Traditionally, when one thinks about their trust and selecting a trustee, the job is thought of with respect and dignity. Selected trustees often feel honored and respected. However, what they donâ€™t know is that the job of Trustee comes with a tremendous amount of duty, responsibility and obligation. After being saddled with the job of trustee, most of my clients want toâ€¦GIVE IT BACK!
While it may not seem as such on the surface, a trustee has many jobs and wears many different hats, especially if the trustee is also a beneficiary.
A trustee may sue and be sued on behalf of the Trust. An action against the trustee may be brought based on contract, tort, or against the trustee in his or her representative capacity as trustee. These can include both compensatory damages, as well as punitive damages and statutory liability under the Probate Code. All this having been said, the defense of an action by a trustee does not guarantee that the trustee will be entitled to recover their attorneysâ€™ fees. Thatâ€™s right, while doing your job as trustee, you may be forced to expend your own funds to hire legal counsel and you may not be entitled to have the trust reimburse you for that expenditure. Because a trust is not a legal entity, it is not a party to an action, rather the trustee is the party. Once legal proceedings are instituted, permission for payment of fees is usually required. If the court does not authorize payment of fees, the trustee may be personally liable. How could this happen?
When entering into a contract, a trustee is not personally liable for it if the trustee documents that the contract is entered into on behalf of the trust. Likewise, a trustee is personally liable for torts committed in the course of administration of the trust ONLY if the trustee is personally at fault. A trustee is also only personally liable for obligations arising from ownership of trust property if the trustee is personally at fault. Additionally, a trustee can be personally liable if he or she signs their own name to a negotiable instrument without identifying their representative capacity as trustee. Finally, a dissenting co-trustee is generally not liable for the acts of their co-trustees.
It would appear after reading the above list that it would be hard to violate these rules. However, as soon as a beneficiary of a trust believes that they havenâ€™t received enough money, that you do not have their best interests at heart or that you have done something untoward, an action may be filed. As soon as an action is filed, you must now defend it. Beneficiaries of a trust have the right to seek redress of their grievances in the Superior Court. This means that if they suspect that you have violated any of your obligations as trustee, they may make you prove otherwise.
How can a trustee protect herself? Seek a professional team of support. Trustees are obligated to act in a manner that has the best interests of ALL beneficiaries in mind. They have an obligation to treat all beneficiaries equally. Therefore, it is most important to remain neutral and not take sides with one beneficiary at the expense of other beneficiaries. Assemble a team of professionals to help you. Depending on the assets in the estate, this team can include real estate agents, accountants, investment professionals and lawyers. Most importantly, ask permission and send notice. When a trustee intends to take action he or she may send Notice of Proposed Action to the beneficiaries so that everyone is apprised of the proposed action in advance. Additionally, the trustee can file a Petition for Instructions with the court seeking the courtâ€™s guidance in advance of taking action.
If you choose to accept the job of trustee, protect yourself and build a tool box full of the appropriate tools for the job. Otherwise, give the job back. You will be doing a service to yourself and the beneficiaries of the trust.