Articles Posted in Accounting

When the father of my beneficiary clients, as trustee of the living trust created for them by their grandparents, finally complied with the court’s order to submit an accounting, it told a story of trustee misdeeds, malfeasance and breach of fiduciary duty.

In California, a trustee has various duties as set forth in California Probate Code §§16000 et seq., known as the Trust Law. Among them is the duty to put the interests of the individual beneficiaries before his own (California Probate Code §16002) In addition, a trustee has a duty to follow the instructions of the trust concerning distributions (California Probate Code §16000). In an accounting the trustee, among the other items set forth in California Probate Code §16063, is required to list, in detail, on separate schedules, the assets of the trust, the income of the trust, the gains and losses from the sale of trust assets, the expenses of the trust, distributions from the trust and property on hand as of the date of the accounting. These were the schedules that I reviewed on behalf of my clients.

While I am licensed as a CPA (Certified Public Accountant) in addition to being an attorney, I practice law. That does not, however, mean that I turn my back on my skills as a CPA. To the contrary, I find those skills very useful in most of the areas of law that I practice in, including business, probates and trusts.

Previously, I described sending a demand letter to the father of my clients, beneficiaries of their grandparents’ living trust. I demanded that the father, as trustee of their trusts, account to them for his activities as trustee as well as distribute to each of them their beneficiary shares of the living trust. His response was less than forthcoming.

After giving the trustee enough time to do what he should have done, I filed a petition to compel an accounting (California Probate Code §17200(b)(7)) in the Superior Court of Los Angeles County, Central Judicial District (i.e. in downtown Los Angeles)). I also requested the court to issue a “Citation” (a citation serves a similar purpose to a summons in civil litigation) pursuant to California Probate Code §§1240, 1241 and 1242, which, after service on him in accordance with California Code of Civil Procedure §413.10 compels the father, as trustee, to appear in court and explain why the court should not order him to account in accordance with the petition that I filed on behalf of the my clients, the beneficiaries of the living trust.

After being served with the Citation, the trustee appeared in court, with his attorney, and the battle was joined. Suffice to say that the court inquired as to how long the trustee would need to prepare the accounting and ordered that it be so. The court also set a date for the hearing (like a trial) on the petition.

In my last post, I described the living trust situation wherein my beneficiary clients believed that their father, trustee of the living trusts established by their grandparents for their benefit, was wrongfully withholding their funds, breaching his fiduciary duty as a trustee. Here is what I did as an advocate and attorney to protect their interests.

I should point out that California Probate Code §17200(b)(7) permits a living trust beneficiary to seek a court order requiring the trustee to report and account for his activities with the trust funds. Knowing this, I wrote a demand letter to the trustee (my clients’ father) informing him that I represented his children, that I had read the living trust, that the living trust required distribution to each child at age 21, and that he, as the trustee, had breached his fiduciary duty, as a trustee, to account to his children (the beneficiaries) and to distribute the funds. I further informed him that I would file a petition in the Superior Court of Los Angeles County (where the living trust was located and domiciled) to compel an accounting and distribution if my clients’ demands were not met.

The trustee’s initial response to my clients’ demands was to delay and promise that an accounting would be forthcoming.

In my Orange County, California estate planning practice, I am constantly amazed at the greed shown by family members towards each other. Although I have been in practicing thirty years now with substantial experience in trust, probate and estate litigation, I have seen no change in the willingness of one or more family members to short-change another family member.

Not too long ago I was approached by a grandchild of deceased grandparents. This grandchild had three siblings. All of them were told that when their grandparents died, the living trust that had been established for them by the grandparents would be held by their father, as trustee, for their benefit, until each grandchild turned 21 years old. At that time, the father was to distribute that grandchild’s share of the living trust.

At the time that I was retained, all of the siblings had attained age 21 with oldest being age 28. The father had never rendered an accounting (a report of the assets that he started with, the income that he received, the expenses that he incurred, and the property that was on hand) to his children to show what he had done with their trust funds. Instead, he had repeatedly made promises that an accounting would be prepared shortly or that the income and expense information was at the accountant’s waiting to be assembled into an accounting. The children began to suspect that their father was withholding their money and using it for himself, which is considered, in California, a breach of fiduciary duty by the trustee. I was asked to do something about this.