Patrica
Experienced & Thoughtful
Estate Planning & Administration
What Legal Steps Should be Taken When a Trustee is Suspected of Mismanagement in California?

What Legal Steps Should be Taken When a Trustee is Suspected of Mismanagement in California?

Latest News

What Is a Trustee Responsible for in a Trust?

It’s vital to understand what a trustee should do before determining if a trustee may be mismanaging a trust. As a person or organization managing a trust, their role is to act only in the beneficiaries best interests. They should focus on maintaining the trust legally and ethically. They have what’s called a fiduciary duty to do so.

A trustee has several significant responsibilities.

  • Operate the trust according to its terms. This means the trustee must understand the terms of the trust and carry out any tasks or functions to abide by the trust.
  • Manage assets. The trustee must regularly oversee all the assets in the trust to ensure they’re correctly cared for, whether that involves financial investments or maintenance-prone real estate. 
  • Recordkeeping. The trustee should keep detailed records that convey relevant information not just for the beneficiaries but also for tax returns, banks, etc. 
  • Resolution of debts. If debts (such as taxes) need to be paid, the trustee is responsible for ensuring they’re paid in full and on time. 
  • Distribution of assets. The trustee must adhere to the trust’s specifications and distribute the assets as ordered and on a timely basis. 
  • Impartiality. The trustee must remain impartial. That means they shouldn’t show preference to one beneficiary over another.
  • No conflicts of interest. The trustee shouldn’t be someone who would be a beneficiary themselves, as that could create a conflict of interest. They also shouldn’t conduct the trust’s business in a way that implies a conflict of interest (such as hiring a relative as a financial advisor). 

What Are Types of Trust Mismanagement?

There are several critical a trust can be mismanaged. This is not an exhaustive list. If you’re concerned that a trustee is acting improperly but don’t see the infraction listed here, contact an experienced trust management attorney

  • Personal gain. A trustee cannot use assets in a trust for the trustee’s personal gain. That can include situations where a trustee gives themself a loan from the trust or uses funds in the trust to purchase personal items. 
  • Ignores the trust’s directives. When the trust specifies certain actions and responsibilities, and the trustee doesn’t abide by them, that may be mismanagement.
  • Release of personal information. Trust documents should be confidential and not shared, except as required by law.
  • Delays distributing assets. There are sometimes legitimate reasons for delayed distribution, such as paying off the last debts and taxes. Still, it may be mismanagement if the trustee can’t provide a legitimate reason. 
  • Doesn’t provide documentation of the trust. This is a major red flag. Trustees should keep in contact with beneficiaries and others regularly to inform them of what happens with the trust. 

What Legal Steps Should Be Considered if a Trustee Appears to Mismanage a Trust?

There are several legal steps that can be taken. Working with an experienced trust administration attorney is highly advisable to ensure the most relevant steps are taken properly.

  • Request an accounting. Beneficiaries have a legal right to request accounting at any time, and the trustee must deliver detailed reports showing all activity in the trust.
  • Gather evidence. The reports (or lack thereof) can be the first of many pieces of evidence. Your attorney can guide you on what to look for and how to acquire relevant evidence.
  • Petition for removal. Once the evidence is reviewed, if it appears mismanagement has occurred, the beneficiaries can petition the court and ask for the trustee to be removed. Beneficiaries must be able to prove reasons for the request to remove, such as breach of fiduciary duty, fraud, etc. An attorney can help you determine what could be considered a legally sound reason for the petition.
  • Mediation or settlement. This can occur at multiple points during the legal steps. The goal is to negotiate an agreement regarding the trustee and their role in the trust (and if the trustee owed reparations to the beneficiaries). Going through mediation or settlement can be less time-consuming and costly than pursuing a lawsuit. But there are times when the mediation or settlement isn’t successful. 
  • Lawsuit for breach of trust. Beneficiaries can file lawsuits for particularly extreme misconduct. These actions have the dual purpose of holding the trustee accountable for their actions and possibly allowing the beneficiaries to recoup losses if the trustee is found responsible. As noted above, this can be more time-consuming and costly, but there are times when it’s the only route to the beneficiaries receiving an agreeable outcome.
  • Surcharge for damages. When filing a lawsuit, beneficiaries may also request a surcharge for damages. This is a penalty the court may assess against the trustee to cover losses accrued during the trustee’s term. It may also include non-monetary issues such as emotional distress or loss of inheritance. 

What Should I Do if I Think the Trustee for My Trust is Mismanaging It?

Call Patricia Scott Law as soon as possible at 510-694-1098 to request a free 30-minute consultation (not applicable for trust administration cases). I understand how stressful just the thought of this is. I can discuss the specifics of your trust and the actions taken (or not taken) by the trustee and help you determine whether or not the trustee is not acting in the trust’s best interests. These are complex cases, and I can help you understand what’s happening and what your next steps should be.

Related Articles