Judge Bruce G. Iwasaki

Department 58

Hearing Date: March 10, 2023

Case Name: Meister v. Ahia

Case No.: 19STCV22775

Matter: Petition for approval of the Arrow Meister Irrevocable Trust

Moving Party: Melissa Meister

Tentative Ruling: The Court disapproves the proposed settlement trust. Petitioner is ordered to submit a new proposed trust instrument.

The Court orders correction of the proposed trust instrument and order submitted by Petitioner to comply with the memorandum prepared for the Court by the Managing Probate Attorney, which is adopted by the Court and incorporated herein. At the hearing, the Court will set a date for a further submission and hearing.

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PRELIMINARY ISSUES

This petition was heard on February 17, 2023 and continued to March 10 for correction of the proposed settlement trust instrument. Petitioner filed a Notice of Lodging on February 27, 2023 that attached a new proposed trust instrument. Petitioner filed a Notice of Errata on February 28, 2023 to clarify that the proposed trust instrument is a settlement trust, not an irrevocable trust as previously indicated. A new petition has not been filed and therefore there is no change to the gross and net settlement figures, fees and costs, etc. This memorandum has been updated to reflect the current state of the file, including the new trust instrument.

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

A new minor’s settlement trust as provided with a Notice of Lodging filed on February 27, 2023. 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 approving or 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:

(c)(5) Require [trustee] to post bond in the amount required under Probate Code section 2320 et seq.;

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.)

The most recent trust instrument does remedy the long list of other concerns raised regarding the original version of the proposed trust instrument. The court should continue the hearing to require another revised trust instrument to correct the defects listed above.

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 original trust instrument indicates that bond generally shall not be required. (Section 6.04, court’s pdf at p. 135.) At Attachment 18b(7), petitioner indicated that the trustee would be Northwestern Mutual. In a Notice of Errata filed on 2/1/23, petitioner states that the trustee would be Oppenheimer & Co. (2/1/23 filing at court’s pdf, p. 2.) In the most recent proposed trust instrument, trustee is listed as Melisa Meister (petitioner/mother). (Notice of Lodging, Article One, court’s pdf at p. 7.) 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.) Petitioner does not meet that requirement. With the change away from a corporate fiduciary as trustee and to the parent, bond now should be required. A bond amount is not addressed by petitioner. A proper calculation for bond, including the principal amount of trust funding, plus anticipated annual income and an additional amount required or any cost of recovery on the bond, would be $265,000 bond. When the petition is granted, suggest court require $265,000 bond.

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 the Notice of Lodging. Notice appears to be complete.

THE PROPOSED ORDER

A new proposed order has not been provided since the filing of the original petition. That original 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. A new order would be required anyway to attach the most recent proposed trust instrument.

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.

An order establishing an SNT also should include language requiring the submission of a Notice of Commencement of Proceedings for a Court Supervised Trust on LASC Form PRO 044 within 60 days. It is that filing that will hand the case off to start the trust administration for the SNT that will host the future SNT accountings and any bond issues or other trust issues. Not satisfied.

The order should also state that the civil court has set an OSC in its own department in 60 days to ensure that the probate case has been opened and that any required bond has been submitted. At the OSC, if those requirements have been met then the civil court can wrap-up its case. 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 require $265,000 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.