NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

OPINION

KANE, J.

In this probate proceeding concerning the administration of the Holcomb and Alma Evetts Revocable Family Trust (the Trust), appellant Tonja Ann Evetts Pearce (Tonja),1 one of the beneficiaries under the Trust, objected to the petition for approval of the final accounting filed by the trustee, respondent F. Michael Noriega (the trustee). Tonja objected because the trustee allegedly failed to adequately account for: (1) the allocation of the Trust assets into three subtrusts (referred to as the Survivor, QTIP, and Residual trusts), and (2) the transfer by Holcomb, as the prior trustee of the Trust, of valuable stock assets from the QTIP and Residual trusts to beneficiary Monte Holcomb Paul Evetts in trust (H. P. and the H. P. trust), in exchange for promissory notes.2 The crux of Tonja's complaint was that as a result of the latter transaction, the estate taxes after Holcomb died had to be paid exclusively from the cash balance in the Residual trust—which cash was designated as a bequest to her. Thus, according to Tonja, her cash bequest under the Trust unfairly bore the entire estate tax burden and was depleted, while H. P. received the full benefit of his bequests without having to contribute anything toward the tax burden. She claimed that such action improperly favored one beneficiary over another and breached express terms of the Trust, constituting a violation of the trustee's duties. Based on these and other objections to the trustee's final accounting, Tonja sought the remedy of a surcharge against the trustee. After an extensive evidentiary hearing, the trial court rejected Tonja's objections and approved the trustee's final accounting. Although a statement of decision was requested, the trial court's statement of decision failed to address material issues raised by Tonja, even though she alerted the trial court to such omissions. Tonja's appeal followed.

We conclude that although the trial court failed to render an adequate statement of decision on principal issues in controversy, the judgment must nevertheless be affirmed because Tonja failed to introduce evidence sufficient to support her claim that the trustee was liable.

FACTS AND PROCEDURAL HISTORY

This is the second appeal involving the Trust and the objections by Tonja to the trustee's proposed final accounting. In a 2007 nonpublished opinion, this court reversed and remanded the trial court's previous order approving the trustee's first and final account because the trial court had improperly denied Tonja's right to an evidentiary hearing regarding her objections. The matter was remanded for such evidentiary hearing.3

Events Preceding the First Appeal

We now summarize the events leading to the first appeal, including the formation and material terms of the Trust, the trustee's first and final accounting, and the objections raised by Tonja to that accounting.4

On February 15, 1996, Holcomb and his wife, Alma, executed the Trust.5 They had three children, Tonja, H. P. and Charlene, who were the beneficiaries under the Trust.6 Alma died on July 23, 2001. Upon her death, the Trust required that Holcomb (who was then trustee) divide the trust estate into three subtrusts—the Survivor's trust, the QTIP trust, and the Residual trust. Holcomb had a power of appointment over the Survivor's trust, but the QTIP and Residual trusts were irrevocable and could not be modified.7 Holcolm died on March 7, 2003, and respondent F. Michael Noriega became the successor trustee.8

Article 9 of the Trust addressed the payment of debts, costs, federal estate taxes and state death taxes after the death of the surviving spouse (i.e., Holcomb). It gave the trustee "discretion" to pay such taxes and expenses first from the principal of the Survivor's trust and, upon its exhaustion, then from the QTIP trust and last from the Residual trust. The same paragraph stated, "[t]here shall be no apportionment or charge against any person." (Art. 9, ¶ 2(a) of the Trust.) The Trust required the trustee to use the corpus of the QTIP trust to pay (or to reimburse the surviving spouse's estate) the estate or other death taxes attributable to the trust estate of the QTIP trust being included in Holcomb's gross estate for federal estate and death tax purposes. Such payments were to be made from the nonexempt QTIP trust unless it was exhausted, then from the exempt QTIP trust. (Art. 9, ¶ 2(b) of the Trust.)9 Any remainder of the QTIP trust was then to be added to the Residual trust. Thereafter, the balance of the Survivor's trust and Residual trust was to be distributed among the three children/beneficiaries in accordance with the terms of the Trust. (Art. 9, ¶ 3 of the Trust.)

Regarding the distribution to beneficiaries, the Trust provided that the settlors' three children—Tonja, H. P. and Charlene—were to be given, in equal shares, all of their parents' horses as well as all oil, gas and other mineral rights, and any residue of the Trust estate. In addition, H. P. was to specifically receive certain real property along with all of the corporate stock of the family business, Overland Stockyards, which would be received in trust.10 Tonja was designated to receive, among other things, "all cash assets of the Trust Estate of the Survivor's Trust and/or the Residual Trust, whichever [was] applicable."

The Trust contained exculpatory provisions for the benefit of the trustee. It specifically provided: "No Trustee designated in this Declaration shall be liable to any beneficiary for the Trustee's acts or failure to act, except for willful misconduct or gross negligence." The Trust further provided that unless a timely request is made in writing, "no successor Trustee shall have any duty to investigate or review any action of a predecessor Trustee and may accept the accounting records of the predecessor Trustee showing assets on hand without further investigation and without incurring any liability to any person claiming or having an interest in the Trust."11 In addition, the Trust stated that "[n]o Trustee shall be liable or responsible for any act, omission, or default of any other Trustee or have any duty to audit or investigate the accounts of any such Trustee, provided that the Trustee shall have had no knowledge of facts that might reasonably be expected to put the Trustee on notice of it."

On April 29, 2005, the trustee filed a first and final accounting and request for allowance of attorney fees and trustee fees. The accounting did not reflect the allocation of trust assets among the Survivor's trust, QTIP trust and Residual trust. The accounting reported total assets of $2,147,522.44, and the payment of federal estate taxes of $321,702 and state death taxes of $44,279. The taxes were paid from the available cash in the Trust estate, leaving a cash balance of only $17,107, which amount was proposed to be distributed to Tonja pursuant to paragraph 4(a)(4) of article 9 of the Trust.

Said first and final accounting stated that shortly before Holcomb's death, while Holcomb was still acting as trustee of the Trust, he sold or transferred the Overland Stockyards stock out of the Trust estate to the individual trust established for his son, H. P., referred to herein as the H. P. trust.12 In exchange, the Trust estate reportedly received three promissory notes dated February 14, 2003, in the amounts of $814,031, $691,927, and $136,527.

A review of these promissory notes shows that they were signed by Holcomb as trustee of the Trust, and also by F. Michael Noriega, who on February 14, 2003, was acting as trustee of the H. P. trust. The promissory notes were ostensibly payable to the Trust estate by the trustee of the H. P. trust; however, the notes were interest-only until Holcomb's death, and at his death, any obligation under the notes would terminate. Holcomb died three weeks after the notes were signed. As to the disposition of the promissory notes, the first and final accounting took the position that since the Trust provided that H.P (or the H. P. trust) would receive the Overland Stockyards stock, the promissory notes should be distributed to the H. P. trust as well. Aside from the remaining cash and the promissory notes, there was no other property left to distribute.

Tonja filed written objections to the first and final accounting, alleging that the trustee failed to properly allocate trust assets under the terms of the Trust and improperly charged estate tax liability against her beneficial interest in the Trust estate.

The trustee subsequently filed a petition for instructions asking the trial court to interpret whether the particular bequest to Tonja of the "cash assets" of the Residual trust was intended by the settlors to be a general or specific bequest. The trial court held that article 9, paragraph 4(a)(4), of the Trust was intended to be a general bequest. The trustee's inquiry had been made in an effort to find a way to resolve the parties' dispute regarding the trustee's payment of taxes from the remaining cash in the Trust estate. The inquiry was apparently based on Probate Code13 sections 21400 through 21403, which provide for a priority of "abatement" of gifts when necessary to pay expenses of an estate. Generally, unless an instrument otherwise provides (see § 21400), general bequests abate before specific bequests (§ 21402). And, where bequests are in the same category, they would abate on a pro rata basis (§ 21403, subd. (a)). Tonja's position was, and continues to be, that the abatement statutes did not justify the trustee's actions because the Trust expressly provided for the priority or order of payment of expenses and taxes.

After multiple supplemental accountings and objections thereto, the petition for approval of the trustee's accounting came on for hearing. On August 31, 2006, the trial court approved the first and final accounting and denied Tonja's request for attorney fees. Tonja's objections to the accounting were overruled in toto. Tonja appealed the trial court's order on the ground that she was denied due process when the trial court refused to allow an evidentiary hearing as to her objections to the first and final accounting. We agreed and reversed the trial court's order, remanding the matter for a contested evidentiary hearing on Tonja's objections.

The Contested Hearing

On remand, the trial court conducted an evidentiary hearing on Tonja's objections to the trustee's accounting. The hearing took place over a three-day period in June and July of 2008 and included testimony of the trustee, two expert witnesses on tax issues, and Holcomb and Alma's estate planning attorney, Michael Noland, who had drafted the Trust. The tax experts presented conflicting testimony on the value of the promissory notes, how the notes should have been reported for purposes of estate taxes, and whether the notes were subject to estate or gift taxes. Mr. Noland testified that he sent a written memorandum in January of 2003 to Holcomb to recommend how the Trust assets were to be allocated to the subtrusts. His proposed allocation included the placement of $351,369 in cash into the Residual trust. However, Mr. Noland further testified that Holcomb and Alma expressed to him that they understood and accepted that if there was insufficient cash in the Trust estate to pay estate taxes, Tonja's cash bequest would potentially be depleted. Regarding the sale of the Overland Stockyards stock and the Overland Cattle Company partnership interest (hereafter the Overland assets) to the H. P. trust in exchange for promissory notes, Mr. Noland stated this transaction was undertaken for two reasons: (1) to provide for the distribution of the Overland assets to H. P., and (2) to "freeze" the value of the Overland assets for estate tax purposes and thereby minimize estate tax liability.14

Following the contested hearing, the parties filed closing briefs to summarize their arguments. The closing brief of H. P. emphasized that the trustee (Noriega) had acted reasonably and in good faith in carrying out the intentions of the Trust, which Trust indicated an intention that H. P. (or H. P.'s trust) would receive the Overland assets. H. P. also noted the Trust had provisions that the trustee could not be found liable to any beneficiary except for willful misconduct or gross negligence, neither of which were present in this case. Finally, H. P. pointed out that the promissory notes had value for estate tax purposes and benefited the estate by freezing estate tax liability.

The trustee's closing brief argued that there was only so much cash available for payment of estate taxes and that he acted in good faith in paying those taxes from the cash on hand in the Trust estate. As to the transaction by the prior trustee (Holcomb), it was noted that the Trust expressly provided there was no affirmative duty to investigate the acts of prior trustees. When Mr. Noriega became trustee, he sought to follow the memorandum prepared by Mr. Noland on allocation of assets to the subtrusts, although he never actually segregated any assets. He also saw no reason to second-guess the stock transfer by the prior trustee (Holcomb), one of the Trust's settlors, whose action was apparently on advice of Mr. Noland, was in keeping with the Trust's intent that H. P. ultimately receive the Overland assets, and also served the beneficial purpose of freezing the value of those assets for estate tax purposes.

Tonja, as the objector, also filed a closing brief in the trial court. She argued that the trustee (1) failed to separately account for the three subtrusts, (2) overvalued the promissory notes which affected estate taxes and expenses, (3) failed to honor the Trust's express provisions for allocation of estate taxes from particular subtrusts, and (4) favored one beneficiary over another in regard to the source for payment of taxes and expenses in violation of section 16003 (requiring a trustee's impartiality among beneficiaries). Further, Tonja argued that because the Trust's language controls, any testimony as to the subjective intent of the settlors was irrelevant. Finally, she argued the exculpatory provisions in the Trust were overcome because the trustee's conduct amounted to bad faith. (See § 16461, subd. (b) [a provision in a trust is not effective to relieve the trustee of liability if a breach of trust was committed intentionally, with gross negligence, in bad faith, or with reckless indifference to interests of beneficiary].) Based on these assertions, Tonja sought a surcharge against the trustee in the amount of $351,369, plus interest, and an additional surcharge for her attorney fees.

On September 5, 2008, the trial court issued an order finding that Tonja's position was "well taken" and holding that her objections to the petition were sustained, as prayed. Tonja's counsel was directed to prepare the order after hearing. The trustee then filed a request for a statement of decision pursuant to Code of Civil Procedure section 632. Thereafter, Tonja submitted a proposed statement of decision, which was followed by a series of objections by the other parties, alternate proposed statements and additional hearings before the trial court. To facilitate the process, the trial court ordered the parties to once again submit proposed decisions.

On November 24, 2009, after considering the parties' proposed statements of decision, the trial court did an about-face. It issued a statement of decision approving the trustee's first and final accounting and granting the trustee's request for attorney fees and trustee fees. In the portion of the trial court's statement of decision under the heading "Findings and Conclusions," the trial court explained:

With respect to the question of the promissory notes received by the Trust in exchange for the Overland assets, the trial court's statement of decision concluded the promissory notes were "properly accounted for." The statement further explained:

Tonja filed a written notice of objection to the trial court's statement of decision on December 3, 2008, followed by a statement setting forth her specific objections. Her objections to the trial court's statement of decision argued that the statement omitted a number of controverted issues. The alleged material omissions included: (1) the statement did not include any findings regarding the trustee's failure to separately account for the three subtrusts established under the Trust; (2) the statement did not include any findings regarding the trustee's failure to pay taxes and debts existing at the time of Holcolm's death from the Survivor's trust, then the QTIP trust, before turning to the Residual trust, as required under the terms of the trust; (3) the statement did not include any findings regarding the trustee's failure to act in accordance with the Trust to investigate the accounts and action of his predecessor trustee although empowered to do so when he has knowledge of facts that might reasonably be expected to put the trustee on notice; and (4) the statement did not include any findings regarding the trustee favoring the interests of H. P. and thus failing to be impartial among the trust beneficiaries as required under section 16003.

On December 17, 2009, the trial court entered its final order after hearing, approving the first and final accounting of the trustee and granting the trustee's requested attorney fees and trustee fees. Tonja filed her timely notice of appeal on February 10, 2010.

DISCUSSION

I. Standard of Review

Tonja contends on appeal that there was insufficient evidence to support the trial court's approval of the trustee's accounting because, allegedly, the evidence showed as a matter of law that the accounting was inadequate and that the trustee was liable to Tonja for conduct constituting breach of trust. Additionally, Tonja contends that the trial court's order is reversible because of the failure to render an adequate statement of decision.

We review accounting and breach of trust issues of fact under the substantial evidence test. (Penny v. Wilson (2004) 123 Cal.App.4th 596, 603; Estate of Gump (1991) 1 Cal.App.4th 582, 595; see Estate of Collins (1977) 72 Cal.App.3d 663, 669-673 [evidence failed to support trial court's finding that trustees did not breach duties].) Of course, to the extent we are called on to interpret the language of the trust instrument, we follow well-established rules: "`The interpretation of a trust instrument, like any written document, is a question of law. [Citations.] Under applicable rules of interpretation of written instruments, where there is no conflicting evidence, the reviewing court must independently interpret the document.' [Citations.]" (Estate of Cairns (2010) 188 Cal.App.4th 937, 944.) In construing a trust instrument, the intent of the trust settlor prevails and must be ascertained from the whole of the trust instrument, not just separate parts of it. (Ibid.)

As to the asserted failure of the trial court to render a proper statement of decision, we review the adequacy of a statement of decision as a question of law. (See In re Marriage of Hardin (1995) 38 Cal.App.4th 448, 453.)

II. Inadequate Statement of Decision

We begin with Tonja's claim that the trial court's statement of decision was inadequate.

In a nonjury trial, upon a timely request by a party, the trial court is required to render "a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial." (Code Civ. Proc., § 632.) "A statement of decision is as much, or more, for the benefit of the Court of Appeal as for the parties. It `is our touchstone to determine whether or not the trial court's decision is supported by the facts and the law. [Citation.]' [Citation.]" (In re Marriage of Sellers (2003) 110 Cal.App.4th 1007, 1010.) A court's statement of decision is sufficient if it fairly discloses the court's legal and factual basis for determining the ultimate facts and material issues in the case. (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 500; Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513 [ultimate facts are "core" facts, such as elements of a claim or defense, and are distinguishable from evidentiary facts and bare conclusions of law].)

If a trial court's statement of decision fails to address the principal issues in controversy, as required by Code of Civil Procedure section 632, or the statement is ambiguous, and if such omission or ambiguity was brought to the trial court's attention, "it shall not be inferred on appeal ... that the trial court decided in favor of the prevailing party as to those facts or on that issue." (Id., § 634, italics added.) That is, in such a case the doctrine of implied findings will not apply as to the material issue or issues concerning which the trial court failed to render an adequate statement of decision. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) As summarized by our Supreme Court in In re Marriage of Arceneaux: "A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. [Citations.] [¶] [Code of Civil Procedure s]ections 632 and 634 (both as amended in 1981) set forth the means by which to avoid application of these inferences in favor of the judgment. When the court announces its tentative decision, a party may, under section 632, request the court to issue a statement of decision explaining the basis of its determination, and shall specify the issues on which the party is requesting the statement; following such a request, the party may make proposals relating to the contents of the statement. Thereafter, under section 634, the party must state any objection to the statement in order to avoid an implied finding on appeal in favor of the prevailing party. The section declares that if omissions or ambiguities in the statement are timely brought to the trial court's attention, the appellate court will not imply findings in favor of the prevailing party." (Id. at p. 1133.)

In addition to the effect on the doctrine of implied findings, a failure to file an adequate statement of decision when required to do so may constitute reversible error. (In re Marriage of Sellers, supra, 110 Cal.App.4th at p. 1010; In re Marriage of Hardin, supra, 38 Cal.App.4th at p. 453; McCurter v. Older (1985) 173 Cal.App.3d 582, 594, disapproved on other grounds in In re Marriage of Arceneaux, supra, 51 Cal.3d at p. 1137].) As stated in McCurter v. Older, a case in which the trial court failed to make findings on an issue material to its decision: "The failure of a court to explain the factual and legal basis for its decision on a principal controverted issue, when properly requested by a party, is `... error of a most serious, prejudicial, and reversible nature ...,' provided `"that there was evidence introduced as to such issue and the evidence was sufficient to sustain a finding in favor of the party complaining." [Citation.]' [Citations.]" (McCurter v. Older, supra, at pp. 593-594.)

Here, the statement of decision set forth the trial court's conclusions that the trustee's actions were reasonable, in good faith and did not constitute gross negligence or willful misconduct. However, the statement of decision failed to address a number of the principal controverted issues that were, in this case, essential to those conclusions. For example, although the statement of decision mentioned the trial court's finding that the promissory notes were accepted by the Internal Revenue Service and therefore had some value to the Trust for the purpose of estate taxes, the statement of decision did not address the propriety of the transaction by which the Trust received the promissory notes in exchange for the Overland assets, the negative effect of that transaction on Tonja's bequest, and whether such circumstances indicated a breach of trust by the prior trustee (Holcomb) and by the present trustee for failure to rectify any such past breach. The omissions by the trial court were remarkable because these were among the core issues in controversy.

The above issues, none of which were addressed in the trial court's statement of decision, were at the heart of this controversy relating to the administration of the Trust and the question of whether the trustee's accounting should have been approved. We hold that the trial court's failure to address those issues in its statement of decision, after being specifically notified of said omissions, violated Code of Civil Procedure section 632. As a consequence, with respect to such issues, the judgment will not be supported by the usual presumptions of correctness and implied findings. (Id., § 634; In re Marriage of Arceneaux, supra, 51 Cal.3d at p. 1133.)

The trial court's failure to render an adequate statement of decision also hampers our ability to analyze and review the judgment. Normally, we would indulge in implied findings to support the judgment, but we may not do so here regarding the omitted issues. It is also unclear whether the trial court, in reaching its outcome in which it made the conclusions noted above, ever actually considered and resolved the omitted issues. We do not presume that it did so. (Code Civ. Proc., § 634.)

Accordingly, it may be necessary to reverse the order and judgment below in order to permit the trial court to undergo the process of rendering an adequate statement of decision. However, it is only necessary to do so if there was sufficient evidence introduced to potentially support Tonja's surcharge claims. We next address that question.

III. The Error Was Not Reversible

As noted, a trial court's failure to render an adequate statement of decision on a principal controverted issue is a reversible error provided "`"that there was evidence introduced as to such issue and the evidence was sufficient to sustain a finding in favor of the party complaining." [Citation.]' [Citation.]" (McCurter v. Older, supra, 173 Cal.App.3d 582 at pp. 593-594.) Unless such substantial evidence was introduced, there could be no basis for potential prejudice to the objecting party and the judgment would be affirmed.

In the present case, in order for Tonja to establish grounds for a surcharge or other remedy for asserted breach of trust, she had to overcome the exculpatory provisions of the Trust. Among the terms limiting trustee liability, the Trust specifically provided that "[n]o Trustee designated in this Declaration shall be liable to any beneficiary for the Trustee's acts or failure to act, except for willful misconduct or gross negligence." The Trust further provided that unless a request is made within 60 days of the trustee's appointment, "no successor trustee shall have any duty to investigate or review any action of a predecessor Trustee and may accept the accounting records of the predecessor Trustee showing assets on hand without further investigation and without incurring any liability to any person claiming or having an interest in the Trust." The Trust also stated that "[n]o Trustee shall be liable or responsible for any act, omission, or default of any other Trustee or have any duty to audit or investigate the accounts of any such Trustee, provided that the Trustee shall have had no knowledge of facts that might reasonably be expected to put the Trustee on notice of it."

Such exculpatory provisions in a trust instrument are enforceable, but are limited in scope by statute. Section 16461, subdivision (b), states as follows regarding such provisions: "A provision in the trust instrument is not effective to relieve the trustee of liability ... for breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary."

Accordingly, for purposes of our analysis of the present question we must consider if there was substantial evidence that would support a possible finding that the trustee not only committed breach of trust, but that he did so at one of the elevated levels of wrongdoing described in section 16461, subdivision (b). The statutory terms in that section clearly go beyond a technical breach of duty or mere negligence. "[G]ross negligence" is generally defined as the want of even scant care or an extreme departure from the ordinary standard of conduct. (Eastburn v. Regional Fire Protection Authority (2003) 31 Cal.4th 1175, 1185-1186.) "[B]ad faith" generally alludes to an action (here, an asserted breach of trust) that is carried out for an improper purpose or motive. (See Levy v. Blum (2001) 92 Cal.App.4th 625, 635 ["`bad-faith'" as used in Code Civ. Proc., § 128.5].) We believe the term, "reckless indifference to the interest of the beneficiary," is fairly self-explanatory, as is a breach of trust that is committed "intentionally." (§ 16461, subd. (b).)

Since our analysis relates to an alleged breach of trust by a trustee, we briefly review what a trustee's duties are. As a fiduciary, a trustee must act with utmost good faith on behalf of and for the benefit of the trust beneficiaries. (Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208.) The fiduciary duties of a trustee include the following: a duty to administer the trust according to the trust instrument (§ 16000); a "[d]uty of loyalty" defined as a duty to administer the trust in the interest of the beneficiaries (§ 16002); a duty to deal impartially with multiple beneficiaries (§ 16003; Hearst v. Ganzi, supra, at p. 1208); a duty to avoid conflicts of interest (§ 16004); a duty to control and preserve trust property (§ 16006); and a duty to report and account to beneficiaries concerning the trust and its administration (§ 16060).

Having reviewed the evidence in the present case, we conclude that it was insufficient as a matter of law to permit a finding that the trustee was guilty of the aggravated culpability set forth in section 16461, subdivision (b). Accordingly, the exculpatory provisions of the Trust preclude the trustee liability or surcharge that was sought after by Tonja.

The following summary of the facts clearly bear this out. At the time Mr. Noriega became the trustee of the Trust, he succeeded Holcomb, who was one of the original settlors of the Trust. Since the plain intent of the Trust was that H. P. (or the H. P. trust) would receive the Overland assets as a distribution, the sale of those assets to the H. P. trust would not likely have appeared unreasonable or contrary to the Trust's intent because (1) it caused those assets to be transferred to the person that the settlors had intended, (2) it froze or minimized the estate taxes owed by the entire Trust by replacing (selling) the stock with promissory notes, and (3) the transaction was carried out by one of the original settlors under the advice of the family's estate planning attorney. When these factors are considered together with the strong language in the Trust that states the trustee is entitled to accept the accounting records of the predecessor trustee showing assets on hand without an affirmative duty to review or investigate, Tonja's claim that the trustee committed a breach of trust amounting to gross negligence or bad faith is difficult to accept. (Art. 12, ¶ 5 of the Trust.)

Furthermore, the trial court provided instructions to the trustee that the bequest to Tonja was a general bequest, meaning that it would ordinarily abate ahead of more specific bequests, in the absence of a contrary intent in the instrument. That ruling confirmed that the trustee had a reasonable basis to believe that it would be proper to pay the estate taxes and expenses from the liquid assets on hand in the Trust estate, namely the cash, since it was only a general bequest in contrast to the more specific gifts made to H. P.

Tonja argues that the Trust specifically provided a contrary intent, in that it required an order of priority for payment of estate taxes and other expenses. The strength of that argument is diminished by the fact that the precise wording of one of the key provisions of the Trust, namely article 9, paragraph 2(a), indicated that the payment of estate taxes and expenses under that provision was in the trustee's "discretion." The discretionary language of paragraph 2(a) has not been sufficiently explained in this appeal. It is difficult to understand why a reasonable trustee would look at such language and conclude that something (apparently) discretionary is actually mandatory.15

Tonja argues the trustee should nevertheless be surcharged because he knew that the promissory notes were self-cancelling since he was trustee of the H. P. trust at the time of that transaction and signed the promissory notes. Further, in light of the impact of that transaction on Tonja's cash bequest, she argues that he committed breach of trust when he failed to go back and remedy that prior transaction. (See § 16403 [successor trustee liable for failure to take reasonable steps to redress a breach by the prior trustee of which the successor knows or has information from which the trustee reasonably should have known of the predecessor's breach].) We disagree. Again, we emphasize that due to the exculpatory provisions, a higher level of culpability had to be established here, such as gross negligence or bad faith breach of trust. (§ 16461, subd. (b).) There was no specific evidence the trustee knew that the prior transaction by Holcomb was improper or that it constituted a violation of the Trust's mandates. We are not saying the trustee was entirely without fault. What we are saying is that when all the evidence is considered, as a matter of law the trustee's acts or omissions did not constitute a breach of trust that was intentional, grossly negligent, in bad faith, or with reckless indifference to the interest of a beneficiary. Accordingly, Tonja failed to introduce evidence that was sufficient to support her claim of trustee liability or surcharge in this case. Since she was not prejudiced by the failure of the trial court to render an adequate statement of decision, we will affirm.

DISPOSITION

The order and judgment of the trial court is affirmed. Costs on appeal are awarded to the trustee and H. P.

WE CONCUR:

Dawson, Acting P.J.

Franson, J.