If a trustee is sued by a creditor of the trust for misappropriation of funds, does the trust pay for the trustee’s attorney fees? Or are those the individual responsibility of the trustee? More specifically, would the trust reimburse the trustee for attorney fees that the trustee has already paid?
Normally, the trust provides that the trustee is entitled to legal defense. There are times when the trust can limit this and restrict it to instances where the trustee is not acting in a way that would be a breach of fiduciary duties. My guess is that this is covered in the terms of your trust agreement. You may want to review this with an attorney, especially if the amount involved is significant.
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The terms of the trust are relevant. However, ultimately the court will decide whether the trustee is entitled to reimbursement from the trust. If the claim is found to be true, in all likelihood the court would not permit the trust to pay the trustee's attorney fees.
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Estate Planning Attorney
I agree with Attorneys Tigerman and Frederick. In determining whether or not the trustee has the authority to pay attorney’s fees and costs from the assets of the trust, you need to look at the language of the trust itself. Trusts typically provide that the trustee is authorized (and sometimes obligated) to defend the trust (and the trustee) against legal action and to pay reasonable attorney’s fees and costs from the trust assets.
If the trustee is successful in defending his/her actions as trustee, reasonable attorney’s fees may also be awarded by the court if the litigation was of a benefit to the estate. The court can order that fees be paid from the trust or, in certain cases, that the objecting party be required to pay the fees (under Probate Code Section 11003 for example). If the trustee is found to have acted improperly, courts generally will deny a request by that trustee for attorney’s fees.
Sometimes a trustee is able to successfully defend some but not all of the claims against him/her. In those instances, the court may award the trustee a portion, but not all, of the attorney’s fees claim. If the trustee has already paid attorney’s fees from the trust but is later found to have breached his/her fiduciary duties, the court may also surcharge the trustee. This means that the trustee would be required to reimburse the trust for such payments.
I would also add that it is fairly unusual for creditors to sue the trustee for misuse of trust assets. Ordinarily, creditors might sue a trust and trustee for a breach of contract, for unpaid money owed, or something of that nature. I’m not sure, unless a creditor is also a beneficiary, that a creditor has standing to challenge the trustee’s use or misuse of trust funds.
Disclaimer: The above answer does not create an attorney/client relationship. My responses are intended to provide general information about the question posted. I am licensed to practice in the state of California. The information provided on this site should not be used as a substitute for conferring with or hiring a competent legal advice from a licensed attorney that practices in the subject area in your state.
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4 lawyers agree
I can only agree with, and confirm, the answers provided by the other attorneys.
Simply put: it just depends on the situation. There are situations in which the trust will not be required to pay the trustee's attorney's fees; there are situations where the trust will be required to pay the reasonable attorney's fees of the trustee; and there may be situations where the trust will be required to pay a portion of the trustee's attorney's fees.
It appears that if the trustee were found liable for misappropriation of trust assets, then the trust most likely would not pay for the trustee's costs and attorney's fees in defending against the claim. Of course, if the trustee prevails in the underlying claim and is found to have not misappropriated any trust assets, then the trust will likely be required to pay the costs and attorney's fees incurred by the trustee.
This response does not create an attorney-client relationship between you and I. I am not your lawyer and I am not representing you in the underlying issue stated in your question. The response I have offered is not intended to be relied upon, you should seek out an attorney to assist in this matter.
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