What is Trust Litigation?
Trust litigation can be described generally as a civil lawsuit filed in Probate Court that includes a significant issue involving a trust or a trustee’s behavior. Trust litigation comprises many possible claims or causes of action, but generally trust litigation falls into one of the five categories discussed below.
- Breach of Fiduciary Duty
- Disputed Trust Accountings
- Trustee Removal
- Disputes between Cotrustees
- Petitions for Instructions
In simple terms, you may need to hire a trust litigation attorney if:
- You are a trustee and have been accused of misconduct, or aren’t sure how to respond to a demanding or unreasonable beneficiary.
- You are a beneficiary worried about a trustee’s competence or honesty.
- You are a trustee and a beneficiary has asked you for an accounting.
- You are a beneficiary and a trustee has refused to give you an accounting.
- You are a co-trustee and your fellow co-trustee is uncooperative.
- You are a beneficiary and a trustee will not respond to your questions.
- You are a trustee who has made a mistake and is not sure how to fix it.
If you find yourself in one of these situations, our trust litigation attorneys can help.
Breach of Fiduciary Duty
To become a trustee of a California Trust is to become a “fiduciary.” A fiduciary, according to Black’s law dictionary, is:
“[A] person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. A person having duty, created by his undertaking, to act primarily for another’s benefit in matters connected with such undertaking . . . A term to refer to a person having duties involving good faith, trust, special confidence, and candor towards another.
Blacks defines a “fiduciary duty” as “a duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person. It is the highest standard of duty implied by law.”
Under the California Probate Code and court decisions, a trustee has these specific duties:
- The duty to administer the trust according to its terms
- The duty of confidentiality
- The duty to account
- The duty not to delegate certain functions
- The duty to keep beneficiaries informed
- The duty of loyalty
- The duty to furnish trust terms upon request
- The duty to avoid conflicts of interest
- The duty to furnish information to a beneficiary upon a reasonable request
- The duty of impartiality
In making investment decisions, the trustees’ duties include:
- The duty to review investments and develop a strategy
- The duty to keep beneficiaries informed
- The duty to invest and make property productive
- The duty to avoid self-dealing and avoid conflicts
- The duty to diversify
- The duty to dispose of unproductive assets
- The duty to consider beneficiaries’ needs
The breach of any of these duties could give rise to a claim for breach of fiduciary duty.
Our lawyers have handled hundreds of trust litigation cases involving breach of fiduciary duty. A typical cases might arise as follows:
Mary’s mother died with a living trust, which divides all her property between Mary and her brother John upon Mother’s death. For over a year after Mother’s death, Mary hears nothing from John. She emails him a few times asking for a copy of the trust and for the status of the trust administration, but John never responds. While Mary awaits a response, John is living in Mother’s home in San Francisco rent-free; Mary suspects that John is doing nothing to administer the trust and is living off Mother’s funds. Fed up, Mary hires a trust litigation attorney, who files a claim for breach of fiduciary duty.
The petition might include allegations that John breached the duty to administer the trust, the duty keep beneficiaries informed, the duty furnish trust terms upon request, the duty to furnish information to a beneficiary upon a reasonable request, the duty of loyalty, the duty to avoid conflicts of interest, the duty to invest and make property productive, the duty to diversify investments, the duty to avoid self-dealing and conflicts of interest, and the duty to dispose of unproductive assets.
Disputes over Trust Accountings
Beneficiaries often suspect that a trustee has breached their fiduciary duty, but they can’t prove it. Likewise, trustees who have done nothing wrong are often accused of wrongdoing by unreasonable or suspicious beneficiaries. In both instances, a formal Probate Accounting prepared according to Probate Code Section 1060 may be the best course of action.
The Probate Code provides that a trustee must furnish an annual accounting; however, if the trust waives this requirement the trustee need not account. Even if the trust waives an accounting, a trustee must furnish an accounting upon the request of a beneficiary. Upon such request, if the trustee does not provide an accounting within 60 days, the beneficiary may file a petition asking the court to order the trustee to file an accounting with the court.
When our lawyers represent a beneficiary concerned about an untrustworthy trustee, we often begin by asking the trustee to provide an accounting within 60 days. If the trustee provides an accounting that balances and discloses no malfeasance, then the case often ends, no blood has been spilled, and everyone can go on with their lives without incurring substantial attorneys’ fees.
However, if (as is more often the case when these disputes reach our office) the trustee does not respond, or files a deficient accounting, we file a petition to compel an accounting, and the court typically orders the trustee to account within two or three months. Once again, if the accounting is complete, and all the transactions are justified, the case is often over. If the accounting doesn’t balance, isn’t transparent, omits required data, or indicates breaches of fiduciary duties, the beneficiaries typically file “objections” to the accounting. The case would now be at issue, the “Discovery” 8 stages of trust and estate litigation stage would begin, and the case would head toward trial.
(Two types of trust accountings are defined in the Probate Code. Section 16063 enumerates what must be included in a trustee’s annual accounting. If a beneficiary files an objection to an accounting the court will usually order the trustee to file an accounting that complies with a different statute—Probate Code Section 1060. Likewise, if a trustee seeks court approval of an accounting absent an objection by a beneficiary, the trustee would file an accounting that complies with Probate Code Section 1060. In short, an accounting filed in court must meet the more detailed requirements of Section 1060, which is why a Probate Code 1060 accounting is often called a “court accounting.”)
When our lawyers file a petition alleging breaches of fiduciary duty, we often also include a request that the trustee be removed and replaced with either another (successor) trustee named in the trust or a private professional fiduciary. The rationale is that if a trustee has breached their fiduciary duty, they cannot be trusted to continue to serve as trustee, with control over sometimes large amounts of cash and securities, the management of real property, and other important responsibilities which, if neglected, could harm the beneficiaries’ interests.
If the trustee’s conduct is egregious, the court may suspend a trustee early in the case and appoint a temporary trustee.
Disputes between Co-Trustees
Many trusts name two people as cotrustees rather than a single person as trustee. This commonly occurs when parents create a trust and name two children as cotrustees. It is not uncommon for disputes to arise between cotrustees in several common scenarios:
- One cotrustee wants to administer the trust quickly and the other drags his or her feet
- One cotrustee refuses to communicate with the other
- The cotrustees disagree about how to dispose of a particular asset, such as a house or vacation home. (Perhaps a residence in Walnut Creek or a condo in San Francisco that one wants to sell and another wants to keep.)
- The cotrustees simply don’t get along; or worse, hate one another
These scenarios often end with one cotrustee filing a petition to remove the other co-trustee, or filing a petition for instructions in which they ask the court to order a cotrustee to take a particular action.
Petitions for Instructions
Trustees often find themselves in a “damned if you do-damned if you don’t” situation. For example, one beneficiary wants to buy the family home in San Francisco out of the trust, while another beneficiary objects that the buy-out price is too low. Whatever he or she does could expose the trustee to a charge of breaching the duty of impartiality. In these situations, our trust litigation attorneys often recommend filing a “Petition for Instructions” under Probate Code Section 17200.
This procedure allows the trustee to explain their predicament to the court, offer a proposed solution, and ask the court to approve their decision. The petition is then served on all the beneficiaries, who may object to the proposed solution and offer their own. While these petitions often involve issues of significant monetary value, they are sometimes necessary for other reasons, such as the disposition of cherished family heirlooms of little monetary value but huge emotional value, e.g., who gets dad’s war medals, mom’s wedding ring, or grandmother’s china?
Attorneys’ Fees in Trust Litigation
When our trust litigation attorneys meet with new clients, one of the most frequently asked questions is whether the trust will pay their attorneys’ fees. When a beneficiary is litigating against a trustee, the answer is usually “it’s possible, but you should not count on it.” There are a few scenarios under which a beneficiary may recover their attorneys’ fees, but they are relatively few, and it’s not common for a beneficiary to recover their fees. When they do, it’s usually part of a negotiated settlement agreement.
It is much more common for trustees to have their attorneys’ fees paid out of trust funds. Generally a trustee may use trust funds to hire professionals, including lawyers, to help them administer a trust. Therefore, when a trustee is involved in a dispute with a beneficiary, the trustee often pays the lawyers using trust funds. If the court determines that the trustee is actually litigating to protect the trustee’s personal interests rather than the trust’s, or is acting in bad faith, the court may deny the trustee the use of trust funds, freeze trust accounts, or order the trustee to reimburse the trust for attorneys’ fees.
Differences between Civil Litigation and Probate Litigation
There are significant differences between probate court and civil court (where most non-criminal cases are heard), and probate court can be an unfamiliar and challenging environment for an attorney who doesn’t specialize in trust and estate litigation.
One of the biggest differences is that a probate court is a court of “equity,” which, broadly speaking means it has more latitude to do what the judge believes if fair. When a judge imposes his own view of “fairness” on a family he knows little about, this can be maddening for clients and lawyers. Similarly, the parties can be badly hurt when a judge attempts to “do fairness” early in a case without knowing all the facts. For better or worse, it’s much more likely to find a judge acting like King Solomon arbitrating a dispute between querulous children in Probate Court than it is in civil court.
Another difference is that most pleadings in probate court must be verified. This means that a client accusing a trustee or another party of wrongdoing must swear to certain facts under penalty of perjury. Accordingly, clients in trust and estate disputes are well-advised to review carefully the factual allegations in a pleading in Probate Court before they sign a verification.
Finally, probate cases are generally tried by a judge rather than a jury. While a bench trial is usually cheaper than a jury trial, a bench trial can be frightening if the probate judge has indicated during pre-trial litigation that he has pre-judged the case or favors one side over another.
At Barr & Young Attorneys, we have handled trust litigation cases for over twenty years. We have represented clients from throughout the Bay Area, from San Francisco to Walnut Creek, and many clients from other parts of California and across the country. If you have a dispute with a trustee, or are yourself a trustee accused of wrongdoing, please call us for a free case evaluation.
Barr & Young represents clients throughout Northern California, including Danville, Walnut Creek, San Francisco, Pleasant Hill, Livermore, and Oakland.