Judge Strips Trustee Duties From Second O.C. Lawyer
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 a shrinking estate from a local lawyer who used his client’s trust funds to finance his real estate ventures.
Ordering such action for the third time in the past two weeks, Superior Court Judge Tully H. Seymour said he was taking the once-rare step of removing lawyer Donald Bruce Black of Laguna Beach as trustee of an estate because the lawyer had used the trust account as “a lending vehicle for his own needs.”
The judge noted that the lawyer could not properly account for millions of dollars that he had spent from an elderly woman’s trust fund over the past three decades. In one transaction, Black, 60, loaned himself $770,000 from the estate to finance acquisition of a 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.”
At a court hearing Thursday, Black’s attorney, Bernard A. Leckie, insisted that his client has always acted with integrity. But Leckie acknowledged to Seymour that there have “been long delays in the matter which are difficult to justify on Mr. Black’s part.”
In a brief interview with The Times on Friday, Black also denied any wrongdoing.
Seymour said this past week’s action against Black was only the third time that he has felt obliged to remove a lawyer as trustee of a sizable estate and that all three actions have come within the past two weeks.
Two weeks ago, Seymour removed Laguna Hills lawyer James D. Gunderson as trustee of an estate from which he arranged to inherit $3.5 million under questionable circumstances. And that same week, Seymour also stripped Gunderson from 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.
All three actions come in the wake of a Times investigation, which 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 County have launched separate investigations into Gunderson’s law firm, which is located 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 he could not point to any specific research in support of his belief, but he thinks that the mishandling of “living trusts” is becoming a growing problem for the courts. State Bar officials agree that senior citizens are being persuaded like never before to entrust their life’s savings to lawyers and others who promote such trusts as a way to avoid federal inheritance taxes and probate court 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 that 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 almost never 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 the 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.”
Black, whose performance as a trustee was sharply criticized by Seymour in Thursday’s court hearing, also faces suspension from his legal practice in an action filed by the State Bar of California in State Bar Court in Los Angeles.
The State Bar Court, which hears disciplinary cases against attorneys, found Black guilty of five charges of misconduct involving “multiple acts of wrongdoing” in September. Among the violations, the court found that Black had willfully misappropriated and/or commingled funds from a trust he managed with his own.
The State Bar Court decided 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 State Bar panel before being presented to the state Supreme Court for final approval.
Probate experts say recent disclosures reveal a disturbing pattern of attorneys becoming trustees of their clients’ estates. These same experts say that “living trusts” have become increasingly popular during the last decade, mainly because they have been widely and aggressively marketed by attorneys and estate planners.
Some State Bar officials acknowledge that the benefits of living trusts are often vastly oversold to taxpayers as a way to avoid inheritance taxes (which apply only if the estate exceeds $600,000) and costly probate proceedings (which are required only if an individual dies without a will or the will is contested).
While it is true that living trusts bypass the probate process and its fees, the costs of establishing these trusts and paying the fees of trustees often outweigh any promised savings.
Living trusts are typically best for specific situations, including cases in which a person is likely to become incapacitated in the near future, jeopardizing the management of his or her assets, and cases in which a taxpayer has holdings in several states.
Seymour said that most attorneys would rather not serve as trustee of a living trust.
“While it is not unusual for attorneys to act as trustees, most attorneys would rather not,” Seymour said. “Practicing law and rendering legal advice are attorneys’ primary interests, not (managing estates and) serving as trustees.”
Seymour and other probate experts say that if clients want their attorneys to serve as trustees, the trust should be prepared by another party in an arms’ length transaction.
Black, for example, drew up the trust he is accused of mismanaging for a client, Arthur Newton Gage Jr., in 1972, records show. The trust gave Black, as trustee, broad and absolute powers over millions of dollars transferred to the trust.
Among other things, 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, and his wife, Madeline Gage, became the beneficiary of the trust. But Black was empowered to continue managing the estate.
In June, 1990, after Black reportedly told family members that the trust was running out of money to care for Mrs. Gage, her son by a previous marriage, John Monnier, filed a petition in Orange County Superior Court asking that Black be ordered to explain what had happened to what Monnier said was $3.5 million worth of assets in the trust in 1972.
Not only had Black refused to account for trust funds, but Monnier’s petition claimed Black had failed to insure a Pebble Beach home, owned by the trust, that was destroyed in a fire; that he had squandered the trust’s assets; that he had misappropriated trust funds to buy himself two properties in Laguna Beach; that he charged excessive fees for administering the estate; that he commingled his money with trust funds; and that he was guilty of actions that ran afoul of conflict-of-interest rules.
Black acknowledged in court records 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 Monterey, Calif., all of which he subsequently 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 replied 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,” Seymour said at the hearing. “Mr. Black promised that he was going to clean this up and prove that everything was kosher. He has totally failed to do that.”
Noting that Black had made repeated promises over the past two years to account for the money, Seymour said the court’s “patience has been tried to the breaking point. The court sees many problems with Black’s stewardship. The fact that this has dragged on for two years without any answers and with a persistent record of stonewalling leads the court to believe that Mr. Black is playing games.”
When contacted by The Times on Friday, Black responded to the accusations by saying that 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 that they were on terms advantageous to the trust. “There were business purposes for every transaction,” Black said. “They were done with the consent of the beneficiary. It was an advantage, business-wise, to do it for the trust.”
At the hearing, Seymour said he was appointing Irvine lawyer James C. Harvey to replace Black because Harvey had “a good track record.”
Monnier’s attorney, Julie T. Moore, of Monterey, welcomed the judge’s action. She said she would be interested to see how much of the estate the new trustee would be able to recover.
