If you are a trust beneficiary who believes a trustee has acted against your best interests, you may have the right to sue the trustee. To do so, you must have legal standing (i.e., a financial stake in the trust) and valid grounds (e.g., mismanagement, self-dealing, commingling). If these conditions are met, you likely can pursue legal action against the trustee.
Suppose a trustee is withholding trust distributions from beneficiaries. By doing so, they are not only disregarding the distribution schedule called for by the trust provisions, but they are failing to fulfill their obligation to make timely payments as well. Beneficiaries, therefore, may have grounds to sue them for trustee misconduct.
As the trustee misconduct example above illustrates, a trustee can be sued when they breach their fiduciary duties, and their bad-faith actions either harm the trust or are at risk of harming the trust in the future.
If you are a trust beneficiary, it’s important to remember that every action a trustee takes should collectively benefit the beneficiaries — not certain beneficiaries over others, themselves or third parties. If it doesn’t, it could indicate the trustee is engaged in misconduct.
The most notable fiduciary duties a trustee owes beneficiaries include:
- Duty of loyalty: The trustee must always act in the beneficiaries’ best interests.
- Duty of impartiality: The trustee must treat all the beneficiaries equally.
- Duty of care: The trustee must be prudent when managing the trust.
- Duty to report: The trustee must keep beneficiaries reasonably informed about the trust.
9 Reasons for Suing a Trustee in California
When can a beneficiary sue a trustee? Can a trustee be sued for failing to communicate with beneficiaries? Can a trustee be sued for failing to keep trust assets separate? Can a trustee be sued for mismanaging a trust?
If you are a beneficiary of a trust, your right to sue the trustee may be the most important right you have. It allows you to hold the trustee accountable when they act in bad faith or harm the trust.
What Is Misconduct of a Trustee?
Trustee misconduct occurs when a trustee fails to meet their fiduciary obligations, jeopardizing the interests of the trust beneficiaries. While trustees often have considerable authority over trust administration, their power is not absolute. Any trust-related decision they make must be in accordance with the provisions of the trust and the best interests of the beneficiaries.
The only circumstance in which a trustee may be able to exercise authority in deciding who gets what is if the trust expressly grants the trustee discretionary powers. Otherwise, they are strictly bound by the trust provisions and must administer the trust accordingly.
Although it may be possible to address minor occurrences of trustee misconduct with the trustee directly, major occurrences of trustee misconduct generally require drastic measures to remedy. Often, drastic measures are the only way to ensure the trust and the interests of its beneficiaries remain protected.
In the following sections, we discuss nine situations in which suing the trustee of the trust may be the only viable course of action.
1. Negligence
If a trustee invests all of a trust’s assets in a high-risk business venture, and this results in the trust losing substantial money, you may be wondering: Can you sue a trustee for negligence? The answer to this question is yes.
Negligence in the context of trusts occurs when a trustee fails to exercise reasonable care when managing a trust due to a disregard for trust beneficiary rights or noncompliance with their responsibilities as trustee.
2. Self-Dealing
If a trustee sells trust property to themselves for below fair market value without obtaining court approval or consent from the beneficiaries, you would be right to suspect the trustee is prioritizing their own best interests over those of the beneficiaries. This is referred to as self-dealing.
Self-dealing in the context of trusts occurs when a trustee uses the trust to benefit themselves to the detriment of the trust as a whole or its beneficiaries.
Sometimes, the trustee is also a beneficiary. When a conflict of interest such as this exists, there may be a greater risk of the trustee self-dealing.
If beneficiaries are concerned about a trustee’s potential conflict of interest, hiring a qualified trust attorney to oversee trust administration could help guarantee fairness during the process.
3. Fraud
If a trustee is withdrawing money from a trust to financially benefit themselves, chances are they are taking steps to hide their misdeeds. If you have received financial records (e.g., trust accountings, receipts) from a trustee that seem falsified, it’s possible the trustee is perpetrating fraud.
Fraud in the context of trusts involves a trustee intentionally misusing trust assets or deceiving beneficiaries for personal gain.
The best way for beneficiaries to defend against fraud is to hire a trust lawyer who can inspect the financial records provided to them by the trustee.
4. Commingling of Trust Assets
Suppose a trustee is paid by check for selling trust property. Although they intend to eventually deposit the check into a dedicated trust account, they deposit it into their personal bank account for the time being, since the trust account is housed at a bank across town. If you are concerned this could lead to trust assets being commingled with outside assets, you would be correct.
Commingling in the context of trusts involves the trustee mixing trust assets with their own assets or the assets of other parties.
Trustees may falsely believe commingling isn’t a huge risk if they keep track of whose assets are whose and eventually deposit trust assets into their dedicated account, but commingling trust assets is actually a violation of their duty of care.
5. Mismanagement of Trust Assets
Imagine a trustee isn’t taking steps to preserve the rental properties owned by the trust they oversee. This failure by the trustee has resulted not only in irreversible damage to the properties but a loss of rental income as well.
Mismanagement of trust assets occurs when a trustee fails to responsibly maintain and protect trust assets.
If a trustee is reporting losses in their trust accountings or elsewhere, it could indicate they are mismanaging the assets of the trust. Beneficiaries may wish to have a trust lawyer investigate the issue to ensure their interests in the trust stay protected.
6. Misappropriation of Trust Assets
Suppose substantial money has disappeared from a trust. However, the trustee hasn’t reported any significant losses to the beneficiaries. In such an instance, beneficiaries would be right to suspect the trustee may be stealing trust assets.
A misappropriation of trust assets occurs when a trustee uses trust assets for unauthorized purposes or to benefit themselves.
It is serious when a misappropriation of trust funds by the trustee has taken place. Unlike some of the other items in this list, a misappropriation of trust funds immediately places the trust in harm’s way. Therefore, legal action must be taken the moment it’s discovered the trustee may be stealing from the trust.
7. Failure to Provide Information
Suppose a trust holds a real property that generates rental income. The trust beneficiaries have asked the trustee for information surrounding the rental income, as well as what the trustee intends to do with the property, but the trustee has ignored their requests. The trustee eventually decides to sell the property without informing beneficiaries of the sale or disclosing the other information they requested. It isn’t until the beneficiaries inquire about the property that they discover it’s been sold.
A failure to provide information in the context of trusts occurs when a trustee neglects their responsibility to keep beneficiaries reasonably informed about their actions, the trust’s assets and liabilities, and other specifics that are relevant to the beneficiaries’ interests.
The trustee is required to provide information for good reason. Without being provided relevant information about the trust and its administration, beneficiaries may not be able to effectively enforce their rights.
8. Failure to Distribute Trust Assets
Suppose a trust instrument provides for beneficiaries to receive a distribution from the trust every year on the settlor’s death anniversary. This date has passed, but beneficiaries have still not received their distribution, leading them to ask: Can a trustee withhold money from a beneficiary?
A failure to distribute trust assets occurs when a trustee does not transfer trust assets to beneficiaries on time or in the manner outlined by the trust instrument.
There is not a straightforward answer to the question of whether a trustee can withhold money from a beneficiary. This is because a trustee can withhold money from a beneficiary for certain reasons (e.g., the beneficiary is dealing with a severe mental health crisis or substance abuse issue).
That said, a trustee is never entitled to unreasonably delay a beneficiary’s inheritance or withhold their inheritance indefinitely. If they are threatening to do so, or you are waiting on a due and payable inheritance the trustee isn’t justified in keeping from you, it’s crucial you touch base with a trust lawyer to determine how you can enforce your right to a timely distribution from the trust.
9. Failure to Account
Suppose a trustee takes over management of a trust after their father dies. Soon after, the trust begins to earn significant rental income from a commercial property, which the trustee eventually sells. Despite several requests from the beneficiaries for financial statements showing how much income the property generated, as well as the sale price of the property, the trustee refuses to provide them with a trust accounting, causing them to be kept in the dark about this valuable trust asset.
A failure to account in the context of trusts occurs when a trustee declines to provide required trust accountings tracking the transactions of a trust in a timely fashion.
According to Probate Code section 16062, the trustee must provide a formal accounting at least once annually for every year the trust remains active, as well as upon a change of trustees and termination of the trust. In addition, trustees are required to comply with beneficiaries’ requests for formal and informal accountings, or other financial information related to the trust.
Probate Code section 16063 requires that formal accountings include:
- A statement of receipts and disbursements of principal and income that have occurred during the last complete fiscal year of the trust or since the last account.
- A statement of the assets and liabilities of the trust as of the end of the last complete fiscal year of the trust or as of the end of the period covered by the account.
- The trustee’s compensation for the last complete fiscal year of the trust or since the last account.
- The agents hired by the trustee, their relationship to the trustee, if any, and their compensation, for the last complete fiscal year of the trust or since the last account.
- A statement that the recipient of the account may petition the court pursuant to Section 17200 to obtain a court review of the account and of the acts of the trustee.
- A statement that claims against the trustee for breach of trust may not be made after the expiration of three years from the date the beneficiary receives an account or report disclosing facts giving rise to the claim.
Beneficiaries should never overlook a trustee’s failure to account, as it could indicate the trustee is attempting to conceal financial wrongdoing.
Who Can Sue a Trustee?
If you have determined that you have grounds for suing a trustee, the next step is determining whether you have the standing to do so. In general, parties with standing in trustee misconduct cases are beneficiaries, heirs and possibly creditors.
Can a Beneficiary Sue a Trustee?
Yes, a beneficiary can sue a trustee, so long as they have a personal stake in the outcome of the case.
Suppose a trustee who is also a beneficiary of the trust is residing in a trust property rent-free, but they are not permitting similarly situated beneficiaries to do the same. In this case, only the beneficiaries whose requests to reside in a trust property rent-free were declined would have standing to sue the trustee for violating their duty of impartiality. The other beneficiaries would not be entitled to sue the trustee since they were not affected by the trustee’s breach of duty.
Can a Beneficiary of a Discretionary Trust Sue a Trustee?
Yes, a beneficiary of a discretionary trust can sue a trustee under certain conditions. For example, a beneficiary can sue a trustee if they abuse their discretion, fail to act in the best interests of the beneficiaries or act in bad faith.
The only caveat is that a beneficiary of a discretionary trust cannot compel a distribution if the trustee is using their discretionary powers appropriately and in accordance with the provisions of the trust.
Can a Beneficiary of an Irrevocable Trust Sue a Trustee?
Yes, a beneficiary of an irrevocable trust can sue a trustee if they have harmed the trust or breached their fiduciary duties.
A trust being irrevocable does not exempt a trustee from owing fiduciary duties to the beneficiaries. In fact, suing the trustee of an irrevocable trust is generally no different from suing the trustee of a standard revocable living trust.
Can a Non-Beneficiary Sue a Trustee?
No, a non-beneficiary cannot sue a trustee for breach of fiduciary duty. The reason for this is simple: a non-beneficiary doesn’t have a personal stake in the trust. With that being said, there are some exceptions.
For example, a non-beneficiary could sue a trustee for breaching their duty to provide them with copies of the trust and/or notification by the trustee, as provided by Probate Code section 16061.7. A non-beneficiary could also sue to set aside a decedent’s trust if they are the beneficiary of a prior version of the trust or one of the decedent’s heirs, and they have sufficient grounds to contest the trust.
Can an Heir Sue a Trustee?
It depends. A direct heir of the settlor can sue a trustee only if they have a personal stake in the trustee misconduct matter.
Suppose a trustee fails to notify a direct heir about administration of the trust. This prevented the heir not only from requesting a copy of the trust, but from contesting the trust as well. Because the heir, who may have a right to inherit by intestate succession if the trust were invalidated, was directly affected by the trustee’s failure to perform their duties, they would have standing to sue the trustee for the fees and costs they incurred as a result of the trustee’s failure.
What Legal Remedies Are Available When Suing a Trustee in California?
It is important to get clear on the relief you are seeking when you file a fiduciary misconduct claim against a trustee. Extreme breaches of duty may require extreme remedies. In general, the punishment should fit the crime.
If you are working with a trust lawyer, they can provide guidance about the remedies to seek based on factors like your desired outcome, the extent of the trustee’s misdeeds and your budget.
Court Orders Forcing the Trustee to Perform Duties
Court orders forcing the trustee to perform their duties can be effective in making a trustee comply with the obligations of their role. For example, a court order may require a trustee to account, respond to your requests for information or even provide you with your due and payable distribution.
To request a court order, you must file a petition with the court specifying the ways in which the trustee has failed to fulfill the obligations of their role. If the court agrees with your claims, it will issue a court order forcing the trustee to perform the duties specified.
Suspension/Removal
Although suspending or removing a trustee is never ideal, keeping an uncooperative or noncompliant trustee in their role may cause more harm to the trust than suspending or removing them would.
While isolated incidents may not warrant the trustee’s suspension or removal, problematic patterns might. For example, if a trustee habitually delays distributions without having a valid reason for doing so, seeking their suspension or removal may be justified.
In the same vein, if the trustee and beneficiaries have differences in opinion surrounding how the trust should be managed, and these differences can’t be reconciled, beneficiaries may have no choice but to seek the trustee’s suspension or removal to keep administration progressing smoothly.
To suspend or remove a trustee, you must file a petition with court specifying why the trustee continuing to preside over the trust would not be in the best interests of the beneficiaries or the trust. If the court agrees with your claims, it will either suspend the trustee until the matter can be investigated further or remove the trustee altogether.
Surcharge
A surcharge (i.e., a monetary penalty paid by a fiduciary) can be imposed on a trustee to compensate the trust or beneficiaries for any financial losses they suffered as a result of the trustee’s breaches of duty. This remedy can typically be sought alongside any of the remedies we’ve already covered.
Surcharges can be hefty and generally are paid from the trustee’s own pockets.
Attorney Fees and Costs
There is a possibility beneficiaries can recover their attorney fees and costs once a trial ends, either from the trust or the trustee personally.
It’s important to remember that, unless you reach a settlement outside of court that stipulates your attorney fees and costs will be paid by the trust or the trustee, you will typically have to win at trial in order to seek this remedy.
Being that most cases are resolved outside of court at mediation (i.e., negotiations between the parties presided over by a neutral third-party mediator), it’s important to prepare for the possibility that you will have to pay your own attorney fees and costs.
How to Sue a Trustee
Suing the trustee of a trust can be an expensive, time-consuming and emotionally taxing process. However, it is often a necessary step to take to protect both the trust and your interests.
Identify the Trustee’s Alleged Misdeeds
To start the process of suing the trustee of a trust, it is important to identify what you believe to be the trustee’s specific misdeeds.
Simply claiming a trustee commingled assets or stole from the trust is not enough; you must provide details, such as the date and time of the alleged misdeed, the financial losses suffered by the trust from the misdeed, and what specifically the misdeed entailed.
Consult with an Experienced Trust Lawyer
A trust lawyer can help you determine whether a trustee’s alleged misdeeds qualify as grounds for suing the trustee, and if they do, which legal remedies to seek.
Because of how challenging the process of suing a trustee of a trust can be to navigate, it’s a good idea to have a qualified lawyer by your side throughout it.
File a Petition with the Court
Once you’ve decided which specific claims you are bringing against the trustee, as well as the remedies you are seeking, you can begin drafting a petition to file with the court. Ideally, you’ll have a lawyer who can complete this important step for you.
A separate petition doesn’t typically need to be filed for each claim. Rather, you can list all your claims in one comprehensive petition.
Your petition should be as specific as possible and provide background on the problems you’re facing with the trustee. A compelling petition can make a huge difference in your case, as it could bring the trustee to settle on your preferred terms.
Consider Settling Outside of Court
To save time and money, settling your dispute with the trustee outside of court at mediation can be a great option.
Mediation can be resorted to at any time once the litigation process has started, so long as all the parties involved in the dispute are open to it. Mediation can even be resorted to after a trial has already begun.
Attend the Court Proceeding with your Lawyer
If you aren’t able to settle your dispute with the trustee outside of court, your case will proceed to trial. At trial, you will need to present evidence and oral arguments to back up your claims and justify the remedies you are seeking. It is important to attend court proceedings with your lawyer.
FAQs: Suing a Trustee in California
If you still have questions about suing a trustee, check out the frequently asked questions below.
If you can’t find the answers you’re looking for there, don’t hesitate to request a consultation with our skilled trust lawyers, who can provide you with personalized guidance after learning more about your case.
Can a trustee be removed without consent?
Yes, so long as there are valid grounds for removing a trustee, it can be done without consent. According to Probate Code section 15642, “[a] trustee may be removed in accordance with the trust instrument, by the court on its own motion, or on petition of a settlor, cotrustee, or beneficiary under Section 17200.”
Can you sue a trustee personally?
Yes, you can sue a trustee personally. Although a trustee is generally protected from personal liability when acting in good faith, they are not protected from the consequences of wrongful conduct.
For example, if a trustee misappropriates assets, they can be held personally liable for the damages caused to the trust by the trustee's misconduct and possibly even for the opposing party’s attorney’s fees and costs, among other things.
Can you sue a trustee after everything has been distributed?
It depends. After a trustee distributes the entirety of trust assets, both the trust and their role as trustee generally terminates. Therefore, trustees typically aren’t sued at this stage of the process.
That said, if it comes to light after a trustee’s role has ended that they were engaged in misconduct while serving as trustee, and that their misconduct harmed the trust, it may still be possible to sue the trustee.
If you plan to sue a trustee after everything has been distributed, it’s important to work with a skilled trust lawyer due to the legal complexities involved.
Can a trust be sued?
No, it is generally not possible to sue a trust. This is because a trust is a legal entity as opposed to an individual.
That said, you might find the legal relief you’re seeking by suing the trustee of a trust or disputing the trust, both of which are allowed under certain circumstances.
If you need help figuring out the appropriate legal action to take, consider discussing your case with a trust lawyer.
Can a trustee sue a beneficiary?
Yes, a trustee can sue a beneficiary, but only if the beneficiary in question engages in conduct that harms the trust.
Suppose a beneficiary refuses to move out of a trust property after the death of a settlor. The trustee not only could sue the beneficiary to evict them from the property, but they could seek damages from the beneficiary as well for the potential income the trust lost as a result of the property not being rented.
Who has more rights: a trustee or the beneficiary?
It's difficult to say whether a trustee or beneficiary has more rights, since their roles don’t generally overlap.
A trustee can exercise more control over the trust and its assets, but they are at the same time restricted by their fiduciary duty to always act in the beneficiaries’ best interests.
Beneficiaries, on the other hand, have a right to hold the trustee accountable if they disregard their fiduciary duties or the provisions of the trust.
In general, comparing the rights of trustees to the rights of beneficiaries is like comparing apples to oranges.
Does a beneficiary override a trust?
No, a beneficiary does not override a trust. The trustee is required to carry out the provisions of the trust exactly as they appear, regardless of whether a beneficiary approves or disapproves of them.
The only exception is if a beneficiary were to “override” a trust by contesting it. Contesting a trust is an important right trust beneficiaries have. However, it is only possible to contest a trust if the instrument meets one or more of the grounds for contesting a trust. In other words, a trust cannot be contested because a beneficiary is unhappy with their inheritance.
Can a trustee sue on behalf of a trust?
Yes, a trustee can sue on behalf of a trust. As a fiduciary, the trustee is obligated to protect the trust and its assets. If they must sue another party on behalf of the trust to protect or recover assets, they are entitled to do so.
For example, if a third party is wrongfully in possession of trust property, the trustee could sue the third party on behalf of the trust to recover the property.
Can a trustee sue another trustee?
Yes, a trustee can sue another trustee if the co-trustee breaches their fiduciary duties, acting in a way that harms the trust or its beneficiaries.
Suppose a co-trustee is engaged in self-dealing or fraud. The other co-trustees may actually have a duty to sue the co-trustee who’s engaged in self-dealing or fraud to protect the assets of the trust from further harm.
Still have questions about suing a trustee? Our skilled trust attorneys can help.
We understand that suing the trustee of a trust is a significant step. It could strain your relationship with the trustee and potentially delay trust administration, impacting all the beneficiaries. That’s why resolving disputes with a trustee requires a careful approach and a thoughtfully crafted strategy.
Our skilled legal team exclusively practices in estate and trust administration and litigation. We have an exceptional track record when it comes to achieving favorable outcomes for our beneficiary clients who are suing a trustee.
Call us today to learn how we can assist.
