Trustee Duties: When a Trustee has a Conflict of Interest

Key Takeaways

• A trustee conflict of interest occurs when the trustee benefits personally from trust property or acts against the beneficiaries’ interests.
• California Probate Code sections 16002, 16004, and 16440 prohibit trustees from engaging in self-dealing or transactions adverse to beneficiaries.
• Beneficiaries can seek damages (a “surcharge”) or the trustee’s removal through the probate court.
• The Grossman Law Firm represents beneficiaries in trust litigation across California, including cases involving conflicts of interest, breach of fiduciary duty, and trustee removal.

1. Duty Not to Use or Deal with Trust Property for Personal Profit

A trustee cannot:

• Use the trust property for their own benefit.
• Engage in any transaction where their personal interests conflict with those of the beneficiaries.
• (California Probate Code §16004)

2. Duty Not to Use the Trust for Personal Gain

A trustee cannot use their position to benefit themselves, even indirectly. For instance, if a trustee acquires property after becoming a trustee and then enforces a claim against the trust related to that property, it creates an improper advantage.

3. Duty to Avoid Transactions That Create an Advantage Over Beneficiaries

Suppose a trustee gains an advantage through dealings with a beneficiary. In that case, California law presumes a breach of fiduciary duty occurred unless the trustee can prove otherwise.

(California Probate Code §16004(c))

These laws exist to protect both the beneficiaries and the trust’s integrity. Transparency and fairness are essential to maintaining trust administration.

Recognizing a Breach of Trustee Duties

A breach of duty occurs whenever a trustee acts for their own benefit rather than in the best interest of the trust or its beneficiaries. Common warning signs include:

• The trustee loans trust money to themselves or a family member.
• The trustee sells trust property for less than fair market value.
• The trustee uses trust funds for personal expenses.
• The trustee favors one beneficiary over another for personal reasons.

For example, suppose a trustee sells a trust-owned vacation home and manipulates the price or purchase terms to benefit themselves or someone close to them. It is an apparent conflict of interest.

Under California Probate Code §16440, a trustee who breaches their duties may be required to:

• Reimburse the trust for any losses or depreciation.
• Return any profits made from the breach, plus interest.
• Pay what the trust would have earned had the breach not occurred.

If the court determines that the trustee acted in good faith, it may reduce or eliminate penalties; however, such leniency is rare when self-dealing or dishonesty is involved.

What to Do When a Trustee Has a Conflict of Interest

Beneficiaries have powerful legal options under California law when a trustee acts against their interests.

1. File a Surcharge Petition

You can ask the probate court to issue a surcharge order, which requires the trustee to repay any money or property they mishandled back to the trust. It ensures beneficiaries are made whole and the trustee is held financially accountable.

2. Seek Suspension or Removal of the Trustee

If the trustee’s conflict of interest is severe or ongoing, you may petition the court to suspend or remove the trustee. This step prevents further harm to the trust and allows a neutral party to take over administration.

At The Grossman Law Firm, our team has spent over 20 years helping California beneficiaries protect their inheritance and remove trustees who fail to fulfill their fiduciary duties.

FAQ

What is considered a conflict of interest for a trustee in California?

Any situation where the trustee’s personal interests interfere with their obligation to act solely for the benefit of the beneficiaries. Examples include using trust property for personal use, self-dealing, or favoring particular beneficiaries.

Can a trustee profit from their role?

No. Trustees cannot use trust property or their position to generate personal profit unless the trust document explicitly authorizes it and the transaction benefits the beneficiaries.

What happens if a trustee violates their fiduciary duty?

The court can order the trustee to repay the trust for any losses, remove the trustee, and award attorney’s fees to the beneficiaries.

Do I need an attorney to remove a trustee?

Yes. Petitioning for trustee removal requires specific legal pleadings, evidence, and references to relevant sections of the California Probate Code. An experienced trust litigation attorney can effectively guide you through the process.

Related Resources

If you believe your trustee has misbehaved, you may find these articles helpful:

• Overview of California Trust Litigation
• What Are the Duties of a Trustee in California?
• Can a Trustee Be Removed for Mishandling Assets?
• How Do I Send a Demand Letter for a Copy of the Trust?
• Duties of a Trustee of an Irrevocable Trust
• 20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties
• Can’t Afford a Probate or Trust Attorney?

How The Grossman Law Firm Can Help

At The Grossman Law Firm, we assist beneficiaries and heirs throughout California in enforcing their rights in probate and trust litigation, including cases involving conflicts of interest and the removal of trustees.

Call (888) 443-6590 or fill out our  Get Help Now form to get started.

Our Intake Specialists can evaluate your case to assess your situation at no cost to you. Qualifying cases will be scheduled for a Free Phone Consultation with Attorney Scott Grossman.

Originally Published Jun 5, 2023