pre death accounting

Several recent Court decisions have addressed the issue of whether (and under what circumstances) a trust beneficiary is entitled to receive a trust accounting for a time during which the settlor was still alive. The California Supreme Court in Estate of Giraldin1 permitted such a “pre-death” accounting under limited circumstances, but this holding has been subsequently distinguished and limited by the appellate court in Babbitt v. Superior Court.2 The net result is a legal landscape in the lower courts that remains uncertain and in flux, as Keystone recently experienced in a case before the Los Angeles Superior Court. Some questions that the lower courts have been left to answer include:

  1. Are a beneficiary’s allegations in an initial petition of a reasonable need for a pre-death accounting sufficient to compel a trustee to account pre-death, or is an evidentiary hearing first required where the beneficiary is expected to prove reasonable need?
  2. If an evidentiary hearing is required, how is a beneficiary supposed to prove reasonable need without access to pre-death information?
  3. When, during the settlor’s life, the acting co-trustees are the settlor and a non-settlor, is Giraldin (non-settlor acting as sole trustee) or Babbitt (settlors acting as sole trustees) more instructive?

As a recap, the general rule is that trustees are not required to account to a trust beneficiary for a time during which the settlor was alive (and the trust is revocable). Giraldin, however, recognized an important exception to this rule – holding that a trustee can be required to produce a pre-death accounting when it is necessary “to protect the interests of the persons who are entitled to the proceeds of the trust” and which covers a period during which the original settlor of the trust is no longer acting as trustee.3

In Giraldin, the settlor’s children (and trust beneficiaries) filed breach of fiduciary duty claims against their sibling, who had acted as the sole trustee of the settlor’s trust both before and after the settlor’s death. After a trial, the court held that under these circumstances,4 trust beneficiaries were entitled to receive a pre-death accounting and sue the trustee for breach of trust, stating that when a settlor of a revocable trust appoints during his or her lifetime “someone other than himself to act as trustee, once the settlor dies and the trust becomes irrevocable,” the remainder beneficiaries “have standing to sue the trustee for breaches of fiduciary duty committed during the period of revocability.”5 Thus, “[b]ecause a trustee’s breach of the fiduciary duty owed to the settlor can substantially harm the beneficiaries by reducing the trust’s value against the settlor’s wishes, we conclude the beneficiaries do have standing to sue for a breach of that duty after the settlor has died.”6 Moreover:

[T]he code, as a whole, implies that after the settlor has died, the beneficiaries of a revocable trust may challenge the trustee’s breach of the fiduciary duty owed to the settlor to the extent that breach harmed the beneficiaries’ interests. As the Law Revision Commission explained, section 15800 merely postponed the beneficiaries’ enjoyment of their rights until after the settlor’s death. (Cal. Law Revision Com. com., 54 West’s Ann. Prob. Code, supra, foll. § 15800, p. 644.)7

Conversely, in Babbitt, a remainder beneficiary filed a petition seeking to compel the trustee, who was the surviving co-settlor, to provide a pre-death accounting (for the period of time prior to the deceased spouse’s death). The Court of Appeal held that while the beneficiary had standing to petition for an accounting generally, she had no right to obtain information about the disposition of assets while the trust was still revocable (i.e., while the deceased settlor was still alive). The court found that this beneficiary was not entitled to receive a pre-death trust accounting, because unlike Giraldin, which concerned someone other than the settlor serving in the capacity of trustee during the settlor’s lifetime, in Babbitt, the trustee being sued was one of the original settlors of the trust. Further, there were no allegations that the deceased settlor “was incapacitated, incompetent, or subject to undue influence before his death,” nor were there allegations against the surviving settlor-trustee for “breach of fiduciary duty, fraud, or other misconduct.”8 Moreover, in so holding, the appellate court clarified that the information sought for a pre-death accounting “must be reasonably necessary to enable the beneficiary to enforce the beneficiary’s rights under the trust or prevent or redress a breach of trust.”9 But the petitioning beneficiary in Babbitt had not alleged pre-death incapacity, undue influence or any wrongdoing by the trustee that would support her claim that the information sought was reasonably necessary.10 Further, the decedent and surviving settlor, as both settlors and trustees, only owed fiduciary duties to themselves, and as such, could have spent their money however they pleased prior to their deaths.11

Therefore, when, during his or her lifetime, a settlor appoints a trustee who is not also a settlor of that trust, then the holding in Giraldin should control and the trust beneficiaries have standing to request a pre-death accounting; however, Giraldin does not expressly state whether the beneficiaries must first demonstrate a reasonable need for such information. It can be inferred from that decision, however, that a reasonable need was demonstrated because the lower court had already conducted a full trial and found the trustee liable for breach of trust based on his pre-death activities as trustee.

On the other hand, if the settlor and trustee are the same person and the trust has become irrevocable (such as by reason of a co-settlor’s death), then Babbitt should control and the trust beneficiaries have standing to request a pre-death accounting but must first demonstrate a reasonable need for such information, which should include a showing that the deceased settlor “was incapacitated, incompetent, or subject to undue influence before his death,” or that the non-settlor trustee is liable for “breach of fiduciary duty, fraud, or other misconduct.”12

What remains unclear, however, is whether a pre-death accounting may be obtained when trust beneficiaries do allege a reasonable need for such information (e.g., because trust assets were misappropriated prior to death), but when the trust’s settlor acted as one of two co-trustees along with a non-settlor as co-trustee during the trust’s pre-death administration.

Indeed, Keystone recently litigated a similar issue before the Probate Division of the Los Angeles Superior Court, and the court, finding that Babbitt was more instructive, held that in order to compel a pre-death accounting, a beneficiary must show that the deceased settlor was not in a position to protect her own interests. Further, mere allegations in the initial petition of such wrongdoing were insufficient to automatically entitle the beneficiaries to a pre-death accounting. The court, however, seemed to infer that the beneficiaries are allowed to conduct discovery concerning the pre-death activities of the trustee, and further, if this discovery revealed any pre-death misappropriation of trust assets or other reasonable need for a pre-death accounting – then the beneficiaries can renew their request for a pre-death accounting.

Thus, in this instance, even though the lower court did not grant the beneficiaries’ request for a pre-death accounting, giving the beneficiaries a right to conduct discovery on pre-death issues of potential malfeasance (where the beneficiaries can obtain, e.g., pre-death bank statements and other financial records) may be just as useful. Based on Keystone’s recent experience, it appears that the lower courts are taking a more liberal approach in allowing beneficiaries to effectively question pre-death activities of third-party trustees. In our opinion, this is a wise approach, both because pre-death transactions often directly impact a beneficiary’s interests under the trust, and also because post-death malfeasance by a trustee is often preceded by similar pre-death malfeasance.

1Estate of Giraldin (2012) 55 Cal.4th 1058.
2Babbitt v. Superior Court (2016) 246 Cal.App.4th 1135.
3Giraldin, 55 Cal.4th at 1070; Babbitt, 246 Cal.App.4th at 1138.
4According to plaintiffs, at the time of the trustee’s actions which were the subject of the breach of trust claim, the settlor “was in declining health, had been suffering from Parkinson’s Disease for many years and was unable to resist the influence of [trustee].” Giraldin, 55 Cal.4th at 1078.
5Id. at 1065.
6Id. at 1062.
7Id. at 1068 [emphasis in original].
8Babbitt, 246 Cal.App.4th at 1142.
9Id. at 1145 [internal quotations omitted] [citing Salter v. Lerner (2009) 176 Cal.App.4th 1184, 1187].
10Id. at 1146.
11Id. at 1147.
12Id. at 1142.