28 Jun The Trustee’s Attorneys’ Fees May Be Charged Against A Beneficiary Who Acts in Bad Faith
Summary: The decision in Pizarro v. Reynoso (California Court of Appeal, Third Appellate District, Case No. C077594, March 28, 2017) expands the shifting of trust/trustee attorneys’ fees and costs to a beneficiary’s trust share, and in relevant part, reminds us that all trust and estate litigation cases vary and are determined in significant part by the facts and circumstances of that case, the relevant case law, and the discretion of the trial court judge. In Pizarro v. Reynoso, on appeal the Court of Appeal held as follows:
- The terms and intent of the trustor prevail in substance. Refusing to elevate form over substance, the court upheld a sale of the trust real property to a specific beneficiary which the trust authorized, in the trustee’s discretion, if the beneficiary could afford to purchase the house. The trustee in part assisted the beneficiary in that purchase so that the beneficiary could purchase the property. Nevertheless, the court upheld the sale based on substance over form and the intent and terms of the trust.
- Under the court’s equitable powers, the attorneys’ fees and costs incurred by the trust/trustee are chargeable against the trust share of a beneficiary who brings an unfounded proceeding against the trust, but those attorneys’ fees and costs cannot be awarded against the beneficiary’s other personal non-trust assets, citing Rudnick v. Rudnick (2009) 179 Cal. App. 4th 1328, 1332-1333, 1335, and Estate of Ivey (1994) 22 Cal. App. 4th 873, 877-878, 882-886.
- In an important expansion of those same equitable powers from #2 above, regarding charging fees and costs to a beneficiary’s trust share, the court also can award the trust/trustee attorneys’ fees and costs against the trust share of a beneficiary who has not filed or brought a proceed but who takes an unfounded position and litigates in bad faith causing the trust to incur fees and costs. In Pizarro, the beneficiary changed her position to being against the trustee, and in the trial court’s opinion, then offered false testimony by declaration, deposition and at trial. Offering false evidence in litigation is a bad faith litigation tactic.
- The court’s decision also cites California Probate Code §17211(a) and §15642(d), which state as follows:
Probate Code §17211(a)
(a) If a beneficiary contests the trustee’s account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney’s fees, incurred to defend the account. The amount awarded shall be a charge against any interest of the beneficiary in the trust. The contestant shall be personally liable for any amount that remains unsatisfied.
(b) If a beneficiary contests the trustee’s account and the court determines that the trustee’s opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contestant and other expenses and costs of litigation, including attorney’s fees, incurred to contest the account. The amount awarded shall be a charge against the compensation or other interest of the trustee in the trust. The trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied.
Probate Code §15642(d)
(d) If the court finds that the petition for removal of the trustee was filed in bad faith and that removal would be contrary to the settlor’s intent, the court may order that the person or persons seeking the removal of the trustee bear all or any part of the costs of the proceeding, including reasonable attorney’s fees.
* * * * *Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.