AMCIG

Pursuant to Probate Code section 19001, 1 the assets in a revocable living trust of a deceased settlor are subject to the claims of the creditors of his or her probate estate to the extent the estate itself is inadequate to satisfy those claims. In light of this potential liability, does the trustee of such a trust have a duty, following the death of the settlor, to preserve trust assets for the benefit of creditors with claims pending against the deceased settlor’s probate estate? We hold the trustee’s only duty to such creditors is to refrain from affirmative misconduct that defeats the creditors’ reasonable expectation for a recovery from trust assets.

INTRODUCTION

Arluk Medical Center Industrial Group, Inc. (AMCIG) filed a claim in the probate proceedings for one of its three founders, Dr. Theodore M. Hylwa, asserting that Dr. Hylwa had failed both to contribute to AMCIG all revenue earned from his practice and to obtain life insurance naming AMCIG as beneficiary as required by Dr. Hylwa’s employment agreement with AMCIG. Although AMCIG finally prevailed on its contract claims after five years of litigation, the probate estate had insufficient assets to pay the…

I respectfully dissent.

This is not an easy case. The majority opinion sets forth a tenable construction of what undeniably is a complicated interplay of code provisions. But it is not the only tenable interpretation. By a rather slim margin, I find another reconciliation of the statutory language to be more persuasive.

I begin with a brief overview of that position. Probate Code section 19001, subdivision (a) (section 19001 (a)) makes a trust and its property “subject to” any creditor’s claim against a deceased settlor’s estate, including a disputed claim, unless and until the property in the estate itself proves sufficient to discharge *1342 that claim. Furthermore, the combination of that section and sections 19255 and 19400 imposes liability on trustees who dissipate trust assets needed to pay a disputed but properly filed claim by making premature distributions to beneficiaries while that claim is pending. In Dobler I, 1 this court found appellants had timely filed their claim in the probate action and, furthermore, held this constituted a timely filing with the trustees as well. 2 During the period appellants’ claim was in litigation the trustees (who also were the…

Pursuant to Probate Code section 19001, [1] the assets in a revocable living trust of a deceased settlor are subject to the claims of the creditors of his or her probate estate to the extent the estate itself is inadequate to satisfy those claims. In light of this potential liability, does the trustee of such a trust have a duty, following the death of the settlor, to preserve trust assets for the benefit of creditors with claims pending against the deceased settlor's probate estate? We hold the trustee's only duty to such creditors is to refrain from affirmative misconduct that defeats the creditors' reasonable expectation for a recovery from trust assets.

Arluk Medical Center Industrial Group, Inc. (AMCIG) filed a claim in the probate proceedings for one of its three founders, Dr. Theodore M. Hylwa, asserting that Dr. Hylwa had failed both to contribute to AMCIG all revenue earned from his practice and to obtain life insurance naming AMCIG as beneficiary as required by Dr. Hylwa's employment agreement with AMCIG. Although AMCIG finally prevailed on its contract claims after five years of litigation, the probate estate had insufficient assets to pay the judgment,…