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Full text of California Code Section reads:

ARTICLE 1. Trustee’s Duties in General [16000 - 16015]
( Article 1 enacted by Stats. 1990, Ch. 79. )

16004.5. [click for link]

(a) A trustee may not require a beneficiary to relieve the trustee of liability as a condition for making a distribution or payment to, or for the benefit of, the beneficiary, if the distribution or payment is required by the trust instrument.

(b) This section may not be construed as affecting the trustee’s right to:

(1) Maintain a reserve for reasonably anticipated expenses, including, but not limited to, taxes, debts, trustee and accounting fees, and costs and expenses of administration.

(2) Seek a voluntary release or discharge of a trustee’s liability from the beneficiary.

(3) Require indemnification against a claim by a person or entity, other than a beneficiary referred to in subdivision (a), which may reasonably arise as a result of the distribution.

(4) Withhold any portion of an otherwise required distribution that is reasonably in dispute.

(5) Seek court or beneficiary approval of an accounting of trust activities.

Were there cases or complaints that lead to passage of this as law? or How might I find out the legislative history?

I'm looking for specific events leading to this, not a general explanation.

  • I've spent some time at the site and can't find a specific reference to 16004.5 but you may have better luck at The California Revision Commission Home (clrc.ca.gov). This commission publishes documents meant to help ascertain legislative intent when examining California law. You may also want to look at the Uniform Trust Code which is an effort to standardize trust law across states. – Dave D Nov 18 '18 at 17:15
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Let's say the trustee runs into a situation where the beneficiary demands some action, and the trustee thinks this action is a really, really bad idea.

Then the trustee can either say "no". Or the trustee can say "yes" and be liable (so if the action is a really bad idea then the trustee won't do this). The trustee can NOT say "yes if you sign this paper that I'm not liable for the result of this action", because the job of the trustee is to protect the beneficiary and he wouldn't be doing that.

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  • A trustee in the situation you describe may to apply for instructions from a court of equity. The court's instructions insulate the trustee from liability. In the situation I'm interested in, something different happened. The trustee withheld distribution of all trust property from one beneficiary, without applying to the court for instructions, and failed to apply for instructions for almost a year. I'm interested if there is some case in California with a similar situation that lead to the need for 16004.5, which seems to be a subsection of the section on the Duty of Loyalty.. – Burt_Harris Nov 18 '18 at 0:15
  • In my case, the trustee used tangled logic forbidden in section 16004.5 in justifying the distribution to one individual, saying that he had no reason to distribute property if he felt he wasn't relieved of liability through a release of his own invention. He then proceeded to make distributions to those beneficiaries who signed his release. Unfortunately, it wasn't in California, that would be too easy... – Burt_Harris Nov 18 '18 at 0:21
  • P.S. the distribution was clearly due and non-discretionary under terms of the trust. I believe the trustee may be liable for either a YES or NO unless he applies to the court, and has created a conflict-of-interest by silently not making equal distributions required by terms of the trust, based on a release that served only the trustee's own interests. – Burt_Harris Nov 18 '18 at 0:28
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    @Burt_Harris I think you need a paid-for lawyer. Trust law gets very complicated very quickly. – Martin Bonner supports Monica Nov 19 '18 at 14:30
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Bellows v. Bellows, 196 Cal.App.4th 505 (2011) convincingly explains the legislative intent:

The legislative history confirms this interpretation of the statute. An analysis of the bill explains,

“Existing law requires a trustee to administer a trust solely in the interest of the beneficiaries, and prohibits a trustee from dealing with trust property for the trustee's own profit. Thus, it is likely that under existing law, a trustee could be held liable for requiring an exoneration from liability as a condition to making a distribution, as this action benefits the trustee rather than the beneficiary. However, the beneficiary may not always be willing or able to litigate this issue.

The sponsor gives an example of a situation how this issue may arise without court oversight. In the example, a trust terminates January 1. On January 2, the trustee mails an agreement to the beneficiary which, if signed, would hold the trustee harmless for his or her actions as trustee. Trustee informs the beneficiary that upon signing and returning the agreement, the beneficiary will receive the distribution required under the trust instrument. Even if the trustee has never accounted to the beneficiary as required under law, and even if the distribution is less than the beneficiary expected, the beneficiary may be placed in a situation where he or she believes that the cost of litigating the issue is greater than the potential gain. Thus a beneficiary may sign the agreement and accept the distribution as is and the issue of the propriety of the trustee's actions will never come before the court. This bill, by creating clear statutory direction of this issue, should help to prevent this situation from occurring.”

(Assem. Com. on Judiciary, conc. in Sen. Amends. to Assem. Bill No. 1705 (2003–2004 Reg. Sess.) as amended June 26, 2003, p. 3.)

The conditional distribution made by Frederick in this case is precisely the conduct the statute is designed to prevent.

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  • Just to elaborate slightly on this answer, the situation described in the quoted material above is the near uniform normal practice of professional and well counseled trustees in every other jurisdiction in the U.S., which effectively means that trustees are routinely exonerated from liability in almost all instances by holding future distributions hostage. Executors of probate estates routinely do the same thing. – ohwilleke Dec 21 '18 at 9:34
  • @ohwilleke, your input is always welcome, thank you. I suggest that the accepted and routine behavior you describe is still permitted under subsection (b) (2), and that California's statute is not intended to prevent a trustee from seeking a voluntary release. P.S. From your profile, I'm guessing that you are not a lawyer, but like me a lifelong student of the law. Is that accurate? – Burt_Harris Dec 22 '18 at 16:59
  • @BurtHarris. No. I am a lawyer who has practiced law since 1995 in both NY State and CO, much of it in probate, trusts and estates (which I have also taught as a full-time associate professor in a graduate program and in myriad CLEs). And, the usual practice is (a) and not (b)(2). – ohwilleke Dec 23 '18 at 18:26
  • Excellent, thanks again. I'll do some further research to understand. – Burt_Harris Dec 26 '18 at 0:15
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    @ohwilleke, are you saying that the "usual practice" in NY and CO would allow someone to violate CA 16004.5 (a)? I found an interesting case that seems point to a fine line. The minority opinion points out the slippery slope in the jurisdiction I'm interested in: Hastings v. PNC Bank if you care to take a look. It seemed in that case the bank prevailed only because 'PNC requested, rather than “required,”' the release.. – Burt_Harris Dec 26 '18 at 0:23

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