If a breach of trust has occurred, it means the trustee has failed to act in the best interests of the trust beneficiaries. If a trustee’s breach of trust was intentional or caused by their negligence, they may be regarded as having acted in bad faith, which could result in additional remedies being awarded.
A trust is a fiduciary arrangement in which a trustee is given the authority to hold and manage assets for the benefit of the beneficiaries until they are fully distributed according to the terms of the trust.
If a trustee fails to uphold their fiduciary duties, beneficiaries have the right to take legal action for their breach of trust. However, only those with legal standing — such as trust beneficiaries or co-trustees — can file a claim.
Suppose a scheduled distribution from a trust has come due, but weeks have passed, and the trustee has neither provided beneficiaries with their distributions, nor offered an explanation as to why they haven’t. In this case, the trustee may have committed a breach of trust by failing to fulfill their duty to uphold the terms of the trust and withholding vital information the beneficiaries need to enforce their inheritance rights.
While a delay in trust distributions does not automatically indicate trustee misconduct, it can be a red flag. Remember, a breach of trust is a serious matter that can jeopardize not only the assets of a trust but beneficiaries’ inheritances as well.
Even if you only suspect a breach of trust, consulting with an experienced fiduciary misconduct attorney is crucial. An attorney can assess whether the trustee’s actions constitute a breach of trust and outline the legal steps you may need to take to hold them accountable.
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What Are the Elements of a Breach of Trust?
Just because a trustee’s actions may seem questionable or unwise, it doesn’t necessarily mean they’ve committed a breach of trust.
Suppose a trustee conducts thorough research before investing trust assets. They determine the investment is low-risk and likely to generate income for the trust — making it a decision they believe aligns with the beneficiaries’ best interests. However, due to unforeseen shifts in the stock market, the investment fails, resulting in financial losses for the trust. While unfortunate, this scenario likely would not qualify as a breach of trust, since the trustee acted in good faith and with due care when making the investment.
To determine whether a trustee’s actions rise to the level of misconduct, it’s essential to understand the key elements of a breach of trust. If even one element is missing, a legal claim may not hold up — though it’s always best to consult with an attorney before jumping to any conclusions.
Explore the elements of a breach of trust in the sections below.
Fiduciary Relationship
One of the fundamental elements of a breach of trust is the existence of a fiduciary relationship between the accusing party (typically a beneficiary) and the trustee being accused of the breach. Without this relationship, a breach of trust claim cannot occur.
A trustee is formally appointed when they accept their role as outlined in the trust document. Once appointed, they owe fiduciary duties to the beneficiaries of the trust and, in some cases, to the decedent’s direct heirs.
Suppose a distant family member of the decedent requests a copy of the trust from the trustee. However, the trustee declines, because the family member is neither named in the trust, nor is one of the decedent’s direct heirs. This means the family member does not have a fiduciary relationship with the trustee. As a result, they would not have standing to bring a claim against the trustee, even if a breach of trust had occurred.
Failure to Uphold Fiduciary Duties
An essential element of a breach of trust is a failure by the trustee to uphold the fiduciary duties outlined in California Probate Code sections 16000-16015.
In general, the fiduciary duties of a trustee include:
- Duty to properly administer the trust: The trustee must follow the trust terms.
- Duty of loyalty: The trustee must act solely in the interest of the beneficiaries and must not use trust assets for personal gain.
- Duty to report: The trustee must keep beneficiaries reasonably informed about the trust.
- Duty of impartiality: The trustee must treat all the beneficiaries fairly and equitably.
- Duty to avoid conflicts of interest: The trustee must not engage in self-dealing or take actions that benefit themselves over the beneficiaries.
- Duty to keep trust assets separate: The trustee must not commingle non-trust assets with trust assets.
- Duty to preserve and protect trust property: The trustee must safeguard and maintain trust assets, keeping assets productive when appropriate.
- Duty to enforce and defend trust claims: The trustee must pursue claims that could benefit the trust and defend claims that could harm the trust.
- Duty to avoid unnecessary delegation: A trustee must not delegate to others tasks they can reasonably perform independently.
- Duty to oversee co-trustees and participate: A trustee must prevent and litigate breaches of trust by a co-trustee, as well as participate in trust administration.
- Duty to apply the full extent of their skills: Trustees must apply their expertise when managing the trust, and if they were selected based on specific expertise, they may be held to a higher standard.
If a trustee has failed to meet any of the obligations detailed above, they may have committed a breach of trust. That said, a claim would still need to meet each of the other breach of trust elements to be considered a breach of trust.
Damage to Trust
A key element of a breach of trust is that it must have caused harm to the trust. This harm can take many forms, including financial loss, depletion of trust assets, failure to fulfill the trust’s purpose or even damage to the trust’s reputation. In other words, a breach doesn’t necessarily require a direct financial or physical loss of assets to be considered valid.
That said, if the goal is to seek reimbursement or impose penalties for the breach of trust, having a clear, quantifiable loss can strengthen the claim.
Causal Link Between Breach and Damage to Trust
For a breach of trust claim to be valid, there must be a direct link between the alleged breach and harm to the trust. In other words, the claimant must clearly demonstrate how the trustee’s actions — or inaction — violated their fiduciary duties and how those actions — or inaction — directly harmed the trust.
Suppose a beneficiary notices a significant amount of money missing from the trust account and files a breach of trust claim against the trustee for financial losses. However, the beneficiary cannot explain why the money is missing, what specific fiduciary duties the trustee may have violated, or how the trustee’s actions caused the loss. In this instance, even if a breach of trust did occur, the claim would likely fail because there is no evidence linking the trustee’s actions to the missing funds. In fact, the funds could have been withdrawn for legitimate purposes.
When pursuing a breach of trust claim, vague suspicions or unsupported allegations generally will not suffice. Establishing a causal link between the trustee’s alleged breach and the resulting harm to the trust is essential.
What Are the Consequences of a Breach of Trust?
Failing to address a breach of trust promptly can lead to serious consequences. If left unchecked, a breach can deplete trust assets, give rise to legal disputes, cause administration delays, strain relationships and even undermine the trust’s intended purpose.
To mitigate these risks, it’s crucial to take immediate action if it seems a breach of trust may have taken place.
What Is the Breach of Trust Statute of Limitations?
According to Probate Code section 16460, beneficiaries typically have three years to file a breach of trust claim. This period begins either from the date they receive a written report or accounting that clearly discloses the trustee’s misconduct or from the date they discovered (or reasonably should have discovered) the breach.
If the trust document imposes its own deadline for filing a claim against the trustee, beneficiaries must adhere to that deadline — even if it shortens the statutory deadline outlined in Section 16460. However, per Probate Code section 16461, a trust must still allow beneficiaries at least 180 days to bring their claim.
While the law provides beneficiaries a generous window to take legal action, acting quickly is crucial. Filing a claim early increases the chances of gathering strong evidence and prevents potential issues with statutory time limits.
What Are Common Breach of Trust Examples?
Breaches of trust are often subtle and difficult to detect. In many cases, trustees acting in bad faith take deliberate steps to conceal their misconduct, making it challenging to uncover.
However, understanding the most common ways breaches of trust occur can help you recognize warning signs early and take swift action to mitigate potential harm.
Self-Dealing
A trustee may have committed a breach of trust by self-dealing if they improperly leveraged trust assets for their own benefit at the expense of the trust or its beneficiaries.
Suppose a trustee doesn’t lease a trust property because they are residing in it rent-free. This would be considered self-dealing, which is considered a breach of trust. The trust could be generating rental income (which eventually would be distributed to beneficiaries) but isn’t, since the trust property is being occupied by the trustee, who is not paying rent.
Commingling
A trustee may have committed a breach of trust by commingling if they mixed trust assets with non-trust assets, such as their personal funds.
Suppose a trustee fails to open a separate account for trust funds and instead deposits them into their personal bank account. By doing so, they risk blurring the lines between personal assets and trust assets. If they then use this account for both personal expenses and trust-related transactions, even unintentionally, it may become difficult for them to accurately track and manage the trust’s finances.
Even if a trustee never intended to misuse trust funds, commingling is considered a breach of trust, because it not only compromises the integrity of the trust but may also impair the fair distribution of assets.
Mismanagement
A trustee may have committed a breach of trust through mismanagement if they failed to protect, preserve or prudently invest trust assets.
Suppose a trustee is managing a sizable trust, but instead of diversifying its investments to generate steady returns and minimize risk, they rashly invest substantial trust funds in a high-risk business venture run by one of the trustee’s friends. The venture ultimately fails, resulting in significant financial losses for the trust.
Even if the trustee didn’t intend to harm the trust or personally benefit from the investment, their lack of prudence and due diligence likely constitutes a breach of trust. By neglecting their fiduciary duty to protect trust assets, they subjected the trust — and its beneficiaries — to unnecessary financial risks.
Misappropriation
A trustee may have committed a breach of trust by misappropriation if they stole trust assets or utilized them for illegitimate purposes.
Suppose a trustee begins siphoning money from the trust account they manage to cover their rent and daily expenses after losing their job. Believing that the multimillion-dollar trust can absorb the losses unnoticed, they manipulate the trust accountings to conceal their misappropriation.
In this scenario, the trustee is not only misappropriating trust funds — a serious breach of trust — but they are falsifying financial records to mislead the beneficiaries. By prioritizing their own financial needs over their fiduciary duty to act in the best interests of the beneficiaries, the trustee has committed a clear and intentional breach of trust.
Failure to Follow Trust
A trustee may have committed a breach of trust if they strayed from the terms of the trust when carrying out their duties or making distributions of trust assets to beneficiaries.
Suppose a trust requires the trustee to distribute assets to beneficiaries gradually over the course of five years. However, instead of following instructions, the trustee distributes the entire trust at once, terminating the trust prematurely.
Even though the beneficiaries ultimately receive the full amount they were entitled to, the trustee’s actions constitute a breach of trust because they intentionally disregarded the terms of the trust and its creator’s clear intentions. Additionally, by prematurely closing the trust, the trustee may have robbed it of opportunities to generate further income or acquire additional assets, potentially depriving the beneficiaries of long-term benefits.
Failure to Keep Beneficiaries Informed
A trustee may have committed a breach of trust if they failed to keep beneficiaries reasonably informed about the trust and its administration.
Trustees are generally required to communicate with beneficiaries and provide relevant information necessary to enforce their rights. If a beneficiary requests specific information, the trustee must respond within a reasonable timeframe, provided the request is relevant.
Suppose a trustee ignores repeated requests from beneficiaries for updates on the trust’s finances, administration progress and distributions. This can create uncertainty among beneficiaries about whether their inheritance is secure.
While the trustee isn’t obligated to report every action they take, they must provide enough transparency to ensure beneficiaries can monitor administration. Without access to essential information, beneficiaries cannot assess whether the trustee is fulfilling their duties or engaging in misconduct, rendering this failure by the trustee a serious breach of trust.
Failure to Treat Beneficiaries Impartially
A trustee may have committed a breach of trust if they failed to treat all the beneficiaries fairly and equitably. While a trustee must act in the beneficiaries’ best interests, their decisions should be guided by the collective interests of the beneficiaries — rather than the interests of a few.
Suppose a trust leaves a family home to three siblings, all of whom wish to reside in it. Since this arrangement is impractical, the trustee should sell the home and divide the proceeds equally. However, instead, the trustee gives the home to the sibling they favor and compensates the others with the cash value of their shares. The trustee makes this decision unilaterally.
By making unilateral decisions that benefit one beneficiary over others, the trustee’s actions unfairly disadvantage certain beneficiaries, constituting a clear breach of trust.
Failure to Make Timely Distributions
A trustee may have committed a breach of trust if they failed to provide beneficiaries with a distribution that has come due according to the terms of a trust.
Suppose a trustee withholds a beneficiary’s rightful distribution solely as retaliation for the beneficiary suing them over an unrelated matter. This is unacceptable, as a trustee is legally bound by the terms of the trust and cannot allow their personal grievances to dictate their actions.
Unlike an executor or administrator, a trustee may have the ability to temporarily withhold a distribution for valid reasons, such as concerns about a beneficiary’s mental health or substance abuse. However, they cannot withhold a distribution indefinitely or without justification. Doing so would constitute a breach of trust, as it directly violates their fiduciary duty to act in the best interests of the beneficiaries.
What Are Common Remedies for a Breach of Trust?
If beneficiaries believe a trustee has committed a breach of trust, there are numerous remedies they could utilize to hold them accountable.
Probate Code section 16420 details the circumstances under which a beneficiary or co-trustee can commence a breach of trust proceeding:
- To compel the trustee to perform the trustee’s duties.
- To enjoin the trustee from committing a breach of trust.
- To compel the trustee to redress a breach of trust by payment of money or otherwise.
- To appoint a receiver or temporary trustee to take possession of the trust property and administer the trust.
- To remove the trustee.
- Subject to Section 18100, to set aside acts of the trustee.
- To reduce or deny compensation of the trustee.
- Subject to Section 18100, to impose an equitable lien or a constructive trust on trust property.
- Subject to Section 18100, to trace trust property that has been wrongfully disposed of and recover the property or its proceeds
The legal remedy a beneficiary pursues will depend on the nature of the trustee’s misconduct. For instance, if a trustee refuses to provide an accounting, the beneficiary could seek a court order compelling them to comply. Similarly, if a trustee makes a reckless investment that results in substantial financial losses, the beneficiary could seek a court order requiring the trustee to restore the lost trust funds.
To obtain a court order, beneficiaries typically must file a petition outlining the trustee’s breaches of trust, the specific harm caused to the trust, and any supporting evidence that strengthens their case.
Explore the following sections to learn about the most common legal remedies available for breaches of trust.
Recovery of Damages
If a trustee’s breach of trust lessened the trust’s value, beneficiaries can petition the court for damages — financial compensation to remedy the losses suffered.
Damages may include:
- Restitution: Restoring the trust to its financial state before the breach of trust occurred.
- Disgorgement: Requiring the trustee to return any profits gained from their breach of trust.
- Punitive damages: Monetary penalties imposed on the trustee for acting with malicious intent or extreme negligence in their breach of trust.
While it is not uncommon for restitution and disgorgement to be awarded as damages, rarely are punitive damages awarded, as they generally require an egregious breach of trust.
Injunctions
When a trustee commits a breach of trust, beneficiaries can seek a court-issued injunction to either stop the trustee from causing further harm to the trust or to compel them to take corrective action. An injunction can be an important remedy for protecting the assets of a trust.
Since injunctions take effect immediately, they can be useful in preventing irreversible damage to a trust.
Suspension of the Trustee
If concerns arise about a trustee’s conduct and their continued control over the trust poses a potential threat, beneficiaries can seek the temporary suspension of the trustee while the alleged breaches of trust are investigated.
Suspension is generally a protective measure rather than a permanent remedy. It aims to safeguard trust assets while the court determines whether the trustee committed a breach of trust.
If no breaches of trust are found, the trustee may be reinstated and permitted to resume their duties. However, if the investigation reveals misconduct, beneficiaries may need to pursue further legal action, such as filing a petition for the trustee’s removal, to prevent further harm to the trust.
Removal of the Trustee
If a trustee has committed a serious breach of trust, beneficiaries can seek the trustee’s permanent removal.
However, trustee removal is not always the best course of action, especially if the issues are minor or can be easily corrected, as the process can lead to administrative delays. Additionally, a replacement trustee must be appointed, which can further extend the timeline.
Given these factors, beneficiaries should weigh the potential benefits and drawbacks of removal and explore whether alternative solutions exist that are less extreme and could effectively address the trustee’s breach of trust.
Surcharge
If a trustee’s breach of trust was committed in bad faith, they may be held personally liable for any resulting harm to the trust. In such cases, the court may impose a financial penalty known as a surcharge, which requires the trustee to compensate the trust using their personal funds.
Surcharges are rarely pursued as standalone remedies. Instead, they are typically requested in conjunction with other legal actions, such as trustee removal or restitution, to ensure the trust is fully compensated for the losses incurred.
Denial of Trustee Compensation
If a trustee is found to have committed a breach of trust, beneficiaries can seek for trustee compensation to be reduced or denied entirely. This is particularly relevant if the trustee’s actions resulted in harm to the trust, if their fees are unreasonably high, or if the trust explicitly prohibits compensation.
Award of Legal Costs
If a breach of trust claim goes to trial and beneficiaries win, they may be able to seek an award of their attorney’s fees and costs. This award can be paid by either the trust or the trustee personally (if the trustee acted in bad faith).
However, most breach of trust cases settle out of court, meaning beneficiaries typically cannot seek an award for legal fees — unless the settlement explicitly stipulates that the trustee cover these costs.
Even when a case goes to trial, an award of attorney fees is never guaranteed, so beneficiaries should be prepared to cover their legal expenses upfront.
Breach of Trust FAQs
If you continue to have questions surrounding breaches of trust, check out the frequently asked questions below. However, don’t hesitate to reach out to our firm for assistance if you can’t find the answers you’re searching for.
Can you go to jail for breach of trust?
Yes, a trustee can face jail time for a breach of trust, but only if their actions involve a criminal offense, such as embezzlement, fraud or theft. Even then, criminal charges must be brought by the prosecutor’s office, which typically only pursues cases involving severe misconduct due to limited resources.
Most breaches of trust are handled in civil court rather than criminal court. In these cases, trustees found liable may face significant penalties, such as removal and surcharges, but they typically do not face incarceration.
Is a breach of trust a felony?
In California, a breach of trust may be classified as a felony if the misappropriated trust property exceeds $950 in value. However, this applies only when the trustee's actions constitute a criminal offense.
That said, most breaches of trust are handled in civil court, even if the total value of the misappropriated assets exceeds $950.
How long does a breach of trust stay on your record?
Since most breaches of trust are handled in civil court rather than criminal court, they typically do not appear on the trustee’s criminal record.
However, a breach of trust can still have long-term consequences. Even if no criminal charges are filed, the trustee’s professional reputation may suffer irreparable harm, and their relationships with beneficiaries — who could be their own family members — may be permanently strained.
Is having a conflict of interest considered a breach of trust?
Not necessarily. Simply having a conflict of interest does not constitute a breach of trust. However, if that conflict impairs the trustee’s ability to administer the trust fairly, it could be considered a breach.
For example, if a trustee is also a beneficiary, they might be tempted to allocate themselves a larger inheritance at the expense of other beneficiaries. If such a breach is discovered, the trustee could face serious consequences, including removal from their role or even a surcharge.
Can a trustee withdraw money from a trust?
A trustee can withdraw money from a trust only for authorized purposes, such as making distributions to beneficiaries according to the trust terms, paying administration expenses, or even reasonably compensating themselves (provided the trust allows it).
However, can a trustee withdraw money from a trust to provide themselves with a loan or invest in business ventures that benefits only them? The answer would generally be no. Every action the trustee takes must be in the best interests of the beneficiaries. Even if the trustee is a beneficiary, they cannot prioritize their personal interests over the collective interests of the beneficiaries.
If a trustee has withdrawn money from a trust for an unauthorized purpose, it likely constitutes a breach of trust. Legal action against the trustee should be taken promptly to prevent further misconduct.
How can a trustee avoid committing a breach of trust?
The most effective way for a trustee to avoid committing a breach of trust is to work with a knowledgeable probate attorney. probate attorney can provide guidance on administrative duties, ensure accurate accounting, and oversee the trustee’s actions to help prevent missteps that could lead to legal consequences.
Still have questions about breaches of trust?
It’s great that you’re taking the time to understand breaches of trust, as being informed is key to protecting your inheritance and holding trustees accountable.
At Keystone, we regularly assist clients who have been affected by a breach of trust, helping them to recover what’s rightfully theirs.
If you suspect a breach of trust, acting quickly is essential in enforcing your rights as a beneficiary. Call our probate litigation firm today for expert guidance on navigating the process and securing the justice you deserve.
