trustee removal actions: drafting trust provisions to

Trustee Removal Actions: Drafting Trust

Provisions to Define and Limit Power to

Remove Trustees

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WEDNESDAY, MAY 16, 2018

Presenting a live 90-minute webinar with interactive Q&A

Michael A. Hackard, Attorney, Hackard Law, Mather, Calif.

Dave Jones, Attorney, Hackard Law, Mather, Calif.

Robert H. Paine, Attorney, Paine Law Group, Oxford, Miss.

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Uniform Trust Code

vs.

California Probate Code

- When the Uniform Trust Code

was drafted, there were already

comprehensive trust statutes in

five states including California.

- There are many similarities

between the Uniform Trust Code

and the comprehensive statues

in California.

27

California Probate Code –

Division 9, Part 3, Chapter 1

Trustees

• §§ 15600-15604: General Provisions

• §§ 15620-15622: Cotrustees

• §§ 15640-15645: Resignation and Removal

of Trustees

• §§ 15660-15660.5: Appointment of Trustees

• §§ 15680-15688: Compensation and

Indemnification of Trustees

28

Who Has The Authority to

Petition for Removal?

• Similar to UTC 706(a)

• California Probate Code 15642(a)

• A trustee may be removed

• in accordance with the trust instrument

• by the court on its own motion, or

• on petition of a settlor, cotrustee, or beneficiaryunder Section 17200.

29

Grounds for Removal of a

Trustee

• Probate Code 15642(b) provides the statutory grounds for removal of a trustee:

• 1. Trustee has committed a breach of the trust.

• 2. Trustee is insolvent or otherwise unfit to administer the trust.

• 3. Hostility or lack of cooperation among co-trustees impairs the administration of the trust.

• 4. Trustee declines or fails to act.

• 5. Trustee’s compensation is excessive under the circumstances.

• 6. Trustee is a “disqualified person” pursuant to Probate Code 21350 or 21380.

• 7. Trustee is substantially unable to manage the trust’s financial resourcesor is otherwise substantially unable to execute properly the duties.

• 8. Trustee is substantially unable to resist fraud or undue influence.

• 9. Other good cause.

30

1. Breach of Trust

• A breach of trust is a violation by the

trustee of any duty the trustee owes

one or more of the trust’s

beneficiaries.

[Probate Code 16400]

31

Trustee Duties

• Duty to Administer the Trust (16000)

• Duty of Loyalty (16002)

• Duty of Impartiality (16003)

• Duty to Avoid Conflicts of Interest (16004)

• Duty to Avoid Adverse Trusts (16005)

• Duty to Control and Preserve Trust Property (16006)

• Duty to Make Trust Property Productive (16007)

• Duty to Separate and Identify Trust Property (16009)

• Duty to Enforce Claims (16009)

32

• Duty to Defend Actions (16011)

• Duty to not Delegate (16012)

• Duty to Work Dutifully with Co-Trustees

(16013)

• Duty to Use Special Skills (16104)

• Duty to Provide Information to

Beneficiaries (16060)

• Duty to Report and Account (16062)

• Duty to Exercise Discretionary Powers

Reasonably (16080)

2. Insolvent or Unfit to Administer Trust

• Automatic vacancy in the office of trustee occurs if

• Trustee becomes the subject of an order for relief in bankruptcy [Probate Code 15643(f)]

• Even without a bankruptcy order, proof of insolvency will support the removal of the trustee.

• A conservator is appointed for the trustee [Probate Code15643(e)]

• A trustee may be removable as “otherwise unfit” for a broad spectrum of reasons

• Death

• Mental incompetence

• Matters of integrity or moral qualification

33

3. Hostility or Lack of

Cooperation Among Cotrustees

• Unless a trust instrument provides otherwise, decisions by cotrusteesmust be unanimous. [Probate Code 15620]

• The hostility or lack of cooperation among cotrustees must impair the administration of the trust

• Simple dislike or animosity between cotrustees is not enough (and not required)

• If this ground applies, the court may remove any or all of the trustees and appoint new ones

34

4. Trustee Failed or

Declined to Act

• Failure to identify and preserve property [Probate Code 16006]

• Failure to pay interest or dividends. Overell v. Overell (1926) 78 CA 251, 248

• Failure of one trustee to act may be ground for removal of cotrustees. Estate of Schloss (1961) 56 C2d 248

• Failure to account [Probate Code 16062]

• Beneficiary must first submit a written request for an account

• If trustee fails to provide an account within 60 days → petition for an order compelling the trustee to account

• If trustee is still is nonresponsive →petition for removal would be appropriate

35

5. Trustee Compensation is

Excessive

• Trustee may be removed when the trustee’s compensation is excessive under the circumstances. Estate of Gilmaker (1962) 57 C2d 627

• Trust beneficiaries also may petition the court to review the reasonableness of the trustee’s compensation. [Probate Code 17200(b)(7)]

• In practice, court will more likely reduce or deny fees to a trustee than remove trustee whose fees it considers unreasonable.

36

6. Sole Trustee is

“Disqualified Person”

• Generally, the following individuals are presumptively disqualified from being the sole trustee of a trust

• (1) Drafter of the trust instrument [Probate Code 21380(a)(1)]

• (2) Person who transcribed the instrument or caused it to be transcribed and was in a fiduciary relationship with the settlor when the instrument was transcribed [Probate Code 21380(a)(2)]

• (3) “Care custodian” of a settlor who was a “dependent adult” [Probate Code 21380(a)(3)]

• Only if the instrument was executed during the period in which care custodian provided services to settlor or within 90 days before or after that period.

• “Care custodian” defined in Welfare & Institutions Code 15610.17

• “Dependent adult” defined in Welfare & Institutions Code 15610.23

• A person who is related by blood, marriage or is a domestic partner of any person described above in (1), (2) or (3) [Probate Code 21380(a)(4)]

• A cohabitant or employee of any person described above in (1), (2) or (3) [Probate Code 21380(a)(5)]

• A partner, shareholder, or employee of a law firm in which a person described above in (1) or (2) has an ownership interest [Probate Code 21380(a)(5)]

37

Exceptions to General Rule on

Removal of Disqualified Trustee

• The settlor is related by blood, marriage to, or is a cohabitant with

• Any one or more of the trustees or

• Person who drafted or transcribed the instrument or caused it to be transcribed

[Probate Code 15642(b)(6)(A)]

• Certificate of Independent Review [Probate Code 15642(b)(6)(B)]

• After full disclosure of the relationships of the persons involved, the instrument is approved under a court order [Probate Code 15642(b)(6)(C)]

38

7. Substantially Unable to

Manage the Trust Financial

Resources or Properly Execute

Duties

• Under the Due Process in Competence Determinations Act (DPCDA) [Probate Code 810-813], all persons are presumed to have the capacity to make decisions about their personal, financial, and medical matters.

• To overcome the presumption, petitioner must show evidence of deficits in behavior, understand, or memory linked to inability to carry out particular functions [Probate Code 811]

• Mere diagnosis of a physical or mental disorder is insufficient in and of itself

• The trust instrument may provide a mechanism for determining incapacity.

39

8. Substantially Unable to

Resist Fraud or Undue Influence

• Similar considerations to prior removal ground #7. Substantially Unable to Manage Trust Financial Resources or Otherwise Properly Execute Duties but look for third party interference

40

9. Other Good Cause

• Examples

• Changed or unforeseen circumstances

• Absence of the trustee

• Criminal conviction

• Habitual substance abuse

• Refusal to

• make distributions

• invest a particular asset

• employ professional management

for the portfolio

• liquidate a non-income producing

or under performing asset

41

By: Dave C. Jones, Trial Lawyer

Hackard Law, a PLC (www.HackardLaw.com)

http://www.hackardlaw.com/

▪ Trial lawyer in California

▪ Started with public defender offices in southern CAand the central valley

▪ Moved to civil litigation

▪ Graduated from the Gerry Spence Trial Lawyers College

▪ Focus on any trial, but mainly financial elder abuse, undue influence, intentional interference with expected inheritance (IIEI), capacity, breach of fiduciary duty

16 May 2018Hackard Law, a PLC (www.HackardLaw.com) 43

What I do when I get a trustee removal case handed to me

16 May 2018Hackard Law, a PLC (www.HackardLaw.com)

44

▪ Why removing trustee?

▪ How many trustees?

▪ Could the trust be invalidated?

▪ Is there risk of immediate harm to the trust corpus?

▪ Is there risk to beneficiaries?

▪ Is there real property involved?

▪ Do I need a lis pendens (notice of pendency of action)?

▪ Who will benefit from removing trustee?

▪ Are there sufficient assets to warrant a removal?

▪ Are there alternatives to filing a lawsuit?

▪ Will the client get cold feet when the costs/fees go up?

▪ Venue?

▪ Can we get the trustee barred from using trust assets to defend the lawsuit?


▪ Quality of records trustee keeps

▪ Relationship of trustee to settlor and beneficiaries

▪ Trustee who is also a beneficiary

▪ Changes in trust relative to benefit trustee receives

▪ Disharmony between trustees and beneficiaries

▪ Quality of records/notes drafting attorney keeps

▪ Knowledge of drafting attorney

▪ Level of effort drafting attorney put into determining capacity/undue influence of settlor

▪ Etc.


▪ Medical records of the settlor

▪ Living situation of the settlor at time of trust

▪ Mental state of the settlor at time of trust

▪ Forensics medical report

▪ Drafting attorney’s file/notes

▪ Everyone present when the trust was discussed and/or signed

▪ Accounting


Can I get the drafting attorney out? And why would I want to?


48

▪ California family law case with wider implications

▪ 201 Cal.App.4th 1197 (2011)

▪ Advocate-witness rule

▪ Potential misuse of confidential information

▪ Appearance of impropriety

▪ Integrity of the judicial system

▪ Letter to drafting attorney who is also representing trustee in litigation



50

▪ Enjoin use of trust funds

▪ Suspend trustee’s powers

▪ Appoint temporary private fiduciary

▪ Remove drafting attorney as litigation counsel


What’s the point? Will it get me what I need?


52

▪ What do I hope to accomplish with written disco?

▪ Will my client be able to afford the discovery costs?

▪ Will the trust be able to afford the discovery costs?

▪ Do I have access to medical records?

▪ Will SDTs help get medical records?

▪ Are there cheaper alternatives for medical records?

▪ Do I have a consultant/expert yet? What does he/she want to see?

▪ What facts/documents do my clients have?

▪ Why not go straight to depositions?



54

▪ Go back to why removing trustee

▪ Invalidating trust too? Drafting attorney?

▪ Treating physicians

▪ Opposing experts

▪ Parties

▪ Other witnesses

▪ Any police reports?


▪ Know your law

▪ Know your facts

▪ Know the elements of undue influence

▪ Know the requirements for capacity

▪ Know the players


In other words, how do we know the trustee/beneficiary did not exercise undue influence to get what they got and that settlor had capacity?


57

▪ Undue influence

▪ Often overlooked by drafters

▪ Can happen outside presence of drafter

▪ May have no outward appearance of undue influence

▪ Lack of Capacity

▪ Drafters often on the look out

▪ “Mr. X knew exactly what he wanted and who he wanted toleave his assets to.”

▪ Mr. X’s doctor wrote a note


▪ Must ask only open-ended questions

▪ closed/leading ?s asked, likely it is estate plan will be challenged—and successfully

▪ open ?s asked, more likely you will see how competent settlor* is

▪ Examples:

▪ “You are here today to change your will to leave your home to only one of your sons, John Smith, correct?”

▪ “Mr. S, please tell me why you are here today?”

Hackard Law, a PLC (www.HackardLaw.com) 16 May 2018 60

▪ Make it standard practice to video; Easy with today’s technology

▪ No scripts for settlor

▪ Formulate a process/questions that you ask to fully document the video

▪ Settlor should name everyone in the room, pan around the room

▪ Use date/time generator

▪ Settlor should read entire document (if not possible, atty must read dispositive provisions—there are those closed ended ?s again)


▪ Settlor should agree to the terms of the document

▪ Settlor should name all heirs, beneficiaries, and family members and state why they are not receiving anything, if applicable (and why they are getting something)

▪ Settlor should name trustees/successor trustees and state why naming them

▪ Settlor should identify all property owned

▪ If devise is to disallowed person under PC 21380, must state it is voluntary, the devisee had no bearing on gift or document

▪ More info can be found in The Colorado Lawyer, January 2013, Vol. 42, No. 1: Lights, Camera, Action—Video Will Executions by Herb E. Tucker


▪ Primary care physician is rarely qualified

▪ Need psychologist or psychiatrist—and not just any

▪ Geriatric specialization

▪ Perform full evaluation including mental exams (e.g., MoCA, MMSE, SLUMS)

▪ Medical record review

▪ Face-to-face with settlor

▪ Often times a neutral 3d party will have a more objective assessment

▪ May be useful to have doctor inquire into reasons for leaving assetsto the beneficiaries they chose and why certain trustees were chosen


▪ Normally, gifts to fiduciaries, care custodians, et al. are void (Cal. PC 21380)

▪ If settlor wants to make a gift to a person in Cal. PC 21380, a certificate of independent review should be completed

• Independent lawyer will conduct an interview and,

likely, get a medical evaluation before signing off

on certificate


▪ Estate planning is a competitive market

▪ Not taking time now could cost your client (or his estate) considerably more

▪ Consider meeting with settlor several times before documents are executed

▪ Eval who is around the settlor each time you meet (Same people? Benes?)

▪ Eval where you meet (Home? Office? What is around settlor? Pills? Narcotics? Pain meds? Aricept? Exelon? Razadyne? Namenda? Signs with phone numbers? Etc.)

▪ May even ask for list of medications settlor takes regularly


▪ What if mom excludes some or all children from estate plan?

▪ Follow up—why? Open-ended questions with no one else around

▪ If mom has reasons based on actions/inactions of children, ask how she knows about the things the kids allegedly did

▪ If she knows because “X” told her so, be concerned—especially if X is a bene

• May suggest that she speak with the children at attorney’s office to see their

reaction to why they are being cut out

• May get permission to speak with cut out natural benes to see their reaction


▪ What happens when son brings dad in to the office to discuss drafting an estate plan?

▪ Be concerned

▪ Only talk to settlor alone—even starting the conversation with son could influence dad

• Take your time

• Consider other alternatives discussed here to protect

yourself (and the settlor)


▪ What if child calls and says mom is going to die and needs her will updated today or this weekend or even next week?

▪ Child will often say mom:

▪ Too weak to talk

▪ Can’t come to office

▪ Wants to leave ___% to me (usually high %) and ___% to other kids (usually 0 or very low %)

▪ Please draft documents and bring them here for mom to sign

▪ Despite “emergency”, need to proceed cautiously

▪ May even say because of “emergency”, need to proceed even more cautiously


▪ Specialists should be even more careful

▪ Familiarity not only breeds children*—it breeds complacency

▪ Just because you do 100s or 1000s of documents per year does not mean you can “sniff” out undue influence or lack of capacity

▪ There is a reason geriatric psychologists and psychiatrists charge what they do—it is highly specialized and requires a high-level of training and experience

▪ Thinking that you can tell when a settlor is unduly influenced just by meeting with them for a few hours in your office or their home without reviewing medical records, memory tests, psychological tests, etc., sets your client and/or her family up for expensive litigation

Hackard Law, a PLC (www.HackardLaw.com) 16 May 2018 69

Dos

▪ Ask open-ended ?s

▪ Videotape execution of documents

▪ Talk to settlor alone

▪ Meet settlor in person

▪ Medical evaluation

▪ Certificate of Independent Review

Don’ts

▪ Ask closed-ended/leading ?s

▪ Talk mainly to a 3d party (or bene)

▪ Rush the process

▪ Medical eval from unqualified doc

▪ Put too much stock in state bar certs

▪ Talk to settlor with others present


Vulnerability

▪ Incapacity

▪ Illness

▪ Age

▪ Education

▪ Emotional distress

▪ Impaired mental abilities

▪ Isolation

▪ Dependency

Apparent Authority

▪ Position as fiduciary

▪ Family member

▪ Legal professional

▪ Spiritual advisor

▪ Care provider

▪ Health care provider


Actions or Tactics

▪ Controlling meds, money, interactions with others

▪ Using affection, coercion, intimidation

Unfairness of Result

▪ Economic consequences

▪ Deviation from prior estate plans

▪ Consideration

▪ Gain to bene disproportionate to length of time in relationship

• Initiating changes in

personal or property

rights

• Using haste or secrecy for

changes



73


▪ Dos

▪ Ask open-ended ?s

▪ Videotape execution of documents

▪ Talk to settlor alone

▪ Meet settlor in person

▪ Medical evaluation/certificate of Independent Review

▪ Take copious notes

▪ Ask “why” & “how do you know” often

▪ Don’ts

▪ Ask closed-ended/leading ?s

▪ Talk mainly to a 3d party (or t’ee)

▪ Rush the process

▪ Medical eval from unqualified doc

▪ Put too much stock in state bar certs

▪ Talk to settlor with others present

▪ Ignore warning signs

▪ Take settlor’s word for things

10630 Mather Blvd.

Mather, CA 95655

916-313-3030 phone

916-226-5177 fax

www.HackardLaw.com

Kaiser


http://www.hackardlaw.com/

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