May 18, 2016
In re Estate of Giraldin (2012) 55 Cal.4th 1058, the California Supreme Court held that remainder trust beneficiaries have standing to sue a trustee, who was not the settlor, for alleged breach of fiduciary duties committed during the period of time when the trust was revocable. In Giraldin, the father, who was a settlor and trustee, appointed his son as successor trustee while the father was still alive. The son then proceeded to make poor management decisions that caused trust assets to lose significant value. The father then died and his other children sued the son for breach of fiduciary duties.
An unresolved question from the Giraldin decision was whether remainder trust beneficiaries have standing to sue if the settlor and trustee are the same person and alleged mismanagement occurred during the period of the trust's revocability. In a recent published opinion, the California Court of Appeal answered in the negative.
Babbitt v. Superior Court of Los Angeles County,
__ Cal.App.4th __ (2016)
Mary Lynne Babbitt and Leland Babbitt created a marital trust in 1998. When Mr. Babbitt passed away in 2014, the marital trust bifurcated into a Survivor's Trust and a Decedent's Trust (the classic A-B trust scenario). A step-daughter of Ms. Babbitt, Carol McCormack, was the 50% remainder beneficiary for each trust.
Ms. McCormack was displeased with the information she received from Ms. Babitt. In particular, "McCormack questioned what had happened to the trust assets that had not yet been transferred into the trust, including the fate of at least $800,000 i[n] cash accounts held in Leland's name within approximately 24 months of his death. For this reason, McCormack asked the court to compel Babbitt to provide a 'full report of the activities of the trust and account of the assets . . . for the period May 5, 2011 to the present."
"The court granted McCormack's petition and ordered Babbitt to account as to the activities of the trust from May 5, 2011 to the present. Babbitt prepared an accounting, but it only included information for the time period of May 5, 2014, the date of Leland's death, through March 2015."
On appeal, the appellate court found that the trial court had overreached and reversed finding that "Leland and Babbitt owed their duties as trustees only to themselves before part of the trust became irrevocable, and they did not need to account to the beneficiaries for the disposition of trust assets during that time." Thus, the accounting Ms. Babbitt had to produce was for only the period of time after Leland passed away, May 5, 2014 onward.