## Facts

- A family trust enterprise was formed in 1965 to liquidate pooled assets from multiple trusts and distribute proceeds to beneficiaries; asset dispositions negotiated by the trustee required approval by a majority of beneficial shares.
- A prior ruling allowed the trust to continue beyond its stated termination date until liquidation was completed or a majority of beneficiaries elected to terminate.
- By the mid-2000s, the trust’s principal remaining asset was a large ranch.
- In 2007, the trustee initiated a sale process for the ranch, obtained offers, and presented a proposed transaction to beneficiaries.
- The proposed sale was approved by a majority of the beneficial interests, consistent with the trust instrument.
- Three minority beneficiaries opposed the transaction and sought to block or delay the sale, disputing the deal’s adequacy and structure.
- The trustee petitioned the probate court for instructions to approve the sale and the planned distribution of proceeds.
- The probate court approved the sale and distribution and later found the minority beneficiaries’ opposition was primarily intended to cause unnecessary delay and was in bad faith.
- The probate court awarded roughly $226,000 in attorney’s fees and costs incurred by the trustee and ordered the amount charged against the opposing beneficiaries’ future trust distributions rather than against the trust generally.
- The minority beneficiaries appealed only the fee order and its allocation to their interests.

## Issues

1. Whether a probate court, sitting in equity, has authority to award the trustee attorney’s fees and charge them against specific beneficiaries’ trust interests based on bad-faith, delay-driven litigation conduct.
2. Whether California’s Probate Code authorizes, limits, or precludes allocating such fees to particular beneficiaries rather than to the trust as a whole.
3. Whether the probate court abused its discretion in making the fee award and imposing it as a surcharge against the beneficiaries’ interests.

## Decision

- The Court of Appeal affirmed the probate court’s order.
- The court held the probate court had equitable authority to charge the trustee’s attorney’s fees and costs against the specific beneficiaries’ trust interests where their opposition was found to be in bad faith and primarily for delay.
- The court concluded the statutory scheme governing trust administration did not eliminate traditional equitable remedies and was consistent with the remedy imposed.
- Applying abuse-of-discretion review, the court found substantial evidence supported the probate court’s bad-faith and delay findings and no abuse occurred in allocating fees to the offending beneficiaries’ shares.

## Legal Principles

- Probate courts supervising trusts may apply equitable principles and craft remedies to protect the trust and beneficiaries from litigation conduct that unjustifiably increases administrative expense.
- A court may equitably surcharge a beneficiary’s interest for costs and attorney’s fees caused by that beneficiary’s bad-faith actions, instead of reducing distributions to innocent beneficiaries by charging the trust generally.
- The absence of an express statutory provision for a specific fee-allocation remedy does not, by itself, bar a probate court from employing traditional equitable powers in trust administration.
- Attorney’s fee awards and their allocation in trust proceedings are reviewed for abuse of discretion; factual findings supporting bad faith and improper purpose are upheld if supported by substantial evidence.

## Conclusion

The Court of Appeal upheld a probate court’s equitable power to award the trustee litigation fees and to surcharge those fees against the particular beneficiaries’ trust interests when their bad-faith, delay-motivated opposition caused unnecessary expense, thereby preventing dilution of other beneficiaries’ distributions.


Rudnick v. Rudnick, 179 Cal. App. 4th 1328, 102 Cal. Rptr. 3d 493 (Ct. App. 2009)