Opinion
No. 35504-3-II.
April 22, 2008.
Appeal from a judgment of the Superior Court for Pierce County, No. 04-2-10194-3, Frederick B. Hayes, J., entered September 26, 2006.
Affirmed in part, reversed in part, and remanded by unpublished opinion per Hunt, J., concurred in by Bridgewater and Penoyar, JJ.
James Johannes, a beneficiary of the Estate of his mother, Evelyn Johannes, appeals the trial court's findings of fact and conclusions of law and award of damages and attorney fees to the Estate and to his children (James's children), as cross-appellants. James argues that (1) the trial court's finding of fact that the Estate's personal representative, Gerald Johannes, should have closed the Estate by 1995 (instead of James's contention that Gerald should have closed the Estate two years earlier, by 1993) was not supported by substantial evidence; (2) the trial court erred by failing to award him (James) attorney fees and damages for Gerald's breach of fiduciary duties in his capacity as the Estate's personal representative; (3) the trial court improperly shifted the burden of proof regarding unaccounted-for Estate assets; (4) the trial court erred in finding that Evelyn had completed lifetime gifts to Gerald; (5) the trial court improperly adopted a hearsay Estate accounting in its findings of fact and conclusions of law; and (6) the trial court's awards of attorney fees to the Estate and to James's children were not reasonable.
We use the first names of some parties and witnesses to avoid confusion. We intend no disrespect.
James's children cross appeal, arguing that the trial court erred by (1) failing to award them damages for Gerald's delay in closing the Estate; (2) finding that Gerald's lending Estate money to James amounted to self-dealing; (3) shifting the burden of proof and failing to include unaccounted-for assets in the Estate; (4) failing to award damages to the Estate for Gerald's improper investments of Estate assets; and (5) improperly adopting a hearsay Estate accounting in its findings of fact and conclusions of law.
Affirming the trial court in part, we hold that: (1) Gerald breached his fiduciary duty when he failed to close the Estate by 1995; (2) James's active participation in Gerald's delay in closing the Estate estops him from personally recovering damages; (3) the value of the Estate had it been closed in 1995, is not reasonably certain enough to award James's children, as contingent beneficiaries, damages for Gerald's delay in closing the Estate; (4) Gerald, a layman, did not breach his fiduciary duties to James and James's children when he invested Estate funds based on professional financial advice; (5) the record supports the trial court's ruling that Gerald received certain lifetime gifts, including a parking garage and City of Phoenix bearer bonds, from the testator, his mother Evelyn, for which he was not required to reimburse the Estate; (6) the 2004 Estate accounting was not hearsay because the trial court used it only as a starting point for the newly appointed personal representative of the Estate, not as proof of the actual financial status and transactional history of the Estate; (7) the trial court did not abuse its discretion in ordering James and Gerald each to pay half of James's children's attorney fees at trial; and (8) the trial court did not abuse its discretion in ordering that Gerald pay half of the Estate's attorney fees at trial.
Holding that the trial court also erred in part, we reverse the trial court's refusal to order Gerald to reimburse the Estate for: (1) the unaccounted-for bank certificate of deposit in the Estate's name, and (2) the five unexplained monthly payments of $328 to Puget Sound National Bank. Although the trial court found credible Gerald's explanation that he did not know what had happened to these Estate funds, based on the same facts before the trial court, we hold as a matter of law that Gerald's inability to account for these assets constituted a breach of his fiduciary duty as personal representative to account for all Estate funds. Accordingly, we remand to the trial court to determine damages for this specific breach and to order Gerald to restore these funds to the Estate.
In addition, we deny James's request for attorney fees on appeal, and we order him to pay attorney fees on appeal to the Estate, to James's children, and to Gerald.
FACTS I. Evelyn's Estate
Evelyn Johannes died testate on March 26, 1989, leaving her estate to her two sons, James and Gerald Johannes. After two charitable bequests, Evelyn left 60 percent of her estate to Gerald, whom she nominated to be her Estate's personal representative.
Evelyn's will mandated that Gerald, as personal representative, use the remaining 40 percent of the Estate to establish a trust for James (the James Trust), for which she named Puget Sound National Bank as trustee. Evelyn specified that if the James Trust funds were inadequate to maintain his "health and support in reasonable comfort, and the health, support and education of any of his children dependent upon him for support," the trustee had discretion to invade the principal. Evelyn made no outright bequests to her grandchildren. Instead, she directed that upon James's death, any remaining funds in the James Trust would pass to his children equally.
Gerald testified that he believed that their mother set up the James Trust because James had lost "vast amounts of money" in the past and she wanted to protect her grandchildren's inheritance.
Although Evelyn's will allowed invasion of the James Trust corpus for "the health, support and education" of James's children during James's lifetime, the will did not guarantee that there would be any trust funds remaining for James's children when James died at some unknown future time.
On April 12, 1989, the Pierce County Superior Court opened probate for Evelyn's Estate and appointed Gerald personal representative, with nonintervention powers.
A. Gerald's Actions on Estate's Behalf
On June 27, 1989, Gerald took inventory of the Estate and filed a 706 tax return. He estimated the Estate's worth to be $1,072,444 including a fourplex rental property, valued at $140,000, and Evelyn's residence, valued at $98,000. In August 1989, Gerald sold Evelyn's residence and deposited the $105,000 proceeds into the Estate.
A "706 tax return" is the United States Estate and Generation-Skipping Transfer Tax Return, which a personal representative of a decedent's estate must file if the estate's gross assets exceed $60,000. 26 U.S.C. § 6018, Treasury Regulations § 20.6018-1.
In 1992, Gerald attempted to close the Estate and to set up the James Trust. But Puget Sound National Bank, the trustee Evelyn named in her will, told Gerald that the will prevented the bank from accepting a trust containing real estate (namely, the unsold fourplex). The bank also requested a full accounting of the Estate's assets.
Gerald tried unsuccessfully to put the fourplex in a separate trust so he could close the Estate; in 1993, he sold the fourplex. Gerald then distributed the proceeds from the fourplex sale equally to himself and to James, with each receiving $84,000. In 1995, Gerald distributed $68,000 from the Estate to James and $102,000 to himself. On appeal, the parties do not dispute these distributions.
Although neither James nor James's children challenge these distributions on appeal, we note that the parties apparently agreed to take "disputes . . . in reference to the trust issues" to mediation and arbitration. Report of Proceedings (RP) (July 12, 2006) at 4-5.
B. James's First Request for Loan from Estate
In June 1995, James requested a $300,000 loan from the Estate for his business, Valley Packers. Gerald agreed, and James signed a promissory note for the loan with a five percent interest rate. James repaid the note on time, including interest.
C. James's Request that Gerald Terminate the James Trust
James was dissatisfied with the James Trust provision of Evelyn's will; and in 1997, he asked Gerald if he (Gerald) could help him (James) "get out of the trust." Gerald agreed to help James terminate the James Trust. Gerald consulted an attorney about terminating the James Trust and sharing the Estate with James as co-tenants. The attorney advised Gerald that he could terminate the James Trust if James, all of James's children, and the trustee consented. But the record does not indicate that Gerald took any further steps to terminate the James Trust.
D. James's Second Request for Loan from Estate
On March 26, 1998, James invited Gerald to attend a meeting with James's accountant, Tom Pagano, and the Estate's accountant, Frank Johnson. At that meeting, James expressed to Gerald that he needed a $188,000 loan from the Estate to lend to his business, Valley Packers. Gerald agreed; and James, in his personal capacity, signed a promissory note to repay the $188,000 loan, with eight percent interest, by September 26, 1998.
James failed to repay any amount on the loan. On September 26, 1998, the note went into default. In 1999, Gerald discussed the defaulted note with James, who promised to repay the $188,000 "soon." But James did not follow through on his promise.
In 2000, James asked Gerald to attend a meeting with his accountant, Pagano, and to provide the Estate's accountant, Johnson, with information for a full accounting of the Estate. Gerald agreed, and in exchange, James again promised to repay the loan. Gerald submitted the information to Johnson, and Johnson prepared an accounting for James. Once again, James failed to follow through on his promise to repay the loan from the Estate.
E. Estate Investments
In 2001, Gerald consulted Steve Beck and McDonald Investments, who advised the Estate to invest $297,000 in K-Mart bonds, which Gerald did. This investment, however, resulted in a loss to the Estate.
On the Estate's behalf, Gerald filed a National Association of Securities Dealers (NASD) arbitration claim against the financial advisors. The arbitrator found that the financial advisors had been negligent and fiduciary irresponsible in recommending that the Estate invest in the K-Mart bonds. The arbitrator awarded $304,603 to the Estate. After subtracting arbitration expenses, the Estate's net loss for the K-Mart bonds investment was $84,000.
In the meantime, on the advice of both James and financial advisor Beck, Gerald had also heavily invested Estate funds in high tech stocks. This high tech stocks investment resulted in a $40,000 loss to the Estate at the end of 2000.
F. James's Request for Estate Accounting
In 2003, James requested an accounting from the Estate. The Estate's accountant, Johnson, provided the accounting to James in 2004. James did not dispute this Estate accounting.
II. Lawsuit
On July 29, 2004, in his capacity as the Estate's personal representative, Gerald filed an action to collect the $188,000 loan to James. James then filed a separate action against Gerald, alleging that Gerald had breached his fiduciary duty to make the Estate productive, in part, by having loaned James money from the Estate.
The two actions were consolidated. James's children intervened as contingent beneficiaries (James's children) of the James Trust. In 2006, the case went to trial before the court sitting without a jury.
1. Plaintiffs' case
Pagano, James's accountant, testified that he (Pagano) had requested the $188,000 loan from the Estate on behalf of James's closely-held corporation, Valley Packers. Pagano (1) speculated that some of the loan had gone for back pay to Gerald as a former Valley Packers employee; and (2) testified that he and James had received the Estate's 2004 accountings and had made no inquiries.
James's children's certified public accountant, Frank Ault, testified that (1) he had attempted to create an accurate accounting of the Estate; (2) there were multiple Estate accounts, including a brokerage account and at least two bank accounts, and too many missing or incomplete records; (3) he believed Gerald's accounting was highly inadequate; and (4) he estimated that there was $26,682 missing from the Estate's multiple accounts.
James and James's children also called Robin Balsam, a lawyer specializing in Elder Law. Balsam alleged that Gerald breached his fiduciary duties when he (1) made a distribution from the Estate to James and to himself (Gerald), (2) did not maintain adequate Estate records or diversify assets, and (3) failed to close the Estate as promptly as possible.
We reiterate that this distribution is not at issue on this appeal.
Investment consultant Rick Wyman testified about how an institutional trustee, such as a bank, would have invested the James Trust funds. Wyman calculated the potential loss to the James Trust resulting from Gerald's alleged breach. Using models of the James Trust's predicted performance as if had it been funded in 1993, Wyman estimated that, including taxes, the James Trust could have been worth somewhere between $598,055 and $569,952 as of 2005, as opposed to its then current worth of only approximately $320,000. Wyman advocated the "total return" approach, which would require Gerald to fund the James Trust to its estimated value had Gerald not breached his duty to close the Estate in a timely manner.
2. Estate's case
The Estate called Edward Horwitz, an expert in securities, commodities, and options. Horwitz testified that a non-professional personal representative or trustee does not breach his fiduciary duties by following the advice of professional financial advisors. Horwitz explained that, although Gerald's investments in the K-Mart and high tech stocks had been irresponsible investments, a lay executor who makes such financial decisions based on a professional broker's reasonable advice is not liable for breach of fiduciary duty. Horwitz believed that the best investment strategy for the Estate was in safe short-term investments.
Horwitz had previously testified for the Estate at the NASD arbitration regarding the Estate's investment in the K-Mart Bonds.
Gerald testified that (1) at James's behest, he did not close the Estate because James disliked the James Trust arrangement and enjoyed the benefits of keeping the Estate open, such as obtaining loans from the Estate at lower interest rates; (2) Evelyn likely created the James Trust to protect Estate funds from James's poor investment strategies, thereby attempting to preserve a portion of her Estate for her grandchildren; (3) nevertheless, following James's request, Gerald spoke to an attorney about terminating the James Trust provision of Evelyn's will; and (4) after selling the fourplex in 1993, 1995 was the earliest he could have closed the Estate because he had to re-file federal taxes, apply for an extension, and wait until his bank settled the Estate's accounts. In support, Gerald provided: (1) his application to the Internal Revenue Service for an extension from 1993 until 1994 to file the Estate's taxes, and (2) a letter from his bank describing the fluctuations of the Estate's account from 1993 until early 1995.
Acknowledging that he and James had agreed to keep the Estate open, Gerald also testified that (1) he was unaware of a personal representative's duty to keep James's children informed about the status of the Estate; and (2) he believed that, as the Estate's personal representative with nonintervention powers, he had authority to make distributions from the Estate. Gerald disagreed with Pagano's allegation that he (Gerald) had received any funds from James's 1995 loan of Estate funds. Gerald further testified that he had no knowledge about the purpose for which James had used the money he had borrowed from the Estate.
Gerald conceded that his investment in the K-Mart bonds had resulted in a loss to the Estate. But he asserted that this investment was not a breach of his fiduciary duties because he had followed the advice of professional investment advisors. Gerald testified that (1) he had similarly purchased the high tech stocks on the advice of the professional advisors and also because James had encouraged this investment; (2) he (Gerald) also had invested Estate funds in short term cash equivalents that he could liquidate easily, to enable him to close the Estate at any time; (3) he could not close the Estate, and thus could not fund the James Trust, while James's $188,000 loan from the Estate remained unpaid; and (4) Gerald stood ready to close the Estate as soon as James repaid the loan.
James and James's children cross-examined Gerald about (1) a $240,000 withdrawal from the Estate's account, which was returned three months later, around the time Gerald had purchased a new home in 1998; (2) five unexplained monthly payments of $328 from the Estate to Puget Sound National Bank; and (3) Gerald's claim that he knew nothing about a bank investment certificate of deposit, worth between $21,000 and $28,000, in the Estate's name. Gerald acknowledged that his Estate records and accountings were inadequate and that he wouldn't call them an accounting.
Gerald also testified that, during Evelyn's lifetime, she had gifted to him a parking garage and $100,000 worth of City of Phoenix municipal bonds. He presented two letters from Evelyn conveying this intent. Although Evelyn's personal accounts apparently listed the parking garage as a demand note, Gerald maintained that Evelyn had gifted the parking garage to him. Gerald presented a 1985 note from Evelyn to her accountant that stated, "[M]y health is not very good, and I want [a $81,320 debt in Gerald's name] taken off the books while I still have my faculties." Report of Proceedings (RP) (Ap. 12, 2006) at 320-21. He offered this evidence to show that (1) Evelyn's accountant had kept the parking garage recorded as a loan in her accounts in order to avoid the gift tax, and (2) she had arranged to forgive part of the debt every year.
For unknown reasons, the Estate's 1989 federal tax return listed a credit of $20,000 toward a $33,769 debt, leaving a $13,769 debt in Gerald's name. Gerald maintained that Evelyn intended to forgive the entire debt.
Gerald also offered into evidence two accountings created by the Estate's non-testifying accountant. Over James's hearsay objection, the trial court allowed the 2001 accounting because Gerald claimed he was not offering it for the truth of the matter asserted, but rather to show that James had received, and did not object to, the Estate accounting. Also over James's objection, the trial court admitted a 2004 Estate accounting because it was already in the probate court record. Ultimately Gerald maintained that he kept the Estate open to loan money to with James.
The James Trust could not be set up until the Estate closed and yielded liquid assets to fund it.
3. Plaintiffs' rebuttal
In rebuttal, James testified that (1) he realized Gerald was not going to close the Estate in the early 1990s; (2) Gerald had refused to hand over Estate records when he (James) had requested them; (3) he (James) thought Gerald was breaching his duties to the Estate; (4) despite this belief, he (James) had borrowed $488,000 from the Estate at "as good or better" rates than he would have received from an institutional lender; (5) he had received the 2004 Estate accounting and had not objected to it; and (6) he recalled having mentioned that Gerald should invest Estate funds in the high tech market.
James's adult son, Timothy Johannes, testified on behalf of James's children. Timothy testified that (1) he and his siblings knew they would be beneficiaries of the James Trust after their father, died; and (2) Gerald had said he had already established the James Trust with Puget Sound National Bank, which was managing the trust.
B. Findings of Fact and Conclusions of Law
Ruling generally in favor of the Estate, the trial court's findings included a determination that, although "neither Gerald Johannes or James Johannes were very credible . . ., Gerald Johannes was most credible. Any dispute in testimony between them is resolved in favour of Gerald Johannes." Finding of Fact (FF) at 55. The trial court concluded that (1) Gerald did not breach his fiduciary duties when he loaned Estate money to James; and (2) Gerald's 1995 loan from the Estate to James and Valley Packers, was not self dealing. Noting that none of the experts had "said there was anything wrong with [Gerald's] approach," the trial court found that Gerald's short term investments were prudent for purposes of conserving the Estate's funds and maintaining the Estate's liquidity. RP (July 12, 2006) at 31-32.
The trial court also concluded that (1) the Estate had to remain liquid in order to close promptly once James repaid the note; (2) therefore, the long term investment strategies that James and James's children's experts had recommended were inappropriate; and (3) Gerald had breached his fiduciary duties as the Estate's personal representative by purchasing the K-Mart bonds. The trial court further concluded as a matter of law that Gerald had breached his fiduciary duties as the Estate's personal representative by (1) failing to keep adequate Estate account records; (2) failing to close the Estate by 1995, when the Estate was fully liquid; and (3) lending himself $240,000 for approximately three months to buy a home.
C. Damages
In spite of Gerald's breach of fiduciary duty in failing to close the Estate by 1995, the trial court declined to award damages to James and to James's children in the amount the James Trust would have been worth had Gerald timely funded it. Finding that James encouraged Gerald to delay closing the Estate, the trial court ruled that (1) James was estopped from benefiting from the delay; and (2) therefore, James was not personally entitled to any damages or attorney fees.
Finding that James's children's interest could not be calculated with reasonable certainty, the trial court also denied damages to James's children. The trial court also declined to award damages to James and James's children based on a theory of "lost investment opportunity," because this theory was too speculative.
Finding both brothers at fault for delaying the closing of the Estate, the trial court required James and Gerald each to pay one-half of the Estate's attorney fees for the action to collect on James's note and each to pay one-half of James's children's attorney fees.
The trial court ordered both James and Gerald to pay $45,050.48 in attorney fees to the Estate and $27,076.80 in attorney fees to James's children.
The trial court ordered (1) James to repay his $188,000 loan to the Estate, plus interest; (2) Gerald to compensate the Estate $84,000 for damages caused by his losing investment in the K-Mart bonds; and (3) Gerald to compensate the Estate interest owing from his apparent loan of $240,000 from the Estate to himself when he purchased his home.
Citing insufficient proof, the trial court denied James and James's children's request that Gerald reimburse the Estate for the five unaccounted $328 monthly payments to the Puget Sound National Bank and the missing certificate of deposit. The trial court noted, however, that denial of damages for these unaccounted-for Estate assets was "[u]nfortunately . . . [because] it's probably Gerald's failure to keep records" that caused the lack of proof. RP (July 12, 2006) at 35.
The trial court further found that Evelyn had (1) completed a lifetime gift of the Phoenix Bonds to Gerald by physically delivering the bonds; (2) intended to gift the parking garage to Gerald during her lifetime; (3) demonstrated her intent by "executing partial discharges of indebtedness related to the [parking garage] from time to time"; and (4) forgiven $20,000 of Gerald's remaining $33,769 debt on her demand note for the parking garage. Finding insufficient proof of Evelyn's intent to forgive the last portion of the debt, the trial court ordered Gerald to repay the Estate the $13,769 balance remaining on the demand note, plus interest since 1989.
Gerald did not cross appeal this order.
D. Removal of Gerald as Estate's Personal Representative; Estate Accounting
Because of Gerald's multiple breaches of fiduciary duties, the trial court removed him as personal representative of the Estate. Acknowledging that the 2004 Estate accounting might not be fully accurate, the trial court adopted it, not as a "true accounting," but rather as a "starting point" for the new personal representative (Gerald's replacement) to use in calculating distribution of the Estate.
James appeals. James's children cross appeal.
ANALYSIS I. Breach of Personal Representative's Fiduciary Duties
The trial court found that Gerald breached his duty as the Estate's personal representative when he failed to close the Estate in a timely manner. James and James's children argue that the trial court erred by (1) misapplying the law when it found that Gerald should have closed the Estate by 1995, instead of 1993; and (2) refusing to award damages for Gerald's breach in failing to close the Estate in a timely manner.
James's children separately argue that the trial court erred by concluding as a matter of law that Gerald's $188,000 loan to James was not a compensable breach of his fiduciary duties to them. These arguments fail.
Gerald responds that substantial evidence supports both the trial court's finding that the Estate could not have closed before 1995 and the court's calculation of damages.
A. Standards of Review
Reviewing a bench trial, we determine whether substantial evidence supports the trial court's findings of fact and "whether those findings support the [trial court's] conclusions of law." Substantial evidence supports a trial court's finding of fact where the "record contains evidence of sufficient quantity to persuade a fair-minded, rational person of the truth of the declared premise." Where a trial court's findings are based on conflicting testimony, we determine only whether "the evidence most favorable to the prevailing party supports the challenged findings." We review conclusions of law de novo.
Dorsey v. King County, 51 Wn. App. 664, 668-69, 754 P.2d 1255 (1988); Thorndike v. Hesperian Orchards, Inc., 54 Wn.2d 570, 575, 343 P.2d 183 (1959).
King County v. Wash. State Boundary Review Board, 122 Wn.2d 648, 675, 860 P.2d 1024 (1993) (quoting World Wide Video, Inc. v. Tukwilla, 117 Wn.2d 382, 387, 816 P.2d 18 (1991)).
Peoples Nat'l. Bank of Wash. v. Taylor, 42 Wn. App. 518, 525, 711 P.2d 1021 (1985) (citing State v. Black, 100 Wn.2d 793, 802, 676 P.2d 963 (1984)).
Mountain Park Homeowners Ass'n, Inc. v. Tydings, 125 Wn.2d 337, 341, 883 P.2d 1383 (1994) (citing Syrovy v. Alpine Res., Inc., 122 Wn.2d 544, 548 n. 3, 859 P.2d 51 (1993)).
We review a trial court's award of damages for abuse of discretion.
Staff Builders Home Healthcare, Inc. v. Whitlock, 108 Wn. App. 928, 932, 33 P.3d 424 (2001) (citing Krivanek v. Fibreboard Corp., 72 Wn. App. 632, 636, 865 P.2d 527 (1993), review denied, 124 Wn.2d 1005 (1994)).
B. Timely Estate Closing Date
James and James's children argue that, in finding Gerald breached his fiduciary duty by failing to close the Estate in a timely manner, the trial court erred in (1) finding that Gerald should have closed the Estate by 1993, before the Estate's 1995 and 1998 loans to James; and (2) that the trial court erred in finding that Gerald should have closed the Estate in 1995.
Gerald concedes that his failure to close the Estate by 1995 (but not by 1993) was a breach of his fiduciary duties to James and to James's children. Nevertheless, he asserts that (1) substantial evidence supports the trial court's finding that it would have been detrimental to the Estate to have closed it before 1995; and (2) therefore, the trial court did not err in failing to award damages based on the Estate's delayed closing. We agree.
Substantial evidence supports the trial court's finding that Gerald's closing the Estate in 1995, instead of in 1993, did not merit damages. Gerald testified that he originally planned to fund the James Trust with the fourplex, and to close the Estate in 1992. But the trustee bank thwarted his plan when it would not accept a trust funded with real estate. Nevertheless, Gerald sold the fourplex in 1993. But due to the many investments and some missing information, the Estate's accountant did not complete and file revised Estate income tax returns until late 1994; and the Estate's accounts were not settled until 1995. Thus, despite somewhat contrary testimony, the trial court had substantial reliable evidence that Gerald's failure to close the Estate in 1995 did not warrant an award of damages.
The trial court's refusal to award damages for failure to close the Estate before 1995, is consistent with its finding that Gerald did not breach his fiduciary duties in failing to close the Estate in 1995, after the fourplex was sold and Estate accounts were settled.
C. Damages for Breaches of Fiduciary Duties in Delayed Closing of Estate and Investments
James and James's children next challenge the trial court's award and calculation of damages on several grounds. Gerald counters that (1) substantial evidence supports the trial court's award and calculation of damages; (2) the trial court properly found that the investment strategies advocated by James and his experts would not have been the best strategies for the Estate; (3) the trial court did not err in estopping James from collecting damages; and (4) James's children are not entitled to damages because there is no evidence to show that the delay in funding the James Trust actually harmed their indefinite future contingent interests. We affirm the trial court.
The personal representative of an estate has a fiduciary relationship with the estate's beneficiaries and owes a duty to act in their best interest. In re Estate of Larson, 103 Wn.2d 517, 521, 694 P.2d 1051 (1985). The compensatory damages available to a beneficiary are equitable in nature. Gillespie v. Seattle-First Nat'l. Bank, 70 Wn. App. 150, 173, 855 P.2d 680 (1993), review denied, 123 Wn.2d 1012 (1994). To bring a damages action for breach of fiduciary duties, a beneficiary must show (1) a fiduciary relationship giving rise to a duty of care, (2) an act or omission by the fiduciary in breach of the standard of care, (3) damages sustained by the beneficiary; and (4) that the fiduciary's breach of the standard of care proximately caused the damages. 29 David K. DeWolf, Wash. Prac. § 8:1, at 277-78 (2007). James and James's children do not meet all four criteria necessary to merit damages here.
1. Estoppel
James separately argues that the trial court erred in ruling as a matter of law that estoppel precluded him from personally benefiting from the Estate's delayed closing. He argues that estoppel is inapplicable to a personal representative's duty to close the estate in a timely manner and that the trial court failed to find the requisite elements to invoke the estoppel doctrine. Gerald counters that because James actively participated in the delayed closing of the Estate, "[t]o allow [him] to now recover . . . would be fundamentally inequitable." Br. of Resp't at 14-15. We agree with Gerald.
James also argues that the trial court erred by applying estoppel because (1) he did not benefit from the delayed closing of the Estate, and (2) there were no discussions about keeping the Estate open between 1993 and 1995 "when the estate was, at all times ready to be closed." Br. of Appellant at 21-22. James asserts that if Gerald had closed the Estate in 1993, the Estate could not have made the unpaid $188,000 loan to him (James), which delayed the Estate's closing. These arguments fail because (1) James did not have to benefit from the Estate's delayed closing in order for estoppel to apply against him; and (2) our earlier discussion regarding the 1995 closing date negates James's latter argument. See Analysis, Part I.B., supra.
Neither party cites authority directly on point. James cites cases where courts distinguish the duties of a fiduciary who is also a beneficiary. Gerald cites authority holding that where beneficiaries allow a personal representative to continue the decedent's business, the beneficiaries may not later sue the personal representative for the business's lost profits. In re Ennis' Estate, 96 Wash. 352, 364-65, 165 P. 119 (1917).
We note that the Ennis court also held that a beneficiary's failure to object to a personal representative's accounting for years waived the right to dispute the accounting. 96 Wash. at 364-65. Such is the case here. James and his accountant, Pagano, both testified that they received the 2001 Estate accounting and raised no objections. The Estate accounting remained unchallenged until trial. Therefore, under Ennis, James waived the right to dispute that accounting. We further note that James's children also failed to take issue with that accounting at trial.
The equitable doctrine of estoppel precludes claiming a right that would otherwise exist but for the wrongful act or omission of the party claiming the right. Kessinger v. Anderson, 31 Wn.2d 157, 169, 196 P.2d 289 (1948). In order to estop a claim, a litigant must show that (1) the other party made an admission, statement, or acted in a way that is inconsistent with the claim now being asserted; (2) the litigant took action in reliance on that other party's admission, statement, or act; and (3) the litigant would suffer an injury due to this detrimental reliance if the court allowed the other party to recover. Robinson v. City of Seattle, 119 Wn.2d 34, 82, 830 P.2d 318 (1992).
Here, substantial evidence supports the trial court's finding the requisite elements to estop James from claiming damages from the delayed closing of the Estate. James did not challenge the trial court's finding of fact number 29, which stated that James "wanted to avoid having his inheritance from the Estate placed in trust and discussed ideas for avoiding the trust with Gerald." FF at 29. It also was undisputed at trial that (1) Gerald was ready to close the Estate upon James's repayment of his $188,000 loan from the Estate, but (2) James defaulted and did not timely repay the loan.
Other evidence showed that James actively encouraged Gerald to keep the Estate open in the mid 1990s, an allegation supported by James's $488,000 worth of loans from the Estate with favorable interest rates in 1995 and 1998, actions inconsistent with his argument now on appeal that Gerald should have closed the Estate in 1993. Furthermore, James also appears to have played a significant role in persuading Gerald to invest Estate funds in high tech stocks, which James now alleges was a breach of fiduciary duties.
Trial testimony showed that Gerald acted in reliance on James's requests and advice in deciding when to close the Estate and in how to invest trust and Estate funds. We hold, therefore, that substantial evidence supports the trial court's findings of fact comprising the elements of equitable estoppel against James, which in turn support the trial court's conclusion of law that James is estopped from asserting this claim for damages.
It would have been inequitable for the trial court to have awarded damages to James for the Estate's delayed closure: Gerald would have suffered financially for his good faith reliance on James's statements and acts.
Nor can we remand to the trial court to order Gerald to pay damages for the delay in closing the Estate between 1995 and 2004 because (1) Gerald could not close the Estate until James repaid his loan from the Estate; (2) in spite of Gerald's repeated requests, James did not repay the loan to the Estate, not even as of 2006, when trial began; (3) therefore, Gerald could not have closed the Estate sooner; and (4) after the trial court ordered James to repay the loan and replaced Gerald as the Estate's personal representative in 2006, any delay in closing the Estate thereafter 2006 would not be attributable to Gerald.
2. Damages too speculative
James and James's children urge us to adopt the rationale of Baker Boyer Nat'l Bank v. Garver, 43 Wn. App. 673, 719 P.2d 583, review denied, 106 Wn.2d 1017 (1986), in which Division Three of our court reversed a trial court's failure to award trust beneficiaries damages for profits that a trust lost because of the trustee bank's breach. Id. at 686-87. In reversing, the appellate court held that the purpose of awarding damages was to put the trust in the same position it would have been in had the breach not occurred. Id.
In Baker Boyer, beneficiaries sued a trustee bank for breach of its fiduciary duties for failure to diversify the trust's holdings. 43 Wn. App. at 676-77. The trial court awarded damages to the beneficiaries based on the trustee bank's failure to diversity. Id. at 678-79. But the appellate court reversed this award, holding that the trial court should have considered the trust fund's lost appreciation due to the trustee bank's breach of duty. Id. at 686. Using expert testimony, the appellate court increased the beneficiaries' award of damages to reflect the value of lost appreciation, caused by the trustee bank's failure to diversify. Id.
Although we agree with this Baker Boyer rationale in general, the distinctive facts here prevent our application of Division Three's holding. In Baker Boyer, a professional trustee, a bank, mismanaged existing trust funds. In contrast, our case involves a lay executor who has not yet funded a trust that the testator's will had directed because the Estate's beneficiary, James, had significantly contributed to the delay in closing the Estate and establishing the trust. Thus Baker Boyer is distinguishable on its facts.
We reiterate the broad discretion afforded to the trial court in determining the amount of damages for a trustee's breach of fiduciary duty. Standing alone, a fiduciary's breach is not automatically compensable with damages. In Gillespie v. Seattle-First Nat'l. Bank, 70 Wn. App. 150, 855 P.2d 680 (1993), review denied, 123 Wn.2d 1012 (1994), for example, Division One of our court affirmed the trial court's moderate award of damages, in spite of contrary evidence that might have supported higher damages. 70 Wn. App. at 176-77. Division One held that beneficiaries are entitled to only those damages "established with reasonable certainty." Id. at 176 (quoting Iverson v. Marine Bancorporation, 86 Wn.2d 562, 565, 546 P.2d 454 (1976)). The trial court refused to award lost profits because the estimates were too speculative. Relying on the testimony of two experts, the trial court did award direct operating losses because the "lost appreciation . . . [could be established] with reasonable certainty." Id. at 176. Division One affirmed the trial court's award of damages for direct operating losses to the beneficiaries, calculated at a conservative interest rate. Id. at 176-77.
In Gillespie, trust beneficiaries sued a trustee bank for breach of fiduciary duties. The trial court awarded damages to the beneficiaries for the trust's direct operating losses, but it found an award of lost profits an inappropriate basis for awarding additional damages. Gillespie, 70 Wn. App. at 176-77.
Applying Gillespie, we affirm the trial court's exercise of discretion in declining to award damages based on speculative or hypothetical assertions. See Id. at 176.
3. Residual beneficiaries' future interests
James's children separately claim that as residual beneficiaries of the James Trust, they have standing to request that Gerald fund the trust as if his breach of his fiduciary duty had never occurred. Gerald counters that as contingent remaindermen, James's children's interest in the James Trust "has no particular value until the termination of the measuring life," namely the life of their father, James. Br. of Cross Resp. at 7. Again, we agree with Gerald.
Many years ago, our Washington Supreme Court held that a trust's contingent remainder beneficiaries maintained an indefeasible interest, even if "the first taker has the power of disposition." In re Ivy's Estate, 4 Wn.2d 1, 6, 101 P.2d 1074 (1940). More recently, Division One of our court held that contingent remaindermen did have a present interest in the remainder of a trust. Nelsen v. Griffiths, 21 Wn. App. 489, 493, 585 P.2d 840 (1978). Division One further noted, however, that "[a]ny uncertainty relates only to the amount they may receive, not to their right to receive." 21 Wn. App. at 493 (emphasis added).
James's children correctly assert that they have standing to enforce the terms of the James Trust. But because Evelyn's will bequeaths the remainder of the James Trust to James's children only on James's death, James's children's interest is not ascertainable until that time. Furthermore, James's children's potential interest is subject to depletion by the expenses and other liabilities James incurs throughout his life. Because it cannot be determined how much, if any, money will remain in the James Trust when James dies, any damages to James's children's contingent future interest in the James Trust, proximately caused by Gerald's failure to close the Estate promptly, cannot be "established with reasonable certainty." Gillespie, 70 Wn. App. at 176 (quoting Iverson, 86 Wn.2d at 565).
We hold, therefore, that it was within the trial court's discretion to deny damages to James's children based on Gerald's breach of duty to close the Estate in a timely manner.
D. Estate's 1998 Loan to James as Breach of Gerald's Fiduciary Duty to Beneficiaries
James's children next challenge the trial court's conclusion of law that Gerald's 1998 loan of $188,000 from the Estate to James was not a breach of his fiduciary duties. James's children argue that Gerald breached his fiduciary duties because the loan was unsecured, Gerald had no legal authority as personal representative to grant loans from the Estate, and the loan amounted to self-dealing because Gerald also benefited from it. Gerald counters that the loan was not self-dealing because he did not benefit in any way and that he made the loan in solely James's interest.
We agree with James's children that the trial court erred as a matter of law in ruling that Gerald's 1998 loan of $188,000 from the Estate to James was not a compensable breach of his fiduciary duties. The existence of such a breach, however, does not necessarily entitle James's children, as contingent beneficiaries, to damages. We affirm the trial court's ruling denying damages to the contingent James's children for this breach.
1. Breach
James's children claim that as residual beneficiaries of the James Trust, they have standing to request that Gerald fund the trust as if his breach of his duty had never occurred. Gerald argues that as contingent remaindermen, James's children's interest in the James Trust "has no particular value until the termination of the measuring life." Br. of Cross Resp. at 7. We agree with both parties: As residual beneficiaries of the James Trust, James's children have an interest and, therefore, standing, in seeking to restore the James Trust funds to the level it at which it would have been had Gerald not made the loan to James.
Personal representatives owe an obligation to exercise the utmost good faith and diligence in administering the estate in the beneficiaries' best interests. Estate of Larson, 103 Wn.2d at 521. Under RCW 11.68.090, a personal representative with non-intervention powers is subject to the same trustee standards in RCW 11.100. RCW 11.100.045 provides that a "fiduciary shall invest and manage the trust assets solely in the interests of the trust beneficiaries. If a trust has two or more beneficiaries, the fiduciary shall act impartially in investing and managing the trust assets." See In re Estate of Johnson, 187 Wash. 552, 554-55, 60 P.2d 271 (1936) ("[a]n executor . . . acts in a trust capacity, and must conform to the rules governing a trustee") (citing Stewart v. Baldwin, 86 Wash. 63, 149 P. 662 (1915)).
The record shows and the law supports that Gerald breached his fiduciary duties to James's children by making the 1998 unsecured loan from the Estate to James. Gerald testified that he loaned Estate funds to James, despite his belief that Evelyn had created the trust in order to protect funds from James's poor spending habits. There was also undisputed expert testimony that Gerald's unsecured loan to James was an improper use of Estate funds because an executor has a duty to increase the corpus for residual, as well as lifetime, beneficiaries, such as Evelyn's grandchildren.
But Gerald's unsecured loan from the Estate to James decreased the corpus of the Estate, especially when James failed to repay it. Nothing in the record or in the trial court's findings of fact shows that Gerald considered the best interests of James's children before lending Estate money to James, whom he already knew had problems managing money. We hold, therefore, that the trial court erred by concluding that Gerald's 1998 loan of Estate money to James was not a breach of his fiduciary duties to James's children, as James Trust contingent remaindermen.
2. No damages
Nevertheless, for the same reasons that we discuss earlier in this opinion, we, the appellate court, cannot assign a value to James's children's contingent interest in the James Trust with reasonable certainty. The trial court below ordered James to repay the $188,000 promissory note to the Estate, with $127,969.59 in interest and post-judgment interest accruing at eight percent a year. This solution compensates James's children's contingent interest by restoring the Estate's funds, a portion of which will then be available to fund the James Trust. And this solution does not require speculation about the amount that might remain in the James Trust at the time of James's death.
Nevertheless, James's children's ultimate ability to inherit is totally dependent on the amount of funds remaining in the James Trust when James dies. Thus, it is also dependent on the status of the James Trust as affected by James's actions, both past and future. As the trial court ruled and we have affirmed, James's actions so significantly contributed to Gerald's delay in funding the James Trust that James is not entitled to damages or to restoration of the Estate or, derivatively, the James Trust corpus, as if the delay had not occurred. Furthermore, once established, the James Trust is subject to depletion, under the terms of Evelyn's will, by distributions for the rest of James's life, including the potential invasion of the corpus, if necessary, for as yet unknown potential catastrophic medical expenses or long-term care, for example.
Therefore, in spite of Gerald's breach, we affirm the trial court's denial of James's children's request for a direct award of damages to them or for restoration of the James Trust as if the breach had not occurred.
James's children argue that "[t]he record is devoid of anything the Johannes grandchildren did as beneficiaries that the doctrine of estoppel would apply against them." Br. of Cross App. at 10. But we do not reject their request for award of damages on the basis of estoppel. Instead, we will not disturb the trial court's finding that the damages from Gerald's breach of fiduciary duties to James's children were not reasonably certain enough to sustain an award of damages.
II. Unaccounted-For Estate Assets
James and James's children next argue that (1) the trial court erred in not requiring Gerald to reimburse the Estate for the following unaccounted for assets?the five monthly bank deposits of $328 and a bank investment certificate of deposit worth between $21,000 and $28,000; and (2) the trial court improperly shifted the burden from the personal representative to James and James's children to prove the whereabouts of missing assets, rather than requiring Gerald to account for them.
James and James's children also allege that an Estate account containing $2,093 remains unaccounted for; they request reimbursement. The trial court did not address this account in its findings of fact. But on appeal, James and James's children fail to develop this argument in compliance with RAP 10.3(a). James and James's children mention the account in their briefs, but do not present a full argument supporting the demand for reimbursement; thus, we do not further consider this argument. See Milligan v. Thompson, 110 Wn. App. 628, 42 P.3d 418 (2002) (holding that a party waives assignments of error not argued adequately). Moreover, James cites to evidence in the record before us that implies Gerald did deposit the funds into the Estate's account.
Gerald counters that substantial evidence supports the trial court's findings and that there was no evidence of injury to James or to James's children as a result of his failure to account properly for these Estate assets. Gerald testified that he was unaware of the existence of the certificate of deposit, he had never seen records of it before trial, and that he did not know why the Estate had paid Puget Sound National Bank $328 five times. Based on this testimony, which the trial court found more credible than James's testimony, the trial court found the evidence did not sufficiently prove Gerald's liability for the missing Estate assets and, therefore, no damages award was appropriate.
We do not substitute our judgment for the trial court's determinations of witness credibility. Peoples Nat'l. Bank of Wash. v. Taylor, 42 Wn. App. 518, 525, 711 P.2d 1021 (1985). Therefore, we do not dispute the trial court's findings of fact based on Gerald's testimony that he knew nothing about the unaccounted for Estate assets.
Nevertheless, an estate's personal representative has a duty "[t]o protect and preserve the guardianship estate . . . [and] to account for it faithfully." RCW 11.92.040(4). The Restatement of Trusts provides that a "trustee has a duty to maintain clear, complete, and accurate books and records regarding the trust property and the administration of the trust." Restatement (Third) of Trusts § 83 (2007). And under RCW 11.68.090(1), "[a]ny personal representative acting under nonintervention powers . . . [is] subject to the same limitations of liability, that a trustee has under RCW 11.98.070 . . . with regard to the assets of the estate."
Based on Gerald's credible testimony, his inability to explain the whereabouts of these missing Estate assets appears to be a breach of his fiduciary personal representative duty to account properly for Estate assets as a matter of law. RCW 11.92.040(4). Thus, we hold that the trial court erred by not requiring Gerald to account for these Estate assets and, if unable to so account, in failing to require Gerald to repay this missing amounts to the Estate. Accordingly, we remand to the trial court to make these determinations and, if warranted, to require Gerald to reimburse the Estate for these losses.
III. Lifetime Gifts
James and James's children next argue the trial court erred by concluding that (1) Evelyn forgave the $20,000 loan to Gerald, and (2) the Phoenix Bonds were lifetime gifts from Evelyn to Gerald. Gerald counters that the trial court properly found that the loan and the bonds were lifetime gifts from Evelyn. The record supports the trial court's finding.
A. Standard of Review
The elements of a completed gift are (1) an intention of the donor to give presently, (2) a subject matter capable of passing by delivery, (3) an actual delivery, and (4) an acceptance by the donee. Sinclair v. Fleischman, 54 Wn. App. 204, 207, 773 P.2d 101, review denied, 113 Wn.2d 1032 (1989). An unexplained transfer of money from a parent to a child raises the presumption that the parent intended a gift; a party may rebut the presumption only by proof that leaves no reasonable doubt as to this intent. In re Estate of Miller, 134 Wn. App. 885, 895, 143 P.3d 315 (2006) (citing Wakefield v. Wakefield, 59 Wn.2d 550, 551, 368 P.2d 909 (1962)), review denied, 161 Wn.2d 1003 (2997).
We look for substantial evidence to support the trial court's findings of fact. Dorsey v. King County, 51 Wn. App. 664, 668-69, 754 P.2d 1255, review denied, 111 Wn.2d 1022 (1988). We find such substantial evidence here and hold, therefore, that James and James's children did not rebut the presumption that Evelyn intended her unexplained transfers to Gerald as gifts.
B. $20,000 Credit
Substantial evidence supports the trial court's finding that Evelyn intended to gift the parking garage to Gerald during her lifetime and that subsequently she credited $20,000 toward Gerald's debt. At trial, Gerald presented evidence that Evelyn intended to gift a parking garage to him during her lifetime: Her accountant created a system where she occasionally deducted a debt representing the garage, in order to avoid the gift tax. Evelyn later took affirmative steps to gift the remaining debt, signing a note expressing her intent to forgive the entire loan to Gerald, which apparently resulted in the credit of $20,000. The trial court ordered Gerald to repay the remaining $13,769 plus interest. This testimony provided evidence of (1) Evelyn's intent to deliver the parking garage, (2) actual physical delivery of the deed to the parking garage, and (3) Gerald's acceptance of the deed.
Because Evelyn forgave $20,000 of Gerald's parking garage debt but failed to record in her accounts that she similarly forgave the remaining balance of $13,769, as Gerald asserted, the trial court regarded the $13,769 as an unpaid debt that Gerald owed to the Estate. Gerald does not challenge this finding.
We hold, therefore, that there was substantial evidence to support the trial court's finding that Evelyn made an inter vivos gift of the parking garage and, thus, the $20,000 credit to Gerald.
C. Phoenix Bearer Bonds
James contends that Gerald should reimburse the Estate for the $100,000 worth of City of Phoenix Bonds because the trial court erred in finding they were inter vivos gifts from Evelyn. James asserts that although Evelyn physically delivered the bonds to Gerald, she never formally endorsed or transferred them to Gerald's name and, therefore, the gift was incomplete. This argument fails because the instruments were bearer bonds.
Bearer bonds are negotiable instruments that a holder may transfer by delivery alone by endorsing in blank. RCW 62A.3-104. The City of Phoenix bonds themselves provide, "[I]f this bond is registered as to principal it may be discharged from registration by being transferred to bearer, after which it shall be transferable by delivery." Exhibit 24. Evelyn also signed a "statement of gift," describing the bonds and her intent to gift them to Gerald. She also claimed them on a gift tax return in 1988. Because Gerald presented evidence of (1) Evelyn's intent, (2) delivery of possession, and (3) his own acceptance, there was substantial evidence for the trial court to find Evelyn properly gifted the City of Phoenix Bonds to Gerald.
Both James and James's children allege the trial court erred in its final calculation of damages. Because we addresses each allegation in turn and find substantial evidence to support the trial court's calculation of damages, it is not necessary to address the argument that the final cumulative calculation was in error.
IV. 2004 Accounting Not Hearsay
James and James's children also argue that the trial court erred by adopting a hearsay accounting in its findings of fact because the accountant who prepared it did not testify at trial. Gerald responds that (1) the trial court properly admitted the accounting because he did not present it for the truth of the matter asserted; and (2) in the alternative, the accounting was admissible under the business records exception to the hearsay rule. We find Gerald's first argument persuasive.
Gerald did not use the 2001 accounting to prove the truth of the matter asserted; therefore, no hearsay rule exception is required.
A. Standard of Review
We review the trial court's evidentiary rulings for abuse of discretion. State v. Ellis, 136 Wn.2d 498, 504, 963 P.2d 843 (1998). A court abuses its discretion when its evidentiary ruling is "manifestly unreasonable, or exercised on untenable grounds, or for untenable reasons." State v. Downing, 151 Wn.2d 265, 272, 87 P.3d 1169 (2004) (quoting State ex rel. Carroll v. Junker, 79 Wn.2d 12, 26, 482 P.2d 775 (1971)). A reviewing court will reverse a trial court's ruling only if "no reasonable person would take the view adopted." State v. Castellanos, 132 Wn.2d 94, 97, 935 P.2d 1353 (1997) (citing State v. Huelett, 92 Wn.2d 967, 969, 603 P.2d 1258 (1979)). Such is not the case here.
B. Trial Court Discretion
In finding of fact number 51, the trial court adopted Johnson's 2004 accounting, because it was "part of the court record in the probate." The trial court had previously properly admitted the 2001 Estate accounting expressly for the purpose of proving that Gerald had delivered the accounting to James, on the condition that Gerald was not offering it for the truth of the matter asserted. The trial court also admitted the 2004 accounting over James's hearsay objection, finding that its admission in the record from probate court likely rendered it admissible at trial.
The trial court reserved ruling on the 2004 accounting's admissibility, allowing James an opportunity to "show [it] that a document in another court file is inadmissible." RP at 502-03. It does not appear that the parties revisited this issue.
Furthermore, it does not appear the trial court admitted the accounting as a business record. Therefore, we do not address this exception to the hearsay rule.
When the trial court incorporated the 2004 Estate accounting into its findings of fact, it told the parties that it was not calling the 2004 accounting a "true accounting" but, rather, it was using the accounting as "a starting point . . . [for the new personal representative to determine] how much the trust gets." RP at 925. Discussing the issue with both parties, the trial court found, "Frank Johnson might or might not have been correct because of all the problems of the records, but you've got to start somewhere." RP at 924. We must determine whether the trial court abused its discretion in so ruling.
In Diel v. Beekman, 7 Wn. App. 139, 499 P.2d 37 (1972), overruled on other grounds by Chaplin v. Sanders, 100 Wn.2d 853, 676 P.2d 431 (1984), a party challenged the trial court's admission of an estate's probate file into evidence as irrelevant. 7 Wn. App. at 156. Division One of our court held that because admissibility of evidence is within the trial court's discretion, the appellate court would not overturn the trial court's admission of the probate file unless it was "clearly wrong." 7 Wn. App. at 156. Determining that the file was relevant to the proceedings, the court held the trial court did not abuse its discretion in admitting it. Diel, 7 Wn. App. at 156.
Similarly, we find no abuse of discretion here. Based on the record before us, the trial court's decision to admit the 2004 accounting as a starting point for an updated accounting was neither "clearly wrong," nor an abuse of discretion, particularly where the trial court adopted the accounting merely as a "starting point" for the Estate's new personal representative, and not as an adoption of the accounting as true for purposes of the claims before it on trial.
Moreover, James and his accountant, Pagano, both testified that they requested and received the 2004 Estate accounting without objecting to its content.
V. Attorney Fees
James asks us to review his half of the trial court's award of attorney fees to James's children and to the Estate. All parties seek attorney fees on appeal. We address each request separately.
Gerald does not similarly cross appeal the trial court's order that he pay half of the trial attorney fees incurred by James's children and by the Estate.
A. At Trial
James argues that the trial court erred by ordering him to pay half of James's children's attorney fees and half of the Estate's attorney fees, and in refusing to require Gerald to pay him (James) attorney fees. Gerald responds that the attorney fee awards were well within the trial court's discretion and, therefore, we should not disturb them on appeal. We agree with Gerald and affirm the trial court's award of attorney fees to the Estate and to James's children.
1. Standard of review
Absent a manifest abuse of discretion, we will not disturb the trial court's award of attorney fees in a probate matter. In re Estate of Larson, 103 Wn.2d 517, 521, 694 P.2d 1051 (1985). A trial court abuses its discretion when its decision is "manifestly unreasonable, on untenable grounds, or [made] for untenable reasons" in light of all facts and circumstances of the case. In re Estate of Black, 116 Wn. App. 476, 489, 66 P.3d 670 (2003) (citing In re Estate of Niehenke, 117 Wn.2d 631, 647, 818 P.2d 1324 (1991). The trial court must consider "whether the litigation and the participation of the party seeking attorney fees caused a benefit to the trust." Allard v. Pacific Nat'l Bank, 99 Wn.2d 394, 407, 663 P.2d 104 (1983).
2. Trial court discretion
A trial court has discretion to order any party to pay reasonable attorney fees to any other party in the proceedings, "as the court determines to be equitable . . . consider[ing] any and all factors that it deems to be relevant and appropriate." RCW 11.96A.150. In a recent decision, Division Three of our court held that, because its goal was to be equitable, the trial court could award fees "to both sides, because the litigation resolves the rights of all." In re Estate of Black, 116 Wn. App. 476, 491, 66 P.3d 670 (citing In re Estate of Watlack, 88 Wn. App. 603, 612, 945 P.2d 1154 (1997)), review denied, 150 Wn.2d 1020 (2003).
Black involved multiple parties in a probate proceeding.
James relies on Allard, 99 Wn.2d 394, in which the Washington Supreme Court held, "[A] trial court abuses its discretion when it awards attorney fees to a trustee for litigation caused by the trustee's misconduct." Allard, 99 Wn.2d at 407. But Allard is readily distinguishable from the case here because Allard involved a professional trustee's mismanagement of trust funds. Here, in contrast, as we earlier noted, Gerald is a lay executor and at issue is a probate proceeding where a trust was not yet funded.
In Allard, a bank trustee breached its fiduciary duties to beneficiaries by mismanaging the trust.
Because the trial court found both James and Gerald responsible for the delay in closing the Estate, and the resulting diminution of the Estate, we find no manifest abuse of discretion in its ordering James and Gerald each to pay half of the Estate's and James's children's attorney fees.
B. On Appeal
All parties request attorney fees on appeal under RAP 18.1. James and James's children also claim fees under RCW 11.68.070 for a personal representative's breach of fiduciary duties. Gerald asks us to exercise our discretion to award him fees to under RCW 11.96A.150.
RAP 18.1(a) provides:
If applicable law grants to a party the right to recover reasonable attorney fees or expenses on review before either the Court of Appeals or Supreme Court, the party must request the fees or expenses as provided in this rule, unless a statute specifies that the request is to be directed to the trial court.
1. RCW 11.68.070
RCW 11.68.070 provides that a court has discretion to award reasonable attorney fees to estate beneficiaries where a personal representative "fails to execute his trust faithfully or is subject to removal." Because of James's substantial role in the delayed closing of the Estate, we affirm the trial court's ruling that he is estopped from obtaining attorney fees from the other parties.
Nor do we require Gerald to pay attorney fees on appeal to James's children under RCW 11.68.070. The trial court has already required Gerald to pay half of their attorney fees at trial, based on his breach of duty as the Estate's personal representative.
And it is James who brought this appeal and caused his children to incur additional attorney fees expenses on appeal, not Gerald. We cannot order James to pay his children's attorney fees under RCW 11.68.070 because this statute pertains to breaches by the personal representative of an estate, not to estate beneficiaries like James, regardless of his culpability in contributing to the personal representative's breach.
2. RCW 11.96A.150(1)
RCW 11.96A.150(1) allows an appellate court to award attorney fees to any party in a proceeding for trust and estate dispute resolution, "in such amount and in such manner as the court determines to be equitable . . . consider[ing] any and all factors that it deems to be relevant and appropriate." Under this statute, we can award attorney fees to James's children.
In our view it is equitable that we award attorney fees to James's children on appeal under RCW 11.96A.150(1), in an amount to be determined by our court commissioner upon submission of the appropriate documentation. James's children did not contribute to the Estate's losses. But the actions of both James and Gerald harmed the Estate and, consequently, James's children's potential inheritance from the James Trust, as contingent remaindermen; and James's children incurred attorney fess to protect that potential interest.
But unlike the situation at trial, where both James and Gerald had been responsible for the previous harm to the Estate, only James is responsible for James's children incurring attorney fees on appeal: It was James's appeal that caused James's children to incur these costs. In contrast, Gerald did not challenge any of the trial court's rulings, including its order that he pay half James's children's attorney fees at trial. Gerald neither appealed nor cross appealed. Therefore, we order James to pay James's children's attorney fees, without contribution from Gerald.
Similarly, it was James who caused Gerald, in his capacity as the Estate's personal representative, to incur attorney fees on appeal. Gerald had already accepted personal responsibility for his breaches of fiduciary duty below, and he did not seek to challenge any of the trial court's orders. Even when James appealed, Gerald did not cross appeal; instead, he concurred in the reasonableness of the trial court's attorney fee award below. Thus, insofar as Gerald incurred attorney fees on appeal on behalf of the Estate, we order James to pay such fees. We leave to our Commissioner to determine, upon proper showing, whether any of Gerald's attorney fees on appeal are attributable to his affirmed compensable breaches of fiduciary duty before trial and whether to subtract such fees from the amount James will owe to Gerald.
VI. Conclusion
Affirming the trial court in part, we hold that: (1) Gerald breached his fiduciary duty when he failed to close the Estate by 1995; (2) James's active participation in Gerald's delay in closing the Estate estops him from personally recovering damages; (3) the value of the Estate, had it been closed in 1995, is not reasonably certain enough to award the contingent Beneficiaries damages for Gerald's delay in closing the Estate; (4) Gerald, a layman, did not breach his fiduciary duties to James and James's children when he invested Estate funds based on professional financial advice; (5) the record supports the trial court's ruling that Gerald received certain lifetime gifts, including a parking garage and City of Phoenix bearer bonds, from the testator, his mother Evelyn, for which he was not required to reimburse the Estate; (6) the 2004 Estate accounting was not hearsay because the trial court used it only as a starting point for the newly appointed personal representative of the Estate, not as proof of the actual financial status and transactional history of the Estate; (7) the trial court did not abuse its discretion in ordering James and Gerald each to pay half of James's children's attorney fees at trial; and (8) the trial court also did not abuse its discretion in ordering that Gerald pay half of the Estate's attorney fees at trial.
Holding that the trial court also erred in part, we reverse the trial court's refusal to order Gerald to reimburse the Estate for: (1) the unaccounted-for bank certificate of deposit in the Estate's name, and (2) the five unexplained monthly payments of $328 to Puget Sound National Bank. Although the trial court found credible Gerald's explanation that he did not know what had happened to these Estate funds, based on the same facts before the trial court, we hold as a matter of law that Gerald's inability to account for the certificate of deposit and the five monthly bank payments constituted a breach of his fiduciary duty as personal representative to account for all Estate funds. Accordingly, we remand to the trial court to determine damages for this specific breach and to order Gerald to restore these funds to the Estate.
In addition, we deny James's request for attorney fees on appeal, and we order him to pay attorney fees to the Estate, to James's children, and to Gerald to the extent he incurred such fees on appeal in his capacity as the personal representative of the Estate.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
BRIDGEWATER, PJ., and PENOYAR, J., concur.