Trustee misconduct is a serious thing, and if you believe that a trustee of an estate in which you have interest has been mismanaging assets or failing in their responsibilities, a San Diego, CA trust litigation attorney can help you protect the trust assets and hold the trustee accountable.
Trustee Misconduct: Laws and Consequences
Requirements Upon Trustees
In California, trustees are considered fiduciaries and governed by the California Probate Code. Sections 16000-16061 of that code specifically mandate that the trustee must act in the best interests of beneficiaries. They must avoid all conflicts of interest, such as investing trust funds in their own ventures; manage assets prudently according to the Uniform Prudent Investor Act; remain impartial; treat all beneficiaries equitably; and provide transparency and accountability in all their dealings.
They should provide through regular accountings detailing income, expenses, and distributions of the trust. In addition to these rules, trustees are also required to follow the terms of the trust precisely, and these will, of course, vary depending on the specific trust and how it is set up.
How Trustees Can Mismanage a Trust
Mismanagement occurs when any of the above duties are breached, and that can be both through intentional acts, like embezzlement, or by negligence and lack of care. If you are the beneficiary of a trust, there are some signs to look for that can indicate that mismanagement is happening.
If the trust suffers an unexplained financial loss due to unauthorized investments or risky investment strategies, like putting all the funds in a single stock or otherwise violating basic principles of diversification, it’s probably time to contact a lawyer. Any self-dealing should also be immediately investigated. Self-dealing can happen, for instance when a trustee benefits personally by selling trust property to themselves at below-market value.
Also look for unexplained withdrawals, as these may indicate that a trustee is using money from the trust for their own personal debts. Lack of communication is another red flag, and particularly if a trustee refuses to provide the required accounting. It’s rare for a trustee to simply refuse to provide an accounting outright, so look also for constant delays and claims to be “getting to it” to never seem to get anywhere.
Verifying What’s Going On
If you need to verify that there has been mismanagement, you can request an accounting from the trustee. If a trustee refuses, talk to your lawyer about petitioning the probate court, which can compel them to disclose the details. In some instances, when a trust is particularly complex, you may need to hire a forensic accountant to uncover any financial irregularities.
Penalties
If you can prove there’s been mismanagement, California courts can impose some pretty serious penalties on the trustee. A common remedy is a surcharge. This requires the trustee to personally pay back all losses to the trust, plus interest. The courts can also remove the trustee and either appoint the successor named in the trust itself or hire a professional fiduciary to take care of the trust if no alternate or successor trustee has been named. In some cases, the court may suspend the trustee temporarily during an investigation and appoint an interim trustee to manage things until it’s possible to work out what’s going on.
If there has been serious fraud or other criminal activity, there are other civil penalties that the courts can impose, and criminal charges may be on the table. Theft and embezzlement are chargeable under the California Penal Code, and a guilty verdict could send the trustee to jail. Various fines will likely also be applied. To get started investigating the issue, you’ll need to file a petition in the probate court of the county where the trust is being administered.
Remedies You Can Seek
You can also seek remedy for the harm that’s been caused to your property. You can legally seek restitution to recover lost funds, for example, or, if you find out about the misconduct early enough, request injunctions to halt any ongoing misconduct. In rare instances, the courts may even be willing to modify the terms of the trust. Be aware, however, that there is a statute of limitations for breach of fiduciary duty which requires you to bring action against the trustee within four years of discovering the misconduct.
Going to Court With Your San Diego, CA Trust Litigation Attorney
If you suspect there’s been mismanagement, your first step is to reach out to an attorney who will help you to gather the evidence you need to substantiate your claim. This could be anything from bank statements that show unauthorized withdrawals to correspondence you’re having with the trustee. As you are doing this, your lawyer will help you reach out to the trustee and make a request for more transparency. In a best-case scenario, there is a misunderstanding, and once the trustee provides a full accounting, everything will be cleared up. If that doesn’t happen, however, your lawyer will help you petition the probate court.
In court, your lawyer will provide the evidence that you’ve uncovered showing what’s going on and may call in an expert witness, such as a forensic accountant, to give further clarity to the court about the mismanagement you suspect. The probate court can bring a variety of civil penalties to bear, but if you want to pursue criminal charges, you’ll need to file a police report. Your lawyer can help you work out how to go after a trustee in both directions, if that’s appropriate for your situation.
If it’s an emergency situation, and the trust is being mismanaged so poorly that the entire property is in danger, your lawyer can help you petition the court for a change to the terms of the trust that may allow you to protect the assets. For example, it may be possible to transfer the assets of the trust to an offshore account, at least while the trustee is under investigation, to ensure that the trust can’t be drained.
Less Common Remedies
Another avenue for addressing mismanagement is through a trust contest, though this is not common. If you believe the trust was actually structured in a way that enables misconduct, you can challenge the validity of the trust itself. Be sure to talk to your lawyer about whether this is a potential option in your case. You’ll need to be able to prove that the trust violates public policy or the intent of the grantor. If this contest is successful, the court may order some amendments to the trust that may work to prevent future abuse.
If the trust document allows it, you may also be able to advocate for the appointment of a trust protector. This is a third party who oversees the actions of the trustee. It’s not standard, but the courts will recognize it if the trust document allows. Finally, you might consider insurance options. Fiduciary liability insurance is something usually purchased by trustees, but it can sometimes be required by the trust itself or by a court. If there’s been mismanagement, it is worth asking your lawyer if it’s possible to get the courts to require an insurance purchase.
If you are concerned about a trustee mismanaging your assets, contact Frisella Neilson, APC in San Diego right away.
