Trusts are a popular California estate planning strategy because they shelter assets from lawsuits and probate. However, they aren’t completely untouchable. In certain situations, you could sue the trustee or the owner of the trust.
The law considers it fraud when a grantor sets up a trust to hide assets from creditors. You may be able to start trust litigation if you have a reason to believe that this happened to you. If the judge determines that the grantor used the trust to avoid paying back debts, then they could use the account to pay back the creditor, even if it’s an irrevocable trust.
If the trustee isn’t honoring the terms of the account, then beneficiaries may start trust litigation to enforce the rules. A judge has the power to remove them as trustee if they didn’t distribute assets properly and this behavior is a habit. Whether they are acting maliciously or they are irresponsible, the court could replace them to ensure beneficiaries receive assets on time.
Trustees owe a fiduciary duty to the trust’s beneficiaries. They must, by law, do what’s in the best interests of beneficiaries. If they fail to do this and/or they act in their self-interest, then you may be able to take legal action to remedy the issue. It doesn’t matter if the trustee is an individual or a company. The law will hold them responsible.
Other issues in which you could pursue trust litigation include:
- Mixing trust assets with personal assets
- Refusing to give beneficiaries an accounting report
- Using the trust to pay for personal expenses
- Making poor financial decisions that decrease the value of the trust
Although trusts are usually untouchable, if a trustee mismanages the account in some way, beneficiaries could take them to court. When a grantor sets up a trust to evade debts, it’s also illegal and could result in the court taking assets out of the trust to repay debt.