Case Number: C093909
Court: California Court of Appeal, Third Appellate District
Date Filed: 2025‑09‑01
Holding
The court held that a trustee may not recover from the trust estate attorney fees incurred in defending a contested amendment when the trust instrument does not expressly authorize the trustee to defend “any amendment” and the litigation was not for the benefit of the trust but rather to advance the interests of certain beneficiaries.
Narrative
Lead – In Zahnleuter v. Mueller, the California Court of Appeal affirmed a trial‑court order surcharging a successor trustee for more than $200,000 in attorney fees spent defending a contested third amendment to a family living trust. The decision underscores that a trustee’s power to expend trust assets on litigation is bounded not only by the general fiduciary duties codified in the Probate Code but also by the precise language of the governing instrument. When a trust’s provisions limit the trustee’s authority to defend “any contest or other attack” to the trust itself—and expressly exclude amendments—the trustee must remain neutral in disputes over those amendments, or else bear the costs personally.
Procedural History – The dispute began after Richard J. Mueller’s death in August 2018. Katherine Zahnleuter, a residual beneficiary, filed a petition in Nevada County Superior Court to invalidate the third amendment, alleging improper execution and undue influence. Thomas Mueller, the brother of the decedents and named successor trustee in that amendment, opposed the petition and defended the amendment. After a bench trial upheld the amendment’s validity, Katherine sought an accounting and, crucially, a surcharge of Thomas for the $201,164.15 in attorney fees he expended defending the amendment. The trial court granted the surcharge, finding that the trust instrument did not authorize the trustee to defend an amendment, and that Thomas had breached his duty of impartiality. Thomas appealed; the appellate panel affirmed without oral argument.
Facts – The original 2004 Mueller Living Trust named Katherine and her sister Amy as equal residual beneficiaries and designated Amy (later Katherine) as successor trustees. The trust granted the trustee discretion to “initiate or defend, at the expense of the trust estate, any litigation … related to the trust or any property of the trust.” It also contained a no‑contest clause that penalized any beneficiary who challenged the trust’s validity, but the clause expressly excluded “any amendment of this document … executed after the date of this document.”
Three amendments followed. The first (2005) and second (late 2017) left the distribution scheme unchanged. The third, drafted in April 2018, renamed Thomas as successor trustee, added $10,000 gifts to his daughters and to half‑sister Julie, and altered Amy’s caregiving reimbursement and life‑estate rights. Two versions of this amendment existed: a “first version” (the one Thomas received) and a “second version” (a later, materially different draft). Evidence—including email metadata—showed the second version was saved after Richard’s purported signature, raising serious doubts about its authenticity.
Katherine’s petition alleged that Thomas failed to meet the trust’s execution and delivery requirements and that the amendment was the product of undue influence. Thomas defended the amendment, incurring attorney fees that he billed to the trust. The trial court, after finding the amendment invalid, ordered Thomas to reimburse the trust for the full $201,164.15, reasoning that the trust’s language did not permit the use of trust assets to defend an amendment and that Thomas had acted in a partisan capacity.
Issues – The appellate court addressed two intertwined questions: (1) Whether the trustee was authorized, under the trust instrument and applicable statutes, to expend trust assets defending a contested amendment; and (2) Whether the trustee’s conduct violated his fiduciary duty of impartiality, thereby precluding reimbursement.
Analysis – The court began with the statutory framework. Probate Code §§ 16000 and 15684 require trustees to administer trusts according to the instrument and to be reimbursed only for “expenditures … properly incurred in the administration of the trust.” The court reiterated the well‑settled principle that litigation must be for the benefit of the trust to qualify for reimbursement (see Evans v. Superior Court (1939) 14 Cal.2d 563; Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395). Conversely, expenses incurred to advance a trustee’s personal or familial interests are not recoverable ( Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221).
The trust at issue granted the trustee authority to defend “any contest or other attack of any nature on this Trust or any of its provisions,” but the clause explicitly excluded “any amendment … executed after the date of this document.” The appellate panel therefore concluded that the trustee lacked express authority to defend the third amendment. The court distinguished Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529, where the trust provision expressly authorized defense of amendments; here, the language was the opposite.
Relying heavily on Whittlesey and Terry v. Conlan (2005) 131 Cal.App.4d 1445, the court emphasized that when a trustee’s litigation is essentially a battle over who will benefit from the trust, the trustee is a party to the dispute rather than a neutral defender of the trust’s assets. In Whittlesey, the court denied reimbursement to a trustee who defended an amendment that would have shifted benefits to herself and her children, holding that “the parties primarily interested in the litigation were … on the one hand and … on the other.” The same reasoning applied here: Thomas’s defense of the amendment would have secured $10,000 gifts for his daughters and preserved Amy’s caregiving reimbursement, while disadvantaging Katherine. The appellate court found that Thomas “did not participate … as a neutral trustee to defend the trust and protect its assets,” but rather “pursued the interests of his two children, Julie, and Amy.”
The court also rejected Thomas’s argument that the no‑contest clause in the third amendment implicitly required the trustee to defend the amendment. The clause, identical to those in the earlier amendments, merely penalized beneficiaries who contested the trust; it did not impose a duty on the trustee. The court applied the plain‑meaning rule ( Trolan v. Trolan (2019) 31 Cal.App.5th 939) and found no ambiguity that would warrant extrinsic evidence.
Thomas’s reliance on statutory reimbursement provisions (§ 15684, §§ 16247, 16243) was dismissed because he never demonstrated that any portion of the fees related to ordinary trust administration. His accounting lacked itemized descriptions of services, and under Purdy v. Johnson (1917) 174 Cal. 521, the burden of proof lies with the trustee. The appellate panel noted that the record contained no invoices linking the fees to trust‑preserving activities; instead, the fees were tied to litigation over the amendment’s validity.
Finally, the court addressed Thomas’s claim that the surcharge should be limited to the $1,500 authorized for notifying Julie. The trial‑court order expressly excluded that amount from the surcharge, and the appellate court found no evidence Thomas actually spent trust funds on that purpose.
Disposition – The appellate court affirmed the trial court’s surcharge order, holding that Thomas must reimburse the trust for the full $201,164.15 in attorney fees. Katherine was awarded costs on appeal.
Impact – Zahnleuter reinforces the narrow construction of trustee powers to litigate and the paramount importance of explicit language in trust documents. Practitioners drafting or revising trusts should ensure that any intent to permit trustees to defend amendments is unmistakably stated; otherwise, trustees risk personal liability for litigation costs. The decision also clarifies that the fiduciary duty of impartiality extends to the decision of whether to litigate, not merely to the conduct of the litigation itself. Future disputes involving contested amendments will likely cite Zahnleuter for the proposition that a trustee cannot use trust assets to defend a position that benefits a subset of beneficiaries at the expense of others.
Unresolved Questions – The opinion leaves open how courts will treat situations where a trustee’s defense of an amendment is arguably necessary to preserve the trust’s overall value (e.g., to prevent a successful contest that would invalidate the entire trust). The line between “defending the trust” and “defending a beneficiary’s interest” may require further clarification, especially where the amendment’s validity is intertwined with the trust’s economic viability.
Referenced Statutes and Doctrines
- Probate Code §§ 16000, 16003, 15684, 15642(b), 16243, 16247 – fiduciary duties, reimbursement, removal grounds.
- Prob. Code § 21310(c) – definition of a no‑contest clause.
- Doctrine of Trustee Impartiality – duty to treat all beneficiaries equally.
- Doctrine of Trust‑Beneficial Litigation – expenses must benefit the trust to be reimbursable.
Key Cases
- Evans v. Superior Court (1939) 14 Cal.2d 563 – trustee’s right to employ counsel for trust protection.
- Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395 – reimbursement for necessary litigation.
- Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221 – no reimbursement when litigation benefits a party, not the trust.
- Terry v. Conlan (2005) 131 Cal.App.4d 1445 – same principle applied to contested trust documents.
- Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529 – trustee may defend amendments only if expressly authorized.
- Hearst v. Ganzi (2006) 145 Cal.App.4d 1195 – trustee discretion limited by trust language.
- Trolan v. Trolan (2019) 31 Cal.App.5th 939 – plain‑meaning rule for ambiguous provisions.
- Donkin v. Donkin (2013) 58 Cal.4th 412 – definition and effect of no‑contest clauses.
- Purdy v. Johnson (1917) 174 Cal. 521 – trustee’s burden to prove proper expenditures.
- Butler v. LeBouef (2016) 248 Cal.App.4d 198 – reimbursement only for trust‑beneficial expenses.
- Donahue v. Donahue (2010) 182 Cal.App.4d 259 – same principle.
- Ochoa v. Pacific Gas & Electric Co. (1998) 61 Cal.App.4d 1480 – waiver of arguments not raised below.