CALIFORNIA PROBATE CENTER

The Authority for Probate Litigation and Estate Planning in California

What Should I Do When the Trustee Lies, Cheats, or Steals? Trust Litigation

Trust litigation often centers around the acts of the trustee. Like personal representatives, executors, trust administrators, conservators and guardians, trustees are considered a fiduciary under California Probate law. A trustee must administer the trust using the terms of the trust and the governing California Probate Code. The instrument will likely direct the trustee to act or refrain from acting – a failure to do so may place the trustee in serious breach of his fiduciary duty. The following is a non-inclusive list of the fiduciary duties of the trustee, and examples of how they may place the trustee in jeopardy.

Standard of Care. The trustee must administer the trust with reasonable care, skill and caution under circumstances then prevailing, that a prudent person acting under like circumstances would, and this standard of care is not affected by whether or not the trustee is compensated. California Probate Code §§ 16040 and 16041.

Duty to Administer the Trust. When the trustee accepts his or her duties as trustee, they accordingly accept a duty to administer the trust according to the trust instrument. California Probate Code § 16000. This duty may be violated where the trustee sells or buys property even though express trust provisions forbid it, or where the trust mandates certain acts or activities and the trustee fails to complete them.

Duty of Loyalty. The trustee has a duty to administer the trust solely in the interest of the beneficiaries. California Probate Code § 16002. This rule often comes into play where the trustee is also a beneficiary under the terms of the trust, as in a decision to sell trust property (typically stocks or some real estate) in order to cash in on its value, without informing the beneficiaries of the sale.

Duty of Impartiality. The trustee must deal impartially with trust beneficiaries where two or more beneficiaries exist. California Probate Code § 16003. This expressly includes the investment and management of trust property. This means not favoring one side of the family or the other when deciding upon the future interests of the trust.

Duty to Avoid Conflicts of Interest. The trustee has a duty not to use or deal with the trust property for the trustee’s own profit or for any other purpose unconnected with the trust, or to take part in a transaction that is adverse to a beneficiary. California Probate Code § 16004. This section of the code protects beneficiaries from trustee self-dealing, especially because they often have an enormous amount of power over trust property.

Control and Preserve; Make Trust Productive. The trustee must take, keep control, and preserve trust property. California Probate Code § 16006. In addition, the trustee has a duty to make the trust property productive under the circumstances. California Probate Code § 16007. The first rule seems obvious – if a trust owns a building with tenants in it, the trustee must take over day to day responsibilities for the building, or hire someone fit to do so (and properly supervise as per § 160012). In addition, the trustee would have a duty to make the tenants pay the fair market value of the rent to the trust.

The list of duties goes on and on, and some of them are even more important in certain cases and for day to day trust operations then the ones I have listed here (prudent investor rule, commingling trust property, enforcing trust claims, defending assets, accounting and reports, etc.). There are many ways that a trustee could breach a fiduciary duty – but there are also ways that the trustee can fight back when the trust is being harmed by beneficiaries or third parties. The California Probate Center has litigated trust cases from San Diego to Sonoma County, obtaining favorable results for clients throughout. If you would like a free consultation about your case, contact the California Probate Center today.