Trust beneficiaries who act in bad faith to delay the legitimate administration of the trust may find themselves funding the trust’s attorney’s fees and court costs. In Rudnick v. Rudnick, the California Court of Appeal held that the probate court has the equitable power to require trust beneficiaries who use the courts to delay administration of the trust or to derail trustee’s decisions to reimburse the trust for resulting legal expenses.
The Rudnick case arose from a trust with numerousbeneficiaries. Under the terms of the trust, the sale of trust property was subject to a majority vote of the beneficiaries. In this case, the trust proposed to sell real estate owned by the trust. The sale was approved by a majority of the beneficiaries. Nonetheless, several beneficiaries who disagreed with the proposed sale maintained a lawsuit to either stop the sale outright or delay matters so that the sale would fall through. The trial court ruled against the complaining beneficiaries and also ordered them to reimburse the trust for the legal expenses incurred in fighting the beneficiaries’ lawsuit. The mechanism for reimbursement was an offset against future payments that would be made by the trust to the beneficiaries. The beneficiaries appealed, arguing that the court was not authorized to require them to pay the trust’s legal fees.
The Court of Appeal affirmed the trial court’s ruling. The Rudnick court noted that the trust’s attorney’s fees would be paid from the assets of the trust in any event and, therefore, the complaining beneficiaries would at least indirectly share the trust’s litigation expenses. The issue, then, was whether it was fair to make those beneficiaries who did nothing wrong also share those expenses, or to require that the beneficiaries who acted in bad faith bear all
of the expenses. The Rudnick court reviewed California case law and concluded that “when a trust beneficiary instigates an unfounded proceeding against the trust in bad faith, a probate court has the equitable power to charge the reasonable and necessary fees incurred by the trustee in opposing the proceeding against that beneficiary’s share of the trust estate.”