APPEAL from an order of the Superior Court of San Diego County, Gerald C. Jessop, Judge. Reversed with directions. (Super. Ct. No. 37-2007-00100913-PR-CP-CTL).
The opinion of the court was delivered by: McCONNELL, P. J.
CERTIFIED FOR PUBLICATION
Probate Code*fn1 section 17211, subdivision (b) gives the probate court discretion to award attorney fees to a trust beneficiary who "contests the trustee's account," if the court determines the trustee's opposition to the contest was "without reasonable cause and in bad faith." The trustee's account here revealed that the trust had remaining assets and no liabilities. The trustee, however, refused to make a final distribution based on a collateral dispute that did not pertain to the trust. The beneficiaries successfully petitioned the probate court for an order compelling the trustee to distribute the remaining assets. The sole question on appeal is whether the court erred by finding section 17211, subdivision (b) is inapplicable as a matter of law because the proceeding does not constitute a contest of the trustee's account. We answer the question in the affirmative. We reverse the court's order to the extent it denies the beneficiaries attorney fees, and direct the court to hold further proceedings on the factual issue of bad faith.
FACTUAL AND PROCEDURAL BACKGROUND
In 1991 Glen Cords and Alice Sterling Cords*fn2, as settlors and trustees, established a revocable living trust known as the Glen Cords and Alice Sterling Cords 1991 Trust (the Trust). The Trust was amended in 1994 and 1999. The Trust requires the trustee to render annual accounts and a final account to trust beneficiaries.
Glen died in 1999, after which Alice served as sole trustee of the Trust. Alice died in 2001, and her son Terry Cords became the sole successor trustee. The Trust provided that after Alice's death, the remaining trust estate was to be distributed to her two children, Terry and Carol Curry Johnson, with the issue of a deceased child taking his or her share. Carol died in 2002, and her two children, Rachel Curry Leader and Adam Curry, succeeded to her interest in the Trust.
In November 2008 Rachel and Adam filed a petition in the probate court under section 17200, for an order compelling Terry to make a final distribution, and finding he committed breaches of trust. The petition also sought an order compelling Terry to personally reimburse Rachel and Adam $19,227.70 for attorney fees and costs, and precluding Terry from paying his fees and costs from the Trust.
The petition alleged that after Carol's death, Terry provided Rachel and Adam "with no information regarding the Trust and his administration of it." Rachel and Adam learned from Terry's accountant that the Trust was holding Bank of America stock, and in February 2006 they asked him to distribute their share of the stock to them. Terry made excuses for not complying, but he finally did so in April 2007. Rachel and Adam also learned from Terry's accountant that he was still holding cash in the Trust, and that he had not provided any accounting for his administration of the Trust since December 31, 2002.
The petition alleged that on January 12, 2007, Rachel and Adam demanded that Terry provide them with an accounting within 60 days, for the period January 1, 2003 to the present. At Terry's request they granted him an extension to April 30, 2007, and then another extension to May 15. On May 15, he produced an accounting through December 31, 2006, which showed there was $75,001.15 in cash in the Trust. The account did not list any trust debts.
Further, the petition alleged that on May 29, 2007, Rachel and Adams's attorney contacted Terry's attorney to ask about distribution of the remaining trust assets. "Terry's counsel explained that Terry was willing to make distribution of the cash only as part of a 'global settlement.' He said that Terry had a 'very reasonable proposal' that he wants to make that involved Alice's jewelry."
The petition alleged that Alice's jewelry (which included items she once owned and items Glen once owned) was not included in the Trust, and her will provided that Terry and Carol were to divide it. Shortly after Alice's death, Terry and Carol allegedly divided the jewelry in accordance with a letter they found in her home: Terry took the jewelry Glen had owned and Carol took the jewelry Alice had owned. Carol took her share to Alabama, where she lived, and had it appraised. After Carol's death in 2002, Terry met with Rachel in Alabama and "insisted that she give him all of the appraisals of the jewelry in her possession." Rachel heard nothing more about the jewelry until 2006, when she and Adam asked Terry to distribute their share of the Bank of America stock. Terry then asserted an interest in the jewelry.
The petition also alleged that in a July 17, 2007 letter, Terry proposed the following settlement: Rachel and Adam were to deliver to him "several items of Alice's jewelry"; they were to buy a diamond ring for his daughter for $22,500 from their share of the remaining cash in the Trust; he was to receive approximately $25,000 of the remaining cash, and they were to receive approximately $11,000 of the cash. Terry's claim to any of the jewelry was not a trust matter, however, and he had not made a timely claim against Carol's estate.
In his objection to the petition, Terry conceded that Alice's jewelry was not an asset of the Trust, and was to be distributed under the terms of her will. The objection states Terry and Carol disagreed on how to divide the jewelry, she took it without his consent, and Rachel and Adam rejected his demands for a division of the jewelry. Further, as the executor of Alice's will, Terry "has attempted... to distribute the assets subject to the will and the [T]rust according to the terms of the integrated estate plan as his mother directed and all proposals made were an attempt to achieve distribution as close as is possible."
At a January 7, 2009 hearing, Rachel and Adam's attorney, Martin Steinley, advised the court: "... Mr. Galvin [Terry's attorney] and I spoke outside, and we think that the matter would most efficiently be resolved if we bifurcated the issues. The threshold or central issue is whether [Terry], the trustee, can withhold distribution of the remaining trust assets based upon a claim he believes that he has [a right] to jewelry that passed under [Alice's] will. [¶] He's withholding distribution of the trust assets on the basis that he should be entitled to more of the trust assets because he believes he did not receive his fair share of the jewelry that ...