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By: Scott Grossman on July 6th, 2021

Trustees Duty of Loyalty



 

Trust beneficiaries are often concerned their trustee is not acting in their best interest.  They often wonder what to do if the trustee’s action or failure to act has harmed them.

California Trust Law – Trustee’s Duty of Loyalty

California’s Trust Law says the trustee has a duty to administer the trust solely in the interest of the beneficiaries. It really is that straightforward. If your trustee is taking actions that are for any reason other than for the benefit of the trust beneficiaries, then they are breaching their fiduciary duty.

There are two typical ways the trustee breaches their duty of loyalty to the beneficiaries. The first is the incompetent trustee. The second is the dishonest trustee.

The Incompetent Trustee

The incompetent trustee is the one you knew probably right from the beginning should never have been chosen to be the trustee. He or she is unreliable, flaky, or unable to stay focused. This is the trustee who does not understand taxes have to be paid on time and if they are not then the government is going to want interest and penalties in addition to the taxes that have not been paid. This trustee will shrug their shoulders when you complain because they do not understand why you are upset about their failure to get things done in a proper way at the right time.

The incompetent trustee will cost you money because he or she does not understand how to make business decisions. The incompetent trustee does not understand why it is unacceptable to rent the family home to their close friend for below market value.  They simply do not appreciate that doing something for somebody else at your expense is a breach of their fiduciary duty. They are not doing this to you out of malice.  It is just the way they are.

The Dishonest Trustee

The dishonest trustee will use their position as trustee to line their own pockets. This is the trustee who will hire their friends to do repairs or maintenance to trust-owned real estate and pay them in cash while getting phony receipts so they can pocket the difference.  The dishonest trustee will attempt to double bill. If there’s rental real estate involved, they may pay themselves a management fee for the real estate and a separate fee for acting as trustee of the trust. If the dishonest trustee owns their own business, then they will steer trust business to themselves. They will not get competitive bids. They will not assess whether their business is well-equipped to address the trust’s issues. The dishonest trustee just knows that he or she can charge for additional service and make a profit from the trust.

The dishonest trustee will often fail to provide an account or any financial information.  They also have a reason, or more accurately an excuse, why they cannot.  In truth, they do not want to share any of the trust’s financial information because it will reveal their actions harmed the trust beneficiaries.

Some dishonest trustees are just outright thieves. They will take trust property. Here, the property is meant broadly.  It includes cash, mutual funds, real estate, or anything else of value that they could take from the trust simply because they have the power to do so.

While these are not the only ways a trustee can breach their duty of loyalty, they are the most common. This really is a commonsense analysis. You simply need to ask yourself if what the trustee is doing is meant to benefit the beneficiaries. If the answer is yes, then even if a mistake has been made, it may not be a breach of the trustee’s fiduciary duty. If the answer is no, then the trustee has breached their duty of loyalty.

Remedies for Breaching the Duty of Loyalty

If you become aware that your trustee has breached their duty of loyalty at a relatively early stage of trust administration, then you may be able to prevent further harm by seeking their suspension as trustee. You will also want them removed as trustees. The suspension will at least stop the harm while you are litigating their removal as the trustee. If the financial damage they have done to you is significant, then you will also want to see them surcharged. The surcharge is just probate court jargon for a damages order against the trustee.  If you discover they took trust property for themselves, then you may also be able to get double damages and attorney’s fees and costs.

 

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 is available here. Should you have additional questions about trust litigation, you will find plenty of useful information in our Learning Center.

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