Defending Litigation: Can a Trustee Utilize Trust and Estate Funds?

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Litigation arising between the beneficiaries and trustees appointed within a trust instrument is infrequent but common. For a comprehensive understanding, readers are encouraged to review articles on trusts, fiduciary duty, and trustee responsibilities available elsewhere on this website. When a trustee breaches a fiduciary duty, a beneficiary has the right to pursue legal action to ensure the trustee’s compliance with their obligations toward the trust. 

A beneficiary may petition the court for the removal of a trustee and seek remedies if the trustee is proven to have breached their fiduciary duty. It’s crucial to note that the beneficiary does not bear a fiduciary duty to the trust; rather, the trustee is obligated to act in the best interests of both beneficiaries and the trust. Personal liability may attach to a trustee who violates their fiduciary duties.

Common claims often revolve around conflicts of interest, where trustees either benefit personally at the expense of the trust or neglect their duties, jeopardizing trust assets. The beneficiary typically follows a sequence of steps in such litigation, including retaining legal counsel, demanding a full accounting from the trustee, and, if necessary, seeking the trustee’s resignation and compensation to the trust or its beneficiaries. If the trustee refuses, legal action ensues, involving a petition for breach of fiduciary duties, removal as trustee, and payment for damages to the trust.

During litigation, the trustee is defended by their legal counsel, which can lead to prolonged and expensive legal battles that can last for years. Interestingly, the trustee may still claim trustee fees as specified in the trust, even under accusation, creating a peculiar situation where the trust continues to pay fees to a trustee being sued by a beneficiary.

Navigating Legal Expenses in Trust Administration: A Closer Look at Trustee’s Rights and Responsibilities

Trustees play a critical role in managing and administering trust assets, guided by fiduciary duties outlined in the trust instrument and relevant laws. As trust administration scenarios can be intricate, many trustees find it beneficial to seek legal counsel to navigate potential pitfalls and reduce the risk of personal liability.

Trustee’s Authority to Engage Legal Counsel:

Fortunately, both the California Probate Code and most trust instruments empower trustees to hire and compensate attorneys for advice on trust administration. Section 16247 of the Probate Code specifically grants trustees the authority to engage attorneys, accountants, and other agents for administrative duties, with Section 16243 permitting the payment of “reasonable compensation” to such professionals. Most trust instruments include explicit authorization for trustees to retain legal counsel as part of their enumerated powers.

Limitations and Fiduciary Duties:

However, trustees are not granted an unrestricted budget for legal expenses. Section 16202 of the Probate Code stipulates that a trustee’s exercise of power remains subject to fiduciary duties, including loyalty to beneficiaries. Trustees are obligated to provide a detailed accounting, including legal expenses, to beneficiaries, who may request a court review of these costs, potentially leading to reimbursement if deemed inappropriate.

Case Study: Donahue v. Donahue (2010):

The case of Donahue v. Donahue (2010) serves as a notable example, emphasizing the importance of reasonable and necessary legal expenses in trust litigation. The court highlighted that fee awards must not only be reasonable in amount but also reasonably necessary for the conduct of litigation and beneficial to the trust. Trustees must avoid an excessive “Rolls Royce” defense when a more moderate approach, akin to a “Buick,” would suffice.

Considerations Before Litigation:

Before engaging in litigation, trustees should consider the scrutiny their legal expenses may face, ensuring that expenditures align with the principles established in legal precedent. The Donahue case underscores the court’s responsibility to assess fee awards for reasonableness, proportionality, and benefit to the trust.

Defending Contested Trust Amendments:

Additionally, trustees should exercise caution when defending contested trust amendments, as such litigation may not be considered a benefit to the trust unless expressly authorized by the trust instrument. Seeking court direction under Probate Code section 17200 can provide clarity on whether legal expenses are chargeable to the trust.

Confidentiality Concerns:

Confidentiality concerns also come into play, as trustees using trust funds to hire counsel should be aware that the attorney-client privilege typically follows the office of the trustee. This means that communications between the trustee and counsel may be accessible to successor trustees if the incumbent trustee resigns or is removed. To maintain confidentiality, a trustee may choose to hire counsel at personal expense and in a personal capacity.

Balancing Professional Advice and Judicious Spending:

In conclusion, while trustees have the right to engage legal counsel for trust administration, they must be mindful of beneficiary scrutiny, court review, and potential disallowance of legal expenses. Navigating trust administration requires a careful balance between seeking professional advice and ensuring judicious spending in the trust’s and its beneficiaries’ best interest.

OC Trial Group: Your Trusted Advisors in Probate Litigation

When faced with complex probate litigation matters, trustees in Newport Beach, CA, can turn to the expertise of the OC Trial Group. Situated in the heart of Newport Beach, this team of trust and estate litigation attorneys is vastly experienced in providing comprehensive advice to trustees navigating the intricate landscape of trust administration.

The seasoned professionals at OC Trial Group understand the nuances of the California Probate Code and are well-versed in the complexities of trust instruments. With a deep commitment to client success, they guide trustees through the legal intricacies associated with engaging legal counsel, ensuring adherence to fiduciary duties, and navigating potential challenges in trust administration.

The OC Trial Group’s proficiency is exemplified in their ability to strike a balance between providing prudent legal advice and maintaining judicious spending. Drawing on their wealth of experience, they can assist trustees in making well-informed decisions that align with legal standards, ensuring both the trustee and the trust’s best interests are safeguarded.

Contact OC Trial Group Today:

If you are a trustee in Newport Beach seeking expert guidance on legal matters related to trust administration and probate litigation, OC Trial Group stands ready to assist you. With a proven track record of success and a client-focused approach, they are dedicated to providing tailored solutions for your unique circumstances.

Contact OC Trial Group today at (949) 270-3424 for a free consultation and secure the expert advice you need to navigate the complexities of probate litigation with confidence.

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