A trustee controls property that belongs to the trust rather than to the trustee personally. With that authority come fiduciary duties governing administration, investments, distributions, recordkeeping, conflicts, and treatment of beneficiaries. When a trustee violates those duties and the trust suffers financial harm, beneficiaries may hear the term “surcharge” used to describe potential personal liability.

Probate Code section 16400 states that a violation of a duty owed by a trustee to a beneficiary constitutes a breach of trust. If a breach occurs, Probate Code section 16440 permits the trustee to be charged, depending on the circumstances, with losses or depreciation resulting from the breach, profits made through the breach, or certain profits the trust would otherwise have earned. The statute also gives courts discretion in appropriate circumstances when a trustee acted reasonably and in good faith.

A California trustee surcharge is therefore not simply a punishment imposed whenever a beneficiary disagrees with a decision. There generally must be a legally significant breach and a basis for determining the financial consequence of that breach. For example, allegations may concern unauthorized transfers, self-dealing, failure to collect trust property, improper distributions, excessive compensation, or losses allegedly caused by unreasonable administration.

Causation can become a central issue. Suppose an investment declines because the overall market falls. The existence of a loss does not necessarily mean the trustee caused it through misconduct. Likewise, selling real property for less than an earlier listing price does not alone establish damages if the sale reflected market conditions and a reasonable process. California trustee surcharge litigation often turns on the connection between the alleged fiduciary breach and the amount the trust actually lost.

The court also has remedies other than monetary surcharge. Probate Code section 16420 permits appropriate proceedings to compel performance, stop threatened breaches, require redress, reduce or deny compensation, remove a trustee, trace property, or impose other equitable remedies. Which remedy is appropriate depends heavily on what occurred and whether the problem can still be corrected.

For trustees, contemporaneous documentation can become important evidence. Appraisals, correspondence with beneficiaries, investment advice, professional recommendations, competing offers, invoices, and written explanations of significant decisions may help demonstrate why a particular course of action was reasonable when taken. Fiduciary decisions are often evaluated later with information that was not available when the trustee actually acted.

For beneficiaries in Southern California considering a California trustee surcharge claim, the practical starting point is often the trust instrument, accountings, transaction records, and evidence of actual loss. A strong disagreement with the trustee may justify asking questions, but financial recovery ordinarily requires much more detailed analysis of duty, breach, causation, and damages.

Key takeaways:

• A surcharge can potentially require a trustee to restore financial losses caused by a breach of trust.
• Not every poor result or disputed decision establishes personal liability.
• California courts have remedies in addition to surcharge, including removal, orders compelling performance, and reduction of compensation.

Helpful educational links:

• https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=16400.
• https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=16440.
• https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=16420.

This article provides general information and is not legal advice. Trustee surcharge disputes can require a detailed review of both fiduciary conduct and financial records. Call Westlake Law Group at (818) 444-2022. 30699 Russell Ranch Road, North Building, Suite 210, Westlake Village, California. Virtual consultations are available throughout Southern California.