Family members or beneficiaries of a trust instrument may end up in a dispute regarding the control or distribution of the trust’s assets. Either a trust’s beneficiary or the trustee may petition the court concerning “the internal affairs of the trust or to determine the existence of the trust.” (Cal. Probate Code § 17200.) The beneficiary or trustee may file a petition with the superior court, seeking a court order relative to 23 enumerated statutory categories, including but not limited to:
(1) Determining questions of construction of a trust instrument.
(2) Determining the existence or nonexistence of any immunity, power, privilege, duty, or right.
(3) Determining the validity of a trust provision.
(4) Ascertaining beneficiaries and determining to whom property shall pass or be delivered upon final or partial termination of the trust, to the extent the determination is not made by the trust instrument.
(5) Settling the accounts and passing upon the acts of the trustee, including the exercise of discretionary powers.
(6) Instructing the trustee.
(7) Compelling the trustee to do any of the following:
(A) Provide a copy of the terms of the trust.
(B) Provide information about the trust under Section 16061 if the trustee has failed to provide the requested information within 60 days after the beneficiary’s reasonable written request, and the beneficiary has not received the requested information from the trustee within the six months preceding the request.
(C) Account to the beneficiary, subject to the provisions of Section 16064, if the trustee has failed to submit a requested account within 60 days after written request of the beneficiary and no account has been made within six months preceding the request.
(Cal. Probate Code § 17200(b)(1)-(7).)
Usually, parties must bear their own attorneys’ fees in a dispute, unless if they are provide for by contract, or specific statute. Cal Code Civ Proc § 1021 provides that “[e]xcept as attorney’s fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties; but parties to actions or proceedings are entitled to their costs, as hereinafter provided.” Under section 1021, the party seeking court interpretation of a trust would have to bear their own attorneys’ fees, unless if a specific statute (law) applies.
Fortunately (or unfortunately, depending upon your perspective), the Probate Code has a specific section regarding attorneys’ fees, promulgated in § 17211, which indicates:
• (a) If a beneficiary contests the trustee’s account and the court determines that the contest was without reasonable cause and in bad faith, the court may award against the contestant the compensation and costs of the trustee and other expenses and costs of litigation, including attorney’s fees, incurred to defend the account. The amount awarded shall be a charge against any interest of the beneficiary in the trust. The contestant shall be personally liable for any amount that remains unsatisfied.
• (b) If a beneficiary contests the trustee’s account and the court determines that the trustee’s opposition to the contest was without reasonable cause and in bad faith, the court may award the contestant the costs of the contestant and other expenses and costs of litigation, including attorney’s fees, incurred to contest the account. The amount awarded shall be a charge against the compensation or other interest of the trustee in the trust. The trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied.
(Cal Prob Code § 17211.)
The essence of § 17211 is that the law provides that the prevailing party in the dispute is reimbursed for all attorneys’ fees and costs. The beneficiary that contests the trustee wins back all incurred attorneys’ fees and costs if the losing party’s action was “without reasonable cause and in bad faith.” Although even the losing party may not have to pay fees and costs if the losing party can convince the court that it’s position was reasonable and in good faith, generally the prevailing party obtains fee and cost reimbursement.
Who pays these fees and costs? If the beneficiary loses and has to pay, the amount is not only charged “against any interest of the beneficiary in the trust,” but the “contestant shall be personally liable for any amount that remains unsatisfied.” This mean that the beneficiary is liable for these fees and costs even if they exceed the beneficiary’s interest in the trust.
The same is true for a losing trustee, where the fees and costs are considered a “charge against the compensation or other interest of the trustee in the trust.” If the trustee’s interest in the trust is exhausted, the “trustee shall be personally liable and on the bond, if any, for any amount that remains unsatisfied.”
The law forces potential litigants to consider carefully before petitioning the court to resolve a trust dispute, as the prevailing party is highly likely to get reimbursed for all attorneys’ fees and costs.