Trust Disputes – Trustee Duties to Remote Beneficiaries
Despite its convenience and popularity, families should also be aware that its creation invokes a special relationship between the trustor and the person named to represent the trust, that is, the “trustee.”
Commonly, a trustor names him or herself as the initial trustee with a successor trustee, such as a spouse or close relative, to represent the trust afterward.
Any person named as a trustee owes a fiduciary duty to the trust itself and to its beneficiaries. This means that the trustee must act in the sole and best interest of the trust, including during the lifetime of the trustor. The duties include those of honesty, impartiality, inform and report and others.
According to a recent case in California, In re Estate of Giraldin, 290 P3d 199 (Cal 2012), as well as a “trio” of similar cases, the trustee’s fiduciary duty may also extend to alternate, or remote, designated beneficiaries for actions taken while the trust was still revocable.
To understand the legal significance of these cases, one must remember that the remote designated beneficiaries can’t claim title to any of the trust’s assets. A good example would be a trust created by parents for their children, with any remaining assets in trust passing to the children’s living heirs.
The trustor’s great grandchildren–or, the children of their children’s children—would be remote designated beneficiaries. Until all the beneficiaries before them die, the great-grandchildren cannot claim a vested portion of their great-grandparent’s trust.
Prior to Giraldin, remainder beneficiaries could not sue the trustee for breaches of fiduciary duty that occurred before their interests vested. They could not ask the court for undetermined losses, at least while the trustor is living and their interest remains unvested. Now, at least in California, the remainder beneficiaries, once their interests have vested, may raise a claim of harm to the trust despite their status as unvested beneficiaries, so long as the breaches of duty to the trustor diminished the available assets to eventually distribute to the then unvested beneficiaries. In other words, after the trustor dies, the beneficiaries have standing to claim a violation of the trustee’s fiduciary duties to the trustor to the extent that the breaches harm the beneficiaries’ interests (i.e. left less money for the beneficiary).
This can be a complicated topic, but if you encounter a situation in Arizona where a trustee may not be acting in the trust’s best interest, contact the attorneys at Berk Law Group, P.C.