Trust Protector Not Entitled to Accountings in California

A recent California appellate decision sets forth some limitations on the powers and duties of a trust protector, determining that a trust protector is not entitled to an accounting.

What is a Trust Protector?

A trust protector is a person charged with overseeing the performance of a trustee.  The most important power that a trust protector will typically have is the power to replace a trustee.   The concept of trust protector is relatively new, but has been codified in a majority of states, although not California.  Illinois law, for example, has a trust protector statute, as follows (760 ILCS 16.3):

(d) Powers of trust protector.  A trust protector may be designated in the governing instrument of a trust.  The powers of a trust protector may be exercised or not exercised in the sole and absolute discretion of the trust protector, and are binding on all other persons, including but not limited to each beneficiary, investment trust advisor, distribution trust advisor, fiduciary, excluded fiduciary, and any other party having an interest in the trust.  The governing instrument may use the title “trust protector” or any similar name or description demonstrating the intent to provide for the office and function of a trust protector.  The powers granted to a trust protector by the governing instrument may include but are not limited to authority to do any one or more of the following:

(1) modify or amend the trust instrument to achieve favorable tax status or respond to changes in the Internal Revenue Code, federal laws, State law, or the rulings and regulations under such laws;

(2) increase, decrease, or modify the interests of any beneficiary or beneficiaries of the trust;

(3) modify the terms of any power of appointment granted by the trust;  provided, however, such modification or amendment may not grant a beneficial interest to any individual, class of individuals, or other parties not specifically provided for under the trust instrument;

(4) remove, appoint, or remove and appoint, a trustee, investment trust advisor, distribution trust advisor, another directing party, investment committee member, or distribution committee member, including designation of a plan of succession for future holders of any such office;

(5) terminate the trust, including determination of how the trustee shall distribute the trust property to be consistent with the purposes of the trust;

(6) change the situs of the trust, the governing law of the trust, or both;

(7) appoint one or more successor trust protectors, including designation of a plan of succession for future trust protectors;

(8) interpret terms of the trust instrument at the request of the trustee;

(9) advise the trustee on matters concerning a beneficiary;  or

(10) amend or modify the trust instrument to take advantage of laws governing restraints on alienation, distribution of trust property, or to improve the administration of the trust.

If a charity is a current beneficiary or a presumptive remainder beneficiary of the trust, a trust protector must give notice to the Attorney General’s Charitable Trust Bureau at least 60 days before taking any of the actions authorized under item (2), (3), (4), (5), or (6) of this subsection.  The Attorney General’s Charitable Trust Bureau may, however, waive this notice requirement.

Is a Trust Protector Entitled to Accountings in California?

No.  A trust protector is not entitled to accountings in California, pursuant to the recent case of Carberry v. Kaltschmid, No. A150675, 2018 Cal. App. Unpub. LEXIS 3900 (June 7, 2018).  The trust protector brought suit to compel the receipt of a trust accounting.  The trust protector language in the trust instrument, in the words of the court, stated as follows:

The Trust also provides for a “Trust Protector,” whose purpose is “to assist in achieving [the Settlor’s] objectives as expressed in the other provisions of this trust.” The Trust confers certain authority to the trust protector “in a fiduciary capacity.” The trust protector’s three primary powers are the power to amend or modify the Trust (although the trust protector may not “expand the Trust Protector’s existing powers”); the power to construe the terms of the Trust in the event of a perceived ambiguity; and the power to execute documents necessary to carry out any trust protector or trustee power. Various provisions of the Trust confer additional discrete powers to the trust protector, including the power to appoint an independent special trustee in the event a trustee is unwilling or unable to act with respect to any Trust property or provision, the power to appoint successor trustees if the office is vacant and no Trust-designated successor trustee is willing and able to serve, the power to terminate Trust-created trusts if they are no longer “economical,” and the power to change the governing law or situs of administration of the Trust. The Trust clarifies that the trust protector “has no general duty to monitor or remain informed about the trust. Specifically, the Trust Protector has no duty to investigate the Trustee’s actions or inactions, to audit the trust’s books, to review the trust’s investments, or to evaluate the trust portfolio’s performance.” The trust protector is compensated by the Trust.

In rejecting the petition for an accounting, the Court explained:

Probate Code section 16062, subdivision (a), provides trustees shall provide accountings “to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed.”Section 17200 provides “a trustee or beneficiary of a trust may petition the court” for an order “[c]ompelling the trustee” to “[a]ccount to the beneficiary.” (§ 17200, subds. (a) & (b)(7)(C).) The Probate Code defines the beneficiary of a trust as “a person who has any present or future interest, vested or contingent.” (§ 24, subd. (c).) Carberry is not a beneficiary and he cites no authority that non-beneficiary trust protectors are entitled to compel accountings under the Probate Code.

One would think that a trust protector could not properly do his or her job without the receipt of trust accountings.  On the other hand, a beneficiary who desires the intervention of the trust protector would provide the trust protector with accountings received by the beneficiary.  Moreover, it would seem to be better drafting, especially in a state lacking a trust protector statute, to include a provision in the trust instrument that the trustee is required to provide trust accountings to the trust protector.

 

 

San Diego County

Merwyn J. Miller

Ventura County

Naomi Stal

San Bernardino County

Fred W. Edwards

San Mateo County

Sally Bergman

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San Bernardino County

Fred W. Edwards

Ventura County

Naomi Stal

San Diego County

Merwyn J. Miller

San Mateo County

Sally Bergman