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Remove a Trustee | Failure to Distribute
I’m Mike Hackard with Hackard Law. We often represent beneficiaries in actions to compel the distribution of trust assets.
The beneficiaries are usually family members. The trustee, the adverse party, is frequently a family member as well, while the settlor, the maker of the trust, is normally a parent.
These cases arise from the failure of the trustee to distribute trust assets in a timely manner. Typical trust provisions require the trustee to terminate the trust upon the death of the settlor and distribute the assets outright and free of trust to the settlor’s beneficiaries – often the settlor’s children. If you are facing a situation where a trustee is not distributing assets, you need guidance. Stick with me as I explain how to remove a trustee who failed to distribute, with examples.
So, What Happens? Let Us Look at an Example.
In order to better illustrate this topic, let us review an example:
The settlor, the mother of three adult children, dies in 2016. The settlor’s son is named the trustee. He, along with his two sisters, are equal beneficiaries.
The trustee takes control of the settlor’s California house. He rents it and uses the steady stream of income for himself.
His sisters make clear that they want the trust terminated and the proceeds from the sale of the house distributed equally. He rebuffs them.
He says he has lots of reasons to keep the house. He wants to fix it up to make it more valuable. He’s worried about property taxes. He wants to pay his wife’s brother to fix it up. The reasons for delayed distribution go on month after month, year after year.
Now, six years after their mother’s death, the sisters hire a law firm like Hackard Law. The law firm files a petition for an order distributing trust assets, removing the brother as trustee, suspending his powers during the litigation, appointing a new trustee, and surcharging the brother for his breach of fiduciary duties.
The trustee hires his own attorney and pays him with trust funds. The sisters argue that the property should have been distributed six years ago upon their mother’s death. Their brother argues that he has the sole power to decide to sell the trust property.
The sisters are frustrated. They want their brother removed as trustee. The grounds for California trustee removal include the trustee’s breach of trust, the trustee’s unfitness to administer the trust, the trustee’s hostility with the beneficiaries that impairs the administration of the trust, and the trustee’s failure to act.
What Are a Trustee’s Duties, Then?
So, given these circumstances, what do we know about the trustee’s duties? We know a trustee must pursue the interests of beneficiaries, not himself. We know a trustee must not wield power for the trustee’s own aggrandizement, preference, or advantage to the detriment of the beneficiaries.
We know that a trustee as a fiduciary should be of the highest character whose duty demands the strictest integrity. And we know that a trustee is bound to act in the highest good faith towards his beneficiary and may not obtain any advantage by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind as long as the fiduciary relationship exists.
When a Beneficiary Wants a Trustee Removed
In this fictitious example, it is clear that the sisters know their brother well. They know this litigation is going to take time. They believe the longer their brother serves as trustee the more vulnerable their beneficiary interests become. They want to have their brother removed.
California law provides that to preserve the trust and to respond to perceived breaches of trust, the probate court has wide, express powers to remove a trustee. Whether the trustee is removed or not, he will still be chargeable for his breaches of trust. This can include any loss or depreciation in the value of the trust estate, and his profits made by his breach, with interest.
These cases proceed toward trial. The sisters have a plan to prove their damages. The case, like it or not, will consume trust assets. It feels so unnecessary.
Still, situations like this are an ever-present reality litigated in California’s probate courts.
What Are Common Reasons for a Trustee Not Distributing Assets?
In our example, we learned that the brother had a long list of excuses as to why he failed to distribute assets to his siblings. In addition to his “self-dealing,” there could be other reasons behind a trustee’s actions, including red flags such as:
- Lack of Knowledge: Many family-member trustees lack the legal or financial experience needed to properly manage a trust.
- Negligence: A trustee may simply be overwhelmed by the process, ignore their basic duties, or fail to communicate with the beneficiaries due to grief, depression, or other stressors.
- Maximizing Fees: If the settlor hired an institutional or professional trustee, that individual is typically allowed to charge the trust for their time or a percentage of the assets. They may intentionally drag out the administration process to collect more compensation.
- Control and Manipulation: Some trustees use the power of holding the assets to manipulate, punish, or wield control over other family members, much like in our example.
- Beneficiary Disputes: A trustee may inappropriately pause distributions to one beneficiary over past or present family disagreements.
Are There Legitimate Reasons for a Distribution Delay?
Sure. Not every distribution delay is caused by self-dealing or other nefarious actions on the part of the trustee. Some trust administration steps are legally required and take time to complete, like:
- Financial Obligations: The trustee must identify, validate, and pay any final debts, income taxes, and potentially estate taxes before distributing assets to heirs. They may also be awaiting an Estate Tax Closing Letter from the IRS.
- Creditor Claims Period: Under California law, creditors typically have a designated timeframe to file claims against the estate. Trustees often hold onto reserves until this window closes to avoid being held personally liable for improperly distributed funds.
- Complex or Illiquid Assets: If the trust owns real estate or business interests, the trustee must take time to appraise, market, and sell these assets at a fair market value.
- Trust Terms: Some trust documents include strict stipulations or dictate that a specific waiting period must pass before final distributions occur.
Do You Need to Remove a Trustee? Connect With My Law Office Today
Hackard Law litigates cases like this and many others resulting from abuse of heirs, beneficiaries, and elders—and we make a difference. When a trustee breaches their fiduciary duty by failing to distribute assets, beneficiaries can petition the probate court for formal removal and surcharge.
Courts have express powers to preserve trust property, remove problem trustees, and order a full reimbursement for any financial damages caused by the delay. So, if you’d like to talk with us about your case, call us at 916 313-3030 or contact us online. We’ll be happy to speak with you.
Hackard Law: Attorneys Making a Difference