In many situations where family, friends, or even less acquainted people are asked to make key decisions for others, there is often discord and even out-and-out hostilities. It may be because of the intention, communication, outcome, or many other parts of a chain of events. When the stakes are high, the conflicts can be greater and more heated, especially when significant amounts of money or property are involved.
This is exactly the situation when trusts are in place.
A person, usually known as the grantor, sets aside a large pool of resources. Then, rules are written on how to distribute and dispose of those resources. This is the trust document. The person who enforces the parameters of the trust is called the trustee. Their goal is to execute the trust as the grantor wished and organized. Problems often arise if the trust is not clearly written or facts change, making the initial execution nearly impossible. In the worst case, problems occur because a trustee intentionally breaches a duty to the trust.
The Trustee Owes Duties of Care
In carrying out their duties, the trustee has the duty to act as a fiduciary. This is a high standard and means the trustee has to act solely with the utmost good faith in the best interests of the beneficiaries. Suppose a trust has more than one beneficiary. In that case, the trustee has the duty to deal impartially with them and act impartially in investing and managing the trust property, taking into account any differing interests of the beneficiaries.
As you might imagine, the trustee has the additional duty not to use or deal with trust property for the trustee’s own benefit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest that is adverse to the beneficiary. The duties of a trustee are often referred to as duties of loyalty and impartiality.
Other Responsibilities of the Trustee
Aside from acting as the legal owner of trust assets, a trustee is responsible for tax filings and distributing assets per the terms of the trust. The trustee must keep the trust property separate from other property not subject to the trust. In fulfilling these responsibilities, the trustee must exercise the duty of care mentioned above.
Other duties include administering the trust according to the trust instrument and law. In the case of a revocable trust, the trustee shall follow any written direction acceptable to the trustee given from time to time by the person. They then have the power to revoke the trust or the part thereof with respect to which the direction is given (or by the person to whom the settlor delegates the right to direct the trustee).
Who is Appointed as Trustee is Critical
As you can tell by reading the above about the inherent power that a trustee has, the decision of whom to appoint to manage the trust is often the most critical decision the grantor or trustees can make.
The three primary sources of trustees include:
- friends & family
- trust companies.
The first category, friends and families, is frequently seen. The benefit of this group generally is that they know the people involved. The downside of that knowledge is that it can damage relationships if things do not meet the expectations of other people in the group. Resentment, feuding, and drama can result.
The second group is lawyers, particularly estate planning lawyers. The advantage of this group is that they will understand the legalese in the trust, and they can help avoid or address poorly written trusts. They understand the legal duties discussed above. If they have worked for the stakeholders before, they have an additional advantage. If there is a lack of consensus on which friends or family would serve, appointing a neutral third party may be the way to go.
The third group is trust companies. The costs and benefits of this group are somewhere between lawyers and family. While they generally do not come with a lawyer price tag, they do not know the law as well– particularly legal doctrines outside of the estate planning arena.
What Remedies Are Available When a Trustee Breaches a Fiduciary Duty?
If you are in the unfortunate situation of seeing a trust being handled improperly, there are remedies that you can seek. Beneficiaries have a right to sue the trustee.
The first thing they must establish is the fiduciary duty mentioned above. That is fairly easy under California law if there is no issue with the identity of the trustee.
Next, you must establish a breach of that duty. Did the trustee fail to fulfill her responsibilities? Did the trustee self-deal or misappropriate trust funds? If the trustee acted intentionally or negligently, liability can follow.
The next element of a breach is damage. The beneficiary will have to show that they suffered actual or legal losses caused by the breach. These elements are nuanced and best handled by trust litigation attorneys.
In litigation, the attorneys can seek the replacement of a trustee, civil damages, restitution, fines, and personal liability on the trustee’s part. Some breaches can be charged as a crime. In significant cases of self-dealing, for example, stakeholders can report the alleged breach to law enforcement, who will decide whether to seek prosecution. Negligence is generally not enough to result in criminal charges.
Trust Us to Make Sure Trustee Duties are Followed
The value of a trustee lies in his or her reliability and accuracy. If things take a turn for the worse and a trustee fails in his duties, there are myriad beneficial legal responses.
Please do not hesitate to contact one of our experienced lawyers for legal advice. Call the trusted estate planning attorneys at Lowthorp, Richards, McMillan, Miller & Templeman at (805) 981-8555 or fill out our online contact form. We operate primarily in the Tri-Counties area – Ventura, Santa Barbara, and San Luis Obispo.