Protecting Clients in Anticipation of Estate or Trust Litigation: What To Do Until Help Arrives Pt. 2

University of California Continuing Education of the Bar, 13
Estate Planning & California Probate Reporter
April 1992

Part 2

NOËL M. LAWRENCE & JAMES A. BARRINGER

Frequently estate planning and probate attorneys who do not consider themselves litigators will find themselves representing clients in the early stages of actual or potential estate and trust related litigation. In many such cases, the attorney postpones decisions regarding retention of a litigator for a period sufficient to gain a clearer understanding of the facts of a dispute and the possibilities of settlement. During this period the attorney may need to perform a variety of pretrial tasks to avoid adverse consequences to the client.

Part 1 of this article, which appeared in the February 1992 issue of the Reporter (13 CEB Est Plan R 101), discussed problems related to ethical issues, attorney-client privilege, the application of no-contest clauses, and a variety of statutory proceedings related to the administration of decedent estates. Part 2 addresses the litigation pertaining to trusts and a collection of issues pertaining to both trusts and decedent’s estates.

Trust Litigation

Preliminary Jurisdiction and Pleading Problems

Practitioners involved in the early stages of trust litigation assume the burden of filing the initial pleadings. Frequently this task immediately raises a number of procedural problems.

The “Civil or Probate” Issue

In general, causes of action provided for in the Probate Code require filing petitions and responses. Such petitions are typically filed at the “probate” window of the superior court clerk’s office and assigned a “probate file number.” Short matters are heard on the “probate calendar.” Jurisdiction is acquired by proper publication and/or service of “notice.” Further, in counties large enough to dedicate a judge or commissioner to the hearing of these matters on a full-time basis, such cases are assigned to a “probate department.”

If a cause of action is not expressly authorized by the Probate Code, matters of pleading and procedure are governed by the Code of Civil Procedure. This is also true of Probate Code matters except to the extent the Probate Code provides otherwise. (Prob C §1000). The initial pleadings for such a “civil action” would normally be a complaint and an answer. The action is assigned a regular case number and papers are filed at the “civil” window. Jurisdiction over the defendant is acquired by service of a subpoena, and the case is not transferred to a particular department.

Hybrid Cases

This works fine until the practitioner is suddenly confronted with a trust litigation matter that involves both “probate” matters and “civil” matters in a single case.

EXAMPLE:

In 1984, Husband and Wife execute wills consistent with their agreement that the first spouse to die will leave his or her estate to the survivor and the survivor will leave thr survivor’s estate to X. Husband dies in 1986. In 1992, Wife executes a new pourover will and revocable trust leaving the estate to Y, who may have exert undue influence on Wife. Wife transfers most of her assets to the trust before her death three months later. Attorney for X decides to initiate court proceedings to:

(1) Offer the 1986 will for probate and contest any offer of the 1992 will on the ground of undue influence;
(2) contest the trust and the inter vivos transfers to the trust on the grounds of undue influence;
(3) based on the contract between Husband and Wife seek imposition of a constructive trust for the benefit of X on assets held by the trustee; and
(4) seek tort damages for fraud and conversion against Y who is also trustee of the trust.

Note that it is clear that the will contest is a cause of action under the probate code and the action for fraud and conversion is not. The status of the trust contest and constructive trust causes of action are less clear. They are trust matters, but they do not clearly involve the “internal affairs” of a trust under Prob C §§17000, 17200.

The Confusing State of California Law

In planning to initiate this sort of hybrid action, practitioners must confront the realities of the confusing state of California law regarding the consequences of whether a cause of action is “probate” or “civil.” In particular, the practitioner must take into account the controversy over whether filing a cause of action using the wrong pleading (a complaint rather than a petition or vice versa) is an error having jurisdictional rather than merely procedural ramifications.

This is not an issue that will be resolved soon. A current example of the confusing state of affairs is illustrated by the facts and rulings to date in Saks v Damon Raike & Co. Mar. 26, 1992, A052630) 92 Daily Journal DAR 4142,92 Recorder CDOS 2627, reported on p 153. As of the press deadline for this article, a petition for rehearing is pending in the court of appeal.

History

The source of this controversy is a combination of history, combined with the practical consequences of having two sets of procedures. In a nutshell:

• The Probate Court was abolished as a separate court in California in 1879. 18 Cal L Revision Comm’n Reports 1281 (1986). The Probate Court had been a court of limited jurisdiction.

• Following abolition of the probate court as a separate court, the California courts managed to retain limited jurisdiction concepts for probate matters by creation of the concept of the “superior court sitting in probate.” This resulted in decades of litigation regarding the parameters of the power of the superior court sitting in probate, particularly with respect to jurisdiction to decide cases involving “third parties” and powers to grant equitable remedies.

• Until 1971, testamentary trust matters were probate matters, but inter vivos trusts were treated as civil matters. At that juncture, some matters concerning inter vivos trusts became probate matters. Stats 1970, ch 849, enacting former Prob C §§1138-1138.13.

• The foregoing state of affairs led to a situation in which practitioners for prudent plaintiffs would “double file” cases which even vaguely appeared to involve a combination of “probate” and “civil” matters. A petition would be filed with a probate case number. A complaint would be filed with a regular case number. The various notice and service of process requirements would be satisfied for both cases. The plaintiff would then make a motion for consolidation.

• In 1986, the new California Trust Law was enacted. New Prob C §17000 made clear that the superior court had jurisdiction over the internal affairs of trusts, and Prob C §17001 made clear that the court was a “full power court” when exercising that jurisdiction. The latter provision presumably made clear that the court could exercise all of its powers, including equitable powers, when exercising jurisdiction over trusts. (A similar provision in Prob C §7050(b) applies to decedent estates, but there is apparently no such provision applicable to guardianships or conservatorships.)

• Many practitioners thought Prob C §§17000-17001 had the effect of eliminating any jurisdictional distinctions between the superior court acting in exercise of its trust jurisdiction and the superior court operating in exercise of its general jurisdiction. This view was not shared by the court in Estate of Mullins (1988) 206 CA3d 924, 930, 255 CR 430, 433, reported at 10 CEB Est Plan R 104 (Feb. 1989). The probate “petition” in that case claimed that the deceased settlor of a living trust was contractually obligated to leave half of her estate to specified persons. It sought a declaration that the trustee of the decedent’s revocable trust held half of the trust estate as a constructive trustee for the benefit of petitioners. The probate department dismissed the case on the grounds of lack of jurisdiction and the appellate court affirmed.

• Loud protests quickly followed Mullins, contending, in effect, that there is no such thing as a “probate court” in California and that it was therefore impossible for a department of the superior court to lack superior court jurisdiction. See, e.g., 10 CEB Est Plan R 104-105 (Feb. 1989). The CLRC promptly sponsored legislation amending Prob C §17001. Stats 1990, ch 710, §44. The Law Revision Commission Comment for the amendment stated in part: “This amendment is needed to reject dicta in recent cases as to limitations on the power and jurisdiction of the court in proceedings properly commenced under this division. See Estate of Mullins [(1988») 206 [CA)3d 924, 930, 255 [CR] 430, [433)." 20 Cal L Revision Comm'n Reports 2263 (1990).

• Now we may have Raike, a "man bites dog" case in which the court ruled that the "civil superior court" lacked jurisdiction of a claim---a novel position which is just the reverse of the supposedly repealed concept of a limited jurisdiction "superior court sitting in probate."

Why Jurisdiction Issues Are Raised

Sane persons may wonder why these issues are litigated and why the courts continue to issue opinions which attempt to resurrect a court which has not existed for more than a century. A certain amount of speculation is required, but the motives of parties concerned with these matters may include:

• A desire to get an earlier or later trial date. In some counties, a matter may get to trial much more quickly on the probate calendar than on the civil calendar. "Fast track" may be improving the civil calendar delays in some counties.

• A desire to get or avoid a jury. Generally, jury trials are not available for probate matters, although there are probably constitutional limitations on this generalization. In any event, a litigant may perceive, probably erroneously in terms of constitutional rights to a jury, that the right to a jury trial may be affected by whether or not the case is being handled in the probate department.

• A desire to obtain or avoid a judge or commissioner who is familiar with probate matters. Court inclination to sustain claims that probate/civil distinctions have jurisdictional consequences may be influenced by everything from practical considerations faced by court clerks in assigning case numbers and collecting filing fees, to the mere fact that the words "probate court" seem to have an enduring life of their own-surviving the real court by more than a century.

Practical Response

Given this type of confusion, much remains to be said for the traditional practice of double filing and then consolidating cases involving both "probate" and "civil" matters. This will require extra filing fees, and the expense of making and appearing at the motion for consolidation. Nevertheless, the procedure should avoid problems with court personnel and no one will claim that the court does not have jurisdiction to hear a particular cause of action. The procedure may also go a long way in assuring that issues pertaining to availability of jury trials and the availability of certain remedies (notably punitive damages) are treated as being dependent on the substantive cause of action pled and remedy demanded rather than the room number of the particular department in which the case is heard.

"The nature of an action and the issues involved are to be determined, not from the appellation given the pleading, but from the facts alleged and the relief that they support."

Surviving "Probate" versus "Civil" Squabbles

If the double filing approach is not used, or counsel otherwise ends up defending a claim that a cause of action is filed in "the wrong court" or using the wrong procedure, some help is available. Code of Civil Procedure §396 provides that a case filed in a court without jurisdiction is to be transferred to a court having jurisdiction. Raising this point should effectively deter attempts to obtain dismissal of a cause of action. Objections of use of a petition rather than a complaint or vice versa can be addressed by asking the court to treat the filed document as the other form of pleading. ''The nature of an action and the issues involved are to be determined, not from the appellation given the pleading, but from the facts alleged and the relief that they support." Bloniarz v Roloson (1969) 70 C2d 143, 149, 74 CR 285, 288; Estate of Linnick (1985) 171 CA3d 752, 759, 217 CR 552, 555, reported at 7 CEB Est Plan R 44 (Oct. 1985).

Parties

In the preliminary stages of trust litigation, the practitioner must determine whether all indispensable and desirable parties have been included in the case, whether by petition or complaint. A full examination of the rules pertaining to parties in trust litigation is beyond the scope of this article but readers are cautioned to check statutes and case law carefully. In general:

• In cases involving proceedings expressly authorized by the Trust Law, the minimum party requirements are those implicit in the notice requirements discussed later in this article. This includes a requirement of giving notice to the Attorney General if the matter involves a charitable trust. Prob C §17203(c).

• In most cases in which a third party wishes to sue a trust, the proper defendant is the trustee and not the trust. Beneficiaries may be joined, but this is normally not necessary when no judgment will result that will run against the beneficiaries directly. The beneficiaries must be joined in the case of a trust contest. See 4 Witkin, California Procedure, Pleading §117, 118 (3d ed 1985).

• In many cases in which damage has been caused to a trust by a third party, the trustee may sue without joining the beneficiaries. CCP §369(a). If the beneficiaries wish to sue, but the trustee declines, the result is uncertain. There is case law authority for the proposition that a beneficiary may bring suit, in which case the beneficiary must join the-trustee as a necessary party. Triplett v Williams (1969) 269 CA2d 135, 74 CR 594. The scope of Triplett is unclear. See the rulings with respect to "standing" in Saks v Damon Raike & Co. (Mar. 26, 1992, A052630) 92 Daily Journal DAR4142, 4145, 92 Recorder CDOS 2627, 2629, reported at p 153.

Particular Matters

Trust Contests

The validity of trusts can be challenged on most of the same grounds available to will contestants, such as fraud, undue influence, incapacity, and mistake. See Restatement (Second) of Trusts §§ 19,333 (1959); Walton v Bank of Cal. (1963) 218 CA2d 527,541,32 CR 856,865. Except as changed by statute, the common law of trusts governs in trust proceedings. Prob C §15002.

An attack on a trust often takes the form of either an action to impose a constructive trust on its assets or an action (or Prob C §9860 proceeding) to bring the trust assets into the probate estate.

When the action involves contest of the formerly revocable living trust of a deceased settlor, additional action must be taken to contest any pourover will that might otherwise revive the trust or make an undesirable disposition of the assets. If the plaintiff's standing is based on an earlier will, the earlier will should be offered for probate. Such a contest produces an added problem with respect to proper parties.

The personal representative of the deceased settlor's estate may be a necessary party if a successful contest will cause the property to be part of the probate estate. If the personal representative is the executor named in a pourover will, the personal representative is not likely to participate voluntarily. Presumably the personal representative can be joined in a direct suit by the complaining parties under the rationale of cases such as Triplett v Williams (1969) 269 CA2d 135, 74 CR 594, but see the discussion above regarding the uncertain status of that case.

Attacks on the Trustee

Outside the realm of trust contests, most trust litigation focuses on beneficiary complaints regarding the actions of trustees. Such claims present a variety of issues regarding "civil matter/probate matter" distinctions and the scope of available remedies. Generally, it appears to be the case that it is proper to raise all causes of action against the trustee using a probate petition, and obtain all remedies that would be available in a hybrid probate/civil consolidated action. Statutes and California Law Revision Commission comments to the Trust Law which support this conclusion include:

• Probate Code §17001, providing that in proceedings under the Trust Law the court is a court of general jurisdiction and has all powers of the superior court. This provision is explained in part by the CLRC study indicating that the court in these matters "will not be limited by the existing concept of the superior court 'sitting in probate.'" 18 Cal L Revision Comm'n Reports 1282 (1986).

• Probate Code §17200(b)(7), authorizing petitions to compel the trustee to account and report if the trustee fails to do so within 60 days after written demand.

• Probate Code §17200(b )(5), authorizing proceedings to settle the accounts of trustees.

• Probate Code §16420(a), listing the remedies for breach of trust. The remedies include monetary damages, injunction, appointment of a receiver, and declaration of constructive trust. This provision is accompanied by a CLRC Comment that indicates that the procedure for obtaining the remedies is a petition under Prob C §17200.

• Probate Code §16420(b), providing that the listing of remedies "does not prevent resort to any other appropriate remedy provided by statute or the common law." This point is augmented by the following statement in the underlying CLRC study: "While the existing law needs reform, it is not advisable to over-legislate on this subject. Remedies should remain sufficiently flexible, as they are under the common law, so that courts can fashion an appropriate response in particular circumstances. The proposed law seeks only to provide a brief description of the basic remedies for breach of trust as a guide to parties, without altering the basic principles of existing law." 18 Cal L Revision Comm'n Reports 1253 (1986).

• Probate Code §§16440-16442, pertaining to the measure of liability for breach of trust and indicating the provisions "do not prevent resort to any other remedy available under the statutory or common law." Prob C §16442.

• Probate Code §15002, providing that the common law of trusts applies except as modified by statute.

This statutory scheme thus contemplates using probate procedure, but clearly departs from the former notion that remedies in probate matters are limited to those provided in the Probate Code. Thus, for example, it appears proper for a petition under the Trust Law to request exemplary damages for fraud under CC §3294.

The one cause of action which might require filing a separate civil action is an action for "fiduciary abuse" under new Welf & I C §15657. The statute applies if a fiduciary takes, secretes, or appropriates the money of an elder (a person over age 65) or a dependent adult in a manner not in due and lawful execution of his or her trust. Welf & I C §15610(f). Among other things, the statute authorizes attorneys' fees. If the elder has a conservator, the claim may properly be brought in a probate petition without the need for filing and consolidating a separate civil action, but such an action is otherwise a civil matter.

Statutes of Limitations

Practitioners bringing and defending beneficiary claims against trustees need to pay careful attention to the applicable statutes of limitation. Claims are cut off immediately by a court-ordered settlement of account as to matters adequately disclosed. In the absence of court action, Prob C §16460 provides, in effect, that claims against trustees must be brought within three years of a trustee's account or report which discloses the existence of the grounds for the claim.

Standing

Practitioners should also remember that a beneficiary of a revocable trust generally has no rights to bring claims against a trustee if the person holding the right to revoke is competent. Prob C §15800. A similar rule applies if someone has a general power of appointment to withdraw property from a trust. Prob C §15803.

Procedural Matters Encountered in Early Stages of Trust and Estate Litigation

Notice, Requests for Special Notice, and Appointment of a Guardian Ad Litem

Notice

Throughout the Probate Code, when a proceeding concerning a decedent's estate is contemplated, the requirements for the giving of notice will be specified. In the trust arena, Prob C §§17100, 17105, and 17203 govern the giving of notice in proceedings concerning trusts under Prob C §§17200-17210. Section 17100 refers to §§ 1200-1212 for the requirements of giving adequate notice, and §15804 specifies the persons entitled to notice in the case of beneficiaries of future interests.

Clearly, the practitioner must carefully comply with the statutes, but situations may arise in which the practitioner must decide whether the trustee should give notice to persons who are not strictly entitled to it under the statutes. There appear to be two schools of thought on the subject. There are those who hold that giving notice to persons not strictly entitled to notice only invites unwanted involvement and potential litigation. There are others who believe that giving notice to "potential plaintiffs" heads off litigation and resolves sooner, rather than later, simmering future disputes. Obviously, the circumstances of each case will argue for or against exceeding the requirements of statutory notice.

One practical consideration for the practitioner, especially the attorney for the trustee, is the fact that if a potential problem affecting the trust is dealt with while the trustee is in office, the trustee should be entitled to compensation for the expenditure of the trustee's time, and further entitled to pay the trustee's attorney from trust assets.

See Prob C §15684, which provides that the trustee is entitled to the repayment out of the trust property for "[e]xpenditures that were properly incurred in the administration of the trust.” Conversely, if the trustee defers resolution of a dispute until after he is out of office, he may find that his status is that of a mere witness who is not entitled to such payments from trust funds.

Requests for Special Notice

Probate Code §§ 1250-1252 allow for the submission of a request for special notice in a decedent’s estate and Prob C §17204 allows for such a request by a beneficiary of a trust with respect to proceedings relating to any purpose described in Prob C §17200. Unfortunately, the authorized notice requests are to be directed to the fiduciary or the fiduciary’s lawyer. The code sections are silent regarding requests for responsive pleadings filed by other interested parties.

In most cases, the fiduciary and/or his attorney can be counted on to keep the requesting party apprised of the other pleadings filed in the subject proceeding. But there is apparently no requirement to do so. This may be a problem if the trustee’s interests are adverse to the requesting party.

For example, a beneficiary may be interested in a proceeding for determination of entitlement to the estate brought by another party under Prob C §11700. Although the beneficiary can expect to receive the pleadings filed by the executor pursuant to his request for special notice directed to the fiduciary’s lawyer, the law does not explicitly require the fiduciary to provide that beneficiary copies of pleadings filed by other beneficiaries whose interests could very well be adverse to this beneficiary with respect to the subject matter of the petition.

This problem is exacerbated by the fact that it is common for petitions to be filed in probate matters only a few days before hearing.

Guardian Ad Litem

Notice and the opportunity to be heard can be afforded to minors, incapacitated persons, unborn or unascertained persons, and persons whose identity or address is unknown only through the appointment of a guardian ad litem to represent the interests of such person(s), as provided for in Prob C §1003. When the practitioner has some discretion as to whether to involve a guardian ad litem, the concerns are similar to those discussed above regarding the giving of notice to persons not strictly entitled to notice. The practitioner should weigh the risks of involving a guardian ad litem in the present proceeding against the risk of failing to involve someone in that role and facing a proceeding years later which seeks to upset or undo the outcome in the present proceeding.

Discovery

Formal Discovery

The rules applicable to discovery in civil actions generally apply to discovery in the estate and trust arenas. Prob C §1000. Most practitioners have faced the very real, very practical difficulties of grafting the ordinary discovery deadlines onto a proceeding in Probate Court.

Most Probate Code petitions are heard within six weeks of filing. From the moment the petition is filed and set for hearing, it is no longer possible to comply with the statutory time limits for discovery. Even ignoring for a moment the statutory time limits for responding to interrogatories, demands for production of documents, and other discovery requests, CCP §2024(a) provides that discovery shall be completed not later than 30 days before the date originally set for trial.

There are several approaches to this problem:

• Under the appropriate Code of Civil Procedure sections, the practitioner can seek to alter the otherwise applicable time limits for discovery. See CCP §§2025(f) (to shorten the notice period for depositions), 2030(h) (to shorten the time for responding to interrogatories), and 2024(e) (to extend discovery beyond 30 days before trial). See 1 Civil Discovery Practice in California §§2.36, 8.26, 8.43 (Cal CEB 1988). Local probate rules and court personnel must be consulted to determine the proper procedure for making a discovery motion with respect to a Probate Code petition.

• When the practitioner represents the petitioner, he can attempt to have the matter set a sufficient length of time in the future to allow for discovery. However, it is often the case that local court practice does not allow for setting hearings far in advance. In that case, the petitioner may need to request a continuance. See 7 Witkin, California Procedure, Trial §§9-11 (3d ed 1985) for general authorities on the issue of the court’s discretion in acting on such requests.

• The petitioner may be able to take the matter off calendar. This may require the consent of any parties who have filed a response. When some cooperation exists between the parties, they should be able to complete their discovery and then reset the petition for hearing. When the parties are unable to cooperate, the responding party might be able to argue that because the petition is off calendar, the petitioner is no longer in a litigation posture and is therefore not entitled to conduct discovery.

• The parties can stipulate to a discovery schedule. When no agreement is entered into and the petition Remains set for hearing on the original hearing date, at the hearing the responding party can make an oral objection (see Prob C §1043 and seek a continuance in order to conduct discovery and formulate written objections. Section 1043(b) does not, however, guarantee that the matter will be continued in order that the objecting party can conduct discovery or put his objections in writing. “An interested person may appear and make a response or objection orally at the hearing. The court in its discretion shall either hear and determine the response or objection at the hearing, or grant a continuance for the purpose of allowing a response or objection to be made in writing.” [Emphasis added.]

Discovery in Will Contests

When the subject litigation is a will contest, the potential contestant may be in a difficult situation. Often the would-be contestant needs more information in order to determine whether the will should be contested, but cannot file the contest and initiate discovery without risking application of a no-contest clause. There is no reliable solution for this dilemma.

Informal “Discovery” in Trust Matters

A beneficiary of a trust, who is contemplating litigation against the trustee, has the opportunity to conduct some informal “discovery” under Prob C §16061 by going to no more trouble than directing a simple letter to the trustee. The beneficiary can also request an accounting. If the information or the accounting is not forthcoming within 60 days following a written demand, the beneficiary can compel the accounting or the production of the information under Prob C §17200(b)(7).

No similar code section authorizes a beneficiary of an estate to obtain information from the personal representative of the estate, although, in the authors’ opinion, such a code section would be helpful, appropriate, and consistent with general fiduciary concepts. Of course, the beneficiary can file a petition for an order requiring an accounting under Prob C §10950, but this is much more burdensome than mailing a letter.

Court Rulings Without Evidentiary Hearings

Local probate rules do not say as much, but it has long been the practice for short matters on probate calendars to be heard without oral testimony. The “evidence” consists of the verified pleadings and any additional affidavits or declarations under penalty or perjury filed with the court.

Despite the fact that Prob C §I022 only directs the use of affidavits and petitions as evidence in uncontested proceedings, the procedure is valid in the absence of objection, As stated in Estate of Nicholas (1986) 177 CA3d 1071, 1088, 223 CR 410,419, reported at 7 CEB Est Plan R 114 (Apr. 1986):

Ordinarily affidavits may not be used in evidence unless Permitted by statute. (Estate of Fraysher (1956) 47 Cal.2d 131, 135, 301 P.2d 848, [851].) However, where the parties do not object to the use of affidavits in evidence, and where both parties adopt that means of supporting their positions, the parties cannot question the propriety of the procedure on appeal.

In view of the virtually universal acceptance of holding short matter probate hearings in this manner, it is extremely important that practitioners make every effort to have necessary petitions and affidavits on file in advance. If the practitioner intends to demand a full evidentiary hearing, the practitioner should consult local probate rules and court personnel regarding the procedure for requesting a hearing time, and give the court and opposing counsel advance notice of the fact that the request will be made.

All of this leaves open the question of what happens if a practitioner shows up at a hearing and derails the proceeding with an unexpected hearsay objection to consideration of the petitions and affidavits. Such objections are obviously valid, but making them may leave the practitioner conducting subsequent proceedings before a very unsympathetic judge or commissioner.

NOËL M. LAWRENCE of San Francisco received her B.A. from the University of California, Berkeley and her J.D. from the University of San Francisco. She is Co-Chair of the Litigation Subcommittee of the Probate Section of the San Francisco Bar Association and a Certified Specialist in Probate, Estate Planning and Trust Law. Her practice emphasizes estate and trust related litigation.

JAMES A. BARRINGER of Hyde & Drath in San Francisco received his B.A. from the University of California, Santa Barbara and his J.D. from Hastings College of the Law. His practice emphasizes estate and trust litigation and estate planning and administration.

©1992 by The Regents of the University of California

Comments on this entry are closed.

Previous post:

Next post: