The Responsibilities of a Trustee Under California Law

by John Stevens J.D.

The primary purpose of a trust is to provide for the transfer of property to named beneficiaries without the court involvement required with a will. Due to the lack of court oversight, the possibility exists for the person in charge of the trust, called the “trustee,” to use the trust property for improper purposes. The California Probate Code requires the trustee to administer the trust according to its terms and to the provisions of state law, which impose specific responsibilities and duties designed to prevent trustee misconduct.

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Duty of Loyalty

California law imposes a duty of loyalty upon the trustee, who must administer the trust solely for the interest of the beneficiaries and avoid acting in ways that benefit the trustee at the expense of the beneficiaries. Actions that may violate this duty include the purchase of trust property by the trustee personally; the sale of trust property to an entity in which the trustee has an interest; a loan from trust property to the trustee personally; and taking part in a business that competes with a business owned by the trust. Unlike some other states, California allows the trustor -- the person who created the trust -- to include language that permits self-dealing in some situations. For example, the trust document may permit the trustee to purchase trust property so long as the trustee pays a fair market value and the purchase price is paid in advance.

Duty to Safeguard Trust Property

Under California law, trustees are responsible for taking control of the trust property and protecting it for the beneficiaries. Challenges can arise if the trustor becomes mentally incapacitated. Since the trustor of a trust is also often the trustee, it is the successor trustee who will take over if the trustor is not able. One concern of a successor trustee is the possibility that someone could take advantage of the incapacitated trustor and attempt to steal trust property unless the successor trustee takes control of it. Failing to take control of the property in this situation may cause the trustee to be a target for a claim of breach of duty by the beneficiaries. Trustees can reduce their potential exposure to liability by purchasing insurance that would reimburse them for inadvertent errors committed while supervising the trust property.

Duty to Avoid Comingling

A trustee has a duty to avoid commingling trust property under California law. This duty requires that the trustee must keep separate trust assets from the trustee’s personal property. The trustee must also specifically designate the trust property as such to avoid confusion. This duty may be violated if a trustee deposits money from the trust into an account that also holds the trustee’s personal funds. California permits a person who creates a trust to include language in the trust document that overrides this duty.

Duty to Deal Impartially with Beneficiaries

Where a trust specifies two or more beneficiaries of the trust property, California law provides that a trustee has the duty to deal impartially with all of them. For example, a widow is the trustee of her deceased husband’s trust and that trust lists the husband’s two children as beneficiaries and one of those children was from a previous relationship. The duty to deal impartially with all beneficiaries requires the widow to treat both children equally with respect to the trust property, even though she may have a closer relationship with her biological child.