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How to avoid litigation as a Successor Trustee

Trust Litigation and the Successor Trustee

Attention all Successor Trustees. Do you want to avoid litigation and steer clear of personal liability? If you answered yes, please keep reading.

First, let’s talk about how a Successor Trustee becomes THE Trustee.

A Successor Trustee will become the acting Trustee when the Trustor dies, becomes incapacitated or simply resigns as the Trustee of their Trust. Once a Successor Trustee becomes the acting Trustee, it is important that he/she understand their role as a fiduciary of the Trust property or “Trust Res”.

The Two Most Common Reasons for Trust Litigation

If a dispute is going to arise leading to litigation during a trust administration it will be due to either: (1) a negligent trustee, or (2) an unhappy beneficiary. Either of these will typically manifest because a Trustee violates the terms of the trust or fails to perform some duty.

Typical issues involving trust litigation include:

  • Litigation involving the validity of the Trust (similar to a will contest for incapacity, undue influence, duress, etc…), or
  • The Trustee’s Breach of a Fiduciary Duty*

*Fiduciary duties of the Trustee include:

Duty of Care, Duty to Administer the Trust, Duty of Loyalty, Duty of Impartiality, Duty to Avoid Conflicts of Interest, Duty to Control and Preserve the Trust Assets, Duty to Make the Trust Productive, and Duty to Avoid Commingling of Funds. Failure to abide by any of these duties can expose the Trustee to personal liability.

Duty of Care: a Trustee must exercise the degree of care, skill and prudence that a reasonably careful person would use in dealing with her own property. A Trustee’s personal weaknesses will not reduce the minimum degree of skill required. And if a Trustee has a special skill, the skill required to be used will be increased to that higher level.

Duty to Administer the Trust: Basically, this is the duty of the Trustee to administer the Trust according to the terms of the Trust.

Duty of Loyalty: The Trustee is under a duty to place the beneficiaries’ interests before his/ her own and administer the trust solely for the benefit of the beneficiaries. Therefore, the Trustee must not use the Trust assets to enter into any transaction that would be harmful to the beneficiaries’ interests, especially if the transaction involves self dealing.

Duty of Impartiality: A Trustee has a duty to act with impartiality towards ALL beneficiaries.

Duty to Avoid Conflicts of Interest: A Trustee needs to avoid entering into a transaction where the Trustee’s interest is contrary to the interest of the beneficiary or the Settlor of the Trust.

Duty to Control and Preserve the Trust Assets: The Trustee must keep control of the Trust res according to the terms of the Trust. In addition, the Trustee must enforce all rights or claims of the trust against third parties.

Duty to Make the Trust Productive: The Trustee must invest the Trust property in order to make the Trust property productive. This duty also includes selling unproductive assets and using the income from the unproductive asset in a productive way.

Duty to Avoid Commingling of Funds: The Trustee should not mix (commingle) his or her own money with money in the Trust.

So there you have most of the basic duties. Essentially, the Trustee is the fiduciary of the Trust assets.  The bottom line is the Trustee is on the hook for any decision that would undermine or jeopardize the assets in the Trust or the original intentions of the Settlor of the Trust. That is a huge responsibility.

Because of the potential for personal liability, it is wise for a Trustee charged with the administration of a trust to seek out legal advice. As mentioned above, a Trustee can be held personally liable for not fulfilling his or her fiduciary duties.

This means that if you accept the appointment to serve as a Trustee, you will be held responsible for understanding and implementing the terms of the Trust. If a Trustee improperly spends Trust assets, the Trustee can be personally on the hook to the Trust beneficiaries for any loss to the estate. Also, if the estate lacks the needed assets to pay expenses, the Trustee can be held personally liable, even if it was due to negligence.

The attorneys at the Law Offices of Jack B. Friedell are help to help Successor Trustees navigate the trust administration process.  If you are a Successor Trustee, and you desire to avoid any potential conflicts with the trust administration, please give an experienced California Trust Administration Attorney a call today.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.

Original estate planning documents

Does your trustee or executor know where your original estate planning documents are? Keep your contact information up to date.

Written by the Law Offices of Jack B. Friedell.

We recently took over the practice of another attorney. One of the problems we are faced with is contacting old clients whose information has not been kept current.

It is a common practice for attorneys to hold their clients original documents. Often clients will give their drafting attorney the original estate planning documents because the attorney has a fireproof safe or some other way to keep the documents safe. But an important factor would be keeping the attorney abreast of any new living arrangements and contact information.

I am not placing blame on anyone but if I had given my attorney important information for safekeeping, such as my original estate planning documents, I would do my best to make sure my attorney could find me if necessary.The problem usually arises when the client has forgotten that they left the documents with their drafting attorney. A lot of time passes and the client believes they have their originals, probably in their safety deposit box. Little do they know they might be setting their beneficiaries up for disaster because no one knows where the originals are and the grantor or settlor has died.

Now, it may be that the client has passed on their attorney’s information to their trustee or executor, and the client did not believe it was necessary to keep the attorney in the loop in regards to a new address and/or phone number. However, my suggestion (not legal advice, just a suggestion) would be that if you move or change your phone number you will want to make sure the attorney who is holding your original documents knows your new information. And you might even go an extra step and give yourself an annual reminder to check in with the attorney to make sure all is well and that no new legislation has passed that might be relevant to your estate. That way, in case something serious happens, such as the attorney passing away or a new law passing, you can be notified.

For questions on the above content or for any other legal advice dealing with California estate planning documents, a California estate planning attorney can help. Please contact the Law Offices of Jack B. Friedell today.

The authors, publisher and host are not providing legal, accounting, or specific advice to your situation.