Archive for the ‘Trusts and estates’ Category

Greenspan v. LADT LLC – Once and for All, a Trust Is Not an Entity

Thursday, May 26th, 2016

Sometimes a court provides a clear statement of the law.  Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486 is one such opinion, providing a definite and authoritative answer to the issue of whether a trust is an entity – it is not.

From the opinion.

“Courts often speak of the alter ego doctrine as if it applied to a trust as an entity.  But a distinction must be made between a trust and a trustee.  The general rule that a trust is a relationship is universally recognized by U.S. cases and statutes, and is consistent with the prevailing norms of the entire common-law world.  The fundamental nature of this relationship is that one person holds legal title for the benefit of another person.

“Thus, in actuality, a trust is not a legal person which can own property or enter into contracts.  It is the trustee or trustees who hold title to the assets that make up the trust estate … Because a trust is not a legal entity, it cannot sue or be sued, but rather legal proceedings are properly directed at the trustee …

“As recognized in California: Unlike a corporation, a trust is not a legal entity.  Legal title to property owned by a trust is held by the trustee.  A trust is simply a collection of assets and liabilities.  As such, it has no capacity to sue or be sued, or to defend an action …

Fresno real estate lawyer

“Because a trust is not an entity, it’s impossible for a trust to be anybody’s alter ego.  That’s because alter ego theory, which is simply one of the grounds to ‘pierce the corporate veil,’ is inescapably linked to the notion that one person or entity exercises undue control over another person or entity.  However, a trust’s status as a non-entity logically precludes a trust from being an alter ego.

“But while applying alter ego doctrine to trusts is conceptually unsound, applying the doctrine to trustees is a different proposition.  Trustees are real persons, either natural or artificial, and, as a conceptual matter, it’s entirely reasonable to ask whether a trustee is the alter ego of a defendant who made a transfer into the trust.  Alter-ego doctrine can therefore provide a viable legal theory for creditors vis-à-vis trustees.

“Thus, in the present case, Greenspan properly sought to add Moti Shai, the trustee of the Shy Trust, as a judgment debtor.  If Moti Shai is the alter ego of Barry Shy, then Barry may be considered the owner of the Shy Trust’s assets for purposes of satisfying the judgment.  The trial court erred in concluding that the alter ego doctrine could not be used to reach the assets of a trust.”

That’s a breath of fresh air, hopefully forever ending any argument that a trust is an entity.  Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486

Estate of Britel – When is a Child Not a Child?

Friday, June 12th, 2015

The law is filled with rules.  Rules give guidance to judges.

Sometimes the legal result does not square with the facts.  In Estate of Britel (2015) 236 Cal.App.4th 127, “the court admitted into evidence a DNA test showing a 99.9996 percent probability that the decedent (Amine Britel) was A.S.’s (the child’s) father.”  Yet the court held that the child was not entitled receive any property under the law of intestate succession.  How did this happen?

When a person dies without a will, the judge will look to the law of intestate succession to determine who will receive the decedent’s property.  Explained the court of appeal, “Intestate succession is governed entirely by statute.  The heirs of a person are those whom the law appoints to succeed at the decedent’s death.”

“As relevant here, if there is no surviving spouse or domestic partner of an intestate decedent, the intestate estate passes to the decedent’s ‘issue’ … For the purpose of determining intestate succession, the relationship of parent and child exists between a person and the person’s natural parents, regardless of the marital status of the natural parents.”

Sounds promising for the child.  But here is where the argument ran ashore.  The mother, Jackie Stennett, “contends biological parents are, by definition, natural parents within the meaning of [Probate Code] section 6450.  Not so.”

Law Offices of Randolf Krebchek

Instead, when child born out of wedlock wants to show he is the natural child of a man who died without leaving a will, the statute requires “clear and convincing evidence that the father has openly held out the child as his own.”  A paternity test administered after death is not sufficient by itself.

Explained the court, “We conclude [the statute] requires an affirmative representation of paternity that is unconcealed and made in open view.  But although the representation must be a public one, in the sense of being made in open view, the statute does not require an announcement to the world, an official action, or an affectionate fatherly intent.  Each case depends upon its own circumstances.”

The court held that Jackie Stennett [the mother] failed to prove “that Amine openly held out A.S. as his own child.”  Hence, the legal result, which does not square with the facts.

U.S. v. Milovanovic – Ninth Circuit Adopts a Sloppy Fiduciary Standard

Wednesday, May 9th, 2012

Case law reflects a tension in the interpretation of fiduciary duties. One camp favors a “I know it when I see it” approach, while the more rigorous jurists seek to discern the basis for imposition of such liability.

This tension is on full display in the recent en banc decision in U.S. v. Milovanovic, ___ F.3d ___ (9th Cir. April 24 2012). The majority decision found liability under the Mail Fraud Statute, 18 U.S.C. § 1341, based on the holding in Skilling v. U.S., 130 S. Ct. 2896 (2010).

Explained the Ninth Circuit, “A close examination of the Supreme Court’s opinion in Skilling reveals that embedded in the Court’s holding – ‘that § 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law’ – is the implication that a breach of a fiduciary duty is an element of honest services fraud.”

The Ninth Circuit then reached for soft law, holding that “a fiduciary duty for the purposes of the Mail Fraud Statute is not limited to a formal ‘fiduciary’ relationship well-known in the law, but also extends to a trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise.”

Truly, that’s about as soft and broad a definition of a fiduciary relationship as is possible.  Continued the court, “Because allegations in the indictment, which we must take as true for the purposes of this appeal, assert that the State, through outsourcing the work to private contractors, reposed a special trust in Lamb and Milovanovic to ensure the integrity of the testing of CDL applicants, and thus relied on the provision of their honest services in administering the tests and certifying the results, we hold that a jury could find that Milovanovic’s and Lamb’s conduct falls within the ambit of §§ 1341 and 1346.”

Remember, this is the same Ninth Circuit that held that, when a raisin grower is required to turn over a portion of his crop to an agency of the federal government, there is no “taking without just compensation” for Constitutional purposes.  Horne v. U.S. Dept. of Agriculture, ___ F.3d ___ (9th Cir. July 25, 2011). The Horne opinion is certainly a low point in the scholarly tenure of Judge Michael Hawkins.

Back to U.S. v. Milovanovic. The concurring opinion by Judge Richard Clifton drives home the casual nature of the majority’s analysis. Judge Clifton begins by “repeat[ing] an observation made nearly 50 years ago:

A small fishing village in Malta

“‘Fiduciary’ is a vague term, and it has been pressed into service for a number of ends.  My view is that the term `fiduciary’ is so vague that plaintiffs have been able to claim that fiduciary obligations have been breached when in fact the particular defendant was not a fiduciary stricto sensu but simply had withheld property from the plaintiff in an unconscionable manner.”

Judge Clifton continues.  “’Fiduciary’ has not gotten any clearer in the half-century since then, and our decision here does not help.  We accede to the agreement of the parties that the Supreme Court defined a breach of fiduciary duty as an essential element required for honest services mail fraud.  But we conclude that ‘fiduciary’ here does not mean a ‘formal, or classic, fiduciary duty.’  Rather, we hold that a fiduciary duty as an element of mail fraud ‘is not limited to a formal fiduciary relationship well-known in the law.’”

Here’s where Judge Clifton shines. “But we should not muddy the meaning of ‘fiduciary’ any further by employing it here to mean something other than ‘fiduciary.’  By doing so we further devalue the term and invite that much more confusion as to what the word means in other situations.”

“In some contexts, after all, the term ‘fiduciary’ is intended to mean ‘fiduciary,’ not our variation on that concept.  We should instead simply define the essential element for honest services mail fraud as the trusting relationship described in the majority opinion and leave the word ‘fiduciary’ out of it.”

The concurrence has the better of the argument. A published opinion that establishes a soft, murky definition for the essential term “fiduciary” does no benefit to the development of the law.

U.S. v. Milovanovic, ___ F.3d ___ (9th Cir. April 24 2012).

A.W.B. Simpson on English Wills in the 12th and 13th Centuries

Sunday, April 22nd, 2012

A study of the ancient English common law begins, for many points, with the law that developed after 1066.  The history of inheritances of land is certainly curious, as we inevitably find it tied to the duties owed in a feudal, agricultural society.

Here is an excellent analysis from Oxford Prof. A.W.B. Simpson.

The medieval law did not recognize the validity of a will of lands. In Anglo-Saxon times [i.e., before the Norman invasion in 1066] it is clear that ‘bookland’ – land held by written charter – could be devised [i.e., transferred at death by way of a will], and this power of devise was the chief peculiarity of such land.”

“After the Conquest a power of testamentary disposition of land continued to be recognized for a while in the post obit gift.  In the twelfth century this power was discountenanced by the Royal court.”

Pause here.  Prof. Simpson states, and he is supported by many learned writers, that the courts in the 12th century did not recognize the transfer of real property at death by way of a will.  Consider also that jurisdiction over wills and testaments was found in the ecclesiastical courts, to wit, the courts organized under the auspices of the Catholic Church, then the predominant religion in England.

Comment – A “testament” is a written document that transfers ownership of personal property at death.  In contrast is a “will,” which is a written document that transfers ownership of real property at death.

Jasper National Park, Alberta, Canada

Prof. Simpson continues.  “Once it became clear that (in general) a gift of land required a delivery of seisin, a gift to take effect upon the donor’s death and not before could hardly be accepted, for the gift lacked the essential requirement of livery of seisin. Thus the post obit gift as such was doomed by ordinary principle.”

“But the line between a deathbed gift (perhaps accompanied by livery), a gift inter vivos to take effect on death (the post obit gift), and a will which ‘makes an heir’ is not easy to draw, and it does not seem that the Royal court in the twelfth century indulged in any subtle analysis; rather it condemned anything in the nature of a testamentary disposition, whatever form it took.”

So we find the law in England, at least into the time of Henry II, the king who helped establish the great tradition of the common law.

Adds Prof. Simpson, “In the thirteenth century the attitude changed …Quite why it was adopted is a difficult question; perhaps a desire to prevent disherison of heirs, coupled with a desire to prevent the loss of feudal incidents, influenced the Royal judges.”

Two more points from Prof. Simpson.  First, the desire to avoid taxes runs deep in English legal history.  Notes Prof. Simpson, “Consider a gift to A, with a remainder to his heir in fee simple. The remainder is contingent, but this is not the only possible objection to such a limitation …”

“This is simply a tax-dodging trick, and early contingent remainders were often tainted by connexion with evasion of this kind. One can well see that the courts were predisposed to treat them with caution, and the learned Littleton regarded them as always invalid, though Littleton’s view was hardly law in his own day, and did not prevail after his time.”

And a final comment on the power of the courts, which was as true in the year 1300 as it is today:

“But this need not surprise us, for the loss which is suffered when a judgment goes unsatisfied through the defendant’s lack of means is not in the nature of things remediable by the courts.  It would be odd in any branch of the law to question the validity of a judgment simply upon the ground that the losing party was penniless or landless.”

A.W.B. Simpson, An Introduction to the History of the Land Law (Oxford University Press 1961), pages 96-131.

L.S. Sealy – Categories of Fiduciary Duties

Tuesday, January 10th, 2012

In a law review article published 50 years ago, Cambridge law professor L.S. Sealy reviewed two centuries of English case law on fiduciary relationships.  He concluded, correctly, that different relationships give rise to different duties.

As a starting point, “Fletcher Moulton L.J. once warned against what he called ‘the danger of trusting to verbal formulae’ in this way. After illustrating a number of fiduciary situations and describing the ways in which the courts had interfered to grant relief in these cases, he said:

“Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it.  They conclude that every kind of fiduciary relation justifies every kind of interference.  Of course that is absurd.

“The nature of fiduciary relation must be such that it justifies the interference.  It is obvious that we cannot proceed any further in our search for a general definition of fiduciary relationships. We must define them class by class, and find out the rule or rules which govern each class.”

AustriaSuch statement is too often ignored by lawyers and judges alike.  Consider this further analysis:

“Fry J.’s definition emphasises the essential quality of all fiduciary relationships: every remedy which can be sought against a fiduciary is one which might be sought against a trustee on the same grounds.  But it is really not a definition at all: although it describes a common feature, it does not teach us to recognise a fiduciary relationship when we meet one.

“Still less does it assist us when we are faced with a particular relationship and asked the practical question: does a certain principle of the law of trust and trustee apply?  John is my agent and is therefore, on good authority, in a fiduciary position towards me.  Does this mean that he must not mix with his own money the sums which he holds on my account?  Is there a presumption of undue influence if I make him a gift?  Is he disqualified from becoming the lessee of land formerly held by me, after I have failed to secure a renewal of the lease for myself?  Do all the trust principles apply to this fiduciary situation?

When we examine the authorities, we learn – perhaps with some surprise – that this is not so. The word ‘fiduciary,’ we find, is not definitive of a single class of relationships to which a fixed set of rules and principles apply.  Each equitable remedy is available only in a limited number of fiduciary situations; and the mere statement that John is in a fiduciary relationship towards me means no more than that in some respects his position is trustee-like; it does not warrant the inference that any particular fiduciary principle or remedy can be applied.”

And he elegantly explains why banks do not owe fiduciary duties to their borrowers: “No trust can, of course, exist where there is a debtor-creditor relationship: In equity, restitution stopped where repayment began.”

L. S. Sealy, Fiduciary Relationships, 1962 Cambridge L.J. 69 (1962)

The Long-Standing Connection Between Real Estate Law and Probate

Monday, October 31st, 2011

I am reading a series of lectures delivered in 1972 by S.F.C. Milsom and collected in The Legal Framework of English Feudalism (Cambridge University Press 1976).  The text is difficult, as it frequently refers to rights, remedies, and procedures that long ago ceased to be relevant in the law of English-speaking nations.

Still, as I read along, I can see contours develop that explain how the law evolved from the year 1200 forward.  The lecturer concentrates on legal writings from the early 1200s, when England was still operating under a feudal system.

Scholars tell us that the law of real property and the law of descent (i.e., succession to real property) were closely connected, at least through 1850.  So intimately connected that both topics were covered in one treatise, which focused on grants in real property.

Disney Cruise Line's DreamConsidering the feudal roots of English law, this connection makes sense.  The feudal system was dependent on duties and obligations owed by the holder of a tenement to his lord.  (Note that I did not say “tenant” – this word implies a more modern relationship.)

Feudal duties were greater than those relating to (i) payment of rent and (ii) the maintenance and use of the real property, which are the predominant issues in contemporary landlord-tenant relationships.

Obviously, the lord wanted to have control over the person in possession of his property, so that he could obtain proper satisfaction of the obligations owed in connection with the land.

Listen to Prof. Milsom’s explanation.  “Conveyance, inheritance, litigation:  for us these are distinct processes transferring or determining abstract rights.  The ancient reality, preserved into later times only in the formalities of copyhold, saw all three as preliminaries to what mattered: the lord’s acceptance of this tenant …

“The lord must consent lest he be forced to receive homage for his fee from an enemy or some otherwise unsuitable person … Only the lord’s acceptance can make a tenant.”

When you consider the feudal obligations, and the impact that the death of the tenement holder would have on the discharge of these obligations, you can understand why real property law and the law of inheritances were closely connected.  

Another matter of interest is the shift from trial by combat to trial by jury.  Again, with consideration to the substantial impact of the law real estate law as it pertains to a feudal society, the procedural shift (who is the trier of fact?) makes sense.  In a dispute between a tenant and his lord, the lord always could be expected to produce a better, stronger champion for his cause.  Thus, the deck was stacked against the tenant, and preservation of fairness required that the dispute be resolved by recourse to peaceful means, such as a jury.

Estate of Giraldin – Trustee Does Not Owe Duties Future Beneficiaries of Estate Planning Trust

Tuesday, October 4th, 2011

This author has often complained that the trust laws have not kept pace with modern practice as it relates to estate planning.  Estate planning trusts (a.k.a. “living trust”) are used as will substitutes.  The rules pertaining to wills are well known, and are established by case and by code.

In contrast, the statutory rules relating to estate planning trusts come from general trust law, which law was developed in response to traditional property management trusts.  Yet, the property management trust is functionally different from an estate planning trust.  Typically, a property management trust manages property for benefit of current third-party beneficiaries.  In contrast, an estate planning trust does nothing until the death of the trustor, when the trust assets are distributed according to the “trust” agreement.

The recent decision in Estate of Giraldin (Sept. 28, 2011) 2011 DJDAR 14642 fully reinforces the proposition that an estate planning trust is a will substitute, and that no duties are owed to the heirs or beneficiaries prior to the death of the trustor.  The same result applies in connection with a will – an heir cannot sue on the ground that the testator sold or gifted property owned by the testator before death, such that the property was not included in the estate after death.

Bill Giraldin was a savvy investor, with a fortune worth $6,000,000 or more before his death.  He placed his assets into his estate planning trust.  The trust was fully revocable and/or amendable by him during his lifetime.  He appointed one of his sons to act as trustee.  (Nine children qualified as future beneficiaries under the trust.  Later, four filed suit.)

Following the instruction of the father, the son invested $4,000,000 in a company called SafeTzone.  Thus, one son (Tim) was the trustee of the trust; at the instruction of his father, Tim invested a substantial amount of his father’s wealth in Tim’s company.

Needless to say, the SafeTzone investment went badly, “and by the time Bill died in May of 2005, the family trust’s stake in the company was worth relatively little.”  In response, four children sued Tim for breach of his fiduciary duties, alleging that the investments he made as trustee during his father’s lifetime were in violation of the fiduciary duties owed to them as successor beneficiaries under the trust.

Comment – The court found that Bill invested in SafeTzone of his own free will, and was not unduly influenced by Tim, the trustee.


Tim lost badly at trial, but the appeal court fully vindicated him.  Specifically, the court of appeal focused “on the question of whether respondents have standing to maintain claims for breach of fiduciary duty and to seek an accounting against [Tim] based upon his actions as trustee during the period prior to Bill’s death.”

The court’s analysis was as follows.  “In this case, the family trust was revocable by Bill during his lifetime, and thus Tim’s duties as trustee were owed solely to Bill, as settlor, and not to respondents …As explained by our Supreme Court, ‘property transferred to, or held in, a revocable inter vivos trust is deemed the property of the settlor.’”

The court continued.  “A settlor with the power to revoke a living trust effectively retains full ownership and control over any property transferred to that trust.  Any interest that beneficiaries of a revocable trust have in trust property is merely potential and can evaporate in a moment at the whim of the settlor.”

As explained by the court, “statutes recognize that when property is held in a revocable trust, the settlor and lifetime beneficiary has the equivalent of full ownership of the property.  Thus, during Bill’s lifetime, Tim’s duties as trustee were owed solely to Bill – the settlor with the power to revoke – and not to respondents. Instead, respondents occupied a position analogous to heirs named in a will.

Revocable living trusts are merely a substitute for a will.  And just as a will ‘speaks’ only as of the date of the testator’s death, a revocable trust confers enforceable property interests to the beneficiaries only at the time it becomes irrevocable. Prior to that time, those beneficiaries have no rights to the trust property, and thus no say in how it is managed.”

The court made plain its position.  “In our view, the statute supports the conclusion beneficiaries lack standing – ever – to assert claims based upon conduct occurring during the settlor’s lifetime.”

Also, Tim owed no “duty” to stop his father from making an “unwise” investment.  “That was not a claim Bill himself could have brought. ‘Stop me before I do something I’ll regret’ is not a recognized cause of action, even against the trustee of one’s revocable trust …

“Bill remained legally entitled to do what he wanted with the trust assets – which were effectively his own property – including doing financially risky or downright stupid things. No one – including Tim – had the authority to stop him. Thus, in the absence of an adjudication of Bill’s incompetency, we cannot discern any legal basis on which Bill might have justified holding Tim liable for carrying out Bill’s own wishes with regard to the assets in the family trust – even if those wishes appeared to be objectively unreasonable.”

Such a sound and well-reasoned opinion is welcome in an area that suffers from needless confusion.

Estate of Giraldin (Sept. 28, 2011) 2011 DJDAR 14642

Weinberger v. Morris – Why Doesn’t the Merger Doctrine Extinguish Many Living Trusts?

Monday, September 19th, 2011

This writer has commented regularly that the modern estate planning trust is a legal fiction.  A convenient legal fiction, mind you, but still a legal fiction.

The estate planning trust (also known by the unfortunate term, “living trust”) is a merely a will substitute.  It takes effect – meaning, it provides a benefit to a third party – upon the death of the settlor.  That’s precisely what a will does – it transfers property at death.  The difference is, the administration of a decedent’s will is subject to the jurisdiction of the probate court, whereas many estate planning trusts operate extra-judicially.

Remember the essential legal premise of an estate planning trust – one person (sometimes a married couple) acts simultaneously as the settlor (trustor), trustee, and beneficiary.  The same person retains the full power to amend or revoke the trust, and/or to withdraw all of the assets for his or her own benefit.

Enter the merger doctrine.  The merger doctrine is conventionally considered a principle of real estate law.  It holds that temporary (or partial) interests in real property become joined – unified – when held by one person.  The legal doctrine (whether or not intended) causes the partial interest to merge into the greater fee interest.

Thus, when one person is both the tenant and the landlord at the same time, the lease “merges” into the fee ownership, and ceases to have legal significance.

Likewise, when the owner of real property is simultaneously the beneficiary of a deed of trust encumbering the property, the beneficial interest under the deed of trust merges into the fee ownership, and is no longer independently enforceable.

One more common example.  If the same person holds a fee interest in real property and also holds an easement against the property, the easement will merge into the fee ownership, and cease to function for legal purposes as an easement (at least while the ownership is unified).

Cheyenne Frontier Days Rodeo
Why doesn’t the same result occur with estate planning trusts?  We know that real estate trusts have their genesis in real estate law, starting in about 1250 in England.  (Other Continental legal systems do not recognize trusts.)

When one person is simultaneously the grantor, the grantee, and the beneficiary, why don’t the legal interests merge so that the trust is disregarded?  That’s an interesting question: a recent case brushes against it, but fails to consider the full impact of this analysis.

Thus, we find the following discussion in Weinberger v. Morris (2010) 188 Cal.App.4th 1016:

“Robert’s argument implicates the ‘merger doctrine,’ which may be summarized as follows: when the sole trustee of a trust and the sole beneficiary of the trust become one-and-the-same person, the duties of the person, in his or her role as trustee, and the interests of the person, in his or her role as beneficiary, ‘merge,’ meaning that the trust terminates as a matter of law, and the trust’s assets irrevocably vest in the beneficiary. (See Ammco Ornamental Iron, Inc. v. Wing (1994) 26 Cal.App.4th 409, 417.)

“The determination whether the duties of a trustee and the interests of a beneficiary have become united in a single person is a question of law resolved by construction of the trust instrument.”

(Interesting observation by the court of appeal.  Why isn’t the legal construction of the document an issue of law to be resolved by the court?)

Continued the court.  “In the current case, the trial court rejected Robert’s claims for the following stated reasons: ‘The Sue Weinberger Trust did not terminate upon Sue Weinberger’s death. The merger doctrine does not apply.  In interpreting Sue Weinberger’s intent, as expressed in the Sue Weinberger Trust, the Sue Weinberger Trust continued until there was a final distribution of the assets of the Sue Weinberger Trust …

“Upon Sheila Weinberger’s death the real property continued to remain in the Sue Weinberger Trust and was distributed by Lee Davis acting as trustee of the Sue Weinberger Trust to himself.  Upon Lee Davis’ distribution of the real property, the Sue Weinberger Trust terminated.”  Based thereon, the court concluded that the trust interests had not merged at an earlier time.

To me, that’s a legal conclusion: it’s not a matter for resolution strictly by factual reference to the decedent’s estate planning trust.  The reality is that conventional trust law is applied carelessly in the case of estate planning trusts, because the round peg doesn’t fit the square hole.  We advance the fiction of estate planning “trusts,” with the result that probate administration is avoided.  We need a coherent body of law controlling the treatment of estate planning trusts, because the Restatement of Trusts does not fit well.

In Weinberger, the court offered no analysis as to why the merger doctrine did not apply, as a matter of law.  The question is profound, and worthy of further thought.

Weinberger v. Morris (2010) 188 Cal.App.4th 1016

Tracing the Origin of the English Trust to the Year 1350

Sunday, August 21st, 2011

Here is the clearest explanation I have found to date regarding the rise of trusts in English law.  Bear in mind that England was still a feudal system in the year 1350.  Also bear in mind that a court of law could not enforce a trust – such jurisdiction lay within the court of equity, which was still developing.

Profs. Maitland and Montague take the stage with the following concise statement of legal history.

“From the field of the common law the chancellor was slowly compelled to retreat … It seems possible that this nascent civil jurisdiction of the chancellor would have come to naught but for a curious episode in the history of our land law.

“In the second half of the fourteenth century many causes were conspiring to induce the landholders of England to convey their lands to friends, who, while becoming the legal owners of those lands, would, nevertheless, be bound by an honorable understanding as to the uses to which their ownership should be put. There were feudal burdens that could thus be evaded, ancient restrictions which could thus be loosened.”

There it is.  The wealthy landowners sought to avoid the feudal burdens owed to their lords.  The Chancellor, acting on behalf of the king, recognized these arrangements.

“The chancellor began to hold himself out as willing to enforce these honorable understandings, these ‘uses, trusts, or confidences,’ as they were called, to send to prison the trustee who would not keep faith.”

Normandy coast

Add Maitland and Montague, “It is an exceedingly curious episode.  The whole nation seems to enter into one large conspiracy to evade its own laws, to evade laws which it has not the courage to reform.  The Chancellor, the Judges, and the Parliament seem all to be in the conspiracy.”

“And yet there is really no conspiracy: men are but living from hand to mouth, arguing from one case to the next case, and they do not see what is going to happen. Too late the king, the one person who had steadily been losing by the process, saw what had happened. Henry VIII put into the mouth of a reluctant Parliament a statute [the Statute of Uses, enacted in 1535[ which did its best – a clumsy best it was – to undo the work.”

“But past history was too strong even for that high and mighty prince.  The statute was a miserable failure.  A little trickery with words would circumvent it.  The chancellor, with the active connivance of the judges, was enabled to do what he had been doing in the past, to enforce the obligations known as trusts.”

How fascinating is this history to our current law of trusts.  The “traditional” trust arose during a 50-year period, as the wealthy sought to avoid the obligations of feudal society.  They employ an exceedingly flexible device, which accomplishes its purpose, but only because many learned people look away during this period.

So also it is with our current law of “living trusts.”  These estate planning trusts came to prominence during the last 50 years.  They suffer from an intellectually deficient legal platform; it makes little sense to contend that one person can simultaneously serve as trustor, trustee, and beneficiary.

Such trusts exist solely to transfer property at death, and solely to avoid the jurisdiction of the probate court.  And yet, with a collective nod, we in the legal profession have said, “Yes, this quasi-will should be valid, and we should honor it, notwithstanding its failure to comply with centuries of law relating to wills.”

The old is new again.

Maitland and Montague, A Sketch of English Legal History (G. P. Putnam’s Sons 1915)

Bellows v. Bellows – Further Proof That Estate Planning Trusts Are Not Always a Good Idea

Monday, July 4th, 2011

The fees in a probate case trigger a reaction that sometimes borders on panic.  Part of the reasoning behind the use of an estate planning trust (sometimes referred to as an inter vivos trust) is that the trust will save on attorney’s fees.

However, as I tell clients, it only works if the beneficiaries get along.  If not, the attorney’s fees in a trust dispute will greatly exceed the regular probate fees.  A case in point is the recent decision in Bellows v. Bellows (June 13, 2011) 2011 DJDAR 8530.  The estate was in the range of $65,000.  Under California law, the probate fees would have been around $2,600 (four percent of the estate).  Yet the trust litigation has triggered attorneys fees in excess of $20,000, which surely was not the intended result.

The case also stands for the proposition that a trustee cannot demand a release as a condition to making a distribution as required under the trust agreement.  (Again, such a release comes part and parcel with a probate, as the court approves all distributions by the executor.)

Here are the facts.  “In 2003, Beverly Bellows established the Beverly Bellows trust, naming her and Frederick as cotrustees. As restated in 2005, the trust provided that on her death, the trust assets would be divided equally between Frederick and Donald. Following Beverly’s death in 2008, Donald requested distribution of his share of the trust.”

Watch as the wheels start to slip – the two brothers did not get along. “In September 2009, when the distribution had not been made, Donald filed a petition in the probate court pursuant to section 17200 seeking an accounting and distribution of the trust assets. On November 13, the court ordered Frederick to provide an accounting of the trust assets and to distribute one-half of the assets to Donald within 10 days. The order awarded Donald attorney fees in the amount of $9,800.”

Ouch.  That fee award – long before the fees on appeal – was four times the total probate fees, had the estate been subject to probate.  But it only gets worse, as Donald also claimed that “Frederick had improperly deducted from the remaining corpus of the trust approximately $13,000 of his own attorney fees prior to dividing the trust assets in half.”


Never forget Molly Ivins’ first rule of holes – When you find yourself in one, stop digging.  These two brothers amassed more than $25,000 in collective attorney’s fees, before they ever took the matter up on appeal.

“On February 23, 2010, Donald filed a motion to compel compliance with the court’s November 2009 order.  Frederick opposed the motion and filed a cross-motion for abatement and for attorney fees and sanctions.”

Here’s the holding on appeal. “There is no dispute that under the terms of the trust as interpreted by the court in its November 2009 order, Frederick was required to distribute to Donald one-half of the trust assets. Under the plain language of [Probate Code] section 16004.5, subdivision (a), Frederick could not condition the payment on a release of liability . . .

“There was no dispute that Donald was entitled to receive from the trust at least $30,376.80, based on Frederick’s own accounting. Frederick, as trustee, was required to make this distribution to Donald without any strings attached. He was not entitled to condition the payment on the release of other claims or demands of the trust beneficiary.

Added the court, “[the statute] permits a trustee to seek a voluntary release or discharge.  A release obtained as a condition of accepting payment to which the beneficiary is entitled is in no sense voluntary . . . Frederick could not condition such an agreement on Donald releasing his right to an accounting or of other claims he might have against the trustee. Again, such an interpretation would render subdivision (a) nugatory.”

Finally, the court added that, “subdivision (b)(4) confirms the right of the trustee to withhold any distribution that is reasonably in dispute. In such a case, as subdivision (b)(5) confirms, the trustee may seek instructions from the court, the well-established method of resolving controversies that may arise between trustee and beneficiary . . . What the trustee may not do is extract from the beneficiary an agreement to accept a compromise concerning a disputed issue as a condition of receiving a distribution to which the beneficiary is unquestionably entitled. A trustee may not under any circumstances condition a required distribution on an involuntary release of liability.”

As it looks to this writer, the two brothers spent all of the money on attorney’s fees. That’s a bad result under any standard.

Bellows v. Bellows (June 13, 2011) 2011 DJDAR 8530