When a Settlor of a Trust (also known as the Grantor) passes away and there is no Surviving Settlor, the Successor Trustee is tasked with administering the Trust. This is not a simple job. It is one that is governed by the law and has the potential to expose the Successor Trustee to personal liability if not acted correctly upon.
Among some of the tasks that a Trustee must complete are (1) the marshalling, safeguarding and valuing of the Trust Estate assets; (2) payment of debts and liabilities of the Trust; and (3) the timely distribution of the Trust assets to the beneficiaries. A Trustee is not free to “sit” on the Trust assets, taking no action, or using assets as his or her own. Rather, a Trustee has a duty to administer the Trust as directed by its terms.
It is important to note that a Successor Trustee is a fiduciary and therefore owes a fiduciary duty to the beneficiaries of the Trust. California law provides that trustees must “act with the utmost good faith for the benefit of the .” (Hearst v. Ganzi (2018) 145 Cal.App.4th 1195, 1208 citing Persson v. Smart Inventions, Inc. (2005) 125 Cal.App. 4th 1141, 1160.)
A Trustee’s fiduciary duties include but are not limited to:
- The duty to keep the beneficiaries of the trust informed as to the trust administration. Ca. Prob. Code § 16060;
- The duty of loyalty to the beneficiaries. Ca. Prob. Code § 16002;
- The duty to deal impartially with the beneficiaries. Ca. Prob. Code § 16003;
- The duty to avoid conflicts of interest. Ca. Prob. Code § 16004);
- The duty to control and preserve trust property. Ca. Prob. Code § 16006;
- The duty to act as a prudent investor (Ca. Prob. Code § 16047), including but not limited to the duty to make trust property productive and to dispose of improper investments.
A failure by the trustee to perform his or her duties will result in a breach of trust. (See Prob. Code § 16400.) The liability imposed upon a Trustee for a breach of trust is extensive, and may include that the Trustee be held personally liable for any of the following damages: (1) Any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest; (2) Any profit made by the trustee through the breach of trust, with interest; or (3) Any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust. Ca. Prob. Code § 16440.
All too often we counsel clients who have disregarded their duties and find themselves in a very difficult situation. If you’ve been named as Successor Trustee and would like to avoid exposing yourself to a difficult administration, or worse yet, personal liability, please contact one of our trust administration attorneys to schedule a consultation today.
The material in this article, provided by Chauvel & Glatt, is designed to provide informative and current information as of the date of the post. It should not be considered, nor is it intended to constitute, legal advice or promise similar outcomes. For information on your particular circumstances, please contact Chauvel & Glatt at 650-881-3021. (Photo Credit 123rf.com).