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Understanding trustee indemnification

Being the beneficiary of a trust set up by someone in Woodland Hills may seem like a frustrating proposition. After all, even when you are entitled to a distribution from the trust’s assets, such payments often seem to be at the discretion of the trustee. Many have asked us here at The Law Offices of Alice A. Salvo exactly how much control does a trustee have over distributions. Say, for example, that you are due a distribution from the trust, yet the trustee contacts you stating that their is an issue in the trust’s management affecting your interests, and that the only way you will get what is coming to you is by absolving him or her of liability for it. Can he or she do that?

Section 16004.5.(b).(1) of the California Probate Code shows that trustees are allowed certain actions to protect themselves from becoming embroiled in liability issues over the trusts that they manage. These include:

  • Maintaining a reserve (drawn from trust assets) to settle any reasonably anticipated expenses associated with the trust’s management (e.g., the costs of administration, taxes, legal fees)
  • Withholding any portions of a designated distribution that is being disputed
  • Seeking approval from the court and/or you or other beneficiaries to provide an accounting of trust activities

Regarding trustee indemnification against liability claims, a trustee can only require it of anyone not named as a beneficiary of the trust. Thus, in the aforementioned scenario, the answer is no, the trustee cannot use your distribution as leverage. He or she can, however, attempt to convince you to enter into a voluntary agreement that would absolve him or her of liability in these cases.

You can learn more about the rights and restrictions of trustees by continuing to explore our site.