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By: Scott Grossman on August 8th, 2022

Trustee Duties: Is Separating and Identifying Trust Property Necessary?

Are you concerned your Trustee is mixing the Trust’s property with their property? Or are you currently going through an inheritance dispute and are unsure of your rights as a beneficiary? Does it appear that your Trustee is doing nothing to clarify what property belongs to the Trust and what property belongs to them? Is Separating and Identifying Trust Property Necessary

Trying to navigate your Trust, ensuring your Trustee is working in your best interest, and not being aware of your rights as a Beneficiary can cause immense stress. This litigation process can leave you with feelings of frustration and dread. Not to mention can be grounds for an inheritance dispute, which also affect the amount of money or property you will receive from the Trust. 

Here at The Grossman Law Firm, we have been helping our clients deal with the separation and identification of Trust Property for over twenty years. Informing beneficiaries of their rights in California, ensuring they get the best information regarding their case.

 California’s Trust Law requires a Trustee to keep Trust property separate from other property not subject to the Trust. The Trustee must ensure that it is a designated Trust property of the Trust. So what does that mean? 

In this article and video, you will learn what this means, as well as: 

  • Is separating and identifying trust property necessary?
  • Why is it necessary for a Trustee to keep trust property separate?
  • Is it necessary for a Trustee to identify Trust Property?
  • Knowing the basics of proper Trust Administration 

Is separating and identifying trust property necessary?

The answer is yes!

Suppose your Trustee has failed to keep trust property separate or fails to ensure the trust property is designated as property of the Trust. In that case, that breach of the Trustee’s fiduciary duty may reduce your inheritance.

So, separating and identifying Trust property is meant to benefit the beneficiary and help the Trustee stay on track with their duties, such as ensuring the Trust performs productively by separating and identifying trust property.

Why is it essential for a Trustee to keep trust property separate? 

The first part of this law is how it sounds. The Trustee must keep Trust-owned property separate from all other property. 

This part of the law is significant for some types of property because, if violated, it may not be possible to tell what property belongs to the Trust. Suppose the Trust has cash. And the money in the Trust is put into an account owned by the Trustee as an individual. In that case, it becomes difficult, if not impossible, to tell which cash belongs to the Trust and which money belongs to the Trustee as an individual.

The same is true for nearly any other kind of fungible asset. Think of stocks, bonds, and mutual funds. Once mixed with the same type of assets held in somebody else’s name, it becomes difficult to tell which part belongs to the Trust and which belongs to the individual.

Commingling is the mixing of Trust assets with an individual’s assets. Commingling is a common mistake made by inexperienced or lazy Trustees. 

Suppose your Trustee has commingled assets, especially if done for an extended period. Then it may be necessary to trace the assets to determine what portion of them rightfully belongs to the Trust. Or seek a surcharge against the Trustee for the trust assets they commingled.

Is it necessary for a Trustee to identify Trust Property?

Recognizing the property of the Trust is particularly important for any asset with a title. Ensuring your Trustee identifies Trust Property requires the Trustee to confirm any purchase as the property of the Trust. 

So, what does this mean?

It means things like real estate, cars, and boats must be titled in the name of the Trust, not in some other person’s name. Further, there is a little wrinkle in Trust law that says it’s not the Trust itself that holds the title but the Trustee that holds the title to the Trust property. So that means that a house owned by the Wilson Trust, with John Smith serving as Trustee, would be titled the name of John Smith, Trustee of the Wilson Trust. Under California law, it’s simply impossible to put the title into the name of the Trust itself.

The flip side is that the Trustee must not title the Trust property in their name as an individual. 

So using the house we just talked about, the Wilson trust is supposed to have ownership. If John Smith titles the property in his name, without any reference to the Trust, then the Trust doesn’t hold title. That means John has breached his fiduciary duty because he has failed to keep trust property separate from his property.

Suppose the property identified in the Trust’s schedule of assets is not titled in the name of the Trust. A Trust beneficiary needs to pay attention to that oversight when the Trustee inherits those assets as an individual if no action is taken. In that case, this duty may require the Trustee to file a petition with the probate court to determine title or ownership of those untransferred assets.

So, if your Trustee has breached their fiduciary duty, what now? 

If your Trustee has breached their duty by poorly investing and managing your Trust’s assets properly. In that case, you probably want to consider a petition to: 

  1. Surcharge (i.e., get damages against) the Trustee;
  2. Seek prejudgment interest; and
  3. Seek post-judgment interest.

If that is the case, it is best to try and calculate how much the Trust has lost. And remove them as a Trustee. 

Knowing the basics of proper Trust Administration

Please review our articles on the Beneficiary’s Rights in CaliforniaSuccessor Trustee Tax-Related Duties, and Removing a Trustee in California. If you would still like some more information on Trust Litigation and removing a trustee, check out our complete Overview of California Trust Litigation, available on our website. And if you have more questions about your rights as a Beneficiary and what you should know moving forward.

If you are still having some trouble, have any more questions, or want to talk to someone about your case, please give us a call or fill out our Get Help Now form.

If this aligns with what’s happening to you, it’s best to reach out as soon as possible. The longer you take, the more damage your Trust could take. Please call us at (888) 443-6590, and we would be more than happy to see if we can assist you.