A competent settlor’s power to revoke a living trust and return the assets into his or her name is equal to ownership of the trust assets.

So long as the settlor is competent, the trustee owes his primary duty to the settlor and can follow the written instructions of the settlor.

What changes when the settlor becomes incompetent prior to death?

Last year, California’s Supreme Court decided the Estate of Giraldin. It held that once the incompetent settlor of a living trust died, the death beneficiaries gained legal standing to dispute the successor trustee’s alleged mismanagement of the trust, to the extent that the trustee’s mismanagement reduced what remained for them.

Now, building on Giraldin, California’s Third District Court of Appeals decided Drake v. Pinkham.

The Drake case holds that once a settlor of a living trust becomes incompetent – provided no other competent person has the right to revoke the trust (e.g., another settlor, or an agent under a power of attorney or a conservator) – the future death beneficiaries gain rights.

The beneficiaries can then request the successor trustee to provide an accounting and information regarding its administration and dispute the trustee’s administration in court.

Otherwise, barring the settlor’s incompetency prior to death, the future trust beneficiaries must wait till all persons with the power to revoke the trust die (usually only the settlor).

The Drake decision is a double-edged sword; it was in fact a defeat for the beneficiary who brought that case.

In Drake, a death beneficiary alleged that her mother, the settlor, was incompetent and had been subjected to undue influence when she signed two trust amendments to her living trust that disinherited one daughter and left everything to another.

She did not challenge these amendments while her mother was alive, even though she was aware of them. She waited until her mother died before she contested them.

The daughter’s contest was denied as being untimely because, said the court, she had gained standing to petition the court once the mother had become incompetent.

By not acting while the mother was still alive, she denied the court the opportunity to decide whether or not the mother was truly incompetent when she signed the trust amendments.

In Giraldin, the death beneficiaries also waited until the incompetent settlor died. They, however, were allowed to dispute the trustee’s investment actions, taken while the settlor was incompetent, on the grounds that the trustee had breached a duty owed to the then living settlor that reduced the size of the death beneficiaries’ inheritances.

Lessons are to be learned by trustees, settlors and persons engaging in their own estate planning.

First, future death beneficiaries of a living trust who believe that the living settlor is incompetent should request information from the trustee regarding the trust terms and its management (a court ruling of incapacity may be necessary should the trustee deny that the settlor’s incapacity).

Second, the trustee who manages the living trust of an incompetent settlor should be prepared to work with, and if necessary to defend his or her actions against any claims brought by, the death beneficiaries (a tightrope if ever there was one).

Third, a person engaging in estate planning may consider giving someone else the power to revoke the trust, in the event of the settlor’s incompetency, in order to prevent the death beneficiaries from becoming involved with, in and perhaps interfering with, the administration of the trust during the settlor’s lifetime should the settlor become incompetent.

Fourth, a person may wish to exclude certain persons as beneficiaries of a particular trust in order to prevent conflicts regarding that trust; that may entail providing for these excluded persons with other assets outside of the trust to buy peace.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com  .