Judge: Bruce G. Iwasaki, Case: 19STCV22775, Date: 2023-02-17 Tentative Ruling
Case Number: 19STCV22775 Hearing Date: February 17, 2023 Dept: 58
Hearing Date: February
17, 2023
Case Name: Meister
v. Ahia
Case No.: 19STCV22775
Matter: Petition
for approval of the Arrow Meister Irrevocable Trust
Moving Party: Melissa
MeisterResponding Party:
Tentative Ruling: The Court disapproves the proposed settlement trust. Petitioner is ordered to submit a new
proposed trust instrument.
The Court
disapproves the proposed settlement trust submitted by Petitioner. This conclusion is based on the many deficiencies
identified in the analysis prepared for the Court by the Managing Probate
Attorney, which is adopted by the Court and incorporated herein. Petitioner is ordered to resubmit an entirely
new trust instrument. At the hearing,
the Court will set a date for submission and further hearing.
…………………………………………………………………………………………………….
FACTS
In this civil action, plaintiff Arrow Meister is 10 years
old. Petitioner, Melissa Meister, now
brings a Petition to Approve Compromise as parent and GAL. The parties tentatively have settled the
action for a gross $935,000, with a $701,250 allocation to petitioner/mother
and a net of $233,750 payable to plaintiff after deduction for fees, costs,
etc. (Calculations of the net proceeds
are in the Petition to Approve Compromise.)
Petitioner proposes to fund the minor’s proceeds into a settlement trust (not a special
needs trust (SNT), which would only be necessary if petitioner sought to
maintain plaintiff’s eligibility for benefits such as Medi-Cal and SSI).
This referral to the probate department is limited to the
review of the proposed trust instrument and a suggestion of how to move forward
regarding administration of the trust.
The review, and therefore this memorandum, does not address the
advisability of the compromise amount/terms or related concerns including
attorney’s fees and costs.
THE PROPOSED TRUST
INSTRUMENT
Petitioner provides a one page Attachment 18b(7) addressing
the trust issues (court’s pdf at p. 124).
The proposed settlement trust is attached thereto (court’s pdf at p.
125). A minor’s settlement trust does
not invoke all the requirements of a special needs trust because there are no
issues/requirements to maintain benefits eligibility. An order funding a minor’s trust, however,
still invokes the requirements of CRC rule 7.903(c) and LASC rule 4.116(b)
because those rules govern virtually all trusts that are created or
funded by court order. Note that CRC rule
7.903(b) applies the rule's requirements, and the requirements of court
supervision of the trust, to orders "approving or funding" a trust. LASC Rule 4.116(a) also applies that rule's
requirements to "trusts created or funded by court order ...."
The main requirements for court created or funded trusts are
set forth at California Rules of Court (CRC), rule 7.903(c) and LASC rule
4.116(b).
The proposed trust instrument does
not meet the following requirements of CRC Rule 7.903(c), labelled by
quoted subsection, and the court should continue the hearing for a new proposed
trust instrument:
(c)(2) Prohibit modification or
revocation without court approval;
(c)(4) Prohibit investments by the
trustee other than those permitted under Probate Code section 2574;
(c)(5) Require [trustee] to post
bond in the amount required under Probate Code section 2320 et seq.;
(c)(6) Require the trustee to file
accounts and reports for court approval in the manner and frequency required by
Probate Code sections 1060 et seq. and 2620 et seq.;
(c)(7) Require court approval of
changes in trustees and a court order appointing any successor trustee; and
(c)(8) Require compensation of the
trustee, the members of any advisory committee, or the attorney for the
trustee, to be in just and reasonable amounts that must be fixed and allowed by
the court. The instrument may provide for periodic payments of compensation on
account, subject to the requirements of Probate Code section 2643 and rule
7.755.
The proposed trust instrument
also does not meet the requirements of LASC rule 7.116(b), labelled by quoted
subsection:
(b)(2) Any purchase of a personal
residence for a beneficiary may be made only if authorized by the court
pursuant to the rules applicable to conservatorships and guardianships. (See
Prob. Code, § 2571);
(b)(3) Any sale of a personal
residence of the beneficiary may be made only if authorized by the court
pursuant to the rules applicable to conservatorships and guardianships. (Prob.
Code, § 2540(b).) Such sales must be returned to court for confirmation. (See
Prob. Code, § 10300 et seq.); and
(b)(4) The trustee may not borrow
money, lend money, give security, lease, convey, or exchange any property of
the estate without prior authorization of the court. (Prob. Code, § 2550.)
Also troubling is the
fact that the proposed trust instrument is not in the form of a typical minor’s
settlement trust and instead is styled as an irrevocable trust. That
label is a misnomer because the trust is revocable by minor at certain
ages. It also means that the trust
contains several terms that are highly inappropriate for a trust that would
receive a minor’s settlement funds. The
following list of defects are in addition to the CRC rule 7.903 and LASC rule
4.116 defects listed above and is meant to provide examples of why the trust
terms are highly inappropriate. It is not
intended as a mere “punch list” of defects to be cured in the next version of
the proposed trust instrument. This
trust instrument cannot be salvaged and instead petitioner needs to start anew
with a trust instrument that is drafted as a minor’s settlement trust. The defects include:
· The trust instrument provides that the trust
instrument is not revocable when plaintiff’s reaches age 18 as required by
subsection (g) of Probate Code 3611, and instead plaintiff could withdraw trust
funds at age 21, but if not done within 45 days then the trust is irrevocable
until 25 when plaintiff could withdraw 50% of the trust assets, then the
remaining 50% could be withdrawn at age 29.
(Section 4.01(c)(3), court’s pdf at p. 131.)
Probate Code section 3611 specifies the options that a court may approve
for the receipt of settlement proceeds where, as here, the minor plaintiff does
not have a guardianship of the estate.
Subsection (g) of section 3611 states (emphasis added):
(g) That the remaining balance of the money and other property be paid or
delivered to the trustee of a trust which is created by, or approved of, in the
order or judgment referred to in Section 3600. This trust shall be revocable by the minor upon attaining the age of 18
years, and shall contain other
terms and conditions, including, but not limited to, terms and conditions concerning
trustee's accounts and trustee's bond, as the court determines to be necessary
to protect the minor's interests.
Petitioner’s attempt to encumber the trust assets past age 18 is improper
and the current proposed trust instrument should not be approved.
· At several locations, the trust instrument
specifically disavows future, ongoing court jurisdiction over the trust or
court supervision. See, e.g., Section
3.02(c) (court’s pdf at p. 127), Section 6.02 (court’s pdf at p. 134), and
Section 6.11 (court’s pdf t p. 137). The
court must retain court jurisdiction and should employ court supervision over
the trust as required by CRC rule 7.903(b).
· The trust instrument improperly allows
trustee to revoke appointment of a co-trustee, provides that a special trustee
may be used, etc., all in contravention of the court’s requirement approve
trustees. (Sections 3.03 to 3.07,
court’s pdf at pp. 128-29.)
· The trust instrument provides inappropriate
estate planning to the extent it names the mother/petitioner as a trust
beneficiary upon plaintiff’s death.
(Section 4.01(d), court’s pdf at pp. 131-32.) This is both a conflict of interest
for petitioner to advocate a trust instrument that would benefit her and
violates a general prohibition against estate planning in a trust where the
plaintiff/beneficiary is a minor. As
stated in the California Practice Guide: Personal Injury, Section 4:1543, “An
attempt to designate a ‘beneficiary’ of the settlement fund in the event of the
minor's death (e.g., to the custodial parent where the parents are divorced)
would circumvent Prob.C. § 6100(a) and hence is invalid. [Sisco v. Cosgrove,
Michelizzi, Schwabacher, Ward & Bianchi (1996) 51 CA4th 1302,
1307-1311, 59 CR2d 647, 649-652].”
· There are odd provisions in the trust
providing for separate trusts, trust mergers, etc., that have no place in a
minor’s trust. (See, e.g., Section 6.16,
court’s pdf at p. 139.) There are also
terms allowing for termination of the trust, which is improper for a minor’s
trust. (Section 6.17, court’s pdf at p.
139.)
· The trust instrument contains several terms
that largely exonerate trustee for any mismanagement or malfeasance as trustee,
which is inadvisable for a minor’s trust.
(See, e.g., Sections 6.05 and 6.06, court’s pdf at p. 135.)
· The trust contains terms allowing
self-dealing and improper employment of professionals with a relationship to
trustee. (Section 6.08, court’s pdf at
p. 136.) The trust also improperly
allows trustee to delegate trustee duties to others without diminishing
trustee’s fees.
· The trust instrument improperly limits the
ability to challenge a trust accounting.
(Section 6.11, court’s pdf at p. 137.)
· Several trust terms do not make sense or are
not allowable for a minor’s trust, including several terms governing an income
beneficiary, allowing for payment of expenses without due diligence review by
trustee, and allowing for investment authorities much broader than is
prudent. (Sections 6.19 through 7.17,
courts pdf at p. 140.) Many of these
sections allow for significant self-dealing by trustee without disclosure.
· Trust terms allow for holding bank accounts
and securities without disclosure that the accounts are held by the trust,
which is highly improper, especially for a minor’s trust. (Sections 7.04 and 7.15, court’s pdf at p.
141 and 145.)
· Several powers granted to the trustee in the
trust instrument are improper, including the power to settle actions, purchase
life insurance, and move jurisdiction of the trust administration. (Sections 7.16 and 7.17, court’s pdf at p.
146.)
FINDINGS
The usual three SNT findings are not relevant and should not
be made here because this case involves a minor’s trust and not a SNT.
TRUSTEE AND BOND
The trust instrument indicates that bond generally shall not
be required. (Section 6.04, court’s pdf
at p. 135.) At Attachment 18b(7),
petitioner indicates that the trustee shall be Northwestern Mutual. In a Notice of Errata filed on 2/1/23,
petitioner states that the trustee shall be Oppenheimer & Co. (2/1/23 filing at court’s pdf, p. 2.) Normally, bond must be required of a trustee
unless the trustee is a corporate fiduciary.
(California Rules of Court, Rule 7.903(c)(5), Probate Code section
2320.) Oppenheimer appears to meet that
requirement and bond should not be required.
NOTICE
There is no requirement to notice the three state agencies
for a minor’s settlement trust, as there is with a SNT. A proof of service for defense counsel is
attached to the petition brief and notice appears to be complete.
THE PROPOSED ORDER
A proposed order bearing a 1/19/23 Received stamp was
reviewed in eCourt. The following
requirements apply to an order on the trust:
I.
General Orders
The order approving the trust
properly must attach a copy of the proposed trust instrument to capture the
text of the trust being approved. Not
satisfied.
The proposed order should
also address other rulings related to the trust issues, including bond. Not satisfied.
II.
Housekeeping Orders
When the funding of a trust is
allowed, the court order should include language requiring petitioner to file
an accounting within a year, with a specific 14 month date indicated to allow
time for drafting and filing of the accounting.
Not satisfied.
The order should also require
trustee to open a separate proceeding for the trust by filing a certified copy
of the settlement order establishing the trust with the court. Here, the relevant court would be in Contra
Costa where trust venue lies. Not
satisfied.
Also, when the trust is approved,
your court will want to set an OSC in 60 days to ensure that the new trust
action has been filed in Probate and insert that date in the Proposed
Order. This helps to ensure that the
trust matter will not “fall through the cracks” before it gets on the calendar
in Contra Costa County. Not
satisfied.
RECOMMENDATION
1.
Court’s discretion re the terms of the compromise,
including settlement amounts, fees and costs, etc.
2.
Need corrected proposed trust instrument.
3.
When the petition is approved, suggest court not
require bond.
4.
When petition is approved, court to require an
accounting in one year and specify a due date in 14 months to allow time for
drafting and filing.
5.
The court should set an OSC in your department in 60
days to ensure the filing of bond and the filing in probate of the Notice of
Commencement of Proceedings for a Court Supervised Trust on LASC Form PRO 044.
6.
Need corrections/additions to the proposed order as
described in the Order section of this memo.