I AM A BENEFICIARY AND I WANT TO REMOVE THE TRUSTEE: PART II

A “breach of trust” arises when a trustee violates any duty that the trustee owes the beneficiary. This is a broad definition, and can be either negligent, willful, and/or fraudulent depending upon the circumstances. What defines a “breach” may be circumscribed by the trust itself, but generally can, again depending on the circumstances, include actions such as failure to account, misappropriation of funds, failure to invest, threats to beneficiaries, failing to pursue legal action, commingling trust and personal assets, withholding copies of the trust or certain other information, failing to treat the beneficiaries fairly and impartially, mistakenly selling land held by the trust, selling shares owned specifically by a beneficiary, having private interests conflict with those of the trust, etc. Professional trustees are generally held to a higher standard than others with regard to certain acts.

If the breach of trust occurs as a result of fraud, the trustee will be liable to the beneficiaries for any actual fraud they committed. And in fact, where there are multiple trustees, even where the fault rests with only one trustee, each trustee may be liable for damages caused by the acts of a co-trustee.

Under California law, trustees are entitled to a presumption, in the absence of evidence to the contrary, that they were faithful to the trust and acted in good faith. Trustees are not liable for mere errors of judgment, and mistaken judgment is not necessarily a breach of trust. On the other hand, a trustee’s good faith is not a defense in an action against him or her based on negligence.

While a beneficiary generally can only sue for actions by a trustee of an inter vivos trust created by another which happened after the trustmaker dies, they may also claim a violation of the trustee's fiduciary duty to the trustmaker while the trustmaker was alive, to the extent that the violation harmed the beneficiaries' interests. This means, if your parent(s) have a trust, which is managed by a sibling, if – after your parents pass – you realize the sibling was misappropriating or wasting assets during your parents’ lives, and your share of trust assets is decreased as a result, you may seek action to not only have that sibling removed, but perhaps also surcharged, to reimburse the trust.

It’s important to note that, if there was no damage caused by the breach of trust, the beneficiary’s petition will be denied. It’s also important to note that no-contest clauses do NOT apply to petitions to remove the trustee – they apply only to actions disputing the validity of the trust document itself.

If the beneficiary brings a petition to remove the trustee based on breach of trust, and is successful, the trustee may also be chargeable, as appropriate under the circumstances, with:

  • any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest;
  • any profit made by the trustee through the breach of trust, with interest;
  • any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust

Informal resolution should always be attempted first. As noted above, litigation consumes a lot of time and money, and has no guaranteed outcome.