Trustee Duties: Duties 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 Duties: Duty of Loyalty
California’s Trust Law says the trustee must administer the trust solely in the interest of the beneficiaries. It is that straightforward. If your trustee is taking action for any reason other than to benefit the trust beneficiaries, 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 probably the one you knew from the beginning and should never have been chosen as the trus ee. They are 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 will 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 correctly at the right time.
The incompetent trustee will cost you money because they do not understand how to make business decisions. The incompetent trustee does not know why renting the family home to their close friend is unacceptable for below market value. They do not appreciate that doing something for somebody else at your expense breaches their fiduciary duty.
Duties of Loyalty: The Dishonest Trustee
The dishonest trustee will use their position as trustees to line their pockets. This is the trustee who will hire their friends to repair or maintain the trust-owned real estate and pay them in cash while getting phony receipts so they can pocket the difference. 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 tr st. If the dishonest trustee owns their own business, then they will steer the trust business to themselves. They will not assess whether their business can address the trust’s issues. A dishonest trustee knows they can charge for additional services and profit from the trust.
The dishonest trustee often fails to provide an account or financial information. They also have a reason, or more accurately, an excuse, why they can t. 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.
While these are not the only ways a trustee can breach their duty of loyalty, they are the most common. This is a commonsense analysis. You need to ask yourself if what the trustee does 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 d ty. If the answer is no, then the trustee has breached their duty of loyalty.
Trustee Duty: Duty of Loyalty- Remedies for Breaching:
Become aware that your trustee has breached their duty of loyalty at a relatively early stage of trust administration. You may be able to prevent further harm by seeking their suspension as trus ee. You will also want them removed as trustees Therestn will at least stop the harm while you are litigating their removal as the trus ee. If the financial damage they have done to you is significant, 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, you may also be able to get double damages and attorney’s fees and costs.
A comprehensive overview of California Probate is available here. Should you have additional questions about trust litigation, you will find plenty of helpful information in our article “20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties.”