When it comes to trusts it can often seem like trustees are all powerful. But are they really? The answer may surprise you. So let’s discuss, how powerful is a trustee?
On the one hand, trustees do have a tremendous amount of power over the trust and its assets. In legal terms, they are referred to as the legal owner of the trust assets. They control, manage, and ultimately distribute the trust assets. Whereas the trust beneficiaries are merely the beneficial owners. They reap the benefits without any of the legal control.
Trustees, therefore, have tremendous power in terms of choosing when and how to sell trust assets, how to invest, how to manage, and when to make trust distributions to the beneficiaries. The trust terms can either limit or expand a trustee’s powers, but most trust documents give the trustees broad powers to act over the trust and its assets.
Having said that, there are limits on the trustee’s powers. The California Probate Code sets the ground rules and imposes numerous duties on every trustee. For example, Probate Code section 16000 requires the trustee to follow the trust terms. That is an important duty, if you think about it.
Real life trustee situations
Let’s say you are the beneficiary of a trust that requires your share to be distributed to you “outright and free of trust.” The trustee is allowed time to conduct a reasonable trust administration–things like paying final debts of the decedent, gathering assets, selling anything that must be sold to accommodate trust distributions. However, the trustee also must distribute your share of the trust within a reasonable time. This is usually within twelve months if there is no estate tax due on the decedent’s estate.
Can the trustee tell you that they intend to keep your assets in trust indefinitely? Can they choose to not sell a house, for example, and say they will keep it and give you some of the rent each month? The simple answer is no. If you are entitled to your share of the trust “outright and free of trust,” then you must receive your share of the trust. The trust is over, there is no more continuing trust for you. If the trustee refuses to follow this trust term and give you your share outright, then you can file a lawsuit in court and ask the court to force the trustee to act.
So how powerful is a trustee? As you can see, the trustee’s power is not unlimited. They do have to follow some basic ground rules. What about selling real estate? Can a trustee sell your parents’ home without consulting you? The simple answer is yes. Of course, the trustee should keep you informed of their actions and a good trustee would tell you of an intention to sell a house. Yet, in most trust documents it gives the trustee the power to sell trust assets. That means the trustee can list the property for sale, set the sales prices, and complete the transaction without having to obtain consent or even advice from you as a trust beneficiary. Of course, the trustee still must sell the house for fair-market value. They cannot enter into a sweetheart deal with a friend to effectively devalue the property for their own gain.
Remember, there are ground rules at play here.
There are exceptions to the sale of assets like a house, though. If the house is a specific gift – meaning the trust specifically gives the house to a particular beneficiary (or a particular group of beneficiaries), then that asset cannot be sold unless its sale is required to pay creditors of the decedent. This is another example of the trustee having to follow the trust terms. A specific gift must be given to the specific person(s) to whom it was bequeathed. Whereas a remainder gift – meaning you are getting whatever is left over after the specific gifts are made – does not require the distribution of specific assets to the beneficiaries. Having said that, there are times when you can demand and even force a trustee to distribute something like a house without it being sold.
Yes, trust administration can be complicated at times. Ultimately it’s up to you to check the power of the trustee and ensure their power doesn’t surpass reasonable boundaries. How do you do that? You hire lawyers who know how to help you, of course.
Don’t be an abused beneficiary
Our attorneys have taken action against hundreds of trustees for abusing their beneficiaries. We’ve also recovered more than $300 million and helped hundreds and hundreds of clients regain their dignity as a trust or will beneficiary through litigation – if you believe you’ve been the victim of inheritance abuse, tell us your story to see if your case qualifies for a free consultation. We’re here to stand, fight and win for you.
Call (877) 408-3813 or reach out online to consult a trust contest lawyer.
