Attorney Removed as Manager of Living Trust : Courts: Laguna Beach lawyer is temporarily suspended as trustee of an elderly woman’s estate because he used account as ‘a lending vehicle for his own needs,’ judge says.
Moving decisively to curb newly uncovered abuse by lawyers in the handling of trusts for the elderly, Orange County’s chief probate court judge has stripped control of an estate from a lawyer who used his client’s trust funds to finance his real estate ventures.
Ordering such action against an attorney for the second time in as many weeks, Superior Court Judge Tully H. Seymour said he was removing lawyer Donald Bruce Black of Laguna Beach temporarily as trustee of an estate because Black had used the trust account as “a lending vehicle for his own needs.”
The judge said the lawyer could not properly account for millions of dollars that he had spent from the elderly woman’s trust fund over the last three decades. In one transaction, Black, 60, loaned himself $770,000 from the estate to finance acquisition of commercial property in Laguna Beach.
“In my (time) as the presiding judge (in the probate court), this is one of the . . . highest-profile cases of a trustee breaching his trust,” Seymour said. “Mr. Black is playing games with this trust, and he has not acted in a manner befitting a member of the Bar. The court has totally lost confidence in his ability to perform and to allow him to remain one more day as trustee would be a big mistake.”
Seymour said last week’s action against Black was only the third time that he has felt a need to remove a lawyer as trustee of a sizable estate.
The week before, Seymour removed Laguna Hills lawyer James D. Gunderson as trustee of an estate from which he inherited $3.5 million under questionable circumstances. The same week, Seymour also lifted Gunderson’s control over the estate of a 92-year-old Leisure World woman after authorities reported that they could not account for assets valued at $800,000 that were once in her estate.
The actions came in the wake of a Times investigation that revealed that Gunderson, 67, had arranged to inherit millions in cash, stock and real estate from his elderly clients, despite a longstanding California Supreme Court ruling that anything more than a modest gift from a client’s estate to the attorney raises questions of impropriety.
The Orange County Sheriff’s Department, the State Bar of California, the Orange County Bar Assn. and the Probate Court in Orange have launched separate investigations into Gunderson’s law firm, which is just outside the gates of the Leisure World-Laguna Hills retirement community.
Gunderson has declined to comment in detail on his inheritances, but he has repeatedly denied any wrongdoing.
Seymour said there has been no research into the question, but he left open the possibility that the mishandling of living trusts could prove to be a growing problem for the courts because senior citizens are being persuaded to entrust their life’s savings to lawyers and others who promote such trusts as a way to avoid federal inheritance taxes and high probate fees.
Such trusts are legal entities that hold title to an owner’s home, car, bank accounts, real estate, stocks, bonds and other major assets. But unlike wills, which must be filed in probate court, the holdings of a trust are not recorded publicly.
Problems arise, Seymour said, because the documents creating such trusts and naming their beneficiaries rarely come to the attention of the courts, and are rarely reviewed by judges.
“This is an issue that should be studied to see if there needs to be a prohibition on attorneys drawing trust instruments that put them in a . . . fiduciary role, such as trustee, which gives them control over trustor’s assets.”
In Seymour’s view, “there should be a prohibition or some kind of court review. The trust should be done . . . by an independent attorney (and) some consideration should be given to the need for a prophylactic rule that would keep the same attorney from assuming power over the assets of the trusts.”
Seymour’s rebuke of Black, who also faces suspension from his legal practice in an action filed by the State Bar of California in State Bar Court in Los Angeles, came during a court hearing Thursday.
In September, the State Bar Court, which hears disciplinary cases against attorneys, found Black guilty of five charges of misconduct involving “multiple acts of wrongdoing.” Among the violations, the court found that Black had willfully misappropriated and or commingled his funds with those in a trust he managed.
The State Bar Court found that Black should be suspended from practicing law for three years, but went on to recommend that this suspension be stayed, and he should be suspended for eight months and placed on probation for four years. Black was also ordered to pay restitution to a client and to comply with the Rules of Professional Conduct, among several other conditions.
The suspension, like other disciplinary matters, will be reviewed by a Bar panel before being presented to the state Supreme Court for final approval.
Seymour and other probate experts say that if clients want their attorneys to serve as trustees, the trust should be prepared by another party.
Black drew up a trust for his client Arthur Newton Gage Jr. in 1972. The trust gave Black, the trustee, broad and absolute powers over millions of dollars.
Among other powers, the document said Black should not “be liable for any losses resulting from any investment, from its management, or from lack of prudence in the conduct of his duties as trustee.”
Gage died in 1974, leaving his assets to his wife, Madeline Gage, but the trust empowered Black to manage the estate.
In June, 1990, John Monnier, Madeline Gage’s son by a previous marriage, filed a petition in Orange County Superior Court, asking a judge to order Black to account for what he said was $3.5 million in assets in 1972.
Not only had Black refused to account for trust funds, but the petition claimed he had failed to insure a Pebble Beach property, owned by the trust, that was destroyed in a fire; he had wasted the trust assets, that he had misappropriated trust funds to buy two properties in Laguna Beach, that he charged excessive fees for administering the estate, that he commingled his money with trust funds and he committed violations that amounted to conflict of interest.
Black acknowledged that he loaned himself $770,000 of his client’s money to develop commercial property in Laguna Beach. He also acknowledged that he spent $2 million on beach properties in Newport Beach and Monterrey, all of which he sold at a loss. Yet for performing these and other services, Black billed the trust and paid himself tens of thousands of dollars each year. When the lawyer-turned-trustee was asked to account for what Monnier claimed was $3.5 million in assets, Black stonewalled, telling them, and Superior Court judges, that he was under no obligation to provide an accounting.
But this week, Seymour stripped Black of all his powers as trustee.
“I’m not about to treat this lightly,” the judge said. “Mr. Black promised that he was going to clean this up and prove that everything was kosher. He has totally failed to do that.”
Responding to the accusations, Black said he had been in the process of winding down his practice and had been unable to meet the court’s deadlines for a full accounting because “I ran out of time. There’s a full accounting, but it’s not in a (format acceptable to the) court. I have more than I could handle and I’m winding down my practice.
“We will file whatever is necessary by February. There are 6,000 transactions to be analyzed.”
He defended the loans to himself, saying that he had repaid them and they were on terms advantageous to the trust. “There were business purposes for every transaction. They were done with the consent of the beneficiary. It was an advantage, businesswise, to do it for the trust.”
Bernard A. Leckie, Black’s attorney, acknowledged that there have “been long delays in the matter which are difficult to justify on Mr. Black’s part.” But Leckie insisted that his client has always acted with integrity.
