Much ado about standing

In a generally welcomed decision, the California Supreme Court on Jan. 24 held in Barefoot v. Jennings, 2020 DJDAR 490, that previously named trust beneficiaries who were disinherited under a subsequent amendment do in fact have standing in probate court to challenge that amendment on the basis of incompetence, undue influence or fraud. While such actions in probate court were previously commonplace under Probate Code Section 17200, the 5th District Court of Appeal threw that practice into question in 2018 when it held that Section 17200 was only available to current trustees and beneficiaries and that disinherited beneficiaries were limited to seeking relief in civil court. In unanimously reversing that decision, the Supreme Court has reopened the probate courts to this limited class of litigants. In doing so, it both reaffirmed the probate courts' wide discretion over trust-related matters, and also left several questions unanswered and ripe for future litigation.

The Lower Court Decisions

The Barefoot case originated in the probate court of Tuolumne County, where Joan Maurie Barefoot filed a trust contest under Probate Code Section 17200 alleging that eight trust amendments her mother executed that disinherited Barefoot were invalid on the basis of incapacity, undue influence and fraud. If Barefoot were successful in invalidating the amendments, she would take under the amendment that had been executed prior to the eight invalid amendments. In response, the beneficiaries under the contested amendments -- Barefoots' two sisters, Jana Susan Jennings and Shana Wren -- filed a motion to dismiss the petition on the ground that Barefoot lacked standing under Section 17200. The sisters argued that because Barefoot was neither a beneficiary nor a trustee under the most recent iteration of the trust, Section 17200 was not available to her. The trial court granted their motion and dismissed the petition with prejudice, and Barefoot appealed.

The 5th District agreed with Jennings and Wren, explaining that Section 17200 is a specific proceeding that is designed to allow only beneficiaries and trustees "of the current trust version" to resolve their disputes concerning the internal affairs of the trust. Barefoot v. Jennings, 27 Cal. App. 5th 1, 7 (2018). The Court of Appeal further reasoned that it would be "imprudent to open challenges to the internal workings of the current trust to those no longer included in the most current version of the trust when such individuals have alternative methods of seeking relief." In short, disinherited beneficiaries could either file a complaint in civil court or find another procedural vehicle through which to seek relief in probate court.

Supreme Court's Decision

The Supreme Court unanimously reversed the Court of Appeal's decision, holding instead that "the Probate Code grants standing in probate court to individuals who claim that trust amendments eliminating their beneficiary status arose from incompetence, undue influence, or fraud." The Supreme Court's "narrow" decision hinges largely on its interpretation of Probate Code Section 24, which defines a "beneficiary" as " a person who has any present or future interest" in a trust. When faced with a demurrer or a pretrial motion to dismiss, the trial court is required to treat properly pled allegations as true. Accordingly, if disinherited beneficiaries can properly plead an interest in the trust because the amendment(s) purporting to disinherit them are invalid, then they have satisfied the standing requirement for a "beneficiary" under Section 17200.

The Supreme Court dismissed as "overstated" the Jennings' and Wren's primary concern that allowing disinherited beneficiaries standing under Section 17200 would "invite chaos" because it would permit individuals with no present interest in the trust to "meddle" with its administration. According to the Supreme Court, Probate Code Section 17206 adequately protects against such concerns by providing probate courts with wide latitude and discretion to "make any orders and take any action necessary or proper to dispose of the matters presented in the petition." The court reasoned that probate courts could appropriately use such discretion to preserve trust assets and protect all purported beneficiaries' rights pending the outcome of the trust contest. The Supreme Court also noted that its decision "provides an orderly and expeditious mechanism for limited challenges like plaintiff's to be litigated early in the probate process, in probate court, and to ensure the settlor's intent is honored."

Limitations of the Decision

It is no secret that trust litigators were preparing for a potentially practice-altering outcome had the Supreme Court upheld the lower court rulings, thereby forcing disinherited beneficiaries to seek relief in civil court. While that concern has been put to rest by Barefoot's confirmation that probate court is the appropriate forum for such contests, the decision also left some questions unanswered.

Specifically, the Supreme Court was careful to limit its decision to disinherited beneficiaries, noting that it was not making any determination as to whether an heir who was never a trust beneficiary has standing under the Probate Code to challenge a trust. Likewise, the court expressly avoided the argument that Probate Code Section 850 provided an alternative vehicle through which disinherited beneficiaries could seek relief in probate court. Instead, the court chose to "leave [that] statute's interpretation to a future case." While those two questions are also beyond the purview of this article, it is worth considering whether those two issues are in fact interrelated.

Finally, while the Supreme Court provided a full-throated affirmation of the probate courts' inherent powers and wide discretion in supervising the administration of trusts and resolving disputes concerning trusts under Probate Code Section 17206, it did not provide any guidance to the probate courts on how they should exercise that discretion. As with any other matter that falls to the court's discretion, a litigant's view of how that discretion should be exercised will be determined by which side of the field they're standing on. Indeed, disinherited beneficiaries will likely seek an expansive view of the relief a probate court will allow them under Section 17200 (such as by seeking court-ordered trust accountings or to suspend/remove a trustee), while current beneficiaries and/or trustees will likely try to limit the action to determining the validity of the challenged trust amendments. Regardless, the Barefoot decision confirms that they'll at least be making those arguments on the same field (i.e., in probate court). 