Estate LitigationTrustsWhen a Trustee isn’t so trustworthy.

February 3, 2020by RaxterLaw

When a trustor drafts and executes a trust they install certain named persons as successor trustee(s) to serve in the absence of the initial trustee (usually the person creating the trust). No pun intended but you have to choose someone trustworthy to act. Unlike a will, a trust typically is not supervised by the court so the trustee actions are not confirmed by the Court. 

Since the trustee holds legal title to the trust property, he or she owes fiduciary duties to the beneficiaries who hold equitable title. The trustee must distribute the property in accordance with the settlor’s instructions and desires. His or her three primary jobs include investment, administration, and distribution.

The trustee’s fiduciary duties include a duty of loyalty, a duty of prudence, and subsidiary duties. The duty of loyalty requires that the trustee administer the trust solely in the interest of the beneficiaries. The duty of prudence requires that the trustee is held to an objective standard of care in managing the trust property. Subsidiary rules include the duty of impartiality (no favoritism between classes of beneficiaries), the duty not to comingle trust property and the trustee’s personal property, and the duty to inform and account to beneficiaries.

Under common law, the trustee had an affirmative duty not to delegate acts he or she could reasonably be required to personally perform. A trustee could, however, employ agents and attorneys where reasonable under the circumstances. Generally, the law states that a “trustee may delegate duties and powers that a prudence trustee of comparable skills could properly delegate under the circumstances.” The trustee must act with reasonable care, skill, and caution when selecting an agent.

Due to the fact, that no judicial entity is supervising the actions of the trustee, the trustee must be held accountable by the beneficiaries or other interested parties to the trust. If the beneficiary becomes aware that some malfeasance or breach of trust has occurred they must act quickly to remedy such which may include filing a Petition for breach of trust by the acting trustee. Within the same petition removal of the trustee may be sought.

Beneficiaries can recover improperly distributed trust assets if they are traceable back to the trust. Beneficiaries’ claims against the trustee are of no higher priority than claims of other trustee creditors. Beneficiaries, however, and not creditors, are the only parties who can reach the trust property. If a trustee wrongfully disposes of the trust property, the beneficiaries can generally recover the property unless it has come into the hands of a bona fide purchaser for value. If the trustee disposes of trust property and acquires other property with the proceeds of the sale, the beneficiaries can enforce the trust on the newly acquired property.

As stated the trustee has a duty to provide accountings and to keep the beneficiaries informed and if the beneficiaries are not receiving such information they should seek legal representation.

By most statistics most trusts are managed without issue but with freedom from court supervision comes freedom to mismanage a trust.

If you are a beneficiary of a trust and suspect that the acting trustee is not acting properly you should seek legal consult with an experienced trust attorney.

RAXTER LAW

Jeremiah Raxter, Esq

Probate and Trust Attorney

27851 Bradley Rd, Ste 145

Menifee, Ca 92586

951-226-5294

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