Beneficiary’s Estate Has Standing To Demand an Accounting In California Trust Dispute

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In Dunlap v. Mayer, a California appellate court addressed the standing of a deceased beneficiary’s estate to demand an accounting of a trust that decedent was a beneficiary of during her life.

The Facts of Dunlap v. Mayer

Josephine and Erwin Mayer were married and had two children, Maria and Claudia.  Erwin died in 1995.  Erwin created a trust in his will ( a testamentary trust) for the benefit of Josephine.  In probate litigation over Erwin’s estate, a settlement agreement modified the terms of the Marital Trust.

Under the settlement agreement, Josephine was the sole income beneficiary of the Marital Trust, and Maria was the sole principal beneficiary upon Josephine’s death.  Maria was appointed as the sole trustee of the Marital Trust pursuant to the terms of the settlement agreement.

Josephine died in 2015.  Joseph Dunlap, the executor of her New York Estate, petitioned Maria, as trustee of the Marital Trust, for an accounting of the Marital Trust for the period from Erwin’s death until Josephine’s death – about a 20 year period.

Maria objected to the petition, asserting that the Estate lacked standing to demand a trust accounting.  The objection also stated that Maria did not know if the Marital Trust was ever funded; she never acted as a trustee of the Marital Trust; to the best of her knowledge she never possessed the assets as a trustee of the Marital Trust; and upon investigation, information and belief, the entities that were to fund the Marital Trust had been defunct for more than 15 years. Maria further stated that she could not provide an accounting of the Marital Trust because she never served as a trustee.

The California probate court set a case management conference.  The Estate filed a progress report in advance of the hearing and attached documents showing that Maria had signed certain documents as trustee of the Marital Trust and agreed to provide millions of dollars to another entity from the Marital Trust.

At the case management conference the court dismissed the petition without prejudice pursuant to California Probate Code sections 17202 and 17206. Josephine’s Estate timely appealed.

Who Has Standing To Request a Trust Accounting Under California Law?

The California Probate Code is intended to broaden the jurisdiction of the probate court so as to give the court jurisdiction over practically all controversies which might arise between trustees and those claiming to be beneficiaries under a trust.  See our article: Standing To Challenge a Trust: The California Supreme Court Decides.

Under section 24 of the California Probate Code, a beneficiary “means a person to whom a donative transfer of property is made or that person’s successor in interest, and…(c) As it relates to a trust, means a person who has any present or future interest, vested or contingent.”

Here, Maria argued that because the Estate was not a present beneficiary of the Trust, the Estate had no standing to request a trust accounting under California Law.

Beneficiary’s Estate Had Standing To Request a Trust Accounting

The California probate court explained that the Estate did have standing to request a trust accounting.  The general rules of survivability apply to proceedings under the California Probate Code.  The court discussed Elliot v. Superior Court (1968) 265 Cal. App. 2d 825, stating:

The court in Elliott held that a beneficiary’s cause of action against the trustee survives the death of the

beneficiary. (Id. at p. 831.) The court relied on former section 573, which

was repealed in 1992 and “restated without substantive change in Code of

Civil Procedure sections 377.20(a) (survival of actions), [and] 377.30

(commencement of action decedent could have brought) . . . .” (Former § 573,

repealed by Stats. 1992, ch. 178 (S.B. 1496) § 31, Law Revision Commission

Comm.) The court said that the Legislature created “a comprehensive rule of

survivability, and . . . there are no longer any nonsurvivable causes of action.”

(Elliott, at p. 831.) Maria distinguishes Elliott because it involved the

survivability of a cause of action when the beneficiary died while the action

was pending. The Elliott court’s legal interpretation of former section 573

applies to both of its two successors in the Code of Civil Procedure, sections

377.20 and 377.30, regarding survivability and commencement of actions

respectively.

 

In sum, Josephine’s right to request an accounting of the Marital Trust during her lifetime, when she was a beneficiary, continued after her death.

The California Probate Court’s Discretion Does Not Permit Sua Sponte Dismissal When Factual Disputes Exist

In this case the California probate court dismissed the Estate’s petition with no evidentiary hearing or evidence.  The appellate court looked at the discretion afforded the Court under the California Probate Code to make orders regarding trusts.

Section 17202 of the California Probate Code states:

The court may dismiss a petition if it appears that the proceeding is not reasonably necessary for the protection of the interests of the trustee or beneficiary.

Section 17206 of the California Probate Code addresses the court’s discretion and states:

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, including appointment of a temporary trustee to administer the trust in whole or in part.

The California appellate court determined that it was error to dismiss the petition without an evidentiary hearing.  Since the allegations in Maria’s verified objection were contested, the trial court could not rely on it in dismissing the petition.  In addition, a trial court may not dismiss an action sua sponte and without notice when a factual dispute exists.

The Court stated:

The probate court does not have the

power to dismiss an action sua sponte and without notice when, as here, there are disputed issues. The Probate Code requires that “[a] hearing under

this code shall be on notice unless the statute that provides for the hearing

dispenses with notice.” (§ 1042.) Neither section 17206 nor section 17202

dispense with notice for a hearing on a motion to dismiss. There was no

notice of dismissal before the conference. Notice of the hearing stated only

that it was set for a “[p]rogress report on pending discovery.” There was no

notice to the Estate that dismissal of the petition would be considered, much

less granted. (See Lee v. An (2008) 168 Cal.App.4th 558, 565 [court erred in

imposing sanctions that resulted in a default judgment at case management

conference when party had no notice that sanctions leading to dismissal could

be imposed if party failed to appear].)

 

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