Trustee Fraud in California: What It Means and What the Law Allows

If you suspect a trustee is cheating the trust, California law treats that conduct as a breach of trust. That includes self-dealing, hiding assets, falsifying records or taking trust property. No single "trustee fraud" statute exists. A beneficiary can ask the Superior Court to order an accounting, remove the trustee, recover property or impose a surcharge.

Most people facing this question have noticed something that does not add up. A parent's house was sold to the trustee's own company. Distributions stopped without explanation. A sibling serving as trustee stopped answering questions about the accounts. They are trying to work out whether what they are seeing has a legal name, and what the law actually lets them do about it. The trustee may see the same facts very differently. This page explains how California sorts out that disagreement, and it assumes neither side's account is true.

The sections below cover the duties a trustee owes and the presumptions that can shift the burden onto the trustee. They also cover the remedies a court may order, the procedures for removal and accounting, and the deadlines that apply. These are the core questions in California trust litigation.

What Trustee Fraud Means Under California Law

"Trustee fraud" is a common phrase, not a defined term in the Probate Code. It describes conduct that breaks a trustee's fiduciary duties. A fiduciary duty is a legal obligation to act in someone else's interest rather than your own. Self-dealing, concealing assets and misappropriating trust property all fall within it. Misappropriation means taking or using trust property for a purpose the trust does not allow. California courts handle these claims through the Probate Code's breach-of-trust framework.

The central rule is the duty of loyalty in Probate Code section 16004(a), which states: "The trustee has a duty not to use or deal with trust property for the trustee's own profit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest adverse to the beneficiary." A trustee who buys trust real estate at a discount for personal use, lends trust money to a personal business, or pays personal bills from a trust account may be acting against this duty. Whether a specific act crosses the line depends on the facts and the trust's terms.

Section 16004(c) adds a presumption. A transaction between the trustee and a beneficiary that gives the trustee an advantage is presumed to violate the trustee's fiduciary duties. That applies while the trust exists or while the trustee's influence over the beneficiary remains. The presumption does not apply to an agreement about hiring or paying the trustee. The next sections explain how it works.

The same conduct can raise a second legal question. Probate Code section 859 reaches elder or dependent adult financial abuse, as California law defines it. That matters where trust property was taken from a person who qualifies as an elder or dependent adult. It also matters where the property belonged to that person before it reached the trust. The remedies section covers this further.

The Duties a Trustee Owes — and Where Fraud Fits

Beyond loyalty, the Probate Code gives beneficiaries a right to see what is happening with the trust. Many suspected fraud cases begin with a breach of these information duties.

• Keeping beneficiaries informed. Under Probate Code section 16060, the trustee has a duty to keep the beneficiaries reasonably informed of the trust and its administration.
• Answering reasonable requests. Under section 16061, the trustee generally must give a beneficiary requested information about the trust's administration that is relevant to that beneficiary's interest. The exceptions are those section 16069 provides.
• Accounting. Under Probate Code section 16062, the trustee generally must account at least once a year, when the trust ends, and when the trustee changes. That duty runs only to each beneficiary to whom income or principal must be distributed now, or may be distributed now in the trustee's discretion. Not every beneficiary is owed an annual account. A remainder beneficiary who receives nothing until a later date may fall outside the annual duty.

A trust document can waive the account, and so can a beneficiary in writing. Even so, section 16064 lets the court compel the trustee to account. The beneficiary must show it is reasonably likely that a material breach of the trust has occurred.

These duties are where suspected fraud often comes to light. Concealing an asset, filing an accounting that misstates transactions, or quietly redirecting distributions can each breach the duty to inform, the duty to report or the duty to account. Each can also breach the duty of loyalty. For a beneficiary who has been asking questions and getting silence, these sections are often the first legal footing.

The Presumption of Fraud: When the Burden Shifts to the Trustee

Two California statutes shift the burden of proof in certain suspicious transactions. The burden of proof is the obligation to persuade the court that a fact is true. Ordinarily the person making a claim carries it. A presumption affecting the burden of proof moves that obligation to the other side.

Trustee-beneficiary transactions. Under section 16004(c), a transaction gives the trustee an advantage from a beneficiary. It happens during the trust or while the trustee's influence remains. Such a transaction is presumed to violate the trustee's fiduciary duties. The trustee then has to prove the transaction was proper, rather than the beneficiary proving it was not. An agreement about the trustee's hiring or compensation is excluded. A beneficiary who signed over an interest or sold property to the trustee may be able to rely on this presumption.

Donative transfers to certain people. Probate Code section 21380 addresses gifts made in a trust or other instrument. It covers gifts to certain people, including:

• The person who drafted the instrument.
• A person who transcribed it, or had it transcribed, while in a fiduciary relationship with the transferor.
• A care custodian of a transferor who is a dependent adult. This applies only if the instrument was signed while the care custodian provided services, or within 90 days before or after that period.

Section 21380(a) lists additional people, including certain relatives, cohabitants and employees of those named above. A gift to any listed person is presumed to be the product of fraud or undue influence. This does not mean every gift to a caregiver, relative or helper is presumed invalid. The presumption reaches only the people and timing the statute describes.

Generally, the person receiving the gift can rebut the presumption with clear and convincing evidence. That is a higher standard than ordinary civil proof. It requires evidence that makes the fact highly probable. There is one exception. For a gift to the drafter, and to the people section 21380(c) associates with the drafter, the presumption is conclusive. It cannot be overcome. A beneficiary who tries and fails to rebut the presumption bears all costs of the proceeding, including reasonable attorney's fees.

What Remedies California Law Provides to Beneficiaries

Probate Code section 16420(a) applies when a trustee commits a breach of trust or threatens to commit one. A beneficiary or cotrustee may then start a proceeding for any appropriate purpose on its list. The purposes are:

• to compel the trustee to perform the trustee's duties;
• to enjoin, meaning stop by court order, a breach of trust;
• to compel the trustee to redress a breach by paying money or otherwise;
• to appoint a receiver or temporary trustee to take over the trust property;
• to remove the trustee;
• subject to section 18100, to set aside acts of the trustee;
• to reduce or deny the trustee's compensation;
• subject to section 18100, to impose an equitable lien or a constructive trust on trust property;
• subject to section 18100, to trace wrongfully disposed trust property and recover it or its proceeds.

A constructive trust is a court order treating specific property as held for the rightful owner. It might apply to a house or an account that was wrongly transferred. Under section 16420(b), this list does not prevent any other remedy that statute or the common law provides.

Surcharge. Under Probate Code section 16440(a), a trustee who commits a breach of trust can be charged with whichever of these is appropriate:

• any loss or drop in value of the trust estate caused by the breach, with interest;
• any profit the trustee made through the breach, with interest;
• any profit the trust would have earned if the breach caused that lost profit.

This charge is called a surcharge. It is not automatic. Section 16440(b) gives the court discretion to excuse the trustee in whole or in part. That applies if the trustee acted reasonably and in good faith under the circumstances as the trustee knew them, and if excusing the trustee would be equitable.

Double liability under section 859. Under Probate Code section 859, the court must first make a finding. The finding must be one of these three:

• the person in bad faith wrongfully took, concealed or disposed of property belonging to a trust, a decedent's estate, an elder, a dependent adult, a conservatee or a minor;
• the person took, concealed or disposed of it through undue influence in bad faith;
• the person took, concealed or disposed of it through elder or dependent adult financial abuse.

With that finding, the person is liable for twice the value of the property recovered in the action. The court may also, in its discretion, award reasonable attorney's fees and costs against that person, except as otherwise required by law. These remedies add to any others available. Neither the doubling nor the fees happens without the required finding.

Removing a Trustee and Compelling an Accounting

Under Probate Code section 15642(a), a trustee may be removed in several ways. Removal can follow the trust instrument. The court can act on its own motion. A settlor, cotrustee or beneficiary can also petition under section 17200. The grounds in section 15642(b) include:

• a breach of trust;
• insolvency or other unfitness to administer the trust;
• hostility or lack of cooperation among cotrustees that impairs administration;
• the trustee failing or declining to act;
• excessive compensation under the circumstances (§ 15642(b)(5)).

The statute also lists other grounds, including one tied to the people section 21380 describes.

Under Probate Code section 17200(a), a trustee or beneficiary may generally petition the court about the trust's internal affairs or to determine whether the trust exists. The exceptions are those section 15800 provides. The proceedings listed in section 17200(b) are examples, not a complete list. They include settling accounts, passing on the trustee's acts and instructing the trustee. A Probate Code 17200 petition is how most of the disputes on this page reach a judge.

Section 17200(b)(7) sets specific conditions for two common requests:

• Compelling information. This is available if the trustee has not provided requested information within 60 days after a beneficiary's reasonable written request. The beneficiary also must not have received that information from the trustee within the six months before the request.
• Compelling an account. This is available if the trustee has not submitted a requested account within 60 days after a written request. No account can have been made within the six months before the request.

Once a petition is before it, the court may make any orders necessary or proper to resolve the matters presented under section 17206. That includes appointing a temporary trustee to run the trust in whole or in part while the dispute continues. These matters are heard by the Superior Court of California for the county involved.

The Statute of Limitations for Breach-of-Trust Claims

Probate Code section 16460(a) sets a three-year limit on breach-of-trust claims. When the three years begin depends on which branch applies. The rule applies unless the claim is already barred by an earlier judgment, consent or another limit.

• Account or report branch. Suppose the beneficiary received a written interim or final account, or another written report, that adequately disclosed the claim. The beneficiary must then start a proceeding within three years after receiving it.
• Discovery branch. Suppose no account or report adequately disclosed the claim, or the beneficiary never received one. The beneficiary must then start a proceeding within three years after discovering, or when they reasonably should have discovered, the subject of the claim.

An account or report adequately discloses a claim if it gives enough information that the beneficiary knows of the claim, or reasonably should have looked into it. Whether a particular account met that standard is a factual question courts examine case by case. For a beneficiary unsure which document started which clock, the date each account or report arrived is often the starting point.

When a Trust Contest Intersects with Fraud Allegations

Fraud allegations sometimes target the trust itself, not just how it is being managed. A beneficiary may claim that a late amendment was forged or procured by undue influence. That is a trust contest, and it has its own deadline. Contesting a trust is a separate path from a breach-of-trust claim, though the two often overlap.

Under Probate Code section 16061.7(a), a trustee must serve a notification in certain events. These include when a revocable trust becomes irrevocable because a settlor died, and whenever the trustee of an irrevocable trust changes. The statute lists other events as well. Under Probate Code section 16061.8, a person served with the notification under section 16061.7(a)(1) has a deadline to contest the trust. The deadline is the later of two dates:

• 120 days from the date the notification is served on that person; or
• 60 days from the date a copy of the trust's terms is delivered to that person during that 120-day period.

The period runs from service of the notification or delivery of the terms. It does not run from the death.

Many trusts contain a no-contest clause, a provision meant to penalize a beneficiary who challenges the trust. Under Probate Code section 21311(a), such a clause may be enforced only against these contests:

• a direct contest brought without probable cause;
• a pleading claiming that property was not the transferor's when transferred, but only if the clause expressly covers this;
• a creditor's claim or an action on it, but only if the clause expressly covers this.

Under section 21311(b), probable cause exists in a particular situation. At the time of filing, the facts known to the contestant would lead a reasonable person to believe there is a reasonable likelihood of success. That belief can rest on what further investigation or discovery may show. A no-contest clause does not automatically disinherit everyone who challenges a trust.

If You'd Like to Talk Through a Suspected Breach

Suspected trustee fraud usually turns on paper: the trust instrument and any amendments, accountings or reports received and when, written requests and the dates of any reply, and records of sales, transfers or distributions. An attorney looking at a dispute like this would typically examine those documents against the duties, presumptions and deadlines described above. This page is written for people already in a disagreement with a trustee. It does not cover setting up a trust or handling one where nobody disputes anything.

To discuss a dispute like this with an attorney, you can request a consultation about your dispute through California Trust Litigation Lawyers.