December 19, 2012
Trustee Should Follow Settlor's Instructions Unless Court Declares Settlor Incompetent To Revoke
When an individual or couple, as settlors, establish a revocable living trust, they are usually the initial trustees and beneficiaries. If someone other than the settlor is trustee while the settlor is alive, does this take away the complete control that the settlors have when they are the sole trustees? No, so long as the settlor has the power to revoke the trust, the trustee may obey the settlor.
If at any point, it is determined that the settlor is incompetent to revoke the trust, then the trustee may no longer follow the settlor's instructions. Does the trustee make this determination? As of now, no, the court does. In Estate of Giraldin, the California Court of Appeals held that the trustee owed no duty to the settlor to inquire whether or not the settlor was competent because determining mental capacity is too complex and uncertain of an inquiry to require of the trustee. This case is on appeal with the California Supreme Court and a decision is expected next year.
See Dennis Fordham, Estate Planning: May a Trustee Follow a Living Settlor's Bad Instructions?, Lake County News, Dec. 15, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
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