Beneficiary’s action to invalidate trust amendments based on lack of capacity and undue influence.

A brief summary of the recent decision the the California Court of Appeal- In the Third Appellant District Case No. C068747
Drake v. Pinkham filed May 28, 2013, publication ordered June 21, 2013,
Beneficiary’s action to invalidate trust amendments based on lack of capacity and undue influence was barred by laches where the facts alleged by beneficiary were known to her five years before she filed the action, and the delay was necessarily prejudicial because the settlor had died.

Plaintiff Rosina Jeanne Drake (Gina) appealed from a summary judgment motion which had been entered in favor of defendants, Janice and Daniel Pinkham, Gina’s sister and brother-in-law, on Gina’s petition to invalidate two amendments to a revocable trust (Prob. Code, 17200), for a declaration that defendants predeceased the decedent (§259, subd. (a)), for imposition of a constructive trust, and for damages. The trial court found that six of the eight causes of action alleged in the petition were barred by the applicable statutes of limitation, and the remaining causes of action are barred by principles of collateral estoppel.

Ultimately, Gina should have acted earlier as she simply waited too long as there was no dispute that Gina knew or should have known of the facts giving rise to the causes of action no later than August 2006, yet for some reason she delayed in filing the underlying petition until March 2010, after Josephine’s death.

Section 17200, subdivision (a), allows a trustee or beneficiary of a trust to petition the court concerning the trust’s internal affairs except as provided in section 15800. “Section 15800 states in pertinent part that during the time that a trust is revocable and the person holding the power to revoke the trust is competent: [¶] (a) The person holding the power to revoke, and not the beneficiary, has the rights afforded beneficiaries under this division. [¶] (b) The duties of the trustee are owed to the person holding the power to revoke.” The limitation placed on the rights of a beneficiary by section 15800 is consistent with the principle that [p]roperty transferred into a revocable inter vivos trust is considered the property of the settlor for the settlor’s lifetime,and thus, the beneficiaries interest in that property is merely potential and can evaporate in a moment at the whim of the [settlor]. (Estate of Giraldin (2012) 55 Cal.4th 1058, 1065-1066.)

Under § 17200 and §15800 a beneficiary lacks standing to challenge a trust so long as the rust is revocable and the person holding the power to revoke the trust is competent. In this case Gina petitioned the trial court in 2005 to confirm her appointment as an acting co-trustee based on Josephine’s alleged incompetency and defendants alleged undue influence over her. The allegation of Josephine’s incompetency took this case outside the terms of § 15800. The introductory clause of subdivision (a) has the effect of giving the right to petition concerning the internal affairs of a revocable living trust to the settlor (or other person holding the power to revoke) instead of the beneficiaries during the time that the settlor (or other person holding the power to revoke) is competent. When the settlor or donee lacks the requisite mental capacity different rules and Probate Code Subsections apply. The Appelate Court determined that nothing in Probate Code Section §17200 or §15800 precluded Gina from bringing the underlying action prior to Josephine’ s death. That she would have had the burden of proving Josephine’ s incompetence to establish her standing to pursue those claims does not excuse her delay.

The Court also determined that Gina’s failure to bring the action until after Josephine had passed away was necessarily prejudicial where, as here, each and every cause of action set forth in the underlying petition centered on Josephine — her mental capacity, defendant’s influence over her, and her understanding of the Fourth and Fifth Amendments and her estate. (See Bono v. Clark (2002) 103 Cal.App.4th 1409, 1420 [the death of an important witness may constitute prejudice]; Stafford v. Ballinger (1962) 199 Cal.App.2d 289, 296 [same].)

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