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Can A Trustee Be Held Personally Liable

Can a Trustee Be Held Personally Liable?

Can a Trustee Be Held Personally Liable? Trustees can indeed be held personally liable in certain situations. In California, trustees may face personal liability in litigation, which can result in their replacement, civil damages, restitution, fines, and, in some cases, personal liability. This personal liability typically arises when trustees breach their fiduciary duties or act negligently. It’s essential to consult with legal experts for a detailed understanding of these circumstances and legal consequences.

Can a Trustee be held personally liable

Yes, a Trustee can be held personally liable! That is why a Trustee should 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.

Is a trustee personally liable for debts of a trust

Trustees hold no personal liability for a trust’s debts, including mortgages, loans, or bills. As a trustee, your responsibility is to manage trust obligations from its assets, not your own finances, ensuring a clear separation between personal and fiduciary duties.

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 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 should be unanimous action to c0-trustees unless otherwise provided in the trust instrument. Your estate planning attorney should 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.

How are trustees held accountable

Trustees are obligated to comply with the trust’s terms and are answerable to its beneficiaries. Personal liability may ensue if trustees engage in self-dealing with trust assets or harm a third party, as though they owned the property themselves.

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 should be notified.

What An Executor Of An Estate Can And Cannot Do

What an Executor of an Estate Can and Cannot Do

What an Executor Cannot Do An executor must adhere to the will's instructions and cannot alter asset distribution or modify beneficiaries. They are obligated to notify and communicate with all heirs and beneficiaries. Any deviation can lead to legal consequences....