Interested persons and trust proceedings
In California, under section 17200 of the Probate Code, the trustee or a beneficiary of a trust may petition the court for instructions or other guidance regarding the internal affairs of the trust or the existence of the trust. Section 17200 has wide scope, and applies, amongst other things, to interpreting the trust, determining the validity of the trust, ascertaining beneficiaries, settling accounts, instructing the trustee, appointing or removing a trustee, requiring an accounting, and much more.
What rights does a person who is neither a trustee nor a beneficiary of the trust have with respect to receiving notice of such a section 17200 petition and then to participating in such trust proceedings? In Colvis V. Binswanger, 96 Cal. App. 5th 393 (October 13, 2023), the First Appellate District recently addressed that issue.
In Colvis, the trust owned 70 % of the shares in a Company and the remaining 30% was owned by two siblings. The siblings filed a petition under section 17200 of the Probate Code to instruct the trustee to use its 70% ownership to direct the Company to borrow substantial sums of money. The Company filed a response to the petition in the trust proceedings. The petitioners objected and argues that the Company lacked standing as it was neither a beneficiary nor a trustee.
Section 1043 of the Probate Code, however, provides that, “(a) An interested person may appear and make a response or objection in writing at or before the hearing. [and] (b) An interested person may appear and make a response or objection orally at the hearing. The court in its discretion shall either hear and determine the response or objection at the hearing, or grant a continuance for the purpose of allowing a response or objection to be made in writing.”
Who then qualifies as, “an interested person” who may appear, respond and object to a petition by a trustee or beneficiary? Section 48 of the Probate Code provides, “(a) …“interested person” includes any of the following: (1) An heir, devisee, child, spouse, creditor, beneficiary, and any other person having a property right in or claim against a trust estate or the estate of a decedent which may be affected by the proceeding. (2) Any person having priority for appointment as personal representative. (3) A fiduciary representing an interested person.” Thus, creditors and, “any other person have a property right in or claim against a trust estate … which may be affected by the proceeding” are interested persons.
In Colvis, the Appellate Court held that while only a trustee or a beneficiary may initiate a trust petition under section 17200, any interested person may appear, respond and object to the petition. The court considered that section 17203 of the Probate Code which requires notice of the section 17200 petition to be given to interested persons strong indication that interested persons could also appear, respond and object because otherwise given interest persons notice without an ability to participate to protect their interest was meaningless.
Whether a person qualifies as an interested party is specific to the subject of the court proceedings. In Colvis, the court quoted relevant case law precedent, as follows: “The probate court has flexibility in determining whether to permit a party to participate as an interested party. …Thus, a party may qualify as an interested person entitled to participate for purposes of one proceeding but not for another.”
In sum, it makes sense for interested parties to be vigilant and proactive when probate proceedings are involved or are expected. An interested party might give the trustee written notice that they consider themselves to be an interested party with respect to matters where the affairs of the trust and the interested party overlap and so request that they receive notice of any section 17200 petition involving such matters.
The foregoing brief discussion is not legal advice. Consult a qualified attorney for guidance. Dennis A. Fordham, attorney, is a State BarCertified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@ DennisFordhamLaw.com and 707-263-3235.