Matter of Terrie Ratkevich Mershon Revocable Trust

Case Number

23PR00511

Case Type

Hearing Date / Time

Thu, 03/07/2024 - 09:00

Nature of Proceedings

Petition to Approve 2nd Account and Report; 3rd Account and Report; re: Sole Issue of Trustee's Fees

Tentative Ruling

The court grants the petition of Trustee Jyl Ratkevich, in part as to the second account and report only. Except as otherwise herein granted, the petition is denied respect to the third account and report, without prejudice to the filing of a future appropriate petition in accordance with this ruling.

Background:

On October 31, 2023, Jyl Ratkevich Aker (the Trustee or Jyl), as successor Trustee of the Terrie Ratkevich Mershon Revocable Trust Dated April 10, 2006 also known as the Terrie Ratkevich Mershon Administrative Trust (the Trust), filed a verified petition (the petition) for approval of the Trustee’s second account and report (the second account) and the Trustee’s third account and report (the third account) under Probate Code sections 16060 et seq. and 17200. (Note: Due to common surnames, the court will at times refer to the parties by their first names. No disrespect is intended.) The Trustee asserts there exist two issues that require adjudication: (1) the hourly rate of and amount of fees to be paid to the Trustee; and (2) whether the third account retention may be increased to $50,000. (See Petition at p. 2, ll. 3-4.) As alleged in the petition:

The Trust was established by Terrie Ratkevich Mershon (the settlor or Terrie) and was revocable during the settlor’s lifetime. While living, the settlor was the only trustee of the Trust. Following the settlor’s death on April 9, 2020, petitioner became, and adopted the position of, successor Trustee.

The Trustee prepared a first account and report for the Trust for the accounting period April 9 through November 30, 2020 (the first account). The first account was approved by the beneficiaries of the trust, and included a fee to be paid to the Trustee at the rate of $40 per hour. The beneficiaries of the trust waived statutory formalities in order to reduce administrative expenses and increase the amount of funds to be distributed to the beneficiaries.

The Trustee prepared the second account and the third account (collectively, the accounts) in the same format as the first account. The accounts each include a fee to be paid to the Trustee at the rate of $40 per hour. (See Petition, Exh. 3, ¶ 14; Exh. 4, ¶ 9.) The accounts also include spreadsheets summarizing the Trust assets at the start and end of each accounting period and a summary of the hours expended by the Trustee for the Trustee’s services. The attorney for beneficiary Mark Ratkevich (Mark) confirmed that Mark’s only objection to the accounts is the hourly rate and the amount of fees to be paid to the Trustee.

As of November 30, 2020, the start of the accounting period of the second account, the Trust assets were $4,038,470. (Petition, Exh. 3 [Exh. 1].) The Trust assets also included five real properties, three of which were rental properties. (Ibid. [“Real Properties”].) Under Probate Code Section 10800, had the Trust assets gone through probate, the personal representative would have been entitled to statutory fees of $53,384 through the close of the probate, exclusive of extraordinary fees which may have been awarded for managing the of real properties and the sale of the settlor’s residence.

The second account seeks approval of fees for services furnished by the Trustee in the amount of $8,560. The third account seeks fees for services furnished by the Trustee in the amount of $7,020. The total fees for the Trustee’s services is $15,580, which represents approximately 30 percent of the statutory probate fee exclusive of fees that will be incurred to prepare a final account and report. In addition, had the Trustee retained local professional fiduciary Mark Watson to administer the Trust, Watson would have charged $33,250 to commencing on December 1, 2020, through the final account.

Of the fees for which the Trustee seeks approval, the amount of  $4,410 was incurred by the Trustee to respond to what the Trustee contends is a “completely unnecessary and wasteful petition” filed by Mark on August 18, 2022 (the Accounting action). The Accounting action purportedly resulted in Mark incurring $55,387.67 and the Trustee incurring $34,523.90 in attorneys’ fees and costs. The Accounting action was voluntarily dismissed by Mark. In the third account, the Trustee seeks to surcharge the amount of $25,955.93 against Mark’s share of the proposed distribution, which represents two-thirds of the total attorneys’ fees and costs incurred by the Trust to defend the Accounting action.

Based on the filing of the Accounting action filed by Mark and because the Trustee was forced to file the present petition, the Trustee is “nervous” that the $40,000 retention in the third account will not be sufficient should Mark contest the present petition or file another petition. The Trustee therefore requests that the court approve an increase in the retention in the third account to $50,000, which will result in a proposed distribution to the beneficiaries as set forth in Exhibit 5 to the petition.

Court records reflect that notice of the hearing on the petition was mailed to the beneficiaries of the Trust on November 3, 2023. (See Nov. 6, 2023, Proof Of Service.)

On December 19, 2023, Mark filed an objection to the petition. As grounds for the objection, Mark asserts that petitioner has requested approval of the fees to be paid to the Trustee only, and not to the accounts as a whole. Mark also contends that the fees for the Trustee’s services are not reasonable because the Trustee is not a professional trustee and the skill involved does not amount to $40 per hour.

Mark also objects to the accounts on the grounds that the attorneys’ fees surcharged to Mark’s distribution relate to the filing of “defective” motions for summary judgment and sanctions by petitioner in the Accounting action. Mark asserts that he dismissed the Accounting action after information obtained in discovery answered Mark’s questions. Mark also contends that in the Accounting action, petitioner was ordered to pay Mark’s attorneys’ fees in connection with petitioner’s filing of a motion for sanctions in the Accounting action.

For the same or substantially similar reasons discussed above, Mark also objects to the Trustee’s request that the retention in the third account be increased to $50,000 on the grounds that the increase is unnecessary.

Mark also requests that the attorneys’ fees and costs Mark incurred to litigate the Accounting action in the amount of $55,387.67 be surcharged against the Trustee’s distribution because, according to Mark, the Accounting action would not have been filed if the Trustee had cooperated and provided documents and information requested by Mark.

Analysis:

Under Probate Code section 17200 et seq., “a trustee or beneficiary of a trust may petition the court under this chapter concerning the internal affairs of the trust….” (Prob. Code, § 17200, subd. (a).) (Note: Undesignated statutory references shall be to the Probate Code unless otherwise indicated.) Proceedings concerning the internal affairs of a trust include proceedings to settle accounts and pass upon the trustee’s acts, to fix or allow payment of compensation to the trustee, and to review the reasonableness of the trustee’s compensation, among other things. (Prob. Code, § 17200, subd. (b)(5) & (9).) A proceeding under section 17200 et seq. is commenced by a petition “stating facts showing that the petition is authorized under this chapter. The petition shall also state the grounds of the petition and the names and addresses of each person entitled to notice of the petition.” (Prob. Code, § 17201.)

The petition states sufficient facts showing that it is authorized under section 17200 et seq., the grounds for the petition, and identifies each person entitled to notice of the petition which was provided by petitioner.

Based on the arguments offered by the Trustee and Mark, the issues presently before the court relate to whether the hourly fee claimed by the Trustee is reasonable, whether the Trustee may recover fees for services rendered in connection with the Accounting action, whether two-thirds of the attorneys’ fees incurred by the Trust in connection with the Accounting action may be charged against Mark’s proposed distribution, whether the retained amount of $40,000 in the third account should be increased to $50,000, and whether Mark’s attorneys’ fees and costs may be surcharged against the Trustee’s distribution.

As a preliminary matter, Mark “generally” objects to the petition on the grounds that petitioner has failed to seek approval of the accounts “as a whole”. (Objection at p. 2, ¶ 2.) Though a trustee is generally required to account and report information to the beneficiaries of a trust, Mark offers no reasoned legal or factual argument demonstrating that the Trustee is required to submit accounts or reports to the court for approval. (See Prob. Code, § 16062, subd. (a) [requiring a trustee to account annually to each beneficiary to whom income or principal is required or authorized to be currently distributed].)

For present purposes, it can be inferred from the express allegations of the petition that the Trustee provided the accounts to the trust beneficiaries, including Mark, and that Mark delivered an objection to the Trustee regarding the accounts. (See Prob. Code, § 16503, subd. (a).) Thereafter, the Trustee filed the petition effectively in response to the objections raised by Mark. (Id., subd. (c).)

In addition, Mark provides no information to demonstrate that the accounts do not include the information required under Probate Code section 16063, subdivision (a), or that the accounts were not properly presented in accordance with Probate Code section 1060 et seq. Furthermore, the accounts provide the information required under Probate Code section 16063, and the matters described in Probate Code section 1064, subdivision (a), including an explanation of the basis for the request for approval of trustee and attorneys’ fees.

Furthermore, the objections filed by Mark do not address any other proposed actions by the Trustee with respect to the accounts apart from those further discussed above. For these reasons, Mark’s objections on the grounds that petitioner has failed to seek approval of the accounts “as a whole” is not a sufficient basis to deny the petition.

(1) The Second Account

The second account provides an accounting for the period from December 1, 2020, through January 10, 2022. (Petition, Exh. 3.) In the second account, the Trustee asserts that she is entitled to reimbursement of expenses and reasonable compensation for services provided by the Trustee from December 1, 2020, through December 12, 2021, at the rate of $40 per hour. (Id. at ¶ 14.) Fees for the Trustee’s services for the period covered by the second account total $8,560. (Ibid.)

Under paragraph 3.11. of the First Amendment to and Complete Restatement of the Trust (the first amendment), the Trustee “shall have the right to pay … herself reasonable compensation for services rendered to the trust estate as Trustee, even if receiving compensation as a partner, officer, director or employee of any partnership, corporation or business venture, an interest in which is included in the trust estate, and shall have the right to reimburse himself, herself or itself for any expenses of the trust estate that such Trustee has paid.” (Petition, Exh. 1, ¶ 3.11.)

“If the trust instrument does not specify the trustee’s compensation, the trustee is entitled to reasonable compensation under the circumstances.” (Prob. Code, § 15681.) Allowing reasonable compensation for a trustee’s services “rests in the sound discretion of the trial court” provided that the trustee presents satisfactory evidence of “the accuracy and propriety of the items in his account.” (In re McLaughlin’s Estate (1954) 43 Cal.2d 462, 465-466.)

“Among factors to be considered in determining the compensation allowable to a trustee are (1) the gross income of the trust estate, (2) the success or failure of the administration of the trustee, (3) any unusual skill or experience which the trustee in question may have brought to his work, (4) the fidelity or disloyalty displayed by the trustee, (5) the amount of risk and responsibility assumed by the trustee, (6) the time consumed by the trustee in carrying out the trust, (7) the custom in the community as to allowances to trustees by settlors or courts and as to charges exacted by trust companies and banks, (8) the character of the work done in the course of administration, whether routine or involving skill and judgment, and (9) any estimate which the trustee has given of the value of his own services.” (Estate of Nazro (1971) 15 Cal.App.3d 218, 221.)

Apart from asserting speculative and conclusory statements that the skill involved in acting as a Trustee of the Trust do not amount to $40 per hour and that the Trustee is not a professional trustee, Mark offers no reasoned argument demonstrating why the hourly rate of $40 is excessive for the services described in Exhibit 8 to the second account. Mark also offers no information to permit the court to determine whether the hourly rate set forth in the second account is outside of normal custom in the community, or whether any factors justify reducing the hourly rate.

Based on the court’s review of the services described in Exhibit 8 to the second account, and considering the factors further discussed above including the gross income of the trust estate, the fidelity displayed by the Trustee, the time consumed in carrying out the Trust, and the character of the work done in the course of the Trustee’s administration of the Trust, the court finds that the Trustee has presented satisfactory evidence demonstrating that an hourly rate of $40 for services furnished by the Trustee in connection with the second account is reasonable. Therefore, the court will approve an hourly rate of $40 for these services.

In the second account, the Trustee does not seek reimbursement for services performed in connection with the Accounting action. In addition, the attorneys’ fees described in paragraph 15 of the second account relate solely to time expended by counsel for the Trustee to prepare the second account. As Mark asserts no objections to the second account other than those further discussed above, the court will grant the petition, in part, and approve the second account.

(2) The Third Account

To the extent Mark objects to the hourly fee of $40 for the Trustee’s services in connection with the third account, the same analysis applies. The court approves an hourly fee of $40 for the Trustee’s services.

The third account seeks compensation for services furnished by the Trustee from December 16, 2021 through July 31, 2023, in the amount of $7,020. Of this amount, $4,410 is charged by the Trustee for services furnished in connection with the Accounting action. Apart from objecting to the hourly rate further discussed and disposed of above, Mark’s additional objections to the trustee fees sought in the third account are directed to the $4,410 in fees charged by the Trustee for services furnished in connection with the Accounting action. (See Objection at p. 7, ll. 19-20.)

In support of his objections, Mark requests that the court take judicial notice of: (1) the second amended petition (the SAP) filed by Mark in the Accounting action on October 7, 2022; (2) Mark’s reply to the Trustee’s response to the SAP; and (3) the court’s May 25, 2023, Minute Order (the Minute Order) issued in the Accounting action. (Obj. RFJN, ¶¶ 1-3 & Exhs. 1-3.) The court will grant Mark’s request for judicial notice of these documents. (Evid. Code, § 452, subd. (d)(1).)

The court will also grant the Trustee’s request for judicial notice of Jyl’s response to the SAP filed in the Accounting action. (Petition RFJN at p. 1 & Exh. 1; Evid. Code, § 452, subd. (d)(1).)

Judicial notice of the documents described above does not extend to the truth of any hearsay statements contained therein. (Williams v. Wraxall (1995) 33 Cal.App.4th 120, 130.)

As reflected in the Minute Order, on December 12, 2022, the Trustee filed in the Accounting action a motion for summary judgment (the motion) directed to the SAP. As further discussed in the Minute Order, the allegations of the operative SAP determined the issues to be disposed of in the motion. Accordingly, the court analyzed the claims alleged in the SAP notwithstanding the manner in which Mark titled the SAP and determined that its allegations reflected two separate theories of liability based on distinct duties and obligations allegedly owed by the Trustee under Probate Code section 15000 et seq. (the Trust Law) and distinct duties and obligations allegedly owed by Jyl as an alleged attorney-in-fact under Probate Code section 4000, et seq. (the Power of Attorney Law). (See also SAP at p. 1, ll. 24-27.)

The court further noted that the Trust Law and the Power of Attorney Law do not set forth identical duties owed by a trustee and an attorney-in-fact. As Mark sought accountings and reports under the specific provisions of each statutory scheme, the motion was required to completely dispose of each cause of action alleged in the SAP: (1) the cause of action for an accounting under the Trust Law; and (2) the cause of action for an accounting pursuant to the Power of Attorney Law. (See Minute Order.)

Apart from significant procedural issues further discussed in the Minute Order which required the court to deny the motion, the court found that there existed a triable issue of fact as to whether there had been a full and complete accounting by the Trustee following Terrie’s death. (See Minute Order.) The court also found triable issues of fact regarding whether Jyl had acted as an attorney-in-fact prior to Terrie’s death by assisting Terrie with accounting, bills, managing property, financial purchases, and other matters. (Ibid.)

Considering the allegations of the SAP and the court’s findings as further discussed in the Minute Order, it was reasonably necessary for the Trustee to litigate the Accounting action and, to the extent the Trustee was called upon to defend that action, the Trustee is entitled to compensation for services that were of benefit to the Trust. (See Conservatorship of Lefkowitz (1996) 50 Cal.App.4th 1310, 1314.)

Notwithstanding that the Trustee is entitled to compensation for services furnished in the Accounting action to the extent these services benefitted the Trust, to the extent Mark alleged that Jyl was required to provide an accounting in her capacity as an attorney-in-fact for Terrie, and not as the Trustee of the Trust, the Trustee has not sufficiently demonstrated whether the any of the services furnished in the Accounting action also include time litigating claims asserted by Mark under the Power of Attorney Law, or how those services were of benefit to the Trust. It is also unclear to the court, based on the information provided in Exhibit 5 to the third account, whether these services pertain solely to claims asserted against the Trustee in the Accounting action, or also include services furnished in connection with claims asserted in the Accounting action solely against Jyl as a purported attorney-in-fact.

Regarding the proposed surcharge against Mark’s distribution, effectively the same analysis applies. The Trustee’s request for approval of attorneys’ fees incurred in connection with the Accounting action may be proper charges to the extent the attorneys’ fees are incidental to claims against the Trustee, were incurred in the administration of the trust, or benefited the Trust. (Prob. Code, § 15684; see also Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 399-400.) For the same reasons noted above, it is unclear whether the attorneys’ fees for which the Trustee seeks approval were incurred in connection with claims against the Trustee in the Accounting action, or also include claims against Jyl as an attorney-in-fact. To the extent the attorneys’ fees include services furnished in connection with all claims alleged in the Accounting action, the Trustee has not sufficiently established that these fees were incurred to administer the Trust, or that the attorneys’ fees incurred either serviced or benefited the Trust estate.

In addition, though the Trustee asserts as grounds for surcharging the attorneys’ fees incurred in the Accounting action against Mark’s distribution, that the Accounting action was “wasteful” or unnecessary, the court has already determined that the filing of the SAP was not frivolous and that its allegations were not completely without merit. (See Minute Order.) Though attorneys’ fees incurred in connection with the administration of the trust or that benefitted the Trust may be properly charged against the Trust estate, there exists no demonstrated basis here to surcharge Mark’s distribution from the Trust. Moreover, and for similar reasons, the Trustee has not demonstrated sufficient grounds, apart from unsubstantiated concerns that Mark may file another petition, which would justify for present purposes an increase in the retention in the third account.

Mark’s self-serving and conclusory assertions are also insufficient to justify surcharging the attorneys’ fees and costs Mark incurred to litigate the Accounting action against the Trustee’s distribution. The motion filed in the Accounting action was denied in significant part based on procedural deficiencies notwithstanding the existence of triable issues of fact. Moreover, available information and evidence demonstrates that Mark voluntarily dismissed the Accounting action.

For all reasons discussed above, the court will deny the petition to the extent it seeks approval of the third account. The court’s denial of the petition as to the third account is without prejudice to the future filing of an appropriate petition demonstrating that the trustee and attorneys’ fees for which the Trustee seeks approval are proper. Nothing herein shall be construed by the parties as issuing an advisory opinion as to whether any trustee or attorneys’ fees incurred in connection with the Accounting action may properly be charged to the Trust. (Stocks v. City of Irvine (1981) 114 Cal.App.3d 520, 531 [a court “has no power to issue advisory opinions”].)