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Can a trustee be held personally liable?
A trustee can be held personally liable if they are found to be in breach of duty or breach of trust. The state requires trustees to follow the terms of a trust to the latter. If there are accusations of self-dealing, stealing, fraud, or use of trust assets to harm a third party, trustees should work closely with a defense attorney experienced in trusts and wills.
Can a Trustee be held personally liable
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Can a Trustee be held personally liable?
Yes, a Trustee can be held personally liable! That is why a Trustee must seek expert guidance from an estate planning attorney who has prior trust litigation experience. The Trustor (the settlor) often decides to create a Trust thinking that any methodology should do. On the contrary, there are so many family dynamics, business dynamics that cannot be overlooked. A Trust in and of itself is a vehicle to protect one’s assets, but it can cause repercussions after the trustor/settlor dies if not drawn up correctly.
Now, the Trustee should understand that their fiduciary duty (responsibility) is toward the beneficiaries first and foremost and live up to the settlor’s wishes. Sometimes the settlor chooses more than one Trustee, i.e., co-trustee, to administer the estate jointly. The settlor does this because of family dynamics. The settlor feels that if they choose one child over the other, that favoritism is at play. This ill-conceived notion, if not laid out specifically in the trust document, can open sibling rivalry.
So what kind of issues can hold the Trustee liable?
If you are a Trustee, please note the estate is not a “piggy-bank” and cannot be used to pay for something personally even if you had intentions to pay it back the next day! Doing so can be considered embezzlement, and depending on what ramifications took place, it can open doors for the beneficiaries to go after you personally.
If you are not transparent in your dealings, for example, utilizing a contractor to work on a property and pay them an excessive amount of money could have cost way less. Should it be found that the contractor you chose is directly related to you and shown you profited from the transaction, the beneficiaries can contact you to return the assets. If you don’t, then you can be held personally liable.
Trustee? What to look out for to reduce liability
- Meet with a Trust attorney to ensure you fully understand the wishes of the settlor. (Always seek advice from lawyers, accountants, advisors, etc.)
- Keep your bookkeeping up-to-date.
- Choose 2-3 outside professional bids to keep all activities in an arms-length transaction.
- No-commingling of funds!
- Do not use the estate as a piggy-bank.
- Keep the beneficiaries reasonably up-to-date.
Trustee and Co-Trustee Conflict
When there is a conflict between the trustee and co-trustees, then the beneficiaries may petition to remove one or both in court, but again, it takes court action, which costs a lot of time and a lot of money. Even then, you may not know how the court will rule in the house hotel intervene in the trust affairs. Therefore it may not go as planned.
Are you a Trustor?
If you are a trustor, then you may want to consider having the Trust name the co-trustees to act independently that is, act alone without both signatures. Logistically, if the trustees can work independently, then the trust administration process can be completed on time. For example, if a trustee goes out on vacation or is incapacitated, the other trustee can continue with only one signature needed to get everything completed and distribute the estate to the beneficiaries.
Take into consideration under California probate code section 15620 must be unanimous action to c0-trustees unless otherwise provided in the trust instrument. Your estate planning attorney must insert a particular language specifying and allowing for actions by one or the other co-trustee.
What is Unanimous Action
If the specific wording is not included in the original trust instrument or an amendment, then section 15620 requires “Unanimous action.” One can consider this as a majority rules clause.
When Co-Trustee Don’t Agree
What happens if the co-trustees can’t agree? If the co-trustees cannot agree, then any of them can file a petition for instructions under California probate code 17200, which will ask a judge of the superior court to guide the co-trustees. When a co-trustee petitions for instructions, all co-trustees and beneficiaries must be notified.
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Currently offering a free case review Call us at 949-706-7300Being a Trustee and Needing Counsel Trustees with prior experience may have a greater understanding of the demands of the role than newcomers. Some tasks may be technical and time-intensive. The...
Trust & Probate Litigation Lawyers
Are you looking for a trust litigation lawyer in the Orange County area? When it comes to the practice of Trust and estates, it can be difficult finding an attorney that’s experienced in handling your specific issues.
- Can a Trustee sue on behalf of the trust
- Can a Trustee be held personally liable
- Can a Trustee remove a Beneficiary from a trust
- Settling a Trust After Death
- Being a Trustee of a Trust