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How Much Discretion Does My Successor Trustee Have?

A revocable living trust allows you to maintain control over your property during your lifetime. Although you transfer the title of your property to a trustee, that trustee can be you, and more importantly, you are free to add or remove property from the trust as you see fit. Upon your death, however, the terms of your trust generally become irrevocable, and your successor trustee is bound by any instructions that have you left.

Trustee Not Permitted to Extend “Option Agreement” After Settlor’s Death

California courts will strictly construe the terms of your revocable living trust in an attempt to carry out your stated wishes. This means that a successor trustee’s discretion may be limited depending on how the trust is worded. A recent California appeals court decision offers a helpful illustration.

In this case, a man created a revocable living trust in 1994 and transferred approximately 17 acres of real property into the trust. The man served as trustee during his lifetime. In 2004, the man, acting as trustee, signed an “option agreement” with another individual giving the latter the right to purchase seven acres of the trust’s property within five years. The parties later extended this option period until June 2011.

The man died in 2009, just a few weeks after signing the extension on the option agreement. According to the terms of the trust, the real property remaining in the trust was to be distributed to the local parks authority “for the purposes of establishing an agricultural park.” Litigation eventually arose over several issues relate to the trust, including the distribution of the land. The holder of the option agreement sought to enforce his rights, citing a second extension he signed with the successor trustee of the trust. This second extension gave the holder until 2013 to purchase part of the trust’s land.

But the parks authority contended the second extension was void and unenforceable as a matter of law. The courts agreed. The California First District Court of Appeal, upholding a probate judge’s earlier decision, said that while the trust granted the successor trustee the authority to enter into option agreements, such power could only be invoked to “carry out the purposes of the trust.” And once the man died, the purposes of the trust included distributing the property to the parks authority. This condition became “irrevocable and not subject to amendment” upon the settlor’s death.

Get Trust Advice From a California Estate Planning Lawyer

When making a revocable living trust, it is essential that you make your wishes as clear as possible. And as the case above illustrates, it is equally important to define the limits of any discretionary powers that you wish to grant to a successor trustee. Any ambiguity in the language of a trust may lead to costly and unnecessary litigation. The courts will respect your wishes, but judges should not be placed in a position where they have to guess what those wishes are.

If you need advice on setting up or managing a trust from an experienced San Diego estate planning attorney, contact the Law Office of Scott C. Soady today.

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