Trustees and executors that are appointed to manage estates and trusts are held accountable for their actions, and there are laws in California to regulate this. Trustees have to account for their actions by maintaining an organized management and distribution of assets, keeping beneficiaries apprised of actions, and seeking their approval when actions are taken. The strict regulations and scrutiny apply to all fiduciaries, with certain ones specifically for Certified Public Accountants (CPA).
All fiduciaries are governed by state laws and should adhere to the highest duty of care when carrying out these responsibilities. Otherwise they may find themselves in court, facing allegations by beneficiaries or creditors.
Common Claims Against Fiduciaries
Trustees and executors are legally bound to protect their appointed trusts and estates. This includes protecting the assets from creditors and guarding an elder asset holder from abuse from a beneficiary, for example. Even if the fiduciary’s actions are legal, they may still face claims against them.
Two of the most common types include misappropriation of assets and failing to pay liabilities or debts. Others include inadequate or fraudulent accounting, investing the assets irresponsibly, failing to abide by the trust’s terms, and using trust funds for personal benefit. For example, if a beneficiary feels that they did not receive assets they are entitled to, they may end up suing the trustee. This is something to consider before becoming a trustee or executor.
If a power of abuse is suspected, a beneficiary or creditor may initiate an accounting to determine if their trustee acted according to the law. The first step in this process is to file a trust accounting in court. An accountant can provide the proper assurances to the beneficiary; conversely, it could show that the trustee’s actions caused harm and losses. After the accounting is filed, the court will order either party to undertake actions to make things right, and this may include going to trial.
How California Laws Apply
Lawyers and accountants may be asked to assume fiduciary responsibilities, making them vulnerable to lawsuits. California attorneys that assume fiduciary duties should be aware of the opens in a new windowInterest on Lawyers’ Trust Accounts (IOLTA) program. This applies to lawyers that manage certain types of client funds. When these assets are held too briefly or are not enough to earn interest, they may fall into this category. In these situations, these assets may only be kept at financial institutions that are approved by IOLTA. Larger sums can be held in client trust accounts. Attorneys can find guidelines for managing these accounts at the State Bar’s website.
In California, there are accounting laws that regulate how CPAs serve clients. The California Business & Professions Code §6125 prohibits the unauthorized practice of law by anyone that is not an active member of the State’s Bar Association. Not following this code could lead to a lawsuit.
If a fiduciary is found liable for causing harm, the court may award damages, restitution, taxes and penalties, interest, equitable relief, and attorney’s fees to a plaintiff. There may also be charges of malpractice; this is why it is especially important for California CPAs to let clients know when they are not licensed to act as fiduciaries. Many professionals that agree to become trustees and executors can later be faced with paying their own defense costs. This is because insurance companies will cover litigation costs if the practitioner was performing services for which they were not licensed.
There are some ways that fiduciaries can protect themselves from future litigation. Before taking on the responsibility, it makes sense to contact the insurance company to see what their coverage entails. Fiduciaries should also work to forge trusting relationships with their clients. This includes specifying what the fiduciary’s expertise is, and what their responsibilities will include.
Los Angeles Business Attorneys at Abir Cohen Treyzon Salo, LLP Advise Clients on All Types of Business Matters
Whenever a trustee or executor becomes involved with legal action, California state laws require that they be represented by a licensed attorney. An experienced Los Angeles business attorney at Abir Cohen Treyzon Salo, LLP can provide you with experienced legal guidance in these matters. We offer free case evaluations and will fight to protect your rights. Call us at or complete our online form today. Located in San Diego and Los Angeles, California, we serve clients throughout the surrounding areas.