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Can a Beneficiary Question the Handling of a Revocable Trust?

A trust refers to any agreement where a person—the settlor—transfers certain property to a trustee, who must then administer that property as directed by the trust instrument. In estate planning, a revocable living trust allows the settlor to name herself as trustee during his lifetime and a successor trustee who takes office upon the settlor’s death. The trust is “revocable” in that the settlor may remove some or all of the property from the trust while she is still alive. But once the settlor dies, the trust may become irrevocable and the successor trustee is bound by the settlor’s instructions.

Daughter Not Entitled to Trust Information Prior to Father’s Death

A trust typically names one or more beneficiaries. For example, you might create a revocable living trust naming your children as beneficiaries upon your death. Trust beneficiaries enjoy certain rights under California law. In 2012, the California Supreme Court held that when a living trust names someone other than the settlor as trustee, the beneficiaries could seek a court order demanding an accounting of the trust’s finances for the period when the trust was still revocable—i.e., during the settlor’s lifetime.

But what about cases where the settlor served as his own trustee? A Los Angeles appeals court recently addressed that question. This case involved a trust created by two settlors, a husband and wife, in 1998. After the husband passed away in 2014, the trust was divided into subtrusts. The first subtrust remained revocable at the wife’s discretion. The second subtrust became irrevocable. The wife continued to serve as sole trustee for both subtrusts.

The second subtrust named the husband’s daughter from a prior marriage as a 50% beneficiary. She demanded an accounting of the subtrust from her stepmother. When the daughter was not satisfied with the response she received, she subsequently asked a California probate court to order her stepmother provide a full accounting of the trust, including documentation of transactions that occurred prior to the husband’s death, i.e. the date the second subtrust became irrevocable.

The California Second District Court of Appeal ultimately held the stepmother was not required to disclose such information. The husband’s “death did not give the beneficiaries a right to obtain information about the disposition of assets while the trust was revocable as ‘internal affairs of the trust’ under the Probate Code.” The court explained that while the husband was alive, he was free to use the assets of his own trust as he wished—the beneficiaries were not entitled to any explanation of events occurring before his death.

Get Advice from a San Diego Estate Planning Lawyer

It should be noted the Second District’s decision is only binding law in Los Angeles and surrounding counties. Courts in San Diego and other parts of California may look at the law differently depending on the circumstances. That is why you should consult with an experienced San Diego estate planning attorney to ensure your will or trust complies with current law. Contact the Law Office of Scott C. Soady today if you need to speak with an estate planning lawyer right away.

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