New California trust case holds that a trustee is not liable for personal damages suffered by the beneficiary, and is not liable to the beneficiary if the beneficiary failed to diligently protect her interests

Overview

Williamson v. Brooks holds that a trustee is not liable for personal damages suffered by the beneficiary, and a trustee is not liable to the beneficiary if the beneficiary failed to diligently protect her interests. Williamson v. Brooks, California Court of Appeal, Second Appellate District (2d Civil No. B265745, decided January 31, 2017)

Summary of Facts

In 2008, Dad established an irrevocable Trust which contained five separate Subtrusts benefiting five of his adult children, including Beverly. Dad selected his accountant (Brooks) and his attorney (Clemens) to serve as the initial Co-Trustees. The Subtrust allowed Beverly to withdraw certain portions of the principal at 40, 50 and 60 years of age.

After the Trust was created, Dad and the two Co-Trustees discussed the need to inform Dad’s children about the Trust. Dad said that he wanted to tell them himself and he wanted “to caution [the children] that it was not for purchases [for which] it wasn’t intended.” Dad informed Beverly about her Subtrust on at least two occasions. The first was in a March 22, 2009, email in which Dad responded to an inquiry from Beverly regarding whether accountant Brooks should file Beverly’s 2008 taxes. Dad advised: “[Brooks and Clemens] set up Trusts that do not require you to change any of your tax stuff. File with anyone you like and the Trust Income has no effect on your taxes since each Trust is a separate entity and is taxed on its own. I pay the tax on the Trust. I need to sit with you sometime this year to explain it all.” The second occasion occurred in late spring of 2009 on the beach at Hollister Ranch in Santa Barbara. William again informed Beverly of her Subtrust and told her she would be taken care of in the event of his death.

Subsequently, after Dad later fired Beverly from her employment at Dad’s company Beverly was unable to make the total monthly payments on her home loan. Beverly’s sister offered to help with either the payments in the form of a loan, or by quitclaiming the sister’s partial interest in the property to Beverly so that Beverly could do whatever she wanted with the property, or by having Beverly quitclaiming her interest in the property to her sister, and the sister renting the house back to Beverly. Beverly decided to quitclaim her interest to her sister, and instead moved into Dad’s guest room at Dad’s property at Hollister Ranch – living at Hollister Ranch was a dream come true for Beverly.

In 2012, Beverly contacted accountant and Co-Trustee Brooks for the first time to discuss the Subtrust. Brooks promptly responded, providing the information and documents requested. When Beverly made a request to withdraw assets from the Subtrust in September 2012, “Brooks worked with her to begin making monthly distributions.”

Subsequently Co-Trustees Brooks and Clemens resigned as the Co-Trustees, but for reasons that are not relevant to this case. Successor Trustee Egan filed a first amended petition against Brooks and Clemens for damages suffered as a result of Beverly’s loss of her home property. Egan claimed that Brooks and Clemens breached their fiduciary duties to Beverly by failing to sufficiently inform her of the Subtrust (thus arguably denying Beverly of knowledge of the possibility that payments from the Subtrust might be used to make payments on the mortgage on Beverly’s home, thus preventing Beverly’s loss of that property). Before trial, Joanne Williamson was substituted in as petitioner in her capacity as the second successor Trustee.

The Trial Court ruled in favor of Co-Trustee’s Brooks and Clemens against successor Trustee Williamson. The Court of Appeal affirmed.

Summary of the Court’s Decision

  1. Trustee Not Liable for Personal Damages to the Beneficiary.

Trustees accused of breaches of fiduciary duty may only be held liable for losses to the trust itself, not for personal damages to beneficiaries. “There must be a causal connection supporting any monetary award that the trustee is ordered to pay. [Citation.] Thus, the trustee is only liable for loss or depreciation resulting from the breach of trust, for profits that the trustee made through the breach of trust, or for any profits that would have accrued to the trust but for the breach of trust. Prob. C § 16440 (a).” (2 Cal. Trust and Probate Litigation (Cont.Ed.Bar 2016) § 21.65, p. 21-38, italics added.) See also Estate of Kampen (2011) 201 Cal.App.4th 971, 991-993 (holding that lost opportunity damages are not available as a remedy against a personal representative who had failed to timely distribute estate assets).

  1. No Breach of Fiduciary Duty – Beverly’s Lack of Due Diligence Prevented Her from Learning of the Details of the Subtrust Earlier.

Expert witness attorney Moes, testified that Clemens and Brooks breached their fiduciary duties to keep Beverly reasonably and sufficiently informed of the Subtrust and its provisions. The trial court found, however, that Beverly was informed of her trust shortly after it was created. The Court of Appeal further held:

Williamson maintains that William was required to tell Beverly every detail of her subtrust. We disagree. Beverly was entitled to be informed about her subtrust so that she could take action to gain more information. As stated in Williamson’s opening brief, “The most basic action required of a trustee under the duty to inform is to promptly inform the beneficiary of the existence of the trust and their status as beneficiaries, so that the beneficiary may exercise their rights to secure information about the trust.” The cotrustees fulfilled this duty by ensuring that William informed Beverly of the subtrust, and when Beverly eventually asked Brooks for information regarding the subtrust, he promptly provided it. The trial court found that it was Beverly’s “lack of due diligence” that prevented her from learning the details earlier. The court stated: “I think [Beverly] had real opportunities to inquire about her trust and what income or assets it had. No one appeared to have been hiding the facts from her. She appears to be a very bright and articulate person and the fact that she did not investigate or explore her options [is] inexplicable; that militates against her position.”

Williamson cites no California authority suggesting that a trustee may be held liable for breach of trust or fiduciary duties under the factual scenario presented here. The trial court found that Beverly was made aware of the subtrust shortly after it was created. She understood that Brooks and Clemens were the cotrustees and she had ample opportunity to obtain more information about the subtrust while she was negotiating with Connie and William over the fate of the Via Rosa Property. That she failed to do so does not make Clemens and Brooks liable for breach of fiduciary duty.

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