Trustee’s Duty to Administer Trust According to Its Terms
It is common for a trust beneficiary to be concerned their trustee is deviating from the terms of their trust. If that is happening, then knowing what you can do about it is essential.
If a trust is being administered in California, then the trustee must administer the trust according to the terms of the trust.
This law is exactly what it sounds like. Like most laws, it requires the application of common sense. The trustee must carry out the terms of the trust as they are written in the trust. The trustee does not have to make up rules to suit their needs, memories, or beliefs. The breach of duty to administer the trust according to its terms can take many forms. Below are some common ones.
Specific Gifts
Suppose a trust makes specific gifts to certain individuals. For example, a trust may say each grandchild is to receive $10,000. To know what has to happen, just use your common sense. If there are three grandchildren and the trust is worth more than $30,000, then the trustee is obligated to distribute from the trust $10,000 to each of the three grandchildren.
Now that you know what is supposed to happen, evaluate the assets in the trust. Suppose the trust has a hundred thousand dollars in cash and little or no debt. Then it is reasonable to expect the trustee to make the distributions to each grandchildren fairly quickly. On the other hand, if the trust owns only the settlor’s house, there is obviously no cash on hand to distribute. The house must be sold before the specific gifts can be made. If the trustee moves at a businesslike pace to prepare the home for sale, list the house for sale, and get it sold, then the trustee is acting properly. If the trustee is not doing these things, they are breaching their fiduciary duty to the specific gift beneficiaries.
Residuary Gifts
Whether or not the trust makes specific gifts, it probably has a residuary clause. This is just trust terminology which means the trust has some language directing how all the remaining property in the trust is to be distributed. The single most common residuary clause is one that leaves all the remaining property in equal shares to the settlor’s children. (The settlor is the person who created the trust.) Usually, these gifts are left outright. That means there is no restriction on the children receiving these gifts. When the trust is in a condition to distribute the assets, they should be distributed to the children.
Here again, it is important to use common sense. Every trustee is responsible for gathering trust assets, paying the legitimate debts of the settlor (the person who created the trust), filing income tax returns, and accounting for the trust beneficiaries. Depending on the assets in the trust and the settlor’s circumstances at the time they died, there may be other tasks the trustee has to perform before distributions are made. Exactly what needs to be done will vary from case to case.
Consider what your trustee has to do and how long it would take a reasonable person to perform these tasks. Most often it takes months, perhaps as long as a year, before a trust is in a condition to make the residuary distributions. It is unusual, but not impossible, for it to take longer than that.
Suppose you have given your trustee an appropriate amount of time to make the outright distributions and they have not been made, then there may be a problem. If your trustee is communicating with you and is providing you with financial information for the trust, then give serious consideration to what the trustee is telling you. When the trustee is not communicating with you or will not provide financial information, then those are warnings sign they are breaching their fiduciary duty to you.
Real-World Examples
Trustee Who Thinks He Is An Investment Guru
Here are some actual situations our clients have faced in which the trustee was clearly breaching their duty. Not administering the trust according to its terms. First, the trustee who was our client’s brother believed he was an excellent asset manager. So, in order to benefit all his siblings, he told them directly he was going to keep the entire residuary estate in the trust and would invest for the benefit of all the children. He did not have any specific plan. Mostly he suggested that he had his eyes on some particular stocks and the rest he would use to flip houses. This was not anywhere close to making an outright distribution of the remaining trust assets as required by the trust terms. His failure to distribute the remaining trust assets was a breach of his fiduciary duty.
Trustee Who Claims To Have Verbal Instructions At Odds With The Trust
Second, the trustee claimed that before the trust settlor died. She gave him verbal instructions on how to handle the remaining trust assets and those instructions were very different from the terms of the trust. Based on those supposed verbal instructions, the trustee informed the residuary beneficiaries they wouldn’t be making distributions anytime soon. Instead, a portion of the residuary would be given as a gift to his daughter. Another portion of the residuary would be given to charity. The rest would be kept in trust for an additional five years before distributions were made. Unsurprisingly, this too was a violation of the duty to administer the trust according to its terms.
Trustee Who Is Going To “Help” You No Matter The Cost
Third, our client’s sister was the trustee in this case. She acknowledged the trust called for an outright distribution and understood what that meant. Even so, she was determined to increase the size of the estate before distributions were made. To do that, she proposed to buy some rundown real estate using trust money, repair the real estate using trust money, rent the property for some number of years (she was not quite sure how long), and when it reached some value (she was not sure exactly how much). Then the improved real estate would be sold, and she would distribute it from the trust. She was shocked our client objected to her proposal and could not understand why we filed a petition with the probate court. Here too, it will not surprise you to know she violated her duty to administer the trust according to its terms.
Other violations
There are lots of other ways for a trustee to violate their duty to administer the trust according to its terms. This is almost always a commonsense analysis. If the trust requires the trustee to do something but the trustee does something else without a legitimate reason, then typically you can assume they have breached their duty.
Quite often when a trustee has breached one duty, if you look deeper, they have actually breached multiple duties. This is simply because a trustee who is willing to ignore the law in one way is often willing to ignore the law in other ways as well.
If your trustee has breached any fiduciary duty, then you may be able to get some or all of the following relief:
- Suspend the trustee during the course of litigation;
- Remove the trustee;
- Surcharge (i.e., get damages against) the trustee;
- Prejudgment interest;
- Post-judgment interest; and
- A court order requires the trustee to perform certain tasks in a particular way.
Your Next Steps
If you are ready to start your case, then please give us a call. Or fill out our Get Help Now form. A comprehensive overview of California Probate can be found here. Should you have additional questions about trust litigation, you will find plenty of useful information in our Learning Center.