Trust Law: The Trustee’s Duty

By John A. Hartog

This is part of our series of posts written by John A. Hartog of John A. Hartog, Inc. in Orinda, Calif., and Shirley L. Kovar of Henderson Caverly Pum Charney LLP, in San Diego, Calif.,co-authors of the LexisNexis® Matthew Bender® Practice Guide titled California Trust Litigation (March 2011).  In this post, Hartog discusses how the changes in trust law have affected the obligations of the trustee.  Hartog and Kovar will be appearing at seminars and a webinar in the coming weeks.  For more information, please go to: www.ocbar.org and http://www.sfbar.org/.

An area of evolution is the question of to whom the trustee owes his or her duty. It sounds like a foolish thing ... but the old concept is that a trust is a relationship, it's not an entity. There is no such thing in traditional analysis of the trust as an entity. 

And yet in a wonderful example of how sloppy language can lead to sloppy thinking to cause bad law, the vernacular has been "the trust." People refer to "the trust" without appreciating the distinction; it's really personified by the trustee. And so this concept of the trust as an entity is starting to evolve in these cases, which then creates the analytical problem of, well, if the trust is an entity like a partnership or a corporation, where do the trustee's duties flow, and can we distinguish between the duty to the beneficiary and the duty to the trust? 

Effects Of The Lack Of Clarity

It can have a direct impact on attorney's fees and trustee compensation, and it can confuse the parties about what information needs to be shared between a trustee and a beneficiary.

The cases start talking about benefit of the trust and the beneficiaries have the rights, and a trustee's lawyer can only be paid from the trust's assets if it's for the benefit of the trust. And if the beneficiaries lose, it still may not be for the benefit of the trust. It gets really convoluted, and it's unfortunate because now we're in a position where we shouldn't forget that trustees are not working for their own benefit, even if they are technically also a beneficiary; they're working for the benefit of other people.  And if we are now going to expect them to pay for their own lawyers, pay for the trust lawyers out of their own pockets, we are going to discourage people from serving as trustees.

Sharing Of Information

It's really interesting because you would think that there is nothing that a trustee could keep from a beneficiary, and yet we've got a couple of cases in California in which the estate tax information as well as the income tax information is not required to be provided to the beneficiaries.  And yet the probate code says that the trustee has a duty to keep the beneficiaries reasonably informed. 

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