Opinion
G054677
06-28-2018
KENNETH J. CUMMINS, as Trustee, etc., Plaintiff and Appellant, v. ORVIS E. ADAMS, et al., Defendants and Respondents.
Bidna & Keys, Richard D. Keys and Howard M. Bidna for Plaintiff and Appellant. Donna Bader; Price, Crooke, Gary & Hammers, Bruce J. Gary, Stephen G. Hammers and Carli J. Simkin for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00746965) OPINION Appeal from a judgment of the Superior Court of Orange County, David L. Belz, Judge. Judgment affirmed in part, reversed in part, conditionally reversed in part, and remanded with directions. Request for judicial notice denied. Bidna & Keys, Richard D. Keys and Howard M. Bidna for Plaintiff and Appellant. Donna Bader; Price, Crooke, Gary & Hammers, Bruce J. Gary, Stephen G. Hammers and Carli J. Simkin for Defendants and Respondents.
* * *
Defendant and respondent Orvis E. Adams (Orvis) and his wife, Shirley Adams (Shirley), now deceased, created a family trust. This action concerns the propriety of actions taken by Orvis, as the surviving spouse and trustee, and defendant and respondent Karen Adams (Karen; with Orvis collectively defendants), a successor cotrustee, after Shirley's death. Plaintiff and appellant Kenneth J. Cummins (plaintiff), a court-appointed temporary trustee, claim the probate court made several errors in its rulings on various petitions and accounts, including refusing to confirm certain assets to a subtrust, approving defendants' accounting, refusing to surcharge Orvis for breaches of the trust, refusing to impose a constructive trust on real property acquired with funds improperly gifted from the trust, and confirming successor trustees appointed by Orvis.
We agree with all of plaintiff's claims except as to the appointment of successor trustees and reverse on those grounds and remand with directions to enter new orders. In all other respects the judgment is affirmed.
Defendants filed a request for judicial notice of plaintiff's petition to approve a second accounting. This was filed after the rulings that are the subject of this appeal were made and was not before the trial court. On appeal the record is limited to documents that were before the trial court. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3.) There are no exceptional circumstances that would justify our considering this document (ibid.) and the request is denied.
FACTS AND PROCEDURAL HISTORY
California Rules of Court, rule 8.204(a)(1)(C) requires "any reference to a matter in the record" to be supported "by a citation to the volume and page number of the record where the matter appears." (Italics added.) This applies to the argument portion of the brief as well as to the statement of facts. (City of Lincoln v. Barringer (2002) 102 Cal.App.4th 1211, 1239, fn. 16 [purpose of rule "is to enable appellate justices and staff attorneys to locate relevant portions of the record expeditiously without thumbing through and rereading earlier portions of a brief"].)
Plaintiff provided some record references but fell short of compliance by including many factual claims without any citation to the record. And some references were to the first page of a document or to a range of pages rather than the specific page supporting the fact. "[I]t is not our responsibility to scour the appellate record for evidence to support a party's position." (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1270.) This lack of adequate record references significantly hindered our review and made it more time consuming. (Nazari v. Ayrapetyan (2009) 171 Cal.App.4th 690, 694, fn. 1 [citation to block of pages "frustrates this court's ability to evaluate which facts a party believes support his position," italics omitted].)
Although failure to comply with the court rules is a ground for forfeiture of claims and we generally will disregard facts and arguments not supported by adequate citations to the record (Provost v. Regents of University of California (2011) 201 Cal.App.4th 1289, 1294), we deemed it important to address the issues on the merits and thus we considered facts, and arguments based thereon, to the extent we could verify them.
Defendants also fell short in following court rules. Citation to the opening brief is not a proper substitute for the required citation to the record.
Orvis and Shirley, who had three now-adult children, Barbara Adams Meade (Barbara), Debbie Adams (Debbie), and Karen, created the Adams Family Trust in 1987. The Adams Family Trust was amended and restated in 1992. The amended and restated trust, prepared by attorney Karen Holt (Holt), is the operative trust (Trust). The Trust was revocable until Shirley died in 2006. Orvis and Shirley were the trustees at the time of Shirley's death.
The Trust required the trustee, upon the death of the first settlor, to divide the trust estate into two trusts - the survivor's trust (Survivor's Trust) and the exemption trust (Exemption Trust; the Survivor's Trust and the Exemption Trust collectively Subtrusts). The Exemption Trust, which was irrevocable, was to be funded with the maximum amount of Shirley's separate property plus Shirley's portion of community property that could be exempted from estate tax.
The Exemption Trust, a so-called "special needs trust," was to provide for Debbie's needs, "to insure that there shall always be a friend, advocate, and protector" of Debbie's legal rights and to make sure she received services to provide her with a "reasonable degree of happiness and normalcy." The Trust stated Debbie "suffers from severe brain injury," making her essentially unable to care for herself. The Trust further provided that, in "exercising the discretionary power to invade principal [of the Exemption Trust]," the trustee should keep in mind that "a primary concern" of Orvis and Shirley was Debbie's welfare and "the interests of other beneficiaries in the [T]rust are secondary."
Orvis is the income beneficiary of the Exemption Trust, with a right in limited circumstances to invade its principal. The Exemption Trust was to continue until Debbie's death, at which time any remaining assets were to be distributed to Barbara and Karen.
When Shirley's sister died, she left Shirley in excess of $500,000 from the Wilkerson Family Trust (Inheritance), which Shirley assigned to the Trust. Orvis testified he and Shirley discussed using the money to "help[] Karen with her house and Barbara." Barbara, who was the trustee of the Inheritance, testified Shirley never said she wanted to use the Inheritance for Karen's house but instead for "Debbie's wellbeing."
In May 2006, two months after Shirley's death, Orvis received a $500,000 check from the Inheritance and deposited the funds into OptionsXpress account number 5AA1-1421. A few months later the funds in that account were transferred to a different OptionsXpress account, number 0100-3136. There is no evidence any of that sum was ever transferred to the Exemption Trust. Orvis explained he withdrew $30,000 from the OptionsXpress Account to purchase a life insurance policy owned by Barbara and Karen.
In referring to the OptionsXpress accounts, the parties generally do not distinguish between the two. It does not appear necessary to differentiate between them and we use the term OptionsXpress Account to include both or either.
Between June and October 2006 Orvis withdrew an additional $250,000 from the OptionsXpress Account, $220,000 of which was used for investments for the Trust. He also deposited not quite $69,000 into the OptionsXpress Account after he liquidated an investment.
In March 2007 Orvis withdrew $315,000 from the OptionsXpress Account and used $311,500 of it as partial payment for purchase of a $515,000 condominium in Long Beach on Karen's behalf (Condo).
The court stated this amount was undisputed. The remaining $3,500 was not accounted for.
In February 2007 Orvis appointed Barbara to serve with him as cotrustee of the Trust. Subsequently Barbara and Orvis consulted with Holt to calculate how to divide the Trust's assets into the Survivor's Trust and the Exemption Trust. Holt testified the purpose of an exemption trust is to obtain the maximum exemption from estate taxes. She stated she explained to Orvis and Barbara that in funding an exemption trust there are two methods of viewing the estate assets. One way, a nonaggregate allocation, looks at the property in the trust at the date of death of the first spouse and allocates that property between the two subtrusts. If the trust assets are not sufficient to fund an exemption trust to its maximum benefit, all of the property, including community property and separate property not in the trust can be viewed in the aggregate to allocate the property.
The value of the estate was approximately $3.7 million. Orvis and Barbara agreed to use an aggregate allocation method and allocate $2 million to the Exemption Trust and approximately $1.7 million to the Survivor's Trust. This was documented in an allocation agreement (Allocation Agreement), which Orvis and Barbara signed in January 2008. The Allocation Agreement set out the specific assets assigned to each trust. Orvis and Shirley's residence (Residence), where Debbie also lived, two annuities (Fidelity Accounts), and more than $498,000 of Shirley's $500,000 Inheritance were allocated to the Exemption Trust. The remaining assets, including vehicles, personal property, securities, bank accounts, individual retirement accounts (IRA's), other annuities, and the balance of the Inheritance, were allocated to the Survivor's Trust.
Holt delivered to Orvis and Barbara a binder containing various documents she had prepared and instructions as to the trustees' responsibilities, including instructions as to how to transfer assets to the subtrusts. The instructions told Orvis and Barbara the assets had to be transferred to complete the division of assets into the subtrusts and to keep the assets of the two subtrusts separate from each other. Holt told Orvis numerous times, beginning in the initial stages of representation, that he could not commingle assets.
The instructions also specified the trustees could not use the Exemption Trust assets "to purchase luxuries" or to make gifts. Holt had also explained this information to Orvis numerous times from early in her representation.
After the Allocation Agreement was signed, little if anything was done to transfer any assets into the Exemption Trust. A letter from Holt to Orvis and Barbara stated she had prepared a quitclaim deed for the Residence and sent them to the recorder. The record contains no evidence of such a deed.
Orvis did not transfer title to the Fidelity Accounts or to the Exemption Trust but cashed them out, and in November 2009 purchased two new annuities with Jefferson National Life Insurance Company (Jefferson Annuities) in the amounts of approximately $447,000 and $148,500. Owners of the Jefferson Annuities were shown as the Orvis Adams Family Survivors Trust and Orvis Adams, respectively. The beneficiaries of the Jefferson Annuities were shown as the Orvis Adams Family Survivors Trust and the Adams Family Survivors Trust, respectively. In January 2014 Orvis withdrew $100,000 from one of the Jefferson Annuities and purchased a third annuity showing him as the owner and "Special Needs Trust FBO Deborah Ann Adams" as the beneficiary. In February 2014 Orvis withdrew $100,000 from the OptionsXpress Account and deposited into an account held by the Survivor's Trust.
Two years later Orvis sent a $100,000 check payable to the Exemption Trust to plaintiff "in mitigation of the damages created by the February 3, 2014 withdrawal from the OptionsXpress [A]ccount."
In December 2013 Orvis removed Barbara as a cotrustee of the Trust and named Karen in her place. In September 2014 Barbara filed a petition seeking to remove defendants as trustees of the Trust and appointment of a neutral trustee, require them to file an accounting, for an order surcharging them and imposing a constructive trust, and for expenses and fees (Barbara's Petition). Barbara stated she had "grave concern" as to whether Debbie's wishes were being addressed and her needs being met. She stated Debbie did not want Karen to be the trustee or have a hand in her care.
Barbara's Petition contended Orvis had violated his fiduciary duty and violated the terms of the Trust by his gift of $315,000 to Karen for purchase of the Condo and sought to have a constructive trust imposed on it. Barbara's Petition also asserted Orvis had never filed an accounting for the Exemption Trust.
In Orvis's opposition to Barbara's Petition he admitted no assets had been transferred to the Exemption Trust or the Survivor's Trust. As a result, he argued, the Allocation Agreement was "effectively meaningless." He claimed he and Karen were creating a new allocation. Orvis denied Barbara's statements about Debbie's wishes.
He also maintained Barbara knew about, negotiated, and approved the $315,000 payment for the Condo. Orvis contended he was not required to file an accounting.
Barbara filed a reply setting out a variety of arguments, including that she had known nothing of the $315,000 gift to Karen at the time it was made.
Thereafter, the court issued an order requiring defendants to produce an accounting of the Exemption Trust from the date of Shirley's death pursuant to Probate Code requirements and set a hearing.
Subsequently, in March 2015 defendants filed a petition for first account and for instructions regarding allocation of assets to the Exemption Trust and Survivor's Trust (First Account Petition). They claimed the Allocation Agreement was erroneous for a variety of reasons and suggested the proper allocation to the Exemption Trust was approximately $943,000 and proposed assets to be included. They also sought instructions as to whether Shirley's Inheritance should be allocated to the Exemption Trust in total or split between the Exemption Trust and the Survivor's Trust. They sought the same instructions regarding a Roth IRA and certain annuities. The accounting was based on the assumption that the Exemption Trust would be funded in the amount of $943,000, not $2 million.
Barbara then filed a supplement to Barbara's Petition (Barbara's Supplement) in which she objected to the "purported 'accounting'" in the First Account Petition. She reiterated requests made in Barbara's Petition.
Thereafter the court suspended defendants as trustees of the Exemption Trust and appointed plaintiff as temporary trustee. It required defendants to cooperate with plaintiff and transfer all assets of the Exemption Trust listed on the First Account Petition and all books and records to plaintiff, including those for the Jefferson Annuities, OptionsXpress Account, and the Fidelity Accounts. Plaintiff was ordered to prepare an accounting of the Exemption Trust for the period March 2006 through April 2015. Third parties were ordered to cooperate with plaintiff. The court also ordered the Residence could not be sold or encumbered without court order.
Plaintiff testified at trial that neither defendant turned over any records for the Exemption Trust, including the Jefferson Annuities, OptionsXpress Account, and the Fidelity Accounts.
In August 2015, plaintiff prepared and filed the "Temporary Trustee's Report No. 1." He reported he had taken possession of an OptionsXpress Account, the Jefferson Annuities, and the Residence, with their total value at $1,736 million. He stated defendants did not turn over all books and records as the court had ordered. Plaintiff traced assets from the Allocation Agreement to the extent he could based on the information available to him.
In September, Barbara filed a petition asking the court to appoint plaintiff as the permanent trustee of the Exemption Trust (Permanent Trustee Petition).
In November Orvis, claiming to exercise his power to remove trustees under the Trust, purportedly removed himself and Karen as trustees and plaintiff as temporary trustee of the Exemption Trust. He also purported to appoint Lee Ann Hitchman and Bruce Hitchman (collectively Hitchmans), allegedly professional fiduciaries, as successor cotrustees. He filed a petition asking the court to confirm his acts (Orvis's Petition).
In January 2016 plaintiff filed a petition (Plaintiff's Petition) as to four items: confirming he was the temporary trustee; confirming the Jefferson Annuities belonged to the Exemption Trust and ordering Orvis to transfer them; confirming the Condo was owned by the Exemption Trust; and for breach of fiduciary duty against defendants seeking damages, a surcharge, and attorney fees. As to the breach of fiduciary duty claim, plaintiff alleged, among other things, defendants failed to properly account; withdrew $665,000 from the Exemption Trust; failed to prudently invest the Exemption Trust's funds; failed to maintain proper records; gifted $315,000 to Karen for purchase of the Condo; and failed to transfer title of the Exemption Trust assets.
Defendants then filed supplemental objections in which they explained certain of the deposits and withdrawals from the OptionsXpress Account. One withdrawal was used to pay for life insurance premiums on a policy jointly owned by Karen and Barbara. The remaining withdrawals from the OptionsXpress Account were used for investments, all titled in the name of the Trust.
After the court tried Barbara's Petition, the First Account Petition, the Permanent Trustee Petition, Orvis Petition, and Plaintiff's Petition, it rendered a final statement of decision and judgment of the court (Statement of Decision).
Plaintiff filed an objection to the court's original tentative decision purporting to serve as the statement of decision. Defendants filed a proposal as to the contents of the statement of decision and both Barbara and plaintiff filed objections to the proposed statement of decision.
It denied the request to remove defendants as cotrustees and appoint plaintiff as the successor trustee. It confirmed the Trust authorized Orvis to remove and name trustees. It also confirmed he validly exercised that power. The court suspended plaintiff's powers as temporary trustee, reinstated Orvis's authority to appoint the Hitchmans as successor trustees, and appointed the Hitchmans as cotrustees.
The court found the Allocation Agreement was enforceable and denied defendants' request to modify it. It also denied their request to split the Inheritance between the Exemption Trust and the Survivor's Trust. The Allocation Agreement allocated the Inheritance to the Exemption Trust.
Additionally, the court found Barbara's Petition was barred by the three-year statute of limitations under Probate Code section 16460 (all further statutory references are to this code, unless otherwise stated), which started running from the date Barbara had actual knowledge Orvis had given $311,500 to Karen for the Condo purchase. Orvis testified he intended the funds to come from the Survivor's Trust. The court found his testimony credible. It also found that at the time of the gift, the Exemption Trust and Survivor's Trust had not been funded.
The Statement of Decision stated that upon Shirley's death Orvis had a duty to allocate the Trust assets into the Exemption Trust and Survivor's Trust. Funding was "considerably delayed." It further stated Orvis breached the terms of the Trust by failing to fund the Exemption Trust within six months of Shirley's death. The court found the breach did not cause damages. There was no showing of a loss of or depreciation in the Trust assets based on the $311,500 transfer.
The court treated the $311,500 transfer as an "early distribution" to Karen from Orvis's portion of the Trust, resulting in a reduction in the amount of the Survivor's Trust and an offset of Karen's future "inheritance." The court relied on a Trust provision stating the "spouses" had authority to withdraw any payments from the estate and pay "the spouses and/or to any other person or organization of the spouses" to support its finding Orvis had the power to pay money to Karen from the Trust. The court also found there was no evidence Karen aided or abetted Orvis in the $311,500 gift to her.
The court noted the Trust provided that gifts to Karen or Barbara could not exceed what would qualify under the federal gift tax exclusion. The court found the $311,500 transfer could therefore not be treated as a gift. As to the remaining $3,500 not accounted for from the $315,000 withdrawal, because the Exemption Trust and the Survivor's Trust were not yet "set up," Orvis had the right to those funds and was not required to account. Orvis's explanation about why he thought he had the power to make the transfer was credible. The court found insufficient evidence to impose a surcharge on the Condo. In addition, the evidence did not support an order for Karen to convey the Condo to plaintiff.
The court also found Orvis "acted reasonably and in good faith under the circumstances" and thus the evidence did not support a surcharge or an award of damages against defendants.
The Statement of Decision stated the Trust provided a trustee could not be liable to a beneficiary for "acts or failures to act, except for willful misconduct or gross negligence." The court cited section 16461, subdivision (b), which states a trust provision cannot "relieve the trustee of liability (1) for breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary, or (2) for any profit that the trustee derives from a breach of trust."
The court found there was insufficient evidence to support a finding of gross negligence, bad faith, willful misconduct, or acting with reckless indifference to Debbie's interests.
The court found any "misuse of accounts by Orvis" "would appear to be inadvertent and not in bad faith and, therefore . . . a result of a breach of fiduciary duty." It further found there was insufficient evidence to support plaintiff's allegations Orvis failed to account, maintain sufficient records, or use prudent investor standards. Orvis's credible testimony was sufficient to explain from where assets had been withdrawn and where they were used.
The court found that despite acts by Orvis that violated the Trust, they were not wrongful, and thus were insufficient evidence to support a surcharge.
The court found the evidence did not support a finding determining the Jefferson Annuities were owned by the Exemption Trust.
DISCUSSION
1. Jefferson Annuities
Plaintiff challenges the court's finding there was insufficient evidence to support an order the Jefferson Annuities were owned by the Exemption Trust. We determine "'whether the evidence compels a finding in favor of [plaintiff] as a matter of law.'" (Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 466.) To do so we consider whether plaintiff's evidence "'was (1) "uncontradicted and unimpeached" and (2) "of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding."'" (Ibid.) Our review shows the evidence supported a finding the Exemption Trust owned the Jefferson Annuities.
According to the Allocation Agreement the Fidelity Accounts were to be part of the Exemption Trust. The parties stipulated the Jefferson Annuities were purchased with funds from the Fidelity Accounts. In addition, in their proposed statement of decision defendants requested the court find the Jefferson Annuities could be traced to the Fidelity Accounts that were allocated to the Exemption Trust and further find the Jefferson Annuities "do comprise part of the Exemption Trust." Thus defendants as well as plaintiff agreed the Jefferson Annuities were part of the Exemption Trust. Given this evidence and these circumstances there is no basis for the court's ruling they were not.
We are not persuaded by defendants' argument on appeal the court envisioned that the successor trustees, the Hitchmans, would determine what assets, including the Jefferson Annuities, could be transferred into the Exemption Trust. The portion of the Statement of Decision on which defendants rely in support of this argument is the court's statement the Hitchmans will decide how much of the Inheritance remained. It said nothing about any of the other assets.
Likewise, defendants' contention IRA's cannot be transferred into the Exemption Trust fails. No one has suggested the Jefferson Annuities are IRA's. That the "composition and values" of Trust assets have changed since the allocations between the Exemption Trust and Survivor's Trust is also irrelevant. Changes in value would have happened even had the Jefferson Annuities been properly and timely transferred into the Exemption Trust. Such changes have no bearing on whether the court should confirm the Exemption Trust owns and has always owned the Jefferson Annuities. Thus, the judgment refusing to confirm the Exemption Trust's ownership of the Jefferson Annuities must be reversed and the court is directed to confirm the Exemption Trust has always owned them. 2. Approval of First Account Petition
One basis for plaintiff's request to confirm the Exemption Trust has always owned the Jefferson Annuities is to avoid incurring income tax. An order to transfer the Jefferson Annuities would require their cashing out and distribution of the proceeds to the Exemption Trust, which would be a taxable event.
The court approved the First Account Petition and confirmed all actions of defendants, finding that although Orvis breached Trust provisions, his acts were not wrongful. Plaintiff argues this was error because it conflicts with the court's finding the Allocation Agreement was enforceable and its denial of defendants' request to modify it. We agree.
As plaintiff points out, the First Account Petition challenged how the assets were divided in the Allocation Agreement and then sought to have the court "correct" it. The First Account Petition proposed assets totaling just under $931,000 be allocated to the Exemption Trust and then "accounted" based on that assumption. There are several problems with this.
First, obviously, the allocation proposed in the First Account Petition is not what Orvis and Barbara as trustees had already agreed to and what the court confirmed was enforceable. Second, the amount allocated to the Exemption Trust in the First Account Petition is more than $1 million less than the $2 million amount in the Allocation Agreement. Third, the major asset proposed to be assigned is an $820,000 note from an unnamed maker secured by the Residence. Yet Orvis testified at trial there was no such note. Fourth, neither the inventory and appraisement nor the schedule showing the property on hand list the Residence.
The court's approval of the First Account Petition incorrectly and contradictorily validates the proposed $1 million-plus reduction in the allocation to the Exemption Trust, contrary to the allocation set out in the Allocation Agreement. This has the effect of not requiring the $2 million funding of the Exemption Trust.
Defendants do not challenge the substantive problems with the First Account Petition but instead rely on the court's finding no objections were filed to the First Account Petition. They claim plaintiff has thus waived any objections. We disagree.
The record reflects both plaintiff and Barbara objected to the First Account Petition. In Barbara's Supplement she specifically stated she "object[ed] to this purported 'accounting' in its entirety," stating she would file a detailed objection if the court failed to appoint an independent successor trustee. Barbara's Supplement further stated defendants "willfully failed to comply with" the order to file an accounting of the Exemption Trust according to the Allocation Agreement and instead wrongfully only accounted for the assets they believed should have been allocated to the Exemption Trust.
Thereafter the court appointed plaintiff as temporary trustee and ordered him to prepare an accounting. Plaintiff did so when he filed the Temporary Trustee's Report No. 1, which was used as a starting point of the Allocation Agreement. It stated plaintiff had not been able to fully trace assets or accounts because Orvis had failed to provide documents and explanations for certain transactions including withdrawals from the OptionsXpress Accounts. Plaintiff's accounting conflicted with the First Account Petition.
Additionally, in Plaintiff's Petition he alleged the First Account Petition was "materially inaccurate and incomplete in many particulars," including: listing an incorrect value for the total inventory of assets at the date of death; failing to show assets in the Exemption Trust that had been allocated by the Allocation Agreement; substantially understating the disbursements; failing to list the Condo and using Exemption Trust assets to pay for it; and failing to explain certain losses. Plaintiff's Petition stated plaintiff "hereby contests such account." And a portion of the trial concerned the inadequacy of the First Account Petition. (Prob. Code, § 1043, subds. (a), (b) [interested person may object orally or in writing to accounting before or at hearing].) Thus, there is no question there were objections to the First Account Petition.
The record does not support the court's approval of the First Account Petition and therefore that order must be reversed.
Likewise, the order confirming all of defendants' acts cannot be upheld. The court found Orvis breached the Trust and misused funds. Although the court also found Orvis's conduct was not in bad faith and was "inadvertent," it makes no sense to confirm actions that violated provisions of the Trust. Therefore, that portion of the judgment confirming the acts of defendants as prayed for in the First Account Petition must be reversed.
Further, we will remand to the probate court for it to order funding of the Exemption Trust in the sum of $2 million as provided by the Allocation Agreement. As noted above, we are also ordering the probate court to confirm the Jefferson Annuities have always been part of the Exemption Trust. There is no dispute the Residence is also an asset of the Exemption Trust. Nor is there any dispute about the $100,000 check Orvis sent to the Exemption Trust in mitigation of a withdrawal he made from the OptionsXpress Account. Orvis testified that when plaintiff was appointed and took over the OptionsXpress Account it contained approximately $100,000. The court shall confirm these are assets of the Exemption Trust as well.
Finally, as the court ruled, the Inheritance was allocated to the Exemption Trust. The Inheritance was deposited into the OptionsXpress Account. The court should confirm the amount in this account at the time plaintiff took over as trustee belongs to the Exemption Trust. 3. Surcharge Against Orvis
The Allocation Agreement allotted all but about $1,700 of the Inheritance to the Exemption Trust. Based on the court's validation of the Allocation Agreement, we assume the court intended to confirm the amount of the Inheritance stated in the Allocation Agreement.
Plaintiff argues the court erred by failing to surcharge Orvis for his failure to transfer assets to the Exemption Trust according to the Allocation Agreement. He contends Orvis breached the Trust by failing to do so and further maintains Orvis cannot be allowed to retain assets that are rightfully part of the Exemption Trust.
Pursuant to section 16000, Orvis had a duty to administer the Trust pursuant to its terms. As stated above, the court found he did not do so in several respects, including failure to transfer assets to the Exemption Trust. Thus, the court had the power to surcharge Orvis. (§16420, subd. (a)(3).)
The Trust states: "No trustee named in the instrument shall be liable to any beneficiary or to any heir of either spouse for the trustee's acts or failure to act, except for willful misconduct or gross negligence" (Section 14.7). A trust provision may relieve a trustee for liability for breach of trust unless the breach is "committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary." (§ 16461, subds. (a), (b)(1).)
The court found that although Orvis breached the Trust, he did not commit these acts or omissions intentionally, in bad faith, or with gross negligence or reckless indifference to the beneficiaries interest. The court found Orvis credible and that "under the circumstances" he acted reasonably and in good faith when he failed to timely fund the Exemption Trust. Thus, it concluded, there was no basis to surcharge him.
Surcharge of a trustee is within the court's discretion and we review the ruling for abuse of discretion. (§§ 16420, subd. (a)(3); 17206; Estate of Bonaccorsi (1999) 69 Cal.App.4th 462, 467, 471-472; see generally Estate of Gump (1991) 1 Cal.App.4th 582, 597-598.) Where factual determinations are made in ordering or declining to order a surcharge, we review for sufficiency of the evidence. (Estate of Fain (1999) 75 Cal.App.4th 973, 992.)
We begin with the presumption the judgment is correct. (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.) On review of a judgment "'"based upon a statement of decision following a bench trial, 'any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]' [Citation.]"'" (Axis Surplus Ins. Co v. Reinoso (2012) 208 Cal.App.4th 181, 189.) We may not reweigh or resolve conflicts in the evidence or redetermine the credibility of witnesses. (Citizens Business Bank v. Gevorgian (2013) 218 Cal.App.4th 602, 613.) We liberally construe the court's findings of facts, whether express or implied. (Ibid.)
Our review of the record substantiates the court's findings Orvis did not commit willful misconduct, gross negligence, bad faith, or reckless indifference. Even plaintiff agreed Orvis did not act in bad faith or commit willful misconduct. The court's findings cut against surcharging Orvis under section 16461, subdivisions (a) and (b), and we affirm that ruling. No abuse of discretion appears.
Nevertheless, because Orvis breached the Trust, among other things, by failing to properly allocate assets to the Exemption Trust, the court has the power to compel him to perform his duties. (§ 16420, subd. (a)(1).) Section 14.7 exculpating Orvis from liability to the beneficiaries does not shield him from his responsibilities to fulfill the duties he had as trustee.
The court's finding Orvis's failure to timely fund the Exemption Trust did not cause any damage is not supported by the evidence. The Statement of Decision did not recite any facts in support of this finding and even the most liberal view of the evidence and inferences drawn therefrom do not support it.
"'"Substantial evidence . . . is not synonymous with 'any' evidence."'" (Estate of O'Connor (2017) 16 Cal.App.5th 159, 163.) It must have "'"ponderable legal significance"'" and be "'"reasonable, credible and of solid value."'" (Ibid.)
Rather, the Exemption Trust, which was still not funded at the time of the trial, 11 years after Shirley's death, has been damaged by Orvis's breach because of the very fact it has never been properly funded. The assets that should have been transferred remain in the name of the Trust for Orvis's benefit rather than for the benefit of Debbie, as the Trust expressly provided. Additionally, as plaintiff points out, the assets are exposed to claims from Orvis's creditors.
Under section 16461, subdivision (b)(2) a trust provision may not relieve a trustee of liability "for any profit that the trustee derives from a breach of trust."
Therefore, on remand the court shall issue an order requiring Orvis to take whatever steps are necessary to transfer assets that are confirmed to belong to the Exemption Trust to the trustee of the Exemption Trust.
According to plaintiff, if we order the court to confirm the assets specified in section 2 of this opinion to the Exemption Trust, the value of those assets will still be short by not quite $302,000. We make no such finding but on remand the trial court must determine the amount of any shortfall in the Exemption Trust, which will have to be made up, either from assets of the Trust not already allocated to the Exemption Trust or, as discussed below, by imposing a constructive trust on the Condo. 4. Constructive Trust on Condo
Plaintiff's Petition sought to have a constructive trust imposed on the Condo and have it ordered to be an asset of the Exemption Trust. Plaintiff relies on the following facts: The $311,500 Orvis gave to Karen to purchase the Condo came out of the OptionsXpress Account into which the Inheritance money was deposited. Orvis testified the money came from the Exemption Trust although he intended to use the Survivor's Trust assets. Holt had told Orvis several times during the course of her representation that he could not use assets of the Exemption Trust for gifts. Orvis understood the transfer of funds to Karen was a gift and treated it as such, filing a federal gift tax return showing Karen as the recipient.
The court denied the request, deeming the transfer of funds an "early distribution" to Karen from the Survivor's Trust, offsetting any future inheritance. Although Orvis had treated it as a gift the court ruled this would violate a Trust provision prohibiting gifts in excess of what would qualify under the federal gift tax exclusion.
The rationales for the court's rulings are incorrect. First, the Trust provision regarding gifts on which the court relied applies only to someone acting on Orvis's behalf as a conservator or attorney under a durable power of attorney. It does not apply to acts by Orvis himself.
Second, during his lifetime, the assets in the Survivor's Trust (after proper funding of the Exemption Trust) belong solely to Orvis. Nothing in the Trust prevents Orvis from making a gift from the Survivor's Trust. Had he used the assets from the Survivor's Trust to give the funds to Karen, this issue would not be before us. Further, Orvis has the right to designate and change beneficiaries in the Survivor's Trust. Karen has no vested rights to any distribution from that trust and there is no such thing as an "early distribution."
Plaintiff asserts the evidence shows Orvis committed a breach of the Trust. We agree. Even though the court found Orvis's explanation of why he did what he did was credible and not in bad faith, it was still a breach of the Exemption Trust.
Defendants did not direct us to any evidence supporting the court's findings or otherwise argue the substance of this issue. They merely relied on the argument imposition of a constructive trust was barred by the statute of limitations. As discussed below, we disagree.
When a trustee commits a breach of trust, the court may trace and recover trust property that was wrongfully transferred (§ 16420, subd. (a)(9)) and impose a constructive trust on a trust asset (§ 16420, subd. (a)(8)). "This statutory provision adopts the well-established common law rule that a beneficiary of a trust may bring an action against a third party to recover property transferred to the third party by the trustee in breach of trust." (Wolf v. Mitchell, Silberberg & Knupp (1999) 76 Cal.App.4th 1030, 1038.) Thus we conditionally reverse that portion of the judgment denying imposition of a constructive trust on the Condo.
This authority is limited by section 18100, which protects a third party dealing with a trustee if the third party acts in good faith and without knowledge of any wrongdoing and provides valuable consideration. Section 18100 does not apply here because Karen did not provide any consideration.
As discussed above, the Exemption Trust must be fully funded with assets totaling $2 million. This either can be done by transfer of assets (not already allocated to the Exemption Trust) from the Trust or it can be done by imposing a constructive trust on the Condo. On remand, the court shall make a determination as to how to accomplish this. If the shortfall is funded from Trust assets, then that part of the judgment denying imposition of a constructive trust shall be reinstated. 5. Statute of Limitations
The court ruled the claims in Barbara's Petition were barred by a three-year statute of limitations. (§ 16460, subd. (a).) Specifically, as to the Condo, it found Barbara knew about Orvis's transfer of $311,500 to Karen to purchase the Condo in 2007 and did not file Barbara's Petition until 2014. The court made no finding as to a statute of limitations defense against plaintiff, despite his request for same.
Contrary to defendants' assertion, the court did not find the statute of limitations applied to "any" claim for a surcharge based on the payment to Karen for the Condo.
In a statement of decision, the trial court is required to state only ultimate facts. (In re Marriage of Balcof (2006) 141 Cal.App.4th 1509, 1531.) Generally, failure to make findings on a material issue would result in reversible error. (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.) Here, as discussed below, there are no factual disputes and we need not reverse for a determination on this issue because we are ruling as a matter of law.
Plaintiff argues that despite the court's finding as to Barbara's claims, his are claims not barred by the statute of limitations. We agree.
Under section 16460, subdivision (a), a beneficiary's claim against a trustee for breach of trust must be brought within three years after the beneficiary has received a written account "that adequately discloses the existence of a claim against the trustee for breach of trust" or, in the absence of such an account, after the beneficiary knew or reasonably should have known of the claim. Plaintiff's claims were brought on behalf of Debbie. Barbara's knowledge of the transfer cannot be imputed to plaintiff, acting on Debbie's behalf, or to Debbie given that she is a conservatee. (Code Civ. Proc., § 352, subd. (a) [a plaintiff's mental incapacity tolls running of statute of limitations].)
It is undisputed Plaintiff's Petition was filed well within the statutory period, within one year of plaintiff being appointed as temporary trustee. Thus, as a matter of law the statute of limitations is no bar as to him.
In January 2015 Pamela Schuur was appointed as Debbie's guardian ad litem. Plaintiff's Petition was filed within one year of this appointment.
We are not persuaded by defendants' claim the statute of limitations did not restart when plaintiff was appointed temporary trustee. It makes no sense and it would be inequitable for Orvis to breach the Trust to Debbie's detriment, with Barbara's knowledge, to be able to raise the statute of limitations as a bar to plaintiff's claims on Debbie's behalf when he acted timely. The trustee should keep in mind that "a primary concern" of Orvis and Shirley was Debbie's welfare and "the interests of other beneficiaries in the [T]rust are secondary." 6. Appointment of Trustees
Plaintiff challenges the confirmation of the Hitchmans as trustees and argues Orvis cannot serve as or be allowed to appoint a trustee for the Exemption Trust. He asks that we instruct the probate court to select and appoint a neutral, professional trustee for the Exemption Trust and confirm Orvis may not remove that trustee or appoint trustees without a court order. This argument is problematic.
First, although plaintiff listed this as an issue on appeal, he failed to discuss it under a separate heading, in violation of California Rules of Court, rule 8.204(a)(1)(B). Instead he merely cursorily raised it in his surcharge argument. Second, plaintiff failed to provide any authority to support this claim. Thus, it is forfeited. (Provost v. Regents of University of California (2011) 201 Cal.App.4th 1289, 1294 ["we do not consider all of the loose and disparate arguments that are not clearly set out in a heading and supported by reasoned legal argument"].)
Moreover, even if we were to consider the issue on the merits, plaintiff's claim is not well taken. Under the Trust a "non-incapacitated spouse" has the power to appoint and remove trustees. As we have not been directed to any evidence Orvis is incapacitated, he still retains that power.
Defendants alleged the Hitchmans are professional fiduciaries. Plaintiff has not pointed to any evidence to the contrary. The mere fact Orvis appointed the Hitchmans does not mean they will not be independent, as plaintiff implies.
DISPOSITION
We reverse those portions of the judgment: 1) denying confirmation that the Exemption Trust owns the Jefferson Annuities; 2) approving defendants' First Account Petition; and 3) approving all of defendants' actions as trustees as requested in the First Account Petition. We also conditionally reverse that portion of the judgment denying imposition of a constructive trust on the Condo.
We remand to the probate court with directions to make the following orders: 1) confirm the Exemption Trust is to be funded at $2 million; 2) confirm the Residence, Jefferson Annuities, and the $100,000 reimbursement payment Orvis made to the Exemption Trust are assets of the Exemption Trust; and 3) confirm the amount in the OptionsXpress Account at the time it was transferred to plaintiff as temporary trustee and further confirm that amount is an asset of the Exemption Trust. The court shall also determine the amount in addition to the above-listed assets necessary to fully fund the Exemption Trust at $2 million. The court shall order this shortfall be made up by either Orvis transferring sufficient assets from the Trust or by imposition of a constructive trust on the Condo. If the court determines the shortfall shall be funded from Trust assets not otherwise allocated to the Exemption Trust, then the court shall reinstate that part of the judgment denying imposition of a constructive trust on the Condo.
The remainder of the judgment is affirmed. The request for judicial notice is denied. The parties shall bear their own costs on appeal.
THOMPSON, J. WE CONCUR: BEDSWORTH, ACTING P. J. MOORE, J.