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Determining When A Trustee May Be Liable For A Breach Of Trust

When a settlor entrusts a trustee to manage assets for the benefit of designated beneficiaries in Woodland Hills, California or throughout the state, that person is placing a great deal of faith in the trustee’s abilities to accomplish his or her aims. Oftentimes, the person or party chosen as the trustee may not be up to the task. The question then becomes whether or not his or her shortcomings constitute a breach of trust.

The Legal Information Institute of the Cornell University Law School defines a breach of trust as being any trustee action that violate the terms of a trust. It goes on to say that such actions do not always have to be intentional; one’s negligence or carelessness may also constitute a violation of his or her duties.

One may read that and automatically assume any failings on the part of a trustee should result in a liability claim. However, the California Probate Code does allow trustees relief from liability when it is offered by the settlor in the trust instrument. For example, if a settlor encourages a trustee to be aggressive in pursuing investments in order to generate income, and states that he or she will not be held liable if such investments net losses, then the trustee may not be deemed responsible for such losses.

The law goes on to say, however, that such relief does not apply in the following cases:

  •          If a breach of trust was committed intentionally.
  •          If the trustee operated in bad faith, or with gross negligence or reckless indifference to the interests of beneficiaries.
  •          If the trustee profited from the breach of trust.

It also states that to avoid liability in cases where beneficiaries fail to object to a trustee’s actions, the trustee must offer adequate notice to allow for objections to be made.