Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, No. PN28664, Robert P. Dahlquist, Judge.
HUFFMAN, J.
Plaintiff and appellant Dale Kaye (Dale), as cotrustee of a trust established by his late parents (the trust), filed several petitions under Probate Code section 17200, subdivision (b), to seek instructions regarding the trust's gift provisions and other relief. During the lifetime of the surviving parent (Michael Kaye; Michael or "the trustor"), Dale's sister Karen Murray (Karen) assisted Michael in his financial and other affairs, including the management of the trust. Upon Michael's death, the survivor of either Karen and Dale was to be named the successor trustee. Karen continued to conduct trust business. After some preliminary litigation, Karen stipulated that Dale was named a co-trustee.
All further statutory references are to the Probate Code unless noted. To avoid confusion and without disrespect, we refer to the parties by their first names.
In Dale's current pleadings, he alleged Karen's trust administration and accounting were deficient and in bad faith, and that a conditional gift provision in the trust, giving a Ramona house to Karen, if the trust assets were sufficient, should not be enforced because the assets of the trust were insufficient to pay its debts (e.g., attorney fees in favor of Dale for contesting the trust provisions).
The Ramona property is a house located on Springwood Drive. As will later be described, it was purchased and refinanced in Michael's name, and in previous litigation in this matter, was determined to be a trust asset. (In re Estate of Heggstad (1993) 16 Cal.App.4th 943.)
In response, Karen filed petitions to reform the trust and for instructions and other relief, including findings that the Ramona house was meant to pass to her, and the approval of her accounting. (§ 17200, subd. (b).)
The matters were resolved after a lengthy bench trial, culminating in the probate court's preparation of a statement of decision and judgment denying Dale's claims in major part, while granting Karen's petition to reform the trust to enforce the provision regarding the gift of the Ramona house to her.
On appeal, Dale contends the trial court's interpretation and enforcement of the subject gift provision, and all its other related rulings, were erroneous on several grounds. First, he contends the trial court incorrectly considered, sua sponte, certain extrinsic evidence about the intent of the trustor, and it should not have found that the intent of the trustor required that under all the circumstances of the family finances and trust-related litigation, the assets of the trust should be deemed sufficient to transfer the Ramona house to Karen. (§ 21102, subd. (c).) Dale further argues the trial court abused its discretion when it excused Karen from some acts of self-dealing in trust assets, and when it awarded her attorney fees, payable by Dale. (§§ 16440, subd. (b); 16463; 15642, subd. (d).) Dale argues that instead, he was entitled to an award of attorney fees under section 17211, subdivision (b), for bringing a "meritorious" contest of Karen's accounting.
The record does not bear out any of Dale's contentions. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. Introduction and Frames of Reference on Review
At the 11-day trial conducted in July-August, 2008, the probate court had before it (a) Dale's Petition for Instructions Regarding Interpretation of Trust, filed September 13, 2006; (b) Karen's Petition for Reformation of Trust; Petition for Instructions, filed November 1, 2006; (c) Dale's First Amended Petition for (1) Breach of Fiduciary Duty, (2) Determining Title to and Transferring Property and Double Damages, and (3) Fiduciary Abuse, filed November 15, 2006; and (d) Dale's Petition for Instructions Regarding Sale of Real Property, filed August 29, 2007. Dale requested an accounting, which Karen had prepared by an accounting firm in January 2006. In April 2008, Dale filed a petition for an additional accounting, for the next time period.
As will be explained in more detail in the discussion portion of this opinion, the trial court heard extensive testimony and admitted numerous exhibits about the intent of the trustor, Michael, and the history of the trust administration conducted by Michael and these parties, as successors. At the conclusion of trial, the court issued a statement of decision that outlined the factual background of the case and its rulings on each of the petitions. Although Dale had repeatedly requested a statement of decision, by submitting extremely detailed proposed factual and legal findings, the court concluded that because of the onerous nature of those requests, Dale had failed to make a proper request for a statement of decision. (People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 525; overruled on other grounds in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 184-185.) Nevertheless, the court determined that the parties were entitled to a written statement of the reasons for the court's rulings on the main issues in the case, and the court prepared its own 29-page statement of decision.
The rules of review for judgments based upon statements of decision are well established. "Where [a] statement of decision sets forth the factual and legal basis for the decision, 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." (In re Marriage of Hoffmeister (1987) 191 Cal.App.3d 351, 358.)
On appeal, Dale does not specifically address the terms and findings of the statement of decision. He mainly argues issues concerning the incorrectness of certain of the probate court's legal conclusions that were based on related findings, such as the admissibility of extrinsic evidence, and he attacks the court's ultimate determination that his various petitions lacked merit. In turn, the trial court determined that Dale's attorney fees in the trust litigation should not properly be chargeable to the trust, for lack of good faith on Dale's part. (§ 17211, subd. (b).)
To examine Dale's legal arguments on appeal, we will set forth, as quoted or adapted, the language of the statement of decision, setting forth the history of this dispute, since it fully comports with the record. We will supplement it as necessary to complete our analysis of the legal arguments presented.
B. 1988 Creation and 2002 Restatement of Trust
1. Background Facts
Dale and Karen are adult children of the trustor. As explained in the statement of decision: "During their retirement years, Michael and [wife and mother] Evelyn lived in San Diego County. Karen also lived in San Diego County. As Michael and Evelyn grew older in their retirement, and as they needed help with their day-to-day lives, Karen became very active in assisting them. In Michael and Evelyn's later years, Karen provided almost daily assistance to them. Karen took them to their doctor appointments, assisted them with their shopping, took them to the bank and on other errands, picked up their prescriptions, etc. [¶] Dale and Ron lived too far away to have the kind of close, day-to-day relationship that Karen had with their parents. Dale lives in Torrance, in Los Angeles County. Ron lives in El Dorado County, near Sacramento.
Dale and Karen also have a brother, Ronald, who is a beneficiary under the trust. Ronald represented himself at trial but has not filed any appearance on appeal. Their brother Alan was intentionally not provided for by the trust and is not involved at all in this case.
"The Ramona Property was purchased by Michael and Evelyn in the 1980's as a place for Karen and her children to live. At that time, Karen was a divorced parent with three young children. Even though Karen had a job working outside of the home at that time, she was struggling financially, and Michael and Evelyn were providing financial assistance to her. After Michael and Evelyn purchased the Ramona Property, they allowed Karen and her children to live there, with Karen paying the taxes, utilities and mortgage on the house. [¶] In or about 1989, Karen hurt her back and became disabled from working. As of the time of trial, Karen had not worked full time outside of the home for any significant period of time for nearly two decades. Karen's last long-term, full-time employment was at an hourly retail position for the Alpha Beta supermarket chain. Karen's primary source of financial support is Social Security disability income. [¶] After Karen became disabled, Michael and Evelyn allowed Karen to live in the Ramona Property without paying the taxes, utilities and mortgage on the house, and without paying rent to Michael and Evelyn. Karen continued to live in the Ramona house, without paying rent, during much of the relevant time period in this case. [¶] Hence, Karen received some form of financial support from her parents during much of her adult life, including the entirety of the last 15 years or so of her parents' lives. [¶] In contrast, Dale and Ron were, and are, financially independent. During the relevant time periods, they had jobs and provided for their families without any meaningful financial support from their parents. As mentioned above, they lived in other parts of the state and had a more distant relationship with their parents."
2. Overview of Kaye Family Finances
In 1988, Michael and Evelyn established a revocable family trust (the trust). It was amended in 1998 and restated in 1999. After Evelyn died in 2001, Michael succeeded to her interests as the surviving spouse. The subject version of the trust is the 2002 Allocation and Restatement of Surviving Spouse's Trust (the 2002 Restatement). The trust provisions have remained generally consistent throughout, that the assets were to be used for the support of the trustors, with a surviving spouse trust to be created when one passes away. With regard to the duties of the trustee during the life of the trustor, he or she "shall hold, administer, and distribute the Trust estate" according to the designated needs of the trustor, and the trustor "may at any time direct the Trustee in writing to pay ... from the Trust estate to any person...." (Italics added.)
As explained by the court in its statement of decision, Karen was designated as a trustee between 1998 and 2002, and she otherwise participated in the management of the trust and her parents' financial arrangements, until Michael died in 2005. "In or about 1997, Evelyn's health was beginning to deteriorate. Up until that time, Evelyn had been in charge of the financial recordkeeping for Michael and Evelyn. Michael did not want to have this responsibility. Michael and Evelyn decided to have Karen take over this responsibility. Michael and Evelyn executed an amendment to their trust, providing that Michael and Evelyn were resigning as trustees and that Karen was taking over as trustee. However, Karen was not given a copy of the trust at that time, and she was unfamiliar with the terms of the trust. [¶] From the time that Karen began assisting her parents with their financial affairs until their death, Karen believed that she was obligated to follow her parents' directions with respect to all financial matters regardless of the existence of any trust. From the parties' conduct in and after 1997, it appears that Michael, Evelyn and Karen all primarily thought of the trust as an estate planning device that provided for the disposition of Michael's and Evelyn's assets upon their death, not as an existing legal arrangement of any significance other than allowing Karen to assist Michael and Evelyn with their finances as directed by Michael. As such, Karen did not follow any provisions of any trust instrument, in part because she didn't even have a copy of any trust instrument, but she instead followed whatever oral directions were given to her by her father."
That first amendment naming Karen as trustee was later superseded by the 2002 Restatement of the trust, which reinstated Michael as trustee until he died in 2005. The survivor of Karen and Dale was to be his successor trustee; both are still living.
Normally, Karen followed oral instructions of her parents regarding their finances, without asking for written confirmation. "During the entire time that Karen was assisting her parents with their financial affairs, whether designated as a trustee or otherwise, Karen continued to receive some forms of financial support from her parents. She lived in the Ramona House without paying rent. At various times, her parents' trust funds were used to pay some of the utilities and other expenses associated with the Ramona House. Her parents' trust funds were also used to pay some of Karen's other expenses. [¶] Dale and Ron were aware, during their parents' lifetime, that Karen was receiving financial support from their parents. They were also aware that Karen was, at some points in time, serving as a trustee of the trust."
3. 2002 Restatement of Trust; Michael's Death in 2005
When Evelyn passed away in 2001, Michael restated the trust in 2002 as a survivor's trust (the 2002 Restatement). Attorney Bruce Knowles drafted the 2002 Restatement, which redesignated Michael as trustee of the trust. The survivor of either Karen or Dale was to be named as successor cotrustees of the trust. The trust included a schedule listing the Ramona property as trust property, along with other personal property of the trustor.
The 2002 Restatement first set forth an article for the administration of the trust during Michael's life, providing that trust assets were to be used for his benefit. Regarding payments to others, the trustor "may at any time direct the Trustee in writing to pay single sums or periodic payments from the Trust estate to any person...."
In the next article allocating the trust assets upon the death of the trustor, it is specified that the trustee "shall make" distributions as specified, before allocating the trust assets. The article then states that the trustee "may, in the Trustee's reasonable discretion, pay from the Trust estate" the debts of the trustor, his final expenses, and administration expenses for the trust. Next, the operative conditional gift provision of the 2002 Restatement (the "gift provision") allocates the trust assets, reading as follows:
"GIFTS, TRUSTOR: Upon the death of Trustor the Trustor directs the Successor Trustee to make the following gifts, free of taxes so long as my estate is sufficient and so long as the items are owned by me or my estate at my date of death: none as Trustor has made lifetime gifts as she deemed appropriate, to wit: [¶] 1. To my daughter, Karen R. Murray, I give the realty commonly known as 23610 Springwood Drive, Ramona, CA 92065 as then encumbered. [¶] 2. To my son, Ronald William Kaye, I give the sum of One Thousand and No/100 Dollars ($1,000)." (Italics/underlining added.)
This underlined portion, regarding lifetime gifts, was explained in a declaration by the attorney who drafted the trust, Bruce Knowles, as being a drafting error (he mistakenly left it in Michael's trust when using a model trust prepared for a different female trustor). According to Attorney Knowles, the intent of Michael, the trustor, was to list the house as an asset of the trust, because he had not yet given the house to his daughter Karen, and would not do so until the gift went into effect upon his death. There is no specific contention about Michael making any lifetime gifts here.
Dale was to receive the remainder of the trust estate.
During the period from 2002 through 2005, Michael suffered from alcoholism, dementia, and depression to varying degrees. From 2002 through 2004, Michael lived in care facilities and was occasionally hospitalized for alcoholism or rehabilitation. Although Michael was redesignated as trustee, Karen continued to assist Michael with his financial affairs, essentially in the same way as before. Michael put Karen on his credit cards and had cards issued in her name, and allowed her to withdraw cash from trust bank accounts, so that she could continue to do various tasks that kept the separate living arrangements of Michael and Karen going. Michael did not expect Karen to pay rent on the Ramona property. However, Michael sometimes complained to Dale or Ron about Karen's inability to pay rent.
Michael and Karen worked together with Michael's mortgage loan broker, Stephanie Norvell, to refinance the Ramona property more than once. Michael told Ms. Norvell that the Ramona property was Karen's house. Michael's former daughter-in-law, Kathleen Hogan, was told by Michael that Karen was living in the house rent free because he wanted to help her out. Karen, Attorney Knowles, and Michael's regular doctor (of 12 years), Dr. Arsham, all believed and testified that Michael continued to want to support Karen by providing her a home and support, even for the period after he died, in return for her care. Michael sometimes gave Karen, Dale and Ron cash gifts.
In general, both Dale and Karen thought that Michael was usually capable of handling his own affairs, except when he was drinking heavily. In connection with one of Michael's discharges from detoxification in 2002, Dr. Navazo provided Karen a letter stating that Michael was not competent to make financial decisions. After that time, she did not seek his written consent for financial transactions. In 2002, Michael and Karen worked together to use trust assets to make a $75,000 loan to Attorney Knowles's corporation for real estate development. Attorney Knowles paid back all the money, either to the trust or to Michael's care facility for his rent.
Section 810 creates a rebuttable presumption that a trustor or testator has the capacity to make dispositions of property.
Karen lent her daughter (Michael's granddaughter) some money from the trust for personal business purposes. At some point, Karen went into personal debt to pay a trust tax lien and trust expenses.
In February 2005, Michael as the petitioner, assisted by Dale and Ronald and their attorney, Boris Siegel, petitioned to have the probate court appoint a temporary conservator for Michael. The petition alleged Karen was using or abusing Michael's assets and she should not be allowed access to Michael. At that same time, Michael told his granddaughter that he did not understand why he needed the conservatorship papers. Karen and Attorney Knowles filed documents giving their views and opposing the conservatorship request. Michael's physician, Dr. Arsham, filed a letter in those proceedings in support of Karen, stating that she had given Michael good care, while he had not seen Dale or Ron being involved much over the years. After Michael died, Dale, in October 2005, acting as a successor cotrustee, reached an agreement for entry of a judgment paying the conservator's fees and attorney fees out of the trust.
In January 2005, Dale had introduced Michael to another attorney, Jeffrey Vanderveen, who was also acquainted with Dale's attorney, Mr. Siegel, for the purpose of Michael changing his estate plan and trust arrangements, since Michael had told Dale and Ron that he did not think Karen knew how to handle money. However, before those new trust documents were signed, Michael died in March 2005, survived by Dale, Karen and Ron.
At the time of Michael's death, the assets of the trust consisted of the Ramona property, and over $60,000 in cash or bank accounts. Acting through Karen, the trust used approximately $40,000 of its cash to pay Michael's taxes, medical costs and other final expenses. "Therefore, the total value of the trust/estate assets potentially available to pay for the cost of administration of the trust/estate and for distribution to the beneficiaries before this litigation commenced was approximately $195,000, consisting of: the Ramona Property, worth approximately $175,000, and approximately $20,000 in cash." Other trust debts of about $8,600 had not been paid as of the time of trial, about $2,500 to the conservator and her attorney, and approximately $6,100 in state taxes. That would have left about $13,000 as trust assets.
C. Litigation Begins
In its statement of decision, the trial court observes, "Ron and Dale are not happy with the gift provisions of the trust. Ron is unhappy with the $1,000 gift to him. Ron and Dale are both unhappy with the fact that the bulk of the trust estate, consisting of the Ramona House, was left to Karen." The evidence at trial showed that "the Ramona Property was not titled in the name of the trust at the time of Michael's death because the property had recently been refinanced and title had been changed into Michael's name in order to obtain the refinancing. Karen filed a... petition, seeking to confirm that the Ramona Property was a trust asset. Dale opposed the petition. The Ramona Property was confirmed by the Probate Court to be a trust asset. [¶] Dale also filed a petition seeking to confirm that, consistent with the terms of the 2002 Allocation and Restatement, he is a cotrustee of the trust." (See fn. 2, regarding Heggstad petition (Estate of Heggstad, supra, 16 Cal.App.4th 943.)
After Michael died, Karen thought that Dale had effectively rejected his nomination to serve as trustee, because her perspective was that Dale was too busy and did not want to participate in the trust business or affairs. (§ 15601.) To resolve Dale's petition claiming that he should be acting as a successor trustee, the parties reached a stipulation that both Dale and Karen were the successor cotrustees of the Trust. Dale then agreed to the entry of judgment, obligating the trust to pay the $2,500 conservatorship fees.
A related appeal was recently resolved by this court, Kaye v. Murray (Nov. 30, 2009, D053358 [nonpub. opn.].) We denied a request to consolidate these appeals. In that case, we upheld an order on demurrer that determined Dale's amended "trustee identity petition, " which alleged Karen had violated the no contest clause in the trust, did not set forth facts showing an entitlement to his requested instructions. We determined that neither section 17200, subdivision (b)(3) (determining the validity of a trust provision) or subdivision (b)(6) (instructing the [co]trustee) supported the cause of action. Even if the allegations of that petition were assumed to be true, they could not state a viable cause of action for invoking the no contest clause of the trust against Karen.
In connection with the set of initial petitions in the case, Karen used trust assets to pay approximately $18,000 in attorney fees to her former attorney (Stephen Bond). "The payment of these funds left the trust estate with only the Ramona Property and less than a couple thousand dollars in cash." Dale requested that Karen supply a formal accounting of her actions as trustee of the trust, from 1998-2006. Dale claimed that Karen had been required to get written consent from Michael to spend trust funds, but had not done so, and had engaged in wrongful self-dealing.
As outlined in the statement of decision, "Karen had previously offered on multiple occasions to make the trust records available to Dale and Dale had declined to review them. Karen or Karen's counsel arranged to have an accounting firm, Schmidt & Associates, prepare an accounting. Karen turned over the trust's financial records to the accounting firm. They prepared an accounting, which was provided to Dale's attorney, Attorney Siegel, in March 2006. It appears that neither Karen nor her current attorney, Attorney Kirk, made a careful review of the accounting before releasing it to Attorney Siegel." Apparently, Karen paid about $14,000 in trust expenses (including the accounting), and that amount was listed as debts of the trust in that accounting. Dale therefore argued those debts to Karen, among others, should justify the sale of the Ramona property.
D. Current Phase of the Litigation: Pleadings
Beginning in August 2006, both parties filed petitions regarding the interpretation and/or reformation of the distribution provisions of the 2002 Restatement. (Civ. Code, § 3399.) All the petitions and cross-petition rely on section 17200, subdivision (b), allowing a party to seek relief from the court in proceedings concerning the internal affairs of a trust, such as: "(1) Determining questions of construction of a trust instrument. [¶]... [¶] (4) Ascertaining beneficiaries and determining to whom property shall pass or be delivered upon final or partial termination of the trust, to the extent the determination is not made by the trust instrument. [¶]... [¶] (6) Instructing the trustee. [¶]... [¶] (10) Appointing or removing a trustee." Dale made allegations that Karen had breached her fiduciary duties and should be removed, and that title to the Ramona property must be determined. (§§ 15642, 16004, 16420.) In April 2008, Dale sought a new accounting from Karen. Both parties requested awards of attorney fees, on the grounds that their respective positions were of benefit to the trust. (§§ 15642, subd. (d); 17211, subd. (b).)
We will further outline the factual and statutory bases of these petitions in the discussion portion of this opinion, in connection with Dale's procedural arguments that he did not receive appropriate notice of various issues to be determined at trial. We will also further describe the joint trial statement filed by the parties, outlining the substantive issues to be resolved at trial.
In its statement of decision, the court outlines the respective trial positions of the parties, as follows. "Dale contends, among other things, that the Ramona Property should be sold because the trust has outstanding debts, including primarily the attorneys fees he has incurred in this litigation, that cannot be satisfied in any other fashion. Dale further contends that once the Ramona Property is sold, then Karen will receive nothing from the trust since the residue of the trust, if any, after expenses are paid, must be distributed to Dale. Dale also contends that Karen breached her fiduciary duties and should be removed as trustee because she allegedly: failed to provide a timely and accurate accounting of her actions as trustee; and engaged in self-dealing with the trust, including using trust assets to pay for own expenses and living in the Ramona Property without paying rent to the trust." (Italics added.)
In her cross-petition and at trial, "Karen contends, among other things, that Michael specifically intended to leave her the Ramona Property, and these clear intentions would be frustrated by any order requiring the Ramona Property to be sold. Karen also asserts that she did not breach any fiduciary duties and/or that any breaches should be excused because she acted at all times in good faith and consistent with her parents' wishes. Karen contends that she was supported financially by her parents before she took over responsibility for their finances and that she continued to use relatively small amounts of trust assets for her own benefit with her parents' knowledge and consent. Karen further contends that Dale is seeking to remove her as trustee in bad faith, for the purpose of trying to force the sale of the Ramona Property and trying to force Karen to incur fees and costs that neither she nor the trust can afford."
E. Probate Court's Factual Findings in Statement of Decision
Before setting forth the court's rulings on the various petitions, we outline its critical factual findings. (In the discussion portion of this opinion, we will set forth its interpretative "overview of analysis.") First, the court found that the value of the Ramona property was approximately $340,000 at the time of trial, but it was encumbered with a mortgage of approximately $165,000. The net value of the property at the time of trial was approximately $175,000. At that time, the trust had debts of about $8,600. These included some tax debts and the fees of the conservatorship attorneys.
With respect to Dale's claims about the 2006 accounting that Karen prepared: "The accounting prepared by Schmidt & Associates contained several errors and was incomplete. These problems were discovered, at least by Karen, at Karen's deposition on April 3, 2008. At that deposition, Karen acknowledged that there were errors in the accounting. Karen then located additional documents, including credit card statements and checking records that had not been provided originally to Schmidt & Associates. Those documents were then provided to Dale in this litigation." The court found Karen had not acted in bad faith in that respect, and that her current request to settle her accounting remained to be resolved, and jurisdiction would be reserved accordingly.
In April 2008, Dale requested that Karen prepare an additional accounting for the period after January 2006, which was the date the earlier accounting was completed. The trial court's judgment states that further proceedings are anticipated to be conducted on Karen's June 2008 request to settle her accounting.
With respect to the intent of the trustor in making the gift provision, the court first determined that the extrinsic evidence presented at trial, including the testimony of Attorney Knowles, who drafted the 2002 Restatement, established that Attorney Knowles made a drafting error when he included the "lifetime gifts" language in the document (and should have deleted it from his model).
More importantly, the court relied on Attorney Knowles's testimony, as well as Karen's and other witnesses', to rule that the trust should be interpreted or reformed in conformity with the evidence presented at trial, which "established that Michael intended to give the Ramona Property to Karen, and intended to give $1,000 to Ron. Michael also intended to leave the residue of the trust estate to Dale." Michael had told Knowles he intended to leave the house to Karen, even if the estate did not have cash in hand when he died. If that were the case, the gift to Ron would lapse.
The court further concluded that Dale would only be entitled to recover from the trust the attorney fees he incurred in the trust litigation, if that litigation benefited the trust, but it had not done so. Rather, Dale had acted in bad faith and with unclean hands. (Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1225-1230(Whittlesey).)
F. Formal Rulings
The court's orders resolving the cross-petitions were as follows:
"A. Dale's petition for interpretation of the Trust and Karen's petition for interpretation/reformation/instructions are each granted in part and denied in part. The 2002 Allocation and Restatement of Trust is interpreted as discussed above. In particular, in accordance with Michael's intent and the trust language, Karen shall receive the Ramona Property. The cotrustees should use any remaining trust assets or other available assets to pay trust expenses. Then, Ron shall receive $1,000 if there are sufficient funds to pay this gift, and Dale shall receive the residue of the trust estate, if any. The cotrustees are hereby instructed to distribute the Ramona Property to Karen forthwith.
"B. Dale's petition seeking the sale of the Ramona Property is denied in its entirety. Dale is entitled to no relief in connection with that petition. The Ramona Property will not be sold, but instead will be distributed to Karen as contemplated by the 2002 Allocation and Restatement.
"C. Dale's petition for breach of fiduciary duty is denied in its entirety. Dale is entitled to no relief in connection with that petition. [¶]... [¶]
"E. To the extent that Ron joined in Dale's requests for relief, the rulings pertaining to each of Dale's petitions shall also apply to Ron."
G. Attorney Fees Rulings: Sections 17211, subdivision (b) and 15642
The court denied the request by Dale for an award of attorney fees under section 17211, subdivision (b), on the basis that "this statute is inapplicable because the current petitions do not constitute a 'contest of the trustee's account' as contemplated under Section 17211." Even assuming arguendo that section 17211, subdivision (b) were applicable, and that the current petitions did constitute a "contest" of Karen's account, "the Court finds that Karen's opposition to Dale's contest was reasonable and in good faith. The Court therefore declines to award attorneys fees to Dale." (See pt. VI, post.)
Section 17211 allows for an award of attorney fees and other litigation expenses, where a contest to a trustee's account has been made in bad faith (subd. (a)), or the trustee has opposed such a contest in bad faith (subd. (b)). Section 15642 allows for petitions for removal of a trustee. Under section 15642, subdivision (d), if the probate court has found that a party filed such a petition for removal in bad faith, and that removal would be contrary to the trustor's intent, the court may order that the person who sought the trustee's removal shall bear all or part of the costs of the proceedings, including reasonable attorney fees.
With respect to Karen's request for attorney fees, the court ruled that the criteria of section 15642, subdivision (d) had been satisfied, because, "based on the totality of the evidence received at trial, and the Court's assessment of the credibility of each witness, " Dale's petition seeking Karen's removal as trustee was filed and pursued in bad faith. "The Court also finds that the removal of Karen would be contrary to Michael's intent." Accordingly, "the Court hereby orders Dale to bear the costs of the defending against Dale's petition for removal, including, but not limited to, Karen's reasonable attorney's fees and costs. The amount of these fees and costs shall be determined by noticed motion to be heard after judgment in this matter is entered."
Dale's petition for writ of supersedeas, regarding enforcement of the $143,000-plus postjudgment attorney fees award to Karen, was recently denied by this court in this same cause (without prejudice to Dale pursuing his remedies in the trial court).
DISCUSSION
I
ISSUES PRESENTED
Dale's substantive arguments in this case revolve around two main topics: the amount of the trust's assets versus its obligations, and the manner of the cotrustees' trust administration. As to both of these broad topics, the intent of the trustor was a fundamental issue to be ascertained at trial, particularly with regard to the meaning of the conditional gift provision. (Estate of Russell (1968) 69 Cal.2d 200, 205-206.)
Dale also challenges the fairness of the procedures at trial, in utilizing extrinsic evidence to interpret the trust, and the sufficiency of the evidence to support the probate court's legal conclusions. Specifically, he argues the court made erroneous evidentiary and legal rulings when it determined that the gift provision referring to the sufficiency of the estate was enforceable, because the condition precedent of "sufficiency" had been satisfied. Dale also contends the probate court abused its discretion in evaluating whether Karen's trust administration and trust accounting were adequate, and whether her admitted instances of self-dealing in trust assets should be excused. His attorney fees entitlement claims are dependent upon those substantive arguments.
In response, Karen contends that at all relevant times, she acted in accordance with Michael's wishes and directions in dealing with trust assets, and that he clearly conveyed to her and to others his intentions that she would inherit the Ramona property when he passed away. When conflicts arose about trust administration, both before and after Michael's death, she made offers to Dale of the opportunity to participate and access to trust records, but he did not take advantage of them. Karen does not deny there were some inadequacies in the accounting she provided, nor that some acts of self-dealing occurred, but she contends that in general she acted in accordance with Michael's and her mother's wishes, and no bad faith in trust administration occurred on her part.
II
BASIC RULES OF REVIEW
In evaluating these differing legal positions, we first look to well-established guidelines for interpreting trust documents:
"[I]t is proper for the trial court in the first instance and the appellate court on de novo review to consider the circumstances under which the document was made so that the court may be placed in the position of the testator or trustor whose language it is interpreting, in order to determine whether the terms of the document are clear and definite, or ambiguous in some respect. [Citation.] Thus, extrinsic evidence as to the circumstances under which a written instrument was made is admissible to interpret the instrument, although not to give it a meaning to which it is not reasonably susceptible. [Citation.] On review of the trial court's interpretation of a document, the appellate court's proper function is to give effect to the intention of the maker of the document. [Citation.] [¶] Particularly in the field of interpreting trusts and wills, each case depends upon its own peculiar facts, and ' "... precedents have comparatively small value...." ' [Citation.]" (Wells Fargo Bank v. Marshall (1993) 20 Cal.App.4th 447, 453.)
The ultimate inquiry in this case is whether the record supports the trial court's interpretation and reformation of the trust provisions, in light of any proper admission of extrinsic evidence and other relevant evidence. The main purpose of the trial was to ensure that the trustor's intentions were carried out. The probate court was required to exercise its judicial discretion toward that end, in a manner to involve the " ' "exercise of discriminating judgment within the bounds of reason. [Par.] To exercise the power of judicial discretion all the material facts in evidence must be known and considered, together also with the legal principles essential to an informed, intelligent and just decision." [Citations.]' 'The appropriate [appellate] test for abuse of discretion is whether the trial court exceeded the bounds of reason.' [Citations.] [¶] '... To be entitled to relief on appeal from the result of an alleged abuse of discretion it must clearly appear that the injury resulting from such a wrong is sufficiently grave to amount to a manifest miscarriage of justice.... ' [Citation.]" (Estate of Gilkison (1998) 65 Cal.App.4th 1443, 1448-1449.)
Before turning to Dale's specific arguments on appeal, it is first necessary to include and consider the rules for reviewing a judgment that follows the issuance of a statement of decision. In that document, the probate court made extensive findings of fact and explained its overview of analysis in detail. The parties' briefs on appeal, in setting forth their proposed standards of review, do not focus upon the effect of those exhaustive findings. "Where [a] statement of decision sets forth the factual and legal basis for the decision, 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." (In re Marriage of Hoffmeister, supra, 191 Cal.App.3d 351, 358; Eisenberg, et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2008) ¶ 8:62, pp. 8-26 to 8-27; § 1000 [Code Civ. Proc. rules of practice apply in probate proceedings].) The ultimate facts found in the statement of decision necessarily include findings on the intermediate evidentiary facts that sustain them. (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1125 (Muzquiz).)
We next evaluate Dale's substantive arguments that are based on rules of statutory interpretation and documentary interpretation, and his claims of alleged abuses of discretion and lack of due process in the conduct of the trial. First, however, we outline the basic premises of the court's conclusions in its statement of decision, which it designated its "overview of analysis." Because of the interrelatedness of all the substantive and procedural arguments, quoting from those trial court findings will assist us in analyzing whether Dale has made an effective appellate challenge to the overall determination that his litigation and actions were in bad faith and not in the interests of the trust.
III
CONTENT AND EFFECT OF STATEMENT OF DECISION'S "OVERVIEW OF ANALYSIS"
Based on its view of the evidence, the court's "overview of analysis" explains the relevant factors it considered, in attempting to determine the fundamental issue of the trustor's intentions regarding the disposition of the Ramona property. This included analyses of the motivation and credibility of the parties, and provides an essential backdrop for understanding the legal issues presented, which turn upon the good or bad faith of the parties. We set it forth in full, before turning to Dale's substantive claims that his petitions were legally meritorious and were therefore brought in good faith and for the benefit of the trust. (Whittlesey, supra, 104 Cal.App.4th 1221, 1225-1230; pts. IV-VI, post.)
"From the Court's perspective, this litigation is best understood with reference to the trust's gift provisions. Under the operative gift provision, created by Michael in the 2002 Allocation and Restatement, Michael and Evelyn's modest estate was to be distributed as follows: $1,000 to Ron; the Ramona Property to Karen; and the residue of the estate to Dale. Under this provision, if the Ramona Property is required to be sold for any reason before it is distributed to Karen, then Karen receives nothing and Dale receives the entire trust estate except for the $1,000 gift to Ron.
"At the outset of the litigation, there were sufficient assets in the trust estate to accomplish the distributions contemplated by Michael. In the absence of any litigation, [Ron] would have received his $1,000 gift, Karen would have received the Ramona Property, and Dale would have received the residue, which would have amounted to approximately $20,000. However, once Dale and Ron made their demands for formal accountings and then commenced litigation, the liquid assets available in the trust estate were quickly spent on accountants and lawyers.
"Dale has consistently asserted in this case that the Ramona Property must be sold, primarily so that his attorneys can be paid from trust assets for their services in this case. The end result of such a sale would be, as mentioned, that Karen receives nothing and Dale receives the entire remaining estate except the $1,000 gift to Ron. Dale's hypothesis concerning the purported need for his attorneys to be paid from the trust's assets has essentially created a perverse incentive for Dale to incur litigation expenses and/or to force Karen to incur such expenses so that there are insufficient liquid trust assets available to pay such expenses, thereby leading to the sale of the Ramona Property. (Italics added.)
"The results being sought by Dale -- namely, that the Ramona Property be sold, with Karen receiving nothing from her parents' estate and Dale receiving all of the residue of the estate -- is clearly contrary to Michael's intentions, as established from the 2002 Restatement and Allocation itself and from the other evidence presented at trial. In the Court's opinion, the evidence overwhelmingly established that Michael intended to give the Ramona Property to Karen. Michael also intended to give $1,000 to Ron and the residue of the estate, if any, to Dale.
"In connection with the preparation of the 2002 Restatement and Allocation, Michael and his attorney discussed the possibility that there would be insufficient trust assets to make monetary gifts to Dale and/or Ron. They discussed the 'concern that there wouldn't be anything left' except the Ramona house. Even if that occurred, Michael wanted the Ramona house to be given to Karen.
"The Court believes that Dale's requests in this case concerning the disposition of the Ramona Property is fundamentally inconsistent with Michael's intentions and would, if accepted by the Court, produce a manifestly unjust result.
"From the totality of the evidence presented at trial, including the demeanor of the witnesses who testified at trial, it is reasonable to infer, and the Court does infer, that Dale believed he could, through aggressive litigation, take advantage of Karen's lack of financial resources to respond to litigation, and thereby bully Karen into having to sell the Ramona Property.
"The Court believes that Dale's petition for breach of fiduciary duty, by which Dale seeks to remove Karen as trustee and seeks to surcharge her for alleged misconduct, is meritless, and was brought primarily, if not solely, for the improper purpose of trying to pressure Karen into having to sell the Ramona Property."
On appeal, we are mindful that these determinations by the probate court, about the purposes and intentions of the trustor and how this course of litigation affected the amount of trust assets, were based on its hearing of the evidence and the drawing of various inferences from the evidence. That process resulted in the above wide-ranging evaluation of the apparent motivations of the parties in pursuing the litigation. In his briefing on appeal, Dale has not directly attempted to make a showing that Karen's evidence about her lack of bad faith, in conflict with his own showing, was inherently incredible or otherwise unworthy of belief, and therefore could not support the judgment and its underlying findings. Instead, Dale apparently assumes that to the extent the probate court ruled against him on factual matters, this court could essentially retry the case and draw different factual inferences and conclusions from the same evidence. That is not our role in appellate review. (Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632-633.)
With that limitation in mind, we next address Dale's legal arguments about why the judgment should not be upheld.
IV
CONDITIONAL GIFT PROVISION: TRUST INTERPRETATION
A. Issues Presented
In the gift provision, the successor trustee became obligated to convey the Ramona property to Karen, in the event that the trustor's estate was "sufficient" to do so. First, Dale argues that the trial court erred when it found the conditional gift prohibition contained ambiguous language, "so long as my estate is sufficient." He agrees that a de novo standard of review applies to the threshold determination of the ambiguity of the conditional gift provision. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166 (Winet).) He also relies on the article in the 2002 Restatement, providing that upon Michael's death, the trustee "shall make" distributions as specified. The article then states that the trustee "may, in the Trustee's reasonable discretion, pay from the Trust estate" the debts of the trustor, his final expenses, and administration expenses for the trust. Dale reads the trust as requiring that the cotrustees "shall" sell the Ramona property, to satisfy such debts and expenses, including his own litigation expenses. On appeal, he would find no ambiguity in those provisions (although he argued at trial the "lifetime gifts" provision was ambiguous).
Estate of Russell, supra, 69 Cal.2d 200, 208-209 made it clear that "[i]n order to determine initially whether the terms of any written instrument are clear, definite and free from ambiguity the court must examine the instrument in the light of the circumstances surrounding its execution so as to ascertain what the parties meant by the words used. Only then can it be determined whether the seemingly clear language of the instrument is in fact ambiguous." (Italics omitted.)
In Scharlin v. Superior Court (1992) 9 Cal.App.4th 162, 168, the court explained that when construing a trust instrument, the intent of the trustor must be ascertained "from the whole of the trust instrument, not just separate parts of it." In cases in which the trust instrument contains some expression of the trustor's intention, but as a result of a drafting error this expression of intent seems ambiguous, then "extrinsic evidence, including the drafter's testimony, " may be admitted and considered "to resolve the ambiguity and give effect to the trustor's intention as expressed in the trust instrument." (Ike v. Doolittle (1998) 61 Cal.App.4th 51, 74 (Ike).)
In addition to arguing there was no ambiguity in the subject portion of the gift provision, Dale contends the trial court compounded its alleged error when it admitted extrinsic evidence to clarify the intent of the trustor about the disposition of the Ramona property, supposedly without adequate notice or findings in support of that ruling.
At the outset, we must reject Dale's argument that he had insufficient notice that extrinsic evidence would be considered as part of the probate court's trust interpretation. Both Dale and Karen's petitions sought rulings interpreting the trust language, including the entire gift provision. Dale expressly argued in his trial brief that extrinsic evidence should be admitted to determine whether the gift provision was ambiguous, and to resolve the ambiguity. Also, the joint trial statement confirmed that Dale was requesting an interpretation and construction of the gift provision of the trust, for purposes of determining whether it has unpaid obligations that should be satisfied before any further distributions were made from the trust estate.
It makes no difference that Dale's trial brief made specific arguments about the "lifetime gifts provision" instead of the "sufficiency" provision. Both provisions were actually placed at issue in this case by the numerous pleadings, and Dale should not be heard to argue that he did not have fair notice that the trial court would be construing the conditional gift provision as well. The parties' joint trial statement and the trial briefs dealt with both clauses.
Moreover, the witness list belies Dale's contentions. Dale was at all relevant times seeking to have the Ramona property sold to satisfy trust debts. In opposition, Karen was seeking reformation of the trust to prevent that result. The main witness on the issue of Michael's intent as trustor on the subject of the Ramona property was Attorney Knowles, who drafted the trust, and who was listed on both Dale's and Karen's witness lists in their joint trial statement. Likewise, Michael's physician of 12 years, Dr. Arsham, was listed by Karen as a percipient witness. From the related conservatorship proceedings in 2005, Dale must have become aware of Dr. Arsham's position about the value of Karen's services to Michael, and Michael's intent about supporting Karen in return. Dale did not lack notice of the issues joined at trial.
B. Reformation Request; Occurrence of Condition Precedent
Among the numerous disputed material issues at trial was Karen's contention that the trust provisions should be reformed to conform with Michael's expressed intent about the conditional gift provision. Under section 21120, "[t]he words of an instrument are to receive an interpretation that will give every expression some effect, rather than one that will render any of the expressions inoperative. Preference is to be given to an interpretation of an instrument that will prevent intestacy or failure of a transfer, rather than one that will result in an intestacy or failure of a transfer."
It is well settled that "California courts have long had the equity power to modify the terms of a trust where such modification is necessary to preserve the trust or serve the original intentions of the trustor...." (Ike, supra, 61 Cal.App.4th 51, 79; italics omitted.) "Where a trust instrument contains some expression of the trustor's intention, but as a result of a drafting error that expression is made ambiguous, a trial court may admit and consider extrinsic evidence, including the drafter's testimony, to resolve the ambiguity and give effect to the trustor's intention as expressed in the trust instrument." (Id. at p. 74.)
In the joint trial statement, Dale formulated as one of his contested material issues whether the conditional gift provision (in terms of the sufficiency of the estate at Michael's death) amounted to a condition precedent that must be satisfied before the trustee came under a duty to transfer the Ramona property to Karen. The authors of 1 Witkin, Summary of California Law (10th ed. 2005) Contracts, section 776, pages 866-867, provide this summary of the rules for defining and interpreting conditions precedent: "A condition is a fact, the happening or nonhappening of which creates (condition precedent)... a duty on the part of the promisor. If the promisor makes an absolute or unconditional promise, he or she is bound to perform when the time arrives; but if the promisor makes a conditional promise, he or she is bound to perform only if the condition precedent occurs.... The condition may be the happening of an event, or an act of a party." Courts will consider "the language and the surrounding circumstances" to decide if a condition precedent was created. (Kadner v. Shields (1971) 20 Cal.App.3d 251, 258; 1 Witkin, Summary of Cal. Law, supra, Contracts, § 788, p. 878.)
Normally, where one party seeks to enforce another party's duty of performance, the burden of proof is placed upon the party seeking enforcement, to prove the occurrence of the condition precedent. (Kadner v. Shields, supra, 20 Cal.App.3d 251, 268; 1 Witkin, Summary of Cal. Law, supra, Contracts, § 788, p. 879.) Dale had to prove that the estate was insufficient under all the relevant circumstances.
On de novo review, we agree with the trial court that the gift provision regarding sufficiency is ambiguous. The phrase "so long as my estate is sufficient" naturally raises the question, sufficient to do what? The major asset of the trust at all times was the Ramona property, and the circumstances of the making and amending of the trust included Karen's residence there during many of Michael's later years, during which she performed many services for him. It is not possible to determine the sufficiency of the trust estate in the abstract, without taking those circumstances into account.
Under section 21102, subdivision (a), the probate court had the discretion to admit extrinsic evidence where necessary to determine the intention of the trustor or transferor, regarding the legal effect of the dispositions made in the instrument, and further: "(b) The rules of construction in this part apply where the intention of the transferor is not indicated by the instrument. [¶] (c) Nothing in this section limits the use of extrinsic evidence, to the extent otherwise authorized by law, to determine the intention of the transferor." (Ibid.; § 21101 [allows this rule to apply to a will, trust, deed, and any other instrument]; see § 17206 ["The court in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by the petition...."].)
When considering extrinsic evidence as a means of clarifying an ambiguous provision, the courts follow these accepted guidelines:
"The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity, ' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step--interpreting the [instrument]. [Citation.]" (Winet, supra, 4 Cal.App.4th at p. 1165.)
On appeal of such a determination, this approach is followed to evaluate conflicting evidence:
"When the competent parol evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld as long as it is supported by substantial evidence. [Citation.] However, when no parol evidence is introduced (requiring construction of the instrument solely based on its own language) or when the competent parol evidence is not conflicting, construction of the instrument is a question of law, and the appellate court will independently construe the writing." (Winet, supra, 4 Cal.App.4th 1159, 1165-1166.)
The probate court's legal ruling on the extrinsic evidence was additionally subject to the rule that evidentiary determinations are normally reviewed under an abuse of discretion standard. (People v. Waidla (2000) 22 Cal.4th 690, 717-718.)
The authors of 2 Witkin, California Evidence (4th ed. 2000) Documentary Evidence, section 77, page 196, explain: "[P]arol evidence may be freely offered to explain an ambiguity, whether latent or patent, and that is what current law provides." This approach to the use of parol evidence "is not confined to contracts and deeds [citation]; it also applies to wills." (Estate of Russell, supra, 69 Cal.2d 200, 210; 2 Witkin, Cal. Evidence, supra, Documentary Evidence, § 84, pp. 205-206.)
Here, as in Ike, supra, 61 Cal.App.4th 51, 78, the trust provisions show some expressions of Michael's intentions about the disposition of the Ramona property, but that expression is ambiguous. It was appropriate for the court to admit extrinsic evidence from Attorney Knowles, who drafted the trust, about various communications that Michael made to him about Michael's wish to continue to provide support for Karen, including a house to live in, even if it meant that the trust estate would be used up in doing so. Evidence about statements made by Michael to his doctor and to his friends and associates, Ms. Hogan and Ms. Norvell, that Michael wanted Karen to have the Ramona house, was also permissibly admitted. Karen testified to the same effect, and that she was not expected to pay rent.
All of that evidence was properly taken into account by the probate court, in its discretion, to clarify the intent of the trustor, with respect to whether the trust provisions should be interpreted as requiring the Ramona property to be sold to pay debts of the trust. Its determination on that ultimate fact was legitimately based on express and implied findings that the trust language was ambiguous, that extrinsic evidence was essential to resolve those issues, and that the evidence supported a finding that the estate was sufficient to make the specified gift. (Muzquiz, supra, 79 Cal.App.4th 1106, 1125.) Section 21120 disfavors interpretations that create a failure of transfer. Dale has not shown any substantive or procedural errors by the trial court in evaluating the sufficiency of assets of the trust to make that gift, as of the time of Michael's death.
Moreover, as will further be discussed with relation to Dale's claims about Karen's alleged breaches of fiduciary duties and about removing her as trustee, Dale cannot show (for purposes of designating the relevant time period for assessing the estate's assets) that the mere existence of the lengthy litigation, leading to his own substantial attorney fees obligation, is somehow dispositive of the "sufficiency of the estate" issue, regarding transfer of the house to Karen. Rather, the good or bad faith of the litigants had to be determined before taking such expenses into account. (§§ 15642, 17211; see part VI, post.)
D. Mandatory or Permissive Language of the Trust Regarding Distribution
On a related point, Dale argues that the trial court abused its discretion in determining that the language of the trust was permissive, not mandatory, regarding the obligation of the successor trustees to pay trust debts, including final expenses and legitimate trust administration expenses, upon the death of the trustor. The trustee "shall" pay such debts, before making the specified distributions. (§§ 19001, subd. (a) and 11420 set forth the priorities for paying debts of a deceased trustor, such as final expenses.) Dale is arguing that his attorney fees costs, as well as the conservatorship fees, amount to such legitimate trust administration expenses, such that the gift provision became unenforceable.
However, the probate court interpreted the mandatory language together with a related provision, that the trustee "may" discretionarily pay from the trust estate the trustor's debts and final expenses, and also trust administrative expenses, in such a manner as to allow the conditional gift provision to be enforced to transfer the Ramona property to Karen. This determination was based on express and implied findings that the debts of the trustor were not so great as to require payments that would preclude the gift provision from being enforced. For example, the trust arguably owed money to Karen herself, but the trial court impliedly found that it would defeat the purpose of the gift provision to sell the Ramona property to pay debts.
In the judgment, the court reserved jurisdiction to resolve the remaining $8,600 debts of the trust, as part of Karen's ongoing accounting obligations. It was not an abuse of discretion for the trial court to evaluate the evidence about the types and amounts of debts that remained owing by the trust, and to conclude that the intent of the trustor was to ensure that the Ramona property would pass to Karen, as designated in the trust, if that could be accomplished without selling the property. There were other known means of paying the legitimate debts.
We have not yet addressed whether any of Dale's breach of fiduciary claims against Karen's trust administration have merit, and do so next. This will affect our determination of whether Dale's attorney fees also amount to legitimate trust administrative expenses, for purposes of statutory fee entitlement. (Whittlesey, supra, 104 Cal.App.4th at pp. 1225-1230.) However, for purposes of trust interpretation, we conclude at this point that the probate court did not erroneously disregard any "mandatory" language of the trust, regarding payment of trust debts.
Accordingly, the probate court's interpretation of the conditional gift provision and related language were "reasonable constructions" that are supported by substantial evidence. There was no error or abuse of discretion in admitting extrinsic evidence to clarify the ambiguous language. (Winet, supra, 4 Cal.App.4th at p. 1166.) The amounts of the trust's assets were "sufficient" to satisfy its legitimate obligations, at the relevant time periods, including the gift of the Ramona property to Karen. That was a discretionary call by the probate court, in evaluating the totality of the circumstances, and it was well within the scope of its discretion. (Gilkison, supra, 65 Cal.App.4th 1443, 1448-1449.)
Based on that interpretation of the gift provision in context of other relevant trust language, we turn to Dale's arguments about the alleged inadequacy of Karen's trust administration and accounting.
V
TRUST ADMINISTRATION AND ACCOUNTING
A. Issues Presented
Dale's petitions for relief included claims against Karen for monetary relief for breaches of fiduciary duty, based on her use of trust assets for her own benefit during parents' lifetime. He also requested her removal as trustee, as well as making claims of fiduciary abuse that would disqualify her from taking from the estate. (§§ 15642, 259, 859.) We will discuss those trust administration claims first, and then turn to the arguments that the accounting she provided was inadequate and justified surcharges or double damages, in particular, due to her failure to adequately report her use of trust assets or to sell the Ramona property upon the death of Michael. Although some of these claims are naturally overlapping, they are best dealt with by reference to the terms of the trust provisions that applied while Michael was alive, and those that applied after Karen became the successor trustee (joined by Dale at a later time).
Dale seeks to have an abuse of discretion standard applied to his challenges on appeal to Karen's actions as trustee, as well as a de novo standard of review, to the extent that the trial court was interpreting the statutory provisions that govern trust administration. (People ex rel Lockyer v. Shamrock Foods (2000) 24 Cal.4th 415, 432.) In particular, Dale argues that the trial court abused its discretion by excusing Karen's acts of self-dealing, under section 16440, subdivision (b).
Section 16440, subdivision (a) provides that when trustees have committed breaches of trust, they are chargeable with various sums, as appropriate under the circumstances, including any resulting losses to the trust estate. However, the section further provides in subdivision (b): "If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so."
With regard to the judgment that accepted Karen's accounting, and excused any breaches of duty, we examine the record for substantial evidence support, if any. (In re Estate of Fain (1999) 75 Cal.App.4th 973, 991; Ike, supra, 61 Cal.App.4th at pp. 88-90.)
B. Rules of Trust Administration
In re McCabe's Estate (1950) 98 Cal.App.2d 503, 509 sets forth the well accepted rule: "Not only is the highest good faith required of a trustee but he must be held to strict accountability, with all doubts resolved against him, to the end that he may not be permitted either to dissipate or waste the trust estate, or to profit from his own negligence or fault." Where these standards are not met, the trustee will be charged with liability for such unsatisfactory performance. (Ibid.) Under section 16081, subdivision (a), the discretion of a trustee must be exercised in accordance with fiduciary principles, and not "in bad faith or in disregard of the purposes of the trust." Section 16081, subdivision (b) provides that a beneficiary of a trust, who is also allowed to act as a trustee or cotrustee, may make discretionary distributions that will benefit him or herself, only if those acts are reasonable and in accordance with the standards stated in the trust. (See also § 16202 ["The grant of a power to a trustee, whether by the trust instrument, by statute, or by the court, does not in itself require or permit the exercise of the power. The exercise of a power by a trustee is subject to the trustee's fiduciary duties."].)
The trustee "has a duty not to use or deal with trust property for the trustee's own profit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest adverse to the beneficiary." (§ 16004, subd. (a).) In its statement of decision, the court relied on section 16004, subdivision (c), as shifting the burden of proof to Karen, as trustee, to show that her transactions in trust property were proper, to the extent that she obtained any benefits from the trust. The court also took into account that Dale, as a petitioner alleging breaches of fiduciary duty, generally had the burden of proof on his allegations. (Evid. Code, § 500.) In making its ultimate conclusions, the probate court expressly stated that regardless of the burden of proof used, the court's conclusions were the same.
With those standards in mind, we turn to Dale's specific arguments.
C. Trust Administration During Michael's Lifetime
Dale complains about several major ways in which Karen allegedly breached her fiduciary duties, thus, in his view, justifying her removal as trustee: She did not familiarize herself with the trust documents, instead operating on an informal basis. She took trust property for her own use, by paying for her own family expenses, living in the Ramona house without paying rent, and making loans with trust assets to her daughter and Attorney Knowles. Also, she did not obtain the written approval of her parents for any such expenditures, while they were alive, and she did not adequately allow Dale to participate in trust management at any time.
Dale cites to the article in the 2002 Restatement that provided for the administration of the trust during Michael's life. Regarding payments to others, the trustor "may at any time direct the Trustee in writing to pay ... from the Trust estate to any person...." (Italics added.) The applicable trust provisions also stated that during the life of the trustor, the trustee "shall hold, administer, and distribute the Trust estate" according to the designated needs of the trustor. Dale contends that when Karen paid for her own household and other expenses out of trust assets, by using trust credit cards and bank accounts or cash, she was unlawfully taking trust property without permission in writing, and should refund it as losses to the trust. (§ 16440, subd. (a).) Both Dale and Ron testified that Michael sometimes complained to them about not receiving rent from her.
Karen has several answers to these contentions. First, she points out that Dale's breach of fiduciary petition was filed shortly after she delivered the 2006 accounting, even though a three-year limitations period arguably applied. Although Dale at first suggested that she agree to toll the running of the limitations period, and she agreed to do so, no such agreement was ever reached. She therefore argues Dale acted precipitously, and without justification, in pursuing these allegations in court.
More substantively, Karen argues that both Dale and Ron knew for years that Michael was supporting her, including providing her the Ramona property to live in rent free, and that all the financial arrangements for her were made with Michael's oral consent that was never withdrawn, and no written consent was required by him. For example, Michael reviewed his credit card bills with her and approved the charges she made. Occasionally, he allowed her to take small amounts of cash when depositing trust checks into the bank. He deposited some checks himself, such as his retirement and social security checks, and she did not have access to them. Michael was of sound mind when he made trust decisions, and she did not ask him to do trust business when he was visibly intoxicated. She and Michael worked together in making the decisions about refinancing and loaning money to Attorney Knowles.
Under section 16440, trustees who have committed breaches of trust can be required to repay any resulting losses to the trust estate. However, that section further provides in subdivision (b): "If the trustee has acted reasonably and in good faith under the circumstances as known to the trustee, the court, in its discretion, may excuse the trustee in whole or in part from liability under subdivision (a) if it would be equitable to do so." (Ibid.) The intent of the trustor regarding the manner of administration of the trust was a critical issue to be ascertained at trial, with regard to what kind of conduct was expected of the trustee, within fiduciary standards. (See Estate of Russell, supra, 69 Cal.2d at pp. 205-206.) Michael was presumed to be competent in making trust decisions, unless that presumption could be adequately rebutted. (§ 810.)
With some exceptions, section 16463, subdivision (a) prohibits a beneficiary from holding the trustee liable for an act or omission of the trustee as a breach of trust, "if the beneficiary consented to the act or omission before or at the time of the act or omission." However, under subdivision (b) of that section, if the beneficiary was under an incapacity at the time of the consent or of the act or omission, the trustee may not be able to show such consent. (Ibid.) Dale seems to argue that at some times, Michael was not competent to give consent to the use of trust property by Karen, whether written or oral. For example, in early 2005, Dale and Ron pursued proceedings for Michael to be appointed a temporary conservator. However, at around the same time, Dale sought to have Michael change his estate plan, by bringing him a new attorney during his last illness, so Dale simultaneously argues Michael was competent throughout his life (except when he was drinking heavily). These inconsistencies do not help Dale's position on appeal, or show Michael lacked capacity.
Section 16463, subdivision (c) further provides: "Where the trustee has an interest in the transaction adverse to the interest of the beneficiary, the consent of the beneficiary does not preclude the beneficiary from holding the trustee liable for a breach of trust under any of the circumstances described in subdivision (b) or where the transaction to which the beneficiary consented was not fair and reasonable to the beneficiary." The probate court found no such circumstances.
In the statement of decision, the court declined to make findings that Karen had wrongfully taken trust property, by acting outside of Michael's wishes and directions. The court noted that both before and after Karen's appointment as trustee, the parents were voluntarily giving her financial support. The court then commented, "A person familiar with the law would have recognized that it was imprudent for Karen to serve as trustee of her parents' trust while Karen was being supported financially from trust assets. However, Michael, Evelyn and Karen were all unsophisticated people who did not fully appreciate the duties imposed by law on trustees and the potential liabilities to which Karen could be exposed by serving as trustee concurrently while she was receiving financial support from her parents." The court also noted that throughout his lifetime, Michael remained integrally involved in the decisionmaking regarding his finances and the use of trust assets, even while Karen was acting as trustee.
Based on all the evidence, the court found Karen had benefited from the numerous financial transactions between the trust and herself, but she had not carried her burden to show that each and every transaction was proper. (§ 16004, subd. (c).) However, the court went on to make findings that, based on the history of the family financial dealings, including the involvement of counsel (Atty. Knowles) and the approval of the parents, Karen should not now be penalized for accepting the financial support that her parents wanted her to have. The court then exercised its discretion to find that under section 16440, subdivision (b), Karen was excused from liability for the alleged breaches of trust arising from her self-dealing and similar actions, including her reliance on oral directions from her father, as opposed to the obtaining of written consent.
The record amply supports these determinations by the probate court. Karen made credible showings that at all times during her activities as trustee, she acted in good faith and in accordance with her parents' consistent wishes. She was consistently supported financially by her parents, both before and after she took responsibility for their finances in 1997-1998, and again from 2002-2005. That supported inferences that when she continued to use trust assets for her own benefit, it was with her parents' knowledge and ongoing consent, and therefore did not amount to breaches of any fiduciary duties.
Moreover, the amounts of trust assets used by Karen were not shown to be so great as to qualify as abuses of fiduciary principles. Karen's living rent free in the Ramona property was expected by the parents, as was her use of trust credit cards and bank accounts for living expenses. Over about six years, Michael gave Karen several thousand dollars in cash (not including like amounts he also gave to his sons). Attorney Knowles paid back the loan that was made to him out of trust assets, and the financial assistance provided to Michael's granddaughter (Karen's daughter) was not shown or deemed to be excessive by the probate court. Dale has failed to show the court abused its discretion in excusing Karen for the various acts of self-dealing. (§ 16440, subd. (b).)
D. Accounting Claims
"It is the court's duty to scrutinize accounts and determine all issues raised by a petition to approve any account. [Citations.] 'Objections to accountings commonly raise surcharge claims against their representative for purported acts of misconduct, neglect, waste, mismanagement or other breach of fiduciary duty. These grounds fall under the general category of "all matters relating to an account" which may be contested "for cause shown." [Citations.]' " (In re Estate of Fain, supra, 75 Cal.App.4th 973, 991.) On review of a judgment arising out of such contested probate proceedings over an accounting, the substantial evidence standard of review applies. (Ibid.)
Dale alleges Karen failed to provide a timely and accurate accounting of her actions as trustee. In particular, he argues she did not make available to him quickly enough the financial source documents, in response to his requests. After Dale became cotrustee by stipulation, he had the right to obtain the same documents, but he could not show that he made any meaningful efforts to do so. In any case, Karen retained a CPA firm (Schmidt), which prepared an accounting in 2006, and she provided Dale with 2, 000 pages of trust financial records at that time. Dale retained an expert forensic accountant, Taylor, who testified at trial about various defects he found in that accounting. For example, he included a category for "missing rent" that Karen did not pay on the Ramona property. However, there was a great deal of evidence that she was not expected to pay rent.
In the statement of decision, the trial court acknowledged that there were numerous problems with that 2006 accounting, and that when Karen was deposed in 2008, she learned of some incorrect information and then took corrective action by the time of trial (by presenting additional documentation and information). Under those circumstances, the court ruled that Karen should be excused from liability for any breach of fiduciary duty she may have committed, through the manner of her response to Dale and Ron's request for trust financial information. (§ 16440, subd. (b).) We cannot find any lack of supporting evidence, nor any abuse of discretion, in that conclusion.
Dale next argues that the accounting did not properly take all of the trust liabilities and assets into account. He relies on the article allocating trust assets at the death of the trustor, specifying that the trustee "shall make" distributions as specified. The article then states that the trustee "may, in the Trustee's reasonable discretion, pay from the Trust estate" the debts of the trustor, his final expenses, and administration expenses for the trust. When Michael died, the trust's bank account had about $60,000 in it, and after the medical costs and some taxes were paid, about $20,000 remained. At the time of trial, about $8,600 in debts was outstanding. However, the cash had been used up by Karen's litigation expenses.
Fundamentally, the parties differ on what constituted valid administration expenses for the trust. All of Dale's arguments are intended to show an overall abuse of discretion and a lack of factual support in the trial court's finding that Dale's attorney fees were not properly payable out of trust assets, because they were incurred in litigating trust provisions, but that litigation did not ultimately benefit the trust. (Whittlesey, supra, 104 Cal.App.4th at p. 1226.) Dale further argues that the proper time for determining the sufficiency of the trust estate was not upon the death of the trustor, but rather upon the time of distribution. That position would only support billing Dale's attorney fees to the trust, if the distribution could not properly take place until that litigation was resolved, and only if Dale prevailed. However, the trial court correctly assessed Dale's legal positions as being without merit.
For all of the above reasons, Dale cannot show that no substantial evidence supports the trial court's determinations about the accounting provided. Nor did any error or abuse of discretion occur when the trial court excused Karen from liability for certain deficiencies in the accounting. (§ 16440, subd. (b).)
VI
REMAINING ATTORNEY FEES ISSUES
A. Relevant Record Portions
To the extent that Dale might have prevailed upon his substantive arguments of breach of fiduciary duty or legal error at trial, he also sought to have a determination made that his current set of petitions amounted to a "contest of the trustee's account, " as contemplated under section 17211, thereby entitling him to an award of attorney fees. Among the relief requested in his petitions was an accounting, and the removal of Karen as a trustee, in part due to her previous inadequate accounting, alleged to be a breach of fiduciary duty. In support, Dale cited numerous statutory provisions, including section 15642.
In her objections to Dale's petition for breach of fiduciary duty and other relief, Karen requested an award of attorney fees. In her portion of the joint trial statement, Karen listed as one of her material contested issues whether Dale should be held liable to pay her attorney fees and costs under section 17211, subdivision (a) (based on Dale's bad faith contest, as a beneficiary, of the trustee's account).
The probate court denied Dale's request for an award of attorney fees under section 17211, subdivision (b), on the basis that the statute was inapplicable in this procedural context. In the alternative, the probate court stated, even "assuming arguendo that Probate Code Section 17211(b) is applicable, and that the current petitions do constitute a contest of Karen's account, the Court finds that Karen's opposition to Dale's contest was reasonable and in good faith. The Court therefore declines to award attorneys fees to Dale."
Where a contest to a trustee's account has been opposed in bad faith, section 17211, subdivision (b) allows for an award of attorney fees and other litigation expenses against the trustee. Under section 15642, subdivision (d), if the probate court has found that a party filed a petition for removal of a trustee in bad faith, and that removal would be contrary to the trustor's intent, the court may order that the person who sought the trustee's removal shall bear all or part of the costs of the proceedings, including reasonable attorney fees.
In the statement of decision, the court further ruled that the criteria of section 15642, subdivision (d) had been satisfied, because, "based on the totality of the evidence received at trial, ... and the Court's assessment of the credibility of each witness, " Dale's petition seeking Karen's removal as trustee was filed and pursued in bad faith. "The Court also finds that the removal of Karen would be contrary to Michael's intent." Accordingly, "[t]he Court hereby orders Dale to bear the costs of defending against Dale's petition for removal, including, but not limited to, Karen's reasonable attorney's fees and costs."
B. Dale's Contentions and Analysis
Dale contends that since Karen, in her petition, did not expressly cite to section 15642, subdivision (d) in support of her request for attorney fees and costs, Dale was not placed upon sufficient notice that he would have to defend against such a claim. He argues he did not have the opportunity to adequately respond to the statutory issues about the criteria of bad faith, or to Karen's contention that Michael would not have intended that Karen be removed as trustee due to her conduct as alleged by Dale. Dale frames his argument in terms of a deprivation of due process at trial, or abuse of discretion by the trial court.
In her respondent's brief, Karen lists all of the filings and contentions made by Dale, in support of the trial court's determination that Dale's various requests for relief were made in bad faith, specifically for the purposes of trying to force the sale of the Ramona property and using up trust assets in litigation. These included Dale's 2005 request to be named cotrustee, and his inaction thereafter in examining trust records. Dale's ongoing objections to characterizing the Ramona property as belonging to the trust did not adequately acknowledge the various expressions of Michael's demonstrated intent that Karen receive the Ramona property.
Clearly, those basic issues of the respective good or bad faith of Karen or Dale were brought before the court repeatedly, in connection with all the other substantive requests for relief that they filed and took to trial. For example, Dale's trial brief raises issues about Karen's alleged bad faith. In his statement of contested material issues, he requests findings on whether Karen had acted in bad faith in wrongfully taking trust property. Dale simply has no realistic basis to contend that the applicability of section 15642 in this case, including its fees provision referencing bad faith, was any surprise to him, since his own pleadings had sought to invoke that statute against Karen.
The court's findings in these respects were well supported by its express and implied findings, the evidence, and permissible inferences drawn from the evidence. (See Muzquiz, supra, 79 Cal.App.4th 1106, 1125.) There was no abuse of discretion and we uphold the judgment in full.
DISPOSITION
Affirmed. Costs on appeal to Respondent.
WE CONCUR: BENKE, Acting, P. J. NARES, J.