California Court Reins In a Family's 20-Year Equalization Fight — Equalization Clause Lessons

Family trust litigation often turns on a single sentence buried in an otherwise routine distribution clause. A new published opinion from California's Fourth District shows exactly how much can ride on that sentence, and how far a trial court can stray from it when a family's finances have been informal for decades.

The case involves an equalization clause. Families include equalization language in trusts for a clear reason. Parents want the children treated fairly. One child borrowed money. Another received a down payment. A third never asked for anything. The parent does not want the last accounting to pretend those transfers never happened. So the document says, in substance: treat unpaid loans and unequal gifts as advances, and adjust the shares. That is a sensible idea. It is not a license to reopen two decades of rents, sales, and informal family bookkeeping under the heading of “fairness.” A California appellate court has just drawn that line in published language that is useful anywhere a lawyer drafts a hotchpot or equalization clause, including Ohio and Missouri.

The Trust and the Fight

Jean Sandford created a trust in 1998 for her five children: Debra, Linda, Mark, Michael, and Pamela. She restated it in 2000 and named all five as successor trustees. The trust called for equal shares, but it included an equalization provision. That provision did two specific things. It said any unpaid loan from Jean to a child would be deducted from that child's share. It also said unequal lifetime gifts would count as advances against each child's share, with the trustee making adjustments to even things out.

Over the next two decades, several siblings managed family properties and finances in a loose, informal way. Family members executed quitclaim deeds, sold property, and entered into rental arrangements. When tensions boiled over, Debra and Linda petitioned the Orange County probate court for an accounting and to remove Mark and Michael as trustees. Mark and Michael counter-petitioned to quiet title to two disputed properties.

What the Trial Court Did

The Superior Court sided with Debra and Linda on nearly everything. It conducted what the Court of Appeal called an extensive audit going back twenty years, and it treated years of rental income and sale proceeds from family properties as early distributions subject to the equalization provision. On that basis, it ordered offsets against Mark's and Michael's shares, removed them as trustees, required formal accountings, and awarded Debra and Linda their attorney fees out of the trust.

Notably, the trial court also found that separate claims against Mark and Michael for financial elder abuse and breach of fiduciary duty were barred by the statute of limitations. Those claims did not survive on their own.

Mark and Michael appealed

What the Court of Appeals Held

The panel reversed the equalization rulings. Its reasoning is the part worth reading closely. The equalization provision, the court held, permits a reduction only for unpaid loans and unequal gifts. It does not reach rental income, sale proceeds, or the broader universe of informal financial dealings the trial court had folded into its twenty-year audit. The provision's language was plain, and the evidence showed Jean was focused specifically on unpaid loans when she wrote and later restated the trust. That left no ambiguity to interpret.

The more pointed part of the opinion addresses why this mattered so much. The court noted that if Mark and Michael had genuinely engaged in misconduct in those property transactions, the trustee would have had a cause of action against them. But the trial court had already correctly found that any such claims were time-barred. The Court of Appeal held that the trial court could not use the equalization provision as a workaround: it could not achieve, through a twenty-year "equalization" accounting, the same result that a time-barred breach-of-fiduciary-duty claim would have produced. Because the equalization orders fell, the attorney fee award built on top of them fell too. The court affirmed the rest of the judgment, including the denial of the quiet-title claims and the removal of Mark and Michael as trustees, and sent the case back for further proceedings.

Why this Case Belongs in a Drafting File

Two lessons stand out, and both are ones worth building into how you draft and later defend an equalization or hotchpot clause.

First, courts will read these clauses narrowly, not functionally. A clause that lists "unpaid loans" and "unequal gifts" will be read to mean exactly that, even after decades of family conduct that looks, informally, like a much broader running account. If a client's actual intent is to true up rental income, property use, below-market sales, or any other benefit one child received at another's expense, the clause needs to say so. A drafter who wants a true "hotchpot provision," one that sweeps in the informal financial reality of how families actually behave, has to enumerate that reality or use deliberately broad catch-all language tied to the trustor's overall intent. "Loans or gifts" will not stretch to cover it later, no matter how sympathetic the facts.  

Second, an equalization clause is not a substitute for a timely claim. This is the sharper point. A beneficiary, or a trustee acting for the beneficiaries, cannot let a breach-of-fiduciary-duty or elder-abuse claim go stale and then recover the same ground by recasting the same transactions as an equalization adjustment. If the underlying claim is time-barred, a court will not let an accounting theory function as its replacement. That cuts both ways for drafting: a broadly worded equalization clause is not a way to build in a permanent, limitations-proof audit right, and a client relying on one for that purpose is relying on something the clause cannot deliver.

The opinion is Sandford v. Sandford, Nos. G064699 and G065223 (consolidated), Cal. Ct. App., Fourth District, Division Three, filed and certified for publication September 2, 2026, on appeal from the Orange County Superior Court. 

Because the opinion is only days old as of this writing, it's worth checking the docket before citing it for whether a petition for review has been filed with the California Supreme Court.

As COVID-19 Continues to Ravage Nursing Homes, the California Supreme Court Limits Damages for Care Violations

As COVID-19 continues to ravage nursing homes, the California Supreme Court recently ruled that a state law allowing residents to sue facilities for rights violations limits compensation to $500 regardless of the number of times and the resident's rights are violated, or the manner or nature of the violation. 

The 1982 statute, the Long-Term Care, Health, Safety, and Security Act, was aimed at allowing nursing home residents to sue on the grounds that their rights had been violated. The decision limiting compensation was 5-2 with the two dissenting justices arguing that  the law actually intended to set a $500 cap for each violation of a patient’s rights, not for the all violations identified in the entire suit.

The decision stemmed from a lawsuit filed by John Jarman, who was 91 in 2008 when he slipped and fractured his hip. After surgery, he was transferred to ManorCare of Hemet, CA, a skilled nursing facility of HCR ManorCare Inc. While there, he developed bed sores that took a year to heal after his release, the suit said.  ManorCare staff allegedly often left him in soiled diapers and ignored nurse call lights. He died before the trial, and his daughter continued to pursue his suit.

The majority defended their reading of the statute:

“We do not find that limiting an award to $500 per lawsuit would render the statute ‘toothless,’”

wrote Justice Ming W. Chin, author of the majority decision.  He noted that lawyers for nursing home residents were still entitled to collect their legal fees from the defendants and injunctions could be issued to prevent future abuse. Residents can also sue under different laws, including the Elder Abuse Act, which provides substantially more compensation, according to Chin.

But Justice Mariano-Florentino Cuéllar, joined by Justice Goodwin Liu, wrote the $500 cap was

 “plainly insufficient to fulfill the statute’s purpose to deter and remedy violations of nursing home patients’ rights.  It makes little difference that the majority leaves a few teeth awkwardly hanging in the mouth after pulling most of them out. " 

Justice Cuéllar cited the pandemic in the first paragraph of his 26-page dissent, which was notably longer that the majority ruling, writing that

“Nowhere has the pain of the COVID-19 virus been more acutely felt than in our state’s nursing homes.” 

In a Walnut Creek facility owned by ManorCare, he wrote, 130 people were infected, and 12 have died. The majority’s decision “deprives nursing home residents of an important tool to deter and vindicate violations of their rights,” he charged.

Cuéllar noted that the Elder Abuse Act allows victims compensation only if they can prove “by clear and convincing evidence” that a nursing home was liable for physical abuse, neglect or abandonment and also guilty of “recklessness, oppression, fraud or malice in the commission of this abuse.” “This is not an insubstantial burden,” he wrote.

In Jarman’s case, a jury in 2011 awarded the daughter $100,000 in punitive damages under a different law that was not at issue in Monday’s decision. Under the 1982 law, the jury found the nursing home liable for $95,000 for various violations, an amount that will now likely be reduced to $500.

The trial court eventually struck down the punitive damages, but a court of appeal reinstated them.

Anthony M. Chicotel, staff attorney for California Advocates for Nursing Home Reform, called the decision extremely disappointing and said his group would urge the Legislature to rewrite the law. The pandemic has prevented ombudsmen for nursing home patients from entering the facilities, he said, and residents now are in need of more protection than ever.

“For residents rights, this is a significant blow,” said Chicotel, who filed a friend-of-the-court brief on behalf of Jarman. He likened their predicament to being on a floating, melting iceberg that gets smaller and smaller.

Barry S. Landsberg, who represented ManorCare in the case, told the LA Times that the company was “pleased that the Supreme Court correctly interpreted the resident rights statute” to limit damages to no more than $500 in a civil action.  “That is what the statute says and what the Legislature intended, both when it enacted the law in 1982 and when it amended the law years later,” Landsberg said.

One wonders if this means that a complainant must file separate lawsuits for each violation, and if that will satisfy the court's reading of the Act.  

This article is heavily reliant upon reporting from the LA Times. 

Washington State May Be First Sate With Payroll-Funded Long Term Care Insurance Benefit.

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Numerous states are considering proposals to create a long-term care insurance programs, many funded by a payroll tax. Washington may be the first to actually enact a plan. Both the Washington State House and Senate have passed legislation, so all that’s required is a House re-vote on a Senate package that differs slightly from the House version. 

The Senate tweaked a few aspects of a proposal passed earlier by the House, so approval appears all but assured. The governor, provider associations and many others have  supported the measure, which would cap the lifetime benefit maximum at $36,500 per person. The governor has promised to sign the bill when presented. 

MyNorthwest reported in an article the sponsor's statements supporting the legislation:

"Democratic State Rep. Laurie Jinkins has introduced the Long Term Care Trust Act, which she says would work similarly to unemployment.  'What we do is create, essentially an insurance program where folks pay a premium of 0.58 of a percent, so 58 cents of every hundred dollars they earn would go into the trust. In return, any time they needed long-term care they’d be able to draw on that,' Jinkins explained. 

Workers of all ages would pay into the program, at a cost of around $24 a month for someone earning $50,000 a year.

That creates a benefit of roughly $37,000 over a person’s lifetime they could take in units of $100.

“That amount of money, for example, would pay for 25 hours a week of in-home care over the course of a year, respite care for one of your family members who was getting care; it would pay for that for maybe five years. So, it’s a pretty significant benefit for people,” Jinkins said.

Providers could start collecting payment from the program beginning in January 2025. The measure covers traditional long-term care services for people needing help with at least three activities of daily living (ADLs), as well as things like in-home care and meal delivery, rides to the doctor, home modifications such as wheelchair ramps, and reimbursements to unpaid family caregivers.  Washington defines more broadly ADLs than does private insurance, which usually triggers benefits when someone requires help with two ADLs. The state would reimburse providers directly. Family caregivers could be paid, though they first would have to go through a training program. 

Premiums of 0.58% of wages would begin being withheld from employees’ checks starting in 2022. Someone earning $50,000 per year would pay a premium of about $24 per month, or $288 per year. Under the Senate version, individuals holding long-term care insurance policies would be exempt.

A participant must work and pay the premium/payroll tax for at least 10 years, with at least five uninterrupted, or three of the last six years. Thus, most current retirees would be ineligible for the program.  

Provider and consumer groups testified in favor of The Long Term Care Trust Act, and nobody testified against it, at a House Health & Wellness Committee hearing in January. Experts say 60 percent of us will need long-term care or support of some sort after we hit 65.

In a House committee hearing,  Dan Murphy, executive director of the Northwest Regional Council explained who the insurance would benefit:

“People need long-term care when they can no longer do basic things themselves. Things like bathing, dressing, getting out of a chair, a bed getting into a car, managing their medications or just even standing, walking around. That’s what we’re really talking about in the assistance lift, when folks can’t any longer do things for themselves.”

An outside study authorized by the Legislature back in 2015 found there is a significant need, with seven of 10 people over 65 years old expected to need this type of care.

Of course the program also benefits the State of Washington.  An outside study found the program would lead to big savings for Medicaid over time, close to $900 million in the 2051-53 biennium.

According to an article in Forbes, although Washington is the first state in the US to enact a public long-term care insurance program other states are considering similar legislation.  "Hawaii has provided a public cash benefit for family caregivers of frail older adults, though it is not really an insurance program. California is considering a ballot initiative on a public long-term care financing program, Michigan and Illinois are studying public programs for those not on Medicaid, and Minnesota has proposed two alternative private financing options for long-term care."  Forbes notes,  though, that the "idea is not universally popular, however. Last year, Maine voters rejected a public plan to help fund home care."

According to Forbes, Washington State is choosing a "front-end insurance model that could begin to cover benefits as soon as participants have a need. It would cover the most people, though its benefit would pay only a small fraction of the costs for someone who needs several years of care."  An alternative model, "called a catastrophic or back-end design, would require participants to pay for the first years of care, but provide lifetime coverage after that.  It would cover fewer people than a front-end plan but would focus on those with the greatest need."

The Forbes article concludes that "[t]he Washington State model would be an important experiment, and it could create momentum for other states to adopt long-term care insurance programs."

California Elder Abuse Law Protects Only Residents

A California appeals court has ruled that an 85-year-old man is not a protected elder under the state’s financial elder abuse law because he does not reside in California. Galt v. Wells Fargo Bank, N.A., (Cal. Ct. App., 2^nd Dist., No. B261792, Sept. 21, 2015).

Randolph Galt, who is 85 years old, lives in Australia and Washington State. Mr. Galt is one of the income beneficiaries of a trust established by his grandfather in California. Wells Fargo Bank is the trustee. After Mr. Galt delegated investment decisions for the trust to a new investor, the investor was not able to make changes to the trust and the value fell from $26 million to $13 million.

Mr. Galt sued the bank for financial elder abuse under a California state law, arguing that the bank intentionally refused to allow the new investor to make decisions for the trust. The trial court ruled that Mr. Galt did not have standing to pursue the claim because he did not meet the definition of "elder" under the state law. The state law defines an "elder" as anyone 65 years of age or older who is residing in the state. Mr. Galt appealed.

The California Court of Appeals affirmed, holding that Mr. Galt does not have standing to pursue a financial elder abuse claim under state law. According to the court, "by his own admission, [Mr.] Galt does not reside in this state; consequently, under the plain meaning of the statute, he is not an elder."

For the full text of this decision, go here.