Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Solano County Super. Ct. No. FPR038011
Marchiano, P.J.
This is the fourth appeal arising from continuing litigation over the terms and administration of the 1998 Virginia Copple Revocable Trust.
Gregory S. Garetson, a trust beneficiary and former trustee, appeals from an order approving the successor trustee’s supplement to the second account, approving trustee and attorney’s fees, and approving the distribution of the trust assets. Gregory contends that the successor trustee, respondent James A. Moore, committed a breach of trust by failing to file an amended estate tax return within the purported statute of limitations. Gregory also contends that interest was improperly charged and calculated on three surcharges against Gregory. We reject Gregory’s contentions and affirm.
I. FACTS
We state the background facts of this litigation and those facts pertinent to the present appeal.
Virginia Copple was a widow with no children. On May 13, 1998, Copple and her brother, appellant Gregory Garetson, executed the 1998 Virginia Copple Revocable Trust. Copple made herself and Gregory, a Washington State commercial real estate broker, cotrustees.
On November 14, 1998, Copple died of leukemia at the age of 51. Gregory continued as sole trustee of the trust.
Copple’s will made two special gifts to Gregory, who was also the sole beneficiary of Copple’s life insurance policy. Five persons—Gregory; his brothers Charles and William Garetson; Joanne Garetson, William’s former wife; and Nancy Jensen—were equal beneficiaries of Copple’s IRA in the amount of $332,843.10. The residue of Copple’s estate was bequeathed to the trust. The trust terms directed that, after payment of taxes and expenses, the remaining trust estate be distributed in four equal shares to Gregory, Charles, William, and Joanne.
Gregory filed an estate tax return on or about May 11, 2000, representing the gross value of Copple’s estate as $1,777,287.49. In the estate tax return, which the parties refer to as a “Federal Tax Form 706 return” or a “706 return,” Gregory listed “Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims” in the amount of $32,907.28. In his opening brief, and as he did below, Gregory describes the $32,907 expense figure as estimated “administrative expenses and professional fees,” and represents that “approximately $300,000 in estate taxes were paid based, in part, on that estimate.”
The relationship between the three brothers was hostile, and led to the commencement of litigation between Charles and William on the one hand, and Gregory on the other, in May and June 2000.
First, in May 2000, Charles and William filed a petition in a Washington court accusing Gregory of breach of trust duties and seeking his removal as trustee. That petition was dismissed in June 2000 on the ground that the trust and its assets were located in California.
Then, on June 6, 2000, Gregory filed a petition in California seeking a determination that Charles and William’s Washington petition violated the trust’s no contest clause. Charles and William opposed Gregory’s petition and filed a new petition seeking Gregory’s removal as trustee.
Gregory had also filed a second petition, to confirm a sale to himself of trust real property, which is not relevant to the present appeal.
On August 29, 2000, the court issued an order directing Gregory to prepare and file an accounting from the date of death through August 31, 2000. Gregory filed his accounting on November 1, 2000. This fee amount is over twice the amount listed in the 706 return filed in May 2000. Thus, in the less than six months between the filing of the return and of Gregory’s accounting, professional fees paid by the trust had more than doubled while Gregory was trustee.
Charles and William filed numerous objections to the form of the accounting and to specific disbursements, and further alleged that Gregory and his counsel had conspired to hide the extent of Gregory’s misappropriations of trust assets. Charles and William requested that Gregory and his counsel be surcharged for losses to the trust. Gregory’s demurrer regarding the allegations involving his counsel was granted.
The matter proceeded to trial on the brothers’ petitions. On May 13, 2002, the court issued a Statement of Decision, which ruled on the various contentions of the parties. We need only present the rulings pertinent to the present discussion.
The trial court ruled that there was no violation of the no contest cause. The court found that Gregory did not breach his fiduciary duty on six alleged grounds, but did breach it regarding a seventh. The court concluded that the “discord” between Gregory and brothers “justifies his removal as trustee,” and removed him as trustee of the 1998 Virginia Copple Revocable Trust.
The court further concluded that Gregory would be surcharged for his trustee fees and attorney’s fees “incurred in the prosecution and defense of this litigation,” but would not be surcharged for his reasonable trustee and attorney’s fees for “the other aspects of his trust administration.” The court directed the parties to meet and confer, presumably to parse through the fees and determine which were and were not surchargeable.
We note that the trial court found that the three brothers “prosecuted and defended some issues of the litigation in good faith and others in bad faith. However, the overall conduct of all three brothers was in bad faith even though each successfully prosecuted and defended some of their issues.”
On June 6, 2002, the court issued an “Order Removing Trustee, Appointing Successor Trustee, Surcharging Trustee and for Attorney’s Fees and Costs.” We describe the provisions of this order pertinent to this appeal. The court removed Gregory as trustee and appointed Charles M. Shaver successor trustee. The court ordered the equitable proration of the estate tax among the trust beneficiaries. Consistent with its Statement of Decision, the court ordered the surcharging of Gregory’s trustee and attorney’s fees relating to litigation, but not those relating to nonlitigation trust administration, and again directed the parties to meet and confer on the issue of fees. As Gregory agrees in the present appeal, this determination for nonsurcharged trust administration fees raised the possibility of even more fees to be paid by the trust.
The court also ordered that Gregory be surcharged $660 for miscellaneous expenditures.
Gregory appealed from the June 6, 2002 order, and Charles cross-appealed. The appeal and cross-appeal involved issues not pertinent to the present, fourth appeal, with the exception of Gregory’s challenge to that portion of the order surcharging him for litigation fees. The surcharge of $660 was not at issue. We reversed one portion of the June 6, 2002 order, but otherwise affirmed it—rejecting Gregory’s challenge to that portion of the order surcharging him for litigation fees. (Garetson v. Garetson et al. (Feb. 18, 2004, A100080) [nonpub. opn.].)
On March 24, 2003, Gregory filed a petition for an order allowing his trustee and attorney’s fees related to nonlitigation trust administration. In that petition, Gregory announced that it was impossible to prorate the estate taxes “now [that] the 706 Estate Tax Return must be amended based on the June 2002 order.” He stated that the 706 return must be amended to determine the amount of the estate tax, “as the less administrative expenses are allowed, the greater the amount of the tax, and vice versa.” He further stated:
“Gregory’s calculation of the equitable proration of estate taxes is based on the estate tax return as presently filed. Depending on the adjustments to administration expenses and professional fees, the return must be amended, affecting the amount owed by each beneficiary. It is for this reason that any ruling on the proration of estate taxes must adopt a percentage and not a fixed amount. Otherwise, this issue should be continued to be resolved at the final account and distribution of the remaining trust assets after the new trustee amends the estate tax return based on this Court’s rulings, which will affect the amount of taxes due.”
Gregory now claims on appeal that in his March 24, 2003 petition “[a]ll interested parties were put on notice . . . concerning the need to amend the estate tax return based on the June 2002 order.” In essence, Gregory claims that with the increase in fees from the original $32,907.28 claimed in the 706 return, an amended return showing increased fees would result in a refund of a portion of the estate tax.
On May 14, 2003, the court ruled on the fee issue raised in Gregory’s March 24 petition.
On May 1, 2003, respondent Moore was appointed successor trustee of the 1998 Virginia Copple Revocable Trust.
As we explain further below, Gregory takes the position that there is a three-year statute of limitations for amendments to an estate tax return. Gregory thus argues that the 706 return had to be amended within three years of filing, or by May 11, 2003—a scant 10 days after Moore’s appointment as successor trustee. It is not clear whether or when Gregory drew this purported deadline to the attention of Moore or the trial court. He certainly did not mention the purported deadline in his March 24, 2003 petition, in which he stressed the need to amend the 706 return. Below and on appeal, Gregory states that his former counsel, Jewell Hargleroad, “caused notice to be sent” to Moore “informing him that an amended state tax return was proper shortly after he was appointed successor trustee.” This letter does not seem to be in the record. In any case, Gregory’s description of the essence of the letter’s message does not include the purported deadline of May 11, 2003.
In his opening brief, Gregory claims that “Moore’s receipt of Hargleroad’s letter is documented” in Moore’s attorney’s timesheets attached to Moore’s first accounting. Gregory refers to the entry for May 2, 2003, but this entry shows only that Moore’s attorney spoke to a CPA on May 2, 2003 about amending the 706 return. There is no mention of the attorney reviewing correspondence from Hargleroad. Interestingly, the previous entry, for May 1, 2003, mentions a “phone conference with attorney (Hargleroad),” but Gregory does not claim Hargleroad mentioned the purported deadline during the conference.
On May 14, 2003, in response to a separate petition by Charles, the court ordered that Gregory be surcharged $84,415.50 for estate taxes, attorney’s fees, and trustee fees.
We affirmed both the May 14, 2003 order ruling on Gregory’s March 24, 2003 petition for fees (see fn. 3, ante), and the separate May 14, 2003 order imposing the surcharges. (Garetson v. Garetson et al. (July 8, 2004, A103220) [nonpub. opn.].)
On January 25, 2005, the trial court ordered that Gregory be surcharged $67,960 for attorney’s fees, trustee fees, litigation costs, and bank fees.
On June 23, 2005, Moore filed his first account and report (first account), for the period from May 1, 2003 through December 31, 2004. The first account does not mention any amended 706 return. In his opening brief, Gregory states that Moore, in his first account, “failed to disclose that, through his inaction, he had allowed the statute of limitations to run on the trust’s claim for an estate tax refund.” Yet Gregory admits that he filed no objections to the first account. On August 11, 2005, the trial court approved the first account as filed.
On or about December 7, 2005, Moore filed his second and final account and report (second account), for the period from January 1, 2005 through September 23, 2005. The second account does not mention any amended 706 return.
The second account also computed postjudgment interest on the three surcharge judgments through November 15, 2005, as follows:
• June 6, 2002 surcharge judgment of $660, plus postjudgment interest of 10 percent ($.18 per day) in the amount of $226.26, for a total of $886.26;
• May 14, 2003 surcharge judgment of $84,415.50, plus postjudgment interest of 10 percent ($23.12 per day) in the amount of $21,154.80, for a total of $105,570.30;
• January 25, 2005 surcharge judgment of $67,960, plus postjudgment interest of 10 percent ($18.61 per day) in the amount of $5,471.34, for a total of $73,431.34.
On or about January 19, 2006, Gregory filed his objections to the second account. Gregory objected on two formal grounds: (1) that an amended 706 return had not been filed; and (2) he anticipated filing a petition for recovery of $60,000 in fees “for successfully defending his accountings and administration of the trust and for reasonably and in good faith defending himself from removal as trustee. . . .”
With regard to the amendment of the 706 return, Gregory argued that all parties were put on notice of the need to amend by his March 24, 2003 petition for fees—but Gregory did not yet mention the purported letter to Moore from attorney Hargleroad. Gregory also did not mention the purported deadline of May 11, 2003. Indeed, in a response to Charles’s reply to his objections, Gregory took the position that the statute of limitations was either three years from the date of filing, or two years from the date of the last payment of tax, whichever was later.
In addition, Gregory briefly argued that the interest on the three surcharge judgments was “improper.” He relied on the tentative decision of December 14, 2001, which was the precursor to the Statement of Decision of May 13, 2002 and the ultimate order of June 6, 2002. The tentative decision stated that there would be no interest on almost all of the various surcharges listed in the decision, including the two surcharges against Gregory totaling $660 that led to the first surcharge judgment. This language was repeated in the Statement of Decision, but was left out of the June 6, 2002 order. In any case, the 2001 tentative decision could not possibly apply to the second and third surcharge judgments, entered in 2003 and 2005, respectively.
On October 4, 2006, Moore filed a supplement to the second account in which he recomputed postjudgment interest on the three surcharge judgments through November 1, 2006, as follows:
• June 6, 2002 surcharge judgment of $660, plus postjudgment interest of 10 percent ($.18 per day) in the amount of $289.26, for a total of $949.26;
• May 14, 2003 surcharge judgment of $84,415.50, plus postjudgment interest of 10 percent ($23.12 per day) in the amount of $29,246.80, for a total of $113,662.30;
• January 25, 2005 surcharge judgment of $67,960, plus postjudgment interest of 10 percent ($18.61 per day) in the amount of $11,984.84, for a total of $79,944.84.
On or about October 13, 2006, Gregory filed objections to the supplement to the second account. He objected that Moore had “refused and failed to file an amended 706 tax return when it was clear that the administrative fees and costs approved by the court would be far greater than the $30,000 estimate for administrative fees and costs in the original return.” He again asserted that all parties were put on notice of the need to amend by his March 24, 2003 petition for fees, and added—apparently for the first time—the reference to the alleged letter to Moore from attorney Hargleroad.
Gregory also added a reference to communications to Moore from his present attorney “concerning the need to file an amended return to reflect higher than previously estimated administrative fees and costs.” Gregory again did not mention the purported May 11, 2003 deadline—indeed, he seemed to feel that filing an amended return was still possible. He attached to his objections three letters from his attorney to Moore’s—dated January 30, May 25, and June 20, 2006—which reflect the view that it was still possible to file an amended return.
Gregory also objected to the interest on the surcharges on various grounds, including but not limited to the December 14, 2001 tentative decision.
On November 9, 2006, the trial court entered an order approving the supplement to the second account, approving trustee and attorney’s fees, and approving the distribution of the trust assets. In addition to approving the supplement to the second account, the court ruled that “[a]ll the acts and transactions of . . . Moore, as set forth in the account . . . and relating to the matters set forth therein, are ratified, confirmed and approved.” The court approved the postjudgment interest on the three surcharge judgments.
Gregory now appeals from the November 9, 2006 order approving the supplement to the second account. As we have noted, this is the fourth appeal in this litigation.
We have mentioned the first and second appeals in the statement of facts. The third appeal, Garetson v. Garetson et al. (May 26, 2005, A106277) [nonpub. opn.], is not pertinent to the fourth appeal.
II. DISCUSSION
Gregory contends that Moore committed a breach of trust by failing to file an amended estate tax return within the purported three-year statute of limitations. Gregory also contends that interest was improperly charged and calculated on three surcharges against Gregory. We reject Gregory’s contentions and affirm for the following reasons.
1. Alleged Breach of Trust.
Gregory contends that Moore had to file an amended 706 return by May 11, 2003, only 10 days after his appointment, to meet the statute of limitations and secure an estate tax refund for the trust. We assume without deciding that the limitations period ran when Gregory says it does. The point is not material to the present appeal because Gregory has raised this issue far too late.
For present purposes, we accept the general principle that the higher the amount of administrative fees and costs, the lower the estate tax—so that in theory an amended return would have lowered the tax bill and resulted in a refund to the trust. But when Gregory himself was trustee, administrative fees and costs more than doubled between May and November 2000. Gregory could have filed an amended estate tax return, but did not.
When the June 6, 2002 order was filed, creating the possibility of even more fees, Gregory apparently did not file anything with the court mentioning an amended return until March 24, 2003—and even then he failed to mention the expiration of the purported limitations period on May 11 of that year.
Gregory did not object to Moore’s first account, filed and approved in 2005, despite his argument on appeal that the first account revealed Moore’s failure to file an amended return. Furthermore, while we do not decide the issue, it appears that the order approving that account may have been an appealable order. (Prob. Code, § 1300, subd. (b); see Estate of Bissinger (1964) 60 Cal.2d 756; Estate of Grant (1901) 131 Cal. 426, 429; see also Guardianship of Leach (1946) 29 Cal.2d 535, 539.) Gregory did not appeal.
Gregory raised the issue of an amended return in his objections to the second account, in 2006, but again failed to mention the purported deadline. Finally, he raised the issue in his objections to the supplement to the second account, but again failed to mention the deadline and relied on letters of his counsel that suggested Gregory believed an amended return could still be filed. In short, the May 11, 2003 purported filing deadline seems to have been raised by Gregory long after the appropriate time and is inconsistent with his litigation position. Gregory can hardly be heard to argue that Moore should have done something within a 10-day window period in 2003 that Gregory appeared to think could still be done in 2006.
We find that Gregory has failed to establish, by proper and timely argument, that Moore committed a breach of trust by failing to file an amended return. In any case, Moore would not be liable for any breach of trust under these circumstances. The trust excludes the trustee from liability except for willful misconduct or gross negligence, which are absent here. The record does not support those exceptions of misconduct on the part of Moore to establish his liability.
2. Surcharges.
In one page of argument with no citation to authority, Gregory claims in his opening brief that the trial court abused its discretion by allowing Moore to add interest to the three surcharge judgments. Gregory also argues, again without citation to authority, that Moore used an improper method to calculate the interest. Both arguments are without merit. Interest on surcharges is allowed by law, and the 10 percent interest rate used for judgments generally is a proper measure of interest. (Prob. Code, §§ 9601, 9602; see Ross et al., Cal. Practice Guide: Probate (The Rutter Group 2006) ¶ 16:203, p. 16-59.)
III. DISPOSITION
The November 9, 2006 order approving the supplement to the second account is affirmed.
We concur: Swager, J., Margulies, J.