How Do You Protect Yourself As a Trustee?
How do you protect yourself as a trustee? The first step is to take the time and learn more about what you are signing up for. Do your research, ask questions, consult a trust attorney, and ensure you understand the duties and obligations that need to be fulfilled as trustee. Your legal liabilities can be high if you don’t take the time to understand the risks and responsibilities involved in serving as trustee.
To ensure you are protected, you must fulfill your legal duties and obligations. If you violate your duties to the trust and its beneficiaries, you can be removed as trustee, or in some cases, sued.
A few steps you can take to protect yourself as a trustee include:
- Read, understand, and comply with the terms of the trust instrument.
- Keep records of trust transactions, how you spend your time, and the reasons for your decisions.
- Retain a trust attorney to assist with the administration of the trust.
Is a trustee protected?
A trustee has the protections afforded under the trust and at law, but if you are found to be in breach of trust or if you violate your fiduciary duty to trust beneficiaries you can be held personally liable for any loss.
As a trustee, you must follow the terms of the trust. If you violate the trust, even accidentally, you might find yourself on the wrong end of a lawsuit. Trustees may also be sued for issues like mismanaging trust property, conflicts of interests, embezzlement, or even failing to account or keep beneficiaries informed.
To protect yourself as a trustee, you should work with an experienced trust attorney to ensure you are discharging your legal duties.
What happens when a trustee does not follow the trust?
If a trustee does not follow the trust, they may be subject to removal for breach of trust.
Under California Probate Code §15642, a trustee may be removed as provided for in the trust, usually where beneficiaries have a right to remove and replace a trustee, or the probate court can remove a trustee on its own motion or upon the request of a settlor, co-trustee, or beneficiary.
Breach of trust is one of the most common reasons that trustees are removed. Under California Probate Code §16400, a breach of trust may occur when the trustee violates one of their duties, such as:
- The duty to comply with the terms of the trust instrument.
- The duty to treat beneficiaries fairly and act in their best interest.
- The duty to maintain trust property separate from personal property.
- The duty to avoid using trust property for their own benefit.
If a trustee has failed to meet one or more of their obligations, a beneficiary or another trustee can petition the probate court to request that the trustee be removed and surcharged for any damage caused by the breach. Once the petition for removal is filed (often preceded by a petition for suspension if warranted), the court will schedule a hearing to determine whether the trustee should be removed. At that hearing all interested parties – i.e. beneficiaries, heirs, co-trustees, and/or successor trustees – have an opportunity to state their position. Depending on the gravity of the allegations and evidence, the judge may suspend the trustee and appoint a replacement trustee pending determination on the removal petition at a later hearing or trial. At that later time the court also may order the trustee to pay money damages to the trust or the beneficiaries in some situations, as well as legal fees and court costs, what is known as a “surcharge” in probate parlance.
When should I contact a trust litigation attorney?
The best way to protect yourself is to contact a probate lawyer or trust attorney as soon as you consent to serve as trustee. An experienced trust lawyer can help you ensure you fulfill your legal obligations and avoid taking actions that could subject you to personal liability.
Even if you didn’t retain an attorney when you began serving as trustee, a trust litigation lawyer can help you at any time an issue arises. If you’ve been accused of wrongdoing such as breach of trust, you should contact a trust litigation attorney as soon as possible to discuss your options and, possibly, avoid or at least manage your potential liability.
Trust Litigation Videos
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How Serious Is a Breach of Fiduciary Duty?
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Who Can Sue a Trustee?
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Can Trustees Be Held Personally Liable?
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What Happens at a Probate Hearing?
Probate is the legal process used to distribute property and assets following someone’s death. Probate involves many different players — family members, friends, loved ones, attorneys, executors of wills — all coming together for one common goal: to settle this person’s affairs according to their wishes and ensure they’ve left no loose ends behind. Probate can be complicated, so it’s imperative that you seek out qualified legal counsel before taking any action.
What are the stages of probate?
There are four basic stages of probate. Each step in the process is detailed in the sections below.
Stage One — Petition and Notices
Probate begins when a petition to open probate is filed with the Superior Court in the county where the deceased person resided. Once the petition has been received, the court will set a hearing date. All interested persons (the personal representative, heirs, beneficiaries named in the will, and creditors) will receive notice of the date and time of the hearing.
Stage Two — The First Hearing
At the first hearing, the court will appoint the estate’s personal representative, unless their appointment is contested. If the deceased person left a will that identified a specific person as their executor, the court must approve and finalize the appointment. If the court does not approve or if the individual does not want to serve as the executor, the court may need to appoint someone else. Once a personal representative is accepted, the court will issue Letters Testamentary, which is a legal document that allows the executor to access estate assets and otherwise administer the estate.
Stage Three — Estate Administration
After the personal representative receives Letters Testamentary, they are responsible for collecting all of the deceased personal assets that are subject to probate. The executor will then be required to submit an inventory of the estate property to the court.
Once the assets have been inventoried, the personal representative must provide notice of the death to all of the deceased’s creditors. Creditors with outstanding debts can submit claims and receive payment from the inventoried assets. Under California law, creditors must submit claims within four months of the executor’s appointment.
The personal representative must also ensure that state and federal estate taxes are paid before distributing any assets to heirs.
Stage Four — Final Distribution
After the personal representative has completed all of their responsibilities, they will file a Petition for Final Distribution with the court, which will require a later hearing to be held. At this hearing, the personal representative will provide a detailed accounting regarding the use of estate assets. The judge will review this information to ensure all of the legal requirements were met. Once the judge determines that the estate has been appropriately administered, they will sign the Petition for Final Distribution and close the estate.
Is probate good or bad?
Probate is neither good nor bad, but there are situations where avoiding probate may be beneficial.
Probate can be an expensive time-suck. The proceedings are also part of the public record, including your will. To avoid the costs and time associated with probate and protect their privacy, some people develop estate plans that allow their assets to pass to their loved ones without going through the probate process.
Some common methods for avoiding probate include:
- Creating and funding a living trust that distributes your assets to your beneficiaries upon your death.
- Establishing “payable on death” (POD) bank accounts and “transfer on death” (TOD) bonds, stocks, and brokerage accounts.
- Jointly owning property so it will automatically pass to the co-owner when you die.
- Designating beneficiaries on life insurance and retirement accounts.
You may also be able to bypass the formal probate process when the estate assets qualify for a small estate administration. However, there are some situations where formal probate proceedings can be beneficial, so you should always consult with a probate lawyer to determine the best course of action.
PROBATE Litigation Videos
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The Professional Trustee’s Guide to Estate Contests and DisputesEstate contests and disputes can be intimidating for anyone, even a professional trustee. In this guide, we’ve answered some of the questions we’re commonly asked about estate and trust contests, estate disputes, and other issues professional trustees may face.
What Are the Most Common Estate Contests and Disputes?
Estate contests and disputes occur when an interested party challenges the validity of a will in probate court. A will is invalid if the testator did not follow state legal requirements, if the testator was not of sound mind, or if a third party illegally manipulated the testator and used undue influence to obtain a document that did reflect the testator’s intent.
Legal Requirements Not Followed
Testators must follow the specific rules and formalities established by state law when creating a will. These laws vary between states, but every state requires the following:
- The testator is of legal age.
- The testator meant for the document to be their will. (“testamentary intent”)
- The testator signed the will.
- At least two witnesses signed the will.
If the will fails to meet any one of these requirements, the probate court is likely to deem the document an invalid will.
Lack of Testamentary Capacity
For a will to be valid, the testator must be of “sound mind” when creating the will. Sound mind means that the testator must have the mental capacity to understand three essential concepts:
- That they are creating a will
- The nature of their estate assets
- Who will inherit their property
It’s a pretty low standard. The only standard that’s lower is the standard to marry. Under this standard, a person may have dementia and still form a valid will, as long as they understand these three ideas when executing the will.
Undue Influence or Fraud
Undue influence occurs when a family member, close friend, trusted advisor, health care worker, or any third person compels or coerces the testator to execute a will or trust in their favor. The influence exerted must be extreme and put the testator under a severe level of duress that causes them to abandon their free will and give in to the third party’s desires.
Similarly, a will can be fraudulent if a third party tricked the testator into signing the will by claiming it was another document, the third party forges the testator’s signature, or the third party otherwise creates a document through fraudulent means that the testator did not intend to be a will.
Can a Trustee Be Sued?
Trustees have a legal duty to administer the trust for the beneficiaries’ benefit while acting with skill, care, and caution. In reality, serving as trustee is a thankless task, because the fiduciary duty owed to beneficiaries – the highest duty – allows beneficiaries to sue trustees for perceived errors or mismanagement of a trust.
Common issues that beneficiaries complain about that could expose trustees to personal liability include:
- Trustee theft of trust assets
- Failing to distribute trust assets
- Failing to provide an accounting or transparency about trust management
- Mishandling trust assets
- Poor investment choices
- Conflicts of interest
- Favoring or disfavoring one beneficiary over another
- Paying taxes late or occurring avoidable penalties and charges
To protect themselves from personal liability, trustees should always keep detailed and well-organized records. They should thoroughly document every transaction, their time, and detail their reasons for making their decisions. Trustees should also make sure they understand all of the trust instructions and obey them strictly.
Can a Beneficiary Be Sued?
Unlike trustees, beneficiaries do not have any responsibilities in administering a trust or estate. A beneficiary simply receives what the trustee gives them. Since a beneficiary does not have a fiduciary duty to the trustee, trustees rarely have reason to sue a beneficiary unless the beneficiary has stolen or otherwise damaged trust property. For this reason, it is much more common for a beneficiary to sue a trustee.
Can a Beneficiary Be Removed?
Beneficiaries can only be removed under certain circumstances. Beneficiaries may choose to disclaim or waive their interests and remove themselves as beneficiaries. However, a trustee cannot change a beneficiary designation unless the trust document contains language that expressly allows the trustee to disinherit a beneficiary – commonly found in a power of appointment – or contains other language that serves to disinherit a beneficiary upon the occurrence of some event – most often allowing a trustee to suspend or terminate benefits to a beneficiary with substance abuse issues.
How Should I Handle a Problem Beneficiary?
It’s an unfortunate truth that some, perhaps even many, beneficiaries can be difficult and demanding. In our experience, this type of behavior often stems from fear and anxiety about a lack of transparency in the trust administration process. Beneficiaries may not be familiar with how trusts work or may resent that the trustee has been put in charge of the trust property.
Even when a trustee is doing everything right, if the beneficiaries don’t know what the trustee is doing or why they are doing it, they might be uncooperative. Here are a few suggestions for trustees on handling a problem beneficiary:
- Reach out to all beneficiaries early in the process.
- Make sure the beneficiaries understand your role.
- Help the beneficiaries form realistic expectations for how long it will take to administer the trust.
- Keep beneficiaries informed about how you are managing trust assets.
- Treat questions as opportunities for engagement.
- Don’t hide trust documents, assets or other information from beneficiaries.
- Be as transparent and communicative as possible throughout the administration process.
Following these rules can help keep beneficiaries happy, and happy beneficiaries are far less likely to cause trouble. What’s more, courts are far less likely to take issue with your trust administration if you’ve kept beneficiaries well-informed.
What Is an Estate Litigation Attorney?
An estate litigation attorney specializes in addressing, managing and resolving trust and estate disputes, including securing protections from probate court if necessary. These litigation proceedings may include a variety of matters, such as:
- Petitions for court instructions
- Petitions to recover stolen assets
- Will contests
- Undue influence
- Financial elder abuse
- Fraudulent conveyances
- Testamentary capacity and intent
- Breaches of fiduciary duties by trustees and other fiduciaries
- Trust modification and reformation
Estate litigation attorneys can help people on both sides of these proceedings. For example, an estate litigation lawyer can represent a beneficiary suing a trustee for a breach of fiduciary duty, or they can defend a trustee against such a claim.
What Should I Prepare Before Contacting an Estate Litigation Attorney?
Before contacting an estate litigation attorney, you should prepare by gathering relevant documentation and other evidence. Depending on the facts of your case, you may want to collect any of the following:
- Will or trust documents
- Death certificates
- Preliminary list of the assets and their estimated values
- Inventory of trust assets and investments
- Deeds to real property
- Life insurance policies
- Documents related to applications for public benefits such as Medicaid or Social Security
- Gift tax returns and estate tax returns
If you don’t know what documents are relevant, you should schedule a free consultation with an estate litigation attorney to discuss the situation.
When Should I Contact an Estate Attorney?
Professional trustees should contact an estate attorney upon appointment to help administer the trust, especially if it is the first time they have served as a trustee. A trust administration lawyer can help ensure that the private or professional trustee understands and follows the relevant laws governing trusts and trustees. If you’ve recently become a trustee, you should schedule an initial consultation with an estate attorney as soon as you can.
Retaining an attorney when you are first appointed can help you avoid a lawsuit in the first place. If you’re a trustee who is already being sued by a beneficiary, you’ll be best-served to contact an experienced estate litigation attorney to represent you rather than trying to engage opposing counsel on your own.