The Trustee’s Guide to Breach of Trust Claims

Trustees commonly face claims for breach of trust, misappropriation of trust funds, mismanagement, malfeasance, fraud, or breach of fiduciary duty. If you’ve been accused of breaching your fiduciary duties or misappropriating trust funds, contact an experienced trust litigation attorney as soon as possible. The sooner you begin working with a trust litigation attorney, the better your odds of protecting yourself. Here’s a quick guide.

What is breach of trust?

Breach of trust refers to any type of intentional or negligent, self-serving, erroneous, or retaliatory conduct committed by the trustee of a trust, resulting in harm to trust assets or beneficiaries. Misappropriation is a broad term encompassing many different types of offenses, both intentional and unintentional. Trustees have many duties under the law, and failing to live up to any of them may provide grounds for a beneficiary to file a lawsuit against you. 

What is an example of breach of trust?

A common example of trustee negligence is that of a trustee who fails to make distributions beneficiaries. Or perhaps you failed to properly invest trust assets, protect assets from loss, insure trust assets, or following the trust terms. Maybe you failed to take appropriate legal or financial action when trust assets were threatened by a lawsuit. In all these cases, you could have exposure to being removed and/or being surcharged for any loss. 

What are a trustee’s duties and responsibilities?

A trustee’s duty is to act in the best interest of the trust and its beneficiaries. A trustee is a person nominated by a trust document to manage assets owned by another person or their estate according to the trust terms and the law. Per Probate Code 16000:

“On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument and, except to the extent the trust instrument provides otherwise, according to this division.”

Here’s a simplified list of the trustee’s basic duties and responsibilities:

• Administer the trust as stated
• Act in the best interest of the trust and its beneficiaries
• Treat all beneficiaries fairly and impartially
• The trustee may not use the trust for the trustee’s own profit
• Keep trust property separate from other property
• Take reasonable steps to enforce claims that are part of the trust property
• Take reasonable steps to defend actions that may result in a loss to the trust

What if I’m accused of breach of trust?

Contact a trust litigation attorney the moment you’re accused of breach of trust or misappropriation of trust funds. Generally, the consultation with the trust attorney is free. We protect trustees every day, and assure you it’s common for well-intentioned trusteed to be accused of misappropriation of trust funds or breach of fiduciary duty — especially when the value of the trust or estate is significant or there is family disharmony. 

Is there a statute of limitations on breach of trust?

While the statute of limitations for contesting a trust is 120 days after the death of the trustor (person who created the trust), the statute of limitations for breach of trust, misappropriation, malfeasance or breach of fiduciary duty can be years — depending on your state and circumstances. Contact an experienced trust litigation attorney to find out.

Can a trustee be sued?

Yes. A trustee can be sued for a wide variety of reasons, because a trustee is held to the highest legal standard – a fiduciary standard. At RMO, we generally see trustees being sued for things like failing to account, accounting irregularities, mismanagement of trust property, embezzlement, fraud, and commingling funds. Perhaps the single biggest reason trustees get sued is because they fail to keep beneficiaries informed.  To defend yourself against claims, working with an experienced trust litigation lawyer familiar with the local probate court is crucial. Why? Because courts tend to look unfavorably upon trustees who are abusing or otherwise failing to live up to the duties of their position.

Who pays the legal fees when a trustee is accused of breach of trust?

Generally, the trust pays the legal feeds. A trustee can allocate a trust reserve, which is a reasonable amount of money or assets intended to pay debts, creditors, and legal fees in defense of the trust. Schedule a free consultation with a trust litigation attorney to find out.

When can a trustee be sued for misappropriation, negligence, mismanagement, fraud, or malfeasance?

There are a variety of reasons that claims may be brought against a trustee. Here are some of the more common reasons:

• When a trustee is embezzling or stealing trust assets.
• When a trustee is personally benefiting from trust assets via fraud, forgery, or coercion.
• When a trustee is commingling personal funds with trust funds. 
• When a trustee is making suspicious or inappropriate gifts from the trust.
• When a trustee is subjecting trust assets to unreasonable risk.
• When a trustee is not complying with the trust’s accounting, investing, or distribution directives
• When a trustee is no longer of sound enough mind or ability to perform their duties.

What is the penalty for misappropriation of trust funds?

Generally, an offending trustee will be removed, replaced and/or surcharged (ordered to pay for the loss caused). Courts generally will seek to put the damaged beneficiaries back in the place they would have been but for the trustee’s error, meaning the court will look to ensure the trust funds provide what the trustor intended, even if personal funds of a trustee who is in breach of trust are required to make them whole. 

When should I contact a trust litigation attorney?

The simple answer is that you should contact a trust litigation attorney the moment you suspect a claim may be filed against you. In any case, realize that you have nothing to lose by getting a free consultation. At RMO, as with any other reputable trust litigation firm, our initial consultation is free, because we want to hear all the facts of your specific case.

Do I need a trust litigation attorney near me?

We recommend finding an experienced trust litigation attorney familiar with the county probate court in the county where the trust is being administered. For example, if the trust’s creator lived in Miami, Florida, yet the trust is being administered in Los Angeles, California, we recommend working with a trust litigation lawyer in Los Angeles. A Los Angeles trust litigation attorney will generally be more familiar with the Los Angeles Superior Court Probate Division, versus an out of state attorney. At RMO, our attorneys are located in Los Angeles, Miami, San Diego, Orange County, and Kansas City.