Cite as A165397
Filed October 12, 2023
First District, Div. Three
By Erika J. Gasaway
Hopkins & Carley
Headnote: Petition for Instructions – Limits on Use When Trustee Has Discretion
Summary: Where the trust provided the trustee with “sole discretion” to make any distribution in cash or in-kind, it was error for the probate court to interpret the trust as requiring an immediate sale of real property and distribution of the proceeds.
Two different trusts each held a 50% interest in real property. Both trusts named the same successor trustee, but named different beneficiaries. Pursuant to Probate Code section 17200, the successor trustee petitioned the court for instructions due to a potential conflict of interest between the beneficiaries of the two trusts. The beneficiaries of one trust wanted the successor trustee to sell the real property and distribute the cash proceeds whereas the beneficiary of the other trust desired an in kind distribution. The probate court instructed the trustee to immediately sell the properties and distribute the proceeds to the respective beneficiaries. Städel Art Museum, one of the trust beneficiaries, appealed.
The appellate court vacated the order and remanded. The trust merely “requested” the trustee to sell the real property assets upon the death of the settlor, which the court interpreted using the term’s common meaning as read together with other language in the trust, including the trustee’s “sole discretion” to make distributions in cash or in-kind. As a result, the trust did not require the trustee to immediately sell the real property and distribute the cash proceeds. The probate court should have instructed the trustee to exercise his sole discretion, which he must exercise in favor of the beneficiary of the trust—not in the interests of third parties, such as the beneficiaries of the other trust.
In dicta, the opinion offered the “observation” that Probate Code section 16005 prohibits a trustee from becoming trustee of another trust with interests adverse to the first trust and invited the parties and the trial court to explore the issue on remand.