The question arises, under the new California Uniform Directed Trust Act, what powers can a trust director have? The California statutes do not directly answer that question (see Cal. Probate Code Sections 16600 and 16602 below). Certainly the trust as drafted will in some manner specify the trust director’s powers. Depending on how those powers are worded, they might be broad or they might be more specific, or both. Hopefully the powers will not be vague; however, as with any wording, and with sometimes uncertain or changing situations, wording that initially seemed clear might not end up being so. And, in some circumstances it is certain that Court approval, review, application, or interpretation will be desired and sought. Undoubtedly that will also be options and opportunities for mediation and uncertainty, disagreement or dispute resolution. Please also be mindful that there will be many posts on these topics both now and into the future – this post is only one of my posts – this is a complicated topic – you should read all of my posts, and also see the disclaimer below.

With respect to trust director powers, the California Uniform Directed Trust Act provides the following at Cal. Probate Code Sections 16600 and 16602:

California Probate Code Section 16600

(a) This chapter shall be known, and may be cited, as the California Uniform Directed Trust Act.

(b) The Legislature finds and declares all of the following:

(1) This chapter governs an arrangement commonly known as a directed trust

(2) In a directed trust, the terms of the trust grant a person other than a trustee a power over some aspect of the trust’s administration.

(3) Under this chapter, this power is called a power of direction, the person that holds the power is called a trust director, a trustee that is subject to the power is called a directed trustee, and the trust is a directed trust.

California Probate Code Section 16602

For purposes of this chapter, the following definitions shall apply:

(a) “Breach of trust” includes a violation by a trust director or trustee of a duty imposed on that director or trustee by the terms of the trust, this chapter, or law of this state other than this chapter pertaining to trusts.

(b) “Directed trust” means a trust for which the terms of the trust grant a power of direction.

(c) “Directed trustee” means a trustee that is subject to a trust director’s power of direction.

(d) “Power of direction” means a power over a trust granted to a person by the terms of the trust to the extent the power is exercisable while the person is not serving as a trustee. Power of direction includes a power over the investment, management, or distribution of trust property or other matters of trust administration. The term excludes the powers described in subdivision (a) of Section 16606.

(e) “Settlor” means a person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person’s contribution except to the extent another person has the power to revoke or withdraw that portion.

(f) “Terms of a trust” means either of the following:

(1) The manifestation of the settlor’s intent regarding a trust’s provisions as expressed in the trust instrument or established by other evidence that has been admitted in a judicial proceeding.

(2) The trust’s provisions as established, determined, or amended by a trustee or trust director in accordance with applicable law, the exercise of a power of appointment in accordance with applicable law, a court order, or other binding modification, including, but not limited to, under Section 15404.

(g) “Trust director” means a person that is granted a power of direction by the terms of a trust, to the extent the power is exercisable while the person is not serving as a trustee. The person is a trust director whether or not the terms of the trust refer to the person as a trust director and whether or not the person is a beneficiary or settlor of the trust.

Thus, under the new California Uniform Directed Trust Act, the trust director’s powers are those powers that are provided and determined by the terms of the trust and generally (but vaguely) include a power over the investment, management, or distribution of trust property or other matters of trust administration, but exclude the powers described in subdivision (a) of Section 16606. However, see also the definition of the “Terms of a trust” above in Section 16602, which in in some circumstances may be more broad that the written terms of the trust instrument as “established by other evidence that has been admitted in a judicial proceeding.”

As I have previously blogged, materials under the National Conference of Commissioners on Uniform State Laws Uniform Directed Trust Act might also be relevant. Thus, the following are the provisions and some of the materials pertaining to trust director powers under Section 6 of the National Uniform Directed Trust Act – note, however, that the specific trust at issue is not required to contain each power that is listed below in the Comment, and, as also indicated in the Comment, the specific powers that are listed are not limiting or comprehensive.

The following is wording from Section 6 (Powers of Trust Director) and some of the other related materials from the National Uniform Directed Trust Act:

SECTION 6. POWERS OF TRUST DIRECTOR.

(a) Subject to Section 7, the terms of a trust may grant a power of direction to a trust director.

(b)Unless the terms of a trust provide otherwise: (1) a trust director may exercise any further power appropriate to the exercise or nonexercise of a power of direction granted to the director under subsection (a); and

(2) trust directors with joint powers must act by majority decision.

Comment

Validating a trust director. Subsection (a) validates a provision for a trust director in the terms of a trust. This subsection does not provide any powers to a trust director by default. Nor does it specify the scope of a power of direction. The existence and scope of a power of direction must instead be specified by the terms of a trust. A trust director may be named by the terms of the trust, by a procedure prescribed by the terms of the trust, or in accordance with Section 16(6).

Breadth of subsection (a). Without limiting the definition of a “power of direction” in Section 2(5), the drafting committee specifically contemplated that subsection (a) would validate terms of a trust that grant a power to a trust director to:

• acquire, dispose of, exchange, or retain an investment;
• make or take loans;
• vote proxies for securities held in trust;
• adopt a particular valuation of trust property or determine the frequency or methodology of valuation;
• adjust between principal and income or convert to a unitrust;
• manage a business held in the trust;
• select a custodian for trust assets;
• modify, reform, terminate, or decant a trust;
• direct a trustee’s or another director’s delegation of the trustee’s or other director’s powers;
• change the principal place of administration, situs, or governing law of the trust;
• ascertain the happening of an event that affects the administration of the trust;
• determine the capacity of a trustee, settlor, director, or beneficiary of the trust;
• determine the compensation to be paid to a trustee or trust director;
• prosecute, defend, or join an action, claim, or judicial proceeding relating to the trust;
• grant permission before a trustee or another director may exercise a power of the trustee or other director; or
• release a trustee or another trust director from liability for an action proposed or previously taken by the trustee or other director.

This subsection does not, however, override the background law that regulates the formation of a trust, such as the requirements that a trust be lawful, not contrary to public policy, and possible to achieve. See, e.g., Uniform Trust Code § 404 (2000); Restatement (Third) of Trusts §§ 29–30 (2003).

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David Tate, Esq. (and inactive CPA)

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation, or as or for my opinions and views on the subject matter.

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David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.