IN THE SUPREME COURT OF CALIFORNIA
Estate of WILLIAM A. GIRALDIN,
Deceased.
____________________________________)
CHRISTINE GIRALDIN et al.,
Plaintiffs and Respondents,
S197694
v.
Ct.App. 4/3
TIMOTHY GIRALDIN et al.,
G041811
Defendants and Appellants.
Orange County
Super. Ct. No. A240697
A revocable trust is a trust that the person who creates it, generally called
the settlor,1 can revoke during the person‟s lifetime. The beneficiaries‟ interest in
the trust is contingent only, and the settlor can eliminate that interest at any time.
When the trustee of a revocable trust is someone other than the settlor, that trustee
owes a fiduciary duty to the settlor, not to the beneficiaries, as long as the settlor is
alive. During that time, the trustee needs to account to the settlor only and not also
to the beneficiaries. When the settlor dies, the trust becomes irrevocable, and the
beneficiaries‟ interest in the trust vests. We must decide whether, after the settlor
dies, the beneficiaries have standing to sue the trustee for breach of the fiduciary
duty committed while the settlor was alive and the trust was still revocable.
1
See Black‟s Law Dictionary (9th ed. 2009) page 1497, column 2.
1
Because a trustee‟s breach of the fiduciary duty owed to the settlor can
substantially harm the beneficiaries by reducing the trust‟s value against the
settlor‟s wishes, we conclude the beneficiaries do have standing to sue for a breach
of that duty after the settlor has died. We reverse the judgment of the Court of
Appeal, which concluded the beneficiaries have no such standing.
I. FACTUAL AND PROCEDURAL HISTORY
Because neither party petitioned for rehearing, we take most of these facts
from the Court of Appeal‟s opinion. (See Cal. Rules of Court, rule 8.500(c)(2).)
William Giraldin and Mary Giraldin were married in 1959. When they
married, William had four children and Mary had three.2 William adopted Mary‟s
children. Together, they had twin sons, Timothy and Patrick. William was a
successful businessman and investor and accumulated a substantial fortune.
In February 2002, William created the revocable trust at issue, the William
A. Giraldin Trust (the trust), and made Timothy the trustee. William was the sole
beneficiary during his lifetime. The remainder beneficiaries were Mary, who was
entitled to the benefits of the trust during her lifetime, and then the nine children,
who would share equally in what remained after both William and Mary were
deceased. William reserved to himself specified rights, including the rights to
amend or revoke the trust, to add or remove property from the trust, to remove the
trustee, and to direct and approve the trustee‟s actions, including any investment
decisions. The trust document provided that William could exercise these rights
only in writing.
The trust document also provided that “[d]uring [William‟s] lifetime, the
Trustee shall distribute to [William] that amount of net income and principal as
2
To avoid confusion, we will sometimes refer to members of the Giraldin
family by their first names.
2
[William] direct[s].” In the event William was declared to be incapacitated, the
trustee was instructed to distribute the amount of net income and principal the
trustee deemed to be appropriate to support William‟s “accustomed manner of
living” with the understanding that “the rights of remainder beneficiaries shall be
of no importance.” The trust document also provided that “[d]uring [William‟s]
lifetime, the trustee shall have no duty to provide any information regarding the
trust to anyone other than [William].” After William‟s death, if Mary survived
him, the trustee “shall have no duty to disclose to any beneficiary other than
[Mary] the existence of this trust or any information about its terms or
administration, except as required by law.” The document also specified that
William “waive[d] all statutory requirements . . . that the Trustee . . . render a
report or account to the beneficiaries of the trust.”
The trust document also states that William “[did] not want the Trustee to
be personally liable for his or her good faith efforts in administering the trust
estate,” and that “[t]he discretionary powers granted to the Trustee under this Trust
Agreement shall be absolute. This means that the Trustee can act arbitrarily, so
long as he or she does not act in bad faith, and that no requirement of
reasonableness shall apply to the exercise of his or her absolute discretion.”
William “waive[d] the requirement that the Trustee‟s conduct at all times must
satisfy the standard of judgment and care exercised by a reasonable, prudent
person. In particular, the decision of the Trustee as to the distributions to be made
to beneficiaries under the distribution standards provided in this Trust Agreement
shall be conclusive on all persons.”
When first established, the trust contained no assets. The trust document
indicated that William “had transferred and delivered to the Trustee the property
described in schedule 1, attached,” but the version of schedule 1 attached to the
trust document was blank. It appears schedule 1 was never completed. Before
3
establishing the trust, William had indicated the intent to invest about $4 million,
about two-thirds of his fortune, in a company his son Patrick had started some
years before called SafeTzone Technologies Corporation (SafeTzone). Timothy
was also a part owner of the company. In January 2002, William signed a
document detailing his planned investment in the company. The day he executed
the trust document, William also signed another document stating that “after the
trust has been set up William A. Giraldin and Timothy W. Giraldin will begin the
process of selling stock and converting assets to fulfill the investment into
SafeTzone Technologies corporation of $4 million dollars.” William signed other
documents indicating his intent to invest the money in the company.
Between February 2002 and May 2003, William made six payments of
various amounts to invest in SafeTzone, ultimately totaling more than $4 million.
The company issued stock to William. After the investment was fully funded, the
stock was transferred into the name of the trust. William died in May 2005. By
this time, the investment in SafeTzone had gone badly, and the trust‟s interest in
the company was worth very little.
Four of William‟s children, Patricia Gray, Christine Giraldin, Michael
Giraldin, and Philip Giraldin (collectively plaintiffs), sued Timothy in his capacity
as trustee of the trust for breach of his fiduciary duties. They alleged, in effect,
that Timothy had squandered William‟s life savings for his and Patrick‟s benefit,
depriving the other seven children of their benefits from the trust. Plaintiffs
sought to remove Timothy as trustee and to compel him to account for his actions
while acting as trustee. An amended petition alleged that Timothy should be
4
surcharged3 for alleged breach of his fiduciary duties regarding the SafeTzone
investment and in making loans to himself and Patrick from trust assets.4
A court trial was held in October and November 2008. After the trial, the
court ruled in plaintiffs‟ favor. It found Timothy had violated his fiduciary duty in
various respects. It also found that William did not authorize many of Timothy‟s
actions in writing as the trust required, and that William “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 [Timothy] to
make such an investment.” The court ordered Timothy be removed as trustee and
that he make an accounting of the trust for the period of January 1, 2008 until his
removal. Additionally, it ordered that Timothy be surcharged “for his breach of
the Trust and breach of fiduciary duties owed to Decedent William G. Giraldin” in
the amount of $4,376,044 for the SafeTzone investment and surcharged $625,619
for other “unsupported disbursements, distributions and loans of Trust funds . . . .”
It also ordered that Patrick return to the trust $155,000 loaned to him from trust
funds.
Timothy appealed, raising several issues. The Court of Appeal additionally
asked the parties to brief the question of whether, as its opinion describes it,
plaintiffs had “standing to maintain claims for breach of fiduciary duty and to seek
an accounting against [Timothy] based upon his actions as trustee during the
period prior to [William‟s] death.” After receiving the briefing, it found plaintiffs
3
Black‟s Law Dictionary defines a “surcharge” in this context as the
“amount that a court may charge a fiduciary that has breached its duty.” (Black‟s
Law Dict., supra, p. 1579, col. 1.)
4
Mary also filed her own petition to confirm her community interest in the
trust and other community assets. Because no issue regarding this aspect of the
case is before us on review, we do not mention it again.
5
had no such standing. It explained that Timothy‟s “duties as trustee were owed
solely to [William] during [the time William was alive], and not to the trust
beneficiaries. Thus [plaintiffs], as beneficiaries, lack standing to complain of any
alleged breaches of those duties occurring prior to [William‟s] death. Moreover,
the beneficiaries have no right to compel an accounting of the trustee‟s actions for
the period in which the trust remained revocable [citations], and thus also lack
standing to seek such relief for the period prior to [William‟s] death.”
The Court of Appeal also believed this action alleged a breach of Timothy‟s
fiduciary duty solely towards the beneficiaries rather than toward William. “In
this case,” the Court of Appeal said, plaintiffs “were not purporting to pursue
[William‟s] claims, or to seek redress for alleged wrongs done to him. Instead,
they were seeking to vindicate their own distinct interests, by claiming [Timothy]
had breached duties allegedly owed to them during the period prior to [William‟s]
death. We hold merely that [Timothy] owed them no such duties, and thus
[plaintiffs] lacked standing to assert those claims. We express no opinion on the
merit of any theoretical claims that might have been asserted on [William‟s]
behalf. None were.”
The Court of Appeal reversed the trial court‟s judgment “without prejudice
to [plaintiffs‟] right to seek a new accounting pertaining solely to the period after
[William] Giraldin‟s death . . . .”
We granted plaintiffs‟ petition for review limited to the following question:
“When the settlor of a revocable inter vivos trust appoints, during his lifetime,
someone other than himself to act as trustee, once the settlor dies and the trust
becomes irrevocable, do the remainder beneficiaries have standing to sue the
trustee for breaches of fiduciary duty committed during the period of
revocability?”
6
II. DISCUSSION
William created the trust during his lifetime, and he reserved the right to
revoke it. Property transferred into a revocable inter vivos trust is considered the
property of the settlor for the settlor‟s lifetime. Accordingly, the beneficiaries‟
interest in that property is “ „merely potential‟ and can „evaporate in a moment at
the whim of the [settlor].‟ ” (Steinhart v. County of Los Angeles (2010) 47 Cal.4th
1298, 1319, quoting Johnson v. Kotyck (1999) 76 Cal.App.4th 83, 88.) Thus, so
long as William was alive, he had the power to divest the beneficiaries of any
interest in the trust. (See generally Steinhart v. County of Los Angeles, supra, at
pp. 1319-1320.)
Consistent with these principles, Probate Code section 15800 provides:
“Except to the extent that the trust instrument otherwise provides . . . , during the
time that a trust is revocable and the person holding the power to revoke the trust
is competent:
“(a) The person holding the power to revoke, and not the beneficiary, has
the rights afforded beneficiaries under this division.
“(b) The duties of the trustee are owed to the person holding the power to
revoke.” (Italics added.)5
The italicized language from section 15800, subdivision (b), makes clear
that so long as the settlor is alive, the trustee owes a duty solely to the settlor and
not to the beneficiaries. The Court of Appeal viewed this lawsuit as alleging only
that Timothy violated a fiduciary duty towards the beneficiaries during William‟s
lifetime. Had this been the case, the action could simply have been dismissed on
the basis that no such duty exists. There would be no need to raise any standing
5
All further statutory references are to the Probate Code unless otherwise
indicated.
7
question. But this case does not simply involve an alleged breach of Timothy‟s
duty towards the beneficiaries. Although some of the trial court‟s order
underlying this appeal was ambiguous regarding whether the court had found a
violation of a duty towards the beneficiaries or towards William, a substantial
thrust of this lawsuit and the trial court‟s order is that Timothy violated his
fiduciary duty towards William during William‟s lifetime. To the extent, if any,
that the trial court based its order on a breach of duty towards the beneficiaries
during William‟s lifetime, we agree the court erred. No such duty exists. But to
the extent the court based its order on a violation of Timothy‟s duty towards
William during his lifetime, we must decide whether the beneficiaries have
standing after the settlor‟s death to sue the trustee for breach of that duty.
The Law Revision Commission comment to section 15800 explains that the
“section has the effect of postponing the enjoyment of rights of beneficiaries of
revocable trusts until the death or incompetence of the settlor or other person
holding the power to revoke the trust. . . . Section 15800 thus recognizes that the
holder of a power of revocation is in control of the trust and should have the right
to enforce the trust. . . . A corollary principle is that the holder of the power of
revocation may direct the actions of the trustee. . . . Under this section, the duty to
inform and account to beneficiaries is owed to the person holding the power to
revoke during the time that the trust is presently revocable.” (Cal. Law Revision
Com. com., 54 West‟s Ann. Prob. Code (2011 ed.) foll. § 15800, pp. 644-645.)
Similarly, section 15801, subdivision (a), provides that when a
beneficiary‟s consent may or must be given, “during the time that a trust is
revocable and the person holding the power to revoke the trust is competent, the
person holding the power to revoke, and not the beneficiary, has the power to
consent or withhold consent.” The Law Revision Commission comment to this
section explains that under its rule, “the consent of the person holding the power to
8
revoke, rather than the beneficiaries, excuses the trustee from liability as provided
in Section 16460(a) (limitations on proceedings against trustee).” (Cal. Law
Revision Com. com., 54 West‟s Ann. Prob. Code, supra, foll. § 15801, p. 646.)
Section 15802 provides that “during the time that a trust is revocable and
the person holding the power to revoke the trust is competent, a notice that is to be
given to a beneficiary shall be given to the person holding the power to revoke and
not to the beneficiary.” The Law Revision Commission comment to this section
explains that it “recognizes that notice to the beneficiary of a revocable trust
would be an idle act in the case of a revocable trust since the beneficiary is
powerless to act.” (Cal. Law Revision Com. com., 54 West‟s Ann. Prob. Code,
supra, foll. § 15802, p. 646.)
These provisions mean that during William‟s lifetime, and as long as he
was competent, the trust beneficiaries were powerless to act regarding the trust. A
report of the California Law Revision Commission also makes this clear. “[T]he
proposed law makes clear that the beneficiaries of a revocable living trust do not
have the right to petition the court concerning the internal affairs of the trust until
such time as the settlor, or other person holding the power to revoke, is unable to
exercise a power of revocation, whether due to incompetence or death.”
(Recommendation Proposing the Trust Law (Dec. 1985) 18 Cal. Law Rev. Com.
Rep. (1986) pp. 584-585; see 13 Witkin, Summary of Cal. Law (10th ed. 2005)
Trusts, § 145, p. 710 [quoting this language].)
The question we must decide is whether the plaintiffs had standing, after
William‟s death, to allege Timothy‟s breach of fiduciary duty towards William.
The Probate Code does not address this question directly. That is, no section
expressly states that the beneficiaries of a revocable trust either have or do not
have this standing. But the code, as a whole, implies that after the settlor has died,
the beneficiaries of a revocable trust may challenge the trustee‟s breach of the
9
fiduciary duty owed to the settlor to the extent that breach harmed the
beneficiaries‟ interests. As the Law Revision Commission explained, section
15800 merely postponed the beneficiaries‟ enjoyment of their rights until after the
settlor‟s death. (Cal. Law Revision Com. com., 54 West‟s Ann. Prob. Code,
supra, foll. § 15800, p. 644.)
As a general matter, the Probate Code affords beneficiaries broad remedies
for breach of trust. Section 16420, subdivision (a), provides that “[i]f a trustee
commits a breach of trust, or threatens to commit a breach of trust, a
beneficiary . . . may commence a proceeding for any of the following purposes
that is appropriate . . . .” (Italics added.) These purposes include “[t]o compel the
trustee to redress a breach of trust by payment of money or otherwise.” (Id., subd
(a)(3).) The Law Revision Commission comment to this section states that the
“reference to payment of money in paragraph (3) is comprehensive and includes
liability that might be characterized as damages, restitution, or surcharge.” (Cal.
Law Revision Com. com., 54A Pt.1, West‟s Ann. Prob. Code (2011 ed.) foll.
§ 16420, p. 256, italics added.) Subdivision (b) of that section — which states that
the “provision of remedies for breach of trust in subdivision (a) does not prevent
resort to any other appropriate remedy provided by statute or the common law” —
makes clear that the remedies the section affords beneficiaries are indeed broad.
Section 16462, subdivision (a), provides that “a trustee of a revocable trust
is not liable to a beneficiary for any act performed or omitted pursuant to written
directions from the person holding the power to revoke . . . .” (Italics added.)
This provision is consistent with section 15800, which provides that the trustee‟s
duties are owed to “the person holding the power to revoke,” who in this case is
the settlor. If the trustee‟s duty is to the settlor, and the trustee acts pursuant to the
settlor‟s directions, the trustee has violated no duty. But section 16462, including
the italicized language, “to a beneficiary,” also implies that if the trustee does not
10
act pursuant to the settlor‟s directions, the trustee may be liable to the
beneficiaries. This implication would make no sense, and section 16462 would be
meaningless, if the beneficiaries have no standing, ever, to bring an action
challenging the trustee‟s actions while the settlor was still alive. We see no textual
or other basis to support the dissent‟s argument section 16462 only governs
actions taken after the settlor has died. (Dis. opn., post, at pp. 6-7.)
Section 16069 (formerly part of section 16064) provides that the trustee
need not account to the beneficiary “[i]n the case of a beneficiary of a revocable
trust, as provided in Section 15800, for the period when the trust may be revoked.”
Timothy argues this means that he need not account to the beneficiaries ever for
his actions while the trust could be revoked. The statutory language is somewhat
ambiguous and may, indeed, be read as Timothy argues. But, as the cross-
reference to section 15800 indicates, section 16069 must be read in context.
Section 15800 provides that during the time the trust is revocable, the settlor has
the rights afforded beneficiaries. We must read section 16069 to be consistent
with section 15800. We do not read section 16069 to mean that the trustee never
has to provide such an accounting, even after the trust becomes irrevocable, i.e.,
after the settlor‟s death.
Section 17200 provides further support for this conclusion. Subdivision (a)
of that section states: “Except as provided in Section 15800, a trustee or
beneficiary of a trust may petition the court under this chapter concerning the
internal affairs of the trust or to determine the existence of the trust.” Other than
as affected by the reference to section 15800, section 17200 does not distinguish
between inter vivos trusts and other trusts. (See Conservatorship of Irvine (1995)
40 Cal.App.4th 1334, 1342.) Section 24, subdivision (c), states that “beneficiary,”
“[a]s it relates to a trust, means a person who has any present or future interest,
vested or contingent.” (Italics added.) Thus, a contingent beneficiary may
11
petition the court subject only to the limitations provided in section 15800. But
the latter provision merely states that “during the time” the trust is revocable, the
settlor has the rights of a beneficiary, and the trustee‟s duties are to the settlor, not
the beneficiary. Nothing in section 15800 limits the ability of beneficiaries to
petition the court after the trust becomes irrevocable.
Other than the Court of Appeal in this case, no California court has held the
beneficiaries have no standing in this situation. Indeed, we are aware of no
statute, judicial decision, or other authority, from this or any other state, denying
such standing. The only California case on point has found standing. (Evangelho
v. Presoto (1998) 67 Cal.App.4th 615 (Evangelho).) In that case, the beneficiaries
of a revocable trust sought, after the settlor‟s death, an accounting from the trustee
for the period during which the trust was revocable. The trustee argued that “an
accounting should not be ordered for the period when decedent was alive and the
trust was revocable by decedent . . . .” (Id. at p. 617.) The Court of Appeal
disagreed.
The Evangelho court noted that while the trustor (i.e., settlor) was alive, the
trust was revocable and subject to section 15800. (Evangelho, supra, 67
Cal.App.4th at p. 623.) It then explained: “The effect of this section [15800],
according to the Law Revision Commission comment on this code section, is to
postpone the enjoyment of the rights of the beneficiaries of revocable trusts until
the death or incompetence of the settlor or the person who can revoke the trust.
(Cal. Law Revision Com. com., 54 West‟s Ann. Prob. Code, supra, foll. § 15800,
p. 644.) During the time the trust may be revoked, the trustee is not required to
account to a beneficiary. ([Former] § 16064 [, subd. (d)] [provision renumbered
§ 16069 by Stats. 2010, ch. 621, § 9].) [¶] The clear import of the legislative
intent of section 15800 and [former] section 16064 was to postpone the enjoyment
of rights under the trust law by contingent beneficiaries while the settlor could
12
revoke or modify the trust. During the time the person holding the power to
revoke is competent or alive, a trustee has no duty to account to contingent
beneficiaries for the period when the trust may be revoked. When the person
holding the power to revoke dies, the rights of the contingent beneficiaries are no
longer contingent. Those rights, which were postponed while the holder of the
power to revoke was alive, mature into present and enforceable rights under
division 9, the trust law.
“Considered as a whole, the various Probate Code sections impose a duty
on the trustee to protect the interests of the persons who are entitled to the
proceeds of the trust. One facet of the duty is that the protected persons can
compel an accounting. In the case of a revocable trust, two categories of person
are protected. While the trust is revocable, the protected person is the settlor.
However once the trust becomes irrevocable, such as by the death of the settlor,
the beneficiaries become the protected persons. The Law Revision Commission
comments explicitly speak about „postponing the enjoyment of rights of
beneficiaries of revocable trusts until the death or incompetence of the settlor or
other person holding the power to revoke the trust.‟ (Cal. Law Revision Com.
com., 54 West‟s Ann. Prob. Code, supra, foll. § 15800, p. 644.) [¶] Accordingly,
the actual words of the code sections and Law Revision Commission reveal the
will of the Legislature to be that only decedent as settlor could compel an
accounting while she was alive and competent. But once decedent died, the right
to compel the accounting set out in the code sections passed to the . . .
beneficiaries.” (Evangelho, supra, 67 Cal.App.4th at pp. 623-624, fn. omitted.)
The Court of Appeal here found Evangelho, supra, 67 Cal.App.4th 615,
“unpersuasive, and decline[d] to follow it.” It first “note[d] the Evangelho court
did not have the benefit of the Supreme Court‟s opinion in Steinhart [v. County of
Los Angeles, supra, 47 Cal.4th 1298], with its clear explanation of the special
13
nature of a revocable trust, to aid in its interpretation of Probate Code section
15800.” But what we said in Steinhart about revocable trusts was merely
background regarding the legal issue before us, which was a tax question. We said
nothing about revocable trusts that was not already well established.
The Court of Appeal also stressed that the trustee‟s duties were owed to the
settlor while he was still alive. It then stated: “And if the trustee‟s duties are not
owed to the beneficiaries at the time of the acts in question, the death of the settlor
cannot make them retroactively owed to the beneficiaries.” This statement is
correct, but it does not address the question of whether the beneficiaries have
standing to assert a breach of the duty towards the settlor after the settlor has died
and can no longer do so personally.
The court provided a rather colorful hypothetical to illustrate its argument:
“For example, if the settlor of a revocable trust learned he had a terminal disease,
and was going to die within six months, he might decide that his last wish was to
take his mistress on a deluxe, six-month cruise around the world — dissipating
most of the assets held in his trust. The trustee, whose duties are owed to the
settlor at that point, would have no basis to deny that last wish. However, if the
trustee‟s duties were deemed to be retroactively owed to the trust beneficiaries —
say, the settlor‟s widow and children — as soon as the settlor breathes his last
breath on a beach in Bali, the trustee would find himself liable for having failed to
sufficiently preserve their interests in the trust corpus prior to the settlor‟s death.
In other words, the trustee‟s act, which was not a breach of any duty owed by the
trustee when he committed it, would suddenly be transformed into a breach of a
different duty that only came into existence when the settlor died. That is not —
and cannot be — the law.”
The court‟s argument, applied to its hypothetical facts, is correct. In that
hypothetical, the trustee would have breached no duty, so would have incurred no
14
liability. But that is not the issue we are deciding. Let us change the hypothetical
somewhat. Let us assume the trustee himself, unbeknownst to and against the
wishes of the settlor (who wishes to leave behind a large trust for his
beneficiaries), goes on the six-month cruise around the world with trust funds,
dissipating most of the trust assets in the process. The acts do not come to light
until the settlor has died and the beneficiaries discover the trust is devoid of assets.
In that situation, the trustee would have violated his duty to the settlor, much to the
beneficiaries‟ harm, and, as section 16462 implies, would be liable to the
beneficiaries. The Court of Appeal is correct that the trustee owes no duty to the
beneficiaries while the settlor is alive and competent, and this lack of a duty does
not retroactively change after the settlor dies. But after the settlor has died and can
no longer protect his own interests, the beneficiaries have standing to claim a
violation of the trustee‟s duty to the settlor to the extent that violation harmed the
beneficiaries‟ interests. A trustee, like our hypothetical one, cannot loot a
revocable trust against the settlor‟s wishes without the beneficiaries‟ having
recourse after the settlor has died.
The case of Johnson v. Kotyck, supra, 76 Cal.App.4th 83, illustrates the
difference between the beneficiaries‟ standing before and after the settlor‟s death.
In that case, the settlor, although still alive, was under the care and custody of a
court-appointed conservator. The question was whether, in that situation, the
beneficiary of a revocable trust was entitled to receive a trust accounting. The
Court of Appeal concluded the beneficiary was not so entitled. Its analysis is
instructive. The beneficiary had relied “on section 15800, which postpones the
rights of trust beneficiaries „during the time that a trust is revocable and the person
holding the power to revoke the trust is competent.‟ ” (Id. at p. 88.) The court
rejected this reliance. “[T]his provision does not mean that a trust automatically
becomes irrevocable when the trustor becomes a conservatee. The Law Revision
15
Commission comment to section 15800 explains: „This section has the effect of
postponing the enjoyment of rights of beneficiaries or revocable trusts until the
death or incompetence of the settlor or other person holding the power to revoke
the trust.‟ (Cal. Law Revision Com. com., reprinted at 54 West‟s Ann. Prob. Code
(1991 ed.) foll. § 15800, p. 644, italics added [by the Johnson court].)” (Ibid.)
The court explained that the conservator, working with the court, was a person
holding the power to revoke the trust. (Ibid.) It concluded, accordingly, “that
section 15800 does not give a beneficiary . . . any right to a trust accounting so
long as a conservator retains authority . . . to have the trust revoked and to
abrogate [the beneficiary‟s] interest in the trust proceeds.” (Ibid., italics added.)
But the Johnson court went on to explain that the conservator might be
liable to the remainder beneficiary later, after the trust becomes irrevocable, for
any malfeasance. It explained that “the conservator ignores misappropriations of
the conservatee‟s property at its own peril.” (Johnson v. Kotyck, supra, 76
Cal.App.4th at p. 89.) Accordingly, the court merely concluded that the
beneficiary “cannot be accorded all the rights of a vested beneficiary before the
death of the trustor [i.e., the settlor].” (Id. at p. 90, italics added.) This discussion
suggests that after the settlor dies, the beneficiary would have standing to
complain of the conservator‟s actions taken before the settlor‟s death.
Other legal sources support finding standing after the settlor‟s death.
Although California‟s law of trusts is statutory, it also draws on the common law.
“Except to the extent that the common law rules governing trusts are modified by
statute, the common law as to trusts is the law of this state.” (§ 15002.) The Law
Revision Commission comment to this section states that it refers “to the
contemporary and evolving rules of decision developed by the courts in exercise
of their power to adapt the law to new situations and to changing conditions.”
16
(Cal. Law Revision Com. com., 54 West‟s Ann. Prob. Code, supra, foll. § 15002,
pp. 484-485.)
Consistently with section 15002, California courts have considered the
Restatement of Trusts in interpreting California trust law. (See Esslinger v.
Cummins (2006) 144 Cal.App.4th 517, 528 [interpreting § 17200 in a way that
made it consistent with the Rest.2d Trusts].) The Restatement Third of Trusts, like
the Probate Code, does not expressly address the question here, but it supports the
conclusion that beneficiaries do have standing after the settlor‟s death to sue for a
trustee‟s breach of the duty owed to the settlor. Section 74 of that Restatement
provides that while the trust is revocable, the trustee has a duty to do what the
settlor directs (subd. (1)(a)), and that “[t]he rights of the beneficiaries are
exercisable by and subject to the control of the settlor” (subd. (1)(b)). This
section, like the similar section 15800, is inconclusive on the question before us.
But the comments to this section are instructive. The comment to subdivision
(1)(a), states: “A trustee is not liable to the beneficiaries for a loss that results
from compliance with a settlor‟s direction in accordance with the terms of that
direction.” (Rest.3d Trusts, § 74, com. b, p. 29.) Later that comment adds, “As a
practical matter, however, in the event of a surcharge action, the trustee does run a
risk in relying on unwritten evidence to support a defense based on settlor
direction or authorization.” (Id. com. c, p. 30.) These comments imply that a
trustee may be liable to the beneficiaries in at least some circumstances, which in
turn implies that beneficiaries have standing to assert that liability.
One well-known treatise on trust law does address this question directly.
“Consistent with the rule that the duties of a trustee of a revocable trust are owed
exclusively to the settlor, at least while the settlor has capacity, the rights of non-
settlor beneficiaries of a revocable trust generally are subject to the control of the
settlor. Thus, as a general rule, the trustee cannot be held to account by other
17
beneficiaries for its administration of a revocable trust during the settlor‟s lifetime.
After the settlor‟s death, of course, the trustee is accountable to the trust‟s other
beneficiaries for its administration of the trust after the settlor‟s death. Further,
many courts have allowed other beneficiaries to pursue breach of duty claims
after the settlor’s death, related to the administration of the trust during the
settlor’s lifetime, when, for example, there are allegations that the trustee
breached its duty during the settlor’s lifetime and that the settlor had lost capacity,
was under undue influence, or did not approve or ratify the trustee‟s conduct.”
(Bogert, The Law of Trusts and Trustees (3d ed. 2010) § 964, pp. 103-105, fns.
omitted, italics added; see Estate of Bowles (2008) 169 Cal.App.4th 684, 692-694
[considering this treatise in interpreting California trust law].) Among the cases
the treatise cites to support the italicized language is Evangelho, supra, 67
Cal.App.4th 615. (Bogert, supra, § 964, p. 105, fn. 35.)
Bogert also cites some Florida cases. (Bogert, supra, § 964, p. 106, fn. 35.)
In Brundage v. Bank of America (Fla.Dist.Ct.App. 2008) 996 So.2d 877, 882, the
court recognized that (as in California) the trustee owes no duty to the
beneficiaries of a revocable trust. “However,” the court held, “once the interest of
the contingent beneficiary vests upon the death of the settlor, the beneficiary may
sue for breach of a duty that the trustee owed to the settlor/beneficiary which was
breached during the lifetime of the settlor and subsequently affects the interest of
the vested beneficiary.” (Ibid.) Another Florida court reached a similar
conclusion while applying New York law. (Siegel v. Novak (Fla.Dist.Ct.App.
2006) 920 So.2d 89, 95.) It explained that denying standing would be “contrary to
our sense of justice — a trustee should not be able to violate its fiduciary duty . . .
and yet escape responsibility because the settlor did not discover the
transgressions during her lifetime. With an interest in the corpus of the trust after
the death of their mother, the [beneficiaries] have standing to challenge the
18
disbursements . . . . Without this remedy, wrongdoing concealed from a settlor
during her lifetime would be rewarded.” (Id. at p. 96, fn. omitted.)
The Uniform Trust Code is also instructive. California has not adopted the
Uniform Trust Code. But it helps to illuminate the common law of trusts, which,
as noted, is also the law of California except as modified by statute. (§ 15002.)
One section of that code provides: “While a trust is revocable [and the settlor has
capacity to revoke the trust], rights of the beneficiaries are subject to the control
of, and the duties of the trustee are owed exclusively to, the settlor.” (U. Trust
Code (2000) § 603, subd. (a).) In substance, this provision is similar to section
15800. Like section 15800, it does not specifically address the question before us.
But the accompanying comment does address the question. It expressly states
what the comment to section 15800 implies: “Following the death or incapacity of
the settlor, the beneficiaries would have a right to maintain an action against a
trustee for breach of trust. However, with respect to actions occurring prior to the
settlor‟s death or incapacity, an action by the beneficiaries could be barred by the
settlor‟s consent or by other events such as approval of the action by a successor
trustee.” (U. Trust Code, com. to § 603, pp. 553-554, italics added.)
We are aware of no common law source denying standing to beneficiaries
in the situation here. The cited sources strongly indicate that the common law rule
is that beneficiaries do have standing after the settlor‟s death. Because no
California statute has modified that rule, we find these sources persuasive.
Timothy argues that other remedies exist for the trustee‟s breach of the
fiduciary duty owed to the settlor. He suggests there might be a claim for elder
abuse under Welfare and Institutions Code section 15600 et seq., appointment of a
conservator for the settlor while he or she is alive, or a suit by the personal
representative of the deceased settlor under Code of Civil Procedure section
377.30. Recognizing that the deceased‟s personal representative might be, and
19
often is, also the trustee — indeed, Timothy‟s attorney acknowledged at oral
argument that is the situation here — and that people are unlikely to sue
themselves, he argues that if the personal representative and trustee are the same
person, the beneficiaries might petition the probate court to appoint an
independent personal representative who could then investigate and possibly
pursue the beneficiaries‟ claims.
A claim for elder abuse under Welfare and Institutions Code section 15600
et seq. might be a possible remedy under appropriate circumstances. But nothing
in the Welfare and Institutions Code suggests that such a claim replaces all other
possible actions.
Code of Civil Procedure section 377.30 provides as relevant: “A cause of
action that survives the death of the person entitled to commence an action or
proceeding passes to the decedent‟s successor in interest, . . . and an action may be
commenced by the decedent‟s personal representative or, if none, by the
decedent‟s successor in interest.” This provision certainly gives the personal
representative standing to pursue an action like the one here. But that statute is a
general grant of standing. Contrary to Timothy‟s and the dissent‟s arguments,
nothing in this statute suggests its grant of standing is exclusive. The dissent
asserts that this statute provides that “only” (dis. opn., post, at p. 4) the personal
representative may bring an action like this one, but the word “only” is not found
in that section.
The Probate Code provisions discussed above concern specifically trusts
and, as explained, they recognize a broad and nonexclusive list of remedies for
beneficiaries to use to seek redress for breach of trust. Those provisions make
clear that Code of Civil Procedure section 377.30‟s grant of standing is not
exclusive when it comes to trusts. They expressly give these beneficiaries
standing to bring some actions at least. In addition to sections 16420 and 17200,
20
discussed above, section 850, subdivision (a), provides: “The following persons
may file a petition requesting that the court make an order under this part:
[¶] . . . [¶] (3) The trustee or any interested person in any of the following cases:
[¶] . . . [¶] (B) Where the trustee has a claim to real or personal property, title to
or possession of which is held by another.” (Italics added.) The term, “interested
person,” includes a beneficiary. (§ 48, subd. (a)(1).) Thus, Code of Civil
Procedure section 377.30 is not the exclusive designation of standing when it
comes to claims for breach of a trustee‟s duty to a deceased settlor. We must look
to the relevant Probate Code sections to determine whether the beneficiaries have
standing to bring such an action. Although no statute precisely answers this
question, we conclude the Probate Code does give beneficiaries this standing for
the reasons explained above. Code of Civil Procedure section 377.30 does not
preclude this standing.
To be sure, “[a]s a general rule, the trustee is the real party in interest with
standing to sue and defend on the trust‟s behalf.” (Estate of Bowles, supra, 169
Cal.App.4th at p. 691.) But this general rule does not extend to an action alleging
the trustee itself breached a duty. “[A] trust beneficiary can bring a proceeding
against a trustee for breach of trust.” (Ibid., citing §§ 16420 and 17200; accord,
King v. Johnston (2009) 178 Cal.App.4th 1488, 1500.)
Thus, the existence of other possible remedies under other codes does not
mean the beneficiaries lack standing under the Probate Code simply to assert, after
the settlor‟s death, a breach of the duty the trustee owed the settlor to the extent
that breach harmed the beneficiaries. Contrary to Timothy‟s and the dissent‟s
arguments (dis. opn., post, at p. 4), beneficiaries do not have to go through a two-
step process — (1) move either to appoint a personal representative, if one does
not already exist, or to have the existing personal representative removed and
21
replaced by a new one, and then (2) have the new personal representative bring the
action. They may bring the action directly, themselves.
Timothy and the dissent also argue that the actual trust gave him great
discretion to act, and that this action conflicts with the settlor‟s intent. (Dis. opn.,
post, at pp. 4-5.) But this argument just goes to whether there was a breach of a
duty towards the settlor in this case, not to whether the beneficiaries have standing
to assert a breach if there was one. We express no view regarding the merits of
this particular case. We merely hold that, after the settlor‟s death, the beneficiaries
have standing to assert a breach of the fiduciary duty the trustee owed to the settlor
to the extent that breach harmed the beneficiaries.
Finally, Timothy argues that even if vested beneficiaries have such
standing, the actual plaintiffs‟ rights have still not vested. As long as Mary still
lives, she is entitled to the benefits of the trust. Only after she dies will the
remaining beneficiaries‟ rights vest. Thus, Timothy argues, only Mary may now
assert a breach of his duty towards William; the other beneficiaries will have to
await her death to bring this action. We disagree. Section 17200 permits a
“beneficiary” to petition the court concerning the trust‟s internal affairs except as
section 15800 provides. As we have explained, section 15800 merely postpones
the beneficiaries‟ rights until the settlor‟s death. Section 24, subdivision (c),
defines “beneficiary” to include a contingent beneficiary. The children need not
wait for Mary‟s death to bring this action. Timothy argued in both the trial court
and the Court of Appeal that the beneficiaries brought this action too late, that is,
that it is time-barred by the statute of limitations or doctrine of laches. We express
no opinion on this point, but this action is not premature simply because Mary is
still alive.
22
Because the Court of Appeal concluded that plaintiffs have no standing to
complain of Timothy‟s actions before William died, it did not decide any of the
other issues in the case. It should do so on remand.
III. CONCLUSION
We reverse the judgment of the Court of Appeal and remand the matter to
that court for further proceedings consistent with our opinion.
CHIN, J.
WE CONCUR:
CANTIL-SAKAUYE, C. J.
BAXTER, J.
CORRIGAN, J.
LIU, J.
23
DISSENTING OPINION BY KENNARD, J.
As a means of transferring property at death, a person (the settlor) may
place assets into a trust for the benefit of another (the beneficiary), reserve the
right to withdraw the trust assets at any time, and appoint a third party (the trustee)
to administer the trust. Such a trust is generally known as a “revocable trust.”
(Black‟s Law Dict. (9th ed. 2009) pp. 1647, 1654.) During the settlor‟s lifetime,
the trustee owes the settlor a fiduciary duty to properly administer the trust assets.
(Bogert, The Law of Trusts and Trustees (3d ed. 2010) § 964, pp. 97-98.) For a
breach of that duty, the settlor can sue the trustee. After the settlor‟s death, can the
beneficiaries sue the trustee on the deceased settlor‟s behalf? According to the
majority, they can. I disagree. In my view, only the estate‟s personal
representative (or, if none exists, the decedent‟s successor in interest) can sue on
the deceased settlor‟s behalf. Therefore, unlike the majority, I would affirm the
judgment of the Court of Appeal, which held that the trust beneficiaries here
lacked standing to sue the trustee.
I
In 2002, William Giraldin created a revocable trust, designating his son
Timothy as trustee. After William‟s death, the trust benefits were to go to his wife
Mary, if still alive, and after her death William‟s nine children were to share
equally in the remainder.
1
As set forth in the trust document, trustee Timothy was to distribute trust
assets as directed by settlor William unless William was declared mentally
incompetent. In the event of William‟s incompetency, Timothy was to provide
William with trust assets sufficient to support William‟s “accustomed manner of
living,” without consideration of “the rights of the remainder beneficiaries.” The
trust document also described the trustee‟s “discretionary powers” as “absolute,”
explaining: “This means that the Trustee can act arbitrarily, so long as he . . . does
not act in bad faith.” The settlor expressly “waive[d] the requirement that the
Trustee‟s conduct” be that of “a reasonable, prudent person.”
Between February 2002 and May 2003, at the direction of settlor William,
Timothy invested trust assets of more than $4 million in SafeTzone Technologies
Corporation (SafeTzone), a startup company founded by William‟s son Patrick
and partly owned by Patrick‟s twin brother, Timothy. Timothy also loaned Patrick
$155,000 in trust assets. The startup was not a success; at William‟s death in
2005, the trust‟s original investment in SafeTzone was worth only $100,000.
The year after settlor William‟s death, four of his children (plaintiffs) sued
trustee Timothy for a breach of fiduciary duty. They alleged that Timothy had
squandered William‟s life savings on himself and twin brother Patrick, thereby
reducing plaintiffs‟ potential trust benefits. According to plaintiffs, at the time of
the trust‟s investments in SafeTzone, settlor William “was in declining health, had
been suffering from Parkinson‟s Disease for many years and was unable to resist
the influence of [trustee] Timothy.” Plaintiffs sought court orders removing
Timothy as trustee, compelling him to account for his acts as trustee, and
surcharging him for the loss in the trust‟s value during the period before William‟s
death. William‟s wife Mary (the primary beneficiary of the trust) and William‟s
other children did not join in the lawsuit.
2
At the 2008 trial, the court ruled in plaintiff beneficiaries‟ favor. It found
that, by investing more than $4 million of trust assets in SafeTzone, trustee
Timothy breached his duty to avoid conflicts of interest, to deal impartially with
the trust‟s beneficiaries, to preserve trust property, and to diversify trust
investments. At the time of the investment in SafeTzone, the court said, settlor
William lacked sufficient mental competence to analyze the benefits and risks of
an investment in SafeTzone or to authorize Timothy to make such an investment.
The court ordered that Timothy be removed as trustee and that he be surcharged
$4,376,044 for the SafeTzone investment and $625,619 for other disbursements.
Patrick was ordered to return $155,000 in trust assets that Timothy had loaned to
him.
Trustee Timothy appealed. In reversing the trial court‟s judgment, the
Court of Appeal held that plaintiff beneficiaries lacked standing to sue Timothy.
II
Probate Code section 15800 states: “Except to the extent that the trust
instrument otherwise provides . . . , during the time that a trust is revocable . . . :
[¶] . . . [¶] (b) The duties of the trustee are owed to the person holding the power
to revoke.” Thus, as the majority acknowledges, here trustee Timothy owed no
duty to plaintiff beneficiaries with respect to the investment of trust assets in
SafeTzone, because settlor William, who held the power to revoke the trust, was
still alive when the investment was made. (Maj. opn., ante, at p. 7.)1 But the
statute in question is silent on whether, after the trust settlor‟s death, the trust
1
The Court of Appeal stated that plaintiff beneficiaries sued trustee Timothy
for breaching a fiduciary duty Timothy allegedly owed to plaintiffs as
beneficiaries, not for breaching the fiduciary duty owed to settlor William. But, as
the majority notes, plaintiffs also alleged, and the trial court found, that Timothy
had breached the fiduciary duty owed to William. (Maj. opn., ante, at p. 8.)
3
beneficiaries can sue the trustee for breaching the fiduciary duty owed to the
settlor during the settlor‟s lifetime. The majority allows such an action. I would
not.
Pertinent here is this language in Code of Civil Procedure section 377.30:
“A cause of action that survives the death of the person entitled to commence an
action or proceeding passes to the decedent‟s successor in interest . . . and an
action may be commenced by the decedent‟s personal representative or, if none,
by the decedent‟s successor in interest.” Any wrongful refusal to bring such an
action can be challenged by the beneficiary through a motion, in probate court, to
remove the personal representative (Prob. Code, § 8500) on the ground that
“[r]emoval is . . . necessary for protection of the estate or interested persons”
(Prob. Code, § 8502, subd. (d)). Here, plaintiff beneficiaries do not allege that
they are the personal representatives of deceased settlor William, or that no
personal representative exists and they are William‟s successors in interest.2
Code of Civil Procedure section 377.30‟s provision that only the decedent‟s
personal representative (if any) may sue on the decedent‟s behalf would avoid the
conflict of interest inherent in the majority‟s approach of also allowing the
beneficiaries to sue: The suing beneficiaries generally have a personal interest in
maximizing their share of the inheritance. That interest may be at odds with what
the decedent had in mind, as this case illustrates. Under the trust document,
trustee Timothy had “absolute” discretionary power in administering the trust and
the settlor “waive[d] the requirement that” Timothy‟s conduct as trustee be that of
“a reasonable, prudent person,” language reflecting the settlor‟s intent to protect
2
The record does not show whether a personal representative exists here. At
oral argument, counsel for defendant trustee Timothy said that Timothy is the
decedent settlor‟s personal representative.
4
Timothy from lawsuits related to Timothy‟s performance of his duties as trustee.
The trust beneficiaries‟ personal interest in increasing their inheritance through a
successful lawsuit against Timothy conflicts with the settlor‟s intent; thus, they
should not be permitted to represent the deceased settlor‟s interests by filing an
action on his behalf.
Applying here the above-discussed “personal representative” provision of
Code of Civil Procedure section 377.30 would avoid litigation strategy problems
likely to ensue from the majority‟s holding that both the personal representative
and the beneficiaries may sue. An example: A personal representative and several
beneficiaries of a revocable trust sue the trustee on behalf of the deceased settlor,
and the defendant trustee offers to settle. Some of the plaintiffs want to accept the
offer; others do not. What to do? Which of the plaintiffs, all of whom purport to
represent the deceased settlor‟s interests, get to decide whether to accept the offer?
This quandary can be avoided by applying section 377.30. Because this statute
allows only the decedent‟s personal representative (or if none, the decedent‟s
successors in interest) to sue on the decedent‟s behalf, in the example just given
the decision whether to accept the settlement offer is entrusted to the personal
representative, not anyone else.
The majority acknowledges the absence of any statutory provision
conferring on beneficiaries of a revocable trust the standing to sue the trustee for a
breach of the statutory duty owed to the settlor during the settlor‟s lifetime. (Maj.
opn., ante, at p. 9.) But, according to the majority, permitting such a lawsuit is
implicit from the Probate Code “as a whole.” (Ibid.) In support, the majority cites
Probate Code sections 16069, 16420, 16462, and 17200, which I discuss below.
Probate Code section 16069 states that the trustee of a revocable trust “is
not required to account to the . . . [¶] . . . beneficiary of a revocable trust, as
provided in Section 15800, for the period when the trust may be revoked.” The
5
majority states: “[A]s the cross-reference to section 15800 indicates, section
16069 must be read in context. Section 15800 provides that during the time the
trust is revocable, the settlor has the rights afforded beneficiaries. . . . We do not
read section 16069 to mean that the trustee never has to provide such an
accounting, even after the trust becomes irrevocable, i.e., after the settlor‟s death.”
(Maj. opn., ante, at p. 11.) But whether or not section 16069 permits beneficiaries
to obtain an accounting from the trustee after the settlor‟s death, nothing in this
statute implies that beneficiaries can sue the trustee on the deceased settlor‟s
behalf for a breach of the fiduciary duty the trustee owed the settlor during the
settlor‟s lifetime.
As to Probate Code section 16420, it gives beneficiaries a broad range of
remedies when “a trustee commits a breach of trust, or threatens to commit a
breach of trust . . . .” (Prob. Code, § 16420, subd. (a), italics added.) The Probate
Code defines a “breach of trust” as “[a] violation by the trustee of any duty that the
trustee owes the beneficiary.” (Prob. Code, § 16400, italics added.) The question
here, however, is not whether plaintiff beneficiaries can sue defendant trustee
Timothy for breaching a duty he owed to the beneficiaries. Rather, the question is
whether the beneficiaries can sue the trustee for breaching a duty owed to the
trust‟s settlor during the settlor‟s lifetime, a point on which section 16420 is silent,
thus providing no support for the majority‟s position.
With respect to Probate Code section 16462‟s subdivision (a), the majority
relies on that provision‟s language that “a trustee of a revocable trust is not liable
to a beneficiary for any act performed or omitted pursuant to written directions
from the person holding the power to revoke . . . .” This statutory language, the
majority states, “implies that if the trustee does not act pursuant to the settlor‟s
directions, the trustee may be liable to the beneficiaries.” (Maj. opn., ante, at
6
pp. 10-11.) The majority‟s reliance on this statutory language is misplaced, as I
explain below.
The language in Probate Code section 16462‟s subdivision (a) quoted by
the majority describes a defense that a trustee may assert to avoid being held
“liable to a beneficiary” (ibid.) of a revocable trust. But because the trustee of a
revocable trust owes no duty to the beneficiary while the settlor is alive (Prob.
Code, § 15800), a trustee is not liable to a beneficiary for actions taken during the
settlor‟s lifetime. Thus, the statutory language relied on by the majority (see
preceding paragraph) must refer to a lawsuit by a beneficiary of a revocable trust
based on the trustee’s conduct after the settlor’s death, when the trustee owes the
trust beneficiary a fiduciary duty (see Prob. Code, § 16002, subd. (a)) and can be
held liable to the beneficiary for breaching that duty. In such a lawsuit
challenging certain actions taken by the trustee after the settlor‟s death, Probate
Code section 16462‟s subdivision (a) absolves the trustee from liability to the
beneficiary if the trustee acted “pursuant to written directions” (ibid.) from the
settlor. Notwithstanding the majority‟s insistence to the contrary, that statutory
provision does not imply that a beneficiary may sue the trustee on the settlor‟s
behalf based on the trustee‟s conduct before the settlor‟s death.
Finally, as to Probate Code section 17200‟s subdivision (a), the majority
relies on language stating that “[e]xcept as provided in Section 15800, a . . .
beneficiary of a trust may petition the court . . . concerning the internal affairs of
the trust.” The majority reasons: “[Under this provision,] a contingent beneficiary
may petition the court subject only to the limitations provided in section 15800.
But the latter provision merely states that „during the time‟ the trust is revocable,
the settlor has the rights of a beneficiary, and the trustee‟s duties are to the settlor,
not the beneficiary. Nothing in section 15800 limits the ability of beneficiaries to
petition the court after the trust becomes irrevocable.” (Maj. opn., ante, at pp. 11-
7
12.) Maybe so. Neither Probate Code section 17200‟s subdivision (a) nor section
15800, however, contains language implying that a beneficiary of a revocable trust
may sue the trustee, on the deceased settlor‟s behalf, for breaching the fiduciary
duty the trustee owed the settlor during the settlor‟s lifetime.
For the reasons set forth above, I would affirm the judgment of the Court of
Appeal.
KENNARD, J.
I CONCUR:
WERDEGAR, J.
8
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Estate of Giraldin
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 199 Cal.App.4th 577
Rehearing Granted
__________________________________________________________________________________
Opinion No.
S197694Date Filed: December 20, 2012
__________________________________________________________________________________
Court:
SuperiorCounty: Orange
Judge: David R. Chaffee
__________________________________________________________________________________
Counsel:
Bidna & Keys, Howard M. Bidna, Richard D. Keys and Jon A. Longerbone for Defendant and AppellantTimothy Giraldin.
Mary Giraldin, in pro. per.; Ross Law Group and Mark A. Ross for Defendant and Appellant Mary
Giraldin.
Freeman, Freeman & Smiley, Stephen M. Lowe, Jared A. Barry, Duncan P. Hromadka and Thomas C.
Aikin for Plaintiffs and Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Richard D. KeysBidna & Keys
5120 Campus Drive
Newport Beach, CA 92660
(949) 752-7030
Stephen M. Lowe
Freeman, Freeman & Smiley
1888 Century Park East, Suite 1900
Los Angeles, CA 90067
(310) 255-6100
Petition for review after the Court of Appeal reversed orders in a probate proceeding. The court limited review to the following issue: When the settlor of a revocable inter vivos trust appoints, during his lifetime, someone other than himself to act as trustee, once the settlor dies and the trust becomes irrevocable, do the remainder beneficiaries have standing to sue the trustee for breaches of fiduciary duty committed during the period of revocability?
| Date: | Citation: | Docket Number: |
| Thu, 12/20/2012 | 55 Cal.4th 1058. | S197694 |
| Opinion Authors | |
| Opinion | Justice Ming W. Chin |
| Concur | Chief Justice Tani Cantil-Sakauye, Justice Carol A. Corrigan, Justice Goodwin Liu, Justice Marvin R. Baxter |
| Dissent | Justice Joyce L. Kennard |
| Brief Downloads | |
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| Jun 7, 2013 Annotated by Keny Zurita | Facts Initially, the trust did not contain any assets. Before establishing it, in January 2002, William signed a document outlining a planned $4 million investment in his twin sons’ company SafeTzone. The day he executed the trust document, William signed a separate document affirming his intent to sell stock and convert assets to invest money into the company. Between February and May 2003, William fulfilled this commitment and, in return, SafeTzone issued stock to William. The stock was then transferred into the trust. By the time of William’s death in May 2005, the value of the trust’s investment in SafeTzone had significantly declined. Four of William’s children sued Timothy in his capacity as trustee for breach of his fiduciary duties. The plaintiffs alleged that Timothy has misused the trust assets and they sought to remove him as trustee. Procedural History Timothy appealed and the Court of Appeals asked the parties to brief the question of whether plaintiffs had “standing to maintain claims for breach of fiduciary duty” based on the trustee’s actions before the settlor’s death. The Court of Appeals found the plaintiff beneficiaries did not have standing because the trustee owed a duty solely to William while he was alive. Since the beneficiaries only sought to vindicate their own interests, rather than redress the wrongs done to their father, the court found they had no standing to assert claims related to the period before William’s death. The Supreme Court of California granted the plaintiffs’ petition for review. Issue Holding Majority Opinion Nevertheless, the Court notes that the plaintiffs did not simply allege a breach of duty towards the beneficiaries but also a breach of the duty owed to the settlor during his lifetime. Thus, the issue the Court’s opinion examines is whether the beneficiaries have standing to sue the trustee, after the settlor’s death, for a breach of the duty formerly owed to William. The Probate Code does not expressly address this question but the Court interprets it to imply, as a whole, that “the beneficiaries of a revocable trust may challenge the trustee’s breach of the fiduciary duty owed to the settlor to the extent that breach harmed” their interests. The Court’s interpretation rests on the broad remedies for a breach of trust provided by section 16420 and section 16462’s implication that “if the trustee does not act pursuant to the settlor’s directions, the trustee may be liable to the beneficiaries.” Although California’s law of trusts is primarily statutory, the Court cites a range of additional sources to justify its holding, which it finds persuasive because no California statute has contravened its holding: • No California court has ever held that beneficiaries have no standing in this type of scenario. Evangelho v. Presoto, 67 Cal. App. 4th 615 (1998) supports the proposition that a trustee “cannot loot a revocable trust against the settlor’s wishes without the beneficiaries‟ having recourse after the settlor has died. • A well-known legal treatise (Bogert, The Law of Trusts and Trustees (3d ed. 2010) § 964) observes that “many courts have allowed other beneficiaries to pursue breach of duty claims after the settlor’s death, related to the administration of the trust during the settlor’s lifetime, when, for example, there are allegations that the trustee breached its duty during the settlor’s lifetime.” • Although not adopted by California, the Uniform Trust Code illuminates the common law of trusts and leaves open the possibility for actions related to breaches of duty occurring prior to the settlor’s death if not barred by the settlor’s consent or a successor trustee’s approval. Moreover, the Court refutes the defense’s contention that the trust beneficiaries must wait for their mother’s death (whose interest in the trust was vested at the time of the settlor’s death) to bring an action and asserts that potential remedies flowing from separate statutes are not exclusive and do not deny the plaintiffs standing. The Court holds “that, after the settlor’s death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor to the extent that breach harmed the beneficiaries.” The Court reverses the judgment of the Court of Appeals and remands the case for further proceedings consistent with its opinion. Dissent The dissenting opinion finds Code of Civil Procedure section 377.30 key in dealing with this gap: “A cause of action that survives the death of the person entitled to commence an action . . . passes to the decedent’s successor in interest” and an action may be initiated “by the decedent’s personal representative or, if none, by the decedent’s successor in interest.” Per Prob. Code § 8500, a refusal to bring an action can be challenged by beneficiaries through a motion to remove the decedent’s personal representative if removal is required to protect the estate or interested persons. The plaintiff beneficiaries do not allege that they are the decedent’s personal representatives, or that no such representative exists and that they are the successors in interest. Further, the trust document reflects the settlor’s intent to protect the trustee. The trust document awarded the trustee “absolute” discretionary power and the settlor explicitly waived the requirement that the trustee’s actions be those of “a reasonable, prudent person.” The language suggests the settlor’s personal interest was at odds with the beneficiaries’ interest in maximizing their share of the inheritance and, as a result, the beneficiaries should not be allowed to represent the settlor’s interests. Applying section 377.30’s personal representative provision avoids litigation strategy problems—including conflicts triggered by differences of opinion among beneficiaries—because only the decedent’s personal representative is permitted to sue on the decedent’s behalf. Finally, the dissent takes issue with the majority’s understanding of the Probate Code as implicitly providing the beneficiaries standing and specifically criticizes several of its statutory interpretations, including its analyses of §§ 16069 and 16420. Even if section 16069 would permit “beneficiaries to obtain an accounting from the trustee after the settlor’s death, nothing in this statute implies that beneficiaries can sue the trustee on the deceased settlor’s behalf for a breach of the fiduciary duty the trustee owed the settlor during the settlor’s lifetime.” Moreover, although section 16420 provides beneficiaries broad range of remedies when “a trustee commits a breach of trust,” which is a “violation by the trustee of any duty that the trustee owes the beneficiary,” the issue here is whether the beneficiaries can sue the trustee for breaching a duty owed to the trust’s settlor. Definitions Fiduciary duty: When one party must act for another. They are entrusted with the care of property or funds. Trustee: The person appointed to execute a trust; one in whom an estate, interest, or power is vested, under an express or implied agreement to administer or exercise it for the benefit or to the use of another. Beneficiary: One for whose benefit a trust is created. Remainder beneficiary: Individual or entity entitled to trust after all other prior interests have been exhausted. Settlor: The grantor or donor of a trust. Surcharge: A court-imposed fine for a breach of fiduciary duty. Tags |
