Suing a Successor Trustee for Breach of Duty

A trust is supposed to protect assets and carry out the wishes of the person who created it. When a successor trustee takes over after the original grantor passes away or becomes incapacitated, they step into a position of serious legal responsibility. They are required to manage the trust honestly, transparently, and in the interests of the beneficiaries, not themselves.

Unfortunately, not every successor trustee lives up to that obligation. Some mishandle funds. Some refuse to communicate with beneficiaries. Others make self-serving decisions that directly harm the people the trust was meant to protect. When that happens, beneficiaries have the right to take legal action.

At Cava & Faulkner, Attorneys at Law, we represent trust beneficiaries in Elk Grove and throughout the Sacramento area who are dealing with trustees who have failed in their duties. Below, we explain what breach of fiduciary duty looks like, how California law addresses it, and what steps beneficiaries can take to hold a trustee accountable.

What a Successor Trustee Is Required to Do

Under California law, a successor trustee is a fiduciary. That means they are legally obligated to act in the highest good faith and in the interests of the beneficiaries. The California Probate Code sets out several core duties that every trustee must follow.

The duty of loyalty requires the trustee to administer the trust solely in the interests of the beneficiaries. They cannot use trust assets for personal benefit or favor one beneficiary over another unless the trust document specifically allows it.

The duty to inform and account requires the trustee to keep beneficiaries reasonably informed about the trust and its administration. Under Probate Code Section 16061.7, the trustee must notify beneficiaries within 60 days of the grantor’s death and provide them with a copy of the trust. Beneficiaries also have the right to request accountings that show how trust assets have been managed, what income has been received, what expenses have been paid, and what distributions have been made.

The duty of prudent administration requires the trustee to manage trust assets with the care and skill that a reasonably prudent person would use. This includes making sound investment decisions, preserving trust property, and avoiding unnecessary risk.

The duty of impartiality applies when a trust has multiple beneficiaries. The trustee must treat all beneficiaries fairly and cannot take actions that unfairly benefit one beneficiary at the expense of another.

These duties are not optional. They are legal requirements, and a trustee who violates them can be held personally liable for any resulting harm.

Common Examples of Trustee Breach of Duty

Breach of fiduciary duty can take many forms. Some violations are obvious, while others are more subtle and may take time for beneficiaries to uncover. Common examples include the following.

Self-dealing occurs when a trustee uses trust assets for their own benefit. This might involve borrowing money from the trust, purchasing trust property at a below-market price, or paying themselves excessive trustee fees without proper authorization.

Failure to distribute assets is another frequent issue. Some trustees delay or refuse to make distributions that the trust document clearly requires. Whether the delay is caused by negligence, incompetence, or a deliberate attempt to maintain control over the assets, it can cause real financial harm to beneficiaries who are counting on those distributions.

Mismanagement of trust investments can also constitute a breach. If a trustee makes reckless investment decisions, fails to diversify the trust portfolio, or allows trust assets to lose value through neglect, they may be liable for the resulting losses.

Failure to communicate with beneficiaries is a violation of the duty to inform. Trustees who refuse to answer questions, decline to provide accountings, or withhold information about the trust’s financial status are not meeting their legal obligations.

Commingling trust assets with personal funds is a serious red flag. Trust assets must be kept separate from the trustee’s personal accounts. Mixing these funds makes it difficult to track how trust money is being used and creates opportunities for misuse.

Favoring one beneficiary over others violates the duty of impartiality. If a trustee gives preferential treatment to a family member or friend at the expense of other beneficiaries, that conduct can be challenged in court.

How Beneficiaries Can Respond

When a beneficiary suspects that a successor trustee has breached their duties, they have several legal options under California law. The appropriate course of action depends on the nature and severity of the breach.

One option is to file a petition with the probate court under Probate Code Section 17200. This section allows any interested person to petition the court for a wide range of relief related to trust administration. A Section 17200 petition can be used to compel the trustee to provide an accounting, to review the trustee’s actions, to remove the trustee, or to address other disputes about how the trust is being managed.

Another option is to file a lawsuit for breach of fiduciary duty. In this type of case, the beneficiary seeks to hold the trustee personally liable for damages caused by the breach. If the court finds that the trustee violated their duties, the trustee may be ordered to repay any losses, return misappropriated assets, and pay the beneficiary’s attorney fees.

In some situations, beneficiaries may seek emergency relief from the court. For example, if the trustee is actively dissipating funds or transferring property to avoid accountability, the court can issue temporary orders to freeze assets and preserve the status quo while the case is resolved.

The Process of Filing a Trust Lawsuit

Filing a lawsuit against a successor trustee typically begins with a thorough review of the trust document, trust accountings, financial records, and any communications between the trustee and the beneficiaries. This review helps determine whether a breach has occurred and what damages the beneficiaries have suffered.

Once the decision is made to move forward, the case is filed in the probate division of the superior court in the county where the trust is being administered. The petition or complaint will outline the specific breaches alleged, the evidence supporting those allegations, and the relief being sought.

After the case is filed, the trustee will have an opportunity to respond. Discovery, or the process of exchanging documents and information, allows both sides to gather evidence. If the case cannot be resolved through negotiation or mediation, it will proceed to a hearing or trial where a judge will decide.

Throughout this process, the beneficiary bears the burden of proving that the trustee breached their duties and that the breach caused harm. This is why documentation is so important. Beneficiaries should keep copies of all correspondence with the trustee, any accountings they have received, and any other records that may be relevant.

Potential Remedies for Breach of Duty

California courts have broad authority to fashion remedies when a trustee is found to have breached their fiduciary duties. Depending on the circumstances, the court may order one or more of the following.

Surcharge is the most common remedy. This requires the trustee to personally repay any losses they caused to the trust. If the trustee mismanaged investments and the trust lost $100,000 as a result, the trustee could be ordered to pay that amount back out of their own pocket.

Removal of the trustee is appropriate when the breach is severe enough that the trustee can no longer be trusted to administer the trust. The court will appoint a replacement trustee to take over.

Denial of trustee compensation may be ordered if the trustee has been collecting fees while failing to fulfill their duties. The court can reduce or eliminate the trustee’s compensation for the period during which the breach occurred.

Attorney fees may be awarded to the prevailing beneficiary. Under certain circumstances, California law allows the court to order the trustee to pay the beneficiary’s legal costs, particularly when the trustee’s conduct was egregious or in bad faith.

An accounting may be ordered if the trustee has failed to provide one. The court can compel the trustee to produce a detailed report of all trust transactions, which can then be reviewed for further irregularities.

Statute of Limitations Considerations

Beneficiaries should be aware that there are time limits for filing a trust lawsuit in California. Under Probate Code Section 16460, a beneficiary generally has three years from the date they knew or should have known about the breach to file a claim. If the trustee provided an accounting that disclosed the breach, the deadline may be shorter.

Waiting too long to act can result in the loss of the right to pursue a claim. Beneficiaries who suspect a breach should seek legal guidance promptly to ensure their rights are protected.

What to Look for as a Beneficiary

Beneficiaries do not need to wait until a breach has already caused significant damage before taking action. There are warning signs that may indicate a trustee is not fulfilling their obligations. These include a trustee who is unresponsive to requests for information, unexplained changes in the value of trust assets, delays in making required distributions, a trustee who seems to be living beyond their means, and a refusal to provide formal accountings.

If any of these signs are present, it may be worth having the situation reviewed by an attorney who handles trust litigation. Early intervention can sometimes resolve problems before they escalate into a full-blown legal dispute.

Cava & Faulkner Stands With Trust Beneficiaries

If you are a beneficiary dealing with a successor trustee who is not meeting their obligations, you do not have to accept it. Cava & Faulkner, Attorneys at Law, has the knowledge and courtroom experience to hold trustees accountable and protect the interests of the people a trust was designed to serve.

We work with families across Elk Grove and the Sacramento region on trust disputes, trustee removal, breach of fiduciary duty claims, and related probate litigation matters. Contact our office today at (916) 831-7565 to talk about your situation and find out what options are available to you.