A Trustee’s Responsibilities Administering a California Living Trust

Our estate planning clients often have a lot of questions about their obligations as a trustee of their living trust. Where the acting trustee is also the creator or “grantor”[1] of the trust, the trustee typically has plenary power to act on behalf of the trust and may amend or even revoke the trust in its entirety. However, when a grantor passes away or becomes unable to administer their trust, a successor trustee typically takes over these obligations. It is after this point, when a successor trustee begins to administer the living trust, that questions often arise with regard to the trustee’s responsibilities.

For the most part, a trustee administers a living trust by its written terms, which express the grantor’s intent. See Cal. Probate Code §§16000, 21101 and 21102. However, this can be much more complicated than it sounds. California courts are more readily permitting parties to present outside evidence of a grantor’s intentions, even where the language used in the trust is clear and unambiguous. The effect of this trend is that grantors must be even more careful to consider whether their living trust describes their intentions precisely, and then take the additional step of considering whether there is sufficient other evidence to prove what their intentions are with regard to the administration of their trust assets.

Trustee’s Standard of Care

A trustee’s legal standard of care is an evolving area of law. Overall, California courts interpret a trustee’s standard to be very high. However, a grantor may restrict or expand a trustee’s obligations through the language contained in the trust instrument itself. Section 16040 of the California Probate Code sets out the general standard of trustee care:

(a) The trustee shall administer the trust with reasonable

care, skill, and caution under the circumstances then prevailing that

a prudent person acting in a like capacity would use in the conduct

of an enterprise of like character and with like aims to accomplish

the purposes of the trust as determined from the trust instrument.

 

(b) The settlor may expand or restrict the standard provided in

subdivision (a) by express provisions in the trust instrument. A

trustee is not liable to a beneficiary for the trustee’s good faith

reliance on these express provisions.

 

(c) This section does not apply to investment and management

functions governed by the Uniform Prudent Investor Act, Article 2.5

(commencing with Section 16045).

 

Where a trustee has special skills, he/she is required to use those skills with respect to administering a trust. Cal. Probate Code §16014. In addition, a trustee may not delegate responsibilities that the trustee can reasonably be expected to perform. In practice, it is not uncommon for trustees to delegate some responsibilities. See Cal. Probate Code §§16001(a), 16012, 16052, and 16247. Some of the obligations that a trustee might delegate are investment, tax, legal and accounting services, which are types of services most trustees would not be expected to perform. However, a trustee must still act prudently in selecting which agents to use, and must continue to oversee those agents. They may not simply delegate tasks to others and forget about it.

Other Trustee Duties

In many situations, a trustee will have an obligation to provide an accounting and other information to the named beneficiaries of a living trust. See Cal. Probate Code §§16060-61.5, §16061.7, §16062, and §16064. As one may expect, a trustee also has a duty of confidentiality. However, a trustee might need to disclose some information in order to administer the living trust. Perhaps most importantly, a trustee must not put his or her interests above those of the trust or the beneficiaries, and should avoid conflicts of interest with the trust and the beneficiaries. This can be an especially complicated obligation to fulfill for many trustees since they are often not only a trustee, but also one of several beneficiaries named in the living trust. Unless the trust indicates otherwise, such a trustee should not favor a particular beneficiary or class of beneficiaries and avoid even the appearance of a conflict of interest.

A living trust will usually contain some language which gives the trustee discretionary powers–the power to use his or her own best judgment in certain situations. Be careful here. Even if a trust provides a trustee with sole, absolute or uncontrolled discretion, California courts typically still require trustees to act within the established standards of care and not in bad faith or with disregard to the express purposes of the living trust. See Cal. Probate Code §§16080-81.

With regard to investing trust assets, a trustee must make decisions which are in the best interest of the beneficiaries, subject to any limitations provided for in the trust. A trustee’s authority to manage investments should be set out in the trust instrument itself. Where the declaration of trust is silent or ambiguous, investment authority is also derived by statute, case law and the circumstances of each situation. See Cal. Probate Code §16200(a) and (b) and §16047. Generally, a trustee has the obligation to invest trust assets as a “prudent investor”, which is set out in the California Uniform Prudent Investor Act (the “Act”), unless the trust provides for a greater or lesser standard of care:

16046. (a) Except as provided in subdivision (b), a trustee who

invests and manages trust assets owes a duty to the beneficiaries of

the trust to comply with the prudent investor rule.

 

(b) The settlor may expand or restrict the prudent investor rule

by express provisions in the trust instrument. A trustee is not

liable to a beneficiary for the trustee’s good faith reliance on

these express provisions.

 

 

Cal. Probate Code §§16045 through 16054.

For trustees who are handling investment assets, it is critical to carefully review the language of the Act for guidance and seek advice from an experienced estate planning lawyer if they do not fully understand their obligations.

Please remember that the law changes regularly. Do not rely on the information in this article for your particular situation. You should consult with an appropriate professional if you have questions about a specific situation. We hope this article has been instructive in describing some of the common responsibilities of trustees administering a living trust. For more information, please feel free to browse our website or contact us for a free evaluation with our knowledgeable estate planning attorney to discuss your particular needs.

[1] The terms “settlor” or “grantor” or “trustor” are used interchangeably to refer to the individual who created the trust.

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LETTER OF INTENT: IS IT ENFORCEABLE?

We previously discussed here why businesses and individuals might wish to have an attorney draft a Letter of Intent. This article focuses on the question of whether and when a Letter of Intent ^[1] is an enforceable contract.

It often happens, when negotiating business deals, that one or both of the parties wants some assurance that their negotiations are serious and will ultimately result in a binding contract rather than a waste of valuable time.  This is especially so when the parties reach the point where they have agreement on the principal elements of an agreement, such as price, for example, when negotiating a real estate sale, but need to finalize various details. In such circumstances, parties may wish to document the seriousness of their negotiations, and the integrity of their intent to proceed with the deal, barring unforeseen obstacles, by memorializing their intentions in a “Letter of Intent”. Usually, a Letter of Intent specifically states that it is not intended to serve as a binding, final contract, but rather as a non-binding expression of intent to contract in the future, and to cooperate while negotiations continue.

But what happens when, after signing such a document, one of the parties backs out of the deal?  Is the Letter of Intent enforceable?   It depends: Sometimes “Yes”, and sometimes “No”.  As usual, the “devil is in the details”, and an understanding of the applicable legal principles is critical in protecting your interests.  The smart business person will seek the representation of an experienced business lawyer when negotiating important contracts and using Letters of Intent.

California Contract Law

1. Essential Elements of Contract

Whether or not a signed Letter of Intent is a binding contract depends on whether it includes the “essential elements” of a contract, as set forth in California Civil Code §1550, which provides:

• 1550. Essential elements

It is essential to the existence of a contract that there should be:

1. Parties capable of contracting;
2. Their consent;
3. A lawful object; and,
4. A sufficient cause or consideration.

There is abundant California case law interpreting this provision, and the law of contracts generally, and the term “consent” means not only that the material terms of the contract are sufficiently specified and agreed, but also that the parties intend, by signing the agreement, that they are or will be bound to perform. Usually, however, Letters of Intent state that they are not intended to bea “final, binding agreement”, but rather a statement of their intent to enter such an agreement in the future. This, of course, can make it difficult to enforce a Letter of Intent.

But the title of the document, whether it is “Letter of Intent”, or “Memorandum of Understanding”, is not alone controlling. Rather, it is whether the “essential elements” of a contract are included in the document. The following statement by a California Court of Appeals makes this point clearly:

A letter of intent can constitute a binding contract, depending on the expectations of the parties. (Mann v. Mueller [1956] 140 Cal.App.2d 481, 487, 295 P.2d 421; see also Gavina v. Smith [1944] 25 Cal.2d 501, 504, 154 P.2d 681.) These expectations may be inferred from the conduct of the parties and surrounding circumstances. (See City of Santa Cruz v. MacGregor [1960] 178 Cal.App.2d 45, 53–54, 2 Cal.Rptr. 727.)

California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal.App.3d 892, 897 [182 Cal.Rptr. 67, 70].

2. The Element of “Consideration”; Bilateral vs. Unilateral Contracts

The essential element of “consideration” is critical to understanding contract law.  In simplest terms, “consideration” means “something of value”.  There can be no contract until and unless both parties give “consideration”, i.e. “something of value”.

Usually, this “consideration” is a legally binding promise to perform, as such performance is described in the written contract, or otherwise understood between the parties.  Where each party gives a promise as its consideration, such contracts are said to be “bilateral”, i.e. supported by mutual promises of future performance.

However, “consideration” can also consist of performance by one of the parties.  Where one party offers an agreement, and the other party accepts, and signals its consent by rendering the requested performance, a binding contract is formed by that performance. This is known as a “unilateral” contract. The distinction between unilateral and bilateral contracts is well settled in the law. Section 12 of the American Institute’s Restatement of the Law of Contracts states as follows:

A unilateral contract is one in which no promisor receives a promise as consideration for his promise. A bilateral contract is one in which there are mutual promises between two parties to the contract; each party being both a promisor and a promisee. This definition is in accord with the law of California. Chrisman v. So. Cal. Edison Co., 83 Cal. App. 249, 256 P. 618…In the case of unilateral contracts no notice of acceptance by performance is required. Section 1584 of the Civil Code provides: ‘Performance of the conditions of a proposal * * * is an acceptance of the proposal.’ See Cuthill v. Peabody, 19 Cal. App. 304, 125 P. 926; Los Angeles Traction Co. v. Wilshire, 135 Cal. 654, 67 P. 1086.

Davis v. Jacoby (1934) 1 Cal.2d 370, 378-79 [34 P.2d 1026, 1029-30].

Where parties involved in negotiations have signed a Letter of Intent, it frequently happens that, before a “final agreement” is signed, one or both parties takes actions which might reasonably be construed as “performance”. In that instance, if the other party ultimately backs out of the deal, and refuses to enter a final contact as was contemplated in the Letter of Intent, the performing party might be able to successfully argue that the Letter of Intent, along with other circumstances including its performance, is evidence of a binding unilateral contract.Indeed, when entering a Letter of Intent, both parties should understand that, if they act unfairly and violate the spirit of the agreement, the other side may in fact be able to use the Letter of Intent to support a viable contract claim.

3. The Doctrine of Promissory Estoppel

Even where a party cannot prevail in proving that a Letter of Intent forms the basis of an enforceable contract, unilateral or bilateral, it may provide grounds for seeking to enforce “performance” under the equitable theory of “promissory estoppel”.

The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3)[the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” ’ ” (Jones v. Wachovia Bank (2014) 230 Cal.App.4th 935, 945, 179 Cal.Rptr.3d 21.)53 *1179

Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1178-79 [201 Cal.Rptr.3d 390, 416-17]

If a party to a Letter of Intent reasonably relies on that letter, and promises included in it, or in other statements made by the other party in the course of the negotiations, the injured party may have a good claim for promissory estoppel to enforce the Letter of Intent.

CONCLUSIONS

Letters of Intent, while typically not intended to be final, binding contracts, can help protect parties from frivolous, time wasting negotiations.  Depending on how they are written, and the specific provisions they contain, their interpretation may be aided by reference to contemporaneous dealings and communications between the parties. A party which refuses to proceed in good faith as contemplated in the Letter of Intent may be vulnerable to legal claims for breach of contract, promissory estoppel, breach of the implied duty of good faith and fair dealing, or even fraud.

About Gehres Law Group, P.C.: The dynamic team of AV-rated and award-winning California business lawyers and business litigation lawyers at Gehres Law Group, P.C. has the knowledge and experience to provide comprehensive legal representation to small and medium-sized businesses in a number of business-related practice areas, including commercial and corporate laws, business formation, business litigation, employment law, trademark and copyright law, contract law, estate planning, and other areas of law affecting your business. We have the expertise to help businesses thrive, with over eight decades of combined experience. From routine corporate work to multi-million dollar litigation claims, we have done it all with integrity and transparency—putting our clients’ interests above all else. Please feel free to browse our website or contact us for a free evaluation.

^[1] “Memorandum of Understanding” or “MOU” are other terms used interchangeably for “Letter of Intent.”

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COPYRIGHT REGISTRATION – A PREREQUISITE FOR INFRINGMENT LITIGATION

This article discusses the importance of registering copyrights in order to provide business owners and authors significant benefits, including statutory damages and reimbursement for attorneys’ fees, in the event someone infringes on their copyrights.

A vital asset of many businesses consists of copyrights. Title 17 of the United States Code, commonly known as the federal Copyright Act, governs most copyright law issues. Section 102 of the Act provides that a copyright exists in original works of authorship fixed in any tangible medium of expression. The Copyright Act further states that works of authorship include the following categories:

(1) literary works;

(2) musical works, including any accompanying words;

(3) dramatic works, including any accompanying music;

(4) pantomimes and choreographic works;

(5) pictorial, graphic, and sculptural works;

(6) motion pictures and other audiovisual works;

(7) sound recordings; and

(8) architectural works.

 

A copyright owner automatically obtains copyright protection under this set of laws when their work is authored and published. Copyright protection consists of a bundle of exclusive rights afforded to the owner of the copyright:

(1) to reproduce the work in copies;

(2) to prepare derivative works based upon the work;

(3) to distribute copies of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

(4) to perform the work publicly;

(5) to display the copyrighted work publicly; and

(6) in the case of sound recordings, to perform the work publicly by means of a digital audio transmission.

Id. at §106.

However, while federal registration of copyrights is not mandatory in order to obtain copyright protection, for works that originate in the United States and certain other works, a party must have registered the work before the party can commence an action for infringement. As indicated in §411 of the Act: “No action for infringement of the copyright in any United States work shall be instituted until registration of the copyright claim has been made in accordance with this title.”

In addition to being a prerequisite for filing suit for infringement, a federal copyright registration provides a copyright owner with significant exclusive benefits. First, a registration establishes a public record of a copyright claim.  Along with the appearance of a copyright notice (not required but generally recommended), registration can potentially defeat a claim by an infringer that the infringement was “innocent,” thereby increasing the damages an owner might obtain in an infringement case.  Id. at §401 (d).  Second, if the registration is made within five years from the date the work was published, the facts in the certificate are deemed “prima facie” evidence of those facts.  Id. at §410 (c).  Finally, if the registration is made within three months after first publication of the work or prior to an infringement of the work, statutory damages and attorneys’ fees are made available to the copyright owner in court actions. Id. at §412.

These benefits can be extremely important, in part, because statutory damages can range anywhere from $750.00 up to $150,000.00 per act of infringement. Id. at §504 (c). Without the statutory damages, a claimant must prove actual damages, which can be quite difficult in infringement cases, especially if the claimant cannot provide evidence of a record of previous earnings, along with the loss of such earnings, or some other admissible evidence of provable damages.  The ability to obtain statutory damages eliminates the need to prove actual damages altogether.  In addition to the ability to collect statutory damages against an infringer, a copyright owner who has registered their copyright as set out in the Act may collect their attorneys’ fees incurred in protecting their copyright against an infringer—another potentially significant economic consideration, as well as providing the owner with critical bargaining power to compel settlement of their claim and eliminate the need to go to trial.

Therefore, the cost of registering a copyright can far outweigh the benefits and rights conveyed to a copyright owner by registering their copyrights. To receive the greatest possible protection in a case of infringement, it is vital to initiate a federal registration of your copyright as soon as possible after your work is created. If you would like to register your copyright, or if you are involved in a copyright infringement matter, you should contact an experienced attorney to discuss these matters. The knowledgeable and trusted copyright and trademark attorneys at Gehres Law Group, P.C. are committed to assisting business owners and authors to protect their intellectual property rights. Contact us today for additional information or to schedule a complementary evaluation of your intellectual property law matter or browse our website for more information.

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Statute of Limitations in California: Common Causes of Action

What is a Statute of Limitations?

In civil matters, a statute of limitations is a law which places a deadline on the time frame in which a victim may pursue a claim against a wrongdoer.This “deadline” varies depending on the cause of action involved, but whatever the time limit, once the statute of limitations expires, the legal claim can no longer be pursued in a court of law.Generally, the reasons behind imposing such limitations include encouraging victims to timely pursue their claims since evidence to support a claim typically deteriorates over time, andto ensure fairness in that a claimantmay not continue to impose the threat of legal actionagainst another for an indefinite period of time—the victim must make the choice whether to pursue their claim or not.

Here are some examples of common types of legal actions and the applicable California statutes of limitations:

1) Breach of contract:

• Oral – Two years from the date the contract was breached.
• Written – Four years from the date the contract was breached.

2)Libel or Slander: One year from the date of the injury.

3)Fraud:Three years from the date of offense.

4)Personal Injury: Two years from when the injury occurred, unless the injury was not discovered right way, in which case a victim may pursue a claim for one year from the date the injury was discovered (or should have been discovered).

5)Property Damage: Three years from the date the damage occurred.

6)Claims Against Government Agencies: A claim must be filed with the agency within 6 months (or one year in some cases) from the date the incident giving rise to the claim occurred. If the claim is denied, it is possible to then file a lawsuit in court.

In the criminal context, there are some crimes, murder for example, which are considered so heinous that they have no statute of limitations. This means that they can be prosecuted whether they occurred 6 months ago or 60 years ago. However, in civil cases, each and every cause of action has a governing statute of limitations. Therefore, when contemplating legal action against a person or entity, it is important to determine how much time the victim has available to pursue the claim(s).

Suspension/Tolling of a Statute of Limitations

In some instances, a statute of limitations can be suspended, aka tolled, which is like pausing the clock in the middle of a countdown to the deadline. Some examples of instances in which a statute of limitations may be tolled include:

If the defendant is:

• a minor,
• out of state,
• in prison,

• orinsane.

Once the reason for tolling terminates, e.g., the defendant comes of age or regains competency, the timer on the statute of limitations begins to tick again. Cases where tolling is involved can become extremely complicated, and courts are typically reluctant to toll a statute of limitations, so it is important to discuss your case with an experienced attorney.

Summary

Knowing when you may or may not pursue legal action can be difficult to determine for many causes of action. If you have questions about your case, including the applicable statute of limitations, contact our knowledgeable and trusted business lawyers today. We offer a complementary initial evaluation for most transactional and litigation matters.

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