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