California statutory law requires a trustee to account annually to current trust beneficiaries, i.e., those who are currently entitled to receive distributions of income and principal during the accounting period. Any trustee, other than the settlor(s) who established the trust, has a duty to account.
One option available to beneficiaries, when faced with a trustee who refuses to give accounting, is to pursue legal action. By filing a lawsuit in probate court, beneficiaries can assert their rights and demand transparency from the trustee.
Under California Probate Code §16062, trustees are obligated to account to each beneficiary annually, upon trust termination, and following a change in trustee. Additionally, if a beneficiary requests an accounting in writing, the trustee must provide it within 60 days.
Beneficiaries can ask the courts to compel trustees to distribute trust assets, review the trust, or remove the trustee. A trustee might cite inadequate funds as a reason for not distributing assets. In this case, the beneficiary may have the right to request the trust's accounting information.
Ultimately, trustees can only withdraw money from a trust account for specific expenses within certain limitations. Their duties require them to comply with the grantor's wishes. If they breach their fiduciary duties, they will be removed as the trustee and face a surcharge for compensatory damages.
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.
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.
Compelling Accountings for a Trustee:
The Trustee must comply. The Formal Accounting must detail all assets and justify all expenses. The Accounting Attorney may then object to anything in the Formal Account. If the judge believes the Trustee's actions reduced the trust the judge may surcharge the Trustee.
“There are two deadlines that are crucial to know. First, once someone files an accounting and gets court approval, you can no longer file an objection. The second is that you have up to three years to file an objection or a challenge to a trustee's accounting. You cannot file an objection after this period.
Negligence or Mismanagement of Trust Assets
So, if a trustee fails to do so, whether it is out of negligence, incompetence, or outright malice, then a trustee is unfit to manage the trust, and this constitutes a breach of his or her fiduciary duty and can be one reason for removing a trustee.
Examples of executor misconduct and trustee misconduct include: Failing to provide accountings to beneficiaries. Favoring one beneficiary over another. Misappropriating or misusing estate or trust assets for personal gain. Commingling personal assets with those of the estate or trust.
As an executor, you must provide a formal accounting at least once a year, but beneficiaries can request an informal probate accounting in California at any time. When they do, you must produce it. Because of this, maintaining thorough and accurate records of the estate's finances is crucial.
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.
They have a right to perform a full audit of your accounts or check them any time it is necessary. However, it is rare for them to keep close tabs on every account.
If the accounting is not provided in the proper form as required by the law, then after sixty days the beneficiary can file a probate court petition to seek a court order requiring the trustee to prepare the proper accounting and can request reimbursement for the fees and costs they incur in bringing the petition.
As previously mentioned, trustees generally cannot withhold money from a beneficiary for no reason or indefinitely. Similarly, trustees cannot withdraw money from a trust to benefit themselves, even if the trustee is also a beneficiary.
Demand letters must be sent in writing (email or regular mail) from each beneficiary directly to the trustee—or their attorney if they have one—requesting an account statement for all activity within the past year.
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.
Under California Probate Code §16062, trustees must account to each beneficiary at least annually, at the termination of the trust, and upon a change of trustee. Trustees must also provide an accounting within 60 days if a trust beneficiary demands an accounting in writing.
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.
Although a trustee can withdraw money from a trust account for specific things, there are limits. A trustee's fiduciary duty requires them to comply with the grantor's wishes, even if they are well-intentioned. If they violate their fiduciary duties by disregarding a grantor's wishes they could be removed as a trustee.
Key aspects of trust fund syndrome include: Lack of Motivation: Individuals with trust fund syndrome may lack the drive to pursue education, careers, or personal goals because they do not need to work for financial stability.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.