Course 7 — Lesson 1 The Facts for California Failed Trust Accountings

[Music] In this course we will discuss a trustees failure to account and provide information to trust beneficiaries we start with the basic understanding of the trust law we will apply to this problem the trustee of a California trust has a duty to keep beneficiary reasonably informed of the trust and its administration the trustee must also account to all current income or principal beneficiaries at least annually upon termination of the trust or upon a change in trustee I trust by its terms can waive the right to an accounting but a court can still order an accounting to be created where a beneficiary shows that a breach of trust is likely to have occurred let's consider a hypothetical situation to demonstrate the problems that arise and the options you have when confronted with a California trustee who fails to account after the hypothetical we will discuss trust accountings in more detail for the last eight years Bert has been the trustee of a trust created to benefit Neal and Leonard to brothers the trust terms do not mention anything about providing trust accountings to the beneficiaries the trust terms also require the trust to continue for 10 years and then distribute the trust out assets outright to Neal and Leonard equally the trust has two more years to go before distribution is required under its terms the trust assets originally consisted of a sixth unit apartment building and an investment portfolio with conservative investments eight years ago when Bert began acting as trustee the apartment building was valued at two million and the investment portfolio was worth five hundred thousand Neal and Leonard have never received an accounting from Bert and do not have any recent financial information Neal thinks that the apartment building had a small mortgage against it of 50,000 when Bert took over as trustee at first Neal and Leonard were each receiving three thousand a month but two years ago that stopped the distributions dropped to one thousand two month for a while and then stopped altogether Neil and Leonard asked for more trust distributions but they never received a straight answer from birth on why the distributions had stopped in response Neil and Leonard demanded a trust accounting first Bert claimed that an accounting was not required of him because the trust was silent as two accountants then Bert said he would provide them with an accounting last month Bert sent Neal and Leonard a one-page spreadsheet that Bert claims is the trust quote/unquote accounting the spreadsheet has the apartment building on it with an estimated value of two million but it also lists a mortgage against the apartment building for 1.5 million all the rent from the apartment building is being used to pay the mortgage payments which explains why the distributions have stopped the spreadsheet also lists $50,000 in cash and five separate so-called investments each with a listed value of 400,000 on paper the trust appears to have across a gross value of 4 million $50,000 Neil and Leonard are surprised to see the mortgage on the apartment building because they were never told about it they are also surprised to see the five investments so they asked the trustee to provide more explanation on the investment Bert tells them that the investments are quote unquote private placements which allow individuals with a high net worth to invest in securities that are not regulated by the government unfortunately Bert believes that all five of the investments have failed and may not be recouped by the trust Neal and Leonard are alarmed at this news the trust is supposed to distribute all assets to them outright in two years they also wonder if they have been given all the information about the trust finances the one-page spreadsheet does not look correct to them it appears that Bert has taken a substantial loan against the apartment building to invest in highly risky investments and the original 500,000 investment portfolio seems to be gone what can Neal and Leonard do to find out the full extent of the trust financial dealings here are the options option one petitioned for accounting petitioned the court to order bird to prepare and file a formal trust accounting option two petitioned for information petitioned the court to order bird to provide all financial statements for the last eight years option number three subpoena information subpoena all bank and financial records from the financial institutions for the trust for the past eight years option four trustee removal file a petition to remove bert as trustee option five petition for damages seek petition to seek damages against bert for breach of trust [Music] you.