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California Probate and Trust Legal Summary Fall 2012

Catanese & Wells, a Law Corporation, provides a quarterly newsletter to the California probate and trust professional community including lawyers, accountants, professional fiduciaries and insurance providers. www.cataneselaw.com.

This issue addresses “breach of trust” claims against trustees. Generally, a breach of trust is a violation by the trustee of any duty owed by the trustee to a beneficiary. Cal. Prob. C. §16400; Estate of Gump (1991) 1 Cal.App.4th 582,595. A trustee will be personally responsible to the beneficiary where the trustee breaches the trust in bad faith, knowingly (but in good faith) or negligently.

A trustee is obligated to comply with the terms of the trust. The trustee is obligated to administer the trust according to its terms and not inconsistent with trust law. Cal. Prob. C. § 16000; Kaiser v. Gibson (1968) 264 Cal.App.2d 319, 323. A trustee is a fiduciary and is bound to act with the highest good faith towards a beneficiary. Estate of Vokal (1953) 121 Cal.App.2d 252, 257. However, a trustee also has a duty to consider and act in the best interest of the trust. Toedter v. Bradshaw (1958) 164 Cal.App.2d 200, 208. Where the trustee has discretion the court will look to carry out the intention of the settlor and avoid defeating the purpose of the trust. Cal. Prob. C. §16081(a).

Various duties apply to a trustee. These include: duty to comply with trust terms, duty of loyalty (an obligation to act in the best interests of the trust), duty to avoid conflicts of interest (such as self-dealing), avoidance of irreconcilable conflicts, duty of impartiality, duty of disclosure, duty to personally perform the duties of the trustee, duty to separate trust assets and not commingle assets, and duty to enforce and defend claims of the trust.

Where a trustee has been found to commit a breach of trust causing a loss, a beneficiary may seek damages against the trustee to compensate for losses sustained as a result of the breach and to induce the trustee to comply with their obligation requiring them to disgorge any profit or by imposing a penalty. The court has wide latitude to determine the measure of damages against the trustee under the facts of the case. Cal. Prob. C. §16440(a). The Court may excuse a trustee from liability even where there is a breach of trust if it would be equitable to do so (for example, where the trustee acted reasonably and in good faith under the circumstances. Cal. Prob. C. §16440(b).

Attorney’s fees are generally not available to a prevailing beneficiary where the claim against the trustee was based upon negligent mismanagement of trust assets. However, a trustee may charge the trust attorney’s fees and litigation costs incurred by the trustee in a successful defense by the trustee of an action brought by the beneficiary against the trustee. Estate of Gump (1991) 1 Cal.App.4th 582,604.

Trustees must act within reason and in good faith when administering the truth. Further, a trustee must be careful to follow all duties which govern the trustee. For beneficiaries, litigation against a trustee will deplete the trust assets if the litigation is unsuccessful. For further questions feel free to contact our offices.