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Surcharge Against Trustee for Benefiting Self

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Surcharge against trustee


We see problems of trustees misbehaving all too often. Frequently those misbehaviors start from small decisions and are magnified over time. A trustee can be “surcharged” for actions benefiting the trustee at the expense of the trust. That can mean penalties as serious as forfeiture of all rights to receive benefits from the trust.

What is a “surcharge”? It is a legal proceeding in which the trustee (or any other kind of fiduciary, for that matter) is made to personally repay the trust. A recent California case demonstrated how a surcharge proceeding works. It also hinted at how problems can start small and grow over time.

Randy’s Trust

Randy Sterling (not his real name) had seen some tragedy in his life. He was a retired Marine Corps colonel, and he lived in his home in California with two of his three children. After his wife died in 2006, his own dementia began to make it more difficult for him to get along on his own. His son and one daughter lived with and helped take care of him. His son was mentally ill, but receiving treatment. His daughter — a nurse — seemed to be coping with both of them.

In 2008, in a still-unexplained tragedy, both siblings were found dead in the home. Randy had apparently not realized that they were in any trouble for at least a day or two after their deaths — he had been seen walking the dog the morning they were discovered.

Before all that, though, Randy and his late wife had made their estate plans. They had created a living trust and had transferred all their assets into the trust’s name. The trust identified the two of them as trustees and their two daughters as successors.

With the deaths of Randy’s wife and two children, he would need someone to help take care of him. But at least his surviving daughter had the tools she would need. She was now named as sole trustee, and she could act in her father’s interest.

The aftermath of the deaths

For a time Randy’s surviving daughter Brenda moved him into her own home. As trustee she took over the remaining assets and the handling of Randy’s home. Within a month it became apparent that she could not take care of her father at her home, and she moved him to an assisted living facility. Soon after that she moved her own son into Randy’s home to help take care of it.

Within a short time, though, Brenda had experienced her own financial troubles. When she lost her job she, her husband and their other children all moved into her father’s home. They paid $500 rent to his trust for one month, but couldn’t keep payments up after that.

Brenda hoped to be able to move her father back into the home, but it did not happen. He died four years later, while still residing at the assisted living facility.

The trust’s beneficiaries

Upon Randy’s death the trust was to be divided among his children — or their children. Of course, two of his three children died before him, leaving Brenda as his only surviving child. But his other daughter had left a child, Linda. That made Linda beneficiary of the trust to the extent of one-half of its assets.

Shortly after Randy’s death, Brenda gave her niece half of the balance of the trust’s bank account — $50,000. She continued to live in the house without paying rent.

A year later Linda asked about Brenda’s plans for wrapping up the trust, but Brenda did not respond. Linda contacted a lawyer, who sent a request for an accounting and a plan for finalizing the trust — still no response. Eventually, Linda and her lawyer filed a proceeding with the California probate court seeking removal of Brenda and a determination of how much she owed back to the trust for unpaid rent and her use of trust assets to pay her own expenses.

As the lawsuit progressed the partied could agree on a number of things. The rental value of Randy’s house was about $2,000 per month. Brenda had paid some taxes and other expenses owed by the trust, but had used trust funds to pay for others — like utilities and property taxes.

In defense, Brenda also argued that she was entitled to a fee for acting as trustee. She estimated that she had spent about 1,300 hours on trust business over the years, and claimed that she should be paid $75/hour for that work.

The surcharge

The two parties made their cases to the probate court in a one-day trial three years after Randy’s death. By that time the property had been listed and sold, and Brenda and her family had moved out. Brenda asked for approval of her claim for fees of almost $100,000; Linda asked for a surcharge judgment against Brenda of over $200,000.

The probate judge ruled largely in Linda’s favor. He reduced Brenda’s fees to $5,200, and ordered her to pay her own attorneys’ fees to the extent they exceeded $3,000. Brenda was surcharged $195,200 for rent for the time she and her family lived in her father’s home. In addition, her surcharge was increased by another $45,000 for utilities, maintenance and repairs, and loans she received from the trust while acting as trustee.

Linda’s attorneys’ fees of over $35,000 were also charged to the trust — which effectively meant Brenda would pay half of those expenses. Brenda appealed the ruling, arguing that she should not have been surcharged at all.

The appeal

The California Court of Appeals agreed with the basic findings of the probate court, but adjusted the surcharge amounts. Rather than a total of over $230,000, Brenda’s surcharge was reduced by about $110,000. The reason: most of the rent-free time was spent in the home while Randy was still alive. The appellate court reasoned that Linda was not entitled to claim trust losses for that time period because her interest in the trust had not become fixed until her grandfather’s death.

According to the Court of Appeals, any duty Brenda owed prior to Randy’s death was to Randy, not to Linda or any remainder trust beneficiaries. Since Randy would have to assert that claim, Linda could not automatically benefit from any surcharge during that period. Given the family history (the other two children of Randy and his wife — including Linda’s mother — were living at the home rent-free until their deaths), Linda had not shown that Randy’s interests were negatively affected by any breach of Brenda’s fiduciary duty. Morgan-Perales v. Savage, March 8, 2017.

The moral of the story

Trustees have a duty to treat all trust beneficiaries impartially. They may not self-deal, or benefit from their role as trustee. It really doesn’t matter that Brenda might have been able to rationalize moving into her father’s vacant house when he was still alive. She owed a duty to her niece not to take advantage of that circumstance after her father’s death.

An action against a trustee can be called a “surcharge” when it seeks to force the trustee to make the trust whole after a breach of fiduciary duty. Would the same result occur if all of this had taken place in Arizona? Yes, it likely would — plus Brenda could have faced being disinherited from any benefit under her father’s estate or her parents’ trust.

If you are a trustee you should seek legal advice about your duties and the limitations on your powers. The same applies if you are an agent acting under a power of attorney, or a court-appointed fiduciary.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.