Assessing and Litigating Pre-death Trust Contests: Perils, Pitfalls, and Strategies
| Jurisdiction | California,United States |
| Author | By Howard L. Horwitz, Esq.,* David G. Knitter, Esq.,** and Mary K. deLeo, Esq.*** |
| Publication year | 2017 |
| Citation | Vol. 23 No. 3 |
By Howard L. Horwitz, Esq.,* David G. Knitter, Esq.,** and Mary K. deLeo, Esq.***
In probate litigation, contests to invalidate a trust instrument are common. Among the many issues facing a litigant is when to file a trust contest. File too soon, and the litigant's suit is subject to demurrer for lack of standing. File too late, and the suit may be barred by either the statute of limitations or by the doctrine of laches.
Until the California Court of Appeal, Third District's decision in the matter of Drake v. Pinkham1 ("Drake"), conventional wisdom dictated that a litigant seeking to contest a trust must wait until after the settlor's death. Because a settlor could amend or revoke his or her trust, most practitioners assumed a trust contest brought before the settlor's death would be premature and would fail from lack of standing.
The Drake decision changed the landscape. In Drake, a beneficiary sought to invalidate trust amendments after the settlor's death, contending the settlor lacked capacity at the time of execution. The appellate court disagreed, holding that, because the beneficiary had raised allegations of the settlor's incapacity, the beneficiary should have sought to set aside the trust amendments during the settlor's lifetime, rather than waiting until the settlor's death. The Drake court held the trust contest was barred under the doctrine of laches.
The Drake decision paved the way for pre-death trust contests. This article explores Drake's holding, highlights the differences between litigating pre-death contests and post-death contests, and offers practical guidance for navigating this new landscape.
Prior to Drake, it was presumed that a beneficiary lacked standing to challenge a trust instrument during a settlor's lifetime. This assumption appeared both facially reasonable, as the settlor could always amend his or her revocable trust, and grounded in statute and case law. Under Probate Code section 15800, during the time that a trust is revocable and the person holding the power to revoke the trust is competent, typically "the person holding the power to revoke, and not the beneficiary, has the rights afforded the beneficiaries."2 Moreover, Probate Code section 15800 expressly states that "the duties of the trustee are owed to the person holding the power to revoke."3 Under Probate Code section 16069, there is no obligation for a trustee to account to a beneficiary of a revocable trust, to provide terms of the trust, or to share any information regarding the trust during the period in which the trust may be revoked.4 Finally, under Probate Code section 16061.7, a trustee is obligated to provide notice to the beneficiaries of "a revocable trust when the revocable trust or any portion thereof becomes irrevocable because of the death of one or more of the settlors."5 Taken together, these statutes appeared to indicate that a beneficiary of a revocable trust would not have standing to contest a trust while the settlor is still living.
Conventional wisdom was further buttressed by case law. For example, in Estate of Giraldin, the California Supreme Court cited the long-standing principle that "[p]roperty transferred into a revocable inter vivos trust is considered the property of the settlor for the settlor's lifetime," and, thus, 'the beneficiaries' interest in that property is 'merely potential' and can 'evaporate in a moment at the whim of the [settlor].'"6 Similarly, in Steinhart v. County of Los Angeles, the California Supreme Court noted that property transferred to a trust revocable by the settlor remained solely the property of the settlor, who retained full ownership and control over the trust property.7 And in Johnson v. Kotyck ? a case where the settlor was incapacitated and under conservatorship ? the court held that, because the settlor's conservator could petition the court under Probate Code section 2580 to revoke the settlor's revocable trust, the trust's beneficiaries had no rights regarding the trust, notwithstanding the language of Probate Code section 15800.8 The Johnson court reasoned that since the settlor's revocable trust instrument did not preclude the conservator from seeking a revocation of the settlor's trust, the conservator, "working together with the superior court as the conservatee's decision making surrogate, is a 'person holding the power to revoke the trust.'"9 These and similar authorities cemented the idea that because the settlor of a revocable trust could revoke the trust up until the moment of his or her death, a beneficiary lacked standing to challenge the trust during the settlor's lifetime.
Armed with this conventional wisdom, practitioners routinely advised their clients that they lacked standing to challenge a revocable trust while the settlor was alive. Overlooked (understandably so, particularly given the Johnson case) was the fact that, under Probate Code section 15800, the shifting of rights away from the settlor could also be triggered by another event ? the settlor's incapacity.10 True, the California Supreme Court emphasized the incapacity factor in the Giraldin case, "'[Probate Code section 15800] 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."11 However, since the Giraldin settlor was deceased, the case did not address whether the shifting of rights under Probate Code section 15800 upon a settlor's incapacity includes the right of a beneficiary to challenge a revocable trust during the incapacitated settlor's lifetime. Although Giraldin hinted that a beneficiary might have the right to challenge a revocable trust during an incapacitated settlor's lifetime, when the trust could no longer be revoked,12 the hint was insufficient to combat the widespread belief that only the settlor's death could confer standing for a trust contest.
[Page 19]
Theodore ("Theodore") and Josephine ("Josephine") Citta had two children, Janice Pinkham ("Janice") and Rosina Jeanne Gina Drake ("Gina").13 In 1998, Theodore and Josephine established a trust that divided into a Survivor's Trust and a Family Trust (Credit Shelter Trust) upon the death of the first spouse to die.14 After the death of the surviving spouse, the trust estate was to be divided equally between Janice and Gina.15
Theodore passed away in 1999.16 Thereafter, Josephine executed two amendments to her Survivor's Trust. The Fourth Amendment, executed in 2001, eliminated Gina as a beneficiary and named Janice as sole successor trustee. The Fifth Amendment, executed in 2004, designated Janice as acting co-trustee (along with Josephine) and as sole successor trustee.17
In 2005, Gina filed a petition seeking her appointment as cotrustee of the trust, as amended by the first three amendments, alleging that Josephine lacked the ability to care for herself or act as trustee and that Janice was asserting undue influence over her.18 Josephine objected to Gina's petition, denying Gina's allegations.19 In her objections, Josephine stated that she had amended her Survivor's Trust and that neither the Fourth nor Fifth Amendment provided for Gina to act as a trustee or co-trustee.20 Josephine attached copies of both the Fourth and Fifth Amendments as exhibits to her objections.21
Gina did not contest the Fourth or Fifth Amendments but instead entered into a settlement agreement with Josephine, under which Josephine represented that she was the sole acting trustee of the Family Trust and agreed not to take certain actions with respect to real properties held by the Family Trust without prior notice to Gina and Janice.22
Josephine died on October 29, 2009.23 On March 9, 2010, Gina filed a petition seeking, among other things, to invalidate the Fourth and Fifth Amendments to the Survivor's Trust based on lack of capacity and undue influence by Janice.24 In her response to Gina's petition, Janice asserted various affirmative defenses, including statutes of limitations, the doctrine of res judicata, and the doctrine of laches.25
Janice brought a motion for summary judgment, which the trial court granted on the basis of collateral estoppel as to the lack-of-capacity and undue-influence causes of action and on the basis of statutes of limitations for the remaining causes of action.26 The trial court did not reach the issue of laches.27 Gina appealed.
On appeal, Janice relied on the following undisputed facts to support her affirmative defenses, including the defense of laches: (1) Gina was aware of Janice's alleged wrongdoing and Josephine's alleged incapacity at the time she filed her 2005 petition; (2) Gina became aware of the Fourth and Fifth Amendments to Josephine's Survivor's Trust in the process of litigating the 2005 petition; (3) Josephine died in October 2009; and (4) Gina filed her action to invalidate the Fourth and Fifth Amendments on March 9, 2010.28 Gina conceded that she was aware of the Fourth and Fifth Amendments at the time of the 2006 settlement agreement with Josephine.29
To avoid Janice's laches defense, Gina contended on appeal that she had not delayed in asserting her rights because, at the time of the 2005 proceedings, the Survivor's Trust was revocable and there had been no determination of Josephine's incapacity.30 Therefore, Gina contended, Josephine retained the power to revoke and, under Probate Code sections 17200 and 15800, Gina had no standing to challenge the validity of the Fourth and Fifth Amendments until Josephine's death.31
The appellate court disagreed.32 Probate Code section 17200, subdivision (a), provides that a beneficiary of a trust may petition the court...
To continue reading
Request your trial