“Surcharge” is a term probate law term which means an action requiring a person who is acting in a close or fiduciary relationship with others to pay money to a trust or estate, so other heirs and beneficiaries can have it.  A surcharge order is personal against the fiduciary.  The fiduciary must pay the money from her or his own funds, if necessary.   A surcharge lawsuit often results from a personal representative or trustee taking excessive fees, making improper expenditures or improperly investing a trust or estate with resulting financial losses.

An April 2018 Colorado Supreme Court decision contains an excellent discussion of who is a fiduciary, when the fiduciary can be surcharged, and how courts may create or imply that property is held in trust for others.  The decision is Sandstead-Corona v.  Sandstead.

The case involves a dispute between two sisters, Shauna Sandstead-Corona (“Corona”) and Vicki Jo Sandstead (“Sandstead”), over how to divide their mother Auriel Sandstead’s (“Auriel’s”) estate. Prior to her death, Auriel placed proceeds from the sale of the family’s farm into a multi-party bank account (the “Wells Fargo Account”) on which Sandstead and Corona were also signatories, with the intent that the money would transfer to Sandstead and Corona outside of probate upon Auriel’s death.  Auriel later agreed to allow Sandstead to move the money to a joint account Auriel and Sandstead had at Citizen Bank.  Corona had no title to the Citizens Bank accounts, but Sandstead understood that the money was to be used for Auriel’s care until her death, after which it would be split equally between herself and Corona. Corona likewise understood that she was to be entitled to one-half of the money in the Citizens Bank accounts after Auriel’s death. Auriel subsequently died, and the court appointed Sandstead as the personal representative of Auriel’s probate estate. Corona then filed a motion to surcharge Sandstead for her use of the funds that Sandstead had removed from the Wells Fargo Account and placed in the Citizens Bank accounts. Sandstead contended the funds were now in her name alone, and not included in Auriel’s estate.

The Logan County District Court conducted a trial on Corona’s surcharge motion and ultimately issued an order finding that Sandstead had improperly accounted for and unnecessarily spent funds (1) before Auriel’s death, (2) after Auriel’s death but before Sandstead’s appointment as personal representative, and (3) after Sandstead’s appointment. The trial court concluded that Sandstead held the farm proceeds in an implied trust.  The court further concluded that Sandstead had failed to account properly for the funds, thus warranting a surcharge for the unaccounted amounts.

The Colorado Supreme Court supported the trial court decision.  The Court concluded first that the trial court properly imposed an implied trust over  the farm proceeds.  Specifically, when Sandstead moved the funds from the Wells Fargo Account to the Citizens Bank accounts, she was in a confidential relationship with her mother and Corona. When she then misspent those funds, she abused that confidential relationship, thereby justifying the imposition of an implied trust.  The Court said whether or not Sandstead knew that she was holding the funds on behalf of Auriel’s estate, she indisputably knew that she was holding them for someone other than herself, whether her mother, her mother’s estate, Corona, or any other heirs.  Sandstead was in a close and trusting relationship with the other parties who had an interest in the funds at issue, and she abused that relationship by misspending those funds, contrary to the other parties’ interests. The trial court was correct in ruling that the funds should be paid to the estate.

Sandstead contended that the assets were non-estate assets because she was the surviving joint owner and therefore were not subject to the court’s jurisdiction.  The Supreme Court rejected this argument, finding that the court has the authority to impose or create a trust with respect to any  property of the decedent or any property in the name of the decedent, individually or in any other capacity, in any case in which the demand for such relief arises in connection with the administration of the estate of a decedent.  Put more simply, a probate judge may resolve disputes logically relating to the estate, even when the disputes involve non-probate assets, because resolving the question whether assets properly belong in an estate or trust was essential to the proper, orderly distribution of estate property.   The term “estate, ” in turn, is defined to include both estates of a decedent and implied trusts created by a court.