When someone serves as a trustee, they have considerable power over an estate that can span generations. To protect beneficiaries and the trust, trustees must legally fulfill a fiduciary duty, which includes an obligation to make prudent investments with trust assets. Failure to fulfill this duty is considered a trustee breach of fiduciary duty in California.
At Gokal Law Group, we have decades of experience bringing trustees who put their interests above those of the beneficiaries and trust to justice. Learn when bad investments are a breach of duty.
When Are Bad Investments a Breach of Trustee Duties?
Trustees can be held liable for bad investments. But it is not always easy to determine when an investment constitutes a trustee’s breach of fiduciary duty in California.
When determining if an investment qualifies as a breach, look at when, where, and how they invested funds. Also, consider whether or not they invested to grow the trust so it can continue to function.
Every investment inherently carries risk. However, there is a criterion you can look at to determine if a trustee made reasonable investments on behalf of the trust and its beneficiaries.
A trustee is not liable for every single bad investment. As long as the trustee was reasonably careful and operated with due diligence when investing, this does not constitute a breach of duty. Trustees have a responsibility to be vigilant for scams or blatantly bad investments.
To determine if a trustee was reasonably careful, did their homework, and operated with the best interests of the beneficiaries in mind, consider:
- The economic conditions when they invested
- Predictable factors, like inflation, that impacted the investment
- Potential tax consequences of the investment
- How much of an impact an investment has on the trust as a whole
- The return they could have reasonably expected to realize from the investment
- If invested assets were tied up in a way that deprived beneficiaries of resources
What is reasonable can feel like a negotiable term. A premier attorney can assess your situation to determine if a trustee violated their duty and help you recover losses.
“Determining if an investment constitutes a breach requires a thorough understanding of probate law and the ability to interpret complex legal jargon in the trust document. Only professional probate lawyers have the expertise to do so.” – Harry Wallace, a Senior California trust litigation lawyer with Gokal Law Group with over 30 years of trust and probate litigation experience.
What Are Examples of Bad Investments as a Breach of Trustee Duties?
If a trustee has made poor investments due to bad advice from an advisor, these circumstances do not absolve them of guilt. This investment still qualifies as a trustee breach of fiduciary duty in California.
Proving this breach of duty is complicated because it can come in countless forms, which is why working with a premier California trust litigation attorney is essential. Common examples of this breach that warrant litigation include:
- A lack of proper due diligence: If a trustee invested trust assets impulsively without doing the necessary research, like assessing economic conditions or the state of the stock market, this constitutes a breach of duty.
- Failure to disclose material facts: Trustees have a responsibility to keep beneficiaries reasonably informed about how they are administering the trust. If they fail to do so and disclose financial information about investments that resulted in losses, this is a breach of duty.
- Commingling of funds: If a trustee mixes their finances with trust funds to make investments, this is a severe breach of duty.
- A conflict of interest: If there is a conflict of interest when a trustee invests, this is a breach of duty. For example, maybe they invested trust assets into something where they would personally realize a profit.
- Unauthorized investments: If there is language in the trust that prohibits a trustee from investing, but they do it anyway, then this is considered unauthorized and is grounds to pursue litigation.
- Misappropriation of funds: Trustees are only allowed to use trust assets for trust-related purposes dictated by the probate code and trust document. Using trust funds for anything outside of this scope is a breach.
“In a recent case, a trustee made an investment that was not an obvious breach. After compiling evidence and talking to beneficiaries, we discovered that they were investing trust funds in a company they were starting. We were able to prove this in court and recover the assets the trustee invested.” – Harry.
Premier California Trust Litigation Lawyers
If a trustee failed to do their due diligence when investing or operated with ulterior motives, this has far-reaching consequences on a trust. More importantly, this qualifies as a trustee breach of fiduciary duty in California, meaning you can pursue legal action to bring them to justice and recover losses.
At Gokal Law Group, we are a vetted team of battle-tested probate experts. Call us at (949) 753-9100 or contact us to request a case evaluation.