BEDSWORTH, Acting P. J.
At the trial of this trust administration case the parties presented radically different versions of the late William Giraldin's capacity to make — and follow through with — his estate plan.
The key word in the preceding paragraph is "tried." Many times during the trial Timothy attempted to present evidence William was quite competent and fully intended to put the bulk of his estate at the service of Timothy's venture. Of course, William being dead by the time of trial, much of the evidence had to come from individuals who heard William's own words and could convey those words back to the court: Those witnesses included William's widow Mary, but also William's attorney James Mellor, William's next door neighbor Dr. John Moutsatson, and Michael Watson, a friend at the church William attended. And of course they also included the obviously interested twin brothers Timothy and Patrick, each of whom had a stake in Timothy's start-up company.
But the trial judge would hear none of it. He believed such evidence had to be excluded under the hearsay rule, and in fact told Timothy to "Go some place else" with his argument the evidence was offered to show William's state of mind.
After a trip to the California Supreme Court on the sole issue of standing, the high court has returned this case to us to decide the remaining issues. We have. As we explain anon, the excluded evidence was subject to the state of mind exception set out in Evidence Code section 1250 and should have been received. Moreover, the excluded evidence is particularly relevant in the wake of what the Supreme Court said about the nature of the plaintiffs' claims against Timothy. Now the focus is on how faithfully Timothy implemented William's intent, so William's state of mind is critical.
Though both our earlier, now vacated decision, and the now controlling Estate of Giraldin case contain relatively lengthy expositions of the facts, in the present posture the essential facts can be stated relatively quickly.
William founded Mission Savings and Loan in the 1950's. It was later acquired by Washington Mutual. As we noted in our previous decision, in early 2002 he revoked his old estate plan and established a new revocable family trust, with Timothy as trustee. William was the sole beneficiary of the revocable trust during his lifetime. A few days after he signed the trust document he began transferring a portion of his assets to SafeTzone, a company started some years earlier by Patrick, Timothy's twin brother, in which Timothy had become a part owner.
The SafeTzone investment went badly. When William died in May 2005 the trust's stake in the company was worth very little. Plaintiffs filed a petition in December 2006 to remove Timothy as trustee and compel an accounting; in an amended petition filed in January 2008 they also sought to surcharge Timothy for losses to the trust as a result of alleged violations of his fiduciary duties during his trusteeship, most notably of course, the SafeTzone loss. The case went to trial, including a petition from William's widow Mary to confirm her community property interest in two homes, Lakeshore and Lake Hume. The trial court found William lacked the mental capacity to undertake the SafeTzone investment or understand certain documents he had signed. The court entered an order surcharging Timothy about $4.3 million for the SafeTzone investment and another $625,000 for various undocumented disbursements from the trust. The court also declared William's widow had elected to choose the benefits of the trust over her community property rights, and in that regard ruled the Lakeshore and Lake Hume properties were part of the trust, i.e., Mary was going to lose out with the rest of the beneficiaries of the trust. Both Timothy and Mary then appealed.
In our previous opinion, we decided two issues: One was straightforward and legal — standing. How could the plaintiffs be aggrieved about what William did with his assets during his lifetime? The other was highly factual, and factually sharp-edged as the proverbial serpent's tooth. The plaintiffs claimed their mother voluntarily relinquished her community property rights in favor of what she would receive under the trust, and those rights included her community interests in two houses known as Lakeshore and Lake Hume which plaintiffs argued were part of the trust corpus.
On the first issue, we decided the plaintiffs had no standing to complain about anything Timothy did as trustee during William's lifetime because Timothy's duties as trustee were owed solely to William, not to plaintiffs. That lack of standing obviated the great bulk any claims the plaintiffs had against Timothy, because most of what the plaintiffs have claimed as malfeasance — certainly the investment in SafeTzone — was done during William's lifetime and ostensibly at his direction.
As to the more serpentine issue, after wading through the minutiae of whether the Lakeshore and Lake Hume properties were in, or out, of the trust, we concluded both properties were outside the trust, and therefore Mary retained her community interest in those properties.
The Supreme Court granted review on the sole issue of standing resulting in Estate of Giraldin, supra, 55 Cal.4th 1058. It is important to understand precisely what the Supreme Court did, and did not, hold there.
The Supreme Court agreed with us that during the time the settlor of a revocable trust is alive, the trustee (who is more often than not the settlor himself or herself) need only account to the settlor — not to any beneficiaries who might have an interest in the remainder of the trust. (Estate of Giraldin, supra, 55 Cal.4th at p. 1062.) However, the Supreme Court disagreed with us on the issue of whether beneficiaries still have standing, after the settlor's death, to bring the trustee to account for violations of his duties to the settlor during the settlor's life. The high court illustrated its point with the hypothetical of a trustee who takes trust money "unbeknownst to and against the wishes of the settlor" — and the quoted words are extremely important for this case — and dissipates trust funds on a six-month cruise around the world. (Id. at p. 1071.) That is remediable by the beneficiaries, even after the settlor's death. Trustees are not allowed to "loot a revocable trust against the settlor's wishes without the beneficiaries' having recourse after the settlor has died." (Ibid.) Having decided the standing issue, the Supreme Court then returned the case to this court with directions to decide the remaining issues.
The first thing we note is that the Surpeme Court did nothing about our determination that Mary's community property interests in Lakeshore and Lake Hume remain intact. That determination is now final. Whatever else comes of the case on remand, Mary gets to keep her community interest in those two properties. (See Howard v. Babcock (1993) 6 Cal.4th 409, 426, fn. 9 ["Our grant of review was limited to the question whether article X of the partnership agreement is void, and our reversal only affects the judgment of the Court of Appeal to the extent that court's orders were based on the conclusion that article X of the partnership agreement is void."].)
Second, two of the five issues raised in Timothy's opening brief are logically subsumed by the Supreme Court's holding on the standing issue. Those are Timothy's argument four, that the plaintiffs are barred by laches or the statutes of limitation, and Timothy's argument five, that Probate Code section 16460 bars their claims.
The statute of limitations for claims against trustees for breach of trust is set out in Probate Code section 16460, and it is three years. (See generally Noggle v. Bank of America (1999) 70 Cal.App.4th 853.) The Supreme Court's opinion makes it clear the plaintiffs couldn't have brought an action prior to William's May 2005 death, so their December 2006 action is easily timely. Moreover, since Timothy never provided any accountings until the litigation began, the time lapse between May 2005 and December 2006 can hardly suggest the plaintiffs sat on their rights as a matter of law, since the basic theory of the statutory scheme is that the statute of limitations begins to run from the time an accounting is rendered which "adequately discloses" the existence of a claim. And here the plaintiffs did not receive any accounting until well into the litigation.
The surcharge order was based on the trial judge's determination that by 2001 William lacked the mental capacity to authorize the SafeTzone investment or any other transaction Timothy undertook with regard to the trust.
The opening brief asserts that no less than 50 times the trial judge sustained hearsay objections to evidence proffered by Timothy. The figure may or may not be accurate, since it is not supported by record references, but we can say, based on the record references the brief does provide, that the trial court excluded nine areas of evidence, all relevant as to either William's mental ability, intent in making his estate plan, or both:
Most of the excluded testimony went directly to William's intent to dispose of the great bulk of his estate via the SafeTzone investment. (See items (1) through (4), part of (5), (6), (7) and possibly (9).) In the wake of the Supreme Court's opinion in Estate of Giraldin, however, intent is indispensible, ironically enough, to the plaintiff's case. When the case was first tried, plaintiffs' theory was that Timothy had a duty to them during William's life to safeguard the trust corpus. As Estate of Giraldin now makes clear, the plaintiffs only have standing to assert violations, prior to William's death, of Timothy's duty to William. And that issue self-evidently cannot be decided without evidence of William's intent and mental state toward the SafeTzone investment. (See Young v. McCoy (2007) 147 Cal.App.4th 1078, 1087 ["But whether a trustee exercises her discretion appropriately or abusively is measured by how this exercise conforms to the trustor's intent."].) In that sense, the wheel has come full circle: Estate of Giraldin's point was that a trustee cannot do things with trust property "unbeknownst to and against the wishes of the settlor." The issue is now precisely what were William's wishes.
There is no question that out-of-court statements by a decedent bearing on his or her intent to make an investment or a transfer of money are not precluded under the hearsay rule. (Whitlow v. Durst (1942) 20 Cal.2d 523, 524 ["When intent is a material element of a disputed fact, declarations of a decedent made after as well as before an alleged act that indicate the intent with which he performed the act are admissible in evidence as an exception to the hearsay rule, and it is immaterial that such declarations are self-serving."]; Estate of Truckenmiller (1979) 97 Cal.App.3d 326, 331-334 [evidence that decedent had belief he had been "tricked" was admissible, though of course such evidence was inadmissible to show he really had been tricked].
The same may be said for such excluded evidence as related to William's mental state. (See items (5) (partly) and (8) and (9).) Evidence of mental competency is within the state of mind exception to the hearsay rule, as shown by Estate of Russell (1922) 189 Cal. 759. Mental competence was squarely at issue there, where a testator developed the belief that the woman he had regarded as his daughter for 42 years actually wasn't. Specifically, after suffering a stroke, he told the story of finding the mother of that daughter — his first wife — in bed with another man when his daughter was about three and one-half years old. (See id. at pp. 764-766, 770.) He didn't include the daughter in his will, but she successfully contested it using the evidence of the story about finding the first wife in bed with another man. And the judgment in her favor was upheld by our Supreme Court as against a challenge that the evidence admitted to show his incompetency should not have been admitted.
The court reasoned that given there was no evidence to show the incident about finding the first wife in bed with another man was actually true, and the fact paternity had been undisputed for some 42 years, it followed the evidence of his telling people the story was evidence of, at best, a false belief, and at worst an "insane delusion." (Estate of Russell, supra, 189 Cal. at pp. 770-771.) In any event, it was not error to admit the evidence strictly to show the decedent's state of mind, i.e., his belief in something between a mere falsity and a full-fledged delusion.
The question arises as to whether, statutorily, the excluded testimony outlined above should have been admitted under (1) Evidence Code section 1250's "state of mind exception,"
Finally, Timothy's opening brief presents two fact-based arguments: Argument two, that because William told Timothy he would not be the trustee until William's death, Timothy could not be liable for violating duties as trustee; and argument three, that because William formed the decision to invest in SafeTzone prior to the formation of the trust, Timothy cannot be held liable for the trust's investment in SafeTzone.
It is immediately apparent that both arguments are heavily factual, and both depend on what the trial court may yet find as regards William's intent and mental competency when it hears the excluded evidence bearing on William's intent and competency previously excluded — and evaluates that evidence in light of Estate of Giraldin. In that regard, both arguments also go to an issue not previously in focus until the Supreme Court's opinion, namely the precise nature of William's intent and Timothy's duties to William, as distinct from the remainder beneficiaries of the trust. It is premature for us now to address these arguments.
The surcharge order is reversed, and that matter remanded for further proceedings consistent with this opinion. Mary will recover her costs on appeal if she has not already done so. Because our decision is interlocutory as regards the plaintiffs' claims against Timothy, we do not award appellate costs to either the plaintiffs or Timothy now, but accord the trial judge discretion to award the appellate costs of this proceeding to the party who prevails at the conclusion of the litigation. (Boicourt v. Amex Assurance Co. (2000) 78 Cal.App.4th 1390, 1401.)
ARONSON, J. and FYBEL, J., concurs.
"(b) This section does not make admissible evidence of a statement of memory or belief to prove the fact remembered or believed."
The text of Evidence Code section 1261:
Both sections were enacted in 1965 in conjunction with the repeal of the old "dead man statute" (former Code Civ. Proc., § 1880, subd. (3)), which previously hadn't allowed any testimony about any fact occurring before the decedent's death. (See Cal. Law Revision Com. com., 29B West's Ann. Evid. Code (1995 ed.) foll. § 1261, pp. 308-309.).)
