Many California trusts confer a lifetime right to income on a person (often the surviving spouse) with the remainder passing to designated survivors upon the income beneficiary’s death. When the income beneficiary dies, is it too late for the executor of the beneficiary’s estate to request an accounting for the purpose of evaluating whether the deceased beneficiary received all income to which he or she was entitled?
No, says the California Court of Appeal in Dunlap v. Mayer (2021) ___ Cal.App.5th ___. A decedent’s successor in interest, such as an executor, can hold the trustee to account. In addition to clarifying this point of law, the court held that a probate court cannot dismiss a petition at a case management conference when disputed factual issues require an evidentiary hearing, extending case law in this area.
Meet the Mayers
Josephine and Erwin Mayer were married and had two children: Maria and Claudia. Erwin lived in San Diego County when he passed in 1995 and his estate was probated there. Erwin’s last will created a testamentary trust.
Erwin’s estate was litigated and the court eventually approved a settlement agreement that gave Josephine lifetime income rights in the Marital Trust with the remainder to daughter Maria, who was to serve as sole trustee of the Trust. The Trust was to be funded with Erwin’s ownership interests in two business entities.
When Josephine died in 2016, she lived in New York. An executor appointed by a New York court filed a petition in San Diego County Superior Court seeking to compel Maria to account for her administration of the Trust from 1995-2016, a lengthy period.
Maria opposed the petition, asserting that she did not know if the Trust was ever funded, that she never acted as trustee of the Trust, and that the two business entities had been defunct for many years. She contended that she could not produce an accounting of the Trust.
At a case management conference on the petition, when the executor was seeking evidence through the discovery process, the court dismissed the petition without advance notice based on Maria’s written objection. The court did not conduct any evidentiary hearing. Instead, it summarily dismissed the petition based on Probate Code section 17202 and section 17206.
Beneficiary’s Successor in Interest May Request an Accounting
The Court of Appeal first determined that Josephine’s right to an accounting of the administration of the Trust did not die with her. Instead, construing the definition of “beneficiary” in Probate Code section 24, the court found that a person entitled to an accounting includes the successor in interest of a deceased beneficiary.
Applying the “general rules of survivability” in civil actions, the court ruled that a beneficiary’s cause of action against a trustee survives the beneficiary’s death, whether or not the litigation preceded the beneficiary’s passing.
Hence, while Josephine had not filed a petition seeking an accounting from Maria, Josephine’s executor was entitled to do so as part of the executor’s efforts to marshal Josephine’s assets.
Dismissal Without Evidentiary Hearing Was Improper
California law generally entitles litigants in probate proceedings, like parties in civil cases, to evidentiary hearings (bench trials) when there are disputed issues of fact. The right to such a hearing is rooted in Probate Code section 1022 and section 1046, as confirmed in several cases including Estate of Lensch (2009) 177 Cal.App.4th 667.
On the other hand, Probate Code section 17202 allows a probate court to dismiss a petition if it appears that the proceeding is “not reasonably necessary” to protect the interests of the trustee or beneficiary, and section 17206 allows a court in its discretion to “make any orders and take any other action necessary or proper to dispose of the matters presented by the petition.” The probate judge in Dunlap relied on these sections as authority to dismiss the petition.
The appellate court ruled that sections 17202 and 17206 do not allow a probate judge to dismiss a petition where the facts are contested, even if the judge finds the objection compelling. Maria’s objection, which did not rest solidly on her personal knowledge, was not a valid basis for the dismissal of the executor’s petition. In addition, the probate court failed to provide the executor with advance notice of its intent to dismiss – instead, the matter was only a status conference.
While procedural shortcuts may be tempting to move cases along, appellate courts “are increasingly wary” of their use because they circumvent procedural protections, including trials on the merits.
More Accounting Requests (and Probates) to Come?
Dunlap could lead to more requests for accountings by executors and other personal representatives of deceased income beneficiaries. More broadly, Dunlap may increase the number probate proceedings. Beneficiaries might open a probate so that a court-appointed personal representative can see if the decedent was shorted lifetime income distributions.
The case should also make probate courts more cautious about disposing of cases via sua sponte (impromptu) dismissal. Instead, courts are likely to require formal dismissal requests by demurrer, motion for judgment on the pleadings, or motion for summary judgment filed by responding parties.
This article originally appeared on JDSupra.
