In Trust Disputes Where Competency of the Settlor is an Issue

Trust beneficiaries and litigators beware: the recent case of Drake V. Pinkham ((2013) 217 Cal.App.4th 400) highlights the dangers of waiting to file a trust contest until after the settlor’s death when questions regarding the settlor’s competency arise during the settlor’s lifetime.

Typically, revocable trusts are just that – revocable. A settlor can modify or terminate his or her revocable trust up until death, presuming that he or she retains the capacity to do so. Because a competent settlor has the legal right to change his or her revocable trust up until death, a beneficiary does not usually have the right to contest the revocable trust during the settlor’s lifetime.

The limitation on a beneficiary’s ability to contest a revocable trust during the settlor’s lifetime is contained in Probate Code section 15800. Section 15800 specifically provides that the person holding the power to revoke a trust (e.g. the settlor), and not the beneficiaries, holds the rights under the trust during the time the trust is revocable and the settlor is competent.

But if Probate Code section 15800 prevents a beneficiary from contesting a revocable trust when the settlor is competent, does that mean that a settlor must be formally deemed incompetent before a beneficiary can bring a contest during a settlor’s lifetime? And what happens if a beneficiary, believing a settlor to be incompetent, waits until after the settlor’s death to bring a contest – will that contest fail as untimely?

The answers to those questions are not clear, but the recent case of Drake v. Pinkham indicates that beneficiaries and practitioners should take a “better safe than sorry” approach. In Drake, a settlor’s competency was called into question by a beneficiary in litigation during the settlor’s lifetime. Although no finding of incompetency was made at the time – the litigation was settled – the fact that the beneficiary had alleged that the settlor was incompetent came back to haunt the beneficiary when she later contested the settlor’s trust amendments after the settlor’s death. The trial court found that the beneficiary was aware of the existence and terms of the trust amendments at the time of the earlier litigation and that the allegations of incompetency meant that Probate Code section 15800 did not prohibit the beneficiary from contesting the amendments at that time. The trial court held that by waiting until after the settlor’s death to bring a contest, the beneficiary had forfeited her right to contest the amendments under the doctrine of laches.

Thus, in Drake, the fact that there were merely allegations of incompetency, as opposed to a formal finding of incompetency, did not prevent the trial court from finding that the beneficiary should have brought the contest during the settlor’s lifetime. The court noted that the beneficiary would have had the burden of proving the settlor’s incompetence to establish standing to pursue the contest, but reasoned that this proof requirement did not excuse the delay in asserting the claim. In fact, the court found that the delay in bringing the claim was itself necessarily prejudicial because every cause of action brought by the beneficiary involved the issue of the settlor’s competency, and the most important witness to that issue – the settlor herself – was no longer living. Thus, the beneficiary not only could have initiated the contest during the settlor’s lifetime, but the failure to do so precluded the beneficiary from bringing the action after the settlor’s death.

Consequently, in light of Drake, once a beneficiary of a revocable trust becomes aware of a trust or amendment that he or she wishes to contest, and that contest is based on the belief or allegation that the settlor was incompetent at the time of the execution of the document, the beneficiary should carefully consider bringing the contest even though the settlor is still alive. Otherwise, the beneficiary may well be barred under Drake from bringing a contest if he or she waits until after the settlor’s death.

If you wish to read further on this subject, check out the Court of Appeal’s Ruling: Drake v. Pinkham.