Trustee’s Duty to Report Information and Account to Beneficiaries

A trustee who embraces transparency[1] in timely informing beneficiaries of changes in a trust may often bring reconciliation to a family divided by grief and familial stresses. The countervailing movement to transparency is secrecy. Secrecy between trustees and beneficiaries may sow distrust, uncertainty and is fertile ground for imagined wrongs – whether valid or invalid.

So what does California law tell us about a trustee’s duty to report information and account to beneficiaries? California has a specific law that identifies the rules that trustees should follow to support trustee-beneficiary transparency. The law covers a good deal of ground but this discussion is limited to the common event where a settlor passes away, the trust or part of the trust becomes irrevocable, and the trustee needs to inform beneficiaries of the irrevocability.

Probate Code Section 16061.7[2] provides in part that a trustee shall serve a notification when “a revocable trust or any portion thereof becomes irrevocable because of the death of one or more settlors of the trust…(and) Whenever there is a change of trustee of an irrevocable trust…”

“The duty to serve the notification by the trustee … is the duty of the continuing or successor trustee, and any one cotrustee may serve the notification.” “Each beneficiary of the irrevocable trust or irrevocable portion of the trust” shall be served. “The statute also provides for service on… Each heir of the deceased settlor, if the event that requires notification is the death of a settlor or irrevocability within one year of the death of the settlor of the trust by the express terms of the trust because of a contingency related to the death of a settlor.”

Probate Code Section 16061.7(f) provides for the timing of the notice:

“(f) The notification by trustee shall be served not later than 60 days following the occurrence of the event requiring service of the notification by trustee, or 60 days after the trustee became aware of the existence of a person entitled to receive notification by trustee, if that person was not known to the trustee on the occurrence of the event requiring service of the notification. If there is a vacancy in the office of the trustee on the date of the occurrence of the event requiring service of the notification by trustee, or if that event causes a vacancy, then the 60-day period for service of the notification by trustee commences on the date the new trustee commences to serve as trustee.”

Probate Code Section 16061.7(g) and (h) specify the information required in the notice:

“(g) The notification by trustee shall contain the following information:

(1) The identity of the settlor or settlors of the trust and the date of execution of the trust instrument.

(2) The name, mailing address and telephone number of each trustee of the trust.

(3) The address of the physical location where the principal place of administration of the trust is located, pursuant to Section 17002.

(4) Any additional information that may be expressly required by the terms of the trust instrument.

(5) A notification that the recipient is entitled, upon reasonable request to the trustee, to receive from the trustee a true and complete copy of the terms of the trust.

(h) If the notification by the trustee is served because a revocable trust or any portion of it has become irrevocable because of the death of one or more settlors of the trust, or because, by the express terms of the trust, the trust becomes irrevocable within one year of the death of a settlor because of a contingency related to the death of one or more of the settlors of the trust, the notification by the trustee shall also include a warning, set out in a separate paragraph in not less than 10-point boldface type, or a reasonable equivalent thereof, that states as follows:

“You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is mailed or personally delivered to you during that 120-day period, whichever is later.””

What are the common problems that arise with the statutory notice? It sometimes happens that a trust is revoked prior to the death of a settlor in which case a California Court of Appeal held that a 120-day notice to beneficiaries is irrelevant as to the revoked trust.[3] The rationale behind the holding is that once a trust is revoked a trustee of the trust has no authority to act and thus has no power to serve a 120-day notice.

When a valid notice is given on a valid irrevocable trust is served on a beneficiary the beneficiary has 120 days to “bring and action to contest the trust.” If the beneficiary does not receive a copy of the trust document with the notice then the beneficiary has 60 days after receiving a copy of the trust document to file the action. If notification is never received from the trustee, the 120-days does not begin to run.

Rules as to contesting a Will are a little different. A Will contest must be filed before it is admitted to probate or an action to revoke probate must be filed within 120 days after the probate is opened. If probate is never opened, the time to contest the Will is extended until a probate is opened. That said claims against a decedent fall under different rules. A claimant has only one year from the date of death to file a claim in probate. This is limited to four months if probate is opened and letters are issued to a personal representative.

All of this can be quite confusing and time defenses often arise in both Will and Trust contests.

At Hackard Law we respond to inquiries from prospective clients throughout California. Frequent calls from Los Angeles, Alameda County, Santa Clara County, and Sacramento often pose the same question: “How do I get a copy of my (mom or dad’s) will and trust? The answers are a little different.

The California Probate Code provides that an Executor or custodian of a will must deliver the decedent’s will to the Superior Court in the county in which the decedent passed away.[4] “A custodian of a will who fails to comply with the requirements of … (Probate Code Section 8200) shall be liable for all damages sustained by any person injured by the failure.”[5]

The requirements of providing a trust are listed above. So what do you do if the executor or trustee will not provide you with a copy of the will or trust? While the law provides a remedy including a request for attorney’s fees sometime a simple letter to the executor or trustee from an heir or beneficiary will be sufficient to prompt the executor or trustee to provide the document. In cases where the request doesn’t work counsel can be engaged to file the appropriate documents in the probate court.

Accounting issues and reporting rest upon the general rule that trustees of irrevocable trusts have accounting obligations as part of their fiduciary obligations. Failure to account can be quite expensive to recalcitrant trustees. Trustees of revocable trusts do not have the duty to account.[6]

The California Probate Code lists the requirements for a formal accounting. A formal accounting requires a declaration under penalty of perjury. The “trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed.”[7] A formal accounts shall include:

“(1) A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.

(2) A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.

(3) The trustee’s compensation for the last complete fiscal year of the trust or since the last account.

(4) The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.

(5) A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.

(6) A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim.

(b) All accounts filed to be approved by a court shall be presented in the manner provided in Chapter 4 (commencing with Section 1060) of Part 1 of Division 3.”

Once a trustee is served with a beneficiary’s written demand for an accounting the trustee has 60 days to prepare and serve the accounting.[8] If the trustee ignores the beneficiary’s request for an accounting, the beneficiary can petition the probate court to order the trustee to account.[9]

It is important that trustees maintain proper and complete financial records. Failure to do so can result in liability of the trustees to the trust.

The bottom line is that transparency helps to build trust in trustee-beneficiary relations. Grief, uncertainty and bruised feelings exist when a loved one has passed. It is up to the living to make a stressful situation less stressful.

We work to assist wrongs beneficiaries and heirs in the major urban areas of California, including Los Angeles, Alameda, San Mateo, Santa Clara and Sacramento. If you would like to speak with us about estate, trust or elder financial abuse issues call us at Hackard Law (916) 313-3030. Together we can see how we might assist you.

[1] Probate Code Section 16061.7.

[2] Ibid.

[3] See Estate of Stoker (2011) 193 C.A.4^th 236.

[4] Probate Code Section 8200.

[5] Probate Code Section 8200(b).

[6] Probate Code Section 16069.

[7] Probate Code Section 16062.

[8] Probate Code Section 17200(b)(7)(C).

[9] Id.