As Trustee, you have a duty to defend the Trust in actions and lawsuits filed against it. This duty is the flip side of a Trustee’s duty to enforce claims, where a Trustee must sue to enforce a debt owed to the Trust.
The duty to defend requires the Trustee to take all reasonable action to protect and preserve the rights of the Trust. If a lawsuit is filed against the Trustee, then the Trustee must act to defend that lawsuit. Of course, the Trustee is allowed to use Trust monies for this purpose. And we generally want Trustees to do that so a proper defense can be paid for by the Trust.
Unfortunately, the Trustee’s ability to pay for a defense from the Trust funds can work against a beneficiary who is suing the Trustee. It is one thing for the Trustee to defend a lawsuit from an outsider, but to use Trust money to defend a lawsuit brought by a beneficiary is not so good. Yet that is the scenario faced by nearly every beneficiary suing a Trustee.
The court does have the power to surcharge a Trustee who wrongly uses Trust funds to defend themselves. A surcharge is just a judgment against the Trustee personally that must be paid to the Trust. While this sounds promising to suing beneficiaries, it presents two large problems: (1) this determination only comes at the END of a lawsuit (meaning a Trustee can use money during the suit), and (2) courts rarely make a finding of personal surcharge. Why no surcharge? Because the court has wide discretion to decide when and if the Trustee wrongly spent Trust money on legal fees. And California courts tend to be conservative when requiring a Trustee to pay back legal fees.
Bottom line: only in the most egregious cases will a personal surcharge against a Trustee be imposed. Of course, you can still ask for a surcharge, just don’t count on that happening any time soon (if it happens at all).
In the meantime, any third-parties who sue the Trust are in for a fight…assuming the Trustee lives up the the very important duty to defend the Trust.