A trustee is responsible for holding and managing property for the benefit of the trust’s beneficiaries. Because of the enormous power placed in trustees, they are bound by a set of rules called fiduciary duties. Whether you’re a trustee or a beneficiary, it is important to understand the nature of these duties and the potential consequences of violating them.
Loew Law Group is here to serve you. We represent both trustees and beneficiaries when issues arise involving fiduciary responsibilities. If you have questions, we’re here to answer them.
What Is A Fiduciary Duty?
Fiduciaries are individuals who are trusted to act on behalf of someone else by putting that person’s best interests ahead of their own. The law considers a fiduciary duty to be the highest standard of responsibility one can exercise. A lawyer, for example, is a fiduciary because that person is obligated to advance the interests of his or her client. But fiduciaries often involve finances of some kind, so common examples include accountants, money managers, and trustees.
When a trust is created, someone has to be in charge of the money, property, and other assets included in the trust. That person is a trustee, and both the trust itself and fiduciary law lay out the obligations by which the trustee is bound. While the trustee is given a fairly broad degree of decision-making authority, the ultimate question is whether he or she did right by the trust’s beneficiaries.
The California Probate Code requires trustees to administer trusts with reasonable care, skill, and conduct, to the same degree that a reasonably prudent person would in order to effectuate the terms of the trust. Moreover, if the trustee has a certain set of skills (like managing money), that person is expected to fully use those skills in executing his or her duties as a trustee.
What Are The Trustee’s Fiduciary Duties?
With those principles in mind, consider some of the common fiduciary duties required of trustees under the California Probate Code:
- Following the trust language. The trust instrument lays out certain terms that have to be followed, like meeting any obligations imposed by law on the trust. Executing the terms of the trust is one of the most fundamental responsibilities of any trustee.
- Duty not to delegate. The trustee cannot assign his or her powers to someone else, although he or she is allowed to delegate the duty to invest to others. Also, a trustee may rely on professionals to properly advise.
- Avoidance of conflicts. Impartiality is essential, in that the trustee cannot show favoritism to any one particular beneficiary. This duty becomes important where, as is often the case, the trustee is one of the beneficiaries.
- Duty of loyalty. Similar to the duty of avoiding conflicts, the trustee must be loyal to the beneficiaries’ interests. Evidence of self-dealing or of acting on behalf of someone other than the beneficiaries could be a violation of this.
- Accurate reporting and record keeping. Trustees are required to regularly report to beneficiaries about trust assets, income, and expenses. As part of this duty, accurate records must be kept at all times.
- Duty to keep personal funds separate. Mixing personal funds with trust funds, or the assets of one trust with those of another is a major breach of fiduciary duty. This is referred to as commingling and can result in substantial liability for the trustee.
- Duty to label. Sometimes called the duty to earmark, this is similar in nature to the obligation to keep trust funds separate from all others. The trustee must ensure that trust property is clearly designated as such so as to avoid any commingling.
- Duty to invest. A trustee must invest trust assets as a prudent investor would, including diversifying investments where appropriate. To carry out this duty, the trustee can consider the purpose and terms of the trust, but should generally endeavor to invest assets productively.
What Are The Consequences Of Violating These Fiduciary Duties?
Beneficiaries are afforded a wide range of potential legal relief in the event the trustee is determined to have breached his or her fiduciary duties. In fact, beneficiaries can take legal action if the trustee even threatens to commit a breach. Among those remedies are:
- Forcing the trustee to carry out the trustee’s duties
- Preventing the trustee from committing a breach
- Recovering monetary and other forms of damages
- Suspending the trustee
- Denying or reducing the trustee’s compensation
- Removing and replacing the trustee with someone else
- Setting aside acts and decisions made by the trustee
- Recovering money and property wrongfully disposed of
- Placing an equitable lien or constructive trust on trust property
- Taking other action as appropriate
How Can Loew Law Group Help?
If you’re a beneficiary who believes the trustee has violated his or her fiduciary duties, you can petition the probate courts for the above remedies. An experienced California probate attorney can assist you. Meanwhile, if you’re the trustee, you probably understand the magnitude of responsibility entrusted to you. Our law firm regularly advises trustees on their duties, helps them carry out those obligations, and defends them in court.
Ready to get started on your case today? Have questions about your role as trustee? Call Loew Law Group and schedule your initial consultation.