It’s the Halloween season, a time when most of us spend a more-than-reasonable amount of time focusing on the spookier side of things: ghosts, goblins, small children dressed like jack-o-lanterns, suspiciously foggy and cobwebbed mansion estates, etc.

Not me, though. I’m the timid type: I don’t like scary movies, I always turn the lights on before entering a dark room, and my visits to Transylvania are limited to the occasional layover on my way to sunnier climes.

I take comfort in the knowledge that I am not alone. Some of us just don’t like to be scared, and we go out of our way to avoid inserting ourselves into dangerous situations. Take, for example, the trustee at the heart of the Court of Appeal’s recent decision in Städel Art Museum v. Mulvihill (2023) ___ Cal.5th ___.

Thomas Mulvihill was the trustee of not just one, but two trusts established by unmarried partners Peter Boesch and Darril Hudson, respectively. Each of Peter and Darril owned a 50% interest in four San Francisco real properties, and each assigned their 50% interests to their respective trusts. Peter died in 1995, while Darril lived until 2019.

The litigation concerned Peter’s trust, which dictated that upon Darril’s passing, the trustee was “requested to sell the real properties” and pass the proceeds along to the trust’s sole beneficiary: the Städel, a historic art museum in Frankfurt. Peter’s trust further gave expansive discretion to the trustee, stating that he may make “the division or distribution in case or in kind . . . either pro rata or non pro rata . . . . with or without adjustment for income tax basis, and may make such sales of the property of the trust as [the] Trustee may deem necessary . . . .”

Following Darril’s death, conflict arose between the Städel and the charitable beneficiaries of Darril’s trust. The reasons underlying the conflict were tax-related and too boring to get into here (sorry Sil).  The end result, however, was fairly straightforward: the Städel wanted the trustee to distribute the real properties to the beneficiaries in kind, whereas the beneficiaries of Darril’s trust wanted the trustee to sell the properties and distribute the sale proceeds.

The trustee was thus asked to do something far scarier than spend a night in a haunted house – make a tough decision. His duties to the beneficiary of Peter’s trust were seemingly in conflict with his duties to the beneficiaries of Darril’s trust – he could not act in the best interests of one without harming the other. 

So, faced with an apparently irreconcilable conflict and perplexed as to how he would exercise the broad discretion granted to him by both trusts, the trustee metaphorically ran screaming in the other direction, as though chased by a mummy or wolfman of some sort. He ran right into the safehouse doors of the probate court, where he filed a petition for instruction that effectively asked “What am I supposed to do?”

The probate court supplied an answer, siding with Darril’s beneficiaries and ordering the trustee to sell the real properties and distribute the proceeds. The trial court construed Peter’s trust language “requesting” the trustee to sell the properties as language “instructing” him to sell them. 

The Städel appealed, and the Court of Appeal reversed. Relying on the common and ordinary definition of the word, the Court agreed with the Städel that language “requesting” the trustee to sell property could not reasonably be interpreted as language “instructing” him to do so.

But more importantly, the Court of Appeal found that interpreting the trust language as the probate court did would rob the trustee of the “sole discretion” granted to him by the trust instrument. The Court took particular issue with the fact that Thomas “never purported to exercise the discretion conferred on him by the trust instrument to grant or deny the Museum’s request for an in-kind distribution . . . .”  The Court of Appeal’s decision did not hold that selling the real properties was the wrong decision, or that distributing the properties in kind was the right decision, but instead that the trustee was required to make some decision. When stuck at a fork in the road, with one path leading to a spooky swamp and the other leading to a haunted burial ground, a broad grant of discretion means that a trustee can’t just walk backward the way he came – they must pick one or the other.

In other words, the Court sent a strong message to the trustee in this case and all trustees who fear that their exercise of discretion puts them in the middle of a conflict between different beneficiaries with disparate interests: “This is your job. Don’t ask the courts to do it for you.” Ultimately, the Court of Appeal’s decision in Städel is not a particularly comforting one. The broad discretion given to most trustees is not a privilege – it is a duty requiring that trustees make the tough decisions. And if those decisions make one or more beneficiaries mad enough to drag the trustee into court? Sorry – not every scary story has a happy ending.

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