Trustee Stealing from a Trust: What California Law Says and What Beneficiaries Can Do

A trustee "steals" from a California trust when the trustee uses trust property for personal gain or for any purpose unconnected with the trust, including self-dealing, overpaying themselves, or commingling funds. Beneficiaries can ask the Superior Court to compel an accounting, remove the trustee, and seek repayment of resulting losses.

Most people facing this question are beneficiaries who have noticed something that does not add up. A parent's house sold for less than it seemed worth. A brokerage account is smaller than it should be. Or a sibling serving as trustee has stopped answering questions about where the money went. Often the trustee is a family member, which makes it harder to raise the subject and harder to know whether the worry is fair. The trustee's side of the story may be unknown. This article explains what California law says about a trustee misusing trust property. It does not describe what happened in any particular family.

The sections below cover the duties a trustee owes, the conduct that tends to raise concern, the remedies a California court can order, how removal works, where criminal law fits, and the time limit for bringing a claim.

What 'Trustee Theft' Means Under California Law

"Trustee theft" is not a term the Probate Code uses. The legal question is whether the trustee breached the duty of loyalty in Probate Code section 16004(a), which reads:

"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 breach of that duty is a form of breach of trust, meaning a trustee's violation of a duty owed to the beneficiaries. When a trustee simply takes trust money or property for personal use, lawyers sometimes call it conversion. Conversion means the unauthorized taking or use of another person's property.

Outright taking is only one version. The duty of loyalty also reaches quieter conduct:

• Self-dealing, meaning a transaction where the trustee is on both sides, such as buying a trust asset personally.
• Excessive or unauthorized compensation, meaning fees the trust instrument does not allow or that exceed what is reasonable.
• Commingling, meaning mixing trust money with the trustee's own accounts so the two cannot be told apart.
• Below-market sales to related people, such as selling a trust's rental property to the trustee's spouse or child at a discount.

Section 16004(c) adds a presumption. A transaction between the trustee and a beneficiary, made while the trust exists or while the trustee's influence over the beneficiary remains, by which the trustee obtains an advantage from the beneficiary, is presumed to violate the trustee's fiduciary duties. That presumption affects the burden of proof, so the trustee must show the transaction was proper. It does not apply to an agreement between trustee and beneficiary about the trustee's hiring or compensation.

The same conduct can also expose a trustee to criminal charges under the California Penal Code. This article focuses on the civil remedies beneficiaries can seek under the Probate Code, with a short section on the criminal side later.

The Trustee's Duties That Theft Violates

Loyalty is the core duty, but misappropriation claims usually involve several duties at once. A trustee who takes money rarely reports it, so the duty to inform and the duty to account are often part of the same dispute.

Duty of loyalty. Section 16004(a), quoted above, bars self-dealing and transactions where the trustee's interest runs against the beneficiary's.

Duty to keep beneficiaries informed. Under Probate Code section 16060, the trustee must keep the beneficiaries reasonably informed of the trust and its administration.

Duty to report on request. Under Probate Code section 16061, the trustee generally must give a beneficiary requested information about the trust's administration that is relevant to that beneficiary's interest, on reasonable request, except as section 16069 provides.

Duty to account. Under Probate Code section 16062, the trustee must account at least annually, at the termination of the trust, and upon a change of trustee. An account is a written report of what came into the trust, what went out, and what remains. This duty runs to each beneficiary to whom income or principal is required, or authorized in the trustee's discretion, to be currently distributed, not to every beneficiary. It is subject to exceptions in sections 16062 and 16064, including for some older trusts and for waivers. Even where the trust instrument waives the account, or a beneficiary has waived it in writing, the court may compel the trustee to account upon a showing that it is reasonably likely that a material breach of the trust has occurred (Probate Code section 16064).

Compelling information or an account. When a trustee will not respond, Probate Code section 17200(b)(7) lets a beneficiary ask the court to compel the trustee to provide a copy of the terms of the trust, and also:

• to provide information under section 16061, if the trustee has failed to provide the requested information within 60 days after the beneficiary's reasonable written request and the beneficiary has not received it from the trustee within the six months preceding the request; and
• to account, subject to section 16064, if the trustee has failed to submit a requested account within 60 days after the beneficiary's written request and no account has been made within the six months preceding the request.

Warning Signs That a Trustee May Be Misappropriating Trust Assets

The patterns below are the kind of conduct that tends to prompt beneficiaries to look closer. Each is something a person can observe. None is, by itself, a finding of wrongdoing, and many have innocent explanations that only the trustee's records can confirm or rule out.

• Refusing to provide accountings or records. Silence after repeated written requests is often the first sign that leads to a petition.
• Unexplained drops in value or missing assets. An account that shrinks faster than distributions and expenses would explain, or property that no longer appears on any statement.
• Compensation beyond what is allowed. If the trust instrument does not set the trustee's pay, the trustee is entitled to reasonable compensation under the circumstances (Probate Code section 15681). Fees well beyond the instrument's terms, or beyond what is reasonable, draw attention.
• Fee increases without notice. Under Probate Code section 15686(b), a trustee may not charge an increased fee without first giving at least 60 days' written notice to each beneficiary entitled to an account under section 16062, each beneficiary given the last preceding account, and each beneficiary who has requested notice in writing and given an address. If a beneficiary files a section 17200 petition to review the increase or remove the trustee, and serves it on the trustee before the 60 days run, the increase does not take effect until the court orders otherwise or the petition is dismissed (section 15686(c)).
• Transactions that benefit the trustee personally. Loans from the trust to the trustee, or the trustee living rent-free in a trust property without authority.
• Commingling. Trust deposits going into an account in the trustee's own name.
• Below-market sales to insiders. A trust house or business sold to the trustee or a relative for less than it would bring on the open market.

For a beneficiary who has watched one or more of these unfold, the uncertainty is often the hardest part. The legal process is designed to replace suspicion with documents.

Civil Remedies Available to Beneficiaries Under California Law

Probate Code section 16420(a) sets out what a beneficiary or cotrustee may ask the court to do when a trustee commits a breach of trust, or threatens to. The proceeding may be brought for any of these purposes that is appropriate:

1. to compel the trustee to perform the trustee's duties;
2. to enjoin, meaning order the trustee to stop, a breach of trust;
3. to compel the trustee to redress a breach by payment of money or otherwise;
4. to appoint a receiver or temporary trustee to take possession of the trust property and administer the trust;
5. to remove the trustee;
6. subject to section 18100, to set aside acts of the trustee;
7. to reduce or deny the trustee's compensation;
8. subject to section 18100, to impose an equitable lien or a constructive trust on trust property; and
9. subject to section 18100, to trace trust property that has been wrongfully disposed of and recover the property or its proceeds.

A constructive trust is a court order treating property as held for its rightful owner, so a trustee or other holder must turn it over. Under Probate Code section 16420(b), this list does not prevent resort to any other appropriate remedy provided by statute or the common law.

Surcharge. A surcharge is a money judgment against the trustee for harm caused by a breach. Under Probate Code section 16440(a), a trustee who commits a breach of trust is chargeable with whichever of the following is appropriate: any loss or depreciation in value of the trust estate resulting from the breach, with interest; any profit the trustee made through the breach, with interest; or any profit that would have accrued to the trust estate if the loss of profit resulted from the breach. Surcharge is not automatic. Under section 16440(b), if the trustee acted reasonably and in good faith under the circumstances as known to the trustee, the court may, in its discretion, excuse the trustee in whole or in part if it would be equitable to do so.

Double liability under section 859. Under Probate Code section 859, if a court finds that a person has in bad faith wrongfully taken, concealed or disposed of property belonging to a trust, or has taken, concealed or disposed of it by undue influence in bad faith or through elder or dependent adult financial abuse, that person is liable for twice the value of the property recovered by an action under that part of the Probate Code. The court may also, in its discretion and except as otherwise required by law, hold that person liable for reasonable attorney's fees and costs. Neither result follows unless the court makes the required finding.

The petition itself. Under Probate Code section 17200(a), a trustee or beneficiary generally may petition the court concerning the internal affairs of a trust, except as section 15800 provides. The petition is heard by the Superior Court of California for the county where the trust is administered. The proceedings listed in section 17200(b) include construing the trust, settling accounts and passing on the trustee's acts, instructing the trustee and compelling information or an account, and the list is not exhaustive. A fuller explanation is in this site's guide to the Probate Code 17200 petition. Under Probate Code section 17206, the court may make any orders and take any other action necessary or proper to dispose of the matters presented, including appointment of a temporary trustee to administer the trust in whole or in part.

How Trustee Removal Works in California

Removal can happen three ways under Probate Code section 15642(a): in accordance with the trust instrument, by the court on its own motion, or on petition of a settlor, cotrustee or beneficiary under section 17200.

The grounds for court removal in section 15642(b) include:

• the trustee has committed a breach of the trust;
• the trustee is insolvent or otherwise unfit to administer the trust;
• hostility or lack of cooperation among cotrustees impairs the administration of the trust;
• the trustee fails or declines to act; and
• the trustee's compensation is excessive under the circumstances.

That list is partial. The statute contains other grounds as well.

Removal is a court decision, not something that happens because a beneficiary demands it. The petitioner must show that grounds exist, and the trustee has an opportunity to respond and present an explanation. While the petition is pending, the court may appoint a temporary trustee under section 17206 if the circumstances call for it.

Removal and surcharge are separate remedies. A beneficiary may ask for one, the other, or both. A court might remove a trustee and also order repayment, or decline to remove and still require an account. For many families, the thought of asking a court to take a parent's chosen trustee out of the role is uncomfortable, and it helps to know that the law treats removal as one tool among several.

Criminal Liability: Can a Trustee Be Charged or Go to Jail?

California criminal law operates separately from the Probate Code. When a trustee takes trust property for personal use, that conduct can constitute theft or embezzlement under the California Penal Code.

Whether particular conduct is charged, and whether it is charged as a felony, depends on the amount involved and other facts. Those decisions belong to prosecutors and criminal courts, not to beneficiaries and not to this article. A conviction, and any jail or prison sentence, would come only through that criminal process.

Beneficiaries do not file criminal charges themselves. A beneficiary may report suspected criminal conduct to law enforcement, and law enforcement and prosecutors decide what to do with the report.

The two tracks are independent. A beneficiary can pursue the civil remedies described above in the Superior Court of California whether or not any criminal case is ever filed. The civil case is where a beneficiary asks for an accounting, removal, repayment and recovery of property.

The Statute of Limitations for Breach of Trust Claims

Probate Code section 16460(a) sets a three-year limit with two different starting points. Unless a claim is already barred by adjudication, consent, limitation or otherwise:

• When a written account or report discloses the claim. If the beneficiary received an interim or final written account, or other written report, that adequately discloses the existence of the claim, the claim is barred unless a proceeding is commenced within three years after the beneficiary received it. A report adequately discloses a claim if it gives enough information that the beneficiary knows of the claim or reasonably should have inquired into it.
• When no account or report discloses it. If no written account or report adequately discloses the claim, or the beneficiary received none, the claim is barred unless a proceeding is commenced within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim.

Which branch applies depends on what the beneficiary received and when. An account that looked routine may still have disclosed enough to start the clock. The statute is a plain reason that dates matter once a possible claim comes to light.

What Beneficiaries Can Do When They Suspect Trustee Theft

A written request is usually the first concrete step. A beneficiary may ask the trustee in writing for an account under section 16062 and for information under section 16061. If 60 days pass without a response, and the six-month conditions in section 17200(b)(7) are met, a petition to compel becomes available.

Documents carry most of the weight in these cases. Beneficiaries commonly gather and keep:

• the trust instrument and any amendments;
• prior accountings or reports from the trustee;
• bank, brokerage and property records they have access to;
• letters, emails and texts with the trustee; and
• notices of any fee increase.

A petition under section 17200 is filed in the Superior Court of California for the county where the trust is administered. Trust and estate disputes in each county are heard by that county's Superior Court, and the California courts' court locator lists each one. As noted above, section 17200(b) does not limit the kinds of petitions available. Disputes over whether the trust document itself is valid follow a different path, covered in this site's guide on how to contest a trust, and the broader picture is on the page about California trust litigation.

If You'd Like to Talk Through a Dispute With a Trustee

Questions about a trustee's handling of money rarely stay abstract for long. They turn on specific documents and dates. A conversation with an attorney about a dispute like this would typically look at the trust instrument, any accounts or reports the trustee has sent, the dates of written requests, notices of fee changes, and the transactions that raised concern, and how the duties, petitions and time limits described here line up against them. This page is written for beneficiaries and trustees already in, or close to, a dispute. It is not a guide to setting up or running a trust when nothing is contested.

To discuss a dispute like this with an attorney, contact California Trust Litigation Lawyers to request a consultation about your dispute.