When Beneficiaries Make Demands on Trust Management and Administration
In California, trustees have a duty to ensure that trust beneficiaries are kept fully informed about the management and administration of the trust. This responsibility encompasses the provision of a detailed report on the trust’s assets and their use.
What is a Petition for a Trust Accounting?
A Petition for an Accounting of trust assets is a formal request from a beneficiary to the court for detailed information about trust assets. Trustees must provide this data upon written beneficiary demand within 60 days. If they fail to do so and haven’t provided an accounting in the prior 6 months, beneficiaries can file a Petition for an Accounting of trust assets under California Probate Code Section 17200(b)(6)(c). This petition essentially requests the court to enforce the trustee’s obligation to provide an accounting.
What Are the Basics of a Trust Accounting?
The core tenets of a formal trust accounting encompass the required record-keeping protocols for trust accounts as stipulated by state regulations, notably guided by California Probate Code Section 16060. Trustees are obligated to provide the beneficiaries of a trust with information regarding trust assets and their usage, with periodic updates mandated at least annually, upon trust termination, and in cases of trustee changes, as per California Probate Code Section 16062.
What Are the Obligations of Trustees in Providing Accounts?
When a trustee provides an accounting to beneficiaries, it must encompass information pertaining to the most recent full fiscal year or the time elapsed since the previous accounting, as defined by California Probate Code Section 16063. This comprehensive report includes details such as receipts and disbursements of both principal and income, the trust’s assets and liabilities, trustee compensation, any agents associated with the trustee and their compensation, and information about the right to petition the court for a review of the account. Additionally, beneficiaries are barred from filing claims against the trustee for breach of trust if three years have passed since they received an account or report disclosing the facts giving rise to the claim.
When submitting accountings to the court, it is imperative to adhere to the stipulations outlined in California Probate Code Section 1061. This legal provision mandates that all filed accountings must encompass specific details, including the initial property value at the commencement of the accounting period, the valuation of assets received during the accounting duration, income or principal amounts received (with certain exceptions), net income and losses from business activities, such as gains and losses from sales, disbursements excluding those linked to business or distributions, distributions made to beneficiaries, and the remaining property value at the close of the accounting period. Strict adherence to these requirements ensures the provision of a comprehensive and accurate portrayal of the trust’s financial activities in compliance with the law.
How Often Should Trustees Report?
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.
Despite the timelines included in the California Probate Code for when a trustee is obligated to account, it is recommended that a trustee strive to keep all beneficiaries informed throughout the entire trust administration process. If the trustee does this, he or she may be able to obtain waivers dispensing of the duties to account under the California Probate Code which preserves the trust assets.
Can Beneficiaries Sue a Trustee Following the Receipt of an Accounting?
Yes, trust beneficiaries possess the legal right to sue a trustee if they suspect mismanagement of the trust, breach of fiduciary duty, or other misconduct. Common reasons for such lawsuits include theft or mismanagement of trust assets, failure to distribute assets or provide accounting, conflicts of interest, and mishandling of tax-related matters.
Beneficiaries have a limited three-year timeframe to take legal action against trustees for breach of trust. This period commences when either the beneficiary receives a trustee’s account that adequately reveals the existence of a breach of trust claim or when the beneficiary becomes aware or should reasonably have become aware of the subject of the claim. This statute of limitations serves as an absolute barrier to claims against the trustee and cannot be bypassed, even through waivers of account.
It’s important to note that a trust administration differs from a probate scenario, where a personal representative’s liability can be discharged through the waiver of an account. In trust administration, whether granted by the trust instrument or an individual beneficiary, waivers of account solely relieve the trustee of the duty to provide an account. They do not absolve the trustee of liability for breaches of other responsibilities, nor do they trigger the initiation of the statute of limitations for claims alleging such breaches. The sole means by which a trustee can initiate the statute of limitations is by providing an account.
The settlor has the option to reduce the limitations period by including a relevant provision in the trust instrument. However, for trustees seeking to mitigate potential liability more expeditiously than allowed under Probate Code §16460, there are only two viable approaches. The trustee can request court approval of their account, imposing a 30-day window for beneficiaries to raise objections. Alternatively, the trustee may seek a release from liability from the beneficiary. It’s crucial to note that a beneficiary’s release prevents them from pursuing legal action for breach of trust, provided the release is obtained from a competent beneficiary who is fully informed about their rights and possesses a comprehensive understanding of all pertinent facts regarding the trustee’s liability. The responsibility falls on the trustee to furnish the beneficiary with these essential facts. In the absence of a thorough account of the trust administration, a beneficiary who later regrets waiving their right to sue the trustee could argue that the waiver was made in ignorance of a critical fact. In the author’s perspective, the most robust protection for the trustee is derived from providing beneficiaries with a comprehensive account of the trust administration.
How Can Trustees Safeguard Themselves Against Legal Challenges?
To safeguard against legal challenges, trustees should maintain meticulous records, document every transaction, provide clear reasoning for decisions, follow the terms of the trust documents, and adhere to the California Probate Code.
The trustee cannot discharge his duty to account without keeping records sufficient to track every penny received, distributed and disbursed. Additionally, the trustee has a duty to support every item of his account and wherever he fails to support the correctness of a charge or a credit by satisfactory evidence, the item must be disallowed.The courts have no sympathy for a trustee who cannot establish the items of his account. If the trustee cannot support his allegations with satisfactory evidence, the court may deny the trustee repayment of money he expended on the trust’s behalf and may charge him with having money he has not actually received.Moreover, the court is not bound by a trustee’s suspicious testimony regarding receipts and disbursements.Good faith, even it exists, cannot save the trustee from the consequences of his neglect to keep good records.Only good record-keeping will save the trustee whose accounts are unfairly challenged.
The other reasons to keep good records are many. Good record keeping helps the trustee discharge his duty to segregate trust assets from non-trust assets.Good record keeping is essential to the preparation and defense of the trust’s tax returns. And good record keeping protects the beneficiaries’ right to inspect trust records, for the records of the trust administration are deemed a part of the trust estate, and the right of the beneficiaries to an inspection of them stems from their common interest in the property along with the trustee.
If a trustee faces accusations of misconduct, it is advisable to consult a trust litigation attorney promptly. Engaging an experienced attorney can assist trustees in addressing allegations effectively. Additionally, it is recommended for trustees, especially those new to the role, to retain a trust administration lawyer upon appointment. This legal professional can provide guidance on fulfilling the trust’s requirements and ensuring proper administration.
Conclusion: Trust Accounting Guidance: Why OC Trial Group is Your Top Choice
OC Trial Group is a reliable source of expertise, offering invaluable counsel to trustees navigating the complexities of their accounting responsibilities. With a deep understanding of the intricate legal frameworks governing trusts and estates, OC Trial Group equips trustees with the knowledge and guidance necessary to fulfill their duties with precision and compliance. Their team of seasoned professionals recognizes the nuances of the California Probate Code, including provisions like Section 1061, ensuring that trustees are well-versed in the meticulous trust accounting requirements. By entrusting their concerns to OC Trial Group, trustees can confidently navigate the legal landscape, knowing they have a dedicated partner guiding them every step of the way.
At OC Trial Group, trustees do not just find the most renowned and experienced legal counsel available, but they also find a trusted advisor in fulfilling their accounting duties effectively. The firm’s expertise extends beyond legal jargon; it is committed to supporting trustees in upholding their fiduciary responsibilities. Moreover, OC Trial Group offers comprehensive litigation support, providing trustees with a robust defense in case of lawsuits or actions aiming to remove the trustee. By offering tailored guidance, comprehensive insights, and a strong defense, OC Trial Group empowers trustees to prepare meticulous accountings that adhere to legal provisions such as those outlined in California Probate Code Section 1061, ensuring transparency, compliance, and the utmost diligence in their fiduciary roles.
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About the Author
Blaine M. Brown is a co-founder of the OC Trial Group and acts as one of their primary trial attorneys. Mr. Brown is a highly awarded and reviewed trial attorney.