- Probate Court Could Order Return Of Wrongfully Acquired Funds To A Decedent's Estate And Double Damages Even Though It Was Unclear Whether The Parties Bringing The Petition Were Entitled To The Funds
- May 25, 2010
- Law Firm: Kronick Moskovitz Tiedemann & Girard A Law Corporation - Sacramento Office
In The Regents of the University of California v. Kraus, (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., April 27, 2010), a California Court of Appeal considered whether a probate court properly ordered a man who wrongfully withdrew funds from accounts belonging to his now deceased sister to return the funds to the personal representative of his sister’s estate and to pay statutory double damages. The Court of Appeal held the probate court did not err in requiring the return of the funds and the payment of double damages even though it was unclear whether the parties who brought the action for the return of funds would ultimately be entitled to those funds.
David Kraus had his sister Janice Kraus execute a durable power of attorney on October 22, 2006, while she was semi-comatose and in hospice care. The next day, David took $142,676.03 from four California National Bank certificates of deposit that named Janice and her mother, Irene, as beneficiary. David also took $9,385.07 from Janice and Irene’s joint checking account at Wells Fargo Bank and $14,767.93 from Janice’s Washington Mutual Bank checking account. David deposited the funds in accounts held by him and his wife. Janice died on October 24, 2006, just two days after she executed the durable power of attorney.
Janice had signed a will in 2003 that provided the funds in her bank account would pour over into her trust. The trust provided the Regents of the University of California (“Regents”) and the Make-a-Wish-Foundation of Greater Los Angeles (“Make-A-Wish”) would each receive 50 percent of the trust residue. Janice had disinherited David.
Regents and Make-A-Wish filed a petition for transfer and return of the money taken by David. They claimed the money in the accounts misappropriated by David belonged in the trust. The probate court found the durable power of attorney was void and David had wrongfully and in bad faith converted trust property. The probate court, however, made no determination of Regents’ and Make-A-Wish’s rights to the funds taken by David. The court’s order did not list an amount of judgment in favor of Regents and Make-A-Wish but did order David, pursuant to Probate Code Sections 850 et seq, to deliver $197,402 to the personal representative of Janice’s estate and pursuant to Probate Code Section 859, to deliver $394,804 to the personal representative of the estate. The court stated the funds shall be distributed pursuant to the testamentary provisions of Janice’s pour-over will, “or to others based on their claims against” Janice’s estate.
Probate Code section 850 provides that any “interested person” can file a petition in the following situations, among others: (1) “Where the decedent died in possession of or holding title to, real or personal property, and the property or some interest therein is claimed to belong to another;” or (2) “Where the decedent died having a claim to real or personal property, title to or possession of which is held by another.” An interested person is defined in another part of the Probate Code as including “[a]n heir, devisee, child, spouse, creditor, beneficiary, and any other person having a property right in or claim against a trust estate or the estate of a decedent which may be affected by the proceeding.” An action brought under Probate Code section 850 may include claims “that are normally raised in a civil action to the extent that the matters are related factually to the subject matter of a petition filed under this part [of the Probate Code].” The probate court may order the conveyance or transfer of the property to the person entitled to the property.
Although David conceded the power of attorney was invalid he claims the probate court should have denied Regents’ and Make-A-Wish’s petition because they did not prove they had any right to the funds. The Court of Appeal rejected this argument. Under section 850, any interested party can request that the probate court order a conveyance or transfer of property. The Court of Appeal found that by its own terms, section 850 “does not require the probate court to find that the property in question belongs to the interested petitioning party.” Regents and Make-A-Wish asked the court to order David to relinquish the misappropriated property. The Court of Appeal concluded, “That it is unclear who is entitled to the property does not deny [Regents and Make-A-Wish] of their interest in its rightful disposition—even if, ultimately, it does not go to the trust.”
David also claims “the probate court exceeded its jurisdiction when it ordered damages paid to an unnamed personal representative of Janice’s estate.” The Court of Appeal rejected this argument. The probate court ordered the misappropriated funds and the statutory damages to be placed in Janice’s estate so a proper determination of disposition could be made at a later date. Probate Code section 856 gives “the probate court the power not only to order a conveyance or transfer to the person entitled to the property in question, but also to grant other appropriate relief.” A probate court has general subject matter over a decedent’s property and can “resolve competing claims over the title to and distribution of the decedent’s property.” The Court of Appeal noted that it would be “pointless to deny a probate court the power to determine the whole controversy between the parties before it.”
David closed the accounts at issue so the funds did not remain on deposit at the time of Janice’s death. Although the accounts had named beneficiaries, there was evidence Janice intended for the funds in her bank accounts to go into her trust. The probate court clearly found David was not entitled to the funds. Under the circumstances, “the probate court could reasonably, in the exercise of its statutory and equitable powers, place the funds, together with the statutory penalty imposed on David, in Janice’s estate for future determination of their proper disposition.”
David also claims the funds taken from the accounts should be distributed by law and not through the probate courts. He claims he should be able to retain the funds from the accounts “unless and until someone proves, by clear and convincing evidence, a better claim to them.” There was evidence Janice intended the money from the accounts to pour over into her trust even though the accounts indicated beneficiaries. The court found that probate court could have reasonably concluded David has no right to retain the funds.
David additionally asserts the probate court erred in imposing a penalty under Probate Code section 859. David claims that no civil penalty can be imposed until after the probate court determines the ultimate disposition of the misappropriated funds. Probate Code section 859 provides that if a person wrongfully takes, conceals, or disposes of property that belongs to an estate or trust “the person shall be liable for twice the value of the property recovered.” The remedy provided by section 859, which is punitive in nature, is in addition to remedies available at law. The penalty is imposed when an interested party establishes (1) the property is recoverable under Probate Code section 850, and (2) the person that took the property acted in bad faith.
The probate court held David in “bad faith wrongfully” took money from Janice’s accounts that was recoverable under section 850. At the time David misappropriated the money, the money belonged to Janice. After Janice died, the money belonged to her estate or trust, or to some party claiming against her estate. The Court of Appeal found, “The statutory emphasis is not on to whom the property belongs, but whether the person in possession in bad faith wrongfully acquired it.”
David also argued that because the court did not award any damages to the beneficiaries of the trust, it could not award a penalty under section 859. The Court of Appeal found that section 850 does not contemplate an award of damages because its purpose is to make a conveyance or transfer of property belonging to a decedent or trust and to grant any relief needed to carry out the decedent’s intent and to also prevent the looting of the decedent’s estate. The Court of Appeal held that the probate court did not award damages but instead placed the misappropriated funds into Janice’s estate pending the ultimate disposition of funds. The Court of Appeal concluded the probate court did exactly what section 850 intended, it “took the funds out of the hands of the person who wrongfully acquired them—David.” Accordingly, the Court of Appeal affirmed the decision of the probate court.