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Non-settlor trustee duties in revocable living trusts

California estate plans often include trusts that have dual roles. Assets in revocable living trusts benefit individuals during their lifetimes and reward beneficiaries when the trust creator, also known as a settlor, is no longer alive.

For financial control reasons, many individuals choose to retain the roles of settlor, trustee and beneficiary when a revocable living trust is initiated. Taking all three positions at once is legal although; on occasion, a settlor will name other individuals as a trustee or beneficiary.

A trustee who is not the settlor usually remains bound to instructions from the trust creator. After all, the settlor has the option to change, defund or discontinue a revocable trust at any moment during a lifetime.

Trustees sometimes encounter situations when settlor or beneficiary desires conflict. What kind of power does an independent trustee have? Estate planning and legal experts say decision-making powers are conditional.

Other than perform duties according to settlors’ wishes, trust managers must also realize when instructions are mandatory. Trustees may choose to adhere to a settlor’s guidelines, even when a settlor’s incapacity interferes with trust decisions.

A trustee may go against a settlor’s instructions when the settlor has been judged incompetent by a physician and a court. A legally incompetent settlor loses the ability to revoke a trust. A certificate of incapacity does not require the trustee to oppose the settlor’s desires automatically.

The California Supreme Court will review a case next year that involves trustee responsibilities. A decision made by a lower court absolved trustees from having to ask about a settlor’s competence. The court felt that trustees should not be liable for inquiring about the complicated issue.

Legal advisers also note that trustees do not have to follow beneficiary recommendations during a competent settlor’s lifetime. Beneficiaries may not bring lawsuits against a trustee after a settlor’s death because the trustee failed to heed the beneficiaries’ advice.

Source: lakeconews.com, “Estate Planning: May a trustee follow a living settlor’s bad instructions?” Dennis Fordham, Dec. 15, 2012

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