In Estate of Giraldin (California Court of Appeal, Fourth Appellate District, Case No. G041811, September 26, 2011), the Court recently held that remainder beneficiaries of a revocable trust lack standing to compel an accounting or bring an action against the third party trustee for the alleged wrongful actions or omissions to act of the trustee that occurred prior to the time that the trust became irrevocable. While the trust remained revocable, the trustee only owed a duty to the trustor. The beneficiaries alleged that during the time that the trust remained revocable, and the third party trustee was serving as trustee, the trustor lacked mental capacity to make competent decisions, including decisions involving how he wanted to use and invest trust assets, and that the trustee wrongfully permitted the trustor to make those decisions and to take those actions.
Estate of Giraldin contradicts and criticizes the California Court of Appeal First District’s holding in Evangelho v. Presoto (1998) 67 Cal.App.4th 615, which held in a similar revocable trust situation that the remainder beneficiaries do have standing to bring a claim against the trustee’s actions that were taken while the trust was revocable.
The problem with the holding in Estate of Giraldin is that the Court seeks to reach a bright-line rule that could be correct in some cases, but that also ignores that in other situations trust disputes of this nature present factual situations that are not amenable to such a single simple rule. After all, the Probate Court is a court of equity. For example, in Estate of Giraldin itself the Appellate Court appears to not attach much if any importance to the fact that:
[t]he[trial] court “further [found] that [the trustor] Bill lacked mental capacity to understand that certain documents proffered by [the trustee] Tim were written directions to the Trustee to authorize any of these transactions by the Trust or to relieve Tim of any of the statutory trustee duties.” Moreover, the court concluded “Bill was not sufficiently mentally competent in late 2001 and thereafter to either analyze the benefits and risks of an investment in SafeTzone… or to authorize and direct Tim to make such an investment.”
Perhaps some of the difficulty in the case results because:
[s]pecifically, [the beneficiary] respondents’ petition sought to hold [trustee] Tim responsible for breaches of duties “owed to trust beneficiaries,” such as the duty to “administer the trust solely in the interest of the beneficiaries”; the duty “to diversify investments”; the duty to “deal impartially with beneficiaries”; and the duty “to make trust property productive.” Each of those alleged “duties” was actually inconsistent with Tim’s obligation, during Bill’s lifetime, to administer the trust solely for Bill’s benefit and pursuant to Bill’s direction.
The Court’s holding might have been different if in the alternative the beneficiaries sought to fashion a claim on behalf of an alleged wrong committed against Bill. For example, in relevant part, the Court stated:
Of course, what the trustee cannot do is dispose of trust assets in a manner inconsistent with the settlor’s wishes. If, as respondents posited at oral argument, Tim had taken money from the family trust without Bill’s authorization just days before Bill died, so that Bill himself had no opportunity to do anything about it, there would still be a remedy. The representative of Bill’s estate would have the right to pursue an appropriate claim for recovery of those funds on behalf of the estate. (Code Civ. Proc., § 377.20, subd. (a) [“Except as otherwise provided by statute, a cause of action for or against a person is not lost by reason of the person’s death, but survives subject to the applicable limitations period.”].) And even assuming the representative of Bill’s estate was Tim himself, who might be expected to have little enthusiasm for bringing such a claim, respondents, or any other “interested person,” would have the right to petition for Tim’s removal in favor of an impartial special administrator who could then pursue whatever appropriate claims Bill might have had against Tim. (Prob. Code, § 8500.)
In this case, however, as we have already explained, respondents were not purporting to pursue Bill’s claims, or to seek redress for alleged wrongs done to him. Instead, they were seeking to vindicate their own distinct interests, by claiming Tim had breached duties allegedly owed to them during the period prior to Bill’s death. We hold merely that Tim owed them no such duties, and thus respondents lacked standing to assert those claims. We express no opinion on the merit of any theoretical claims that might have been asserted on Bill’s behalf. None were.
As factual circumstances vary widely in trust cases, whereas bright-line rules can apply in appropriate trust circumstances, care should be taken to not overstate a rule’s possible universal applicability. In Giraldin for example, the Court also could have focused on the issue of the trustor’s original intent and whether the trustor’s actions and decisions were in keeping with that intent in light of the Trial Court’s finding that Bill was lacking in mental capacity to evaluate and make certain investment decisions. I do agree, however, that the trustee was not required to evaluate Bill’s mental capacity or to have that mental capacity evaluated, at least in part because there was no evidence that caused the trustee to believe or suspect that Bill was incompetent to make the decisions that he was making. The situation might have been different if the trustee was aware of red flags evidencing a lack of capacity.