Trustee Mismanagement Demand Letters

Comprehensive guide to addressing breach of fiduciary duty, self-dealing, and mismanagement by trustees in California.

A trustee holds a position of extraordinary responsibility. They manage assets for the benefit of others - the beneficiaries - and must put the beneficiaries' interests above their own. When trustees fail in these duties through negligence, self-dealing, or outright theft, beneficiaries have powerful legal remedies. A well-crafted demand letter often prompts correction without expensive court proceedings.

Who has standing: Current beneficiaries, remainder beneficiaries (those who will receive trust assets in the future), and sometimes the settlor (trust creator) if still alive, can demand accountings and challenge trustee conduct. Your rights depend on your status under the trust.

Why Send a Demand Letter First?

Before filing a petition with the probate court, a strategic demand letter serves important purposes:

Purpose Why It Matters
Creates a Record Your letter establishes that the trustee was put on notice of concerns. If they fail to correct course, you have documented their willful disregard.
Triggers Legal Obligations A written demand for accounting starts the clock on the trustee's duty to respond. Under Probate Code § 16061, trustees must provide information reasonably requested by beneficiaries.
May Resolve the Issue Many trustees don't realize they're in breach. A letter citing specific legal duties often prompts correction without litigation.
Attorney's Fees If you ultimately must petition the court, having sent a demand letter first supports your claim for attorney's fees from the trust or the trustee personally.
Preservation A demand can include requests to preserve documents and freeze accounts, limiting further damage while you evaluate options.

Common Trustee Problems

1. No Accounting or Communication

The trustee simply doesn't tell beneficiaries what's happening. No statements, no returns, no response to questions. This is the most common complaint - and often a sign of deeper problems the trustee is trying to hide.

2. Self-Dealing

The trustee uses trust assets for personal benefit: living in trust property rent-free, borrowing trust funds, purchasing trust assets for themselves at below-market prices, or directing trust business to their own companies.

3. Poor Investment Management

Leaving cash uninvested for years, concentrating assets in speculative investments, failing to diversify, or investing in things the trustee (or their friends/family) benefit from rather than what's appropriate for the trust.

4. Delayed Distributions

The trustee refuses or delays distributions that the trust terms or circumstances clearly require. Often used to maintain control or extract concessions from beneficiaries.

5. Excessive Fees

Taking unreasonable trustee compensation, paying themselves for tasks they don't perform, or hiring expensive professionals when not necessary.

6. Outright Theft

Taking trust assets for personal use without even pretending it's legitimate. This is criminal as well as a civil breach.

Family dynamics: Many trust disputes involve family trustees - siblings managing parents' trusts, adult children as co-trustees. The fiduciary duty doesn't change because you're related. A sibling trustee owes you the same duties as a professional trustee - and faces the same liability for breaches.

Your Rights as a Beneficiary

Information Rights

Distribution Rights

Protection Rights

When to Act

Send a Demand Letter When:

Go Directly to Court When:

California Trust Law Framework

Governing Statutes

The Duty of Loyalty

The trustee's paramount duty is loyalty to the beneficiaries. Under Probate Code § 16002:

"The trustee has a duty to administer the trust solely in the interest of the beneficiaries."

This means:

The Prudent Investor Rule

Under Probate Code § 16040 (California's Uniform Prudent Investor Act), trustees must:

This is an objective standard - what a reasonable trustee would do, not what this particular trustee thought was okay.

Duty to Account

Under Probate Code §§ 16060-16069, trustees must:

What an accounting must include: A trust accounting should show all trust receipts and disbursements, beginning and ending asset values, gains and losses, trustee compensation taken, and any transactions between the trust and the trustee or related parties.

Remedies for Breach

Under Probate Code § 16420, when a trustee breaches their duties, the court may:

Statute of Limitations

The time to bring claims varies:

Type of Claim Limitation Period
Breach of trust (general) 3 years from discovery or when should have discovered
Fraud/intentional misconduct 3 years from discovery (no deemed discovery)
After accounting provided 3 years from when accounting received (with proper notice)
Breach concealed by trustee Statute tolled until discovery
Don't sleep on your rights: If you receive an accounting and notice that you have 3 years to object, the clock is running. Ignoring an accounting you disagree with doesn't preserve your rights - act promptly.

Personal Liability of Trustee

A trustee who breaches fiduciary duties can be held personally liable for:

This liability attaches to the trustee individually, not just to trust assets they control.

Types of Trustee Breaches

1. Failure to Account or Communicate

The violation: Trustee refuses to provide information, ignores requests, provides incomplete or misleading accountings, or simply goes silent.

Warning signs:

Why it matters: Silence often hides problems. Trustees who are managing properly have nothing to hide. Refusal to account is itself a breach of fiduciary duty.

2. Self-Dealing

The violation: Trustee uses trust assets for personal benefit or enters transactions where they have a conflict of interest.

Common examples:

Legal standard: Self-dealing transactions are voidable at beneficiary's option, regardless of whether fair. The trustee bears the burden of proving the transaction was proper.

3. Imprudent Investment

The violation: Failing to invest trust assets properly, exposing the trust to unreasonable risk or opportunity cost.

Common examples:

Legal standard: The prudent investor rule requires diversification and risk-appropriate investing. Trustees must consider the trust's purposes and the beneficiaries' needs.

4. Failure or Delay in Distributions

The violation: Not making distributions that the trust terms require, or unreasonably delaying discretionary distributions.

Common scenarios:

Legal standard: Mandatory distributions must be made. Discretionary distributions must be considered in good faith with proper attention to the distribution standard.

5. Excessive Compensation

The violation: Taking more in trustee fees than reasonable for the work performed.

Factors in reasonable compensation:

Red flags:

6. Favoritism Among Beneficiaries

The violation: Treating beneficiaries unequally when the trust requires impartiality, or favoring one beneficiary (often themselves if also a beneficiary) over others.

Examples:

7. Failure to Protect/Preserve Assets

The violation: Allowing trust assets to deteriorate, fail to collect what's owed, or otherwise lose value through neglect.

Examples:

The Family Trustee Problem

Many trusts name family members as trustees. This creates unique challenges:

Common Family Trustee Issues

The Law Doesn't Care About Family

A family trustee has the same fiduciary duties as a professional trustee:

The fact that "we're all family" or "this is what Mom would have wanted" doesn't excuse breach of duty.

Evidence Gathering

Before you can effectively challenge trustee conduct, you need documentation. Start gathering evidence before sending your demand letter.

Trust Documents

☐ Original trust document and all amendments

☐ Any restatements of the trust

☐ Death certificate (if settlor deceased)

☐ Notice of trust administration (Probate Code § 16061.7)

☐ Any prior accountings received

☐ Prior correspondence with trustee

Financial Records (if available)

☐ Bank statements for trust accounts

☐ Brokerage statements

☐ Property records (deeds, assessor records)

☐ Tax returns (trust and estate returns)

☐ Receipts for trustee compensation taken

☐ Records of distributions made

Evidence of Breach

☐ Documentation of self-dealing transactions

☐ Evidence of trustee using trust assets personally

☐ Records showing delayed or denied distributions

☐ Comparison of trustee fees to market rates

☐ Evidence of poor investment performance

☐ Records of trustee communications (or lack thereof)

Communications

☐ All emails with trustee

☐ Text messages

☐ Letters sent and received

☐ Notes from phone conversations (with dates)

☐ Requests for information and responses

What to Request in Your Demand

Standard Accounting Request

Under Probate Code § 16061, you can demand:

Supporting Documentation

Trust Document Request

If you haven't received the trust document, demand:

Strategic Considerations

Informal Resolution vs. Court

Informal Resolution (Demand Letter) Court Petition
Faster, less expensive Slower, more costly
May preserve family relationships Often increases conflict
Relies on trustee cooperation Court can compel compliance
Good for information gathering Full discovery available
Works if trustee will respond Works even if trustee stonewalls

Preserving Assets

If you believe trust assets are being dissipated, your demand letter should include:

Multiple Beneficiaries

If other beneficiaries share your concerns:

The Trustee's Response

After sending a demand letter, possible responses include:

Non-response after a reasonable deadline (usually 30 days) justifies escalating to court.

Demand Letter Templates

Template 1: Demand for Accounting

Use when: You haven't received an accounting and want to exercise your statutory right to information.

Re: Demand for Accounting - [Trust Name] Dear [Trustee Name]: I represent [Client Name], a beneficiary of the [Trust Name] (the "Trust"). Pursuant to California Probate Code §§ 16060-16062, [he/she] hereby demands a complete accounting of the Trust. BACKGROUND [Client Name] is a [current income beneficiary/remainder beneficiary/etc.] of the Trust, which was created by [Settlor Name]. [He/She] [has never received an accounting/has not received an accounting since [date]/has received only incomplete information]. As a beneficiary, [Client Name] has a statutory right to information about the Trust and its administration. To date, you have not provided sufficient information to allow [him/her] to evaluate whether the Trust is being properly administered. DEMAND FOR ACCOUNTING Pursuant to Probate Code § 16062, demand is hereby made for a complete accounting covering the period from [inception of trust/date of last accounting] through the present date. The accounting must include: 1. A statement of all trust receipts during the accounting period, categorized by source 2. A statement of all disbursements during the accounting period, categorized by purpose, with payee identification 3. A schedule of all trust assets at the beginning and end of the accounting period, with current values 4. A statement of all gains and losses on trust investments 5. A statement of all trustee compensation taken, with justification 6. A statement of all transactions between the Trust and the Trustee or any related party 7. A statement of all amounts due to or from the Trust SUPPORTING DOCUMENTATION Please also provide: • Bank statements for all trust accounts • Brokerage statements for all investment accounts • Copies of all trust tax returns (Forms 1041, K-1s) • Invoices for professional services paid by the Trust • Receipts for significant trust expenditures TRUST DOCUMENT [If needed: Please also provide a complete copy of the Trust document and all amendments. [Client Name] has not received a complete copy of the Trust.] DEADLINE Please provide the requested accounting and documentation within 30 days of this letter, as provided by Probate Code § 16062(a). CONSEQUENCES OF NON-COMPLIANCE If you fail to provide the requested accounting, [Client Name] will petition the [County] Superior Court under Probate Code § 17200 to compel the accounting. [He/She] will seek an award of attorney's fees from the Trust or from you personally. [Client Name] hopes to resolve this matter without court intervention. Please contact me to discuss. Very truly yours, [Attorney Name] [Contact Information]

Template 2: Self-Dealing / Conflict of Interest

Use when: You have evidence the trustee is using trust assets for personal benefit.

Re: Self-Dealing and Breach of Fiduciary Duty - [Trust Name] Dear [Trustee Name]: I represent [Client Name], a beneficiary of the [Trust Name]. This letter addresses serious concerns about your conduct as Trustee, specifically transactions that constitute self-dealing in violation of your fiduciary duties. THE VIOLATIONS Our investigation has revealed the following improper transactions: [Describe specific self-dealing transactions, for example:] 1. PERSONAL USE OF TRUST PROPERTY: You have been residing in the Trust property at [address] since [date] without paying fair market rent. Based on comparable rentals, the Trust has been deprived of approximately $[amount] in rental income. 2. LOANS FROM TRUST: Records indicate that $[amount] was transferred from the Trust account to your personal account on [date]. This constitutes an impermissible loan from the Trust to yourself. 3. RELATED PARTY TRANSACTIONS: The Trust has paid $[amount] to [Company Name], a company in which you have an ownership interest, for [services/goods]. These payments were made without disclosure to beneficiaries or demonstration that the terms were fair. LEGAL STANDARDS Under California Probate Code § 16002, you have a duty to administer the Trust solely in the interest of the beneficiaries. Under Probate Code § 16004, you must avoid conflicts of interest. Under Probate Code § 16006, transactions between the Trust and the Trustee are presumptively improper. Self-dealing transactions are voidable at the beneficiary's option. You bear the burden of proving any such transaction was fair and in the beneficiaries' interest. DEMAND [Client Name] demands that you: 1. Immediately cease all self-dealing transactions 2. Pay fair market rent for your occupancy of the Trust property, retroactive to [date], totaling approximately $[amount] 3. Repay the $[amount] loan to the Trust, plus interest at the legal rate 4. Provide complete documentation of all payments to [Company Name] and any other related parties 5. Provide a complete accounting of all Trust transactions for the past [X] years 6. Reimburse the Trust for any losses caused by your self-dealing DEADLINE Respond to this letter within 14 days with: (1) acknowledgment of the violations; (2) a plan for remediation; and (3) commitment to cease all self-dealing. CONSEQUENCES If you fail to respond adequately, [Client Name] will petition the Court to: • Remove you as Trustee • Surcharge you for all losses caused by your breaches • Void the self-dealing transactions • Award double damages for bad faith under Probate Code § 859 • Award attorney's fees Your fiduciary position requires undivided loyalty. These transactions demonstrate a failure of that duty. Correct course immediately. [Attorney Name]

Template 3: Demand for Distribution

Use when: Trustee is withholding or delaying distributions you're entitled to.

Re: Demand for Trust Distributions - [Trust Name] Dear [Trustee Name]: I represent [Client Name], a beneficiary of the [Trust Name]. This letter demands that you make the distributions to which [he/she] is entitled under the Trust terms. TRUST PROVISIONS [Describe relevant distribution provisions:] The Trust provides that [quote or paraphrase distribution language, e.g., "the Trustee shall distribute net income to [Beneficiary] quarterly" or "the Trustee shall distribute for the health, education, maintenance, and support of [Beneficiary]" or "upon reaching age 30, [Beneficiary] shall receive 1/3 of the Trust principal"]. FAILURE TO DISTRIBUTE Despite [his/her] entitlement under the Trust, you have: [Describe the failure, for example:] • Failed to make any distributions to [Client Name] since [date] • Refused [his/her] request for distribution dated [date], without adequate explanation • Made distributions to other beneficiaries while denying [Client Name]'s requests • Failed to distribute [his/her] share of Trust principal that became distributable on [date] DEMAND [Client Name] demands that you immediately: 1. [For mandatory distributions:] Make all past-due distributions totaling $[amount], calculated as follows: [breakdown] 2. [For discretionary distributions:] Reconsider [his/her] distribution request in good faith, applying the proper standard, and provide a written explanation if the request is denied 3. [For delayed termination distributions:] Distribute [his/her] share of the Trust, which became distributable on [date] when [he/she] reached age [X] 4. Provide an accounting showing all distributions made to all beneficiaries during the past [X] years DEADLINE Make the requested distributions within 21 days. If you contend that distributions are not required, provide a detailed written explanation citing specific Trust provisions and factual basis. CONSEQUENCES If you fail to make the required distributions or provide adequate justification, [Client Name] will petition the Court to: • Compel immediate distribution • Award interest on delayed distributions • Order you to pay [Client Name]'s attorney's fees • Remove you as Trustee for failure to perform your duties A Trustee may not use discretion as a weapon or withhold distributions to control beneficiaries. The Trust was created for [Client Name]'s benefit. Fulfill your obligations. [Attorney Name]

Template 4: Excessive Fees / Mismanagement

Use when: Trustee's compensation is unreasonable or Trust is being poorly managed.

Re: Excessive Trustee Compensation and Mismanagement - [Trust Name] Dear [Trustee Name]: I represent [Client Name], a beneficiary of the [Trust Name]. This letter addresses concerns about excessive trustee compensation and mismanagement of Trust assets. EXCESSIVE COMPENSATION Based on the accountings provided [or: based on our investigation], you have taken the following compensation as Trustee: [Year 1]: $[amount] [Year 2]: $[amount] [Year 3]: $[amount] Total: $[amount] For a Trust with approximately $[X] in assets, this compensation is unreasonable. Professional trustees typically charge [describe market rate, e.g., "1% of assets annually for trusts of this size" or "$X-Y per hour"]. Your compensation exceeds this benchmark by approximately $[amount]. [If applicable:] Furthermore, the compensation appears to include charges for: • [Tasks that were delegated to others] • [Time not actually spent on Trust administration] • [Services already compensated through other means] MISMANAGEMENT In addition to excessive compensation, we have identified the following management failures: 1. INVESTMENT FAILURES: [Describe, e.g., "Approximately $[amount] has remained in a non-interest-bearing checking account for [X] years, resulting in lost income of approximately $[amount]."] 2. FAILURE TO DIVERSIFY: [Describe, e.g., "Trust assets are concentrated entirely in [asset class/single stock], exposing beneficiaries to unreasonable risk."] 3. NEGLECTED PROPERTY: [Describe, e.g., "The Trust-owned property at [address] has deteriorated due to lack of maintenance, reducing its value by approximately $[amount]."] 4. UNPAID OBLIGATIONS: [Describe any taxes, bills, or other obligations not paid.] DEMAND [Client Name] demands that you: 1. Refund $[amount] representing excessive compensation, bringing your total fees in line with reasonable market rates 2. Provide detailed justification for all compensation taken, including contemporaneous time records 3. Immediately invest idle cash in appropriate interest-bearing instruments 4. Provide a plan for diversifying Trust investments in compliance with the prudent investor rule 5. Address deferred maintenance on Trust property 6. Provide a complete accounting for the past [X] years DEADLINE Respond within 30 days with: (1) reimbursement of excessive fees or detailed justification; (2) a plan to address the mismanagement issues; and (3) the requested accounting. CONSEQUENCES If you fail to respond adequately, [Client Name] will petition the Court to: • Order disgorgement of excessive compensation • Surcharge you for losses caused by mismanagement • Remove you as Trustee • Award attorney's fees Trustees are entitled to reasonable compensation - not whatever they decide to take. Correct these issues immediately. [Attorney Name]

Template 5: Final Warning Before Court Action

Use when: Prior demands have been ignored or inadequately addressed.

FINAL NOTICE BEFORE PETITION TO COURT Re: [Trust Name] DEMAND FOR ACCOUNTING AND COMPLIANCE SENT VIA CERTIFIED MAIL AND EMAIL Dear [Trustee Name]: I represent [Client Name]. This is a final notice before we file a petition with the [County] Superior Court Probate Division. BACKGROUND On [date], we sent you a letter demanding [describe what was demanded]. Your response has been [inadequate/nonexistent]. Specifically, you have: • [Failed to provide the requested accounting] • [Failed to make required distributions] • [Failed to address self-dealing concerns] • [Failed to respond at all] This continued failure to fulfill your fiduciary duties leaves [Client Name] no choice but to seek court intervention. FINAL DEMAND You have 10 DAYS to: 1. Provide a complete accounting as previously demanded 2. [Make required distributions / Repay amounts taken through self-dealing / Other specific demand] 3. Confirm in writing that you will comply with all fiduciary duties going forward COURT PETITION If we do not receive a satisfactory response within 10 days, [Client Name] will file a petition under Probate Code § 17200 seeking: • Order compelling accounting • Order compelling distributions • Removal of Trustee and appointment of successor • Surcharge for all losses caused by breach • Double damages for bad faith under Probate Code § 859 • Award of attorney's fees and costs We will also request that the Court freeze Trust accounts pending determination of your breaches. PRESERVATION OF EVIDENCE You are hereby notified to preserve all documents related to the Trust, including: • All financial records and statements • All correspondence with beneficiaries • All records of transactions • All records of compensation taken • Electronic records including emails Destruction or concealment of evidence will be brought to the Court's attention and may result in sanctions. THIS IS YOUR LAST OPPORTUNITY [Client Name] has been more than patient. Your continued stonewalling is unacceptable. You have 10 days to comply or we will see you in court. [Attorney Name] [Contact Information] cc: [Other beneficiaries, if appropriate]

Is Your Trustee Mismanaging Your Trust?

I help beneficiaries in California protect their interests and hold trustees accountable. Here's what I can do for you:

  • Review trust documents and identify your rights
  • Draft and send formal demand letters for accountings and compliance
  • Analyze accountings for irregularities and breaches
  • Negotiate informal resolution of disputes
  • File petitions to compel accountings
  • Pursue removal of breaching trustees
  • Seek surcharge and damages for losses
  • Challenge excessive trustee fees
Typical costs:
• Demand letter for accounting: ~$450 (includes review of trust documents and follow-up)
• Trust document review and strategy consultation: ~$450
• Petition to compel accounting: ~$240/hour
• Trustee removal proceedings: ~$240/hour
• Complex litigation (surcharge, damages): ~$240/hour

Schedule a Consultation

Book a paid consultation to discuss your situation.

Email: owner@terms.law