Trustees are in charge of managing the assets held in trust. They’re expected to follow the instructions put in place by the trust creator and to act in the best interests of the beneficiaries. In fact, they have a fiduciary duty to do so.
If a trustee fails in this obligation, beneficiaries can take legal action. They can sue for breach of fiduciary duty, try to recover improperly used or lost trust assets, and seek to have a trustee removed who is not following the instructions provided.
If this happens, the trustee will have a right to defend themselves. Surprisingly, in some cases, this means they may be able to use trust assets to pay their attorney’s fees and other defense costs.
Albertson & Davidson, LLP can provide insight into this issue and help you understand what rights trustees have with regard to using trust assets to pay legal fees. We can help both trustees and beneficiaries to understand their rights and obligations when a dispute arises and to argue for their preferred outcomes.
To find out more about how a San Diego trust litigation lawyer can help in these difficult circumstances, give us a call at (858) 209-2309 or contact us online to schedule a free consultation.
When Can a Sued Trustee Use Trust Money to Pay a Defense Lawyer?
Under California Probate Code § 16002, a “trustee has a duty to administer the trust solely in the interest of the beneficiaries.” If a trustee violates this obligation in any way, they can be sued.
However, under the law, the trustee continues to control the trust’s financial accounts unless and until the court restricts their access to those assets. This means that if the trust beneficiaries (or others with legal standing) have not successfully sued and had the trustee removed, the trustee is still free to use the funds as they see fit. This can include defending against litigation.
The problem, of course, is that the trust can essentially provide a war chest for the trustee, who can tap the trust’s resources to defend against accusations that they misused funds or made mistakes. If there are substantial resources in the trust, this can give them a large litigation war chest that they can use to try to exhaust the resources of beneficiaries.
However, while trustees can draw on those assets, they must use them in accordance with their duties and act in good faith. If a trustee breaches their obligations, the court may determine that the trustee cannot use trust assets to defend themselves and may deny indemnification.
That would mean the trustee would have to personally repay legal fees they had used the trust to cover.
What Should Beneficiaries Do?
If a beneficiary believes a trustee has violated a fiduciary duty, they should get legal help. An attorney can work with you to determine if the trustee acted wrongfully and to argue that the trustee should not be able to use trust assets to pay their legal fees if they breached their obligation.
Albertson & Davidson, LLP understands the complexities of these cases and can begin working from day one to demonstrate if a breach occurred, whether the defendant trustee acted in good faith, and whether the trustee should be limited in their authority to use the trust based on the circumstances.
Contact a Trust Litigation Lawyer Today
Albertson & Davidson, LLP provides comprehensive legal representation and dedicated support when a trust dispute arises. We can represent both trustees and heirs and beneficiaries when a conflict occurs.
To find out more about how we can help you, give us a call at (858) 209-2309 or contact us online today to schedule your free consultation.