60% of his fee request—a little over $80,000).  But the remaining 40% (about $53,000) should not be reimbursed because the Court believed that those fees were from the trustee’s defense of his own bad acts for which he is not entitled to reimbursement.

The Fourth Circuit Court of Appeals (in an opinion penned by Justice Alex C. McDonald) agreed with the trial court and affirmed the decision.  This makes sense since fees incurred for trust administration are incurred for the benefit of the trust and ought to be allowed—generally speaking.  While fees incurred fighting to remain trustee when breaches have occurred does not benefit the trust and should be denied (we have seen this before in other cases).

The one concern I have with Justice McDonald’s opinion is his statement that the Probate Code does not require a trustee to provide back-up information to support his accounting.  The court references Probate Code Section 1061, which provides the items that must be included in a court-filed accounting, but does not expressly require back-up documentation.

While the Probate Code may not be specific, it is well established by case law in California that a trustee alone bears the burden of proving that all items in an accounting are accurate and incurred for the benefit of the trust.  See Purdy vs. Johnson (174 Cal. 521) and Estate of McCabe (98 Cal. App. 2d 503).  Back-up documentation is essential to establish that a trustee actually incurred a valid expense for the benefit of the trust.  And the trustee alone should have the burden of providing back-up documents since he or she is the only one in possession of (or should have possession of) the documents required to prove-up the accounting.  While that back-up documentation is not required when first filing an accounting under Probate Code Section 1061, it certainly is required once a beneficiary objects to the accounting.

I hope that the appellate court made this statement because both parties failed to cite to any relevant case law (not sure why because it seems obvious that they should have).  But thankfully, this is an “unpublished” opinion—meaning that this case cannot be used to support future court rulings.