Judge: Steven A. Ellis, Case: 20STCV25533, Date: 2023-07-20 Tentative Ruling

Case Number: 20STCV25533    Hearing Date: July 20, 2023    Dept: 29

TENTATIVE 

The Court excuses the personal appearance of the claimant and the guardian ad litem. Counsel may appear by telephone or video conference call.  

The Court has reviewed the Petition to Approve Compromise of Disputed Claim of Minor (Uriah Lynks, age 8) and the proposed Order. The hearing is CONTINUED to allow petitioner to address the concerns and issues set forth below.

As a threshold matter, the Court finds that the settlement and attorney’s fees request meet all legal requirements and are fair and reasonable.  The Court approves the following distribution of the settlement proceeds: 

$358,105 to be invested in annuity; $249,480.39 to be transferred to trustee of a trust that is to be created.

The Court’s probate attorney has reviewed the proposed trust and has identified a number of issues and concerns that must be addressed.

FACTS

In this civil action, plaintiff Uriah Lynks is nine years old.  Petitioner, Shaffon Lynks, now brings a Petition to Approve Compromise as parent and GAL.  The parties tentatively have settled the action for a gross $1 million, with a net of $607,585.39 payable to plaintiff after deduction for fees, costs, etc.  (Calculations of the net proceeds are in the Petition to Approve Compromise.)  Petitioner now proposes to distribute the net settlement proceeds into a minor’s settlement trust for the benefit of plaintiff.  More specifically, petitioner proposes to fund $249,480.39 cash to fund the minor’s settlement trust and use the remaining $358,105.00 to purchase an annuity at would pay into the trust at:

•         $60,000.00 paid as a lump sum on 02/05/2032 guaranteed (nine years from now on plaintiff’s 18^th birthday).

•         $60,000.00 paid as a lump sum on 02/05/2035 guaranteed (12 years from now on plaintiff’s 21^st birthday).

•         $100,000.00 paid as a lump sum on 02/05/2039 guaranteed (16 years from now on plaintiff’s 25th birthday).

•         $589,838.81 paid as a lump sum on 02/05/2041 guaranteed (18 years from now on plaintiff’s 27^th birthday).

Additional annuity details are provided at Attachment 18b(3) (court’s pdf at p. 189). 

Petitioner proposes to fund the proceeds into a minor’s trust (not a special needs trust (SNT)) that would become revocable at plaintiff’s election when plaintiff/beneficiary reaches 18 years old.  Minor’s trusts must become revocable at the 18^th birthday.  Here, the trust instrument specifies that the minor will be able to either revoke the trust at his 18^th birthday and receive all cash in the trust or elect to leave the trust in operation, which will be addressed below. 

THE PROPOSED TRUST INSTRUMENT

Petitioner provides briefing regarding the trust issues at Attachment 18b(7) (court’s pdf at p. 194  The proposed minor’s settlement trust is attached thereto as Exhibit A (court’s pdf at p. 198).  A minor’s 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 must satisfy 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. 

The trust instrument generally meets the requirements of CRC Rule 7.903(c) and LASC Rule 4.116 requirements.  There are a few provisions of the trust, however, that raise issues for the Court:

1.      At various provisions in the proposed trust instrument, it is implied that the court supervision of the trust would last only until minor reaches age 18.  See, e.g., the Accounting to the Court provision at Article Seven, Section 4, which states that an accounting will be provided by the trustee to the court supervising the trust, but only until minor reaches age 18.  (Court’s pdf at p. 208.)  There is no basis for court supervision to cease when minor reaches age 18, and instead once a trust is subject to court supervision then it remains until the trust is revoked or otherwise terminated.  Although the Court understands that the minor will be able to revoke the trust when he turns 18 years old, that is his option, which he may or may not exercise at that time.  The Court is not inclined to allow any provisions in the trust instrument that end the duties of the trustee for a trust under court supervision when minor turns 18 years old.

2.      At Article Six, Section 6, the proposed trust instrument has a Hold Harmless provision that shields trustee from liability except for damages resulting from trustee’s “gross negligence, willful neglect, or unlawful act.”  (Court’s pdf at p. 207.)  The Court is not inclined to allow this provision.  

ADDITIONAL REQUESTS FOR RELIEF

In the trust briefing, petitioner makes the following additional requests for relief that are beyond those fundamental to the creation and funding of a trust:

·         Petitioner requests authority for trustee to invest in mutual funds and bonds with maturity dates greater than five years to provide for a higher rate of investment return.  (Court’s pdf at p. 196.)  This request would provide for a broader investment authority than the statutory baseline but is common when the trust assets will be large and the investment horizon is long (where plaintiff is fairly young).  The Court is inclined to grant this request.

·         Petitioner requests authority to pay $4,000 fees to the Dale Law Firm for serviced related to the trust (drafting, briefing, etc.).  (Court’s pdf at p. 196.)  The Court finds that this request is normal and within the usual range.  The Court is inclined to grant this request.

·         Because Herb Thomas, the private professional fiduciary who will be the trustee, operates in Contra Cost County, petitioner requests an order that the trust shall be supervised by the courts in Contra Costa County.  (Court’s pdf at pp. 195, 218.)  Contra Costa County appears to be the proper venue for court supervision.  (Probate Code sections 17002, 17005.)  The Court is inclined to grant this request.

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 Mr. Thomas, who is a private professional fiduciary (PPF) shall act as the initial trustee of the minor’s trust.  (Article One, Section 2, court’s pdf at p. 39.  See also the briefing at court’s pdf, p. 34.)  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.)  A PPF does not meet that requirement and bond should be required. 

The briefing does not address bond.  The proposed order indicates a $283,000 bond requirement at Section 11.  That bond calculation appears to be correct based upon the initial trust funding and an additional amount required for annual investment income and a statutory amount required for any additional costs for recovery on the bond.  The Court is inclined to require a bond in the amount of $283,000.

NOTICE

There is no requirement to notice the three state agencies for a minor’s settlement trust, as there is with a SNT.  Defense counsel appears to have been properly served.    

THE PROPOSED ORDER

A proposed order bearing a 4/18/23 Received stamp was reviewed.  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.  This requirement is satisfied.

The proposed order should also address other rulings related to the trust issues, including bond.  This requirement is satisfied.  “Additional Orders” regarding trust issues are set forth at Attachment 13 thereto (order pdf at p. 11). 

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.  This requirement is not satisfied.  This must be corrected through a revised proposed order.

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.  This requirement is not satisfied.  This must be corrected through a revised proposed order.  (General language at Attachment 13 of the proposed order that Contra Costa Court shall supervise the trust is insufficient.) 

Also, when the trust is approved, the Court will set an OSC in 60 days to ensure that the new trust action has been filed.  This is to satisfy the Court’s concern that the matter does not otherwise “fall through the cracks” before it gets on the calendar in Contra Costa County.  This requirement is not satisfied.  This must be corrected through a revised proposed order.   

CONCLUSION

The hearing on the petition is CONTINUED for 60 days to allow petitioner to submit a revised petition and proposed order addressing the issues identified in this Order

 
Hearing on Petition to Confirm Minor's Compromise with Special Needs Trust is continued to
10/02/2023 at 01:30 PM in Department 29 at Spring Street Courthouse.

Moving party is ordered to give notice.