Städel Art Museum v. Mulvihill: Trustee Discretion in California Trust Distributions (HEMS Standard) – California Legal Guide | CPT Law

California Legal Implications: Trustee Discretion and Property Distributions

A recent California appellate decision highlights the critical importance of specific language in trust documents regarding how assets are distributed to beneficiaries. In *Städel Art Museum v. Mulvihill*, the court clarified the extent of a trustee’s “sole discretion” when faced with conflicting requests from beneficiaries.

In this case, a successor trustee managed two separate trusts, each owning a 50% interest in real property. A conflict arose when beneficiaries of one trust demanded the sale of the property for cash, while the beneficiary of the other trust (Städel Art Museum) requested an “in-kind” distribution of the property interest. While the lower court ordered an immediate sale, the appellate court vacated that order. They ruled that because the trust document only “requested” a sale—rather than mandating it—and granted the trustee “sole discretion” to make distributions in cash or in-kind, the trustee was not forced to sell the asset.

You can read the full summary and opinion here..

For California families and trustees, this case offers several vital lessons regarding estate administration and the drafting of trust documents.

The Power of Words: “Requested” vs. “Required”

One of the central issues in this case was the interpretation of the word “requested.” In legal drafting, there is a significant difference between mandatory language (such as “shall” or “must”) and precatory language (such as “wish,” “desire,” or “request”).

The court found that the settlor’s use of the word “request” regarding the sale of real property did not create a binding legal obligation on the trustee. For individuals creating an estate plan, this serves as a reminder: if you want a specific outcome to be guaranteed—such as the sale of a family home—your trust must use mandatory language. If you wish to leave the decision up to the trustee based on future circumstances, discretionary language is appropriate.

Cash vs. In-Kind Distributions

Trusts often hold illiquid assets, such as real estate or business interests. When it is time to distribute these assets to beneficiaries, the trustee generally has two options:
1. Cash Distribution: Sell the asset and distribute the proceeds.
2. In-Kind Distribution: Transfer the asset itself (or a share of it) directly to the beneficiary. Transfer the asset itself (or a share of it) directly to the beneficiary.

In *Städel Art Museum v. Mulvihill*, the trust explicitly granted the trustee the “sole discretion” to choose between these methods. Because the trustee had this specific authority, the court could not compel a sale simply because one beneficiary preferred cash. California Probate and Trust, PC advises clients to clearly state in their trust documents whether a trustee has the power to make non-pro rata or in-kind distributions to avoid these types of costly litigation.

Trustee Conflicts of Interest

A complicating factor in this case was that the same individual served as the trustee for two different trusts with adverse interests. The court noted in dicta that California Probate Code section 16005 generally prohibits a trustee from accepting an appointment that creates a conflict of interest with their duties to a beneficiary. generally prohibits a trustee from accepting an appointment that creates a conflict of interest with their duties to a beneficiary.

When selecting a successor trustee, it is crucial to consider potential conflicts. If a trustee manages two trusts that own the same property, and the beneficiaries of those trusts have different goals (e.g., one wants to sell, one wants to keep), the trustee may be placed in an untenable legal position.

About This Case

Source: Städel Art Museum v. Mulvihill: Trustee Discretion in California Trust Distributions

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Legal Disclaimer

This article is for informational purposes only. Consult with a qualified California estate planning attorney for advice specific to your situation.

About the Author: Dustin MacFarlane, Esq.

California Licensed Attorney | Estate Planning Specialist

Dustin MacFarlane is the founder of California Probate and Trust, PC, with over 15 years of experience in estate planning, probate administration, and trust law. Licensed by the California State Bar, Dustin has helped thousands of California families protect their assets and plan for the future.

CA Bar License: Active | Practice Areas: Estate Planning, Probate, Trust Administration | Location: Granite Bay, CA

Why Estate Planning Matters in California

California has unique estate planning laws that differ significantly from other states. Without proper planning, your assets may not pass according to your wishes, and your family could face unnecessary probate court proceedings.

A comprehensive California estate plan typically includes:

• A revocable living trust to avoid probate
• Pour-over will as a safety net
• Advance health care directive
• Durable power of attorney for finances
• Beneficiary designations on retirement accounts and life insurance

How Trusts Work in California

California’s trust law (Probate Code Division 9) governs how trusts are created, administered, and terminated. Understanding these rules is essential for effective estate planning.

Key benefits of California trusts:

• Avoid probate: Assets in a properly funded trust bypass California’s lengthy probate process
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• Tax planning: Trusts can help minimize estate and income taxes