Is a trustee liable to a beneficiary for a lost opportunity when the trustee does not distribute money to the beneficiary that the beneficiary could have invested? That essentially was the primary legal issue confronting the California Court of Appeals, Second Appellate District in Williamson v. Brooks (7 Cal. App. 5th 1294).

In Williamson a trust beneficiary, named Beverly, argued that had the trustees informed her of her rights under a trust that she would have requested the trustees to distribute money to her to pay-off her home mortgage, rather than sell her home at a loss. Beverly alleged that the trustees breached their legal duty to her as a beneficiary by failing to keep her informed of the trust.

California Probate Code section 16060 provides that “[t]he trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.” Here, the Trustees did not inform Beverly regarding the terms of the trust and its administration but Beverly did know about the trust from her father who set it up.

Typically when a trustee is held accountable for an economic loss the trustee’s action or inaction has directly harmed the trust’s own assets. In the Williamson case, however, the trust estate itself was not harmed; rather the beneficiary arguably suffered an economic loss personally.

The trustee’s not distributing money to the beneficiary did not cause any loss to the trust estate itself, did not result in any lost economic opportunity to the trust itself, and no unfair advantage of an economic opportunity was taken by the trustee at the trust’s own expense. The beneficiary’s own personal loss in selling her home for a loss was irrelevant to the trust administration because it was not any concern of the trust.

The Court held, therefore, that, “… even if a breach of fiduciary duty [to keep the beneficiary informed as to the trust] did occur, Beverly suffered no compensable loss with respect to [Beverly’s own loss on] the Via Rosa Property ….”
Another legal issue in the Williamson case was whether the trustee was responsible to keep the beneficiary informed as to every detail of the trust and its administration without having received any request to do so from Beverly. The Court ruled not: “Beverly was entitled to be informed about her subtrust so that she could take action to gain more information.” That said, Beverly already knew from her father that he had established the trust for her. Nonetheless, Beverly sat idly by and failed to request any information from the trustees until after it was too late.

The court found that, “[t]he cotrustees fulfilled this duty by ensuring that the settlor William (Beverly’s father) informed Beverly of the subtrust when Beverly eventually asked Brooks for information regarding the subtrust, he promptly provided it.” Had Beverly requested information about the trust earlier on she would have discovered that she had the right to demand a distribution from the trust.

People should not sit idly by when they learn they are beneficiaries of a trust. As soon as a person is notified that a trust exists, from a trustee or another source, they should write to the trustee requesting a copy of the entire trust and requesting that they be kept informed as to assets, liabilities and expenses of the trust and other matters involving the administration of the trust that are relevant to them.

Otherwise, like Beverly, a beneficiary may learn too late information that would have helped them to know earlier.

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”