If you’ve been named as the beneficiary to a trust, are you entitled to the current proceeds from the trust property?
A California Court of Appeals said that before reaching that question, a party needs to have standing or a stake in the action to be in court. Read the details…
A recent case involved a revocable trust created by Marion Hanson that named her grandchildren Alison and Kevin as contingent beneficiaries. The trust’s main asset was a 70% interest in a single-family home where Marion lived until the end of 2013. The other 30% was owned by the two grandkids as individuals. Marion was the sole beneficiary of the trust for her lifetime.
Marion had transferred that 30% interest in the property to her then-living daughter Beverly, which later passed to Beverly’s husband David. When he died, the 30% interest was transferred to his estate, where it was held for the benefit of their two children (Marion’s grandchildren) Kevin and Alison. David’s brother Tracy was executor of David’s estate, and transferred the property interest to Kevin and Alison.
When Marion moved into an assisted living facility, the trustee Cynthia Palm rented out the home for $4,500 a month. That precipitated a dispute with Kevin and Alison regarding the distribution of the property’s rental income. Alison, Kevin, and their uncle, Tracy Jones (“the Joneses”), filed a civil action alleging that the trustee breached her fiduciary duties by failing to provide an accounting concerning the property and refusing to distribute any of the rental income.
The Joneses asserted that they were entitled to 30% of the rental income. The trustee, however, argued that Marion was entitled to retain all the rental income because she was paying the property expenses. The probate court denied without prejudice the trustee’s request for an order confirming her resignation as trustee and appointing Joan Adams as her successor.
On Palm’s remaining requests for orders approving her accounting and compelling the Trust to reimburse the attorneys’ fees incurred in the trust action, the court held the Tracy Jones lacked standing to object because he had no interest in the trust or the property. The court also concluded Alison and Kevin lacked standing to object as beneficiaries because it was a revocable trust, and Marion was still living—meaning that she could change or cancel the trust at any time.
However, the probate court did find that that the two grandkids did have standing to object to the trustee’s accounting and her request for fees because they held the 30% interest in the property. The probate court denied Palm’s request for an order confirming her resignation as trustee, and appointing a successor, and granting Palm’s request for trustee compensation.
Acting Presiding Judge Laurie D. Zelon explained her opinion for the Second District, Division Seven of the California Courts of Appeal that the Jones argued that the probate court erred in refusing to accept the resignation of Palm as trustee and declining to recognize the appointment of the successor trustee. To have standing on appeal, Judge Zelon wrote, “a person generally must be a party of record and sufficiently aggrieved by the judgment or order.”
“To be aggrieved, a party must have a legally cognizable immediate and substantial interest which is injuriously affected by the court’s decision. A nominal interest or remote consequence of the ruling does not satisfy this requirement.”
Kevin and Alison were beneficiaries of the trust, and because the trust was revocable, they had no right to act with respect to the trust, and “no legally cognizable interest in the Trust’s property during Hanson’s lifetime.” As a result, their status as beneficiaries gave them no right or interest that was “injuriously affected” by the probate court’s order regarding the trust’s internal affairs.
The grandchildren argued that even if they lack standing to appeal as beneficiaries, they still had standing based on their 30% interest in the property, claiming that they were “affected by and thereby have standing to participate in actions pertaining to trust administration to the extent it affects the [p]roperty.” Kevin and Alison cited no legal authority supporting their argument and didn’t identify any legally cognizable right or interest that they enjoyed as 30% owners of the property that was injured by the probate court’s order.
Although Judge Zelon and the Court of Appeals acknowledged that the trust may have owed Kevin and Alison certain duties because of their co-tenant relationship, the Court failed to see how this provided them standing to appeal an order regarding the trust’s internal affairs concerning the naming of successor and fees. If the two grandchildren believed the trust violated a duty owed to them as co-owners of the property, they were free to pursue their claims in the pending civil action. But their status as co-owners, Judge Zelon held, didn’t establish that they had any right that was injured by the probate court’s orders denying the trustee’s resignation request, and compelling the trust to pay the fees she incurred in the civil action.
As far as the uncle, who was the executor of David Jones’s estate, the appellate court said that although David’s estate previously held Alison and Kevin’s 30% interest in the for their benefit, Tracy transferred that interest from the estate to them. So, the uncle was out…in both his individual capacity and as executor of the estate. Tracy had no right or interest in the trust or in the property. Without a right or interest affected by the Probate Court’s order, he also lacked standing to appeal.
Parties should consult with an attorney if they believe they are beneficiaries of a Trust in order to understand whether they are actual/current beneficiaries, and to what extent they are beneficiaries of specific gifts and the remainder of the trust, after specific gifts are distributed. If a party is a contingent beneficiary they will have substantially less access to information or to intervention by the Court.
Because all the appellants lacked standing to appeal from the Probate Court’s order, the Court of Appeals had no jurisdiction to consider their appeal, and the appeal was dismissed. Jones v. Palm, 2017 Cal. App. Unpub. LEXIS 1165 (Cal.App. 2nd Dist. February 14, 2017).
Contact N·M Law, APC (949-253-0000) to speak to a trust administration attorney. Contact us today to get answers to your questions about trusts, sub-trusts, trustees, trust assets, and beneficiaries.
Disclaimer: This article is intended to provide a general summary of the California usury laws and should not be construed as a legal opinion nor a complete legal analysis of the subject matter. June Lin is an attorney at Niesar & Vestal LLP in San Francisco, a law firm specializing in business law and corporate finance.