From the desk of San Diego Estate Attorney, Kristina R. Hess of KR Hess Law, serving San Diego and North County Families
With research and contribution by Klint LeBlang
Compelling Trustee To Account
Are you a beneficiary of a trust wondering what your trustee is doing with the trust assets? Or rather, what happened to your trust assets that were specifically for your benefit? We hope that it is rare, but sometimes a trustee may improperly handle trust assets. The good news is there is a procedural remedy to combat this. As a beneficiary, you typically have the right to compel an accounting from the trustee. The two primary reasons to compel an account are: 1) to check the status of trust assets; and 2) to determine if the trustee is acting within his or her discretion or has breached a duty.
Background Information On Creating A Trust and A Trustee’s Duties
A settlor (grantor) creates a trust by transferring certain assets to a trustee on the condition that the trustee holds those assets and administers them for the benefit of the designated beneficiaries as set forth in the trust instrument.
A trustee has fiduciary responsibilities to the beneficiaries regarding distributions from a trust. The trustee should administer the trust with the reasonable care, skill, and caution that a prudent person would under the current circumstances to accomplish the purposes of the trust as determined from the trust wording. Cal. Probate Code §16040. Therefore, a beneficiary can hold a trustee legally accountable if the trust is improperly administered.
Scope of Trustee’s Duty To Account Varies
Generally the scope of a trustee’s duty to account and report information is governed by Cal. Probate Code §§16060-16069. The trustee’s duties will vary on whether the trust is revocable or irrevocable. Additionally, the trustee’s duties to report can be limited by the actual terms of the trust.
For a revocable trust, the trustee does not have a duty to report information to, or account to, beneficiaries other than the holder of the power to revoke (generally the settlor). However, when a revocable trust becomes irrevocable, the beneficiaries may be able to compel an account for the period when the trust was revocable. For this to occur, the beneficiaries must make a proper showing to the court.
For an irrevocable trust, the trustee has a statutory duty to give written notice to the beneficiaries and heirs of the deceased settlor when:
1) a revocable trust (or any portion of it) becomes irrevocable because of the death of a settlor or because the trust becomes irrevocable within 1 year of the death of the settlor because of a contingency related to settlor’s death as expressly stated in the trust;
2) there is a change of trustees of an irrevocable trust; and
3) a power of appointment retained by a settlor is effective or lapses upon death of the settlor with respect to an inter vivos trust which was or purported to be irrevocable upon its creation. Cal. Probate Code §16061.7.
The trustee is responsible for all damages, attorney fees, and costs caused by the failure to give notification to a known beneficiary entitled to notice, unless the trustee has made a reasonably diligent effort to comply with the notification requirements.
Further, even if no beneficiary has made a request for information or an account, the trustee generally has a duty to account at least annually and at the termination of the trust to at least some beneficiaries.
Who Has The Right To Compel An Account
Generally, any beneficiary has a right to obtain financial and other information concerning the trust on reasonable request to the trustee, except when the trust instrument waives a report or is revocable (as described above). On reasonable request by a beneficiary, the trustee of an irrevocable trust has a duty to provide requested information relating to the administration of the trust relevant to the beneficiary’s interest. A beneficiary can petition for an order compelling the trustee to provide this information or to account if:
1) The trustee has failed to provide the requested information or account within 60 days after a reasonable written request by the beneficiary, and
2) The trustee has not provided the requested information to the beneficiary or made the account within 6 months preceding the request.
Furthermore, without having to satisfy the above requirements, a beneficiary can petition the court to compel the trustee to account by showing a reasonable likelihood that a material breach of the trust has occurred. Cal. Probate Code §16064. A beneficiary has this right even if the trust instrument waives accounts.
If a trustee fails to file an account by the time set in the court’s order, the court has broad discretion and power to fashion an appropriate remedy including contempt, removal of trustee, transfer of the records and the trust to a successor trustee, and surcharge of the trustee or its surety, if any.
Therefore, if you are a beneficiary of an irrevocable trust and want to check on the trust assets, you have the right to compel an account. Although a trustee has a fiduciary duty to the beneficiaries, a beneficiary should regularly check on the trust assets to ensure a breach has not occurred.
Please note that this blog is not intended to provide legal advice and is for general informational purposes only.
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