We’ve written about how co-trustee conflict fuels California trust litigation and the problem seems to be growing. Trust administration grinds to a halt because a co-trustee (or two or three) is hostile, stubborn, self-serving and/or apathetic. While trusts are supposed to provide a streamlined alternative to a court-supervised probate proceeding, the efficiency may be is quickly lost when co-trustees are unable to work together.
How to deal with an uncooperative co-trustee? The answer will depend on variables such as the wording of the trust instruments, the nature and value of the assets held in the trust, and the personalities of the trustees, beneficiaries and counsel. Here we offer general thoughts on steps forward.
Step 1: Understand Your Duties as a Trustee
Given that trustees have a duty under California Probate Code section 16000 to follow the written terms of the trust, the process of untangling a disagreement with a co-trustee should begin with a careful review of the trust instruments, including any amendments.
Trust instruments vary widely in length and complexity. They may run 50 or more pages in length. The terms may be byzantine, ambiguous or internally contradictory. To add to the challenge, the Probate Code may override trust provisions or fill in gaps.
Step 2: Find a Trust Attorney to Advise You
Even when there’s no whiff of conflict, trustees generally should seek advice from an attorney who is experienced with trust administration rather than taking a do-it-yourself approach.
The need for counsel increases when co-trustees are estranged, have divergent objectives, or are otherwise incompatible.
Co-trustees often are unaware that they generally may hire their own lawyers at the expense of the trust to advise them about their fiduciary duties. A lawyer hired to represent multiple trustees cannot keep confidences as between them nor favor one over the other. Thus, the sooner each co-trustee gets competent counsel on board, the faster they will be able to have an informed dialogue about how to proceed with administration.
A co-trustee should consider whether to hire a second lawyer to advocate for the trustee’s beneficial interests. For example, depending on the circumstances, a California trustee who benefits from a contested amendment (as by getting a larger share of the trust assets) may need to hire personal counsel, at the trustee’s own expense, to defend the contest.
Step 3: Try to Work Together
Before a co-trustee dispute reaches a probate judge, the co-trustees should make earnest efforts to work through the problem.
For example, if co-trustees can’t agree on when to sell a house, how much to invest in pre-listing renovations, or which real estate agent to use, they should work with their attorneys to find a compromise, keeping in mind their duty to be prudent in managing trust assets.
Informal conversations should be used where possible, but it is often helpful to document proposals and responses to them. A thoughtful email may be clearer and more effective than a hasty text.
If two co-trustees have separate counsel, running all communications between them can become expensive. Trustees usually should be able to communicate with one another regarding operational aspects of trust administration, such as which bills to pay and which accountant to use for tax preparation. On the other hand, sometimes lawyer involvement needs to be more extensive.
Step 4: Be Proactive in Going to Court, But Don’t Overreach
California probate judges have broad latitude to resolve disputes between co-trustees under Probate Code sections 17200-17209.
The ostrich approach will not protect a co-trustee who cannot make progress with another. If gridlock impairs trust administration in a material way, a co-trustee may need to go to court to protect the interests of the beneficiaries. A co-trustee who does nothing to find and correct problems may be personally liable for the actions or omissions of the wrongdoing trustee, as set forth in Probate Code sections 16013 and 16402.
A compelling petition to break a co-trustee impasse should (1) show a good faith effort to work with the other trustee, (2) explain how the other trustee’s action or inaction is causing or may cause detriment to the beneficiaries, and (3) seek appropriate relief without overreaching.
When co-trustees incessantly squabble, busy judges may be inclined to remove them all and appoint a neutral professional trustee instead of leaving any of them in place. Consider the frazzled parent who hears children arguing in the back seat of the car – it may be easier to tell them all to get out and walk home instead of trying to figure out who is the true instigator.
While judges have the discretion to remove problem trustees, they cannot be removed simply because they disagree on administration, as the Court of Appeal reminded us in Trolan v. Trolan (2019) 31 Cal.App.5th 939. Judges must give a measure of deference to the settlor’s choice of trustees and focus on the way forward – that is, the avoidance of future harm. Hence a judge may be more inclined to instruct a co-trustee to act or refrain from acting than to remove that trustee from office.
Step 5: Consider Mediation
Mediation can work wonders in resolving trust disputes, before or after litigation occurs. Co-trustees and beneficiaries may agree on a plan of administration that will speed the distribution of assets and reduce litigation expenses.
Without the real-time environment of mediations, offers and counteroffers may go back and forth between co-trustees over months without resolution.
The pandemic has created a new opportunity for all interested parties to mediate by videoconference without traveling to a common location. Settlement agreements can be negotiated and signed remotely.
Co-trustees should think carefully before declining to mediate given their duties to act impartially and in the interests of all beneficiaries. A co-trustee who refuses to mediate risks difficulty in justifying trustee fees and legal expenses that result from long-running and expensive litigation.
Step 6: Keep a Positive Attitude
Working with a co-trustee can be like running a three-legged race with a partner who may not want to run with you and is a different size and speed.
The good news is that resolution can be found even in high-conflict situations. With diligence and patience, and advice from knowledgeable counsel, many co-trustees can complete the trust administration process even when they get off to a stumbling start. And, if co-trustees can’t cross the finish line together, a successor trustee can complete the race.
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June 23, 2021 at 04:10AM
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Steps to Follow with a Difficult Co-Trustee - JD Supra
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