A trustee sells a trust-owned house to a friend for far less than its market value. The beneficiaries question the price, but the trustee refuses to explain the sale. Is that a breach of fiduciary duty?
Potentially. This is one example of a fiduciary obligation: the legal responsibility to manage another person’s property and interests with loyalty and care. A breach can put an inheritance at risk.
At The Grossman Law Firm, Attorney Scott Grossman represents beneficiaries and heirs in California probate and trust litigation. Knowing these duties helps you spot potential misconduct.
Table of Contents
Key Takeaways
- Trustees must put beneficiaries’ interests ahead of their own when administering a trust, subject to applicable exceptions.
- Executors must protect estate property and use ordinary care and diligence.
- Self-dealing, mishandled investments, and missing financial information can raise fiduciary-duty concerns.
- Beneficiaries may have legal remedies when misconduct causes losses or threatens trust assets.
What Is a Fiduciary Obligation in California?
A fiduciary obligation is a legal duty that arises when someone manages property or acts on behalf of another person. In inheritance disputes, fiduciaries include trustees and executors.
Under California Probate Code § 16002, trustees generally must administer trusts solely in beneficiaries’ interests. Section 16000 also generally requires them to follow the trust’s terms. Executors follow different estate-administration rules.
For revocable trusts, Probate Code § 15800 may limit beneficiaries’ rights while a person holding the power to revoke is competent.
A disagreement alone does not establish misconduct.
Four Examples of Fiduciary Obligations in Trust Administration
1. Duty of Loyalty: Avoiding Self-Dealing
Suppose Maria serves as trustee of her mother’s trust. The trust owns a house worth approximately $900,000. Maria sells it to a close friend for $650,000 without obtaining a reliable valuation or explaining the discount.
Probate Code §§ 16002 and 16004 address loyalty, personal profit, and conflicts involving trust property.
A below-market sale isn’t automatically a breach. Consider the property’s condition, marketing, the buyer relationship, and the reasons for the price.
2. Duty of Care: Managing Trust Investments Prudently
Trustees must exercise reasonable care when managing trust assets. California’s Uniform Prudent Investor Act, including Probate Code § 16047, requires trustees to consider the trust’s purposes, circumstances, and investment portfolio as a whole.
For example, a trustee might concentrate nearly all trust funds in a speculative investment without assessing the beneficiaries’ needs or the trust’s distribution requirements. Significant losses may raise questions about prudence.
An investment losing value does not, by itself, establish misconduct. Courts consider the decisions and circumstances, not just the outcome.
3. Duty to Inform: Providing Trust Information and Accountings
Imagine you know a trust includes bank accounts and rental property, but the trustee refuses to disclose income, expenses, or what happened to the rent.
Probate Code § 16060 requires trustees to keep beneficiaries reasonably informed. Section 16062 generally requires accountings for specified beneficiaries at least annually, when a trustee changes, and when the trust terminates, subject to statutory exceptions.
Repeatedly withholding information a beneficiary is entitled to receive may justify action.
4. Duty to Follow Trust Terms: Making Proper Distributions
A trustee cannot simply rewrite who receives an inheritance. If a trust directs the trustee to distribute equal shares to three beneficiaries, distributing most of the property to one sibling without legal authority may violate the trust.
Some trusts give trustees discretion over timing or amounts. That discretion doesn’t eliminate fiduciary duties. The trust document and circumstances matter.
Do Executors Have Fiduciary Obligations Too?
Yes. A California executor or administrator is a personal representative responsible for managing estate property during probate.
Under Probate Code § 9600, personal representatives must use ordinary care and diligence. Potential problems include failing to safeguard estate property, improperly transferring assets, or using estate money for personal expenses.
If a breach causes financial harm, Probate Code § 9601 addresses the representative’s potential liability for losses or improper profits. Probate estates follow different rules from trusts.
What Can Beneficiaries Do About a Breach of Fiduciary Duty?
A suspected breach doesn’t always require immediate litigation. Start by preserving records that help establish what happened:
- Trust documents, distribution notices, and written requests for information
- Accountings, statements, receipts, and records of property transactions
- Appraisals, real estate listings, and messages concerning disputed decisions
Legal Remedies for Breach of Fiduciary Duty
An attorney can review those materials and assess whether legal action makes sense. Under Probate Code § 16420, available trust remedies may include compelling performance, recovering wrongfully transferred property, seeking monetary relief, or removing a trustee. Section 16440 addresses potential liability for certain trust losses and improper profits.
Remedies depend on the evidence. Even a valid claim may be difficult to collect.
If you suspect your trustee isn’t acting in your best interest, don’t wait. Explore The Grossman Law Firm’s 20 Ways Your Trustee May Be Breaching Their Fiduciary Duties to learn common warning signs and available actions.
Contact The Grossman Law Firm today if you suspect a trustee or executor has breached their fiduciary duties and put your inheritance at risk. Our team can evaluate your situation and help determine whether legal action may be appropriate.
FAQ
Is Every Trustee Mistake a Breach of Fiduciary Duty?
No. An unfavorable outcome or disagreement does not automatically prove a breach. The issue is whether the trustee violated an applicable legal duty, considering the trust terms and surrounding circumstances.
Can a Beneficiary Recover Money From a Trustee Personally?
Sometimes. A court may hold a trustee liable for qualifying losses or profits arising from a breach. Whether you can actually collect depends on the facts and available assets.
Can I Pursue a Fiduciary-Duty Claim Without Paying Hourly Attorney Fees Upfront?
Some inheritance disputes qualify for contingency representation. Eligibility depends on the evidence, potential financial recovery, and ability to collect. Learn more in our guide to contingency fees in California probate and trust litigation.
Related Resources
How The Grossman Law Firm Can Help
If misconduct threatens your inheritance, consider having your legal options evaluated promptly.
At The Grossman Law Firm, we help beneficiaries and heirs throughout California enforce their rights in probate and trust litigation.
Please call us at (888) 443-6590 or complete our Get Help Now form to take the next step in protecting your inheritance.
Our Intake Specialists can evaluate your case at no cost. We will schedule qualifying cases for a Free Phone Consultation with Attorney Scott Grossman.
Originally Published: July 26, 2024