Trust Administration FAQ

California Probate Code Section 16000 et seq. establishes comprehensive fiduciary duties and responsibilities for trustees. When a person becomes a successor trustee (typically upon the settlor's death or incapacity), they assume significant legal obligations to properly administer the trust and protect beneficiary interests. The trustee essentially steps into a position of utmost trust and confidence, with both legal authority and serious responsibilities.

Upon accepting the position, the successor trustee must: formally accept the trusteeship in writing as required by California Probate Code Section 16300; identify and secure all trust assets including real property, financial accounts, investments, business interests, and personal property; notify all trust beneficiaries within 60 days as mandated by California Probate Code Section 16061.7; obtain a federal tax identification number (EIN) for the trust from the IRS; establish separate trust bank and investment accounts to avoid commingling with personal funds; review the trust document thoroughly to understand the settlor's intentions and distribution provisions; collect and safeguard important documents including property deeds, account statements, and tax records; obtain date-of-death valuations for trust assets for tax purposes; and ensure adequate insurance coverage on all trust property.

Ongoing responsibilities include: managing and investing trust assets prudently according to the Prudent Investor Rule under California Probate Code Section 16047; paying the settlor's final debts and expenses; filing all required tax returns including the settlor's final income tax return, estate tax returns if applicable, and annual trust income tax returns (Form 1041); maintaining detailed records of all trust transactions; providing accountings to beneficiaries; making discretionary or mandatory distributions according to trust terms; keeping beneficiaries reasonably informed about trust administration; avoiding conflicts of interest and self-dealing; and ultimately distributing remaining trust assets to remainder beneficiaries according to the trust provisions. Throughout administration, the trustee must act in the beneficiaries' best interests and with undivided loyalty to their role as fiduciary.

Under California Probate Code Section 16000, trustees owe the highest fiduciary duties recognized in law to trust beneficiaries. These duties represent the most stringent standards of conduct imposed on any legal relationship, requiring the trustee to act with absolute loyalty, honesty, and care. The fiduciary duties are codified in California Probate Code Sections 16000 through 16105 and have been further developed through extensive case law.

The primary fiduciary duties include: (1) Duty of loyalty under California Probate Code Section 16002, requiring the trustee to administer the trust solely in the beneficiaries' interests without self-dealing, conflicts of interest, or personal profit beyond reasonable compensation. This prohibits using trust assets for personal benefit, borrowing from the trust, engaging in transactions with the trust for personal gain, or favoring the trustee's interests over beneficiaries' interests. (2) Duty of impartiality under California Probate Code Section 16003, requiring fair treatment of all beneficiaries according to the trust terms, balancing the interests of current income beneficiaries against remainder beneficiaries, and avoiding favoritism based on personal relationships. (3) Duty of prudent administration under California Probate Code Section 16040, requiring the trustee to administer the trust with the care, skill, prudence, and diligence that a prudent person acting in a like capacity would use.

(4) Duty to avoid conflicts of interest under California Probate Code Section 16004, prohibiting the trustee from placing themselves in positions where their personal interests conflict with beneficiary interests. (5) Duty to invest prudently under the Prudent Investor Rule codified in California Probate Code Section 16047, requiring diversification, reasonable risk management, and appropriate investment strategies. (6) Duty to keep beneficiaries informed under California Probate Code Section 16060, requiring the trustee to respond to reasonable requests for information, provide accountings, and disclose material facts affecting beneficiary rights. (7) Duty to keep trust property separate from personal property under California Probate Code Section 16009, prohibiting commingling and requiring clear identification of trust assets. (8) Duty not to delegate non-delegable duties under California Probate Code Section 16012, though the trustee may properly delegate investment and management functions with reasonable care in selection and supervision. Violation of these duties can result in surcharge (personal liability for losses), removal as trustee, denial of compensation, and in egregious cases, punitive damages.

California Probate Code Section 16061.7 imposes specific notification requirements on trustees that are critical for beneficiary protection and establishing the statute of limitations for beneficiary claims. The statute requires trustees to serve notice on beneficiaries within 60 days after (1) the date the person accepts the trusteeship, (2) the date of the settlor's death if the trustee is a successor trustee who became trustee upon the settlor's death, or (3) the date the trustee becomes aware that a former revocable trust has become irrevocable due to the settlor's death or incapacity.

The required notice must include several specific elements: (1) The full name, address, and telephone number of each trustee currently serving; (2) The name of the settlor and the date of execution of the trust instrument; (3) A statement that the recipient has the right to request a copy of the terms of the trust from the trustee; (4) A statement that the trustee has a legal duty to provide a copy of the trust terms to the beneficiary upon written request; (5) A statement that the recipient may petition the court under California Probate Code Section 17200 for various relief including compelling the trustee to provide an accounting; (6) The mailing address of the physical location where the trustee maintains principal place of administration of the trust. The notice must be personally served or sent by first-class mail to the required recipients.

Required notice recipients include all current beneficiaries (those entitled to income or principal distributions), all remainder beneficiaries (those who will receive assets when the trust terminates), the settlor if living, and the Attorney General if the trust contains charitable purposes. California Probate Code Section 16061.8 provides that if proper notice is given, the statute of limitations for beneficiaries to contest trust provisions or challenge trustee actions begins to run, generally providing a three-year limitation period under California Probate Code Section 16460. Failure to provide proper notice can extend the limitations period indefinitely, leaving the trustee vulnerable to claims many years later. Additionally, failure to notify can constitute breach of fiduciary duty and result in personal liability, removal as trustee, and denial of compensation. Prudent trustees carefully document compliance with the notice requirements and retain proof of service or mailing.

California Probate Code Section 16047 requires trustees to invest and manage trust assets under the Prudent Investor Rule, which replaced the outdated "prudent man rule" in 1996. The Prudent Investor Rule is codified in California Probate Code Sections 16045 through 16054 and represents a comprehensive framework for trust investment management based on modern portfolio theory principles. This rule fundamentally changed how trustees should approach investment decisions, emphasizing total portfolio return rather than focusing solely on income production or preservation of principal.

Under California Probate Code Section 16047, the trustee must exercise reasonable care, skill, and caution when investing and managing trust assets. The trustee's investment and management decisions must be evaluated not in isolation but in the context of the entire trust portfolio and as part of an overall investment strategy with reasonably defined risk and return objectives. Key requirements include: (1) Considering the purposes, terms, distribution requirements, and other circumstances of the trust, including the anticipated tax consequences of investment decisions; (2) Diversifying trust investments unless, under the circumstances, the trustee reasonably determines that it is in the beneficiaries' interests not to diversify; (3) Making a reasonable effort to verify facts relevant to investment decisions; (4) Considering the expected total return from income and appreciation, not just current income production; (5) Balancing the interests of current income beneficiaries and remainder beneficiaries through appropriate asset allocation.

California Probate Code Section 16052 permits trustees to delegate investment and management functions but requires the trustee to exercise reasonable care, skill, and caution in selecting the agent, establishing the scope and terms of the delegation, and periodically reviewing the agent's performance. Common delegations include hiring professional investment advisors, financial planners, or trust companies to manage trust investments. However, the trustee remains responsible for monitoring the delegate and cannot completely abdicate responsibility. California Probate Code Section 16050 explicitly permits trustees to invest in any kind of property or type of investment, including mutual funds, stocks, bonds, real estate, and other assets, provided the investment is consistent with the Prudent Investor Rule. Trustees should document their investment strategy, decision-making process, and periodic reviews. Speculative investments, excessive concentration in single securities, failure to diversify, and ignoring modern portfolio theory principles can constitute breach of fiduciary duty and result in personal liability for losses.

California Probate Code Section 16060 establishes the trustee's fundamental duty to keep beneficiaries reasonably informed of the trust and its administration. This duty to inform and account is one of the most important beneficiary protections, as it enables beneficiaries to monitor the trustee's performance, detect breaches of duty, and protect their interests. The duty encompasses both proactive disclosure obligations (information the trustee must provide without being asked) and responsive obligations (information the trustee must provide upon beneficiary request).

Under California Probate Code Section 16062, trustees must account at least annually to current beneficiaries entitled to receive income or principal distributions from the trust. The annual accounting must include: (1) A statement of receipts showing all money and property received during the accounting period; (2) A statement of disbursements showing all distributions, expenses, and other payments made from trust assets; (3) A statement of the trust assets on hand at the end of the accounting period, including descriptions and market values; (4) The trustee's compensation charged to the trust during the period; (5) Any agents hired by the trustee and their compensation; (6) A statement that the recipient may petition the court for review of the account and trustee's actions. The accounting must be sufficiently detailed for beneficiaries to understand the trust's financial condition and the trustee's management.

Beyond formal accountings, California Probate Code Section 16060 requires trustees to respond to beneficiaries' reasonable requests for information related to the administration of the trust. This includes providing copies of the trust document, information about trust assets and their values, information about expenses and fees charged to the trust, explanations of discretionary distribution decisions, and other material facts relevant to protecting beneficiary interests. California Probate Code Section 16061 specifically requires trustees to provide complete copies of the trust terms to each beneficiary upon written request, including all amendments and restatements. Trustees cannot hide behind confidentiality or privacy claims to avoid these disclosure obligations. However, the information requirements are subject to reasonableness—trustees need not respond to harassing, repetitive, or unduly burdensome requests. Failure to provide required information constitutes breach of fiduciary duty and can result in removal, surcharge, denial of compensation, and can extend statutes of limitation for beneficiary claims indefinitely under California Probate Code Section 16460.

Yes, trustees can be held personally liable for losses to the trust resulting from breaches of fiduciary duty. California Probate Code Section 16440 provides that trustees who commit breaches of trust are liable to the beneficiaries for any loss or depreciation in value of the trust estate resulting from the breach, any profit made by the trustee through the breach, and any profit that would have accrued to the trust if there had been no breach. Personal liability means the trustee must pay from their own personal funds to restore the trust to the position it would have been in had no breach occurred.

Common breaches resulting in personal liability include: self-dealing or using trust assets for personal benefit, even if the transaction appears fair; commingling trust funds with personal funds in violation of California Probate Code Section 16009; negligent or imprudent investment decisions that lose money; failure to diversify investments as required by California Probate Code Section 16048; conflicts of interest such as purchasing trust property personally; excessive or unreasonable compensation; failure to collect trust assets or income; unauthorized distributions to wrong beneficiaries or at wrong times; failure to pay trust debts and taxes; inadequate record-keeping or failure to provide accountings; favoring one beneficiary over others in violation of the duty of impartiality; and continuing inappropriate investments from the settlor without reviewing the portfolio.

The measure of damages can be substantial. Under California Probate Code Section 16440, if the trustee's breach involves disloyalty (such as self-dealing), the beneficiaries can choose between seeking the trust's losses or seeking any profit the trustee made through the breach, whichever is greater. For example, if a trustee sells trust property to themselves for $100,000 (its fair market value) and later sells it for $150,000, the trustee may have to pay the $50,000 profit to the trust even though the initial sale was for fair value. California Probate Code Section 16442 permits the court to reduce or excuse liability in limited circumstances where the trustee acted in good faith, the breach did not involve disloyalty, and allowing liability would be inequitable. However, this relief is discretionary and rarely granted. Beneficiaries can also seek removal of the trustee under California Probate Code Section 15642, denial of compensation under California Probate Code Section 15687, and punitive damages in cases of egregious misconduct. Trustees concerned about potential liability should consider obtaining errors and omissions insurance, seeking court instructions under California Probate Code Section 17200 before taking questionable actions, and hiring professional advisors for complex decisions.

California Probate Code Section 15681 provides that trustees are entitled to reasonable compensation from the trust for their services unless the trust instrument expressly provides otherwise. Unlike probate executors who receive statutory fees based on estate value, trustee compensation is based on the reasonableness standard considering various factors. The determination of what is "reasonable" depends on all relevant circumstances and is ultimately a question for the court if the parties cannot agree.

California Probate Code Section 15681 lists factors to consider in determining reasonable compensation: (1) The gross income of the trust, as trustees managing high-income trusts typically receive higher compensation; (2) The success or failure of the trustee's administration, with poor performance potentially reducing fees; (3) Any unusual skill, expertise, or experience the trustee brings, with professional trustees commanding higher fees than lay trustees; (4) The fidelity or disloyalty shown by the trustee, with breaches of duty potentially resulting in fee reduction or forfeiture; (5) The amount of risk and responsibility assumed by the trustee; (6) The time spent by the trustee on trust administration; (7) The custom in the community regarding trustee compensation; (8) Whether the trustee has personally managed the trust investments or delegated to professionals; (9) The quality of the trustee's performance and results achieved.

In practice, compensation structures vary widely. Professional trustees (banks, trust companies, and professional fiduciaries) typically charge either hourly rates ($100-$400+ per hour depending on location and complexity) or percentage fees (often 0.5% to 2% of trust assets annually, with larger trusts receiving lower percentage rates). Family member trustees often serve for reduced compensation or waive fees entirely, particularly when they are also beneficiaries. California Probate Code Section 15680 provides that the trust instrument can specify trustee compensation, and such provisions are generally enforceable unless unconscionably excessive. If the trust is silent, the trustee must charge only reasonable fees. Trustees should document their time, maintain detailed records of services provided, and provide fee information in annual accountings to beneficiaries. California Probate Code Section 15687 permits the court to reduce or deny compensation if the trustee commits a breach of trust, and California Probate Code Section 17200 permits beneficiaries to petition the court to review and approve or reduce trustee compensation. Trustees who charge unreasonable or excessive fees may face surcharge, removal, and loss of all compensation.

Trust administration and probate administration are fundamentally different processes for transferring assets after death, with trusts generally offering significant advantages in terms of privacy, speed, and cost. Understanding these differences helps explain why many Californians establish revocable living trusts as estate planning tools to avoid probate entirely.

Court supervision and formality: Probate is a formal court proceeding requiring judicial approval for most actions under California Probate Code Section 8000 et seq. The executor must file petitions, attend hearings, obtain court orders, and follow strict procedural rules. Trust administration, by contrast, is a private process generally not requiring court supervision. The trustee has immediate authority upon succession and can act according to the trust terms without court approval for most actions. Court involvement in trust administration under California Probate Code Section 17200 is optional and occurs only when disputes arise or the trustee seeks instructions on unclear provisions.

Timeline and duration: Probate typically takes 9 to 18 months or longer due to statutory waiting periods, court scheduling, and procedural requirements. California Probate Code Section 12200 mandates a minimum four-month creditor claim period, and multiple court hearings are required. Trust administration is generally faster, typically taking 6 to 12 months, as there are no mandatory court hearings or statutory waiting periods (though prudent trustees still allow time for creditor claims). The trustee can often begin making distributions to beneficiaries much sooner than in probate.

Privacy: Probate is entirely public—the will, all petitions, inventories, accountings, and court orders become public records accessible to anyone. Trust administration is private, with the trust document, accountings, and distributions remaining confidential among the trustee and beneficiaries. Costs: Probate involves statutory executor and attorney fees based on gross estate value under California Probate Code Section 10810 (typically totaling 4-6% of estate value), plus court filing fees, publication costs, and probate referee fees. Trust administration costs are typically lower, consisting primarily of trustee fees (which can be waived if a family member serves) and attorney fees only for legal advice as needed, not for routine administration. However, both processes require similar tax preparation, asset management, and creditor claim handling. Flexibility: Trusts offer much greater flexibility in distributions, asset management, and beneficiary provisions than probate, as the trustee follows the trust terms rather than statutory rules and court orders.

Yes, beneficiaries have important rights to oversee trustees and protect their interests through judicial proceedings. California Probate Code Section 17200 provides beneficiaries with broad authority to petition the court for various forms of relief related to the internal affairs of the trust and the trustee's actions. This statute serves as a critical check on trustee power and ensures that beneficiaries are not powerless when trustees breach their duties or act improperly.

California Probate Code Section 17200(b) lists numerous types of relief beneficiaries can seek, including: (1) Determining questions of construction of the trust instrument when provisions are unclear or ambiguous; (2) Determining the existence or nonexistence of any immunity, power, privilege, duty, or right; (3) Determining the validity of trust provisions; (4) Compelling the trustee to submit an accounting and report the trustee's acts, as required by California Probate Code Section 16062; (5) Settling the accounts and reviewing the propriety of all trust transactions; (6) Instructing the trustee on any matter involving the trust or trust administration; (7) Compelling the trustee to redress breaches of trust, including surcharging the trustee personally for losses; (8) Approving or directing the modification or termination of the trust; (9) Approving or directing the combination or division of trusts; (10) Removing the trustee and appointing a successor; (11) Determining or authorizing trustee compensation; (12) Reforming or modifying the trust to prevent waste or impairment.

The accounting remedy is particularly important. While California Probate Code Section 16062 requires trustees to account annually, if the trustee fails to provide adequate accountings or beneficiaries question the propriety of transactions, beneficiaries can petition under California Probate Code Section 17200 to compel a formal court accounting. The court will order the trustee to file a comprehensive accounting showing all receipts, disbursements, and trust assets. The court then conducts a hearing to review the accounting, hear objections from beneficiaries, and determine whether the trustee's actions were proper. If the court finds breaches of duty, it can surcharge the trustee for losses, remove the trustee, deny compensation, and award attorney fees to the beneficiaries. California Probate Code Section 17211 provides that interested persons (beneficiaries and others with interests in the trust) have standing to bring these petitions. The petition must be filed in the superior court where the trustee resides or where the principal place of trust administration is located. These judicial remedies are essential protections ensuring that trustees cannot act with impunity and that beneficiaries can enforce their rights.

California Probate Code Section 15640 allows trustees to resign from their position, recognizing that service as trustee is generally voluntary and circumstances may make continued service impractical or undesirable. However, trustees cannot simply walk away—they must follow proper resignation procedures to protect both themselves and the beneficiaries. To resign, the trustee must deliver a written declaration of resignation to the settlor if living, all cotrustees, all current beneficiaries, and all remainder beneficiaries who have the right to receive trust income or principal upon termination of the interests of current beneficiaries.

The resignation becomes effective at the earliest of: (1) 30 days after delivery of the resignation notice to all required parties, or (2) when a successor trustee accepts the trusteeship. Before the resignation becomes final, the resigning trustee must continue to perform all trustee duties. After resignation, California Probate Code Section 15645 requires the former trustee to account to the successor trustee or to the beneficiaries if no successor has been appointed. The former trustee must deliver all trust property to the successor and provide information necessary for continued administration. Until these duties are fulfilled, the former trustee remains liable for breach of trust and cannot claim the protection of resignation.

Removal is different from resignation and occurs when the court removes a trustee involuntarily. California Probate Code Section 15642 permits the court to remove a trustee for numerous grounds including: (1) Breach of trust, including violation of fiduciary duties or improper management; (2) Failure or refusal to perform the trustee's duties within a reasonable time; (3) Incapacity to properly execute the duties of the trustee due to illness, age, or other reasons; (4) Conflicts of interest or hostility toward beneficiaries incompatible with proper administration; (5) Failure of cotrustees to cooperate with each other; (6) Substantial change in circumstances making removal beneficial to the trust; (7) At the request of all beneficiaries if removal is not inconsistent with a material trust purpose and a suitable successor is available; (8) Any other reason the court finds makes removal in the beneficiaries' best interests. Beneficiaries petition for removal under California Probate Code Section 17200. Removal proceedings can be contentious, and removed trustees may be surcharged for losses, denied compensation, and required to pay beneficiaries' attorney fees. California Probate Code Section 15660 governs the appointment of successor trustees, with priority given to persons nominated in the trust, then persons selected by beneficiaries, and finally persons appointed by the court. The successor trustee then assumes all duties and responsibilities of trust administration.