In Chatard v. Oveross (2009) 179 Cal.App.4th 1098, the California Second District Court of Appeal held that a beneficiary who breached some of her fiduciary duties as successor trustee and was surcharged as a result, could be disgorged of a portion of her beneficial interest in the same trust even though the trust included a spendthrift clause.
The trust dispute ripened after the death of a surviving spouse wherein one adult child became the successor trustee. The trust assets were required to be disbursed in part to three adult children and retained in part for four grandchildren from a pre-deceased son until such time as all of the grandchildren were over thirty years old.
Disputes arose over whether or not real property should be sold. The trial court determined that the sibling successor trustee failed to make trust property productive, awarded herself excessive compensation, used trust assets to pay personal expenses, and failed to distribute trust assets within a reasonable time.
The trial court determined that the successor trustee opposed her sibling beneficiaries’ court petitions without reasonable cause and in bad faith and awarded the sibling beneficiaries’ attorney fees against the successor trustee sibling. Personal expenses can include attorney fees which are deemed to be of a personal nature rather than incurred to aid in the administration of a trust.
The trial court held, and the court of appeal agreed, that the spendthrift clause within the trust did not insulate a beneficiary from a surcharge claim or protect that beneficiary’s interest from securing the sibling beneficiaries’ claims.