It can be frustrating dealing with a bad trustee.  You may lose sleep, feel extreme pressure and stress, and have to pay a price financially to fight for your rights as a beneficiary.  And if a Trustee mismanages Trust assets, fails to follow the Trust terms, or engages in conflicts of interests by purchasing Trust assets at below-market value, you may find yourself out a substantial amount of money.

Given all you may be going through, can you hold your Trustee liable, and force him to pay damages, for all the “pain and suffering” you are experiencing?  The answer may surprise you…okay the answer is “no”, are you surprised?  Well you should be because it is a bit surprising to think a Trustee can run rampant with your Trust, and then not be held to the same standard of damages as befalls a typical defendant in personal injury case—such as a fender bender.

In fact, the Trustee’s liability is mainly focused at making the Trust whole—putting the assets back, with interest.  In other words, repair the damage to the Trust assets, but ignore any effect those actions had on the beneficiaries personally.

California Probate Code Section 16420 sets out the remedies for a breach of trust, which include things like:

  • Compel a Trustee to perform his duties
  • Enjoin a Trustee from committing a breach
  • Compel a Trustee to redress a beach of trust by payment of money or otherwise
  • To appint a receiver or temporary trustee to manage the trust
  • Remove the trustee

And Section 16440 of the Probate Code provides the measure of liability, which means the amount of damages to be imposed, such as:

  • Any loss of depreciation in value of the trust estate resulting from the breach of trust, with interest
  • Any profit made by the trustee through the breach of trust, with interest
  • Any profit that would have accrued to the trust estate if the loss of profit is the result of the breach of trust.

What do each of the above measure of damages have in common?  They focus on the Trust assets and making them whole, no mention of the beneficiaries anywhere to be found.

Now here’s the scary part, Section 16440(b) says that the Court has the discretion to let the Trustee off the hook with no damages at all if the Court determines that it would be fair to do so and “the Trustee has acted reasonably and in good faith under the circumstances as known to the trustee….”  Wait, what???  So what is “reasonable and in good faith under the circumstances?”  That all depends, of course, on the facts, the trust terms, the assets, and (most importantly) the judge assigned to your case.

In my experience, most Court’s are not going to let a Trustee off the hook where he or she has caused damage to Trust assets.  But Section 16440(b) provides a big loop hole that the Court can apply if you do not frame your case correctly.

More than that, you can forget your “pain and suffering” damages.  The same is true if a Trustee threatens to breach the trust terms, but never actually does so.  There is no breach of trust in that case, so there can be no damages as against the Trustee, even though the threat of breach may cause severe stress.

When it comes to Trusts, the law looks at the Trust assets to determine what must be paid back by the Trustee if there is a breach of trust.  The law has no concern, and gives no remedy, to the individual beneficiaries.  In other words, the law will make the Trust whole, but won’t make you whole—your pain and suffering is on your dime.

Not fair, I would say, but there you have it.  A big dose of tough love, brought to you by the California Probate Code.

Related:

http://www.aldavlaw.com/practice-areas/litigation/estate-and-probate-litigation/