Cite as E062672
Filed August 22, 2018, Fourth District, Div. Two
By Matthew R. Owens
Withers Bergman LLP
A’Yana was the beneficiary of a special needs trust established by court order in 2004 and funded with proceeds from the settlement of a medical malpractice lawsuit. Melodie, a professional fiduciary, was appointed trustee in 2004 and signed the trust instrument. Although the trust required biennial court accountings Melodie filed her first accounting in 2012, asserting she was unaware the trust was court-supervised. Melodie also sought to terminate the trust due to uneconomically low principal, after having distributed the last $15,574.85 to A’Yana’s mother to help her purchase a house. She also asked the probate court to approve $34,229.55 in trustee’s fees which she had already paid herself over the course of the seven-year trust administration. A’Yana’s court-appointed attorney objected to the accounting on several grounds and, after a 3-day evidentiary hearing, the probate court denied Melodie any trustee’s fees and surcharged her $93,036.75. On appeal Melodie argued that the trial court had applied the wrong legal standard.
The appellate court affirmed. It was Melodie’s burden to prove the accuracy of the accounting. As for the surcharge claims, it was A’Yana’s burden to prove breach of fiduciary duty, at which point the burden shifted to Melodie to justify her actions. Since the trust only granted Melodie reasonable discretion and not sole and absolute discretion, A’Yana did not have to show Melodie abused her discretion or acted in bad faith, but merely had to show she failed to exercise her discretion reasonably. Substantial evidence supported the surcharge. Whereas the trust only authorized payment of expenses made necessary as a result of A’Yana’s disabilities, Melodie had improperly used trust funds for general expenses unrelated to A’Yana’s disabilities, including vacations, vehicle-related expenses, and rent. Finally, because of Melodie’s multiple breaches of fiduciary duty the probate court acted reasonably in surcharging her for the trustee’s fees she had already paid herself.