California Trust Can No Longer Be Administered 120 Days After Notice
California Trust Can No Longer Be Administered 120 Days After Notice
Living Trusts have become the preeminent estate planning vehicle in California. However, unlike wills, there was no built-in statutory basis to expedite the administration of living trusts. With a California will, once the will is lodged and submitted for approval by the probate court, all beneficiaries, heirs, and persons with an interest therein must be provided notice. (Prob. Code §8110.) One-Hundred Twenty (120) days after the will is submitted to probate court for approval, the will generally cannot be contested. (Prob. Code §§ 8004, 8250, 8270. )
Prior to 1997, California living trusts had no corresponding requirements. This led to numerous legal actions involving trusts because of unscrupulous actions by trustees. In response, the California Legislature passed a series of laws designed to require trustees to provide notice upon the occurrence of certain events.
When a living trust becomes irrevocable due to the death or incapacity of the creator, successor trustees are required to serve notice as specified in Prob. Code. §16061.7. However, trusts are supposed to be administered expeditiously. (Collection Bureau of San Jose v. Rumsey, (2000) 24 Cal.4th 301, 308.) Bearing this in mind, the California Legislature contemporaneously required the parties who received notice to “bring an action to contest the trust” within 120 days. (Prob. Code §16061.8.)
In 2000, the California Legislature changed the 120-day requirement to run upon service rather than receipt. (Assem. Bill No. 460 (1999-2000 Reg. Sess.) as amended May 18, 2000.) This substantive change by the California Legislature to shorten the statute of limitations appears to be motivated by the concern “a trustee, in exercising discretion with respect to the timing and nature of the distributions of trust assets, may consider the fact that the period in which a beneficiary or heir could bring an action to contest the trust has not expired.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No. 460 (1999-2000 Reg. Sess.) as amended May. 18, 2000, p. 3.) The California Legislature’s change to shorten the statute of limitations also corresponds to the requirement that trust is administered expeditiously. (Collection Bureau of San Jose, Supra, 24Cal.4th at p. 308.)
The statute of limitations procedures largely remained unchanged. The few changes made by the California Legislature were made to further shorten the statute of limitations. (Sen. Bill No. 202 (2009-2010 Reg. Sess.) as amended Aug. 12, 2010 [changed statute of limitations to run from 120 days whenever service was made, reversing judicial decisions that notice does not start running the statute of limitations if not served within 60 days of Decedent’s death as required by Prob. Code §16061.7]; Assem. Bill No. 976 (2016-2017 Reg. Sess.) as amended Sep. 13, 2017 [expressly refuted argument that additional time was added to the 120-day statute of limitations for service as indicated in Code Civ. Proc. §1013 because of Prob. Code §1215 was the applicable statute for service which does not add additional time for service.].)
The statutes as unaltered since 2017 have provided for prompt administrations of trusts as after 120 days, as the statute of limitations on any claims regarding the validity of the trust expired. (Cf. §§ 16061.7, 16061.8.) However, that apparently may be in the past.
On Sep. 4th of this year, a Los Angeles County trial court ruled the statute of limitations contained in Prob. Code. §16061.8 did not apply to trust contest in civil court that only sought monetary damages and not to set aside the trust. This ruling, if not overturned by extraordinary writ, will make the administration of living trust within four (4) years nearly impossible.
For example, trustees are authorized to consider the expiration of the statute of limitations before administering the trust. (Sen. Jud. Com., Assem. Bill No. 460 (1999-2000 Reg. Sess.) as amended Apr. 11, 2000 p. 7 [this bill would specify that a trustee may consider that the time for contesting a trust has not passed when determining the timing and nature of distributions of trust assets. This would permit the trustee to preserve as much of the assets as possible for future distributions if any contest were successful in reforming the trust.].)
Such prudence is highly practical, if not required, as trustee’s carry significant liability for their actions. (Assem. Jud. Com., Assem. Bill No. 460 (1999-2000 Reg. Sess.) as amended Jan. 6, 2000, p. 5 [The trustee acts at his or her peril in exercising discretion over the distribution of trust assets.].) Therefore, trustees generally wait until the expiration of the 120 days period before making distributions from the trust. This protects the trustee from liability as the trustee was previously assured no claims contesting the validity of the trust could be brought thereafter. (Prob. Code §§ 16061.7, 16061.8.)
However, in light of this ruling, trustees and their counsels must deliberate very carefully before making distributions if heirs or beneficiaries can bring a claim contesting the trust for monetary damages in civil court after the expiration of the 120 days statute of limitations. Considering the statute of limitations for financial elder abuse and undue influence are four (4) years, trustees and their counsels must give serious thought to administering the trust before the four (4) years expires. (Wel & Inst Code § 15657.7; Code Civ. Proc. §343.) For if they do not, they could find themselves liable for attorney’s fees and damages. (Assem. Jud. Com., Assem. Bill No. 460 (1999-2000 Reg. Sess.) as amended Jan. 6, 2000, p. 5.)