What Happens if a Trustee Doesn’t Follow the Trust

Does a trustee have to follow the trust

How much power does a trustee have over assets? According to the California Probate Code, Section 16004, a trustee holds a ‘duty of loyalty’ to beneficiaries. This means while they have control over trust assets, they must always act in the best interests of beneficiaries, avoiding any self-dealing or conflicts of interest.”

what to do if trustee does not follow trust

In cases where trustees fail to abide by the terms of a trust, beneficiaries should file a petition in Probate Court requesting an accounting and distribution order against them. This legal action compels trustees to account for their actions within an agreed-upon timeframe before dispersing assets in accordance with trust stipulations.

Trustee won’t distribute assets

When a trustee withholds asset distribution, beneficiaries have legal avenues. They can petition courts for distribution, scrutinize the trust, or seek trustee removal. If a trustee claims insufficient funds, beneficiaries can demand the trust’s financial records, ensuring transparency and adherence to fiduciary duties.

Can a trustee represent a trust in court

In California, non-attorney trustees can represent themselves in court, provided they aren’t engaging in unauthorized legal practices.

What if trustee refuses to distribute assets

Trustees have a fiduciary duty to distribute assets as per the trust’s terms. Regrettably, some trustees may refuse. In such cases, beneficiaries should seek legal counsel. Under California Probate Code Section 17200, beneficiaries can petition the California Probate Court to compel distribution. It’s essential to act promptly to protect one’s rights.

What’s a breach of fiduciary duty?

Breach of fiduciary duty is when a trustee is found to be acting in bad faith. A trust is an outright gift to the beneficiary and should be distributed as the grantor wishes. As a trustee, you will be in breach of fiduciary duty if:

Self-dealing, e.g., selling a trust property to yourself
Mishandling assets and not allowing trustee accounting
Denying beneficiaries their share of the assets
Using assets for their own benefits
Selling assets in trust yet the trust agreement forbids
What happens if you are found to be misappropriating a trust?

If you are misappropriating a trust, four things can happen, depending on the beneficiaries and their attorneys. Here’s a look:

You may be asked to present a written account of the trust funds and distribution.

The trust administration process is usually the first step taken by the beneficiaries and their lawyers before filing a court case if all fail. The trust accounting must describe assets you received from the grantor and the amount distributed to beneficiaries so far. It must also list all assets being held in the trust. The information will help the other party get a clear picture of the trust finances and how much you owe the beneficiaries.

Court case to compel the release of trust accounting and distribute assets

The beneficiary and their attorney will ask you to distribute the money you owe the beneficiaries. But if you refuse to produce the accounting information or distribute assets, their next step is filing a petition in probate court. Usually, the judge will compel you to release the information, so have it ready. The other party will review the information and determine their next step. They may also subpoena your bank records to verify the information presented.

Legal action for breach of fiduciary duty

If the trust accounting and bank record show misappropriation of the assets in the trust, you may be sued for breach of fiduciary duties. The other reason this may happen is if you fail to communicate or fulfill the beneficiaries’ requests. At this point, the beneficiary might ask the court to:

Remove you from the trustee position
Replace you
Terminate the trust
Compel you to distribute the assets in trust properly.

Removal or suspension is never easy. The beneficiary’s team will have to present evidence; after discovery, a trial can continue. During the trial, the beneficiary’s attorney will try to have the court place the trust under a temporary fiduciary.

As a trustee being sued, you can ask the trust to take care of your legal expenses. The court might allow it, but if you are later found in the wrong, you will have to pay the money back, plus others found to have misappropriated. Court cases take time and money. Most legal teams will seek to have the court compel you to fulfill your fiduciary duties instead of being removed.

Can I get sued even if the trust has a no-contest clause?

Yes, you can get sued if you are found to be misappropriating a trust, even in the case of a no-contest clause. A no-contest clause only keeps beneficiaries from challenging the trust’s validity, but it won’t stop them from suing you should you breach your fiduciary duties.

Need help with trust litigation?

A lot can happen when it comes to trust management and administration. Some cases are a serious breach of fiduciary duties; others are not.

For example, you may be sued for failing to distribute assets when you are still settling taxes, paying debts, and preparing the estate for sale after the grantor’s death. Usually, there’s a reasonable time frame to make distributions.

Still, some beneficiaries may not understand, and you may find yourself in court. In any case, you need someone experienced with trust litigations. For legal help when it comes to beneficiaries-trustees conflicts, give us a call. We are qualified trust attorneys in California with plenty of experience representing beneficiaries and trustees. Give us a call to find out how we may help.

Trustee failure to account

A trustee’s neglect to account can breach statutory and fiduciary obligations, leading to liability if beneficiaries suffer harm. Courts may intervene, impose penalties, or even remove the trustee.

Failure to distribute assets

In California, trustees who mismanage, distribute incorrectly, or fail to distribute trust assets as required can face personal liability. This applies when they violate trust terms or California law, emphasizing the importance of strict adherence to fiduciary duties in trust administration.