So as we discussed in another blog (see "Trustee Duties" here: trustee duties blog ), one of the Trustee duties is to avoid a conflict of interest, and to avoid “self-dealing”. The California Probate Code lists statutory duties of the Trustee in Probate Code §§16001–16015 which includes (among others) a Duty of loyalty, to deal impartially with beneficiaries, also to avoid conflicts of interest and a duty not to undertake adverse interests. So you may be asking yourself “what’s the big deal?” Let’s use this example because it can come up quite often. The Settlor (usually a parent or parents) sets up an estate plan that includes a Revocable Living Trust with their two children as beneficiaries. The oldest child is named as the Trustee because he or she is more responsible with money and is involved in the family business. Upon the occurrence that the child becomes the Trustee, what is he or she to do about the activities of the family business if it is a Trust property? If the normal duties are not addressed and properly dealt with, the Trustee will potentially be violating some of the California Probate Code statutory duties. In taking a salary, contemplating a raise, even simply continuing the business by not selling it in order to diversify could be a breach of his or her duties as trustee. This is not likely what the parents wanted when they established the Living Trust in the first place. Perhaps the biggest worry for the Settlor is that a Trustee can be surcharged for loss of value of trust property if there was a breach of duty by the Trustee. Therefore, a Trustee must be very careful, and the attorney must carefully draft the Living Trust to avoid potential pitfalls.
Careful drafting of the revocable trust and the asking of proper questions by a qualified attorney is paramount. Likewise, it is important for the client to avoid only telling the attorney what the client thinks the attorney “needs to know”. There are many things the average person thinks unimportant with respect to estate planning. The more open a person is with their attorney, the better the result will be. For this reason and others, I feel a “document system” like LegalZoom will never compete with an attorney on achieving the results you want, AND avoiding the unforeseen potential problems with answering a computer’s questions, then getting a document filled with “boilerplate language” and a lawsuit among beneficiaries down the road.
Let’s contemplate a slightly different scenario. Maybe you don’t own a business, but instead just a home. You’d like to allow one of the beneficiaries to live in the home for a time. The standard rules would suggest that a Trustee would be breaching a duty in not making the property productive, or in “self-dealing” by taking advantage of a trust property. The amount of rent may be disputed, and the issue of not diversifying could also be shown pretty easily.
In a future blog we will address the difference between the conferring of Trustee powers and the modification of Trustee duties. Care must be taken here also because sometimes the unwary drafter will convey a power instead of properly modifying a trustee duty.
See lots of estate planning information on my website at: www.myestate-plan.com
Thanks for reading. I’m never too busy to get your estate plan in order and help address your particular situation. Please give me a call and let’s start your Estate Plan today! It is never too soon to plan.
William Daniel Powell
Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California. Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.