Trust Litigation: A Comprehensive Guide For Trust Beneficiaries
Trust Litigation: A Comprehensive Guide For Trust Beneficiaries
Are you a trust beneficiary who has not received your rightful inheritance from a trust? Are you tired of dealing with a lazy, incompetent, or untrustworthy trustee? Maybe you’re a trustee who believes property was wrongfully taken from the trust, has to work with a difficult co-trustee, or facing unreasonable demands from a trust beneficiary.
Here at The Grossman Law Firm, A.P.C. we have represented beneficiaries seeking their rightful inheritance, trustees who are working to protect beneficiaries, and people who need to do probate in California probate court for over 20 years. We know how important it is for you to know what you can and can’t accomplish in trust litigation, whether trust litigation is right for you, and the duties a trustee has to you as a trust beneficiary. By the time you finish reading this guide, you will know whether you need to begin trust litigation and what you can expect to get from it.
Chapter 1: What Is Trust Litigation?
Trust litigation is a lawsuit filed by a beneficiary against a trustee or a third party or by a trustee against a beneficiary or third party. A trust beneficiary is a person who is entitled to receive property (i.e. cash, real estate, stocks, bond, mutual funds, jewelry, etc.) from a trust. The trustee is the person named in the trust to be in charge of the trust estate. The trust estate is all the property, of whatever kind, owned by the trust. The trustee has the legal authority to act on behalf of the trust.
The purpose of a trust litigation lawsuit is to obtain a beneficiary’s rightful inheritance. Trust litigation can also be a lawsuit filed by a trustee to reclaim property that rightfully belongs to the trust or to have the court rule on the properness of the trustee’s acts.
When a trust beneficiary begins trust litigation it’s usually for one or more of the following reasons:
- To compel the trustee to provide a copy of the trust
- To obtain financial information from the trustee
- To have the court instruct the trustee to perform a certain act
- To have the court instruct the trustee to account
- To reclaim property that rightfully belongs to the trust
- To suspend the trustee’s powers
- To remove the trustee
- For damages against the trustee
- To appoint a temporary trustee
- To appoint a successor trustee
The Difference Between a Will and a Trust
It’s very common for people to interchangeably use the terms will and trust. But a will is not a trust and a trust is not a will. They are two different documents that govern separate legal entities.
A will is the document which states who will be in charge of a probate, who gets the property (and on what terms), and who will be in charge of the probate estate. This requires filing the petition for probate, a number of supporting documents, and an order from the probate court appointing the executor of the probate estate. The executor is the person who is in charge of the probate estate.
A trust is usually created to avoid probate. The settlor (that’s the person who created the trust) titles their property in the name of the trust. The trustee is the person in charge of the trust. Trustees nearly always have many more powers and a great deal more flexibility than an executor. When the settlor dies, the assets in the trust will be administered and then distributed according to the terms of the trust.
A probate and a trust are two separate and different legal entities. Assets in a trust do not go through probate. Any assets the settlor failed to title in the name of the trust may go through probate.
Chapter 2: When does trust litigation apply to me?
There are many different reasons that you as a trust beneficiary may start trust litigation. The common element for all of them is that you have a reason to distrust the trustee or can’t communicate with the trustee.
Many people, when they learn their loved one has died, will turn to the person they believe is the trustee and request a copy of the trust. Seems simple enough, but sometimes you might find yourself in a situation where this doesn’t happen and litigation becomes the next step. Some of the problems leading to trust litigation include are:
- When the trustee doesn’t respond or refuses to provide a copy of the trust, it is usually necessary to start trust litigation.
- When a trustee doesn’t respond to requests for financial information or refuses to provide any financial information it’s time to start trust litigation.
- When the trustee has been administering the trust for a year or longer and refuses to account or promises to account but fails to actually do it, then it’s time to begin trust litigation.
- When a trust beneficiary becomes aware that a trustee is either taking trust assets to which they’re not entitled or using trust assets to benefit themselves, family, or friends, then it’s time to start trust litigation.
In order to decide if you need to engage in trust litigation, make sure you know the difference between trust litigation and probate litigation.
Trust litigation versus probate litigation
Just as there is a difference between a trust and a will, there is a difference between trust litigation and probate litigation. Where we work in California, both trust litigation and probate litigation take place in the probate court. They are similar to one another in some ways, but the subject of the litigation is always going to be different. The reason is because of the differences in a will and a trust addressed earlier.
Probate litigation involves the people and the property involved in a probate estate. Trust litigation involves the people and the property involved in a trust. A probate estate and the trust estate are two separate legal entities. Even though a person who passed away may have both a probate estate and a trust estate, probate litigation will not directly affect how the trust is distributed and trust litigation will not directly affect how the probate estate is distributed.
Trust litigation versus probate
Trust litigation and probate are two completely different processes that both take place in a probate court. Probate, not probate litigation, is the process of transferring property owned by a deceased person to the people who are entitled to receive that property. Probate is a court-supervised process. Probate on its own does not involve any person suing another person. You can think of it as an extended administrative proceeding that results in title to property being transferred from the deceased person to one or more living people.
Trust litigation only occurs when one or more people sue another person or people. The lawsuit may involve property ownership. But, it can also center on non monetary interests such as directing the trustee’s actions, suspending the trustee, or removing the trustee.
Chapter 3: Your First Steps As A Trust Beneficiary
Now that you understand the key characteristics that define trust litigation, you should have a clear understanding whether trust litigation is the right route for you. This chapter will focus on the steps you can take if trust litigation is the right path forward.
First, You Need To Get a Copy of the Trust
Getting a copy of the trust after the settlor dies should be straightforward. After learning of the death of the settlor, the trustee is required to send out a notice to all the trust beneficiaries and heirs within 60 days. The notice informs all parties who the trustee is, their address, phone number, and the principal place of trust administration. The notice also informs everyone who receives it that they are entitled to receive a copy of the trust and its amendments if they make a written demand. In some cases, trustees will simply mail out a copy of the trust along with the required notice.
Of course, not all trustees perform all their duties. If you are a trust beneficiary, the trust settlor has died, and you have not received the required notice, then it’s important that you or your attorney make a written demand for a copy of the trust. It is critically important the demand be in writing.
California’s Probate Code, for example, clearly states 60 days after a written demand has been made, if the trustee has not provided a copy of the trust, then the beneficiary can petition the probate court for an order requiring the trustee to provide a copy of the trust. An oral demand does not satisfy the requirement. A written demand is your key to the courthouse door.
A common misconception is that if a person is not left anything in the original trust or in a trust amendment then that person is not entitled to receive a copy of the trust and its amendments. This claim misunderstands the law. Being an heir of the settlor is what gives a person the right to receive a copy of the trust and its amendments.
Second, Does the Trust Accurately State the Settlor’s Wishes?
When you receive a copy of the trust you will, of course, read it. The most important question to answer at this time is whether the trust accurately reflects the settlor’s wishes. If the trust does not reflect the settlor’s wishes, then it is important to consider filing a trust contest. A trust contest is a specific type of trust litigation. A trust contest is a lawsuit seeking to have the probate court declare the trust void. In other words, to set the trust or trust amendment aside so it cannot be used. The trust contest can be filed attacking the trust itself or one or more amendments to the trust. Further below, you’ll learn the reasons to contest a trust.
If the trust accurately states the settlor’s wishes, then focus your attention on whether the trustee is carrying out the trust terms.
Third, Is the Trustee Carrying Out the Terms of the Trust?
It is important when assessing this that you consider whether the trustee is acting reasonably, not perfectly. California law, for example, does not require trustees to be perfect. It does require trustees to act reasonably when considering the assets in the trust, the trustees expertise (if they have any), and the terms of the trust.
A commonsense analysis will be right 90% of the time even if you know nothing about trust law. So what does this look like?
- A trustee who appears to be doing nothing for no good reason
- A trustee who appears to be benefiting from trust property
- A trustee who simply won’t provide you with the information you need to understand what is happening in trust administration are all warning signs that the trustee is in breach of his or her fiduciary duties.
If you can communicate with the trustee in order to address your concerns, then do it. There is nothing faster, easier, and inexpensive than direct communication between the trustee and the trust beneficiaries. If you have tried that and it has not worked that it’s time to consider trust litigation.
I use the word “consider” deliberately. Like all litigation, trust litigation will require your time, energy, and money. It is important before a single document is filed for you to consider whether the prize is worth the price. If your concern is over a trustee being disrespectful but you can’t identify any monetary harm, then it might be wiser to vent to people in your life rather than filing a lawsuit. If on the other hand, the trustee is causing you significant financial harm, then discussion with a trust litigation attorney would be a good idea.
Chapter 4: Based on what you learned, what are your next steps?
If the Trust Is Incorrect: Trust Contest
If the terms of the trust don’t accurately reflect the settlor’s true intent, then you will want to consider a trust contest. A trust or trust amendment can be challenged for a number of reasons, but it can’t be challenged for just any reason. In California, for example, a trust can be challenged on any of the following six bases:
1. Lack of Mental Capacity
Lack of mental capacity is also referred to as mental incompetence. Whatever term you use, a trust settlor lacks mental capacity if he or she is:
- Unable to understand the nature of the testamentary act;
- Unable to understand and remember the nature of the trust settlor’s situation and property; or
- Unable to remember the trust settlor’s relationship to spouse, children, parents, siblings, and others whose interests are affected by the trust
A settlor is also not mentally competent if he or she suffers from a mental disorder with symptoms including delusions or hallucinations that result in the trust giving property in a way that, without the delusions or hallucinations, he or she would not have done.
2. Undue Influence
In a trust contest, undue influence means excessive persuasion that causes the trust settlor to act or refrain from acting by overcoming the settlor’s free will and results in inequity. In other words, someone was able to override the settlor’s freewill in order to have their thoughts put into the trust.
There is not one standard to prove undue influence. Each case will succeed or fail based on its unique facts. But the court is entitled to consider various factors that indicate the use of undue influence in the creation of a trust or a trust amendment.
Those factors include:
- vulnerability of the victim
- the influencer’s apparent authority
- the actions or tactics used by the influencer and
- the equity (or inequity) of the result
In other words, someone’s influence overrides the settlor’s free will, causing property to be left in a way the settlor would not have done if they were permitted to make their own choices.
Most often, undue influence is not proved by direct evidence. That’s because it’s very unusual for a witness to be present to see, hear, and later testify to the undue influence exerted on the settlor. It is far more common to prove undue influence through indirect evidence. Meaning, inferences will have to be drawn from the evidence that is available.
For trust contests, fraud is defined as the settlor being deceived into creating a trust that they wouldn’t have created in the absence of the deception. Most often when fraud is alleged, the substance of the claim is either that the settlor signed the trust believing it was really a different document or the settlor was provided significant false information about close family members resulting in them altering the terms of their trust.
Duress can be proven one of three ways:
- Unlawful confinement of the settlor or the settlor’s relative
- Unlawful detention of the settlor’s property or
- Confinement of the settlor by means of fraud or fraudulently made harassing or oppressive.
I would not recommend spending too much time trying to understand the nuances of duress. In my entire career I’ve never seen a trust contest pursued on the basis of duress.
Menace is simply the threat of duress.
If the settlor made a material mistake then the trust can be set aside. In other words, the mistake must go to the heart of what the settlor actually meant to accomplish by creating the trust.
If the Trust Is Correct, Keep Your Trustee in Check
Your trustee has a duty to communicate with you and keep you informed about the administration of the trust. A good trustee will provide you with financial information even in the absence of providing a formal trust account. Similarly, a good trustee will provide you with a general plan for the administration of the trust and explain what is going on as important events occur.
If your trustee is communicating well and providing you with a reasonable amount of information, then it’s unlikely your trustee is acting in an appropriate manner. Even if this is the case, it will be important that your trustee provide you either with a formal trust account or with all the relevant underlying financial records so that you can determine for yourself if your trustee has acted correctly.
If your trustee won’t communicate with you or won’t provide you with financial information, then that’s a warning sign. A trustee who won’t communicate or provide information typically won’t do so because they are lazy, incompetent, or stealing from the trust. You have to decide what type of trustee you are dealing with.
If you have a lazy or incompetent trustee and their laziness or incompetence is causing financial harm then you’ll want to address it sooner rather than later. If you believe you’re dealing with a trustee who is stealing from the trust it’s important to address this as soon as possible. You don’t want to allow trust assets to be spent, hidden, or dissipated if that can be prevented.
In the next section, you’ll learn about the trustee’s duties. It is the duties that govern what a trustee must do and form the basis for a lawsuit if the trustee fails to carry out their duties.
Chapter 5: Defining Trustee’s Duties
Every trustee has duties to all the trust’s beneficiaries. Below is a list of the most commonly breached duties that become the subject of trust litigation. A breach of one or more of these duties can get you equitable relief and/or damages.
Trustee’s Duty to Administer Trust According to Its Terms
The trustee has a duty to administer the trust according to the terms of the trust. This means the trustee does not get to make up his or her own rules. Rather, the trustee must carry out the terms of the trust as they are written in the trust.
Common examples of trustees departing from the trust’s terms include trustees who want to keep trust property in the trust instead of distributing it, trustees claiming they received verbal instructions from the settlor before their death, and trustees who have a wild idea about how they’re going to increase the value of trust assets before they distribute them.
If your trustee is failing to administer the trust according to its terms then he or she has breached their fiduciary duties.
Trustee’s Duty of Loyalty
Your trustee has a duty to administer the trust solely in the interest of the trust beneficiaries. If your trustee uses other considerations to administer the trust than the trustee is breaching his or her fiduciary duty to you.
Common examples of the trustee breaching their duty of loyalty includes the trustee who wants to extend trust administration in order to increase their fees, trustees who attempt to take some portion of the trust for themselves that they are not entitled to, and trustees who make gifts of trust assets to people who are not trust beneficiaries.
Trustees who breach their duty of loyalty often attempt to claim that their actions are justified by some kind of verbal instruction they received either from the settlor before they died or from one of the beneficiaries. This is almost always utter nonsense. Even if it were true, that doesn’t relieve the trustee of their duty of loyalty to the beneficiaries.
Let’s say, for example, the trustee truthfully claims that before the settlor died they said that they wanted to make a gift of some amount of cash to somebody who’s not listed as a beneficiary of the trust. Even if it’s completely true, when the settler died the trust terms became irrevocable. For that reason, the trustee is obligated to follow the terms of the trust as those terms appear in writing. The trustee does not get to make a gift simply because there was some kind of verbal instruction. To make that gift is a breach of the trust terms and the duty of loyalty to the trust beneficiaries.
If your trustee is not acting in the best interest of the trust beneficiaries, then he or she has breached their fiduciary duty.
Trustee’s Duty to Deal Impartially with Multiple Beneficiaries
If a trust has two or more beneficiaries, then the trustee has a duty to deal impartially with them. The trustee must act impartially when investing and managing the trust property. The trustee is required to take into account the differing interest of the trust beneficiaries.
A shorthand way of thinking of this is to say if the trustee shows favoritism to one beneficiary over another, then they have breached their fiduciary duty. There are any number of ways this can play out depending upon the terms of the trust. The real question you should be asking yourself is whether the trustee has taken your best interest into account when deciding what to do.
A common example of beneficiaries being treated differently is where the trust calls for outright distributions and one beneficiary receives a distribution while the trustee retains property in trust that would otherwise go to the other beneficiaries. Another example is when trust assets are going to be managed for some extended period of time and the beneficiaries are different ages, have different investment goals, and have different risk tolerances. The trustee’s failure to either segregate the assets into different shares for the different beneficiaries or in some other manner invest the trust property to meet the goals of each beneficiary is a breach of their fiduciary duty.
Trustee’s Duty to Avoid Conflicts of Interest
The trustee has a duty not to use or deal with trust property for their own profit or for any other purpose unconnected with the trust. The trustee may not take part in any transaction in which the trustee has an interest that’s against the best interests of the trust beneficiaries.
This means that in practice the trustee cannot use trust property to benefit themself. For example, the trustee may not loan trust cash to herself in order to purchase real estate. Clearly that’s a use of trust property for the purpose of the trustee’s own profit.
Occasionally, a trustee will use trust property for what they consider a charitable purpose. Though in truth that charitable purpose usually involves helping one of their family members. So, for example, if a trustee wanted to allow their child to live in a trust owned house without paying rent, then the trustee allowed their personal relationship to override their fiduciary duty. That is a conflict of interest they are obligated to avoid.
Trustee Requiring Beneficiary to Relieve Trustee of Liability as Condition for Making a Distribution
The trustee may not require a trust beneficiary to relieve the trustee of liability as a condition for making a distribution to the beneficiary if the distribution is required by the trust’s terms. In other words, you can’t be made to give up your right to sue the trustee as a condition of the trustee distributing your share of the trust to you. There is a big difference between a trustee who requests a waiver of liability and one who demands a waiver of liability before making a distribution. A waiver of liability means you are giving up your right to sue. A trustee can request a waiver of liability so that they don’t have to go to the time and expense of filing an account with the probate court.
Trustees acting in good faith provide a copy of their account to the trust beneficiary and allow the beneficiaries an adequate period of time to review the account and ask any questions they may have about what’s been reported in the account. If this sounds like your situation then your trustee is most likely not doing anything wrong by requesting a waiver of liability.
This is very different from a trustee who insists they will not distribute any trust property to you without you signing a waiver of liability. This is entirely improper. You might think of this as a shakedown and you’re right for thinking so. A trustee who does not share financial information with you and does not give you the opportunity to ask the questions you might have about what has been reported might as well wave a red flag as a warning to you.
If your trustee is requiring a waiver of liability before making your trust distribution then your trustee has breached their fiduciary duty to you.
Trustee’s Duty to Not Knowingly Become a Trustee of Another Trust with an Adverse Interest
The trustee of one trust has a duty not to knowingly become a trustee of another trust with an adverse interest to the beneficiaries of the first trust. If the trustee takes on an adverse interest then the trustee has a duty to eliminate the conflict of interest or resign as trustee when the conflict is discovered.
This rarely comes into play except in one particular situation. Let’s say a couple has created what’s commonly known as an A-B trust, usually the surviving member of the couple becomes the successor trustee when their spouse dies. The surviving spouse has a duty under the terms of the trust to allocate trust property to the two trusts. This doesn’t always happen.
Worse it’s not uncommon for the surviving spouse to put all the property into the A trust (the trust that should hold only the surviving spouse’s share of the property) and nothing in the B trust (the trust that should hold the deceased spouse’s share of the property.) When the beneficiaries of these two trusts are not identical, the beneficiaries of Trust B have an adverse interest to the beneficiaries of Trust A. If the same person is the trustee of both trusts then they are acting as trustee of a trust with an adverse interest.
This is an uncommon scenario but not an unknown scenario. When it does arise it almost always happens in blended families. If this is your situation it’s important you discuss it with the trust litigation attorney.
Trustee’s Duty to Control and Preserve Trust Property
The trustee has a duty to take reasonable steps under the circumstances to take and keep control of and to preserve the trust property. This fiduciary duty is just as straightforward as it sounds. Yet, any number of trustees failed to carry it out.
Reasonableness, of course, depends on the circumstances a trustee encounters when they take over administration of the trust. Very commonly a trustee simply needs to go through administrative steps to take control over trust property. For example, a trustee either needs to record an affidavit of succession of trustee or record a new deed in order to show that they are the trustee who holds title to a parcel of real estate. Similarly, a trustee will need to go to a bank to sign new account documents in order to take control of an existing bank account owned by the trust.
In most situations it requires only a small amount of work for a trustee to actually take control over trust property.
Unfortunately, not every trustee exercises even the minimal effort required to take control of trust property. A trustee who fails to take control over a bank account may find that it has been transferred to the state because the account has been dormant too long. A trustee who fails to exercise control over real estate may find that the property is occupied by squatters, has been vandalized, or is even the subject of an adverse possession lawsuit.
Once the trustee has taken control over the trust property they have to act reasonably to preserve that property. Common sense will tell you what a trustee should be doing. For assets, like bank accounts, almost no work is required. The trustee simply has to receive the monthly statements to ensure that the funds are still actually in the account.
If the trust contains stocks, bonds, or mutual funds then the trustee will have to make some decisions about whether the current investment should remain in place or should be sold because of the risk inherent in the asset and the proper way to reinvest those assets. For trust owned real estate, the trustee has to take more active measures. Real estate needs to be insured, real estate taxes need to be paid, and the real estate itself has to be managed.
Trustee’s Duty to Make Trust Property Productive
The trustee has a duty to make the trust property productive under the circumstances and in furtherance of the purposes of the trust. In simple terms, this means a trustee has to examine why the trust was created. For example, if the trust calls for outright distribution upon the settlers death, then the trustee may do very little in the way of making trust property productive because their primary responsibility is to transfer the property out of the trust to the beneficiaries.
Contrast that situation with one where the trustee knows trust property will have to be managed for years. If the trust contains an unoccupied single-family residence, then the trustee must make a decision about how to make that property productive. The trustee could rent the property and collect rent. The trustee could sell the property and reinvest the net proceeds of sale. What the trustee can’t do is simply allow the house to remain unoccupied.
Trustee’s Duty to Keep Separate and Identified Trust Property
The trustee has a duty to keep the trust property separate from other property not owned by the trust and to see that the trust property is designated as property of the trust. This means that a trustee has to be diligent in keeping trust property titled in the name of the trust and ensuring the trust property does not become co-mingled with any other property.
Suppose the trust owns an apartment building. The trustee collects rent every month from the tenants and pays expenses related to the apartment building. The trustee should be depositing the rent in a trust-owned bank account and paying the expenses from that trust-owned bank account. If instead the trustee collects rent and deposits the rent in his or her own personal bank account, then they have breached their fiduciary duty by failing to keep trust property separate from their personal property.
Trustee’s Duty Not to Delegate Trustee’s Duties
The trustee has a duty not to delegate the performance of actions that the trustee can reasonably perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a co-trustee or other person. The trustee has a fiduciary duty to trust beneficiaries. This does not require the trustee to perform every action for the benefit of the trust on their own. For example, if the trust owns a house that needs to be painted then the trustee is not required to paint the house themself. The trustee is responsible for obtaining a reasonable price for the painter, ensuring the work is actually done, and ensuring the work is of a suitable quality.
The one notable exception to this rule is that for investment and management of trust assets, the trustee may delegate investment and management as is prudent under the circumstances. The trustee will still remain responsible for being prudent in selecting who will perform the investment and management of trust assets, establishing the scope and terms of the duties they’ve delegated, and periodically reviewing the performance of the investment and management of trust assets.
Trustee’s Duty to Use Special Skills
The trustee has a duty to apply the full extent of the trustee’s skills. If the settlor, in selecting the trustee, has relied on the trustee’s representation of having special skills, the trustee is held to the standards of the skills represented. What this means is that a trustee who claims to have substantial training, experience, and/or education is held to a higher standard than the average person serving as trustee. For example if the trustee is a certified public accountant, then there is a reasonable expectation they have a heightened degree of sophistication for tax sensitive matters. If during their tenure as a trustee there is a problem concerning tax sensitive transactions, then the trustee is held to a higher standard than the average person. This can result in being able to prove a breach of fiduciary duty due to the higher standard.
Trustee’s Duty to Comply with the Prudent Investor Rule
The trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
This is commonly referred to as the prudent investor rule. It requires a trustee to make investments in a way that is appropriate for the trust beneficiaries. It prohibits the trustee from investing trust assets using their own standards.
The prudent investor rule is particularly important where trust assets are held in the trust for an extended period of time. This can happen because the trust requires the assets be held or because the trustee has failed to be diligent in carrying out the terms of the trust. Trust beneficiaries who have had their share of the trust held in trust for an extended period of time should examine whether the trustee has appropriately invested and managed trust assets.
Trustee’s Duty to Account to Trust Beneficiaries
The trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed. Each of these events triggers the duty of the trustee to accounts to the beneficiaries. It’s the trust account that allows a beneficiary to understand what has occurred with trust assets and income during the period of the account. Reviewing the account is how you as a beneficiary will decide the trustee has acted appropriately or inappropriately.
Chapter 6: What Are The Outcomes Of Trust Litigation?
If you need to go forward with a trust litigation case then you’ll want to consider at the very beginning what relief you can get from the court. Relief meaning the outcome you want to see from a judge. As you are about to learn, this can involve equitable relief and monetary damages.
These are different things. Equitable relief involves an order the judge makes that does not directly result in you or the trust obtaining any money. Damages are a monetary judgment where another person or entity is required to pay to you or to the trust.
The most common forms of equitable relief in trust litigation are suspending a trustee, removing a trustee, and instructing a trustee. Suspending a trustee is a type of interim relief that you can get while your case is proceeding. Suspending a trustee is different from removing a trustee but both are available for the same reasons which are:
- Breach of trust;
- Insolvency of the trustee or other unfitness to administer the trust;
- Hostility among co-trustees that impairs administration;
- The trustee’s failure to act or declining to act;
- Excessive compensation;
- The sole trustee being a disqualified person;
- Substantial inability to manage the trust’s resources or properly execute the duties of the office, due to a lack of mental capacity;
- Substantial inability to resist fraud or undue influence; and
- Any other good cause.
In order to get the trustee suspended, you will likely have to show the court the trustee has stolen trust property, the trustee has taken some egregious action that caused actual damage to the trust beneficiaries, or that it is patently obvious the trustee is incapable of performing their duties. If a trustee is suspended, then the court will suspend the powers of the trustee and with this you will need the appointment of a temporary trustee to make sure the duties of the trustee are carried out and the trust is properly administered. Most often a neutral third party will be appointed as the temporary trustee.
Removal of a trustee comes at the end of the case. If you are seeking removal of the trustee it’s important that at the same time you seek a successor trustee appointed so that there is no vacancy in the office of the trustee. The successor trustee will be the next person nominated in the trust. If there is no one else nominated by the trust then either the trust will have provisions for nominating another person to service trustee or the income beneficiaries of the trust can nominate someone to serve as trustee.
Determining title to property
Another form of equitable relief involves taking back property that was wrongfully taken from the trust. This applies to any type of property. It could be cash, stocks, mutual funds, real estate, or any other type of property you might imagine. In this type of litigation you’ll need to prove the property was owned by the trust and then taken by someone who has no rightful claim to the property or that there is property that should have been owned by the trust but was diverted to somebody else who has no rightful claim to the property. If you win this litigation title to the property will be given to the trust.
In trust litigation there are limited types of damages available. You can get damages against the trustee who breached his or her fiduciary duties. This is called a surcharge. You may be able to obtain double damages against the person who in bad faith has wrongfully taken or concealed trust property. In a limited number of cases you can also obtain attorney’s fees and costs. In probate court you cannot get damages for any emotional harm you’ve suffered related to the improper administration of the trust or the wrongful taking of trust property.
Surcharging the Trustee
A surcharge is a probate court order for compensatory damages against the trustee. In other words, it’s the amount of money you get for proving the trustee breached their duties. It can be measured one of three ways depending on the circumstances of your case:
- Any loss or depreciation in value of the estate resulting from a breach of duty, with interest;
One common way to get a surcharge is to show assets were improperly invested resulting in a loss. Another is to show the trustee failed to preserve assets. For example, failing to insure a house that burned down. It’s important to note that if you suffer this type of loss, you are also entitled to interest.
- Any profit made by the trustee through their breach of duty, with interest;
If the trustee profits from their breach of duty, then you are entitled to that profit. This can happen by the estate “loaning” money or “investing” in the trustee’s business or project. Let’s say the estate “loaned” the executor $100,000 to flip a house. Miraculously, the flip was successful. The executor made $75,000 on it. Your damages would be $175,000 plus interest.
- Any profit that would have accrued to the estate if the loss of profit is the result of breach of duty.
This availability of this remedy will very much depend on the terms of the trust. For example, let’s suppose the trustee is required to hold on to the trust’s assets for five years before distribution and the trustee is required to invest the trust assets. If the trustee fails to invest the trust assets appropriately, then profits may be missed by the trust. If stocks were an appropriate investment, a rising stock market would mean missed profits. If real estate has a run up in value, then profits will be missed.
If a person has done any of the following then you can get double damages against them. Double damages are twice the amount of the surcharge or compensatory damages ordered in your case. This is what you need to prove in order to get double damages:
- A person in bad faith, has wrongfully taken, concealed, or disposed of property belonging to the trust;
Most often this is used against the trustee. For example, if the trustee takes money from the estate’s bank account and transfers it to himself or herself for no real reason, then that’s good evidence they took the property and did it in bad faith.
- A person in bad faith, has wrongfully taken, concealed, or disposed of property belonging to the trust by the use of undue influence; or
This can happen by someone close to the settlor manipulating the settlor into giving them trust property. This is especially common among people with a cognitive problem, like dementia, and elderly trustees who are dependent or just too trusting.
- A person in bad faith, has taken, concealed, or disposed of the property through elder financial abuse.
This is used when the taking was done while the settlor was alive and 65 or older. Sometimes this isn’t discovered until after death. This situation allows the trustee or a beneficiary to pursue property that would have been in the trust if not for the wrongdoing. A common example is the transfer of a home or bank account to a child or grandchild with the settlor getting nothing in return.
It’s very important to note you must prove the taking was done in bad faith. To actually prove this, you’ll have to meet a high standard of proof. It’s common for these cases to be clear cut once you find evidence of what was done. If it is muddled, then you may still be able to get the property returned or damages ordered for what was taken, but it may not be possible to get double damages.
There is a division within California’s appeal courts whether double damages means the damages are doubled or double damages are added to a damages order resulting in triple damages. Most appeals courts that have ruled on this have said the double damages get added to the other damages. So in most of California, you could potentially get triple damages.
Attorney’s Fees in Trust Litigation
As a general rule, attorneys fees are not awarded in probate litigation. However there are some important exceptions to that rule. If you prove a person wrongfully took or concealed trust property, and did so in bad faith, then the court can award reasonable attorney’s fees and costs. If an objection is made to a trust account that is defended in bad faith then the court may award attorney’s fees and costs to the trustee.
Similarly if a trustee provides a trust account to which there is an objection, and the trustee defends the account in bad faith, then the court can award attorneys fees and costs to the objector. Note that in all instances where reasonable attorneys fees and costs can be awarded, you must prove bad faith.
When the trustee is removed because they are a “prohibited person” then the removed trustee shall bear all costs of the proceeding, including reasonable attorney’s fees. The list of “prohibited persons” include:
- The person who drafted the trust;
- The person who caused the trust to be drafted or who was in a fiduciary relationship with the settlor when the trust was created;
- A care custodian of a dependent adult;
- An employee of any of the people described above;
There are important exceptions to these rules. These exceptions include anyone within “four degrees of relation” to the settlor. That means children, grandchildren, spouses, nieces, nephews, brothers, and sisters are excluded.
Chapter 7: The Cost Of Trust Litigation
In discussing costs, we only address the cost of trust litigation in California. That is because we practice here and are familiar with how attorney’s charge for their services. The general idea of what follows may apply to other states but you should check with a local attorney if your case is outside California.
How Costs Are Covered For Beneficiaries v. Trustees
The cost of trust litigation in California depends on two things. First, is whether you are a beneficiary of a trust trying to get your rightful inheritance, or the trustee of the trust. Second is whether you decide to pay for litigation on an hourly basis or using a contingency fee.
If you are a beneficiary seeking to get your rightful inheritance, then nearly any trust litigation attorney in California will be glad to represent you using a traditional hourly fee. A smaller number will agree to take a case on a contingency fee basis.
If you are the trustee then in most cases, you will pay your trust litigation attorney on an hourly basis. The one important exception to this is where the trustee is litigating to get property back into the trust. In other words, if property was wrongfully taken from the trust and you want title or possession to that property, then you will have to litigate to get it back. If the trust has few or no assets, then you are probably going to have to find a trust litigation attorney who will take your case on a contingency fee. This is simply because there is no other way to pay for the litigation.
Hourly Attorney Fees
Hourly fees in California trust litigation cases are just what you expect them to be. You pay the law firm for the time they put into the case and the various costs incurred in pursuing your case. Attorneys are paid an hourly rate, or a range of rates if several attorneys are working on the case. Paralegals are paid at a lower hourly rate. In addition, various out of pocket costs will be incurred. When you hire an attorney under an hourly agreement there is no promise of any kind of outcome. What you are paying for is the time the law firm puts into your case.
There is no way in advance to know exactly the total cost under an hourly fee agreement. The range can be so wide it can’t be estimated at the start of a case. It is impossible to know at the beginning of the case exactly how much time will go into your case and what the total out of pocket costs will be.
Understand that an estimate is just that, an estimate. If your case ends early then the money held in your attorney’s client trust account will be returned to you. If the money in the client trust account runs out, and your case is not finished, then expect to have to deposit more money in the client trust account.
Factors that influence hourly fees
When you hire an attorney on an hourly fee basis, you can expect to be asked for a retainer. A retainer is money that is deposited in the firm’s client trust account. That’s your money sitting in an account that can only be used for the work and costs for your case. You should get a monthly invoice from the law firm, which will show you the hours spent on your case, who performed the work, the work performed, and any spent for costs related to your case. Costs include items such as filing fees, deposition transcripts, copies of documents, process service, etc.
There are any number of out of pocket costs that may be incurred for your case. Those costs will be itemized in your monthly invoice. In an hourly fee retainer agreement, if your case ends and the initial retainer has not been entirely used, whatever is left gets returned to you. The flipside to this is if the firm has billed through the amount you first deposited, then you must replenish the funds in the client trust account to keep the firm working on the case. You may have to deposit more money multiple times depending on the amount of your retainer, amount of work performed, and out of pocket costs incurred.
Trust Litigation Contingency Fees
Under a contingency fee agreement, you only pay your attorney when they have gotten you something of value. “Something of value” could be money, real estate, tangible items, etc. It is unlikely that you will know everything of value owned by the trust at the start of the case. Whatever comes in that has financial value then becomes the basis for whatever the payment will be under the contingency fee. Most firms will offer some form of tiered contingency fee agreement. At The Grossman Law Firm, we structure our agreement in following way for the vast majority of our cases:
- 25 percent of whatever value is recovered if we’re able to resolve the case without having to file a petition in the probate court,
- One third of what’s recovered if the case settles at least 90 days before the first set trial date, and
- After that time, either because there’s a settlement close to trial or because there’s been a trial and there’s a judgment in your favor, then it’s 40 percent of what’s recovered.
- In addition, the firm is reimbursed for direct out-of-pocket costs associated with your case.
Typical trust litigation case expenses include court reporter fees, deposition transcripts, certified copies of certain official documents, regular copies of other types of documents, process service, and filing fees. If there are experts then there are going to be expert witness fees.
How these arrangements apply to common types of trust litigation
Suing a trustee for a breach of their fiduciary duty
The single most common type of litigation is suing a trustee for a breach of their fiduciary duty. The most common types of breaches of fiduciary duty are: the trustee’s failure to provide a copy of the trust, the trustee won’t account, the trustee is accused of either mismanaging or just plain taking trust assets for him or herself, or the trustee won’t distribute the trust assets to the beneficiary.
If you are litigating a breach of fiduciary case, then it is a beneficiary who is suing a trustee. If you are the beneficiary, it is easy to find an attorney who will represent you on an hourly basis. Depending on the facts in your case, you may be able to find an attorney that will take your case on a contingency fee. If you are the trustee and you are defending a breach of fiduciary duty, then you are certainly going to be using your trust attorney and paying them on an hourly basis to defend you in the case.
The factors that are likely to affect the total cost of your case are going to be: how you must prove the breach of fiduciary duty, how difficult the trustee wants to be in this litigation, and the particular judge to which the case has been assigned. Some breaches are not that difficult to prove.
For example, if you are suing the trustee because they failed to provide you with a copy of the trust or they failed to account, it’s really a very straightforward case. You will provide a copy of your written demand, you will allege that you either haven’t gotten the trust or you haven’t gotten the account, and that is pretty much the total of the case. If your case is in fact that straightforward, you are going to have relatively low costs.
On the other hand, if your case is more complex, for example, if you’re challenging an account, or the need to make a distribution, then your costs can greatly increase. More witnesses need to be involved, more documents need to be obtained and examined, and the possibility of bringing in expert witnesses are all going to drive up the cost. If you get a trustee who is difficult simply for the sake of being difficult, that’s going to be more time and possibly cost more because of different work that needs to be done.
Your particular judge is a factor in this as well. There are some judges that want to keep cases moving and monitor attorneys to make sure that happens. Other judges are not worried about cases going on for a long time even if there is no good reason. Some judges have no problem setting trial dates while other judges will not set trial dates unless the parties have gone to mediation or they’ve engaged in some other kind of alternative dispute resolution. A judge like this simply will not give you a trial date without meeting these hard and fast rules, which means more time and more costs associated with a case.
The range for what these cases may cost really is very wide because of these factors. On an hourly basis, if your case is straightforward, you may finish the case for something less than $5,000. As the complexity and the difficulty increases, you will see a steep climb in cost. Getting the case to trial may cost anywhere from a hundred to a hundred fifty thousand dollars. Of course, if you settle the case along the way, that’s going to reduce the actual cost.
If you’re the beneficiary and you have hired your attorney on a contingency fee basis, then you know in advance that your cost is going to be the percentage of what is actually recovered plus the direct out-of-pocket costs related to your case.
Trust contests are only filed by potential beneficiaries; they are never filed by trustees. If you filed the trust contest, hiring a lawyer on an hourly basis is very common. There’s a much smaller number of lawyers that are willing to do these on a contingency fee basis, and you can expect that any lawyer who’s considering a contingency fee is going to evaluate the facts of your case with you before agreeing to take it.
If you are the trustee and you are defending the trust contest, then you will pay your trust litigation attorney on an hourly basis.
The factors that will increase the cost of your case are the length of time your case goes on, the number of witnesses that may be involved, and the number of records that need to be obtained and analyzed.
Trust litigation almost always goes forward on the belief that the person who created the trust or the trust amendment either had some sort of mental incapacity or they were subject to undue influence. What that nearly always means in these cases is there is some number of depositions that need to be taken, financial and medical records that need to be obtained, and very commonly there’s a need for expert witnesses. A trust contest that goes to trial can easily have a cost of a hundred to one hundred fifty thousand dollars. If you have hired your attorney on a contingency fee basis, then you will pay a percentage of whatever you receive from the trust plus your out-of-pocket costs.
Suing a Third Party as the Beneficiary
A beneficiary suing a third party who took property from the trust is different from a breach of fiduciary duty case. This is not litigation against the trustee, this is litigation against someone else who took trust property, likely while the settlor was still alive. Even if the person who took the property is the trustee, suing for taking trust property is different from a breach of fiduciary duty.
A common scenario is the trust settlor transferred title to a piece of real estate to somebody else while the settlor was alive. After they have died, the claim is the property really belongs to the trust. If you are a trust beneficiary then you may be able to skip this litigation altogether. If there has been an improper taking, the trustee may decide that it’s important for the trust to litigate this case in order to get that property back into the trust. However, you may have a situation where your trustee does not want to engage in this kind of litigation for some reason. If that is the case and you believe it is important to pursue it, then you as the beneficiary can file this lawsuit. You can hire a lawyer on a regular hourly arrangement or you can do it on a contingency fee. If you are the trustee, then the very strong likelihood is you will pay your trust litigation attorney on an hourly rate. The one important exception to this is if the trustee has taken over and realizes there are either no assets in the trust or very little assets in the trust. In those circumstances, the trustee does not have the resources to a trust litigation lawyer on an hourly basis. In that circumstance you’ll almost certainly need to hire a lawyer on a contingency fee basis.
The factors that determine the cost of a case like this are similar to what you see in a trust contest. The interesting part of this is that a person who has taken property is really incentivized to litigate the case, because unlike a trust content where there’s an open question about who’s going to inherit, where a third party has already taken something, they now have title or they have physical possession and they are not going to want to give up what they have. Not everyone in that situation is necessarily irrational, but it is very common for people like that to dig in and fight because they don’t want to give up what they already have under their control. If your case goes to trial against the third party, it would be unsurprising if the total cost of the case is anywhere between seventy-five thousand and one hundred fifty thousand dollars on an hourly basis. If you hired your attorney on a contingency fee agreement, then again it is going to be a percentage depending upon how far you’ve gone into the case plus the direct out-of-pocket costs associated with your case.
If you haven’t gotten your rightful inheritance then know you have to take action to make that happen. Nothing happens automatically when trust administration has gone bad. Let’s be very clear, if you think trust litigation is right for you and walk away without taking any action, you could lose some or all of your inheritance.
If your case is in the state of California and you’d like an honest evaluation of your case, then give us a call or fill out our contact form. Because we know that time is of the essence, you can expect to hear from us the next business day to begin discussing your case.
Certified Probate Specialist and Trust Litigation Attorney