California Probate Code §15800(b) (set forth below) was amended several years ago to place extra notice burdens upon a successor trustee who takes over a revocable trust upon settlor incapacity, unless someone competent remains with a power to revoke the trust (other spouse in a joint trust, for example). Within sixty days of determining settlor incapacity, successor trustee must now provide a copy of the current trust and all amendments (or a current restatement), plus annual accountings going forward, to all beneficiaries who would take at settlor’s death, except for any contingent beneficiaries the successor trustee deems not likely to actually take at death of the settlor. Failure to comply might well be a breach of fidiciary duty causing substantial damages.
Previously, such duties did not arise until a trust became irrevocable upon death of a settlor.
Note that it is not uncommon for incapacitated persons to regain capacity, and the law does not address this scenario.
Whether capacity is regained or not, many settlors would abhor the notion of ALL beneficiaries getting this level of detailed information about their estate plan and finances while the settlor is still alive, though incapacitated. Aside from the severe breach of privacy, there is a very practical concern that in some families the required disclosures may spur conflict and perhaps litigation. Although it is tempting for those with a “when in doubt, disclose” mindset to look at this law as a brilliant way to head off future litigation, myriad possibilities exist for extremely adverse outcomes. Few settlors would want to pour accelerant on smoldering conflicts, or stick around for the raging inferno that erupts.
Fortunately, this law allows trusts to draft around it. Your attorney can easily draft your trust to render this §15800(b) completely inapplicable, or perhaps tweak it so that notice is not given to all beneficiaries but only a select few who can be trusted to monitor the successor trustee.
Finally, note that regardless of §15800(b) or how a trust may draft around it, remainder beneficiaries have a right to petition a court to compel accountings or disclosures of other information, including trust documents, and may succeed if they can persuade the court of the necessity.
***
For your reference, here is California Probate Code §15800(b):
(b) Except to the extent that the trust instrument otherwise provides or where the joint action of the settlor and all beneficiaries is required, if, during the time that a trust is revocable, no person holding the power to revoke the trust, in whole or in part, is competent, the following shall apply:
(1) Within 60 days of receiving information establishing the incompetency of the last person holding the power to revoke the trust, the trustee shall provide notice of the application of this subdivision and a true and complete copy of the trust instrument and any amendments to each beneficiary to whom the trustee would be required or authorized to distribute income or principal if the settlor had died as of the date of receipt of the information. If the trust has been completely restated, the trustee need not include the trust instrument or amendments superseded by the last restatement.
(2) The duties of the trustee to account at least annually or provide information requested under Section 16061 shall be owed to each beneficiary to whom the trustee would be required or authorized to distribute income or principal if the settlor had died during the account period or the period relating to the administration of the trust relevant to the report, as applicable.
(3) A beneficiary whose interest is conditional on some factor not yet in existence or not yet determinable shall not be considered a beneficiary for purposes of this section, unless the trustee, in the trustee’s discretion, believes it is likely that the condition or conditions will be satisfied at the time of the settlor’s death.
(4) If the interest of a beneficiary fails because a condition to receiving that interest has not been satisfied or the trustee does not believe that the condition will be satisfied at the time of the settlor’s death, the duties in paragraphs (1) and (2) shall be owed to the beneficiary or beneficiaries who would next succeed to that interest at the relevant time or period as determined under the trust instrument, as amended and restated.
