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Invalidate that Trust! – Grounds for Invalidating a Trust in California

Trusts have supplanted wills as the primary estate planning instrument in California. They provide a mechanism for managing and distributing assets after the death of the settlor (the person who created the trust) that completely avoids the court-supervised probate process. Trusts are an exceptionally versatile estate planning tool. However, because of their financial implications, they are a ripe ground for nefarious conduct by individuals looking to steal or increase an inheritance. As a result, California law provides several grounds on which a trust may be deemed invalid. The most common are:

Lack of Capacity: A trust will be deemed invalid if the settlor did not have the requisite capacity to create the trust. What is the requisite capacity? There is no bright-line rule. The California Probate Code provides that a person lacks capacity to create a trust unless they are able to understand and appreciate (1) the rights, duties, and responsibilities created by the trust; (2) the probable consequences of the trust for the settlor and other people affected by the trust (e.g., beneficiaries and heirs); and (3) the significant risks and benefits of the trust and the reasonable alternatives. (Cal. Prob. Code § 812.) California courts have interpreted this as establishing a “sliding scale” standard under which capacity “must be evaluated by a person’s ability to appreciate the consequences of the particular act he or she wishes to take.” (Anderson v. Hunt (2011) 196 Cal.App.4th 722, 730.) Under this standard, a settlor must have a higher level of capacity to create a complex trust than a simple trust.

A lack of capacity is most often proved using the settlor’s medical records and expert testimony from doctors. In most cases, it is difficult to invalidate a trust based on a lack of capacity alone. Evidence of diminished capacity is usually presented in conjunction with evidence of undue influence.

Undue Influence: A trust that is the result of undue influence is invalid. Undue influence is defined as coercive conduct that overcomes the settlor’s free will. (Rice v. Clark (2002) 28 Cal.4th 89, 96.) Undue influence is usually proven by circumstantial evidence (as opposed to direct evidence) because the coercive conduct generally happens in secret behind closed doors. Circumstantial evidence of undue influence usually includes evidence of (1) the settlor’s vulnerability, including age, education, impaired cognitive function, isolation, and dependency; (2) the influencer’s authority over the settlor, including status as family member, care provider, legal professional, or spiritual advisor; (3) the actions of the influencer, including whether they participated in the creation of the Trust or controlled the settlor’s interactions with others, medication, or sleep; and (4) the equity of the resulting trust, including the economic consequences to the influencer and whether it diverges from the settlor’s prior testamentary intent.

The person seeking to invalidate the trust has the burden to prove the trust is the result of undue influence. However, the trust may be presumed to be the result of undue influence when the alleged influencer has a close personal relationship with the settlor, actively participates in the creation of the trust, and receives an undue benefit from the trust. If these three elements are met, the burden of proof shifts to the alleged influencer and her or she must prove the trust is not the result of undue influence.

Fraud: A trust that is procured through fraud is invalid. Fraud occurs when a settlor is deceived by a false statement of fact and creates a trust based on that false statement. Fraud and undue influence are similar and usually rest on similar factual bases. However, they are distinct grounds on which a trust may be invalidated. One California court described the distinction as follows: “In cases where fraud alone is relied upon as a ground of contest it is the theory of law that the [settlor], even though acting, in a manner of speaking, of his own free will, was, nevertheless, deceived by false date into doing that which he would not have done had he not be fraudulently imposed on.” (David v. Hermann (2005) 129 Cal.App.4th 672, 687.) Fraud can be difficult to prove because it must be shown that the false statement was intended to deceive the settlor and that it did in fact deceive the settlor and cause him to create a trust that he would not have created absent the false statement. Trusts are rarely invalidated in grounds of fraud; undue influence is much more common.

Mistake: A trust may be invalidated if it is the result of a mistake. A mistake occurs when the trust document does not contain the terms that were intended by the settlor or where the settlor was mistaken about some fact relevant to the terms of the trust. It is uncommon for a trust to be invalidated due to a mistake because the law permits trusts to be reformed to correct the mistake.

If grounds for invalidating a trust exist, an interested person (usually a beneficiary or former beneficiary) may file a petition with the court to invalidate the trust. This is called a trust contest. After the petition is filed, other interested persons may file an objection to the petition. If an objection is filed, the petitioner and objector litigate their claims like any other case. They conduct discovery to obtain evidence, including serving document requests and taking depositions, and then go to trial before a judge. Importantly, a trust is considered valid unless and until there is a judgment from a court deeming it invalid.

Trust contests involve complex legal and factual issues. If you are involved in a trust contest, it is highly advisable to retain an attorney to represent you.