Operating a Business Post-Death

A successor trustee occasionally is tasked with operating a decedent's business post-death. For example, I've had clients in which the decedent leased rental properties, operated a marketing corporation, operated a painting business, operated a consulting business, etc. The successor trustee has basically three options at their disposal. First, the successor trustee can continue to operate the business. In the case of leasing rental properties, past clients have sometimes taken this approach. Second, the successor trustee can sell the business to a third-party. If the business involves leasing rental properties, selling the business, i.e. selling the underlying real estate, is a common approach. Third, the successor trustee can cease business operations. If the decedent operated a sole proprietorship, past clients have typically ceased business operations because the business was intimately tied to the decedent and had limited market value. Whatever the decision made by the successor trustee, they are required by CA law to act in the best interests of the beneficiaries.   

A recent unpublished appellate decision found that the successor trustee had breached their fiduciary duty by continuing to operate the decedent's business post-death.

"Mark contends the trial court erred in finding he breached the Trust by continuing hard money lending after Howard's death.

Mark argues he had a duty to keep the disputed funds productive. (§ 16007.) But a trustee has a duty to invest trust funds prudently. (Estate of Collins (1977) 72 Cal.App.3d 663, 669.) The trial court could reasonably conclude that hard money lending is not appropriate for a fiduciary. Mark even acknowledged that it is a risky business.

Mark claims that section 4.05 of the Trust authorized him to continue his hard money investments, which provides:

"Section 4.05. On any final or partial distribution of the assets of the Trust Estate and on any division of the assets of the Trust Estate into shares or partial shares, the Trustee may distribute or divide such assets in kind, may distribute or divide undivided interests in such assets, or may sell all or any part of such assets and make distribution or division in cash or partly in cash and partly in kind. The decision of the Trustee, either prior to or on any division or distribution of such assets, as to what constitutes a proper division of such assets of the Trust Estate shall be binding on all persons in any manner interested in any trust provided for in this Declaration."

Section 4.05 of the Trust governs distribution of Trust assets. Nothing in the section authorizes Mark to engage in an inappropriately risky enterprise."

Braaten v. Braaten, San Luis Obispo County Superior Court case no. 19PR-0393