From the desk of Del Mar Estate Planning lawyer, Kristina Hess, preparing estate plans for all of San Diego County (and virtually throughout CA)…
I was reading a recent appellate court decision regarding the appeal of a $95 million dollar judgment for Breach of Trust…
This has to be one of the worst cases of breach of trust (which is a breach of a trustee’s fiduciary duty to the beneficiaries of a trust) I have seen. The Trustee in the case basically took out loans and took money from the Trusts he was acting as Trustee for and used the funds for his own benefit. He was forced to disgorge the profits he gained from purchasing stock and other investments with money that was not his.
This case is a good reminder that is very important to choose a trustee wisely. In addition, it may be a good idea to designate a Trust Protector — someone empowered to review the trust accounting (annually) and a third party who can remove a trustee if necessary.
The victims in this situation will hopefully get all their money back plus, but who wants to go through a lengthy trial and years of litigation?
Prevention is the best cure.
For those who are serving as a Trustee in California, you can be held liable for breach of trust if you do not fulfill your fiduciary duties.
The Probate Code sets forth the duties of a trustee administering a trust and the measure of liability for breach of those duties. Those duties include, among others, a duty of loyalty, requiring the trustee to administer the trust solely in the interest of the beneficiaries (§ 16002, subd. (a)); a duty not to use trust property for the trustee‘s own profit or for any other purpose unconnected with the trust (§ 16004, subd. (a)); and a duty to exercise reasonable care, skill, and prudence in administering the trust (§§ 16040, subd. (a), 16047), including a duty to diversify the investments unless it is prudent not to do so (§ 16048).13 A trustee also has a fiduciary duty to act in good faith in the exercise of any discretionary powers conferred on the trustee by the trust .
So choose your Trustees wisely and talk to your estate planning lawyer about designating a Trust Protector or other individual who can provide checks and balances.
Create Legacies that Last!
Kristina Hess
San Diego Trust and Estate Lawyer
San Diego Estate Planning firm