Patton v. Sherwood
61 Cal. Rptr. 3d 289, 152 Cal. App. 4th 339, 2007 Cal. App. LEXIS 1011 (2007)
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Rule of Law:
A settlor of an irrevocable charitable remainder unitrust (CRUT) may, by reserving specific powers in the trust instrument, have standing to object to trustee accountings in probate court, as such a reservation includes them in the definition of a "beneficiary" for enforcement purposes under Probate Code section 24, subdivision (d).
Facts:
- In 2002, Lowell T. Patton and his wife, Mary Lou Patton, created three Charitable Remainder Unitrusts (CRUTs), naming their children as income beneficiaries and four charities as remainder beneficiaries.
- The Pattons funded the CRUTs with professional minor league baseball stock valued at $2.4 million.
- Attorney Matthew B. Mack was named administrative trustee and Mark C. Sherwood was named management trustee for the CRUTs.
- Each CRUT instrument explicitly provided that Lowell T. Patton, as trustor, reserved the right to change remainder beneficiaries, remove and replace trustees, and review, approve, or object to annual accountings within 90 days.
- The trust instruments further stipulated that if Lowell T. Patton objected in writing to an accounting, he would have one year to bring a claim for breach of trust or petition for a court-supervised accounting.
- Lowell T. Patton later filed a petition to remove Mack and Sherwood as trustees.
- Mack and Sherwood claimed they had already resigned as trustees of one CRUT and declined to step down from the other two until released from liability and awarded fees and expenses.
- Mack and Sherwood, in a separate action, requested that the trial court settle their accounting, pay their fees and costs, and discharge them of liability.
Procedural Posture:
- Lowell T. Patton filed a petition in the trial court (probate court) to remove Matthew B. Mack and Mark C. Sherwood as trustees.
- The trial court granted Lowell T. Patton's petition, removing Mack and Sherwood as trustees of the remaining CRUTs and appointing the Ventura County Public Guardian as successor trustee.
- In a separate petition, Mack and Sherwood requested that the trial court settle their accounting, pay their fees and costs, and discharge them of liability.
- Lowell T. Patton propounded discovery and objected to Mack and Sherwood's accounting, alleging excessive fees and breach of fiduciary duties.
- The trial court ruled that Lowell T. Patton lacked standing to object to the accounting, reasoning that only a trust beneficiary or trustee had standing under Probate Code section 17200, and that a trust instrument could not convey such standing if the legislature had not.
- Lowell T. Patton appealed the trial court's order overruling his objections to the trustee accountings to the California Court of Appeal.
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Issue:
Does a settlor of an irrevocable charitable remainder unitrust (CRUT) who has reserved the power to object to trustee accountings in the trust instrument have standing as a "beneficiary" under Probate Code section 17200 to object to a trustee's accounting?
Opinions:
Majority - Yegan, J.
Yes, a settlor of an irrevocable charitable remainder unitrust who has reserved specific powers in the trust instrument, such as the right to object to trustee accountings, does have standing as a "beneficiary" under Probate Code section 17200 to enforce those terms. The court determined that the trial court erroneously construed Probate Code section 24, subdivision (d), which defines a "beneficiary" as it relates to a charitable trust to include "any person entitled to enforce the trust." The court emphasized that the word "includes" is a word of enlargement, not limitation. By explicitly reserving powers within the trust instrument—such as the right to object to accountings, petition for court-supervised accountings, and bring breach of trust claims—Lowell T. Patton established a sufficient "special and definite interest" in the trust's enforcement. This interest qualifies him as a "person entitled to enforce the trust" and thus a "beneficiary" for standing purposes under the statute. The court cited L.B. Research & Education Foundation v. UCLA Foundation and Holt v. College of Osteopathic Physicians & Surgeons to support the principle that supplementing the Attorney General's enforcement power with other responsible individuals benefits charitable trust administration. This interpretation is consistent with legislative intent behind section 24's enactment and subsequent amendments, which expanded the definition of 'beneficiary.' The court concluded that allowing settlors to reserve and exercise such enforcement powers encourages charitable donations by providing donors with peace of mind that their gifts will be used for intended purposes.
Analysis:
This case significantly clarifies and expands the standing of settlors in California charitable trusts, particularly CRUTs. It establishes that a settlor can, through careful drafting of the trust instrument, retain the power to oversee and enforce the trust's administration, including objecting to accountings. This ruling mitigates the traditional common law limitation on settlor standing in charitable trusts, promoting donor confidence and ensuring that charitable contributions are used for their intended purposes. It encourages settlors to explicitly reserve enforcement powers, providing an additional layer of oversight beyond the Attorney General, thereby enhancing accountability in charitable trust management.
