Research Memo on Court’s Ability to Impose Continuing Court Supervision on an Existing Trust

Research Memorandum

From: Chris Carico
RE: Court’s Ability to Impose Continuing Court Supervision Over an Existing Trust
DATE: 2/15/11

I. Issue

Under what circumstance may the probate court impose continuing court supervision on an existing trust?(1)

II. Short Answer

(1) Pending Conservatorship with Pre-Existing Revocable Trust. Where there is a pending conservatorship, the court may impose continuing court supervision, sua sponte, over conservatee’s existing revocable trust. Brown v. Labow (2007) 157 Cal.App.4th 795, 815, 816; Johnson v. Kotyck (1999) 76 Cal.App.4th 83, 103. The trust is already deemed part of the larger conservatorship estate.

(2) Pending §17200 Petition over Irrevocable Trust. Where a trustee or beneficiary brings any petition concerning the internal affairs of an irrevocable trust, the Court’s supervisory powers are triggered. The probate court may then impose continuing court supervision, sua sponte, provided minimal due process requirements are satisfied. Schwartz v. Labow (2008) 164 Cal.App.4th 417, 428; Esslinger v. Cummins(2006) 144 Cal.App.4th 517, 523; Probate Code §§8481(b), §10950; 15642(e), 17200(a), 17201; Cal. Rule of Court 7.201(b).

(3) Pending Conservatorship/Guardianship over Beneficiary of Irrevocable Trust. The probate court’s power, sua sponte, to withdraw, restrict, and set conditions on the guardians and conservators’ powers is very broad, comprehensive and plenary. Guardianship of Reynolds (1943) 60 Cal.App.2d 669, 679; Probate Code §§ 2101; 2593. The guardian or conservator acts as the court’s agent to do the court’s bidding. The guardian or conservator is therefore subject to the control and direction of the court. In re Guardianship of Ross (1907) 6 Cal.App. 597, 599; Hartford Accident and Indemnity Company v. Crawford (1962) 204 Cal.App.2d 557, 561; Hornaday v. Hornaday(1949) 95 Cal.App.2d 384, 393. Where the conservatee or ward has a beneficial interest in an irrevocable trust, the court can instruct and direct the conservator or guardian, sua sponte, to file a petition under Probate Code §17200, requesting that the trust become subject to continuing court supervision under a separate trust proceeding.

III. Legal Analysis

A. Conservatee with Revocable Trust

The court’s power over conservatorship estates extends to the conservatee’s revocable trust. Brown v. Labow (2007) 157 Cal.App.4th 795, 815, 816.(2) Assets of the trust estate are considered to be part of the assets of the larger conservatorship estate. Johnson v. Kotyck (1999) 76 Cal.App.4th 83, 103. The trustee of conservatee’s revocable trust “is a person in control of property in the conservatorship estate and must therefore account for her actions with respect to Trust property.” Id; Probate Code §2616. If a conservatorship proceeding is pending, the probate court may, sua sponte, require that the trustee of the revocable trust provide an accounting. No separate §17200 petition is required by statutory or decisions law, since the trust estate is considered as part of the larger conservatorship estate. However, local court rules may nonetheless require the opening of a separate trust proceeding under a new case number. LASC Probate Rule 10.82.

B. Pending §17200 Petition Over Irrevocable Trust

Probate Code §17002 provides generally that trustees and beneficiaries of trusts with their principal place of administration in the State of California are subject to jurisdiction of California’s probate courts. The probate court is given the broad power and responsibility to supervise and protect the administration of trusts within its jurisdiction. Donahue v. Donahue (2010) 182 Cal.App.4th 259, 270; Schwartz v. Labow (2008) 164 Cal.App.4th 417, 428(3); Estate of Hammer (1993) 19 Cal.App.4th 1621, 1634.

The probate court’s power of supervision over trusts is not limited to express statutory powers, but also includes inherent equitable powers established under case law. Together, the statutory and inherent equitable powers provide the court with the ability, sua sponte, to take virtually any remedial action needed to protect trusts and their beneficiaries, provided some aspect of the trust administration is first submitted to the probate court for adjudication by a trustee or beneficiary. Schwartz v. Labow (2008) 164 Cal.App.4th 417, 428; Esslinger v. Cummins (2006) 144 Cal.App.4th 517, 523; Probate Code §§15642(e), 16064(a), 17200(a), 17201; Rudnick v. Rudnick (2009) 179 Cal.App.4th 1328, 1333; Lazzarone v. Bank of America (1986) 181 Cal.App.3d 581, 594; Kucker v Kucker (2011) 2011 Cal.App.Lexis 88; Estate of Heggstad (1993) 16 Cal.App.4th 943, 951.

The nature of the equitable relief to be utilized by the probate court to protect trust beneficiaries is left open to the probate court’s broad discretion. Evangelho v. Presoto (1998) 67 Cal.App.4th 615. If the court has jurisdiction over one aspect of a claim, it can determine virtually all matters relating to that trust’s administration. Probate Code §17206; Probate Code §856; Krause v. Regents of University of California (2010) 184 Cal.App.4th 103. The probate court’s sua sponte power to remove a trustee necessarily provides it with the lesser powers of suspension of a trustee and continuing court supervision. Probate Code §15642(a); Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427- 428.[ “Under California trust law, a court can intervene to prevent and rectify abuses of trustee’s powers

However, the probate court does not have the power, sua sponte, to reach out and assert jurisdiction and supervision over a trust that is not already before it.(4) Probate Code §17209; Esslinger v. Cummins (2006) 144 Cal.App.4th 517, 523. A trust proceeding must generally be initiated by a trustee or beneficiary, before the court’s supervisory power is invoked. The filing of any petition concerning the internal affairs of the trust is sufficient to initiate the proceeding. Probate Code §17201; Probate Code §17200(a); Esslinger v. Cummins (2006) 144 Cal.App.4th 517, 523. The 17200 Petition does not need to request relief specifically identified in Probate Code §17200(b)(1) – (23), provided it relates in some respect to the internal affairs of the Trust.(5) Schwartz v. Labow (2008) 164 Cal.App.4th 417, 428.

Once any 17200 Petition has been filed, the probate court appears able to impose continuing court supervision, sua sponte, over the trust, if the probate court believes such action is necessary to protect the interests of the beneficiaries. Where the motion for court supervision comes from the court, sua sponte, reasonable notice of the probate court’s intended ruling must be provided to the trustees and beneficiaries and an opportunity for them to object. Estate of Jenanyan (1982) 31 Cal.3d 703. Due process considerations come into play because trustees generally have the right to administer the trust free of judicial intervention. Probate Code §17209.(6) Probate notes, if issued far enough in advance of the hearing, recommending the imposition of continuing court supervision over the trust, may be sufficient to meet due process notice requirements. (7) Failure to provide some advance notice of the Court’s intended ruling generally deprives the trustees and beneficiaries of due process. Estate of Jenanyan (1982) 31 Cal.3d 703. Where irreparable harm is likely to result from a delay in imposing court supervision over the trust, court supervision can arguably be imposed on a temporary basis without violating due process where a subsequent hearing is set to determine the permanency of court supervision.

C. Pending Conservatorship/Guardianship Over Beneficiary of an Irrevocable Trust

The probate court has broad and comprehensive powers, sua sponte, to control and direct the guardian or conservator. Guardianship of Reynolds (1943) 60 Cal.App.2d 669, 679; Probate Code §2101. The probate court, sua sponte, may withdraw, restrict, and set conditions on the guardians and conservators’ powers. Probate Code §2593. The guardian or conservator acts as the court’s agent to do the probate court’s bidding. The guardian or conservator is therefore subject to the control and direction of the probate court. In re Guardianship of Ross (1907) 6 Cal.App. 597, 599; Hartford Accident and Indemnity Company v. Crawford (1962) 204 Cal.App.2d 557, 561; Hornaday v. Hornaday (1949) 95 Cal.App.2d 384, 393. The guardian or conservator has the power to commence and maintain legal actions for the benefit of the ward or conservatee. Probate Code §2462(a); CCP §372. It follows that the court may, sua sponte, compel conservators and guardians to initiate legal proceedings to protect their wards. Estate of Miller (1964) 230 Cal.App.2d 888.(8)

Any beneficiary of an irrevocable trust may bring a §17200 petition to require that the trustee submit the trust to continuing court supervision. Probate Code §17200(a). If a conservatee is the beneficiary of an irrevocable trust, not already subject to court supervision, the probate court may issue an order, sua sponte, in the conservatorship proceeding compelling the conservator (acting on behalf of the conservatee) to exercise the conservator’s power under Probate Code §2462(a), to file a §17200 petition requesting that the probate court assert continuing court supervision over the irrevocable trust in a separate trust proceeding. Similarly, the probate court may issue an order, sua sponte, in the guardianship proceeding, compelling the guardian (acting on behalf of the minor) to exercise the guardian’s power under Probate Code §2462(a), to file a §17200 petition requesting that the court assert continuing court supervision over the irrevocable trust in a separate trust proceeding.

IV. Conclusion

The probate court has the power to subject virtually any trust to continuing court supervision, provided the court already has jurisdiction over a fiduciary, with some interest in the trust estate. If any beneficiary or trustee files any petition under Probate Code §17200 relating to the trust, then the probate court can exercise its supervisory powers, sua sponte, to require continuing court supervision, provided adequate notice and an opportunity to object, is given. If there is no pending §17200 petition, but the settlor of the revocable trust is under a conservatorship, then the probate court can order the conservator to immediately file the §17200 petition to bring the trust under continuing court supervision. Since the trust estate is already deemed part of the larger

1 This memo does not address trusts created pursuant to court order, which have been under existing continuing court supervision from inception. See California Rule of Court 7.903.

2 See also Conservatorship of Carrasco (2001) 2001 Cal.App.Unpub. Lexis 857, which cannot be cited as authority.

3 “Under California trust law, a court can intervene to prevent and rectify abuses of trustee’s powers [ Citations] And, where a probate court has the express authority to remove a trustee sua sponte [citation], it necessarily has the inherent equitable power to employ less extreme remedies.” Schwartz v. Labow (2008) 164 Cal.App.4th 417, 427- 428

4 See also Paulson v. Paulson (2010) 2010 Cal.App.Unpub Lexis 7551, which cannot be cited as authority.

5 Probate Code §17200(b) is not an exhaustive list of permissible petitions concerning the internal affairs of a Trust.

6 Court supervision is likely to cause additional court costs and attorney’s fees affecting the property interests of the Trustees and beneficiaries. Imposition of court supervision, without due process, would constitute a taking of property in violation of the 5th Amendment.

7 Due process however is a flexible concept, which requires the balancing of competing interests. Quoting Conservatorship of John L (2010) 48 Cal.4th 131, “The question of whether due process has been obtained can only be answered by scrutinizing the circumstances in which the deprivatory action arose. [Citations]” “[t]he quantum and quality of the process due in a particular situation depend on the need to serve the purpose of minimizing the risk of error.” Id at 150.

8 Estate of Miller (1964) 230 Cal.App.2d 888, involved a decedent’s estate, where the court ordered the personal representative to commence litigation in a separate proceeding to protect the interests of the estates’ beneficiaries. Given the probate court’s power over a guardian and conservator exceeds that over a personal representative, the probate court will similarly have the power to compel the guardian or conservator to initiate litigation to protect the interests of the ward.

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