Trust Beneficiary Rights & Standing during Settlor’s Incompetence.

In California, people often transfer their real properties and other assets to their living trust to avoid court administered proceedings later-on when they are unable to manage the trust assets due to incapacity or death (i.e., conservatorships and probates). That is, when the settlor is no longer able to serve as trustee then a successor trustee steps-in and administers the trust without court involvement.

The death beneficiaries may at that time become anxious and ask, what, if any, rights do we future beneficiaries now have? Are we now entitled to receive a copy of the trust, accountings, and information about trust assets and liabilities?

In California, while a trust is revocable, a trustee owes the fiduciary (legal) duties to account and to provide information regarding the trust to the settlor who established the trust (Probate Code sections 15800(a) and 16069). The settlor of a trust is treated the same as the owner of the trust assets because the settlor can revoke the trust so long as he is competent to revoke the trust.

Until the settlor dies, the future death beneficiaries named by the settlor in the trust have only a mere expectancy of a possible future inheritance. Thus, generally, the trustee owes all duties to the settlor while the settlor is alive and is competent.

Nonetheless, recent California case law recognizes that when a settlor is incompetent that the death beneficiaries have standing to receive trust accountings and information about the trust and its administration and that a beneficiary has standing to contest a revocable trust if the beneficiary proves or could have proved the settlor’s incompetence (Drake v. Pinkham (Cal.App.4th 400 (2013)).

After the death of the settlor, the death beneficiaries can also hold the trustee accountable for the trust being properly administered while the settlor was incompetent, but only to the extent that an wrongdoing reduced what they inherited at the settlor’s death (Estate of Giraldin, 55 Cal.4th 1058 (2012).

In 2022, California clarified and made explicit the rights of trust death beneficiaries prior to a settlor’s death, by amending section 15800 of the Probate Code (in response to case law) to provide that the incompetency of a settlor means that the trustee owes certain trustee duties to death beneficiaries: When no person who can revoke the trust, in whole or in part, is competent then the trustee provide future beneficiaries — i.e., the persons whom the trustee would then be required, or authorized, to make distributions if the settlor were then deceased — with notice and a copy of the trust (within 60 days of receiving information as to the settlor’s incompetence), annual accounting(s), and, upon request by a future beneficiary, information about trust assets, liabilities and the administration (Probate Code section 15800 (b).

Whether a trustee owes a future beneficiary such duties under section 15800 depends on whether the beneficiary has a vested interest (due to the settlor’s capacity) or has a contingent (unvested) interest. The Trustee has discretion whether to notify beneficiaries whose interest are not yet vested, “… due to the interest being conditioned on some factor not yet in existence or not yet determinable …” (Probate Code section 15800(b)(4). For example, alternative death beneficiaries who would inherit if an intended death beneficiary predeceased the settlor do not yet have a vested interest if the intended beneficiary is alive (e.g., the settlor’s grandchildren who would take in place of a still living child if the child later predeceased the still living settlor).

Whether a settlor is incompetent to trigger these rights under section 15800 is determined either using a method provided in the trust document or a court determination of incompetency. A trust might, for example, say that a settlor is incompetent to revoke the trust when a licensed physician issues a written statement to the effect that the settlor does not have sufficient capacity to amend the trust. Otherwise, a court petition to determine capacity may be necessary.

The foregoing is not legal advice. For legal guidance consult a qualified attorney.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.