Beneficiaries Can Also Be Abusers
Beneficiaries, while they do not hold as much power over the assets in a trust as the trustee, are also capable of committing financial elder abuse.
This is a fundamental concept of trust law: the separation of legal and equitable title. In other words, while the trustee has the legal authority to manage and control the assets, they do so not for their own benefit, but for the beneficiaries.
Accordingly, a beneficiary is not liable for the trust's debts to third-parties, nor is the beneficiary liable for contracts made by the trustee, or for torts committed by the trustee. [Restatement (Second) of Trusts, Sections, 275, 276, and 277 (1959) and Restatement (Third) of Trusts, Section 103 (2012).]
If they refuse to distribute the funds, the beneficiary has grounds to sue the trustee.
Selecting the wrong trustee is easily the biggest blunder parents can make when setting up a trust fund. As estate planning attorneys, we've seen first-hand how this critical error undermines so many parents' good intentions.
Trust beneficiary rights include: The right to a copy of the trust instrument. The right to be kept reasonably informed about the trust and its administration. The right to trust accounting.
If a trustee acts unreasonably in bringing or defending proceedings, they may be held personally liable for the costs of the litigation if they are ultimately unsuccessful. Trustees in this position can apply to the court for a Beddoe order to protect against this risk.
While trustees may temporarily be able to delay trust distributions if a valid reason exists for them doing so, they are rarely entitled to hold trust assets indefinitely or refuse beneficiaries the gifts they were left through the trust.
Depending on the complexity of the case, it may cost anywhere from a few thousand dollars to $100,000 or more to dispute the terms of a trust.
In this case, the trustee can and must sue the offending beneficiary. The rules for any trustee to sue include showing a proper cause of action, such as a tort, contract, or quasi-contract claim, and showing the resulting damages.
Under California law, embezzling trust funds or property valued at $950 or less is a misdemeanor offense and is punishable by up to 6 months in county jail. If a trustee embezzles more than $950 from the trust, they can be charged with felony embezzlement, which carries a sentence of up to 3 years in jail.
In general, the steps to this process are: The trustee must send a written notice to the beneficiary to vacate the real property. Under California law, if the beneficiary has been in possession of the property for less than a year, then a 30-day notice is sufficient.
Fiduciary Duty to Beneficiaries
The trustee must always put the beneficiaries' interests ahead of their own and avoid conflicts of interest. If a trustee withdraws money for personal reasons or uses trust assets inappropriately, they can be held personally liable for any losses to the trust.
Estate beneficiaries who do bring an action against another beneficiary, heir, personal representative or third party can seek to have the alleged offender pay for the property or return it, and potentially seek punitive damages if the harm to property was substantial.
A living trust does not protect your assets from a lawsuit. Living trusts are revocable, meaning you remain in control of the assets and you are the legal owner until your death. Because you legally still own these assets, someone who wins a verdict against you can likely gain access to these assets.
As noted in the previous section, an executor cannot change a will. This means the beneficiaries who are named in a will are there to stay. Put simply, they cannot be removed, no matter how difficult or belligerent they are being with the executor.
A trustee must abide by the trust document and the California Probate Code. They are prohibited from using trust assets for personal gain and must act in the best interest of the beneficiaries. Trust assets are meant for the benefit of the trust beneficiaries and not for the personal use of the trustee.
Typically, a revocable trust with clear provisions for outright distribution might conclude within 12 to 18 months. However, in simpler cases, the process can take an average of 4 to 5 months without complications.
Trustees have a legal obligation to adhere to the terms of the trust and be accountable to its beneficiaries for their actions. This obligation, also called their fiduciary duty, is one of the most important legal tools at your disposal to hold them responsible.
Under California trust law, trustees can be held personally liable for losses incurred due to a breach of trustee duties. Trustees have a legal obligation to act in the best interest of beneficiaries and the trust. This obligation is also known as their fiduciary duty.
A trustee can end up having to pay taxes out of their own personal funds if they fail to take action on behalf of the estate in a timely way. Of course, they can also face criminal liability for such crimes as taking money out of a trust to pay for their own kids' college tuition.
Under California law, beneficiaries can sue a trustee. The initial step is confirming the trustee's identity. Subsequently, one must prove a breach of duty.
A trustee typically has the most control in running their trust. They are granted authority by their grantor to oversee and distribute assets according to terms set out in their trust document, while beneficiaries merely reap its benefits without overseeing its operations themselves.
A beneficiary designation generally overrides a trust in the same way it overrides a will.