By John A. Hartog
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
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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Practice Guide: California Trust Litigation
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