FREQUENT ACCOUNTS AND REPORTS WILL PROTECT THE TRUSTEE FROM LIABILITY

Anyone who has taken on the responsibility to administer a trust estate learns that the administration of the Trust may subject them to liability. There are many pitfalls that an unweary trustee may violate. Examples include (but are not limited to):

  • Failing to administer the Trust according to the terms of the Trust instrument;
  • Failing to provide an accounting of the Trust income and principle;
  • Failing to keep the beneficiaries reasonably informed of the administration;
  • Disclosing to third-parties information which the trustee should know that the effect would be detrimental to the beneficiaries interests;
  • Failing to be loyal, by failing to administer the Trust solely in the interests of the Trust beneficiaries;
  • Using the Trust assets in a matter that potentially benefits the Trustee personally (also known as self-dealing);

A trustee’s violation of any of these duties (among others) may subject the trustee to liability. However, California law provides trustees with some protection. Under Probate Code §16460 a trustee will be protected from claims for a breach of their duties if:

  • The beneficiary received an account in writing or other written reports that adequately discloses the existence of a claim against the trustee, or the breach of trust and
  • The beneficiary does not start a legal action within three (3) years after the receipt of the accounting or report.

The information provided by the trustee must be sufficient so that the beneficiary knows of a claim or reasonably should have inquired into the existence of the claim. Additionally, a beneficiary will be barred from asserting a claim against the trustee, even if the writing of the report does not adequately disclose the existence of a claim or breach of Trust, and even if the beneficiary does not receive a written account or report, if the beneficiary discovered or reasonably should have discovered the facts that would support a claim.

Probate Code §16460 provides that the statute of limitations to bar claims against a trustee are triggered both when the beneficiary has received an insufficient written account or report, as well as when the beneficiary has not received any written account or report. The statute of limitations is applicable as to all claims for a breach of Trust by the trustee.

The general rule for assessing the time for the application for the statute of limitations is when did the beneficiary suspect or should have suspected that the injury was caused by wrongdoing, such that someone had done something wrong to them. It is the discovery of the facts essential to raise a claim that starts the running of the statute of limitations, not the discovery of the legal significance of the acts.

Thus, by giving the beneficiaries frequent accountings and written reports the trustee protects himself by starting the clock that will limit a beneficiary from asserting a claim against him. If beneficiaries fail to bring a claim against the trustee within three years after the facts were disclosed, the beneficiary is barred from further asserting any legal action for a Breach of Trust.

However, the failure to provide the beneficiaries with information may subject the trustee to liability for many years even beyond the three (3) years statute of limitation of Probate Code §16460.

If you are concerned about or have questions about the administration of trusts and the duties of trustees, or the right of beneficiaries, contact the attorneys of Borton Petrini, LLP for further explanation of your legal rights.

 

Jeff Bean is a Partner in the Modesto Office of Borton Petrini, LLP.  He practices in a variety of practice areas, including estate planning, trust administration and conservatorships.

 

 

Estate Planning in California

Legal Disclaimer: This article is designed for general information only. The information presented should not be construed to be formal legal advice, nor the formation of a lawyer/client relationship.