California Court of Appeals, Second District, Sixth Division
modified Feb. 28, 2017.
Superior Court of Santa Barbara County, No. 1457582, Thomas
Pearce Anderle, Judge.
[Copyrighted Material Omitted]
Law, Barry Clifford Snyder and Joseph R. Billings for
Plaintiff and Appellant.
Mackall, Peter A. Umoff and Alan D. Condren for Defendants
and Respondents Barton E. Clemens, Jr., William Morgan and
& Henzell and Jana S. Johnston for Defendant and Respondent
J., with Gilbert, P. J., and Yegan, J., concurring.
Cal.Rptr.3d 389] PERREN, J.
beneficiary of a trust asserts the trustees neglected to
distribute trust assets to her. She claims as damages her
inability to use those assets to prevent the loss of her
home. We conclude the beneficiary suffered no compensable
loss as a result of the trustees' alleged neglect.
Morgan (William) created an irrevocable subtrust for the
benefit of his [213 Cal.Rptr.3d 390] daughter, Beverly Morgan
(Beverly). At its creation, the subtrust had an
equity value of $67,500. Over the next four years, the
cotrustees, Barton E. Clemens, Jr., and Thomas Brooks,
increased the subtrust's equity value to over $725,000.
Claiming that she did not receive timely notice of the
subtrust, Beverly caused the successor trustee, Joanne
Williamson, to sue Clemens, Brooks, Connie Morgan (Connie)
and William (collectively respondents) for damages.
Williamson alleges that if Beverly had been made aware of the
subtrust, she would have used its assets to prevent the loss
of her home.
a four-day trial, the trial court entered judgment in favor
of respondents. It found that Clemens and Brooks did not
breach their fiduciary duties and that neither the subtrust
nor Beverly suffered any harm as a result of respondents'
actions. We affirm.
AND PROCEDURAL BACKGROUND
founded Kirby Morgan Dive Systems, Inc. (KMDSI), a successful
business which designs and manufactures commercial-grade
KMDSI is a closely held company with 200 shares of stock.
Before creating his estate plan, William owned 155 shares.
His daughter Connie owned the remaining 45 shares.
December 2008, William established the Morgan 2008
Irrevocable Trust (Trust), which contains five separate
subtrusts benefiting five of his adult children, including
Beverly. William selected Brooks, his accountant, and
Clemens, his attorney, to serve as cotrustees. The purpose of
Beverly's subtrust was to allow William to transfer 18
shares of KMDSI stock to Beverly in a tax-advantaged manner.
William accomplished this by funding her subtrust with a gift
of $67,500. The cotrustees then purchased the 18 shares of
KMDSI stock for $675,000 by using the $67,500 cash as a
downpayment and issuing a promissory note to William for the
remaining $607,500 of the purchase price. The cotrustees
secured their obligations under the note by pledging the 18
shares of stock. Monetary distributions authorized by
KMDSI's board were used to pay the income taxes due on
the stock and also to pay down the promissory note, thereby
increasing the equity value of the subtrust. The subtrust
allowed Beverly to withdraw certain portions of the principal
at 40, 50 and 60 years of age.
the Trust was created, William, Brooks and Clemens discussed
the need to inform William's children about the Trust.
William said he wanted to tell them himself and it was agreed
he would do so. William wished " to caution [the
children] that it was not for purchases [for which] it
wasn't intended." William informed Beverly about her
subtrust on at least two occasions. The first was in an
e-mail dated March 22, 2009, in which William responded to an
inquiry from Beverly regarding whether Brooks should file her
2008 taxes. William advised: " Tom Brooks and Bart
Clemens set up Trusts that do not require you to change any
of your tax stuff. File with anyone you like and the Trust
Income has no effect on your taxes since each Trust is a
separate entity and is taxed on its own. I pay the tax on the
Trust. I need to sit with you sometime this year to explain
it all." The second occasion ...