December 16, 2020

Fiduciary Duties of a Trustee

A trustee is required to discharge a number of fiduciary duties for the benefit of the beneficiaries. The California Probate Code spells out these duties, e.g. the duty of loyalty, the duty of impartiality, etc. If a trustee breaches a fiduciary duty, the trustee becomes liable for damages which can take the form of many different remedies. Typically, money damages are the most common remedy awarded for a breach of a trust.

A recent unpublished appellate decision upheld a trial court's ruling that a trustee had breached her fiduciary duties. The factual summary is quite easy to follow.

"In January 2009, Eddie Copeland Neighbors (the Settlor) created the Trust for the benefit of her two daughters, Jackson and Marsha Josiah (Josiah), who were to share equally in her estate. The principal asset of the Trust was the Settlor's residential home in Sacramento (the home), which was transferred to the Trust. 

In July 2010, around the time that the Settlor was placed in a long-term care facility, Jackson and her husband began living in the home. 

In June 2015, the Settlor passed away and Jackson and Josiah became the successor cotrustees of the Trust. Shortly thereafter, in August 2015, Jackson recorded a grant deed transferring title of the home from the Trust to herself and her husband. 

In September 2017, Josiah filed a petition alleging that Jackson engaged in self-dealing and breached her fiduciary duties by transferring title to the home and by residing in it without paying rent to the Trust. Josiah sought, among other relief, an accounting of the Trust's assets, an order removing Jackson as a successor cotrustee, an order requiring that the home's title be returned to the Trust, an order requiring Jackson and her husband to pay rent for the period during which they resided in the home after the Settlor's death, and an order allowing Josiah to sell the home. Jackson opposed the petition."

Probate Code 16002(a) provides that a "trustee has a duty to administer the trust solely in the interest of the beneficiaries." This duty is breached if a trustee engages in "self-dealing." Self-dealing can be described as a trustee using trust property for their own personal benefit instead of for the beneficiary's benefit. From this case, the trustee engaged in self-dealing by conveying the settlor's home to herself instead of herself and her sister, which the trust required. That is, the trustee used trust property to benefit herself instead of the beneficiary.

Due to the trustee's misconduct, the trial court made a number of orders. "The court's order provides that (1) the home is an asset of the Trust; (2) Jackson owes $79,650 for the fair rental value of the home for the period from July 1, 2015, through March 31, 2019; (3) Jackson is entitled to a credit (offset) of $73,921.43 toward the fair rental value for mortgage payments, taxes, and other expenses she paid with her personal funds; and (4) as long as Jackson continues to occupy the home, fair market rent (less any offsetting credits) shall continue to accrue. The court ordered Jackson removed as a successor cotrustee, but denied Josiah's request to require Jackson to vacate the home so that it could be sold."

Josiah v. Jackson, Sacramento County Superior Court case # 34-2017-00219410.