Trustee Accused of Breach of Fiduciary Duty

What is a trust document?

A trust document is a legal document that governs how assets are allocated. The document names the trustee(s) and outlines the trust’s provisions, such as the names of the beneficiaries and what properties and assets will be committed to the trust.

Usually, most trusts are accompanied by a trust instrument. It’s traditionally prepared by the asset or property owner and their attorney.

The trust agreement may:

• Allow a trustee to conduct anything that isn’t allowed by general law, for example, self-dealing under certain circumstances.
• Protect a trustee from punishment for a breach of trust. This is called a trustee exemption clause. Still, the trustee owes it to the beneficiaries to carry out their responsibilities transparently and honestly. Exemption clauses cannot absolve a trustee who deliberately acts dishonestly or carelessly.

Rarely are trustees given the freedom to supervise and oversee trusts’ assets as their expertise dictates without a trust contract. Nonetheless, they must always prioritize the interests of the beneficiaries. In all cases, trustees must keep detailed records of their activities and communicate with beneficiaries. Otherwise, they could face a lawsuit for breach of trust.

Breach of trust

A breach of trust typically results from failure to act as is required under the trust contract or state law. A trustee’s action that violates the trust contract also constitutes a breach of trust.

Examples of breaches of trust include:

• A trustee transfers trust funds to beneficiaries who are not legally entitled to them.
• A trustee investing a trust’s assets in a way that is beyond the terms of his stated or statutory investment powers.
• A trustee violating general law or an established duty of care, e.g., using their investing power without applying the skill and care that would be reasonable under the circumstances.

Breach of fiduciary duty

What does “fiduciary” mean?

A fiduciary is an individual legally required to put the interests of others ahead of theirs. It’s one of the most challenging legal responsibilities. One well-known fiduciary relationship is between trustees and beneficiaries. A fiduciary relationship also exists between an attorney and their client, an executor and heirs, and between spouses. Even business partners have fiduciary obligations to each other.

Fiduciary means that trustees are legally required to make decisions that are in the best interests of the beneficiaries, even if those decisions do not please them. A fiduciary is the most significant legal duty an individual can owe another.

For trustees, that means they must:

• Treat beneficiaries properly and fairly.
• Act reasonably and fairly.
• Be truthful, open, and forthcoming about all pertinent information.
• Always act in good faith.
• Prioritize the beneficiary’s interests.

A trustee must never be self-serving or neglect to disclose any potential conflicts of interest. Fiduciaries must also document, account for, and explain their activities regarding the properties and assets under their management.

Breach of fiduciary

Unfortunately, abuse of fiduciary duty and breaches of fiduciary happen more frequently than you might imagine, especially when it comes to instances involving minors and the elderly. Fiduciaries have the power to make decisions about the money, property, and interests entrusted to them. As a result, fiduciaries’ decisions will inevitably impact the individuals they represent.

A fiduciary commits a breach of fiduciary responsibility when they behave unreasonably, failing to follow the guidelines of what a prudent fiduciary would do under the circumstances.

If you have reason to believe a trustee is in breach of fiduciary, seek the help of a fiduciary abuse attorney immediately to safeguard the estate while it’s still standing.

What exactly is a breach of fiduciary duty?

In California, a plaintiff needs to prove the following to win their breach of fiduciary responsibility claim:

• There was a fiduciary relationship.
• The trustee breached their fiduciary obligations.
• The breach caused the plaintiff to suffer damages.

In these circumstances, the plaintiff bears a comparatively light burden of proof, provided that an abuse or breach occurred. As a result, trustees should always put beneficiaries’ interests first. Every decision you make and action you take must be reasonable and sound. Also, remember to document everything since you may be asked to produce an accounting of the trust assets and properties in court. During the litigation, the plaintiff’s lawyer will try to ask the court to place the trust in question under temporary fiduciary. You’ll only be reinstated if you’re found innocent.

Examples of fiduciary duty violations

Fiduciary abuse occurs when a trustee is discovered to be operating in bad faith. Trusts must be supervised and distributed as per their trust instrument instructions. A trustee violates their fiduciary duties if they:

• Swindle estate funds (self-dealing)
• Combine estate and personal funds.
• Refuse to distribute assets to beneficiaries.
• Make sure to meet their contractual responsibilities.
• Cause harm or loss through wrongful actions or omissions
• Obtain finances by deception, fraud, or undue influence.
• Selling trust assets without the trust instrument’s permission.

It should be noted that some types of fiduciary abuse or breach are criminal in nature. But plaintiffs may choose to waive criminal charges and instead pursue punitive or monetary damages and injunctive relief via civil suits. That means the trustee may be forced to pay the plaintiff monetary damages directly attributable to the breach of fiduciary duty, further monetary damages for consequential damages, and be removed from the role by the judge.

What are the penalties for a breach of trust?

The most common punishments for breach of trust are suspension or termination of one’s duties as trustee, monetary damages, court expenses, and attorney fees.

Fiduciaries who breach their duty may face punitive, compensatory, double, or even treble damages. Compensation is meant to make the aggrieved “whole” again after the breach. Put another way; this damage compensates the trust or beneficiaries for the funds they lost due to the fiduciaries’ negligent or selfish actions.

In contrast, punitive damages penalize the trustee for their wrongdoing by compelling them to make an additional payment in addition to compensatory damages.

In rare cases, guilty fiduciaries are ordered to make statutory payments twice or three times as big as compensatory damages. In addition to monetary damages, the trustee may be obligated to reimburse the plaintiff for legal fees and expenditures incurred due to the breach. This covers legal fees, filing charges, expert witness costs, and court expenses.

Is it possible to go to jail for a breach of trust?

Yes, some abuses of fiduciary, such as fraud, embezzlement, and theft, are punishable by imprisonment. Unfortunately, far too often, authorities lack the resources to file criminal cases against dishonest fiduciaries, leaving these disputes to be resolved in civil suits.

In California, fiduciary abuse comprising embezzlement or theft of assets worth $950 or less is a misdemeanor felony that could land you six months in jail. On the other hand, if you embezzle or steal assets costing over $950, you may face felony embezzlement charges and up to three years in prison.

But even so, we rarely see fiduciaries guilty of embezzlement or theft face criminal charges. Only in the most severe circumstances are fiduciaries charged with a crime. Instead, the guilty fiduciary will typically only be required to reimburse the trust for the embezzled funds, with the possibility of additional penalties such as punitive, double, or treble damages and legal fees. Because civil courts cannot imprison people, a trustee can only get a jail sentence if the case goes to a criminal court.

Is it possible to get sued even with a no-contest clause?

Yes, even if there is a no-contest clause, beneficiaries may sue you if they discover a breach of trust. A no-contest clause merely prevents beneficiaries from contesting the trust’s legitimacy; it does not preclude them from suing you if you breach fiduciary duty.

If a trustee commits a breach of trust

Under California Probate Code §16440, trustees can be held financially accountable for any breach of trust, including surcharges for loss or depreciation of trust assets, with interest.

Need assistance with trust litigation?

It’s in a trustee’s best interest to retain the services of a trust lawyer and attorney before taking on the role. Working with a trusted lawyer can help avoid breaches of fiduciary, lawsuits, and potential personal liability.

Contact an attorney immediately for protection if you’re a trustee accused of a breach of fiduciary duty. You’ll need someone who has a background in trust litigation. Contact us if you need legal assistance with beneficiary-trustee problems. We are competent California trust attorneys with extensive expertise representing trustees and beneficiaries. Get in touch to see how we can assist you.