BENEFICIARY RIGHTS & TRUSTEE DUTIES
The one mission of every trustee is to protect the beneficiaries. If a beneficiary believes that he or she is being mistreated by the trustee, then chances are the trustee is violating the law. In a trustee – beneficiary relationship, the benefits belong to the beneficiary and the burdens to the trustee. A beneficiary must be aware of their rights in the trust. The duty of the trustee is to protect the beneficiary’s interest in the trust. Failure of a trustee to carefully and fully comply with the legal requirements of the position may result in personal liability. At Gokal Law Group, Inc. our goal is to fight to protect our client’s inheritance rights.
Because probate in California is expensive, time consuming, and a public court process, most people choose to create a trust for their estate plan. Most people who create trusts assume their estate is fully protected and that upon death, assets will transfer to their family as planned. Unfortunately, most trustees don’t understand the responsibilities of what it means to be a trustee and most beneficiaries don’t know their rights. Further, when large amounts of family money are at stake, greed often causes people to act unjustly. Protecting one’s rights in a trust begins with understanding what a trustee’s obligations.
The duties of a trustee are:
- DUTY TO ADMINISTER THE TRUST ACCORDING TO ITS TERMS
- DUTY TO ACCOUNT TO THE BENEFICIARIES
- DUTY TO FURNISH INFORMATION TO BENEFICAIRIES
- DUTY OF CONFIDENTIALITY
- DUTY OF LOYALTY
- DUTY TO INVEST AND MAKE TRUST PROPERTY PRODUCTIVE
1. A TRUSTEE HAS A DUTY TO ADMINISTER THE TRUST ACCORDING TO ITS TERMS
A Trustee is under a Duty to Administer the trust according to its terms. (California Probate Code 16000). In general, the trustee need only look at the written trust document and properly executed amendments to determine the precise terms of the trust.
Trust instruments must be interpreted according to the intention of the settlor as expressed in the trust document. In interpreting the trust document, the guiding principle must be the intention of the trust as expressed. It’s about what the trust maker actually said and not what he or she intended to say.
Where a dispute occurs over the terms of the trust and the intention of the trust maker at the time of execution of the trust, it may be possible to amend the trust with the agreement of all beneficiaries and the approval of the probate court.
2. A TRUSTEE HAS DUTY TO ACCOUNT TO BENEFICIARIES
Each beneficiary is entitled to a trustee’s accounting, at least annually, at termination of the trust, and on upon a change of trustee. (California Probate Code 16062). Unfortunately, not all beneficiaries are entitled to automatic accounting, nevertheless, the court may force the trustee to provide an accounting.
As an example, aging parents may transfer trusteeship while still alive to a successor trustee who is a child (successor trustee) they believe they can manage the trust assets. The successor trustee then begins acting in a way to give his or her siblings reason to suspect the trust is being mismanaged. In this case, beneficiaries may be able to petition the court to order the trustee to produce an account in order to protect the rights of all trust beneficiaries.
In representing trust beneficiaries, Gokal Law Group, Inc. has successfully obtained court order, for trustees to provide annual accounting. The burdens of accounting fall upon the Trustee, and where there is reason to suspect impropriety, courts are generally willing to order account.
Beneficiaries have a right to force trustees to account. A beneficiary who believes they are entitled to an accounting may first make a written request to the trustee. If after 60 days, the trustee fails to provide the requested accounting the beneficiary may seek a court order compelling the trustee to do so. (See California Probate Code 17200(b)(7)(C)).
Beneficiaries have a right to object to the trustee’s account. Once an account has been furnished, beneficiaries may object to the account for a number of reasons. For example, a beneficiary may believe that the information is simply false or that while the information is truthful, the assets were spent or managed in a wrongful manner. The beneficiary has a right to raise its objections with the court and have a court trial as to whether the account is proper.
It is extremely important for a beneficiary to not delay in filing their objections. The law places strict deadlines on the amount of time a beneficiary has to file an objection. Additionally, delays give additional time for the trustee to continue to waste assets. Once the trust assets are gone, it becomes difficult to put that money back in the pockets of the rightful beneficiaries.
3. A TRUSTEE HAS A DUTY TO FURNISH INFORMATION
One of the most frequent complaints from beneficiaries is that the trustee is not releasing any information about the trust. The trustee has an affirmative duty to keep the beneficiaries of a trust reasonably informed of the trust and its administration. (California Probate Code 16060).
Beneficiaries right to obtain a copy of the trust.
When a trust maker passes away and their revocable family trust becomes irrevocable (meaning it can no longer be changed), the trustee must notify the beneficiaries and must provide a complete copy of the terms of the irrevocable trust, to any beneficiary of the trust and any heir of a deceased settlor who requests it. (California Probate Code 16061.5(a)(1)).
For example, if mom and dad changed their trust to disinherit one or more of their children shortly before their death, even the disinherited children, upon request, are entitled to a copy of the trust because they qualify as an heir of a deceased settlor. This gives the disinherited children an opportunity to review the changes and determine whether the changes were a result of fraud, undue influence, or financial elder abuse.
A beneficiary may obtain information relating to the administration of the trust relevant to the beneficiary’s interest in the trust.
The trustee is required, on reasonable request by a beneficiary, to provide requested information to the beneficiary relating to the administration of the trust relevant to the beneficiary’s interest. (California Probate Code 1606).
The beneficiary is entitled to know the nature of the trust property and how it is managed, at least as it is relevant to the beneficiary’s interest. Accordingly, the trustee must make available all relevant records of the trust, with some exceptions.
4. A TRUSTEE MUST KEEP TRUST MATTERS CONFIDENTIAL
A benefit of creating a trust is that the trust is meant to be a private vehicle for the management of a family assets. A breach of confidentiality may subject the trustee to liability.
5. A TRUSTEE REMAINS LOYAL TO THE TRUST BENEFICIARIES AND SOLELY IN THEIR BEST INTERESTS BY AVOIDING CONFLICTS OF INTERESTS AND SELF-DEALING.
Trustees have an obligation to avoid conflicts of interest and self-dealing transaction. California law requires trustees to administer trusts solely in the interest of trust beneficiaries. (California Probate Code 16002(a)). This duty of loyalty often created a minefield of issues for the trustee to carefully navigate. Family members that are appointed as trustees, who themselves are beneficiaries, often act to benefit themselves or another beneficiary, causing harm to the interest of another beneficiary.
Sometimes, violation of this duty of loyalty are clear in inexcusable. For example, a trustee who sells a trust asset, such as a house to themselves for a price substantially less than market value is likely in breach of their duty. Where a trustee allows themselves or a child to live rent free in a trust’s real property is also likely in breach of their duty to the other beneficiaries.
Other times, it may not be as clear that the trustee violated the duty of loyalty. For example, some trusts give the trustee discretion to make unequal distributions to beneficiaries for certain purposes such as health and educational expenses. A trustee, understanding that the trust authorizes the trustee to make such distributions, may distribute a disproportionate share to themselves or their child. This may cause other trust beneficiaries to believe that the trustee is favoring one beneficiary over another. A careful legal analysis is required to determine if the actions of the trustee were unlawful.
Contact one of the attorneys at Gokal Law Group, Inc. at (949) 753-9100 if you need assistance with beneficiary rights.