The “bad faith” standard relates to trustees who have been given absolute
discretion, which is demonstrated by the use of the term “bad faith” in the statutory
language, i.e., “shall not act in bad faith.” (§ 16081, subd. (a).) In the instant case, the
trust instrument did not grant trustee absolute or sole discretion.
The trust instrument provides, “The Trustee may distribute from such common
fund to or for the benefit of the Beneficiary during her lifetime, such sums and at such
times as the Trustee, in [her] discretion, determines appropriate and reasonably
necessary for the Beneficiary’s Special Needs. In making distributions to the
Beneficiary for her Special Needs, the Trustee shall take into consideration the
applicable resource and income limitations of the public assistance programs for which
the Beneficiary is eligible, and the duties of any persons legally obligated to support the
Beneficiary.” The Trust instrument further provides, “All payments made under this
Trust must be reasonably necessary in providing for this Beneficiary’s special needs, as
defined herein.”
The plain wording of the trust instrument grants Trustee reasonable discretion
(§ 16080), but not unlimited or sole discretion (§ 16081, subd. (a)). The plain words of
the trust instrument repeat the word “reasonably” in reference to discretion, while
omitting the words sole, uncontrolled, or absolute in reference to discretion.
17
Accordingly, we conclude the “bad faith” standard was not applicable in this case
because Trustee was granted reasonable discretion (§ 16080); Trustee was not granted
sole discretion (§ 16081, subd. (a)).
Next, in regard to the abuse of discretion standard, it could arguably apply under
either level of trustee discretion—reasonable or absolute. “Abuse of discretion” can be
defined as acting in an arbitrary manner (Estate of Ruchti (1993) 12 Cal.App.4th 1593,
1601), which is closer to the test for a trustee with absolute discretion (Coberly v.
Superior Court for Los Angeles County, supra, 231 Cal.App.2d at p. 689 [“trustee is
still required to avoid arbitrary action”]). However, “abuse of discretion” can also be
defined as acting in an irrational manner (Ajamian v. CantorCO2e, L.P. (2012) 203
Cal.App.4th 771, 804), which is arguably closer to the test for a trustee with reasonable
discretion (§ 16080 [discretion “shall be exercised reasonably”]).
As explained ante, the trust did not grant Trustee absolute discretion, as a result
the “arbitrary” definition of “abuse of discretion” is not applicable in this case. To the
extent “abuse of discretion” is defined as meaning Trustee has to act in a rational
manner (Ajamian v. CantorCO2e, L.P., supra, 203 Cal.App.4th at p. 804), that is the
equivalent of the reasonableness standard the probate court applied, which is found in
section 16080, e.g., discretion “shall be exercised reasonably.” In other words, the
probate court examined whether Trustee acted reasonably (§ 16080), which has the
same practical effect of examining whether Trustee abused her discretion by acting
irrationally.
18
For example, the probate court found Trustee breached her fiduciary duty by
“expend[ing] various funds without sufficient care or justification, and without
reference to the text or purpose of the trust.” We understand the probate court’s
findings as concluding that Trustee acted unreasonably in exercising her discretion
(§ 16080). This inference is supported by the probate court’s statement, during the
evidentiary hearing, “I think the Court is entitled to ask whether the disbursements made
in various categories were reasonable.” The same result in the case would occur if the
standard were labeled an abuse of discretion, with “abuse of discretion” being defined
as an irrational act. Accordingly, to the extent Trustee chooses to label the standard an
“abuse of discretion” standard with rationality as the test, rather than a “breach of
fiduciary duty” with reasonableness as the test, we see little difference in terms of the
application. As a result, we are not persuaded that the probate court erred.
6. SUBSTANTIAL EVIDENCE
Within the “incorrect legal standard” contention, Trustee asserts that several of
the surcharges are not supported by substantial evidence. For example, Trustee asserts
the rent surcharge is not supported by substantial evidence because Beneficiary
“presented no evidence to show there was an ‘abuse of discretion.’ ” Trustee’s briefing
leaves us unclear as to whether Trustee intended to use these arguments (1) to illustrate
that an improper legal standard was allegedly applied, or (2) to raise a separate issue
concerning substantial evidence. Because Trustee has included the arguments within
her “incorrect legal standard” contention, we infer that they are intended to serve as
illustrations of the alleged incorrect legal standard. (Cal. Rules of Court, rule
19
8.204(a)(1)(B) [separate headings].) Therefore, we do not address the issue of
substantial evidence at this point.
B. SUBSTANTIAL EVIDENCE
1. CONTENTION
Trustee contends that the probate court erred by ordering Trustee be surcharged.
Trustee asserts that the question before the probate court was not whether the probate
court believed the disbursements to be reasonable, but whether Trustee could reasonably
believe the disbursements were reasonable. Trustee contends, “The record below is
devoid of any evidence that [Trustee] abused her discretion or exercised it in bad faith.
There were certainly differences of opinion between what [Beneficiary] (and the
Probate Court) believed was reasonable and what [Trustee] believed was reasonable.
But, as set forth above, differences of opinion on the reasonableness of a disbursement
cannot form the basis for a surcharge against the trustee.”
Much of Trustee’s argument repeats the same ideas that Trustee set forth in the
prior contention concerning the alleged application of an incorrect legal standard.
Within the instant contention, Trustee asserts, “The record below is devoid of any
evidence that [Trustee] abused her discretion or exercised it in bad faith.” We interpret
Trustee’s contention as asserting there is a lack of substantial evidence to support the
finding that she breached her fiduciary duty.
Generally, this court will not examine a substantial evidence issue when provided
with an incomplete transcript of the evidentiary hearing’s oral proceedings. (In re
Estate of Fain, supra, 75 Cal.App.4th at pp. 987, 992.) The reporter’s transcript in the
20
instant case is missing the first day of the evidentiary hearing; it begins on the second
day with Mother resuming her direct examination. Nevertheless, our review of the
record reflects that within this partial reporter’s transcript there is substantial evidence
to support the probate court’s findings. Accordingly, we will address the issue.
(Sanders v. Walsh (2013) 219 Cal.App.4th 855, 874.)
2. STANDARD OF REVIEW
We apply the substantial evidence standard of review. (Uzyel v. Kadisha (2010)
188 Cal.App.4th 866, 911, 916; Penny v. Wilson, supra, 123 Cal.App.4th at p. 603.)
“ ‘Under the substantial evidence standard of review, “we must consider all of the
evidence in the light most favorable to the prevailing party, giving it the benefit of every
reasonable inference, and resolving conflicts in support of the [findings]. [Citations.]
[¶] It is not our task to weigh conflicts and disputes in the evidence; that is the province
of the trier of fact. Our authority begins and ends with a determination as to whether,
on the entire record, there is any substantial evidence, contradicted or uncontradicted, in
support of the judgment.” ’ ” (In re Estate of Kampen (2011) 201 Cal.App.4th 971,
992.)
3. LAW
In regard to duty, “the trustee has a duty to administer the trust according to the
trust instrument” (§ 16000) and “a duty to take reasonable steps under the circumstances
to take and keep control of and to preserve the trust property” (§ 16006). The trustee is
required to exercise her discretion in a reasonable manner. (§ 16080.) “If the trustee
commits a breach of trust, the trustee is chargeable with . . . [¶] . . . Any loss or
21
depreciation in value of the trust estate resulting from the breach of trust, with interest.”
(§ 16440, subd. (a)(1).)
4. TRUST INSTRUMENT
The trust instrument provides, “The intent and purpose of this trust is to provide
a discretionary, spendthrift trust, to supplemental public resources and benefits when
such resources and benefits are unavailable or insufficient to provide for the Special
Needs of the Beneficiary. As used in this instrument, the term ‘Special Needs’ means
the requisites for maintaining the Beneficiary’s good health, safety, and welfare when,
in the discretion of the Trustee, such requisites are not being provided by any public
agency, office, or department of the State of California, or of any other state, or of the
United States of America. The funds of the trust may be used as an emergency or
backup fund secondary to public resources. Special Needs include without limitation
special equipment, programs of training, education and habilitation, travel needs, and
recreation, which are related to and made reasonably necessary by this Beneficiary’s
disabilities. This is not a trust for the support of the Beneficiary. All payments made
under this Trust must be reasonably necessary in providing for this Beneficiary’s special
needs, as defined herein.”
As explained by the trust instrument, the trust estate is to be used for necessary
expenses related to Beneficiary’s special needs, e.g., the trust instrument provides,
“which are related to and made reasonably necessary by this Beneficiary’s disabilities.”
The trust estate was not to be used for Beneficiary’s general support, e.g., the trust
instrument provides, “This is not a trust for the support of the Beneficiary.”
22
Accordingly, Trustee had a duty to ensure that distributions were directed toward items
that were made necessary due to Beneficiary’s disabilities.
5. RENT
We examine whether there is substantial evidence that Trustee breached her duty
by paying Beneficiary’s household rent from the trust estate. The trust instrument was
an exhibit at trial. The trust instrument reflects the trust estate is to be used for expenses
made necessary by Beneficiary’s disabilities, and not for the general support of
Beneficiary. The residential rent payment of $1,250 was made on October 25, 2007.
Mother rented a home in 2007 for $1,250 per month.
Beneficiary’s need for a place to live was not made necessary by her disabilities.
Rather, shelter is a basic need for people regardless of any disability. Trustee testified,
“I wasn’t making any food, clothing, and shelter payments.” Trustee then explained
that she only needed to make one rent disbursement because Mother typically “met
those basic needs.”
Trustee seemingly understood that the trust estate was not to be used for general
support items such as shelter. Nevertheless, Trustee made a disbursement for rent.
Rent is a general support item, and such expenditures are expressly disallowed by the
trust instrument. Accordingly, the finding that Trustee breached her fiduciary duty by
making a disbursement for rent is supported by substantial evidence. (See § 16000
[duty to administer trust according to the trust instrument].)
Trustee asserts that the trust instrument permits Trustee to invest in residential
real estate, therefore, it was permissible to make a disbursement from the trust estate for
23
a rent payment. The trust instrument provides, “To carry out the purposes of this trust
and subject to any limitations stated elsewhere in this instrument, the Trustee is vested
with the following powers . . . [¶] . . . [¶] . . . To invest . . . in residential real property,
vehicles, and other tangible personal property which may be used and occupied by the
Beneficiary and her family without the payment of any rent or other expense by any
person providing care to [Beneficiary]. The purchase or sale of the personal residence
of the Beneficiary must be approved in advance by a court of competent jurisdiction
over the Trust.”
As set forth ante, one of the limitations on Trustee’s power to make
disbursements is that the expense must be “made reasonably necessary by this
Beneficiary’s disabilities.” As explained ante, rent is a general support item, not an
expense made necessary by Beneficiary’s disabilities. Further, rent is not an investment
in real property. Accordingly, we are not persuaded that Trustee’s investment power
authorized her to disburse money for a rent payment.
5. VEHICLES
Between February 2005 and September 2011, Trustee made disbursements
totaling $24,404.50 for vehicle-related expenses. The expenses were for maintenance,
repairs, registration, and insurance. Mother drove a 1998 Nissan and a Buick
Rendezvous. Mother was convicted of driving under the influence after crashing and
totaling one of the cars in 2007.
24
The trust purchased at least one of the vehicles.2 Trustee spoke with Mother
about whether the trust or Mother should purchase the vehicle. Trustee decided that the
trust should purchase the vehicle because it was “not practical” for Mother to purchase
the vehicle due to Mother being a full-time student. Trustee considered the amount of
time Trustee would bill in fees for handling the car-related expenses. However, Trustee
did not have an estimate as to how much those fees would cost the estate.
Trustee testified that Mother “was a single mother, working, trying to go through
[nursing] school.” After Mother dropped Beneficiary off at school, Mother went to
nursing school. Beneficiary resided at her father’s home approximately three days per
week, and slept at his home on those days.
The evidence reflects that the cars were standard transportation for Mother and
Beneficiary. There is nothing about the car that is modified for Beneficiary’s needs, nor
is there anything about Beneficiary’s disability that requires a car. Rather, Trustee
decided that the trust would purchase and maintain the vehicle because it was not
practical for Mother to bear the expense due to Mother being a full-time student.
Trustee’s reason for using the trust estate for vehicle expenses was not reasonable given
that the vehicle expenses were not made reasonably necessary by Beneficiary’s
disability.
2 We infer from context in the reporter’s transcript, in particular a line that reads, “And just to refresh our recollection from yesterday,” that the vehicles were discussed on the first day of the evidentiary hearing, for which we do not have a transcript. As a result, there is a lack of clarity concerning some of the facts related to the vehicles.
25
Trustee contends she had the authority to purchase a vehicle and therefore the
probate court erred. The trust instrument provides, “To carry out the purposes of this
trust and subject to any limitations stated elsewhere in this instrument, the Trustee is
vested with the following powers . . . [¶] . . . [¶] . . . To invest in . . . vehicles, and other
tangible personal property which may be used and occupied by the Beneficiary and her
family without the payment of rent or other expense by any person providing care to
[Beneficiary].”
As set forth ante, one of the limitations on Trustee’s power to make
disbursements is that the expense must be “made reasonably necessary by this
Beneficiary’s disabilities.” The vehicle was maintained at the trust’s expense because
Trustee did not think it was practical for Mother to bear the cost due to Mother being a
full-time student. In other words, the car was not made necessary by Beneficiary’s
disability; rather, Trustee determined the car expenses were made necessary due to
Mother being a student. Because Trustee did not exercise her authority within the limits
of the trust, Trustee acted unreasonable and breached her fiduciary duty. (See § 16000
[duty to administer trust according to the trust instrument].)
6. FINAL DISTRIBUTION
The probate court surcharged Trustee for the final distribution to Mother of
$15,574.85. Trustee testified that she spoke to Beneficiary’s attorney and “together we
came to the conclusion that we were wasting money, that there would be nothing left for
a down payment on a house,” so Trustee decided to disburse the last $15,574.85 to
26
Mother to purchase a house. After distributing the money, Trustee did not follow-up
with Mother to determine if Mother used the money to purchase a house.
Mother had asked for money to purchase a home, but did not realize the
$15,574.85 was for the purpose of purchasing a home. As a result, Mother commingled
the funds with her personal funds. Mother spent the entire $15,574.85, but did not
purchase a house. Mother used the money for food, gasoline, utility bills, and car
repairs. Mother also purchased goods for Beneficiary, such as a bed, a closet organizer,
a television stand, and a DVD player.
As explained ante, one of the limitations on Trustee’s power to make
disbursements is that the expense must be “made reasonably necessary by this
Beneficiary’s disabilities.” Trustee testified, “I wasn’t making any food, clothing, and
shelter payments,” which indicates Trustee understood general living expenses were not
to be paid by the Trust. Nevertheless, much of $15,574.85 was used to pay for general
living expenses, such as food and utilities. The goods purchased for Beneficiary do not
appear to be necessary for her disabilities. Rather, they appear to be general household
items. Because these expenses were not made reasonably necessary by virtue of
Beneficiary’s disabilities, Trustee breached her fiduciary duty by making the
$15,574.85 disbursement, with the exception of $1,000, discussed in the paragraph post.
(See § 16000 [duty to administer trust according to the trust instrument].)
Mother testified that approximately $1,000 of the $15,574.85 was given to
Beneficiary’s attorney who advocated for Beneficiary at a meeting concerning
Beneficiary’s individualized education program. The attorney assisted Beneficiary in
27
obtaining “psychoeducational testing that was used to help get her other resources in the
classroom.” The probate court found expenses related to Beneficiary’s education were
reasonable. We conclude this $1,000 educational expense that was lumped into the
$15,574.85 disbursement was a proper use of the trust estate. Accordingly, we will
reduce the surcharge by $1,000.
7. LIVING EXPENSES
The probate court surcharged Trustee $17,577.85 for improper distributions
related to living expenses. Some of the disbursements that the probate court found to be
improper concerned case management, long distance telephone bills, clothing,
vacations, and Christmas presents.
a. Case Management
In regard to case management, the probate court found $1,000 was reasonable for
case management expenses. Trustee’s accounting reflects disbursements were made for
visits by the case manager on an almost monthly basis. The charges range from $6.25
for a visit in December 2005 to $132.75 for a visit in October 2010. The case manager
visits in 2010 and 2011 were regularly in the range of $130, while in other years they
had been in the range of $10 to $40 per visit. In total, Trustee spent approximately
$2,580 on case management.3 Given the lower available prices, such as $40, repeatedly
spending approximately $130 per visit appears excessive. Accordingly, substantial
3 Trustee asserts the case management expenses totaled $3,323.75.
28
evidence supports the finding that Trustee breached her duty to preserve trust property
(§ 16006), and that $1,000 was a reasonable amount for case management fees.
b. Long Distance Bills and Clothing
One of the limitations on Trustee’s power to make disbursements is that the
expense must be “made reasonably necessary by this Beneficiary’s disabilities.” The
trust estate is not to be used for Beneficiary’s general support. Clothing is a general
expense. For example, Trustee testified, “I wasn’t making any food, clothing, and
shelter payments.” Trustee also testified that clothing was a basic need and therefore
Trustee typically only made disbursements for holiday clothing. Trustee’s testimony
reflects an understanding that the trust estate was to be used for Beneficiary’s special
needs—not her general support—and that clothing was a general support item because it
is basic human need. As a result, Trustee breached her duty to follow the terms of the
trust by making disbursements for Beneficiary’s clothing. (See § 16000 [duty to
administer trust according to the trust instrument].)
Similarly, the long distance telephone bills were a general household expense.
Mother’s family resides in Jamaica. It can reasonably be inferred that the long distance
telephone bills were for keeping in contact with family, rather than any particular need
related to Beneficiary’s disability. As a result, Trustee breached her duty to follow the
terms of the trust by making disbursements for long distance telephone bills. (See
§ 16000 [duty to administer trust according to the trust instrument].)
29
c. Vacations
The probate court allowed $200 for a Thanksgiving trip and $5,000 “for other
travel.” Trustee spent $200 for the Thanksgiving trip and approximately $17,305 on
travel to Jamaica, London, and Hawaii.4 Mother estimated that she and Beneficiary
travelled to Jamaica four times during the life of the trust; they also travelled to England
and Hawaii. Money from the trust was used to pay for the vacations, which included
Mother, Beneficiary, and Beneficiary’s grandmother or great-aunt. Mother explained
that they visited family in Jamaica and England. The trip to Hawaii was for a wedding
for Mother’s best friend. Mother believed the trips were beneficial to Beneficiary
because they provided “good social experience[s].” Mother testified that the trust paid
for Beneficiary’s daycare before and after school because it was “a good social
experience” for Beneficiary, because it provided Beneficiary an opportunity to interact
with people outside of a special education environment.
Given that the trust was paying for Beneficiary to have social experiences before
and after school, the probate court could reasonably conclude that trips to Jamaica,
England, and Hawaii were not necessary for Beneficiary to have social experiences.
Accordingly, we conclude the probate court’s finding that $5,200 was a reasonable
amount for travel expenses is supported by substantial evidence and that spending more
on such travel was not a reasonable use of trust assets. (See § 16006 [duty to control
and preserve trust property].)
4 Trustee asserts the travel expenses totaled $16,805.92.
30
d. Presents
Trustee made disbursements for Christmases and birthdays. One of the
limitations on Trustee’s power to make disbursements is that the expense must be
“made reasonably necessary by this Beneficiary’s disabilities.” Trustee testified that
she did not make disbursements for clothing except “once in a while for holidays.” It
can be inferred from the record that Trustee allowed impermissible disbursements for
the sake of Beneficiary enjoying her birthdays and Christmases. For example, $265 was
spent on a birthday trip to Sea World. However, disbursements for Beneficiary’s
general enjoyment are not permitted by the terms of the trust. Under the trust,
disbursements are to be made for expenses “related to and made reasonably necessary
by this Beneficiary’s disabilities.” Because the presents were not reasonably necessary,
substantial evidence supports the probate court’s finding that Trustee breached her
fiduciary duty. (§ 16000.)
e. Conclusion
In sum, with the exception of $1,000, the probate court’s findings are supported
by substantial evidence.
C. COMPENSATION
Trustee contends the probate court erred by disallowing the entirety of her
compensation.
We apply the abuse of discretion standard of review. (Finkbeiner v. Gavid
(2006) 136 Cal.App.4th 1417, 1421-1422.) “[I]f the trust instrument provides for the
trustee’s compensation, [then] the trustee is entitled to be compensated in accordance
31
with the trust instrument.” (§ 15680, subd. (a); Thorpe v. Reed (2012) 211 Cal.App.4th
1381, 1391-1392.) However, in certain situations the probate court may allow greater
or lesser compensation. One of the situations is “[w]here the compensation in
accordance with the terms of the trust would be inequitable or unreasonably low or
high.” (§ 15680, subd. (b)(2).) California Rules of Court, rule 7.776 provides a list of
eight factors that a court may consider when determining a trustee’s compensation. One
of the factors is “[t]he success or failure of the trustee’s administration.” (Cal. Rules of
Court, rule 7.776(2).)
The trust instrument provides, “The Trustee shall receive just and reasonable
compensation, to be paid from the Trust, for [her] services in an amount to be
determined by the Court on the occasion of the Trustee’s court accountings or such
other times as that issue may be brought before the Court with jurisdiction over the
Trust. The Trustee may receive interim compensation on account, in accordance with
the order of the Court with jurisdiction over the Trust.”
Trustee did not file the required accountings with the court because she was
unaware the trust was court supervised. Trustee did not look at the trust instrument to
understand her authority under the trust. Trustee continued to serve as trustee of the
trust when her professional fiduciary license was suspended from 2008 to 2010. Trustee
did not keep accurate time records for her fees. Trustee breached her fiduciary duty by
making disbursements for rent, clothing, vehicle expenses, and vacations. Trustee also
breached her fiduciary duty by making a final distribution to Mother in the amount of
32
$15,574.85, which was then commingled with Mother’s personal funds and primarily
spent on living expenses and household items.
Given Trustee’s mismanagement of the trust estate, failure to make the required
court filings, and continued service when she lacked a license, the probate court could
reasonably conclude that Trustee was not entitled to compensation because any
compensation for the service rendered would be inequitable due to Trustee’s multiple
failures in administering the trust (Cal. Rules of Court, rule 7.776(2)).
DISPOSITION
The total amount of the surcharge is modified to $92,036.75. In all other
respects, the judgment is affirmed. Respondent is awarded her costs on appeal. (Cal.
Rules of Court, rule 8.278(a)(4).)
CERTIFIED FOR PUBLICATION
MILLER J.
We concur:
McKINSTER Acting P. J.
CODRINGTON J.
33
AI Brief
AI-generated · verify before citing
Holding. The probate court correctly applied the legal standard for trustee accountings and surcharges, properly determining that the trustee was granted reasonable, not absolute, discretion and failed to meet her burden of proving the propriety of her expenditures.
Issues
Did the probate court apply the correct legal standard in evaluating the trustee's accounting and surcharge?
Did the probate court err in its determination of the trustee's level of discretion under the trust instrument?
Was the trustee's compensation properly denied due to breaches of fiduciary duty?
Disposition. Affirmed as modified.
Quotations verified verbatim against the opinion
“The trustee has the burden of proving the accuracy of the account, and cannot shift that burden to the beneficiary without an evidentiary showing.”
“The plain wording of the trust instrument grants Trustee reasonable discretion (§ 16080), but not unlimited or sole discretion (§ 16081, subd. (a)).”