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Krivy v. Krivy

California Court of Appeals, First District, First Division
Apr 28, 2009
No. A121561 (Cal. Ct. App. Apr. 28, 2009)

Opinion


STEPHEN KRIVY, Plaintiff and Appellant, v. ALBERT KRIVY, as Trustee, etc., Defendant and Respondent. A121561 California Court of Appeal, First District, First Division April 28, 2009

NOT TO BE PUBLISHED

Alameda County Super. Ct. No. 256933-0

Margulies, J.

Appellant Stephen Krivy objected to the final accounting prepared for a trust, contending that the trustee, Albert Krivy, should be removed because he lacked mental capacity. Stephen also raised several other objections to the accounting, including the claim that the trustee’s payment of attorney fees was not adequately supported. The trial court summarily overruled Stephen’s objections. While we agree with Stephen that the attorney fees payments were not adequately documented, we otherwise affirm the trial court’s approval of the final accounting.

As is our convention in matters involving parties sharing the same surname, we refer to Stephen and Albert by their first names.

I. BACKGROUND

This is the second appeal in this matter. As explained in our nonpublished decision on the first appeal, Krivy v. Krivy (June 27, 2006, A109963), Albert is the trustee of an irrevocable trust of which Stephen, Albert’s son, is the primary beneficiary. In the prior appeal, Stephen challenged a number of rulings by the probate court with respect to Albert’s interim first accounting. We found most of Stephen’s contentions to be without merit and largely affirmed the probate court.

This appeal challenges the probate court’s approval of Albert’s second and final accounting, dated January 8, 2008. According to the procedural history contained in Albert’s petition for approval of the final accounting, in November 2005, following the probate court’s approval of the first accounting, Stephen declared that Albert had resigned as trustee and began to act as trustee. When Stephen attempted to exercise control over certain trust assets, Wells Fargo Bank froze the trust’s accounts pending judicial resolution of Stephen’s authority. In response to a petition filed by Albert, the probate court issued an order in May 2006 declaring that Albert was, and had been “continuously” since the death of the last surviving trustor, the trustee of the trust.

In the absence of objection, the statements in a verified petition can properly be considered as evidence in a probate court proceeding. (Evangelho v. Presoto (1998) 67 Cal.App.4th 615, 620.)

The petition for approval of the final accounting also explained that Stephen owed the trust $602,000, a debt resulting largely from Stephen’s share of estate taxes, a lien filed against the estate by Stephen’s attorney, and $55,000 of trust assets withdrawn by Stephen from Wells Fargo Bank during the time he purported to act as trustee. Offsetting this debt, Stephen was to receive trust distributions of stock worth, in January 2008, $251,000, and a house in the City of Alameda appraised in April 2004 at $539,000. The trustee proposed to sell both the house and the stock, since neither asset alone had sufficient value to satisfy Stephen’s debt. Stephen opposed the sale, although he had not suggested another method of settling his debt to the trust. The trustee also proposed creating a $50,000 reserve to pay for anticipated litigation costs and other expenses of closing the trust.

At the time of hearing on the petition for approval, March 3, 2008, trust counsel claimed that the value of the stock had fallen to less than $200,000.

Stephen filed verified objections to the final accounting. In the objections, Stephen explained that he had undertaken to act as trustee because Albert delivered to him a written resignation from his position as trustee. At some later time, however, Albert rescinded the resignation. During the period when he purported to act as trustee, Stephen made distributions of specific gifts to two beneficiaries of $6,000 each.

Stephen made the following objections to the final accounting, asking the court to deny the petition for approval of the final accounting, allow him to take discovery of the trustee, and set the matter for trial:

(1) Surcharge calculation: Albert waived the bulk of his trustee’s fees, taking only enough to cover a small debt and a surcharge against him that was payable to Stephen personally. The final accounting proposed offsetting the surcharge against Stephen’s debt to the trust. Stephen contended that interest was due on the surcharge and objected that the final accounting “does not account for the payment of principal and interest accrued” on the surcharge.

(2) Albert’s infirmity: Stephen objected “to the entirety” of the final accounting “due to lack of capacity of the trustee,” arguing that Albert had grown mentally infirm. As evidence, Stephen contended that in January 2008, Albert’s wife, Margaret, suffered a stroke in their home. Instead of calling for medical help, Albert became confused and left her where she had fallen. It was only when relatives arrived for a visit two days later and discovered Margaret that she was taken to the hospital. Less than a month later, Albert fell, cut himself severely, and failed to get medical help on his own. Finally, Stephen cited Albert’s resignation and its subsequent rescission.

(3) Attorney fees: The final accounting contained substantial payments for attorney fees; Stephen’s share alone was calculated as $116,800. Stephen objected to “the amount and pro ration” of these fees “as without foundation” because no detailed billings were submitted with the accounting. Stephen also contended that the lack of detail made it impossible to determine whether any of the attorney fees were expended defending Albert against the claims on which he was surcharged.

(4) Duplicate distributions: Stephen contended that the final accounting’s distributions to the two beneficiaries to whom he had already made payments during his time purporting to act as trustee would result in an overpayment to each beneficiary.

(5) Reserve fund: Stephen objected to Albert’s proposed reserve of $50,000 “because it assumes meritless litigation which has not occurred or has been threatened.”

(6) Sale of the house: Stephen contended that the request for sale of the house “is premature” because it was made “without any recent appraisals to allow this court to evaluate the reasonableness of the sale, and is made before a full evaluation of the trust’s assets and court approved expenses have been made.”

(7) Sale of stock: Similarly, Stephen contended that sale of the stock was “unjustified” because it was “made without any evaluation of the cyclical nature of stock prices” and was made “without limits on the sale... to achieve the maximum price.”

The probate court conducted a non-evidentiary hearing on the petition for approval of the final accounting on March 3, 2008. Addressing the issue of Albert’s capacity, counsel for the trust argued that Albert still “has all of his faculties” and that, in any event, two years earlier he had hired an “independent fiduciary” to help manage the affairs of the trust. The court entered a written order approving the final accounting in the form proposed by Albert, interlineating in the order that “[t]he objections of Stephen Krivy are overruled.”

Stephen moved for reconsideration of the probate court’s order, contending that he had gathered new evidence bearing on Albert’s capacity. In a declaration submitted with the motion for reconsideration, Stephen stated that Albert had not attended the March 3, 2008 hearing on approval of the final accounting. After the hearing, Stephen visited Albert and Margaret at their home. According to a nurse present at the home, the pair had around-the-clock nursing care. Albert did not recall the petition for approval, did not know it sought sale of the home, and was unaware of the approval hearing. Albert claimed he had not been involved in administration of the trust “for years” and wanted to resign, but “they” would not allow it. After receiving the court’s order granting the petition for approval of the second and final accounting, Stephen called Albert and asked whether he had ever seen the petition, had signed the verification, or had spoken with the trustee’s attorney in the past few months. Albert answered in the negative to each question. Albert repeated that he was unaware the petition sought sale of the house and the stock and said he had left administration of the trust to its attorneys. The motion for reconsideration was denied at a hearing on April 22, 2008.

II. DISCUSSION

Stephen appeals the orders approving the final accounting and denying his motion for reconsideration, asserting essentially the same grounds he raised in the probate court.

A. Albert’s Purported Lack of Capacity

We first consider Stephen’ primary contention: that he should have been provided discovery and an evidentiary hearing on his contention that Albert lacked the capacity to perform his duties as trustee. An objector in a probate proceeding is ordinarily entitled to discovery and a formal evidentiary hearing regarding disputed facts bearing on his or her objections. (Estate of Bennett (2008) 163 Cal.App.4th 1303, 1310; Coberly v. Superior Court (1965) 231 Cal.App.2d 685, 690.) We find no abuse in the probate court’s denial of discovery and a hearing here, however, because we conclude that Stephen’s claim that Albert lacked the capacity to act as trustee, as presented, did not constitute a proper objection to the final accounting.

Upon the filing of a petition for approval of an accounting under Probate Code section 17200, subdivision (b)(5), the probate court has a duty to inquire into the prudence of the trustee’s administration. (Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427.) The focus of the inquiry, however, is the propriety of that conduct as evidenced in the accounting. (Id. at p. 428 [court must review trustee’s “actions as reflected in [the trustee’s] petition [for approval]”]; Lazzarone v. Bank of America (1986) 181 Cal.App.3d 581, 591 [approval of accounting res judicata on issue of misconduct where results of misconduct are evident on the face of the accounting]; Estate of Howard (1976) 58 Cal.App.3d 250, 257.) The probate court’s duty of inquiry does not require sua sponte scrutiny of the accounting for evidence of error merely because a beneficiary claims the trustee to be incompetent, without demonstrating how that incompetence is reflected in the accounting. It stands to reason that alleged trustee incompetence is not a ground for denying approval of a final accounting in the absence of evidence that the incompetence affected the accounting.

Although presented as an objection to the accounting, Stephen’s claim of lack of capacity was not tied to any specific feature of the final accounting and did not refer to any particular act of misconduct or trust mismanagement by Albert. Indeed, the claim did not refer to the accounting at all. There was no contention, for example, that Albert’s purported lack of capacity caused errors in the figures presented, or caused Albert to err in allocating the bequests, or led to mismanagement of the assets of the trust, or in any other way affected any of the calculations or proposed actions in the accounting. Rather, the only evidence provided in support of his claim was the recitation of a hearsay account of Albert’s conduct in response to his wife’s accident and his own injury. Both of these incidents occurred after Albert executed the verification of the accounting, thereby providing no direct evidence of incapacity at the time the accounting was being prepared.

The expression “lack of capacity” is a misnomer in this context. Unlike, for example, the drafter of a will or trust instrument (e.g., Goodman v. Zimmerman (1994) 25 Cal.App.4th 1667, 1675 [drafter of will must have testamentary capacity]), there is no specific requirement that a trustee have testamentary capacity in order to carry out valid actions. Rather, Stephen’s claim appears to be that Albert was “substantially unable to manage the trust’s financial resources or is otherwise substantially unable to execute properly the duties of the office” as a result of diminished mental abilities. (Prob. Code, § 15642, subd. (b)(7).)

Stephen also cited the trustee’s resignation and revocation, but without more information about the circumstances this event provides no evidence of incompetence.

Further, Stephen sought no relief with respect to the accounting, other than its wholesale rejection. Instead, his objection sought Albert’s removal from his position as trustee. A trustee may be removed if it is demonstrated that he or she is “substantially unable to manage the trust’s financial resources or is otherwise substantially unable to execute properly the duties of the office.” (Prob. Code, § 15642, subd. (b)(7).) The ordinary procedural vehicle for raising such an objection, however, is a petition pursuant to Probate Code section 17200, subdivision (b)(5). (Katz v. Greeninger (1950) 96 Cal.App.2d 245, 249 [a trustee who becomes incompetent may be removed on proper petition].) While a section 17200 petition is not the exclusive method for removing a trustee (Schwartz v. Labow, supra, 164 Cal.App.4th at p. 428), a request for removal filed in response to a petition for approval of a final accounting must, in some manner, tie the request to the accounting.

Given Stephen’s failure to connect his claim of lack of capacity to any act or circumstance reflected in the final accounting, or to seek any specific relief with respect to the accounting, we see no abuse of discretion in the probate court’s refusal to permit either discovery or an evidentiary hearing. Stephen remained free to seek removal of Albert on grounds of inability to administer the trust, but because there was no claim in the petition that this alleged inability resulted in any improprieties in the final accounting, it provided no basis for rejecting or delaying ruling on the approval petition.

B. Attorney Fees

Stephen also claims that the probate court abused its discretion in approving the payment of the trustee’s attorney fees. Had there been no objection, Albert’s accounting under oath with respect to the attorney fees constituted adequate proof of their authenticity and propriety. (Estate of Miller (1968) 259 Cal.App.2d 536, 549.) Once Stephen questioned the payments, however, the burden shifted to Albert to justify them. (Id. at p. 550; Conservatorship of Lefkowitz (1996) 50 Cal.App.4th 1310, 1316, fn. 4.) Although Albert was not required to submit his attorney’s bills, as Stephen contended, a petition for approval of the payment of attorney fees should “describe in detail the services provided, including dates, should specify the reason for the work, the time spent, the hourly rate of each person whose time was charged to the matter, the results achieved, and the benefit to the trust.” (1 Cal. Trust Administration (Cont.Ed.Bar 2d ed. 2001) § 9.44, p. 506 (rev. 2/09); see also Estate of Miller, at p. 550 [when objection is made to attorney fees payments, trustee must supply evidence to support the payments].) No such description was provided.

Albert contends that the attorney’s services were “described in... detail in paragraphs 5-21 of the Second Account.” Those paragraphs, however, merely describe the history of the trustee’s administration of the trust. While the paragraphs mention several events that presumably required an attorney’s assistance, they do not provide the level of detail regarding the attorney’s activities that is necessary to support payment of fees. Because the final accounting was without adequate evidentiary support for the attorney fees payments, we agree with Stephen that it was an abuse of discretion for the probate court to approve them without holding a hearing on their propriety.

Albert also contends that the attorney fees pale in amount compared to the fees incurred by Stephen. This fact alone is insufficient to demonstrate that the particular services provided by trust counsel were appropriate and reasonable.

C. Stephen’s Remaining Objections

Stephen also raises the other objections that were overruled by the probate court. Because of the nature of these objections, we review the probate court’s decisions for abuse of discretion. (E.g., Estate of Stevenson (2006) 141 Cal.App.4th 1074, 1082.)

Stephen first contends that the trial court should have required Albert to pay interest on the surcharge award. He cites no legal authority even authorizing such interest, let alone requiring it. Further, Stephen has apparently had the interest-free use of $55,000 in trust assets since November 2005, a much larger sum than the surcharge against Albert. Even assuming the probate court had the discretion to award interest, we find no abuse of discretion in its refusal because the value of Stephen’s use of the $55,000 more than offset Albert’s failure to pay interest on the surcharge.

Stephen next contends that the probate court should have eliminated the distribution of bequests to the two beneficiaries whom Stephen had paid when he was purporting to act as trustee. Stephen, however, was never actually the trustee; on the contrary, the probate court held that Albert was the trustee continuously from the time he assumed the position. Because Stephen was never the trustee of the trust, he had no authority at any time to make distributions on behalf of the trust. As the probate court commented, “[H]e’s on his own with respect to [those payments].” Moreover, prior to filing his objections shortly before the approval hearing, Stephen had never informed the trustee he had made these payments. Under these circumstances, we find no impropriety in the trustee’s decision not to recognize payments made by Stephen as payments made on behalf of the trust, and we find no abuse of discretion in the probate court’s approval of the trustee’s decision.

Stephen next objects to Albert’s creation of a $50,000 reserve for post-approval costs, particularly legal fees. The trustee is allowed to reserve sufficient cash to pay anticipated expenses of the trust. (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 853.) Given the history of litigation associated with this trust, including the present appeal, we see no abuse of discretion in the probate court’s approval of a $50,000 reserve.

Stephen also objects to the order permitting sale of the house “without any recent appraisals to allow this court to evaluate the reasonableness of the sale, and... before a full evaluation of the trust’s assets and court approved expenses have been made.” It is simply incorrect that there has not been “a full evaluation of the trust’s assets.” The petition for approval contains a comprehensive analysis. The analysis demonstrated that Stephen’s debt to the trust can be satisfied only by selling both the house and stock because neither alone has sufficient value. Because Stephen has made no proposal for payment of the debt other than through his bequests, the trustee was presented with no option other than sale. While in other circumstances it might be desirable to have a more recent appraisal of the house, it is common knowledge that the value of residential real estate has declined significantly in nearly all areas of the Bay Area since 2004. In the absence of evidence that the City of Alameda has been an exception, there was no abuse of discretion in the probate court’s decision not to require a more recent appraisal to evaluate the necessity for selling the house.

Finally, Stephen objects that sale of the stock was approved “without any evaluation of the cyclical nature of stock prices [and] without limits on the sale, such as limit sell orders, to achieve the maximum price.” As discussed above, the petition made a clear case for sale of the stock to satisfy Stephen’s debt. Of course it is desirable to “achieve the maximum price,” but Stephen proposes no specific conditions that could have been imposed on the sale to satisfy that goal. Albert has the duty to sell the stock in a manner that will achieve the best practicable result for the trust; there was no need to add specific conditions to ensure compliance with that duty. We find no abuse of discretion.

Finally, we find no abuse of discretion in the probate court’s decision not to permit discovery and an evidentiary hearing with respect to the foregoing objections. (Estate of Bennett, supra, 163 Cal.App.4th at pp. 1308–1309.) As to these objections, there were no material disputed facts that required adjudication. The probate court was able to exercise its discretion on the facts as revealed in the parties’ verified petitions.

D. Motion for Reconsideration

Stephen contends that the trial court erred in denying his motion for reconsideration. Because the only issue raised in the motion for reconsideration was Albert’s capacity, and because we have concluded that Albert’s capacity was not properly raised as an objection to the final accounting, we find no error in the trial court’s denial of reconsideration. Further, in any motion for reconsideration based on new or different evidence, the movant must provide a satisfactory explanation for the failure to produce the new evidence at an earlier time. (Jones v. P.S. Development Co., Inc. (2008) 166 Cal.App.4th 707, 724.) Stephen’s purported “new evidence” was based largely on a visit and later phone call with his elderly father. The motion failed even to attempt to explain, let alone to explain satisfactorily, why the visit or call could not have been made prior to the hearing. The motion was properly denied.

III. DISPOSITION

The probate court’s decision overruling Stephen’s objection to the payment of the fees of the trustee’s attorney is reversed, and the matter is remanded for a hearing on the propriety of those payments. The order of the probate court settling and approving the final accounting and overruling Stephen’s objections is otherwise affirmed.

We concur: Marchiano, P.J., Graham, J.

Retired judge of the Superior Court of Marin County assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.


Summaries of

Krivy v. Krivy

California Court of Appeals, First District, First Division
Apr 28, 2009
No. A121561 (Cal. Ct. App. Apr. 28, 2009)
Case details for

Krivy v. Krivy

Case Details

Full title:STEPHEN KRIVY, Plaintiff and Appellant, v. ALBERT KRIVY, as Trustee, etc.…

Court:California Court of Appeals, First District, First Division

Date published: Apr 28, 2009

Citations

No. A121561 (Cal. Ct. App. Apr. 28, 2009)