How do Trust beneficiaries know how much they are entitled to? Often, rather than stating a specific dollar amount for each beneficiary, the Trust will state that each beneficiary is entitled to a certain percentage of the Trust estate. This can cause frustration if the Trustee will not provide the value of the Trust assets.

Trust beneficiaries who are kept in the dark have a right to ask for information. In many cases beneficiaries can demand an accounting from the Trustee. Trust beneficiaries should review the Trust terms for any specific provisions regarding accountings.

Some beneficiaries have a mandatory right to an accounting, while other beneficiaries only have a right to an accounting at the discretion of the court. Current income or principal beneficiaries (beneficiaries who are currently entitled to receive assets) are entitled to an accounting under the California Probate Code. Current beneficiaries can request an accounting informally (via a letter to the Trustee) and/or demand a court-ordered accounting by filing a petition in probate court.

Remainder and/or contingent beneficiaries (beneficiaries who are not entitled to assets until a specific event happens, such as the death(s) of the original beneficiaries) have a right to information, but not necessarily a right to an accounting. Remainder beneficiaries can go to court and ask the court to exercise its discretion and order an accounting.

What if the accounting is inaccurate? Beneficiaries can object to the accounting by writing an objection letter (for informal accountings) or by filing an objection with the court (for formal accountings). There are statutory deadlines for objecting to accountings. If the beneficiaries fail to object to a Trust accounting in the proper time frame, they will be forever barred from bringing claims relating to the accounting in the future. Beneficiaries who have questions or concerns about Trust accountings should consult with an attorney who is experienced in Trust and Estate law as soon as possible.

Who is liable for Trust debts? Is it the Trustee, the Beneficiaries, or the Trust itself? It helps to remember that a Trust is a separate legal entity. The Trustees and beneficiaries are not personally liable for debts owed by the Trust.

The Trustee is acting in a fiduciary capacity. The Trustee is required to gather the assets and pay the Trust debts. If the Trust does not have enough money to pay the debts, the creditors are out of luck. Creditors do not have the right to go after the Trustee or Beneficiaries’ personal assets.

Who gets paid if the Trust doesn’t have enough assets to cover the debts and distribute funds to the Beneficiaries? Check the terms of the Trust. The Trust will typically state that once the debts are paid, the Trustee can distribute the remaining funds to the Beneficiaries. The language of each Trust varies.

The debts of the Trust belong to the Trust, and only the Trust will have to pay Trust debts. Trustees and Beneficiaries do not have to worry about being responsible for debts incurred by the Trust.

Generally speaking, inheritance is not subject to tax in California. If you are a beneficiary, you will not have to pay tax on your inheritance. There are a few exceptions, such as the Federal estate tax. However, an estate must exceed $11.58 million dollars per person in 2020 to be subject to estate tax in the U.S. The estate tax is paid out of the estate, so the beneficiaries will not be liable for paying the estate tax, technically speaking—although it would deplete the amount left in the estate for distribution.

With the exception of the estate tax for estates exceeding $11.58 million dollars per person, California does not have a state-level inheritance tax. That is not true in every state. Some states have enacted inheritance taxes on estates of any size.

If your inheritance is in Trust, a portion of the income might be subject to income tax. If the trust generates income after the trust creators (the “Grantors” or “Settlors”) pass away, the new income will be subject to income tax. For example, if the Trust owns a rental property, the rental income is subject to income tax. However, when the house is sold, the beneficiaries do not pay tax on the proceeds. Income tax only applies to income generated after the Grantors pass away, not the principal (the amount originally received).

If you receive an inheritance in California, consider yourself lucky. You can receive your California inheritance without anticipating major tax liability in most cases.

A Trust is an entity that hold assets. Living Trusts are set up to benefit the Trust creators, (also referred to as the “Settlors,” or “Grantors,”) during their lifetimes. Living Trusts also provide the terms for management and distribution of the assets once the Grantors pass away.

Living Trusts are typically drafted by an estate planning attorney. Once the terms of the Trust are established, the assets are transferred into the Trust. For example, if the Grantors own a home, the home will be legally transferred into the name of the Trustee; the Grantors will sign a deed transferring the title of the home to the Trustee and record the deed with the County Recorder’s office. The Grantor’s bank account(s) and other assets will also be transferred into the Trust. The Trustee then becomes the legal owner of the assets.

The Trustee is the Trust manager. Typically, the Grantors of a Living Trust are the original Trustees during their lifetimes. The Grantors/Trustees will manage their own assets. The Grantors can also appoint a family member, friend, or even a licensed fiduciary to manage the Trust assets. The Trustees makes the financial decisions regarding the Trust assets.

The Trust beneficiaries are the people who receive the benefit of the Trust assets. Typically, the Grantors are the original beneficiaries of their own assets during their lifetimes. The Grantors decide who will be the beneficiaries after the Grantors pass away. The terms of the Living Trust govern how and when the beneficiaries will receive the assets.

Once the Grantors of a Living Trust pass away, the beneficiaries receive the remaining assets. Typically, the beneficiaries are the Grantors children or relatives. In California, children do not have an automatic right to inherit their parent’s assets unless the Parent dies without a Will or Trust. A Trust can be created to benefit whoever the Grantor want to pass assets to.

The Successor Trustee is the person who takes over management of the Trust assets after the Grantors pass away. The Successor Trustee then must follow the terms of the Trust and manage the Trust assets. Sometimes this means selling the assets and distributing the proceeds to the beneficiaries immediately. Some Trusts are set up to provide for the beneficiaries over a lifetime in incremental payments. The method in which the assets will be distributed to the beneficiaries depends on the terms of the Trust. At some point the assets are distributed to the beneficiaries and the Trust terminates.

Why do people create Living Trusts? Trusts help facilitate the transfer of assets to the beneficiaries through a trusted person (the Trustee) without having to go through the lengthy probate process. Probate is the court supervision of the distribution of a person’s assets after death. Trusts can also help people reduce estate taxes and put conditions on how assets will be managed and distributed after death.

How do you replace a Trustee? The answer depends on the language in your Trust document. Most trusts have a specific section that outlines the procedure in which a Trustee can be replaced.

Some Trustees step down willingly. In certain instances, you can have a Trustee sign a document called a Resignation by Trustee, and have the new Trustee sign a document called an Appointment or Acceptance of Trustee. This is the easiest method. An attorney who handles estate planning can typically draft these documents for you. Most Trusts name a specific person or entity to take over as the Successor Trustee or Second Successor Trustee if the original Trustee is unwilling or unable to act.

What happens if the Trustee won’t willingly step down? You may need to go to court. In order to forcibly remove a Trustee, you may need to file a lawsuit in probate court to suspend or remove the Trustee.

In order for you to succeed in forcibly removing the Trustee by court order you have to gather and submit documentary evidence and testimony to prove to the judge that the Trustee has committed some Breach of Trust, such as Trustee theft (misappropriation), self-dealing, unreasonably delaying the distribution of assets, refusing to follow the terms of the trust, or failing to perform their fiduciary duties as Trustee in some way. Once the lawsuit is filed, you can subpoena financial records if necessary.

If you attempt to remove a Trustee by court order, prepare yourself for a legal battle. The Trustee will likely hire an attorney and object to the lawsuit. The average lawsuit takes 18 months to 2 years to resolve, sometimes longer. The Trustee may attempt to use trust assets to fund the lawsuit. Unfortunately, you will have to bear your own attorneys’ fees if you file a lawsuit against the Trustee. You may be able to find an attorney to take your case on a contingency fee basis, under which the attorneys’ fees come out of the amount you receive from the trust or estate at the end of the case.

Replacing a Trustee can be easy if the Trustee agrees to step down. If the Trustee refuses to step down, you will need to seek the assistance of the court. If you believe you will need to file a lawsuit to replace your Trustee, contact an attorney who specializes in trust and estate litigation for a consultation.

How does a Trustee resign? By following the procedure in the Trust document. The Trust terms usually contain a resignation procedure to follow. The Trustee typically must give notice to the beneficiaries and to the new Trustee. This notice can be drafted by a Trust administration attorney. If there is no resignation provision, the Trustee must follow the California Probate Code (CCP). California Probate Code Sections 15640-15645 govern the procedure for Trustee removal.

What happens when the beneficiaries cannot agree on a successor Trustee? The Trustee can file a Petition in Probate Court for resignation. The Court will typically appoint a neutral licensed professional fiduciary.

In some instances, a Trustee refuses to resign. Beneficiaries can file a Petition in Probate Court to remove the Trustee.

Grounds for forcibly removing a Trustee by Court order include

  • The Trustee committed a breach of the Trust.
  • The Trustee is insolvent or otherwise unfit to administer the Trust.
  • Hostility or lack of cooperation among Co-Trustees impairs the administration of the Trust.
  • The Trustee fails or declines to act.
  • The Trustee’s compensation is excessive under the circumstances.

Filing a Petition to remove a Trustee is a lawsuit against the Trustee. Lawsuits typically take around 2 years to resolve. If the Trustee has committed certain types of fraud, such as misappropriating or stealing Trust funds, the beneficiaries can also seek reimbursement (called Trustee surcharge).

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson from Albertson & Davidson.

In this video, I’m discussing whether or not a Trustee can loan money to the Trust.

So, let’s say a Trust is short on cash.  It owns real property.  Maybe it owns some other illiquid asset, a business, and they need to pay some expenses.  And so the Trustee wants to loan the Trust money and get paid back at a later date.

The problem with any type of transaction between the Trustee and the Trust is it violates the Trustee’s duty to avoid conflicts of interest.

A Trustee has to remain neutral.  It cannot have a conflict with the Trust.  And any time the Trustee enters into any type of transaction with the Trust, it is, by definition, a violation of the Trustee’s conflict of interest duty.  It cannot do those type of transactions.

So that means that the Trustee would have to take an extra step if the Trustee wants to loan the Trust money – which is you either have to go to Court and get Court-approval or you’d have to fully disclose the transaction to the beneficiaries and get all of the beneficiaries’ consent.

So it is possible for a Trustee to loan money to the Trust, but the Trustee does need to be a little careful about how they do it, because, ultimately, if the Trustee wants to be paid back with interest, there’s going to be the potential that a beneficiary is going to say they charged too much interest or they didn’t structure the deal properly and fairly to the beneficiaries.

And so, in order to avoid those type of conflicts, the Trustee, number one, should just not loan money to the Trust.  Try to get a loan from some other source.  Or, number two, if that’s the only option available, then the Trustee really needs to be careful and make sure that everything is fully disclosed to the beneficiaries and that everybody has consented to it before following through on the transaction.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson with Albertson & Davidson.  In this video, we’re discussing the trustee’s sale of assets.

If a trustee sells a trust asset, can you reverse that sale?  Can you bring the asset back into the trust?  And the answer, generally speaking, is no.  Typically when a trustee sells property, the beneficiaries will not be able to recover that property back to the trust.  And this is because most trust documents and the California Probate Code give the trustee the authority to sell assets.

Now there are some limitations.  For example, a trustee must sell the asset for a fair market value.  They have to act reasonably.  But even if the trustee sells an asset for less than fair market value, that doesn’t mean that the beneficiaries will be able to get the property back.  They might be able to get damages against the trustee for selling the asset too low, but it doesn’t necessarily mean the property will be coming back.

If the trustee was perpetrating some sort of fraud on the trust, and did a sale to a third party but it actually was a related party to the trustee, because it was part of the fraudulent scheme, then the beneficiaries may be able to recover an asset and bring it back into the trust.  It really just depends on the facts and circumstances.

But those types of cases happen very rarely.  Typically, a trustee is going to have the right to sell trust assets as long as they sell it for fair market value, they’re not going to get in trouble for selling trust assets.  And even if they do sell it for less than fair market value, it will be a damage claim against the trustee.  The trustee will have to pay money.  It won’t necessarily be a recovery of the asset and bringing it back into the trust.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Stewart Albertson with Albertson & Davidson.  And I want to talk to you about bad trustees doing bad things to your interest in a trust.

We do many, many consults with clients where they come in and say, “I’m the beneficiary of a trust.  I have a right to these assets and the trustee is refusing to distribute those assets to me.  What am I to do?”

And what I will tell you what you shouldn’t do is write more than one letter.  Let’s be clear that letters don’t work, but you’ve got to have some writing to the trustee saying, “Hey, I have a right to this distribution under the trust terms, give me my trust distribution.”  If the trustee still ignores you, then, unfortunately, you’re going to have file a Petition with the Probate Court.  That is the best way to hold one of these trustees accountable or get them to act in a way that you want them to.

In this example, we would generally file a Petition for Instructions with the Probate Court asking the Probate Court to order the trustee to follow through with the trust terms and make the rightful distribution to the beneficiary.  So that is one way we hold these trustees accountable.

But, what happens if the trustee is not making this distribution because they’ve gone and used these assets themselves.  In other words, they have fraudulently taken these assets from the trust and used them in a manner that the trust does not permit.  Perhaps they’ve taken vacations, gone gambling, spent money on their expenses, and they’re not giving you the distribution you’re entitled to.

In that case, not only are you going to want to file the Petition for Instructions that orders them, the trustee, to make the distribution to you.  You’re going to want to go after that trustee for damages.  You’re going to want to surcharge that trustee.  You’re going to ask the Probate Court to give you damages, order damages against the trustee where they have to reach into their own pocket and pay back money to you for the damages caused to the trust.

Again, we’d only want to send one letter in these kind of cases just to set the record that we tried to work with the trustee.  If the trustee still won’t follow through with what you’re doing, file a Petition for Instructions to get the court to order them to follow through.  And if you find out during that process that the trustee has stolen assets, or misappropriated assets, you’re going to want the court, or ask the court to impose an Order for Sanctions against the trustee so that they have to pay back the damages they’ve done to the trust.

The Following is a Transcript of this Video. For More Information, CLICK HERE

Hi, this is Keith Davidson with Albertson & Davidson.  In this video, I want to discuss when you can sue for trust mismanagement.

If you believe that your trustee is mismanaging the trust assets, perhaps they’re not investing properly, perhaps they’re actually taking money or using money for their own benefit, you really need to take action as soon as possible to make sure that you can stop any harm from happening to the trust, or any further harm from happening to the trust.  But you do need to have at least some evidence or some facts to support your claim that there is trustee mismanagement.  So you usually start either by filing a Petition in the Probate Court and asking that the court hold the trustee accountable for whatever harm has occurred.  Or, if you’re not fully advised of all the harm, then you’re going to want to demand an accounting from the trustee.  Ask the trustee to account for their actions.  If the trustee refuses, then you go to court and you ask the court to order the trustee to account for his or her actions.

Once you have the accounting, then you can see what has occurred in the trust administration.  You can issue subpoenas or do discovery, and you can start gathering the facts and the evidence you need to see what the mismanagement was and what actions need to be taken to right that harm.

So if you’re a beneficiary and you suspect trust mismanagement, you really need to take action as quickly as possible to number one, be advised of what is happening.  What is the financial information that you need to know to see what’s going wrong?  And, number two, hold the trustee accountable for the harms and losses that they’ve caused to the trust estate.