I respectfully dissent.
This is not an easy case. The majority opinion sets forth a tenable construction of what undeniably is a complicated interplay of code provisions. But it is not the only tenable interpretation. By a rather slim margin, I find another reconciliation of the statutory language to be more persuasive.
I begin with a brief overview of that position. Probate Code section 19001, subdivision (a) (section 19001 (a)) makes a trust and its property “subject to” any creditor’s claim against a deceased settlor’s estate, including a disputed claim, unless and until the property in the estate itself proves sufficient to discharge *1342that claim. Furthermore, the combination of that section and sections 19255 and 19400 imposes liability on trustees who dissipate trust assets needed to pay a disputed but properly filed claim by making premature distributions to beneficiaries while that claim is pending. In Dobler I,1 this court found appellants had timely filed their claim in the probate action and, furthermore, held this constituted a timely filing with the trustees as well.2 During the period appellants’ claim was in litigation the trustees (who also were the executors of the settlor’s estate) assumed the risk of distributing over $500,000 to the beneficiaries, despite knowing these distributions would make it impossible for the trust to satisfy appellants’ judgment should they prevail. In these circumstances, it is my view appellants have a right to surcharge the trustees as an alternative or supplement to their right to recover from the distributees, the latter being a right which my colleagues appear to endorse.
1. A trustee can be liable for distributing trust assets that may be required to satisfy a timely filed but disputed claim against the settlor’s estate.
There is no dispute under section 19001(a) that trust property “is subject to the claims of creditors of the deceased settlor’s estate ... to the extent that the deceased settlor’s estate is inadequate to satisfy those claims.”3 In my view, it is noteworthy this section uses the term “claims” and not “judgments.” Nor does it limit the exposure to “undisputed claims” or “claims the trustees or settlor’s executors have accepted” but makes the trust property subject to all claims, including those the settlor’s estate has rejected and the claimants have chosen to litigate.
It is also undisputed the trust property here was inadequate to satisfy appellants’ claims against the settlor largely because the trustees had distributed over $500,000 to the trust’s beneficiaries while appellants were litigating their claims against those same trustees (in their capacity as executors of the settlor’s estate). The question is whether trustees are free to dissipate trust assets by making distributions they know will render those assets insufficient to satisfy creditor’s claims to which the trust property is “subject” under 19001(a).
*1343The majority opinion appears to answer that question in the negative as to creditor claims that have been reduced to judgment, but grants trustees the power to make asset-depleting distributions while disputed claims are in litigation and before they mature into a judgment. (Maj. opn. ante, at p. 1339.) It is true the limited existing authority, principally In re Marriage of Perry 4 arose from a claim based on a judgment—the child support obligation flowing from a family court order. In that opinion the court held: “In the context of an existing child support order [section 19001 (a)] is a clear statement of legislative intent that property put into a living trust. . . must be available to satisfy a valid child support obligation, no matter what the trust’s terms of distribution.”5
But this does not mean the Perry court held trust property is only available for court judgments or that trustees are free to dissipate trust assets before a disputed claim can be reduced to judgment. Those issues were not before the Perry court and thus it had no occasion to address them. As is often the case, a court decision stating a right exists if X is true does not mean the same right does not exist if Y is true. That is, the fact the Perry court held an existing judgment ordering a settlor pay child support was superior to the trustee’s obligation to distribute trust property to the trust’s beneficiaries in no sense suggests the trustees can ignore a disputed claim and freely distribute trust property to those beneficiaries, just because that claim is not yet reduced to judgment. Admittedly, the Perry decision does not stand for the proposition the existence of a disputed claim bars trustees from distributing trust property that may be needed to satisfy claims against the settlor’s estate. But it does not support the opposite proposition either.
So what is the status of disputed claims while they are in litigation? Are trustees free to make distributions to beneficiaries if they know this will mean the remaining trust property will be insufficient to satisfy a valid judgment against the deceased settlor’s estate should such a judgment emerge from the litigation? In my view, the answer reposes in sections 19400 and 19255, in particular, and in the overall statutory framework that flows from 19001(a), in general.
Section 19400 deals with the situation where two conditions are satisfied. First, there is no probate proceeding and second, the trustee has chosen not to file a notice to the settlor’s creditors. When both those conditions exist, the section relieves trustees of any responsibility for creditors’ claims when they make distributions to beneficiaries. Section 19400 instead places the entire liability on the beneficiaries themselves “for the unsecured claims of the *1344creditors of the deceased settlor’s estate.”6 The reason is simple. Only beneficiaries and not trustees can be held liable for creditor claims when there is no probate proceeding and no notices to the trust’s creditors because trustees cannot be expected to make provisions for claims of which they are unaware. Thus, they are free to distribute all the trusts’ assets to the beneficiaries with the understanding the latter and only the latter will be liable for any creditor claims that may emerge.
Here, of course, neither of these conditions is satisfied. There was a probate proceeding. And the notices the estate sent out to the settlor’s creditors and the claims those creditors filed with the executors/trustees qualified as notice and claims for purposes of the trust as well. So what should trustees do if they have notice of creditor claims—as they do here? May they still distribute assets that may be needed to cover all claims, including disputed claims, and place all the liability for satisfying those claims on the beneficiaries who received those distributions? If they could, section 19400 would be superfluous.
The Legislature found it necessary to insert section 19400 in the trust provisions of the Probate Code because it represented an exception to what otherwise would be the rule—trustees as well as beneficiaries are liable for distributions made while creditor claims are pending against the trust (or estate). In the absence of section 19400 trustees would be liable for distributions they made to beneficiaries even where they had no knowledge of or reason to know about pending claims when they distributed trust assets to the beneficiaries. The function of section 19400 is to exempt trustees from such liability when they lack knowledge (or reason to possess such knowledge) of pending creditor claims.
But if either a probate proceeding has been filed or the trustees filed a notice to creditors, the section 19400 exception simply does not apply and the general rule prevails. Here, of course, a probate proceeding had been filed. When a trustee has reason to know claims exist against the trust—including and especially claims against the deceased settlor’s estate if the latter is in *1345probate—the rationale for section 19400 disappears, along with the trustee’s eligibility for its protections. Thus the section 19400 exception to trustee liability evaporates and the underlying general rule applies.
Section 19255 further reinforces this interpretation. It leaves the inescapable implication trustees as well as beneficiaries are liable if they distribute assets that may be required to satisfy creditor claims, even those in litigation, once those claims are timely filed.7 This section deals with claims the trustee rejects in whole or in part and defines the process the claimants must follow in disputing the rejection. It gives the creditor 90 days to file a lawsuit8 and requires notice of the lawsuit be given to the trustees. But the key provision for present purposes is section 19255, subdivision (d) which creates a limited safe harbor for both trustees and beneficiaries.
“Any property distributed by the trustee under the terms of the trust after 120 days from the later of the time the notice of rejection is given or the claim is due and before the notice of pendency of action or referral or *1346arbitration is filed and given, excluding therefrom any time during which there is a vacancy in the office of the trustee, is not subject to the claim. Neither the trustee nor the distributee is liable on account of the distribution."9
This safe harbor lasts only until the trustee receives notice of the creditor’s lawsuit, however. (Section 19255, subdivision (d) refers to the filing and giving of a “notice of pendency of action,” but actual notice is sufficient.)10 Until that time both the trustee and the beneficiary are absolved of liability to the creditor for any distribution the trustee makes to the beneficiary. Yet once the trustee has notice of the lawsuit on the disputed claim, that immunity ceases—for both the trustee who ordered the distribution and the beneficiary who received it.
The clear implication? Once the creditor files a lawsuit and provides notice of same to the trustee no distributions should be made which impair the ability of the trust property to satisfy the creditor’s disputed claim should he win the lawsuit. If only beneficiaries and not trustees were liable for distributions made after notice of the lawsuit, why would it be necessary for section 19255, subdivision (d) to create a safe harbor for trustees as well? The obvious answer—because trustees as well as beneficiaries are liable to creditors for distributions that deplete trust assets below the level needed to satisfy disputed, as well as undisputed, creditor claims.
Once again, as with section 19400, the Legislature found it necessary to create an exception to this underlying general rule. Starting from the last day a given creditor has the right to file a lawsuit to enforce his or her disputed claim for it to be timely and ending with the day the trustee receives notice that lawsuit has been filed, the trustee can reasonably assume the creditor is not disputing the rejection of the claim. Accordingly, for that window of time, whether narrow or wide, the trust property is “not subject to the claim.”
And the consequence of not being “subject to the claim”? The trustee is free to distribute trust property to the beneficiaries and “[n]either the trustee nor the distributee is liable on account of the distribution.”11 Conversely, once the trustee has notice of a disputed claim, it follows the trust property is “subject to the claim.” And, as section 19255, subdivision (d) makes clear, being “subject to the claim” means being “liable on account of the distribution,” and, furthermore, that liability extends to the trustee as well as the distributees.
*1347This likewise helps resolve any lingering ambiguity about the meaning—or at least the consequences flowing from—that same clause, “subject to the claims,” in section 19001(a). As in section 19255(d), it means “the trustee [or] the distributee is liable on account of distribution[s]” the trustee makes “to the extent that the deceased settlor’s estate is inadequate to satisfy those claims [e.g., the claims filed with the estate].”
This meaning of the term “subject to the claims” is reinforced by the overall statutory framework. Unless and until probate is opened for a trust settlor’s estate, under section 19400 the trustee retains the option of either distributing the trust property and shifting the entire liability for creditor claims to the distributees or of notifying the creditors and taking on some personal responsibility and liability for the proper discharge of those claims out of trust property. But once a deceased settlor’s probate proceeding is opened, the trust property becomes “subject to the claims” filed against the settlor’s estate. The trustee’s option under section 19400 to distribute trust property and shift the corresponding liability for creditor claims to the trust’s beneficiaries disappears.
Nothing in section 19001(a) suggests the trust property only becomes “subject to the claims” against the settlor’s estate at the time probate closes or when it is known with absolute certainty the estate’s resources will be inadequate to pay the claims against the estate. Rather, the trust property becomes subject to those claims at the time probate opens. In essence, the trust property becomes part of the deceased settlor’s estate not to be released unless and until it is clear that property will not be required to pay any claims, disputed or undisputed, against the estate. Otherwise, in many if not most situations, section 19001(a) would be rendered ineffectual in accomplishing its avowed purpose of preserving trust resources for the benefit of creditors “to the extent that the deceased settlor’s estate is inadequate to satisfy those claims.” Only in rather unusual circumstances, such as where the trust took longer to make its distributions to beneficiaries than the estate took to wind up its affairs, would the trust property theoretically subject to the creditors’ claims still be available to pay those claims.
Nor is the legislative purpose of preserving trust assets needed to discharge claims against the estate satisfied by interpreting section 19001(a) to allow the distribution of trustproperty to beneficiaries with the understanding they may have to return that property to creditors if the estate’s property ultimately proves inadequate to pay all those claims. The plain language of section 19400 forecloses this interpretation, confining the option to situations where no probate has yet been filed.
But even if section 19400 did not exist, the legislative policy behind section 19001(a) appears incompatible with a construction allowing trustees to *1348distribute trust property to beneficiaries with liability for those distributions limited to those distributees. Once probate is filed the estate’s creditors are entitled to appropriate management of the trust property potentially required to satisfy their claims so they need not rely on their ability to recover from what may turn out to be unreliable or numerous or geographically remote beneficiaries. To relegate creditors to the risk of having to pursue a host of lawsuits against uncooperative beneficiaries some of whom may have spent or lost all or most of the distributed property and thus be unable to satisfy the creditors’ claims, and some of whom may now reside in other states or even foreign countries, is simply not consistent with the goal of making trust property available to creditors of the deceased settlor’s estate.
For these several reasons, it is my view section 19001(a) and the rest of the statutory scheme the Legislature constructed makes trustees liable when they assume the risk of distributing trust property to beneficiaries if that property is “subject to” the claims of the settlor’s creditors and should the estate’s resources prove inadequate to pay those claims. Furthermore, for reasons discussed above, this applies to disputed claims in litigation of which trustees have timely notice just as it does to those already reduced to judgment. We now turn to the question whether appellant’s claim satisfied these criteria.
2. These creditors are entitled to surcharge the trustees for acting imprudently in making distributions that impaired the trust’s ability to satisfy the creditors’ disputed claims.
In the case before this court the trustees had full notice of the pendency of the action long before they distributed the half million dollars to the trust’s beneficiaries. In part, this is because of their dual role as both executors and trustees. As pointed out in Dobler I, the two trustee-administrators “necessarily had actual knowledge not only of both estates, but also of every claim which could potentially have been asserted against Dr. Hylwa’s assets, by virtue of their knowledge of all claims accepted, approved or rejected in the probate . . . claims against Dr. Hylwa, which if the probate estate was inadequate, could be asserted against assets the doctor placed in his revocable trust.”12
This is a case where the right hand clearly knew what the left hand was doing. Appellants filed their lawsuit against the trustees in their capacity as executors and provided notice to them in that role. From that moment forward those trustee-executors as well as the beneficiaries who received the distributions were liable for any distributions impairing the trust’s ability to satisfy appellants’ disputed claims should they prove successful.
*1349Particularly from their vantage point as both executors and trustees, respondents had actual knowledge the trust would be unable to satisfy appellants’ $800,000 claim if they distributed a half-million dollars to beneficiaries while this claim was in litigation. As administrators of the settlor’s estate they knew the estate’s resources would fall far short of satisfying that claim, thus requiring the trust assets to discharge most of that debt. Indeed at one stage as executors they had to ask themselves as trustees to borrow $160,000 from the trust—and were only able to repay $33,000 of that loan from the estate’s sparse resources. Similarly, as trustees prudently managing the trust and aware of all its assets, its liabilities and outstanding claims, respondents knew they could not afford to both make the distributions they did to the beneficiaries and also satisfy appellants’ disputed creditors’ claim. Yet they went ahead and distributed that half-million dollars to the beneficiaries.
It is not enough to say the trustees owed a fiduciary duty only to the trust’s beneficiaries and thus were justified in choosing to distribute hundreds of thousands of dollars to them rather than preserving the trust’s assets until the court decided appellants’ disputed claim. Whether termed duties or liabilities or legal obligations, pursuant to statutory provisions and common law principles trustees also are responsible to others, including and especially the deceased settlor’s creditors. Often, as here, these legal duties require trustees to take steps that may appear to place the interests of others over those of the trust’s beneficiaries.
In Dobler I, a unanimous opinion this court filed three years ago at an earlier stage of the proceedings between these parties, we explained what a reasonably competent trustee would do upon learning of a settlor’s death and the opening of probate. A “reasonably competent trustee would . . . take steps to discover ... the nature and extent of all claims made within the statutory period against the estate. Then, secure in the knowledge no claims other than claims timely filed in the probate proceedings could ever be asserted against trust assets, a reasonably competent trustee would make provisions or arrangements to provide for disputed, or other unresolved debts.”13
In any event, in this case it was clearly imprudent for the trustees to make distributions to the beneficiaries while a disputed claim of this size remained outstanding. Obviously it was bad for appellant creditors, because the trust assets were so depleted they could only satisfy a small percentage of this claim. Appellant creditors also are forced to accept the risk the distributed trust property will be spent or otherwise dissipated by the beneficiaries—as well as incurring the cost of collecting from those beneficiaries.
*1350But less obviously the decision to make these distributions also was bad for the beneficiaries. If appellants pursue the beneficiaries to recover the assets they are owed, those beneficiaries may not only lose all they received but also incur their own litigation costs and maybe even have to pay appellants’ costs of litigation. In that instance they would have been better off if the trustee had not presented them with the pyrrhic victory of an unwise and premature distribution.
The trial court ruled the trustees could not be held to the usual “prudent person” standard14 because the trust instrument set forth a lower standard— only requiring they avoid “bad faith, willful misconduct or gross negligence.” This may well be a valid finding as far as the trustees’ fiduciary duties to their beneficiaries. But the lower standard cannot apply to the trustees’ legal obligations to creditors and other third parties. By its own terms, the code section permitting a settlor to lower the standard for the trustees he selects applies only to beneficiaries and breaches of the trust owed to them. It provides a “settlor may expand or restrict the [prudent person standard] . . . by express provisions in the trust instrument. A trustee is not liable to a beneficiary for the trustee’s good faith reliance on these express provisions.”15 Nothing in the Probate Code, however, suggests a settlor can insert express provisions in a trust instrument diminishing the trustee’s obligations to creditors or to shield the trust property or the trustees from creditors’ legitimate claims, disputed or undisputed.
I began this dissent with a concession this was a close case—unnecessarily so, in my view. Thus, I urge the California Legislature to review these opinions and consider a clarifying amendment. The lawmakers may not have to do anything if they indeed intend section 19001(a) to allow trustees to avoid responsibility for the risk of making distributions while disputed claims against a settlor’s estate are in litigation—and even when the assets in the settlor’s estate may be insufficient to pay such claims should they prove successful. Even if that is the Legislature’s intent, however, it might be preferable for them to consider amending the code to say so.
On the other hand, if the Legislature instead intends to give the estate’s creditors a full measure of protection, along the lines described in this dissent, it appears amendatory language will be necessary. Otherwise, under *1351the terms of the majority opinion, creditors whose claims are disputed will be relegated to the problematical alternative of pursuing beneficiaries rather than trustees (and their bonding companies) for what they are owed.
Despite having requested legislative clarification, under the current state of the law and for reasons explained above, I would still reverse and remand for further proceedings. In my view, those proceedings should be conducted consistent with the legal principle trustees can be held liable for premature distributions which dissipate trust assets likely needed to pay disputed claims against a deceased settlor’s estate should those claims prove successful.16 This is especially so when, as here, the trustees had actual knowledge the estate’s resources would fall far short yet distributed trust assets while a large claim against that estate was still in litigation.
A petition for a rehearing was denied April 13, 2004, and appellant’s petition for review by the Supreme Court was denied June 9, 2004. Kennard, J., was of the opinion that the petition should be granted.
Dobler v. Arluk Medical Center Industrial Group, Inc. (2001) 89 Cal.App.4th 530 [107 Cal.Rptr.2d 478] (Dobler I).
Dobler I, supra, 89 Cal.App.4th at pages 540-544.
This subdivision reads in full: “Upon the death of a settlor, the property of the deceased settlor that was subject to the power of revocation at the time of the settlor’s death is subject to the claims of creditors of the deceased settlor’s estate and to the expenses of administration of the estate to the extent that the deceased settlor’s estate is inadequate to satisfy those claims and expenses.” (§ 19001, subd. (a); further section references are to the Probate Code.)
In re Marriage of Perry (1997) 58 Cal.App.4th 1104 [68 Cal.Rptr.2d 445],
In re Marriage of Perry, supra, 58 Cal.App.4th at page 1109.
Section 19400 reads as follows: “Subject to section 366.2 of the Code of Civil Procedure, if there is no proceeding to administer the estate of the deceased settlor, and if the trustee does not file a proposed notice to creditors pursuant to Section 19003 and does not publish notice to creditors pursuant to Chapter 3 (commencing with Section 19040), then a beneficiary of the trust to whom payment, delivery, or transfer of the deceased settlor’s property is made pursuant to the terms of the trust is personally liable, to the extent provided in Section 19402, for the unsecured claims of the creditors of the deceased settlor’s estate.” (§ 19400; italics added to highlight internal if-then logic of the section.)
(Section 19402 limits each beneficiary’s liability to his or her proportionate share of the total distributions to beneficiaries. It also caps the maximum the beneficiary will have to pay at the amount distributed to him or her.)
“(a) § 19255. [Rejected claims; actions on claim for referral to referee or arbitration; commencement of action; notice; property distributed; court costs and litigation expenses.]
“(a) A rejected claim is barred as to the part rejected unless the claimant brings an action on the claim or the matter is referred to a referee or to arbitration within the following times, excluding any time during which there is a vacancy in the office of the trustee:
“(1) If the claim is due at the time of giving the notice of rejection, 90 days after the notice is given.
“(2) If the claim is not due at the time of giving the notice of rejection, 90 days after the claim becomes due.
“(b) In addition to any other county in which an action on a rejected claim may be commenced, the action may be commenced in the county or city and county wherein the principal place of administration of the trust is located.
“(c) The claimant shall file a notice of the pendency of the action or the referral to a referee or to arbitration with the court clerk in the trust proceeding, together with proof of giving a copy of the notice to the trustee as provided in Section 1215. Personal service of a copy of the summons and complaint on the trustee is equivalent to the filing and giving of the notice.
“(d) Any property distributed by the trustee under the terms of the trust after 120 days from the later of the time the notice of rejection is given or the claim is due and before the notice of pendency of action or referral or arbitration is filed and given, excluding therefrom any time during which there is a vacancy in the office of the trustee, is not subject to the claim. Neither the trustee nor the distributee is liable on account of the distribution.
“(e) The prevailing party in the action shall be awarded court costs and, if the court determines that the prosecution or defense of the action against the prevailing party was unreasonable, the prevailing party shall be awarded reasonable litigation expenses, including attorney’s fees. For the purpose of this subdivision, the prevailing party shall be the trustee if the creditor recovers an amount equal to or less than the amount of the claim allowed by the trustee, and shall be the creditor if the creditor recovers an amount greater than the amount of the claim allowed by the trustee.” (§ 19255.)
In the alternative, the creditor can submit the dispute to a referee or to arbitration. (§ 19255, subd. (a).)
Section 19255, subdivision (d), italics added.
See, e.g„ Estate of Wilcox (1945) 68 Cal.App.2d 780 [158 P.2d 32] (filing of notice of pendency of the action is unnecessary where the executor has actual notice).
Section 19255, subdivision (d) (section 19255 (d)).
Dobler I, supra, 89 Cal.App.4th at page 543 (italics added).
Dobler I, supra, 89 Cal.App.4th at page 542 (italics added).
“The trustee shall administer the trust with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.” (§ 16040, subd. (a).)
Section 16040, subdivision (c) (italics added). Similarly, section 16461, subdivision (a) provides, “the trustee can be relieved of liability for breach of trust by provisions in the trust instrument.”
Using their combined status as executors of the estate and trustees of the trust property it is conceivable respondents could have taken advantage of section 11463 to provide security in some form for appellants’ disputed claim. If so, they could have gone ahead with these distributions to the trust’s beneficiaries without violating their legal obligations to creditors under section 19001(a).
As noted in our Dobler I decision, section 11463 sets forth a number of options for dealing with disputed and contingent claims calculated to allow the completion of probate while those claims remain outstanding. (Dobler I, supra, 89 Cal.App.4th at pp. 536-537.) For instance, the estate’s executor might post a bond or deposit sufficient funds to cover the disputed claim. If appellants lost their lawsuit, the bond would be discharged or the deposit restored to the estate. Given the size of appellants’ claim and the financial status of the estate and the trust, however, these and like options probably were not viable.
But if one of the section 11463 options were feasible and respondents pursued it they would have been in a position to make these distributions to the beneficiaries without impairing the trust’s ability to satisfy appellants’ disputed claim. Consequently, the trustees would not be liable to appellants when the litigation validated the claim and found the trust itself bereft of the assets needed to satisfy the debt. Appellants would have been made whole by the proceeds of the bond or out of the reserved funds on deposit.