The Trustee’s Guide to Commingled Assets

Commingling assets is a common issue we see with our trustee clients, and it’s one that can land you in some serious hot water. While it takes a little extra work and bookkeeping to keep trust funds separate from your personal funds, it’s a trustee’s duty to do so.

What are commingled assets?

The term “commingled assets” refers to when a trustee mixes trust money or other trust assets with their own funds or other non-trust assets. For example, if a trustee were to deposit trust funds into their personal bank account, the funds would be commingled.

Is a trustee allowed to commingle assets? 

No, a trustee is not allowed to commingle assets.

Under California Probate Code §16009, trustees have a duty to keep the trust property separate from other property not subject to the trust and to see that the trust property is designated as property of the trust. This means that any commingling of funds or other trust assets is strictly forbidden and is considered a breach of the trustee’s fiduciary duty. 

It also means that the trust bank accounts must be titled in the name of the trustee on behalf of the trust and not the trustee individually. Any violation of this requirement is also considered a breach of fiduciary duty. 

What should I do if I accidentally commingle assets? 

As a trustee, if you accidentally commingle assets, you should immediately fix the problem and thoroughly document the steps you took. For example, suppose you accidentally deposit trust money into your personal account. In that case, you should move the money to the trust account as soon as you realize your mistake and document exactly what happened in the trust’s records. 

You should also prepare for the beneficiaries to request your bank records to demonstrate that funds are no longer commingled. It is also a good idea to consult with an experienced trust litigation attorney if you breach your duty as a trustee by commingling assets, even if you do so accidentally, to make sure you can limit or manage your exposure.

What will happen if I commingle assets? 

According to California Probate Code §16400, when a trustee violates any of the duties owed to the trust’s beneficiaries, including the duty to keep trust property separate from other property, it may be considered a breach of trust. This means if you commingle assets as a trustee, you might have committed a breach of trust.

If a trustee commits a breach of trust, California Probate Code §16420 allows the beneficiaries or cotrustees of the trust to ask the court to do any of the following:

  1. To compel the trustee to perform their duties.
  2. To prohibit the trustee from committing a breach of trust.
  3. To compel the trustee to redress a breach of trust by payment of money or other remedies.
  4. To appoint a receiver or temporary trustee to take possession of the trust property and administer the trust.
  5. To remove the trustee.
  6. To set aside acts of the trustee.
  7. To reduce or deny compensation of the trustee.
  8. To impose an equitable lien or a constructive trust on trust property.
  9. To trace trust property that has been wrongfully disposed of and recover the property or its proceeds.

Depending on the circumstances and the severity of the situation, a breach of trust by commingling assets can also be cause for a civil lawsuit against a trustee. 

Can I be removed as trustee for commingling assets?

Yes, you can be removed as trustee for commingling assets.

Under California Probate Code §15642, a trustee may be removed in accordance with the trust instrument, by the court on its own motion, or on the petition of a settlor, co-trustee, or beneficiary. A breach of trust, such as commingling trust assets, is one of the grounds for the removal of a trustee by the court.

When should I contact a trust litigation attorney?

If you’ve been accused of breach of trust or commingling assets, you should contact a trust litigation attorney immediately. Even the unintentional commingling of trust assets can create serious problems for you as a trustee, and you will need an experienced professional to help you navigate the situation and manage any potential liability.

 

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Have questions? We’re happy to discuss.

Call (424) 320-9444 or email hello@rmolawyers.com

Read More

The Trustee’s Guide to Trust Distributions

The Trustee’s Guide to Avoiding Trustee Removal

The Guide to Trustee Succession and Resignation

About RMO, LLP

RMO LLP serves clients in Los Angeles, Santa Monica, Ventura, Santa Barbara, San Francisco, Orange County, San Diego, Kansas City, Miami, and communities throughout California, Florida, Missouri, and Kansas. Our founder, Scott E. Rahn, has been named “Top 100 – Trust and Estate Litigation” by SuperLawyers, Trusts and Estates Litigator of the Year, and Best Lawyers in America for Litigation – Trusts and Estates. For a free consultation, call (424) 320-9444 or visit: https://rmolawyers.com.