In our prior post “How Does a California Trust Get ‘Under Court Supervision’ (Part 1 of 2)? ” we discussed how a California trust gets under court supervision. In this post we will focus on how that impacts carrying out the trust provisions (i.e., trust administration).
The California Rules of Court provide that when a trust is under court supervision the court has authority “to require prior court approval or subsequent confirmation of the actions of the trustee as for the actions of a guardian or conservator of the estate . . ..” In other words the trustee must administer the trust as if the trust is a guardianship or a conservatorship. Incidentally, after they are created, conservatorships and guardianships operate virtually identically to each other.
Many of us have learned that having a trust is critical to avoiding court involvement. Otherwise, there will be a probate decedent’s estate court proceeding or a conservatorship court proceeding, respectively, when we:
- Pass away; or
- Become unable to take care of ourselves anymore.
And between the two of those, the conservatorship is more restrictive and cumbersome.
The most significant conservatorship requirements that apply to a trust under court supervision are:
- The trust must be irrevocable.
- The trustee can invest trust estate assets in only certain types of investments.
- The trustee must file a surety bond with the court.
- The trustee must file periodic account petitions with the court for approval.
- Only the court can appoint a successor trustee.
- The trustee cannot sell trust estate real property without obtaining prior court approval.
- The court must approve the trustee’s fees, and her attorney’s fees, prior to the trustee paying these fees from the trust estate assets.
The Trust Must Be Irrevocable
Nobody can terminate the trust or modify any of its terms without obtaining a prior court order to that effect.
The Trustee Can Invest Trust Estate Assets in Only Certain Types of Investments
The trustee can invest in only certain types of government bonds and other government obligations. Also she can invest only in stocks and bonds on a public exchange in the United States, among other things.
The Trustee Must File a Surety Bond with The Court
The surety bond , often referred to simply as a bond, is like an insurance policy. If the trustee mismanages the assets, absconds with them, etc., then the company that issued the bond may be responsible to pay into the trust estate to replace the lost value.
The Trustee Must File Periodic Account Petitions with the Court for Approval
Conservators of conservatorship of the estate court proceedings must file an account petition for court approval after the first year. Then they need to file an account petition every other year for the duration of the conservatorship.
- All assets and their values at the beginning of the account time period;
- All assets and their values at the end of the account time period;
- Each receipt that occurred between those 2 dates; and
- Each disbursement that occurred between those 2 dates.
Only The Court Can Appoint a Successor Trustee
If the current trustee wants to resign, then she must obtain court approval of resigning and of the specific successor trustee.
The same is true if the current trustee becomes unable to continue to act as trustee due to lack of capacity or death. The current trustee, or another interested party, would need to request that the court appoint a specific successor trustee.
The Trustee Cannot Sell Trust Estate Real Property Without Obtaining Prior Court Approval
We won’t discuss here the process for selling real property of a trust under court supervision. The trustee must follow the process for selling conservatorship estate real property. Please see our prior post on that very subject.
The Court Must Approve the Trustee’s Fees, and His or Her Attorney’s Fees, Prior to Payment of Those Fees
The trustee cannot pay her trustee fees or her attorney’s fees from the trust estate without first obtaining court approval. The court will approve those fees only in amounts that the court finds are “just and reasonable.”
Get Help from an Experienced Trust Attorney
Hiring an attorney experienced with trusts can help avoid a lot of this. In addition, the advice and guidance of an attorney experienced with trust court cases is invaluable for attaining your goals in these types of cases.
At Meinzer Law Firm, P.C., we have over 20 years of experience helping clients achieve their goals in trust cases. Contact Meinzer Law Firm, P.C., in Torrance to assist you with your trust case.
