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Gray v. Jewish Federation of Palm Springs and Desert Area

Filed January 6, 2016, Fourth District, Div. Two Cite as E059761

The Jewish Federation of Palm Springs and Desert Area, as remainder beneficiary, objected to accountings provided by the trustee, who was also the income beneficiary. Federation argued the trustee breached her fiduciary duties by improperly allocating trust expenses to principal rather than income. The trial court agreed with Federation, finding that the expenses were chargeable as income and could be apportioned over the term of the lease.

On appeal, the trustee argued that expenses for leasehold improvements, preparing spaces for rent, broker commissions, and capital improvements are chargeable to principal. However, the appellate court affirmed the probate court’s ruling, finding that the items are allocable to income. If an expense is to be paid from income, but there is insufficient income to pay the expense and maintain the income beneficiary’s distribution, the trustee can pay for the expense from principal; however, the trustee must pay back the principal over time if there is no reserve.

http://www.courts.ca.gov/opinions/documents/E059761.PDF


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