(Super. Ct. No. A240697) Appeal from orders of the Superior Court of Orange County, David R. Chaffee, Judge.
The opinion of the court was delivered by: Bedsworth, Acting P. J.
CERTIFIED FOR PUBLICATION
This appeal involves a family. While it might not rise to the level of King Lear, it's about as tragic as families can get when all they are fighting about is money. We address two consolidated disputes. Appellant Timothy Giraldin (Tim),*fn1 challenges two orders entered against him in his capacity as trustee of a family trust established by his father, for breaches of his fiduciary duties occurring largely, if not exclusively, during the period when the trust remained revocable. Tim's mother, Mary Giraldin (Mary), challenges an order refusing to confirm her community property share of the property found to be held in the trust. All of the orders were entered in favor of a group comprised of some of Tim's siblings and Mary's children, acting in their capacities as beneficiaries of the family trust. We reverse all the orders.
From the time Tim was appointed trustee in February of 2002, until the death of his father, trust settlor William Giraldin (Bill) in May of 2005, Bill retained the right to revoke the trust. As a result, Tim's duties as trustee were owed solely to Bill during that period, and not to the trust beneficiaries. Thus respondents, as beneficiaries, lack standing to complain of any alleged breaches of those duties occurring prior to Bill's death. Moreover, the beneficiaries have no right to compel an accounting of the trustee's actions for the period in which the trust remained revocable (Prob. Code, § 16069, subd. (a); formerly Prob. Code, § 16064, subd. (b)), and thus also lack standing to seek such relief for the period prior to Bill's death. Because the judgment entered in favor of respondents in this case stemmed primarily (if not exclusively) from events occurring before Bill's death, and from Tim's alleged breach of duties owed to them as trust beneficiaries, it must be reversed. On remand, respondents can seek a new accounting against Tim if they choose, and can pursue whatever claims for breach of fiduciary duty they might have, but confined solely to the period in which the trust had become irrevocable in the wake of Bill's death.
Mary, Bill's widow, filed a spousal property petition challenging the inclusion of her share of community property in the family trust, which she contended had been prepared by Bill without her knowledge or consent. The trial court found that although all of the property in the trust was community property, Mary had waived her right to challenge the inclusion of her share by "elect[ing] to accept [trust] benefits." On appeal, Mary challenges the order only to the extent it determines she waived her interests in the residence she and Bill occupied at the time of his death - commonly referred to as "the Lakeshore property" - and in a vacation property referred to as the "Lake Hume Cabin." Mary contends, correctly, that there is insufficient evidence to establish Bill actually conveyed either property into the trust prior to his death, and thus no basis to conclude her community interest in the two properties was ever made subject to the trust provisions. And because Mary's shares of these two properties was never made subject to the trust, the court erred in concluding Mary had waived her ownership of those shares simply by accepting benefits from the trust. On remand, the probate court is directed to enter a new order, confirming that Mary retains her community share of both the Lakeshore property and the Lake Hume cabin.
Bill and Mary were married in 1959. When they married, Bill had four children and Mary had three. Bill adopted Mary's three children. Together, Bill and Mary had twin sons, Patrick and Tim, born in 1964. Bill started a savings and loan, Mission Savings, in the 1950's, which was apparently a very lucrative move. Mission Savings was acquired by another institution, which was, in turn, acquired by Washington Mutual (WaMu.) Bill was also, by all accounts, a savvy investor during his life.
However, in late 2001, Bill contemplated making a substantial, and perhaps less savvy, investment. In August or September of that year, he began expressing an interest in investing $4 million, which was roughly two-thirds of his fortune, in a company called SafeTzone Technologies Corporation (SafeTzone), which had been started some years earlier by his son, Patrick, Tim's twin brother.*fn2 At the time of Bill's contemplated investment, Tim had also become a part owner of the company, which employed both Tim and Patrick.
However, Tim did not negotiate the contemplated investment with Bill. Instead, Tim set up a lunch meeting to allow Bill to discuss the matter with Regan Kelly, SafeTzone's general counsel. Kelly testified that his primary goal at the lunch meeting was to make sure Bill "understands this is an early stage company" and "to be sure that he understood the nature of what he was thinking about in terms of getting into a company like SafeTzone."*fn3 Although Tim was also at the lunch (along with Mary, Patrick and another SafeTzone executive), he did not participate in the discussion about Bill's contemplated investment.
Also in late 2001, Bill decided to revoke his estate plan (established in 1997) and create a new one. Rather than employ the same attorney who had drafted his earlier trust, Bill decided to find a new attorney to draft the new one. In October of 2001, Tim referred Bill to an attorney with whom Tim's wife had been previously employed.*fn4
With the assistance of that new attorney, Bill revoked his 1997 trust and established a new revocable family trust, The William A. Giraldin Trust, dated February 11, 2002 (the family trust.) The attorney testified Bill had expressed a clear intention to "essentially gut" the 1997 trust, and "set up a new estate plan." The attorney worked with Bill directly in drafting the trust, and went so far as to ask Tim to leave an early meeting, so he and Bill could continue to discuss the trust details alone.
Although Bill himself had acted as trustee of the 1997 trust, he designated Tim to act as the initial trustee of the new family trust. The terms of the family trust specify that Bill was to be its sole beneficiary during his lifetime, and that he retained certain "reserved" rights, including the rights to amend or revoke the trust, to add or remove property from the Trust; to remove the trustee, and to direct and approve the trustee's actions, including any investment decisions. The trust document provided that Bill could exercise those "reserved rights" only in writing.
However, the trust document also states, in a separate provision, that "During [Bill's] lifetime, the Trustee shall distribute to [Bill] that amount of net income and principal as [Bill] direct[s]" and that provision does not specify that such directions must be in writing. Moreover, In the event Bill was declared to be incapacitated, the trustee was instructed to distribute the amount of net income and principal deemed by the trustee to be appropriate to support Bill's "accustomed manner of living," and to be liberal in making that determination with the understanding that "the rights of remainder beneficiaries shall be of no importance."*fn5 (Italics added.)
In a section of the trust entitled "The Protection Provided the Trustees," the trust document also specifies that "[d]uring [Bill's] lifetime, the trustee shall have no duty to provide any information regarding the trust to anyone other than [Bill.]" And after Bill's death, if Mary survived him, the trustee "shall have no duty to disclose to any beneficiary other than [Mary] the existence of this trust or any information about its terms or administration, except as required by law." The document also specified Bill specifically "waive[d] all statutory requirements . . . that the Trustee . . . render a report or account to the beneficiaries of the trust."
The trust instrument also specifies that Bill "[did] not want the Trustee to be personally liable for his or her good faith efforts in administering the trust estate," and provides that "[t]he discretionary powers granted to the Trustee under this Trust Agreement shall be absolute. This means that the Trustee can act arbitrarily, so long as he or she does not act in bad faith, and that no requirement of reasonableness shall apply to the exercise of his or her absolute discretion." Bill expressly "waive[d] the requirement that the Trustee's conduct at all times must satisfy the standard of judgment and care exercised by a reasonable, prudent person. In particular, the decision of the Trustee as to the distributions to be made to beneficiaries under the distribution standards provided in this Trust Agreement shall be conclusive on all persons."*fn6
When the family trust was first established in February of 2002, it contained no assets. Instead, the trust instrument signed by Bill simply reflected that he "had transferred and delivered to the Trustee the property described in Schedule 1, attached." The version of Schedule 1 attached to the signed trust instrument was, in turn, blank. According to the attorney who drafted the family trust, no version of Schedule 1 was ever completed, approved by Bill, or added to the trust by amendment.
Bill also executed a new will at the same time he established the family trust. That will provides, in pertinent part, that Bill intends thereby "to provide for the disposition of all the property, wherever located, I own at my death, including my separate property and my share of all community property, if any, held with my wife." (Italics added.) The will names Tim as executor of Bill's estate, and provides that the entire residue of Bill's estate, including "my interest in my residences," is given to the trustee of the family trust.*fn7
Meanwhile, in January of 2002, just prior to the establishment of the new family trust, Bill actually signed the initial two-page term sheet detailing his planned $4 million investment in SafeTzone. That document was prepared by SafeTzone's outside counsel, and was signed by Bill in a meeting with Kelly, SafeTzone's general counsel.
On February 11, 2002, the day he executed the family trust document, Bill also signed a written "Gift Acknowledgement Form," which confirmed the terms of a $150,000 gift to Bill's son, Thomas Giraldin, including the fact that Tim Giraldin had funded part of the initial $100,000 payment of the gift with his own funds, and was entitled to be reimbursed by Bill for that portion. The document went on to reference Bill's commitment to the SafeTzone investment, stating that "after the trust has been set up William A. Giraldin and Timothy W. Giraldin will begin the process of selling stock and converting assets to fulfill the investment into SafeTzone Technologies corporation of $4 million dollars [sic]."
Bill then executed a revised term sheet for the SafeTzone investment on February 15, 2002, just a few days after he executed the family trust. And on February 22, 2002, Bill signed a "call for investment" document prepared by SafeTzone's counsel, authorizing the withdrawal of funds from accounts held "in my name or in the name of my trust" in the amount of $1.6 million, in "furtherance of my agreement to invest in SafeTzone . . . ." In that same document, Bill expressly authorized "the execution of the reasonable transactions necessary to effect [his] desire to invest this amount."
Finally, in April of 2002, Bill signed a formal, and rather lengthy, subscription agreement documenting the details of his investment in SafeTzone.
Bill funded his SafeTzone investment with six payments, of various amounts, beginning on February 28, 2002, and ending in May of 2003. According to Tim's uncontradicted testimony, Bill personally obtained cashier's checks for each of the payments to SafeTzone, drawn on his personal account, after personally deciding what assets should be liquidated and which should be borrowed against, to obtain the investment funds. Although the assets relied upon include those held in a WM Financial Services account which was ultimately placed in the name of the family trust (it's not clear exactly when that occurred), Tim stated that it was Bill, and not he, who personally instructed WM Financial with respect to those assets.
The documents in our record also support Tim's contention, at least as to the first three payments to SafeTzone, dated February 28, March 4, and May 28, 2002, and totaling $1,650,000. Each of those payments was made from a "market rate" account held jointly in the names of Bill and Tim, and not paid from any accounts held in the name of the family trust.
As the investment was funded, SafeTzone issued stock directly to Bill, in proportion to the amount of the funds paid. It was only after the investment was fully funded that the SafeTzone stock was transferred into the name of the family trust.
Unfortunately, the SafeTzone investment went badly, and by the time Bill died in May of 2005, the family trust's stake in the company was worth relatively little. In the wake of that loss, four of Bill's and Mary's seven older children, Patricia Gray, Christine Giraldin, Mike Giraldin and Philip Giraldin (respondents), chose to sue Tim in his capacity as trustee of the family trust, alleging he violated certain fiduciary duties "owed to Trust beneficiaries." Respondents' stated purpose in doing so was to seek redress for Tim's acts which "effectively [took] his father's life savings for his and his twin brother's benefits and deprived his father's other seven children of benefit from the Trust."
Thus, in December of 2006, respondents filed their initial petition, which sought to remove Tim as trustee of the family trust, and to compel him to account for his actions during the period of his trusteeship. In their amended petition, filed in January of 2008, respondents also alleged Tim should be surcharged for violation of fiduciary duties including his duty to "diversify investments of trust," his duty to administer the trust "solely in the interest of the beneficiaries," his duty to "deal impartially with beneficiaries," his duty to "avoid conflict of interest," and his duty to "make trust property productive," by allowing the trust's funds to be used for the SafeTzone investment.
Respondents also alleged Tim violated his fiduciary duties when he made improper loans of trust funds to both himself and Patrick during Bill's lifetime, plus one additional loan of trust funds alleged to have been made to each himself and Patrick shortly after Bill's death. Respondents' amended petition sought not only an order removing Tim as trustee of the family trust, and an accounting of the period of his trusteeship, but also an order surcharging him for the losses suffered by the family trust as a result of his fiduciary breaches.
Respondents never claimed Bill did not intend to make the investment in SafeTzone. To the contrary, they essentially concede he did.*fn8 Instead, their goal was, in effect to undo the investment, on the ground that Tim - as trustee of Bill's revocable family trust - owed them a legal obligation to either dissuade Bill from making the unwise investment or preclude him from relying upon any assets held by the family trust as a means of funding it.
In January of 2007, the month after respondents filed their initial petition against Tim, Mary filed her own petition to confirm her community interest in (1) the Lakeshore property; (2) the Lake Hume cabin; and (3) all of the assets "placed in the William A Giraldin trust . . . ." In support of her petition, Mary declared that at the time of her marriage to Bill, he had a negative net worth, and he acquired all of his wealth during their marriage. She acknowledged he had received an inheritance of approximately $90,000 during the marriage, but claimed he did not maintain it separately. She stated that the Lake Hume cabin, acquired in 1971, was held in Bill's name alone, and that the Lakeshore property was held in the name of Bill's 1997 trust.
Respondents objected to Mary's petition, asserting that all of the property she sought to claim an interest in was held in the trust, and that Mary herself had acknowledged she "relies on the Trust as her only support." Respondents claimed Mary "has affirmed and acquiesced to the existence and terms of the Trust by accepting distributions from the Trust." They further asserted that "Mary cannot accept the full benefits from the Trust as she has been doing and, at the same time, disavow the Trust by claiming an interest in half of the Trust property."
The court held a trial in October and November of 2008. Tim's position was that he never wanted to be trustee of the family trust, but had been persuaded by Bill to accept the role because Bill believed Tim would do the best job of taking care of Mary when Bill died. Tim stated that although he signed the trust instrument, he never read it, a contention the court expressly found to be true.*fn9
Tim claimed that he had been told his duties as trustee would not "kick in' until Bill died, and until that time, Tim viewed his role as simply that of a son, doing the things his father asked him to do. The attorney who drafted the family trust acknowledged that he never went over the details of the trust with Tim, but did explain to Tim his duties generally and about being a trustee in general. He stated that Tim "clearly ...