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Biddle Law Estate Planning Blog

Monday, September 11, 2017

When Capacity Leads to Trust Litigation

What is the standard for capacity when establishing a trust?

Revocable trusts have become one of the most common estate planning tools.  Revocable trusts hold several advantages over wills in California.  With a trust, you can avoid probate and all of the costs, as well as time delays, that often come with it.  Additionally, you can maintain privacy as trust assets will be seamlessly passed from the trust to its beneficiaries without the need for court involvement, absent litigation.  If litigation over your trust does arise, it will often hinge on the issue of capacity.  Our San Mateo, California trust administration and litigation lawyers explain the standard for capacity when creating or amending a trust below.

Standards for Capacity for Wills vs. Trusts

Wills and trusts serve a similar purpose and share many of the same steps for creation.  Wills and trusts, however, can have quite different standards for capacity.  The capacity standard for wills in California is relatively low.  It states that a testator has the capacity to create a will if he or she can 1) understand the nature of the act; 2) understand the nature and situation of his or her assets; 3) and remember, as well as understand, his or her relationships to immediate family members and those whose interests are impacted by the will.

Unlike a will, a trust can be considered a legal contract in the eyes of the court.  A trust involves an agreement between the settlor and the trustee that property be transferred to the trust and managed by the trustee.  Legal contracts have a higher standard for capacity.  A valid legal contract requires that its creator must be able to understand, appreciate, and communicate 1) the rights and duties impacted by his or her decision; 2) the probable consequences of the decision; and 3) the risks, benefits, and reasonable alternatives to his or her decision.  

California courts and courts across the nation have struggled with what capacity standard should apply to trusts.  A 2011 case in California’s Second District Court of Appeal, Anderson v. Hunt, 196 Cal. App. 4th 722, provides some insight into how courts may assess capacity and trusts.  In that case, the children of a deceased individual sought to invalidate amendments made to his trust after he suffered a serious stroke.  The court held that the lower capacity standard that typically applies to wills should be used because, in this case, the trust instrument was similar in complexity to a will.  

In creating or amending your trust, it is critical that you be aware of any potential capacity issues that could arise. Proper planning can help your named beneficiaries from encountering any trust litigation issues upon your death.  Consult with a trust attorney for help with administering or challenging a trust in California.  


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