trust administration

Trustee's Duty to Beneficiaries in a California Trust Administration

Learn about trustee obligations to provide financials and documents to living trust beneficiaries in a California trust administration.

When someone with a living trust ("the grantor") dies, her successor trustee must administer the trust. This is called trust administration. When dealing with the trust beneficiaries, the successor trustee must follow the terms of the trust and the California Probate Code.

Our estate planning attorneys have helped trustees administer many hundreds of trusts. Most trust administrations go smoothly if no probate is required and if the trust beneficiaries and the trustee trust each other and communicate well.

However, this is not always the case. Sometimes, the beneficiaries go sideways and become meddling and greedy. When this happens, the trustee needs to know the limits of his duties and obligations to the beneficiaries.

While the trust grantor is alive and competent, her living trust is revocable. She can change the beneficiaries, buy and sell assets, and spend money as she pleases. The trust assets are her assets, and the trust is her trust. She can do whatever she wants. It's nobody's business but hers.

Her trust beneficiaries have no vested rights over the trust until her living trust becomes irrevocable. And her living trust does not become irrevocable until she dies.

Once the grantor dies, her successor trustee takes over the management of her trust and her trust assets, and the trustee must follow the trust terms and the California Probate Code.

Documents and Information the Trustee Must Provide to Trust Beneficiaries

The successor trustee must provide the trust beneficiaries with certain documents and information, including:

1. A Probate Code Section 16061.7 Notice must be sent to the trust beneficiaries and heirs, which advises them that the grantor has died, that she had a trust, that the trust is now irrevocable, that they may request a copy of the irrevocable trust terms, and that they have 120 days to contest the trust.

2. The trust beneficiaries should receive an accounting of trust assets and expenses beginning from the date of death.

In most cases, a spreadsheet listing assets, expenses, reserve amounts, and proposed distributions to beneficiaries is sufficient. However, sometimes, a beneficiary requests a formal accounting, which significantly increases the accounting cost and could require petitioning the probate court for a court-approved accounting.

Documents and Information the Trustee Does Not Need to Provide to Trust Beneficiaries

The trustee does not have to:

1. Provide the beneficiaries with information about trust assets, bank account and investment account statements from before the grantor's date of death.

If the trustee did not become the trustee until after the trust grantor died, the trustee is not obligated to provide the beneficiary asset information, and bank and investment account statements prior to the date of death.

From California Education of the Bar (CEB), Trust Administration:

The trustee has an affirmative duty to keep the beneficiaries of a trust reasonably informed of the trust and its administration. Prob C §16060. This duty is separate and distinguishable from the related duties to account (Prob C §16061) and to provide information (Prob C §16062). These duties do not apply while the trust remains revocable. Prob C §15800(a)(1). 

Because assets held in a revocable trust essentially belong to the settlor [aka grantor], the settlor may dispose of the trust's assets and effectively eliminate the beneficiaries' interest altogether "with no need to justify or explain" his or her actions. (Rest.3d Trusts, § 74, com. a, p. 25; see Giraldin, supra, 55 Cal.4th at p. 1072 ["California courts have considered the Restatement of Trusts in interpreting California trust law"].) Indeed, "the authority and rights of settlors . . . are not subject to fiduciary obligations." (Rest.3d Trusts, supra, § 74, com. a, p. 25; see Giraldin, at p. 1066.) 

In Babbitt v Superior Court (2016) 246 CA4th 1135, the court of appeal concluded that when a settlor [grantor] did not appoint someone other than the settlor to act as trustee, and there is no claim that the deceased settlor was incapacitated or subject to undue influence during the period of revocability, the probate court lacks the authority to order the successor trustee to provide an accounting or information regarding trust assets and transactions while the trust was still revocable.

2. Provide the beneficiaries copies of estate planning documents other than the terms of the irrevocable trust.

More from CEB, Trust Administration:

When a revocable trust or any portion of it becomes irrevocable because of the death of one or more of the settlors of the trust, ... the trustee must notify the beneficiaries and must provide a complete copy of the terms of the irrevocable trust or irrevocable portion of the trust, to any beneficiary of the trust and any heir of a deceased settlor who requests it. Prob C §16061.5(a)(1).

As used above, “terms of the trust” do not include documents that were intended to affect disposition only while the trust was revocable. If a trust has been completely restated, “terms of the trust” do not include trust instruments or amendments that are superseded by the last restatement before the settlor’s death, but it does include amendments executed after the restatement. Prob C §16060.5.

Trustee Can Petition the Probate Court for Instructions

If the beneficiaries become too cantankerous, the trustee can throw up his hands and punt to the probate court and let a judge decide the contested issues. The benefit of petitioning the probate court is that the judge will issue a final order that all parties must follow. If the bickering beneficiary does not agree with the court order, his only recourse is to file an appeal.

Of course, the downside of petitioning the probate court is the cost and delay. The court costs, accounting and appraisal costs, and the trustee attorney fees will be paid out of the trust estate, which means they will be deducted proportionately from the beneficiaries' inheritance share. The beneficiary will have to cover the costs of his attorney.

Know Your Beneficiaries

Be careful when naming people, especially relatives, with whom you don't have a solid relationship, as beneficiaries of your living trust. It's always the entitled niece or nephew who makes life difficult for your trustee.

Think about it this way: Your successor trustee, whether it's your spouse, significant other, family member, or friend, is doing you a big favor by volunteering to take on the job. Your living trust is like a software program written in plain English, not code. You can have your estate planning attorney write it so it is easy to operate for your successor trustee or difficult. Easy is better. And to get to easy, you have to consider how your intended beneficiaries will respond when you pass away. If you believe they will be greedy and ungrateful, don't name them as beneficiaries. Keep in mind that by naming someone a beneficiary, you are giving them rights and a platform to potentially harass your trustee.

This makes my earlier post even more relevant. Beneficiaries You Don't Even Know.

Real-Life Examples

Dan and the Angry Siblings

Many years ago, I was hired by a son to help him administer his deceased mother's trust. The son, who I will call Dan, had five brothers and sisters. Dan's mother's primary asset was a family business that required constant care and attention. When his mother became ill, Dan stepped in to keep the business operating and even profitable. His siblings did nothing.

After their mother died, and after we sent the Probate Code Section 16061.7 Notices to Dan's siblings, they began harassing Dan and making unreasonable demands and unmerited accusations against him. In an attempt to quiet the discord, I had Dan and his siblings meet with me at our office to talk things out. Well, it was way worse than I could have imagined. Dan's siblings literally hated him. They resented the fact that their mother named Dan as trustee and that Dan had been the only one to care for their sick mother. After enduring his siblings' bitter grievances, I told Dan and his siblings that Dan must file a petition with the probate court so a judge could oversee the administration of the trust. Because of the sibling's intransigence, this was Dan's only recourse, and he soon after filed a petition to probate the trust estate.

The irony is the siblings were grumbling that their inheritance was less than they thought it should be. But now that the trust was going through probate, the probate fees diminished their share considerably. When the probate was complete, over one year later, each sibling received much less than if the trust was administered without probate.

The Ex-Wife as Trustee

Not long ago, one of my partners handled a trust administration in which the grantor named his only child's ex-wife as his successor trustee. We discovered during the trust administration that the son still hated his ex-wife, even though they had been divorced for more than twenty years.

The ex-wife was an excellent trustee. She did everything expected of her to effectively administer the trust. However, the son was angry and was determined to make his ex-wife's job as trustee as difficult as possible. He even hired an attorney to poke holes and criticize every decision by the trustee. Finally, we said enough is enough and told the son's attorney that if the unreasonable jabs did not cease, we would withdraw from the case and recommend the ex-wife trustee hire a probate litigator and take the case through probate.

After a few months of dealing with his client, the attorney realized how unhinged his client was, and he agreed to get his client to call off the dogs, and we were able to complete the trust administration.

Although the ex-wife was the trustee, the son, and the son and ex-wife's adult child were the primary beneficiaries of the trust. By his unnecessary and ridiculous accusations against his ex-wife, the son delayed the distribution of the trust assets to him and his son by more than one year. He and his son received a lesser inheritance because of the additional administration costs to deal with his accusations against the trustee. And he had to pay his attorney fees.

The estate planning attorney who drafted the trust named himself in the trust as the successor trustee after the ex-wife. Once we discovered how difficult the job of trustee would be for the ex-wife, we suggested she consider resigning and let the role fall to the estate planning attorney. She liked the idea. The problem was when we reached out to the attorney, he said he would not serve as trustee because the son was a nut job. Why then did he write the trust this way? He gave the grantor very bad advice. If he knew the son was a nut job, he should never have named the ex-wife as trustee and himself as backup. Bad estate planning attorney.

The Greedy Nephews

A few years ago,, we took on a trust administration in which the grantor left less than 5% of his trust estate to his nephews. We did not write his living trust. The trustee found us and asked us to help him administer the trust.

We sent the California Probate Code notice to the beneficiaries, including the nephews. We also sent the beneficiaries a detailed accounting listing the proposed distributions to each beneficiary. Then, we sent the beneficiaries a waiver to waive the 120-day contest period, which would allow the trustee to make distributions to the beneficiaries right away rather than wait 120 days. All the beneficiaries signed the waiver except the nephews. 

The nephews responded by sending us a letter stating that they were expecting a much bigger inheritance from their uncle's living trust. They demanded financial statements, their uncle's tax returns, and a full accounting of their uncle's assets dating from two years prior to his death.

We had to tell them that they were only entitled to asset information from the grantor's date of death forward, and if they believed there was cause to question the trustee's accounting, they should hire an attorney and file a petition with the probate court.

After much back and forth, they finally agreed to the original accounting. 

Know What You Are Getting Into

Serving as a trustee is an important but difficult job. Don't take it lightly. It's important that you understand your duties and obligations. Make sure you have good counsel throughout the process.

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