Table of Contents
Why This Duty Matters for California Beneficiaries
What Separating and Identifying Trust Property Really Means
Why Commingling Puts Your Inheritance at Risk
Why Proper Identification of Trust Property Matters
What to Do If Your Trustee Has Breached This Duty
How The Grossman Law Firm Can Help
Key Takeaways
- California trustees must keep trust assets separate and clearly identified; this duty protects beneficiaries and prevents mismanagement.
- Commingling trust assets with a trustee’s personal funds is a breach of fiduciary duty and may justify a surcharge or removal.
- Assets with titles, such as homes, vehicles, and brokerage accounts, must be titled correctly in the trustee’s name as trustee, not individually.
- Failing to meet the legal requirements for separating and identifying trust property can reduce a beneficiary’s inheritance.
- Beneficiaries can ask the California probate court to intervene when a trustee mishandles or misidentifies trust assets.
Why This Duty Matters for California Beneficiaries
Beneficiaries often discover problems accessing their inheritance because the trustee has not kept trust property separate or has failed to identify what property actually belongs to the trust. At The Grossman Law Firm, we frequently see disputes escalate because the trustee mixes funds, titles property incorrectly, or fails to clarify ownership.
Understanding the trustee’s duty of separating and identifying trust property helps you determine whether the trustee is following California law, and whether litigation may be necessary to protect your inheritance.
What California Law Requires
California’s Probate Code places strict obligations on trustees. Under Probate Code §§16006, 16007, and 16009, a trustee must:
- Keep trust property separate from all other property.
- Identify the trust property clearly.
- Avoid commingling trust assets with personal assets.
- Administer trust property solely for the benefit of the beneficiaries.
These laws exist to prevent confusion about ownership and to safeguard the trust from loss, misuse, or concealment.
What Separating and Identifying Trust Property Really Means
Separation: Keeping Funds and Assets Apart
A trustee must maintain trust assets in their own distinct accounts and records. It includes:
- Separate bank accounts titled in the trustee’s name as trustee
- Separate investment accounts
- Separate physical storage or documentation for non-cash assets
- No crossover with personal or business accounts
The trustee cannot treat trust property as their own or pool trust assets with their personal funds, no matter how small the amount.
Identification: Ensuring Each Asset Is Labeled as Trust Property
Identification requires more than keeping property apart; it requires clear evidence that the property belongs to the trust. That includes:
- Correct titling of real estate
- Documents that specify trust ownership
- Clear labeling of trust financial accounts
- Ensuring new trust assets are acquired in the correct title
Proper identification prevents disputes and protects beneficiaries if the trustee becomes incapacitated, removed, or replaced.
Why Commingling Puts Your Inheritance at Risk
Commingling occurs when a trustee mixes trust assets with their personal assets. It is one of the most common and dangerous breaches of fiduciary duty.
Examples of Commingling
- Depositing trust funds into the trustee’s personal bank account
- Using a single investment account for both personal and trust assets
- Titling real estate owned by the trust in the trustee’s individual name
- Buying property with trust funds, but titling it in the trustee’s name
Why It’s a Serious Problem
Once assets are mixed, it may be difficult or impossible to determine:
- What portion belongs to the trust
- Whether the trustee used trust funds for personal expenses
- Whether the account increased or decreased due to trust activity or personal activity
Beneficiaries may need forensic accounting or court intervention to trace assets that have been improperly managed.
Suppose the trustee caused loss or confusion by commingling. In that case, the court may impose a surcharge, meaning the trustee must personally compensate the trust for the damaged or missing property.
Why Proper Identification of Trust Property Matters
Identification issues most often arise with titled assets, including:
- Real estate
- Vehicles
- Boats
- Brokerage accounts
- Business interests
Under California law, the title must reflect that the property is held by the trustee, not the trust itself. For example:
Correct Title:
John Smith, Trustee of the Wilson Family Trust
Incorrect Title:
Wilson Family Trust
John Smith (no trustee designation)
If Property Is Not Titled Correctly
If the trustee inherits property because the title was placed in their name individually, beneficiaries may have to bring a petition under Probate Code §850 or §17200 to correct the title, sometimes after litigation.
What to Do If Your Trustee Has Breached This Duty
If a trustee has failed to separate or identify trust property properly, beneficiaries should act quickly. Depending on the severity of the problem, you may consider filing a petition to:
- Surcharge the trustee for the value of lost or mismanaged property
- Trace assets to determine what belongs to the trust
- Recover prejudgment or post-judgment interest
- Compel an accounting
- Suspend or remove the trustee
- Obtain court orders correcting the title or ownership
These remedies protect the trust and hold the trustee accountable for any breach of fiduciary duty.
Beneficiaries should not attempt to resolve serious commingling or title problems without experienced legal guidance, as mistakes can permanently affect the value of their inheritance.
To learn more about common breaches of trustee duties, read our article “20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties.“
Related Resources
- Overview of California Trust Litigation
- How to Get Your Trustee to Distribute Your Inheritance
- Irrevocable Trust Beneficiary Rights in California?
- Can a Trustee Be Removed for Mishandling Assets?
- Can’t Afford a Probate or Trust Attorney?
FAQ
Is separating and identifying trust property necessary?
Yes. California law requires trustees to keep trust property separate and clearly identified. Failing to do so is a breach of fiduciary duty and may justify court intervention.
What happens if a trustee mixes trust assets with their own?
Commingling is a serious breach. The trustee may be surcharged, removed, or ordered to repay misused funds.
How can I tell if the trust property is titled correctly?
Titled assets should read: “Name of Trustee, Trustee of the [Trust Name].” If the title does not reference the trust, it may need to be corrected.
Can a trustee be held personally liable for mishandling trust property?
Yes. Under Probate Code §16440, trustees can be personally liable for losses caused by their breach of duty.
What should I do if I suspect the trustee is not keeping proper records?
You may request an accounting or petition the court under Probate Code §17200 for orders compelling compliance.
Can failure to identify trust property reduce my inheritance?
Yes. If property is titled incorrectly or commingled, the trust may lose legal rights to it unless the court intervenes.
How The Grossman Law Firm Can Help
At The Grossman Law Firm, we help beneficiaries and heirs throughout California enforce their rights in probate and trust litigation. Call (888) 443-6590 or fill out our Get Help Now form. Our Intake Specialists can evaluate your case at no cost to you. Qualifying matters will be scheduled for a Free Phone Consultation with Attorney Scott Grossman.
Originally Published November 8, 2022