Trustee Duties under California Law for a California Trust
A trustee is a fiduciary appointed to fulfill the requirements of a trust. If a trustee does not abide by trust instructions or their legal obligations, probate litigation can be used to suspend, remove, replace, and recover damages from the trustee. Cal. Prob. Code, §16420. The duties of an estate trustee are similar to an executor of a will with regard to the responsibilities and obligations. Various issues can arise when choosing, drafting, or funding a trust. Knowing and understanding the duties of the trustee is an important step to better understanding the complicated nature of wills and trusts. We highly recommend you consult with an experienced trust & estate attorney who can help you enforce a will or trust when issues of breach of fiduciary duty arise.
What is a Trust?
Trust Definition: A trust is created by a person (trustor) who transfers property to a third party (trustee) for the benefit of chosen persons (beneficiaries). The trustee holds and administers the property for the benefit of the beneficiaries.
What is a Trustee?
Trustee Definition: The Trustee is the person named to manage the assets within the trust. The Trustee is the legal owner of all trust assets.
What is a Beneficiary or Heir?
Beneficiary or Heir Definition: Beneficiaries or heirs are those that are set to receive assets from the trust. Typically, family members, friends, and charities are the beneficiaries or heirs of trusts.
What is the Standard of Care of a Trustee?
Standard of Care Definition: A trustee must administer a trust with reasonable care, skill, and caution that a prudent person would exercise to accomplish the goal(s) of a trust. Cal. Prob. Code, §16040. Trustees that have a special skill (i.e. expert in investing) are required to use those skills in administering their trustee duties. Cal. Prob. Code, §16014.
What Duties Does a Trustee of a California Trust Owe to a Beneficiary?
Adherence to Trust Language
A Trustee must execute the terms of a trust. Cal. Prob. Code, §16000.
Duty of Loyalty
A trustee must act impartially between beneficiaries. Unless specified in the trust terms, a trustee may not favor a beneficiary or class of beneficiaries. Cal. Prob. Code, §16003. Further, a trustee must act in the best interest of the beneficiaries and must administer the trust with the sole purpose being to benefit the beneficiaries. Cal. Prob. Code, §16002. A trustee must not engage in self-dealing and must avoid conflicts of interest. Self-dealing is present when a trustee prefers one beneficiary they like (i.e., their own child) over another, or when a trustee sells trust property to their own family member etc. Cal. Prob. Code, §16004.
What Happens When a Trustee Breaches Their Duty of Loyalty?
If the breach of duty of loyalty resulted in a loss to the trust, the trustee must make good the loss by paying for it out of their own pocket. If the trustee makes a profit from their breach, e.g., in family trust embezzlement, then the trustee is considered a constructive trustee and must turn over those profits to the intended beneficiary of the trust. Cal. Prob. Code, §16440.
Duty of Impartiality
A trustee cannot favor one beneficiary over others. Cal. Prob. Code, §16003.
Duty to Invest
In California, a trustee is subject to the Uniform Prudent Investor Act which holds a trustee must manage and invest trust assets as a prudent investor. In doing so, a trustee can consider the purpose and terms of the trust. Cal. Prob. Code, §16047. Under the Uniform Prudent Investor Act, each individual investment is not scrutinized, rather, the entire trust portfolio is evaluated. Unless the trust states otherwise, the trustee has a duty to invest trust property, preserve it, and make it productive. Cal. Prob. Code, §§16006–16007.
Duty to Diversify
A trustee has a duty to diversity trust investments unless the terms of the trust say otherwise. Cal. Prob. Code, §§16046(b), 16048. Subject to the terms and intent of the trust, the trustee has a duty to make the trust property as productive as possible. Cal. Prob. Code, §§16007, 16046(b).
Duty to Earmark
A trustee must label trust property as trust property (i.e., Jim Halpert as Trustee of John Doe’s Revocable Living Trust). Importantly, if there is a failure to earmark, and that failure results in a loss to the trust, the trustee is held personally liable. Cal. Prob. Code, §16009.
Duty to Segregate
A Trustee cannot comingle their own personal funds with trust funds nor may a trustee comingle funds from one trust with funds from another. Cal. Prob. Code, §16009. If a Trustee breaches this duty, the trustee may be removed from their position and be held personally liable for any loss.
Duty Not to Delegate
A trustee has a duty not to delegate their powers (even to another trustee). However, a trustee may delegate their duty to invest. Moreover, a trustee may rely on professional advisors in making a decision. Cal. Prob. Code, §16052.
Duty to Account
The duty to account requires the trustee, on a regular basis (annually, at trust termination, change of trustee), to give beneficiaries a statement of income and expenses of the trust. Cal. Prob. Code, §16062. If a trustee fails to do so, beneficiaries may file an action for accounting. The trustee must keep beneficiaries reasonably informed about the trust and its administration. Cal. Prob. Code, §16060.
Duty of Disclosure
A trustee must keep trust beneficiaries reasonably informed and disclose all material facts necessary to protect the beneficiary’s interests in the trust. Cal. Prob. Code, §16060.
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We highly recommend you speak with an experienced California trust, estate, and probate attorney. For a free consultation, contact the attorneys at Talkov Law at (844) 4-TALKOV (825568) or info(at)talkovlaw.com.
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