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Trustee vs. Beneficiary - Claims and Defenses

Question Presented
What are some common claims made against Trustees by Beneficiaries and defenses made by Trustee against these claims?

Answer
Beneficiaries may bring claims against trustees for a variety of reasons, including breach of fiduciary duty, constructive fraud, negligence, and aiding and abetting a breach of trust. Trustees may defend against these claims by arguing that they acted in good faith, that the beneficiary lacks standing, or that the beneficiary failed to state a cause of action, involving beneficiary rights and the rights of a beneficiary in a trust.

Analysis
One common claim made by beneficiaries against trustees is for breach of fiduciary duty, encompassing the rights of a beneficiary and beneficiary rights. To establish this claim, the beneficiary must show the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. Pierce v. Lyman, 1 Cal.App.4th 1093 (Cal. Ct. App. 1991). Trustees may defend against this claim by asserting that they acted in good faith and in accordance with the settlor's intentions, emphasizing trustee rights. Estate of Ferrall, 41 Cal.2d 166 (Cal. 1953).

Another frequently encountered claim is for constructive fraud, intertwining beneficiary rights and trust beneficiary rights. This claim may arise when a trustee negligently breaches the trust, even if the beneficiary did not rely on the trustee's conduct or suffer any injury. Casey v. United States Bank Nat. Assn., 127 Cal.App.4th 1138 (Cal. Ct. App. 2005). Trustees may counter this claim by asserting that the beneficiary failed to state a cause of action or by demonstrating their good faith actions, thus invoking rights of a beneficiary and beneficiary rights. Wells Fargo Bank v. Gump, 1 Cal.App.4th 582 (Cal. Ct. App. 1991)

Moreover, beneficiaries may assert claims for negligence, involving the rights of beneficiary of a trust. This argument suggests that the trustee failed to safeguard trust assets from adverse claims. Eggert v. Pacific States S. L. Co., 53 Cal.App.2d 554 (Cal. Ct. App. 1942). Trustees, in response, may invoke their good faith and alignment with settlor's intentions, touching upon both trustee rights and beneficiary rights. Estate of Ferrall, 41 Cal.2d 166 (Cal. 1953).

Also, an example of a claim is an extension of the caselaw in Lucas v Hamm is in the case Osornio v. Weingarten, as Lucas v. Hamm was the first case not to follow privity of contract, as testator had a contract with an attorney so beneficiaries couldn’t sue. Lucas v. Hamm, 56 Cal.2d 583 (Cal. 1961); Osornio v. Weingarten, 124 Cal.App.4th 304 (Cal. Ct. App. 2004)i. Lucas v. Hamm said the beneficiaries can sue attorneys directly as if they were intended beneficiaries. Osornio v. Weingarten gives standing to a caregiver who was intended to benefit and did not because the statute allowing her to benefit was not handled correctly. Osornio v. Weingarten is also a great example of a beneficiary being an individual outside the typical scope of a beneficiary designation.

The lawyer’s defenses relate to the following: issues beyond the scope of retainer agreement, the client’s agreement to have the will reviewed if certain facts changed and they did not or the client moved to another state and the laws are different in this state. Of particular note the attorney may document a client’s desire that an attorney warns against using in which case the client may have assumed all risk.

Lastly, beneficiaries might bring forward claims against trustees for aiding and abetting a breach of trust, implicating trust beneficiary rights. Cortese v. Sherwood, 26 Cal.App.5th 445 (Cal. Ct. App. 2018). Trustees can mount a defense by countering that they did not conspire with the breaching party or by highlighting their duty-bound actions, involving both trustee rights and beneficiary rights. Uzyel v. Kadisha, 188 Cal.App.4th 866 (Cal. Ct. App. 2010).

A table of the five types of trustee defenses is below:
Estoppel Consent Ratification Waiver Assumption of Risk
- A party may not accept the benefits of a transaction and then later take an inconsistent position to avoid any corresponding obligations or effects - A beneficiary allowed, or consented, to a trustee’s act or omission - Ratification is the act of knowingly giving sanction or affirmance to an act that would otherwise be unauthorized and not binding - (1) Existing right, benefit, or advantage; (2) Actual or constructive knowledge of its existence; and (3) An actual intent to relinquish the right inferable from the conduct - Knowingly and voluntarily assumes the risk of harm


Understanding these common claims and defenses underscores the intricate landscape of trustee-beneficiary interactions, encompassing beneficiary designation, trust beneficiary rights, and beneficiary claims. The interplay between trustee rights and beneficiary rights forms the core of these legal proceedings, where the actions of trustees and the rights of beneficiaries come under meticulous scrutiny. Also please note that for beneficiary designations, it is important to retain a lawyer specialized in designating beneficiaries.

Every claim has aspects, and many claims have defenses, and it is important to have a trust expert witness who is an attorney, who has both litigated and defended claims and defenses. This is why it is important to consult with trust expert C. Tucker Cheadle who understands claims brought by beneficiaries and defenses to these claims, has experience in dealing with trust related issues, and who has served as a Trust expert witness. C. Tucker Cheadle can provide insight into defenses such as limiting the scope of a retainer agreement.

C. Tucker Cheadle Law works throughout California, specifically in Los Angeles, Orange, San Diego, San Bernardino, Santa Clara, Marin, Santa Maria, Stanislas, Redding, and Napa counties. Contact us today at 949.553.1066 to discuss Trustee vs. Beneficiary claims and if this is relevant to your case.

This article is designed only to provide a general background and is not legal advice. If you need legal advice please contact C. Tucker Cheadle at 949.553.1066 and after providing all the important facts and information, a legal opinion can be made. A review of any materials on this web page, any preliminary comments or an introductory meeting does not constitute legal, income tax or accounting advice upon which reliance can be placed. The attorney client relationship can only be created by a written retainer agreement following a check of potential and actual conflicts of interest with other clients.
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