The following was written by Attorney Jack E. Stephens, for the professional manual, Rules of Trust Administration in California, regarding the administration of a Living Trust on the death of a Trustor. This is Part 3 of an ongoing series.
Statutory Notice Requirement
Avoiding the Liability Locomotive- Stop, Look and Listen §§16061.5, 16061.7
I designated this section the “Liability Locomotive” because of a case I handled several years ago. The Successor Trustee had begun the Trust Administration on his own before he came to my office. He represented that he had had numerous conversations with a beneficiary and had furnished her a copy of all pertinent documents. On his representations that he had previously taken care of the written notices, I deleted the Statutory Notices under §§16061.5 and 16061.7 from my Retainer. We had a discussion in this regard and he signed an acknowledgment that a notice had been sent although he did not retain a copy. He also indicated in writing that all beneficiaries had received a copy of the Trust and Will. The Trust provided that the Trustee had absolute discretion to make distributions from a Sub-Trust in favor of a beneficiary who was estranged from the rest of the family due to drugs, lack of employment and parental issues.
Without going into specific detail, there were considerable funds due to the beneficiary for necessities and educational needs of her children. In a subsequent mediation, the mediator felt that the Successor Trustee had unreasonably withheld funds due to the beneficiary and had not in fact furnished a notice or copy of the Trust to such beneficiary.As a result, substantial damages and sanctions were threatened by the beneficiary’s attorney. The matter was settled in mediation for a considerable lump sum payment and attorney fees. After that case, I have made it a policy to prepare all statutory notices unless the Successor Trustee can clearly demonstrate written evidence of satisfying these requirements.
Beneficiaries/Heirs at Law
Who is entitled to notice?
- All beneficiaries listed in the Trust. That could include the maid, caretaker, gardener, etc. no matter the bequest or the amount thereof.
- To all heirs at law as provided under Probate Code §§44 and 6402.Heir is defined in Probate Code §44 as any person, including the surviving spouse, who is entitled to take property of the decedent by intestate succession.§6402 indicates that any property not passing to a surviving spouse or domestic partner shall be distributed to various family members of the decedent in the following order:
- Issue, but if none to;
- Parents, but if none to;
- Issue of the parents (brothers or sisters, nephews, nieces, etc.) if none to;
- Grandparents or issue of grandparents.
As a result, notice should be given to any disinherited child as an heir. Although not a beneficiary, he/she is still considered an heir at law. If the Trustor provided for “all of my children in equal shares” and no children survived, notices should then be provided to all grandchildren as heirs at law, and so on, based on the provisions of §6402.
§16061.7 (j) provides there is no liability to the Trustee for serving or not serving the notice on any person in addition to those on whom the notice is required to be served. As a result, a policy of a liberal providing of notices should not result in Trustee liability. However, if unnecessary persons are given notice who ultimately request a copy of the terms of the Trust, wouldn’t the Trustee be providing confidential information in breach of the Trustee’s duties? Just a thought. I would advise the Trustee to be prudent and to scrutinize the Trust closely as to the persons or entities that require notice.
Probate Code §16061.9 provides for the liability of the Trustee who fails to properly serve notice. The Trustee may be liable to a beneficiary or heir for all damages resulting for failure to provide notice including attorney fees and incidental costs. A more serious and more prevalent problem relates to §16060.5 that defines terms of the trust.
Once statutory notice is provided, what documentation is required to be provided to beneficiaries or heirs who request the terms of the trust? Many attorneys provide the entire Trust and Will. Some attorneys only provide the distribution provisions of the Trust, if the balance of the Trust remains amendable. For instance, in an A-B Trust arrangement, usually Trust A remains amendable. Thus, the provisions affecting Trust A would not become part of the “terms of the trust.” However, §16060.5 defines terms of the trust, which has caused much concern, as follows:
- Irrevocable Trust provisions;
- Amendments to the Trust;
- Disclaimers;
- Directions or instructions to the Trustee regarding disposition of the Trust.
It is important to understand that all amendments to the original Trust are part of the terms of the trust if they affect the irrevocable portion. As a result, all changes in the distribution provisions, over the years, are part of the terms of the trust. The question becomes, are the persons designated as beneficiaries in previous amendments considered for statutory notice if they have been subsequently deleted? §16061.7 (b) states that notice shall be served on “each beneficiary of the irrevocable Trust or irrevocable portion of the Trust…”. The beneficiaries of the irrevocable portion of the trust should be the designated beneficiaries when the Trust becomes irrevocable. That should not include individuals or entities who have been previously removed by amendment prior to the Trust becoming irrevocable. It should be explained with emphasis to the clients however, that beneficiaries who request to have a copy of the Trust pursuant to the received notice are entitled to see the original Trust in addition to all amendments thereto.
The provision goes on to state that terms of the trust does not include amendments which are superseded by a Restatement of the Trust prior to the Settlor’s death. This allows confidentiality of prior amendments for clients who have discretely disinherited children or other beneficiaries and now wish to include them on their death. If you have this situation you should advise your clients that all of the previous amendments could be totally negated by a Restatement In Its Entirety. Since they are no longer a part of the terms of the trust because of the Restatement, the beneficiaries or heirs at law would not be entitled to a copy of the amendments. However, if the Restatement is subsequently amended, those amendments, with the Restatement would comprise the terms of the trust.The statutory notice must include a warning that the person receiving notice cannot bring an action to contest the Trust more than 120 days once notice is served or 60 days from the date a copy of the terms of the Trust is mailed or personally delivered, whichever date is later. §16061.7(h). Waiver of service of this notice is void and against public policy.
Trust Inventory Issues
Funding Issues- Heggstad
The case of Estate of Heggstad 16 Cal. App. 4th 943, which allowed inclusion of assets into a trust after death is summarized as follows.
Facts:
Halvard L. Heggstad executed a will naming his son, respondent Glen P. Heggstad, as executor. He also executed a valid revocable living trust, naming himself as the trustee and his son Glen, as the successor trustee.
Halvard L. Heggstad married Nancy Rhodes Heggstad one month after executing his will and trust documents. She was not provided for under the terms of the will and the trust. (omitted spouse). After Trustor’s death, all parties agreed that his spouse was entitled to 1/3 of the decedent’s probate estate as her intestate share.
During the probate of the will the successor trustee petitioned the court for instructions regarding the disposition of a real property which was not titled in the name of the Trust by deed. He claimed that the intentional language of the trust was sufficient to create a trust in the subject property.
The decedent’s wife objected, arguing that the property should not be a Trust asset based on the following:
- The property was not transferred to the trust by a properly executed document;
- She claimed that the declaration of trust was insufficient, by itself, to create a revocable living trust in real property;
- She claimed that Mr. Halvard Heggstad was required to have executed a grant deed transferring the property to himself as trustee of the Heggstad Family Trust.
The court concluded that the trust document was sufficient to create a trust in the subject property. The basis for the ruling was demonstrated by the intent of Halvard L. Heggstad to include the property in the Trust when he listed such property on Schedule A of the Heggstad Family Trust. Since his intentions in this regard were clear, the property was considered to be transferred into the trust.
As a result of this decision, I now include a Heggstad provision in the Trust referencing my Schedule of Trust Assets.
Part 4 soon to follow.