A Guide to Breach of Trust Claims for Trustees
Trustees have a fiduciary duty under California law to make decisions for the benefit of the beneficiaries. When a trustee breaches this fiduciary duty, the beneficiary can file a breach of trust lawsuit against the trustee. These types of claims are commonly called breach of trust lawsuits. Breach of trust can involve any kind of negligent or intentional conduct on the trustee’s part that is self-serving, erroneous, or retaliatory. In a breach of trust claim, the beneficiary must prove that the breach of trust caused harm to trust assets or beneficiaries.
Examples of Breach of Trust Claims
Many breaches of trust claims happen when a trustee acts negligently. The trustee may fail to make the proper distributions to beneficiaries. A trustee may fail to properly invest the assets in the trust so they can earn a profit. In other cases, a trustee will fail to protect assets from loss, fail to ensure trust assets, or fail to comply with the terms set forth in the trust agreement. Trustees may fail to take appropriate financial or legal action when the trust assets are threatened in a lawsuit. In all of these cases, the trustee may be at risk of being removed as a trustee or by being charged for any loss.
The Trustee’s Duties and Responsibilities
Trustees have a duty to act in the best interest of the trust itself and of the beneficiaries. Once a trustee has accepted the duties of a trustee, he or she must administer the trust according to the trust agreement and distribute the trust assets to beneficiaries accordingly. Trustees must undertake all of the following basic duties and responsibilities reasonably:
- Administer the trust according to the terms of the trust agreement
- Act in the best interest of the trust and its beneficiaries
- Treat all of the beneficiaries impartially and fairly
- Not use the assets in the trust for his or her own benefit or profit
- Keep property owned by the trust separate from other property
- Take reasonable steps to enforce claims that are part of the trust property
- Take reasonable steps to defend the trust against legal actions that could result in a loss to the trust
The Statute of Limitations on Breach of Trust Claims in California
Every state has statutes of limitations, or time limits, limiting the amount of time a plaintiff has to bring a lawsuit. In California, the statute of limitation for breach of trust, misappropriation, malfeasance, or breach of fiduciary duty can be years, depending on the circumstances of your case. However, the statute of limitations for contesting a trust is 120 days after the person’s death who created the trust.
Bringing a Lawsuit Against a Trustee
Beneficiaries of a trust have the legal right to bring a lawsuit against the trustee for a wide variety of reasons. Remember, a beneficiary does not have to prove that the trustee intentionally harmed the trust assets or the beneficiary. They can prove that the trustee acted negligently or recklessly, resulting in harm to the trust assets or beneficiaries. As mentioned above, trustees are held to the highest legal standard, also called a fiduciary standard. In California, beneficiaries can sue trustees for all of the following types of actions:
- Failing to account
- Accounting irregularities
- Mismanagement of trust property
- Commingling funds
- Failure to keep beneficiaries informed
- Personally benefiting from trust assets through forgery, fraud, or coercion
- Giving inappropriate or suspicious gifts from the trust
- Subjecting the assets in the trust to unreasonable risk
- Not complying with the trust’s investing, distribution, or accounting directives
- No longer being of sound mind or ability to perform their fiduciary duties according to the trust agreement
Damages Available in Trust Mismanagement Cases
When a beneficiary suspects that a trustee has been mismanaging funds, they can petition for the trustee’s removal and replacement. The court may order the trustee to place the assets they took back into the trust. If the trustee spent the money on non-material items, the beneficiary may seek a money judgment instead. California courts have several different methods to obtain damages, including a constructive trust, a surcharge or reduction in the amount of the trustee’s inheritance share or fees from the trust, or a money judgment.
Misappropriation of Trust Funds
Misappropriation of trust funds is a common cause of action in breach of trust lawsuits. Misappropriation of trust funds happens when funds belonging to the trust are not deposited into the trust account. The trustee may deposit the funds into his or her own account or use the funds for purposes other than those approved by the trust agreement. In some cases, the trustee may use the funds to pay for their own expenses or purchase property from which they benefit.
When a beneficiary brings a successful breach of trust lawsuit for misappropriation of trust funds, the offending trustee will have to pay damages. California courts try to put the beneficiaries back to the place they would have been if the breach had never occurred. The trustee may be required to use his or her personal funds to make the beneficiaries whole.
Contact a Sacramento Trust Litigation Attorney
Trust litigation is complex. Whether you are a trustee who has been served with a lawsuit for breach of trust, or you are a beneficiary who would like to bring a lawsuit against your trustee, you need an experienced attorney. At the Law Office of Daniel Hunt, our trust attorneys have extensive experience successfully representing clients in trust litigation cases. We have an in-depth understanding of California trust law and the trial experience necessary to represent you in court effectively. Contact our Sacramento-based law firm today to schedule your free initial consultation.
Law Offices of Daniel A. Hunt
The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.