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In California, Trust Accountings Must Disclose All Activity with Trust Assets

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When the father of my beneficiary clients, as trustee of the living trust created for them by their grandparents, finally complied with the court’s order to submit an accounting, it told a story of trustee misdeeds, malfeasance and breach of fiduciary duty.

In California, a trustee has various duties as set forth in California Probate Code §§16000 et seq., known as the Trust Law. Among them is the duty to put the interests of the individual beneficiaries before his own (California Probate Code §16002) In addition, a trustee has a duty to follow the instructions of the trust concerning distributions (California Probate Code §16000). In an accounting the trustee, among the other items set forth in California Probate Code §16063, is required to list, in detail, on separate schedules, the assets of the trust, the income of the trust, the gains and losses from the sale of trust assets, the expenses of the trust, distributions from the trust and property on hand as of the date of the accounting. These were the schedules that I reviewed on behalf of my clients.

While I am licensed as a CPA (Certified Public Accountant) in addition to being an attorney, I practice law. That does not, however, mean that I turn my back on my skills as a CPA. To the contrary, I find those skills very useful in most of the areas of law that I practice in, including business, probates and trusts.

What I discovered by reviewing the accounting was that the trustee, the day prior to the accounting cut-off date, had repaid approximately $20,000.00 to the trust principal, as well as several thousand dollars as interest income. This was an attempt on his part to cover-up the fact that he had used trust funds for his personal benefit. However, being the greedy person that he was, he claimed at the same time and in the same accounting expenses and trustee fees almost exactly equal to the money that he allegedly returned to the trust accounts. How curious …

I’ll describe what happened next in my next entry.

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