Article 2 - Fiduciary Duties and Judicial Review

California Probate Code — §§ 16325-16327

Sections (3)

Repealed and added by Stats. 2023, Ch. 28, Sec. 2. (SB 522) Effective January 1, 2024.

(a)In making an allocation or determination or exercising discretion under this chapter, all of the following apply:

(1)A fiduciary shall act in good faith, based on what is fair and reasonable to all beneficiaries.

(2)A fiduciary shall administer a trust or decedent’s estate in accordance with the trust or the will, even if there is a different provision in this chapter.

(3)A fiduciary may administer a trust or decedent’s estate by the exercise of a discretionary power of administration given to the fiduciary by the trust or the will, even if the exercise of the power produces a result different from a result

required or permitted by this chapter, and no inference that the fiduciary has improperly exercised the discretion arises from the fact that the fiduciary has made an allocation contrary to a provision of this chapter.

(4)A fiduciary shall administer a trust or decedent’s estate in accordance with this chapter if the trust or the will does not contain a different provision or does not give the fiduciary a discretionary power of administration.

(b)A fiduciary’s allocation, determination, or exercise of discretion under this chapter is presumed to be fair and reasonable to all beneficiaries. A fiduciary may exercise a discretionary power of administration given to the fiduciary by the terms of the trust, and an exercise of the power that produces a result different from a result required or permitted by this chapter does not create an inference that the fiduciary abused the

fiduciary’s discretion.

(c)A fiduciary shall do both of the following:

(1)Add a receipt to principal, to the extent neither the terms of the trust nor this chapter allocates the receipt between income and principal.

(2)Charge a disbursement to principal, to the extent neither the terms of the trust nor this chapter allocates the disbursement between income and principal.

(d)A fiduciary may exercise the power to adjust under Section 16327, convert an income trust to a unitrust under paragraph (1) of subdivision (a) of Section 16332, change the percentage or method used to calculate a unitrust amount under paragraph (2) of subdivision (a) of Section 16332, or convert a unitrust to an income trust under paragraph (3) of subdivision (a) of Section

16332, if the fiduciary determines the exercise of the power will assist the fiduciary to administer the trust or estate impartially.

(e)Factors the fiduciary shall consider in making the determination under subdivision (d) include all of the following:

(1)The terms of the trust.

(2)The nature, distribution standards, and expected duration of the trust.

(3)The effect of the allocation rules, including specific adjustments between income and principal, under Article 4 (commencing with Section 16340) to Article 7 (commencing with Section 16375), inclusive.

(4)The desirability of liquidity and regularity of income.

(5)The

desirability of the preservation and appreciation of principal.

(6)The extent to which an asset is used or may be used by a beneficiary.

(7)The increase or decrease in the value of principal assets, reasonably determined by the fiduciary.

(8)Whether and to what extent the terms of the trust give the fiduciary power to accumulate income or invade principal or prohibit the fiduciary from accumulating income or invading principal.

(9)The extent to which the fiduciary has accumulated income or invaded principal in preceding accounting periods.

(10)The effect of current and reasonably expected economic conditions.

(11)The

reasonably expected tax consequences of the exercise of the power.

§ 16326

Repealed and added by Stats. 2023, Ch. 28, Sec. 2. (SB 522) Effective January 1, 2024.

(a)For purposes of this section, “fiduciary decision” means any of the following:

(1)A fiduciary’s allocation between income and principal or another determination regarding income and principal required or authorized by the terms of the trust or this chapter.

(2)The fiduciary’s exercise or nonexercise of a discretionary power regarding income and principal granted by the terms of the trust or this chapter, including the power to adjust under Section 16327, convert an income trust to a unitrust under paragraph (1) of subdivision (a) of Section 16332, change the percentage or method used to calculate a unitrust amount under paragraph (2) of subdivision (a) of Section 16332, or

convert a unitrust to an income trust under paragraph (3) of subdivision (a) of Section 16332.

(3)The fiduciary’s implementation of a decision described in paragraph (1) or (2).

(b)The court may not order a fiduciary to change a fiduciary decision unless the court determines that the fiduciary decision was an abuse of the fiduciary’s discretion.

(c)If the court determines that a fiduciary decision was an abuse of the fiduciary’s discretion, the court may order a remedy authorized by law. To place the beneficiaries in the positions the beneficiaries would have occupied if there had not been an abuse of the fiduciary’s discretion, the court may order any of the following:

(1)The fiduciary to exercise or refrain from exercising the power to adjust

under Section 16327.

(2)The fiduciary to exercise or refrain from exercising the power to convert an income trust to a unitrust under paragraph (1) of subdivision (a) of Section 16332, change the percentage or method used to calculate a unitrust amount under paragraph (2) of subdivision (a) of Section 16332, or convert a unitrust to an income trust under paragraph (3) of subdivision (a) of Section 16332.

(3)The fiduciary to distribute an amount to a beneficiary.

(4)A beneficiary to return some or all of a distribution.

(5)The fiduciary to withhold an amount from one or more future distributions to a beneficiary.

(6)Upon a petition by a fiduciary for instruction, the court may

determine whether a proposed fiduciary decision will result in an abuse of the fiduciary’s discretion. If the petition describes the proposed decision, contains sufficient information to inform the beneficiary of the reasons for making the proposed decision and the facts on which the fiduciary relies, and explains how the beneficiary will be affected by the proposed decision, a beneficiary that opposes the proposed decision has the burden to establish that it will result in an abuse of the fiduciary’s discretion.

§ 16327

Repealed and added by Stats. 2023, Ch. 28, Sec. 2. (SB 522) Effective January 1, 2024.

(a)Except as otherwise provided in the terms of a trust or this section, a fiduciary, in a record, without court approval, may adjust between income and principal if the fiduciary determines the exercise of the power to adjust will assist the fiduciary in administering the trust or estate impartially.

(b)This section does not create a duty to exercise or consider the power to adjust under subdivision (a) or to inform a beneficiary about the applicability of this section.

(c)A fiduciary that in good faith exercises or fails to exercise the power to adjust under subdivision (a) is not liable to a person affected by the exercise or failure to exercise.

(d)In deciding whether and to what extent to exercise the power to adjust under subdivision (a), a fiduciary shall consider all factors the fiduciary considers relevant, including relevant factors in subdivision (e) of Section 16325 and the application of subdivision (i) of Section 16340 and Sections 16347 and 16352.

(e)A fiduciary may not exercise the power under subdivision (a) to make an adjustment or under Section 16347 to make a determination that an allocation is insubstantial under any of the following circumstances:

(1)The adjustment or determination would reduce the amount payable to a current income beneficiary from a trust that qualifies for a special tax benefit, except to the extent the adjustment is made to provide for a reasonable apportionment of the total return of the trust between the current

income beneficiary and successor beneficiaries.

(2)The adjustment or determination would change the amount payable to a beneficiary, as a fixed annuity or a fixed fraction of the value of the trust assets, under the terms of the trust.

(3)The adjustment or determination would reduce an amount that is permanently set aside for a charitable purpose under the terms of the trust, unless both income and principal are set aside for the charitable purpose.

(4)Possessing or exercising the power would cause a person to be treated as the owner of all or part of the trust for federal income tax purposes.

(5)Possessing or exercising the power would cause all or part of the value of the trust assets to be included in the gross estate of an individual for federal

estate tax purposes.

(6)Possessing or exercising the power would cause an individual to be treated as making a gift for federal gift tax purposes.

(7)The fiduciary is not an independent person.

(8)The trust is irrevocable and provides for income to be paid to the settlor and possessing or exercising the power would cause the adjusted principal or income to be considered an available resource or available income under a public benefit program.

(9)The trust is a unitrust under Article 3.

(f)If paragraph (4), (5), (6), or (7) of subdivision (e) applies to a fiduciary:

(1)A cofiduciary to which paragraph (4), (5), (6), or

(7)of subdivision (e) does not apply may exercise the power to adjust, unless the exercise of the power by the remaining cofiduciary or cofiduciaries is not permitted by the terms of the trust or law other than this chapter.

(2)If there is no cofiduciary to which paragraph (4), (5), (6), or (7) of subdivision (e) does not apply, the fiduciary may appoint a cofiduciary to which paragraph (4), (5), (6), or (7) of subdivision (e) does not apply, which may be a special fiduciary with limited powers, and the appointed cofiduciary may exercise the power to adjust under subdivision (a), unless the appointment of a cofiduciary or the exercise of the power by a cofiduciary is not permitted by the terms of the trust or law other than this chapter.

(g)A fiduciary may release or delegate to a cofiduciary the power to adjust under subdivision (a) if the fiduciary determines that the

fiduciary’s possession or exercise of the power will or may do either of the following:

(1)Cause a result described in paragraphs (1) to (6), inclusive, or (8) of subdivision (e).

(2)Deprive the trust of a tax benefit or impose a tax burden not described in paragraphs (1) to (6), inclusive, of subdivision (e).

(h)A fiduciary’s release or delegation to a cofiduciary under subdivision (g) of the power to adjust pursuant to subdivision (a):

(1)Shall be in a record.

(2)Applies to the entire power, unless the release or delegation provides a limitation, which may be a limitation to the power to make any of the following adjustments:

(A)From income to principal.

(B)From principal to income.

(C)For specified property.

(D)In specified circumstances.

(3)For a delegation, may be modified by a redelegation under this subdivision by the cofiduciary to which the delegation is made.

(4)Subject to paragraph (3), is permanent, unless the release or delegation provides a specified period, including a period measured by the life of an individual or the lives of more than one individual.

(i)Terms of a trust that deny or limit the power to adjust between income and principal do not affect the application

of this section, unless the terms of the trust expressly deny or limit the power to adjust under subdivision (a).

(j)The exercise of the power to adjust under subdivision (a) in any accounting period may apply to the current period, the immediately preceding period, and one or more subsequent periods.

(k)A description of the exercise of the power to adjust under subdivision (a) shall be either of the following:

(1)Included in a report, if any, sent to beneficiaries.

(2)Communicated at least annually to all beneficiaries that receive or are entitled to receive income from the trust or would be entitled to receive a distribution of principal if the trust were terminated at the time the notice is sent, assuming no power of appointment is

exercised.