The role of a trustee is to manage and administer a trust within the boundaries and stipulations of the trust. When there are multiple trustees, they are known as co-trustees and they must work together to fulfill the obligations of the trust and in the best interests of the beneficiary while staying aligned with the terms of the trust.
While there can be numerous reasons for disputes among co-trustees, there are still legal standards that must be adhered to when administering the trust. When those legal standards are ignored or violated, dispute resolution must be initiated. If resolutions cannot be reached successfully, legal procedures for trustee removal must be followed to continue acting in the best interests of the beneficiaries. The Dayton Law Firm, P.C. estate planning and administration attorneys can help you navigate co-trustee disputes and their resolution.
Common Causes of Co-Trustee Conflicts
Trustee disputes can arise due to several different reasons, including opinions and interpretations regarding the trust document, arguments regarding asset distribution or investment decisions, claims of breaching fiduciary duties, interpersonal and family dynamics when trustees are related, breakdowns in communication, or more.
Navigating these disputes can be tricky, especially when personalities clash or personal connections to the trust or beneficiaries cloud judgment, making it helpful to have a neutral third-party like the trust administration attorneys of The Dayton Law Firm, P.C., help resolve disputes before they result in costly fees and troubles.
If disputes are allowed to escalate, they can cause a host of additional problems, including distribution delays which could put trustees in violation of the terms of the trust, financial harm to the beneficiaries which would violate the trustees’ legal requirement to act in the best interest of the beneficiaries, and increased legal costs as the disputes are argued and arbitrated in court.
Especially when disputes involve interpretations of the trust’s provisions, having an attorney review the documents and arbitrate between the co-trustees can resolve disagreements quickly, reducing headaches and delays.
Mediating disputes as soon as they occur rather than waiting as they fester and cause additional problems keeps the trustees aligned with their duties and avoids increased expenses.
Fiduciary Duties of Co-Trustees Under California Law
Per California law, trustees are “duty-bound to act with the utmost good faith for the benefit of the other party,” meaning they must be loyal to and act in the best interests of the beneficiaries of the trust.
When beneficiaries of a trust have competing interests, it is the legal duty of the co-trustees to deal completely impartially with them, taking the competing interests into account and determining the best course of action for the trust without relying on personal opinions of the beneficiaries. This can be made both simpler or more complicated by having co-trustees administrate the trust, as they can either come to a consensus regarding how to stay impartial, or it can create disputes if the co-trustees disagree on what the impartial decision should be.
This is a scenario where it is useful to have a trust administration attorney help mediate disputes to ensure the trustees’ actions remain impartial.
Trustees additionally must prudently and expediently manage trust assets. Upon assuming the role of trustees, they must immediately take control of trust assets and secure them to prevent delays, risk of unauthorized access to trust assets, or depreciation and devaluation of its holdings.
According to California Probate Code Sections 15620-15622, co-trustees must act in unison, unless the trust agreement provides alternative provisions. All decisions for trust actions must be made collaboratively and by unanimous agreement, barring any provisions stating otherwise in the trust. This limits liability and provides a check and balance system for the co-trustees, protecting them as they act in the interest of the beneficiaries.
Co-trustees must conduct themselves to avoid claims of conflict of interest by avoiding trustee positions on trusts that would have them in conflict with the best interests of the beneficiaries of the first trust. They also have a duty to work to make the trust’s property productive and to keep entrusted assets separate from any of their personal assets to avoid any real or perceived risks and conflicts.
Initial Steps When a Disagreement Arises
Co-trustees are likely to face at least some degree of disagreement or conflict when administering a trust, as differences of opinion are only human. Often, a trust that names co-trustees will contain provisions for determining a tiebreaker when there are disputes as to the best course of action, and the documents might also include guidance that will negate one side of the conflict.
All communications and decisions should be carefully documented for review and reference, including the rationale behind decisions and any discussions that led up to the decision, to reduce future confusion or disagreements.
When disputes happen, scheduling a formal meeting to clarify rather than relying on written communication, where subtext, tone, and nuance can be difficult to parse, can help resolve them quickly. In the event that a formal meeting does not resolve the dispute, arranging a mediation session with an estate or trust administration attorney can clarify issues and help move past them without further argument.
Transparency with beneficiaries on why decisions were made and the logic behind the trustees’ actions improves relationships between the parties. It can head off disagreements and disputes about how the trust is being administered. This is another reason why detailed documentation and a record of all communications are so important in avoiding disputes.
When disagreements or differences of opinion in how to administer trusts arise, quick communication is essential in solving problems before they escalate. One conversation can help trustees avoid extensive legal headaches and conflicts down the road.
Mediation and Alternative Dispute Resolution (ADR)
Mediation between co-trustees, or trustees and beneficiaries, when a beneficiary believes the trustee(s) are not acting in their best interest, is the first step that should be taken in resolving conflict. Not only is it a confidential process, but it is also generally faster, more effective, and the least costly option in settling disputes.
When mediation is sought as an option for resolving disputes, it is hosted by a neutral third party to arbitrate and moderate a discussion between the parties involved in the dispute. Through the discussion, the goal is to find common ground and come to a consensus that is a fair compromise for the involved parties. Being a less adversarial process than litigation, mediation can preserve family and personal relationships and leave all involved in the dispute feeling good about the resolution.
Since mediation is not done through the court system, it is faster and less costly than litigation, as it does not involve the time and legal fees incurred by litigation. An experienced estate lawyer, such as the attorneys at The Dayton Law Firm, P.C., will facilitate dispute resolution while maintaining the integrity of the trust. They can also help develop creative, flexible solutions to the disagreement that are tailored to the agreement and the beneficiaries’ best interests.
Arbitration and mediation are forms of Alternative Dispute Resolution (ADR) that are recognized as legal methods of dispute resolution by the California judicial system, and can be easily navigated with the help of a neutral third party such as a trust attorney or professional mediator.
Going to Court: Petitioning for Instructions or Intervention
Mediation between co-trustees, or trustees and beneficiaries, when a beneficiary believes the trustee(s) are not acting in their best interest, is the first step that should be taken in resolving conflict. Not only is it a confidential process, but it is also generally faster, more effective, and the least costly option in settling disputes.
When mediation is sought as an option for resolving disputes, it is hosted by a neutral third party to arbitrate and moderate a discussion between the parties involved in the dispute. Through the discussion, the goal is to find common ground and come to a consensus that is a fair compromise for the involved parties. Being a less adversarial process than litigation, mediation can preserve family and personal relationships and leave all involved in the dispute feeling good about the resolution.
Since mediation is not done through the court system, it is faster and less costly than litigation, as it does not involve the time and legal fees incurred by litigation. An experienced estate lawyer, such as the attorneys at The Dayton Law Firm, P.C., will facilitate dispute resolution while maintaining the integrity of the trust. They can also help develop creative, flexible solutions to the disagreement that are tailored to the agreement and the beneficiaries’ best interests.
Arbitration and mediation are forms of Alternative Dispute Resolution (ADR) that are recognized as legal methods of dispute resolution by the California judicial system, and can be easily navigated with the help of a neutral third party such as a trust attorney or professional mediator.
When Removal Becomes Necessary
When a trustee is determined to be acting against the terms of the trust or the best interests of the beneficiaries, they can be asked to either resign or be removed as a trustee.
There are many paths to removing a co-trustee from administering a trust. They can be removed by petition from one of the co-trustees, a settlor, or a beneficiary. Alternatively, they can be removed by the court on its own volition or following provisions in the trust instrument.
Under California law, there are several grounds for removing a co-trustee. Included in reasons for the removal of a co-trustee are fiduciary duty breach, threatening the administration of the trust through hostility or a deadlock in making decisions for its assets, the incapacity or unfitness of the trustee to complete their duties, or the court using its discretion to remove the trustee to act in the best interest of the trust.
The petitioner who is attempting to remove the co-trustee must file a petition with the court, after which a hearing will be scheduled. During the hearing, the petitioner must provide good-faith evidence of why the co-trustee should be removed from their duties. The person petitioning the court must have a legitimate interest in the trust per California Probate Code § 15642(d); otherwise, they will bear the costs of the claim. Their evidence must show exactly why the removal of the co-trustee is necessary to protect the trust and the interests of the beneficiaries.
During the dispute, a neutral third party serving on behalf of the court may be appointed as a temporary trustee to act on behalf of the trust until the issue is resolved, as trials to remove a trustee can take over a year.
Consequences of Trustee Misconduct
The court is there to protect the best interests of the trust, and thus enforces strict penalties for trustee misconduct. If a co-trustee is found to have mismanaged assets, violated their fiduciary duties, or acted against the best interests of the entity, they can face personal, civil, or even criminal penalties.
Suppose a co-trustee is found to act in negligence or bad faith. In that case, they can face personal liability for any losses incurred by the trust and be forced to make the trust and beneficiaries whole financially.
The courts can also require the trustee to reimburse the petitioner for costs and attorney fees they incurred in working to remove the trustee from administering the trust.
In the case of fraud, theft, or embezzlement as the reason for the trustee’s removal, California courts can impose criminal penalties, including fines or even jail time on the trustee.
If you, as a trustee, are under scrutiny and need to work to defend yourself in probate court, having an experienced trust attorney at your side to guide you through the process and argue against the claims can protect you both legally and financially.
Protecting the Trust: Best Practices for Co-Trustees
To avoid conflicts while administering trusts, co-trustees should immediately establish roles and how they’ll make decisions and what to do in the event of a decision tie, documenting these procedures and keeping them with the documents for reference. Having clearly defined roles and procedures removes much of the ambiguity of being co-trustees and helps actions run smoothly.
While administering trusts, co-trustees should regularly discuss and review tasks to ensure duties are being split equitably and decisions are agreed upon.
All decisions and communications should be rigorously documented, and all communication should remain open and recorded to reduce misunderstandings and create a clear paper trail in the event of any disputes.
If a trust is complex, appointing a professional fiduciary to work in conjunction with co-trustees can ensure the trust’s terms are followed and financial decisions are made that truly work in the best interest of the beneficiaries. For trustees with average financial knowledge, a professional fiduciary can prevent many problems before they even start.
Careful planning and active prevention of problems through the advice of an attorney are essential to following the provisions of the trust and preserving personal and family relationships involved in its administration.
How The Dayton Law Firm, P.C. Can Help
The Dayton Law Firm, P.C. attorneys are experts at managing co-trustee disputes and mediating disagreements between family members involved in trusts. They can guide you in performing your duties as a co-trustee to ensure proactive mediation and resolution of conflicts before they escalate to trustee removal petitions or breach claims, and can advise trustees on how to properly administer trusts and act in the best interests of the beneficiaries.
If a trustee dispute goes to trial and a temporary, neutral trustee is needed, The Dayton Law Firm, P.C. can serve as a court-appointed trustee and maintain the trust and act for the beneficiaries while the legal proceedings occur.
Whether you are attempting to prevent or are currently involved in a co-trustee conflict, the experienced trust and arbitration attorneys at The Dayton Law Firm, P.C. can provide expert advice and guidance through the process.
Resolving Disputes for the Good of the Trust
Conflict resolution regarding co-trustee disputes must be swift and fair to reduce harm to the trust and beneficiaries. If the process is drawn out, the co-trustees can be financially, personally, or criminally liable for any losses. Although these disputes can be challenging and emotionally fraught, the legal guidance of the legal team at The Dayton Law Firm, P.C. can simplify the process and ease the way. Contact the team today for assistance with your trust administration and co-trustee conflict resolution needs.