What Constitutes a Breach of Fiduciary Duty?

California Probate Lawyer Helps Resolve Trust-Related Conflicts

Video Transcript: 

Vinny Casiano: 

Beneficiaries can... They're... It's impossible for them to understand what has happened with the trust until the trustee accounts for their actions and all the property in it.

Molly Hendrickson: 

If you think someone is in breach of fiduciary duty, what can you do? We're speaking with attorney Vinny Casiano about that on today's Ask The Lawyer. Vinny, thanks for joining us.

Vinny Casiano: 

It's always good to see you again, Molly. Nice to be back.

Molly Hendrickson: 

So let's start at the beginning, when someone is a beneficiary of a trust, what is the role of the trustee?

Vinny Casiano: 

Well, whenever you have a trust, there are basically three different offices. You have the person that creates the Trust, and then you have the person that manages the trust, and then you have a person that is the beneficiary of the trust. Sometimes they're all the same people, like, when you have a revocable living trust. Mom and dad create a trust, they created it, they manage the assets while they can until they pass away, and then they're the beneficiaries, as a general rule. When mom and dad pass away or if they become incompetent, then they normally will name a trusted child to become the trustee. But huge difference now, when mom and dad are trustees, they can do whatever they want, when the kids become a trustee or anybody else becomes a trustee, they can't. They are a fiduciary and dealing with somebody else's property and money, and therein lies the basis of most trust and estate disputes that I get involved in.

Molly Hendrickson: 

So what happens if a beneficiary thinks that a trustee isn't doing their job?

Vinny Casiano: 

Well, there's a variety of things that you can do at that point. The first thing to do is to try to work things out, informally. You know, if it's your brother, sister, if it's an uncle, if it's... It could be a surviving spouse, it could be a blended family. About 75% of the cases I know in estate planning, and probably higher when it comes to trust and estate litigation are where it's a blended family and we've got half-siblings or people that aren't related, because there's children from marriages, and now one spouse that survives is not related to the other children other than... You know, maybe they had some sorta relationship with them, but as time goes on, that becomes less and less if there's not a blood relation. So, the first thing you wanna do is, see if you can have an open line of communication, right? If that doesn't work, then at that point, it's... Then it's time, it's probably time to call an attorney. But you try to work it out yourself, you ask for different documentation, you ask for copies of the trust. Whether or not you're entitled to those documents and that information depends on where you are in the particular life cycle of the trust.

Molly Hendrickson: 

I can imagine these situations can get a little bit sticky, so what is a breach of fiduciary duty in these types of trust situations in California, and what are some examples of a trustee potentially breaching their duty?

Vinny Casiano: 

You know, there's such a variety of ways that a fiduciary, that a trustee can breach their duty. Our probate code, it's 16000 to 16105, delineates the duties of a trustee. And if you go through those duties and they're not complying with those duties, if not fulfilling their obligations under that, that's a breach of fiduciary duty. You know, to give you an example, a trustee has to make the distributions as required by the trust. If they're not making the distributions, that's a breach of fiduciary duty. Even when there is discretion as to whether they have to make those distributions, there normally will be some direction that the people that created the trust, the grantors, the settlors, mom and dad for a lot of these trusts, have said, "Hey, I want you to pay for health, education, maintenance and support." Or it might be a special needs trust, where they say, "I want you to supplement public benefits." If the trustee has taken no action whatsoever to ascertain what the needs of the beneficiary are, even if they have total discretion, that's a breach of fiduciary duty. A lot of people don't understand that.

Vinny Casiano: 

They're not allowed to be a trustee of another trust that's adverse in nature to the trustee that they're... The other trust that they're administering. They must take reasonable steps to control and preserve the property. They have to make it productive under circumstances. They just can't let property sit there and not earn income. They have to treat all beneficiaries equitably. They can't favor one beneficiary over the other, they can't self-deal to the standpoint that it's gonna really assist them if they are a trustee and a beneficiary at the same time. They have to keep trust property separate from their own property. A lot of people co-mingle it, they don't create a trust account. They put it in their own account. They can't take loans from it, they can't take advantage of this. You know, they have to defend their actions against the trust and make sure that if the trust is being sued, that they're fighting that suit. Their investment requirements, the Uniform Prudent Investor Act, where the trustee is not expected to be a day trader of their stocks, right?

Vinny Casiano: 

They're not expected to be real estate brokers, or property managers, but they have to hire people that are experts in this area, and they need to constantly, constantly meet with them, understand what the recommendations are and justify any decisions they've made based on what they found out from the experts. If they can't document that, and there's a loss to value of property or there's no income being produced, well, that's a breach of fiduciary duty, and that's actionable by the beneficiaries.

Molly Hendrickson: 

So what can somebody do? Can a person request an accounting of the trust funds from the trustee? And how do they go about doing that?

Vinny Casiano: 

Sure, well, certainly... And that depends. Again, where are we in this life cycle of the trust? If it's mom and dad that are running their own trust, can they demand an accounting from mom and dad when they are just what we call contingent beneficiaries? Contingent beneficiaries is a term that's used where you may be named as a beneficiary of mom and dad's trust, but until mom and dad pass away, you don't have any right to that money, you don't have any right to the income on the property in the trust, you don't have any right to the principal. So in that particular circumstance, you don't have the right to an accounting because you're not an income... You're not a beneficiary that's entitled to income. Okay, that's the trigger. When you become entitled to income or principal, you're entitled to a trust. However, okay? Just recently, California passed a law that says, "Where the trustors of a trust become incapacitated, we're going to treat that as if the trust has become irrevocable." Not that it is, 'cause if mom and dad got better, they could still revoke or amend that trust, but at that point, the successor trustee that takes over is obligated to send out a copy of that trust to all beneficiaries that would be entitled to income or principal when the trustors die and they are entitled to an accounting.

Vinny Casiano: 

A lot of people don't know this yet and it's really caused a lot of ruckus in the courts. I think it's a great idea, because what I've seen in the past, in this 20 plus year career I've had, are people that are in charge of a trust, mom and dad become incapacitated, one kid's in charge who says, "I'm not telling you nothing, you got no right to this," and doesn't wanna do it, and that's what starts these fights. It's this not understanding, the secrecy. No, just give the information out. If you're not doing anything wrong, there's nothing wrong with giving that information out, and actually if you have to give the information out, you're gonna be making sure that you're doing everything right. If you don't have to give the information out, you don't do things the right way, then later, when those people become entitled to a trust accounting, they get all this information, and boy, are they gonna be mad and maybe they're gonna file a lawsuit. And when we're talking about filing a lawsuit in trust and estate litigation, we are talking about tens of thousands of dollars, if not hundreds of thousands of dollars, depending on the size of the estate.

Molly Hendrickson: 

So what can a lawyer do in these types of situations where a person might think that a trustee is actually breaching their fiduciary duties?

Vinny Casiano: 

Well, the first thing is certainly to attempt to get an account, are you entitled to the account? You can go into court and you can argue that even though those different things I talked about, are you an income or principal beneficiary, even though those may not be applicable in this particular situation yet, are mom and dad incompetent, are you claiming that there is undue influence, that they're losing assets? What we call, has there been a material breach of trust that has been created? If there is a material breach of trust, then you can go into court, you can ask for relief, you can ask for that trustee to be removed, which is rare, you have to make a really good showing for the court to do that without having an evidentiary hearing. But you can certainly ask for an accounting, and the accounting is what the courts have said, beneficiaries can... It's impossible for them to understand what has happened with the trust until the trustee accounts for their actions and all the property in it.

Molly Hendrickson: 

So there are remedies available. Vinny, thank you for talking to us today.

Vinny Casiano: 

My pleasure.

Molly Hendrickson: 

And that's gonna do it for this episode of Ask The Lawyer. My guest has been Vinny Casiano. If you wanna ask him about your situation, you can call the number on the screen. Thanks for watching. I'm Molly Hendrickson for Ask The Lawyers.

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