California Trustee powers

Where a trustee's powers come from

Section 16200 names three sources, in order. First, the powers the trust instrument confers. Second, except as the instrument limits them, the powers statutes confer — the Trust Law's own list among them. Third, except as the instrument limits it, the power to perform any act that a trustee would perform for the purposes of the trust under the standard of care of a prudent person (§16040) or a prudent investor (§16047). None of the three needs a court's authorization.

The instrument therefore works in both directions: it can add powers the statutes do not give, and it can take away statutory ones. A court may still relieve a trustee from restrictions the instrument places on the exercise of powers (§16201) — a petition, not a self-help remedy.

The Trust Law's grant, by example

The specific powers run from §16220 onward, and most of them are the ordinary acts of managing property. A few, read in the official text:

• Acquire or dispose of property, for cash or on credit, at public or private sale, or by exchange (§16226).
• Make ordinary or extraordinary repairs, alterations or improvements, and demolish or erect buildings (§16229).
• Pay taxes, assessments, reasonable compensation of the trustee and of the trust's employees and agents, and the other expenses of administering and protecting the trust (§16243).
• Make loans out of trust property to a beneficiary on terms the trustee determines are fair and reasonable, or guarantee a beneficiary's loans by encumbering trust property (§16244).
• Distribute in divided or undivided interests, in kind pro rata or non pro rata, adjusting differences in valuation (§16246).
• Hire accountants, attorneys, appraisers, investment advisers and other agents to advise or assist (§16247).
• Prosecute or defend actions, claims or proceedings to protect the trust property and the trustee in performing its duties (§16249).

What every power is subject to

"The grant of a power to a trustee, whether by the trust instrument, by statute, or by the court, does not in itself require or permit the exercise of the power. The exercise of a power by a trustee is subject to the trustee's fiduciary duties" (§16202). The power to sell answers whether a sale is possible; the duties answer whether a particular sale, at a particular price, to a particular buyer, is right.

• Administer according to the instrument and the Trust Law (§16000), with the care, skill and caution of a prudent person (§16040).
• Loyalty: solely in the beneficiaries' interest (§16002); no dealing with trust property for the trustee's own profit and no transaction adverse to a beneficiary (§16004).
• Impartiality among beneficiaries with different interests (§16003).
• Invest and manage as a prudent investor would, each decision judged as part of the whole portfolio (§16047).
• Keep trust property separate and designated as the trust's (§16009), and do not delegate what the trustee can reasonably be required to do personally (§16012).

Discretionary distributions

A discretionary power conferred on a trustee is not left to the trustee's arbitrary discretion; it is exercised reasonably (§16080). Even where the instrument grants "absolute," "sole" or "uncontrolled" discretion, the trustee acts in accordance with fiduciary principles and not in bad faith or in disregard of the trust's purposes (§16081). A trustee who is also a beneficiary faces a further limit: discretionary distributions to themselves are limited as §16081 states, unless the settlor clearly provided otherwise.

A distribution the instrument requires is different in kind: it is owed, and the trustee may not require a beneficiary to release the trustee as a condition of making it (§16004.5).

Powers with notices attached

Some powers come with a procedure. Under the Uniform Trust Decanting Act, an authorized fiduciary may distribute principal to a second trust — with expanded distributive discretion under §19511 or limited discretion under §19512 — after notice not later than 60 days before the exercise to the persons §19507 lists. A trustee may also give the beneficiaries a notice of proposed action on a matter within its powers or the principal-and-income rules, stating an objection period of at least 45 days (§§16500, 16502). If no beneficiary entitled to the notice delivers a written objection within the period, the trustee is not liable for the action, with the section's exceptions for a minor or an incompetent adult; an objection lets the trustee or a beneficiary petition the court (§16503). The procedure is optional (§16504).

And where the trust's principal no longer justifies the cost of administration, the trustee has the power to terminate a trust whose principal does not exceed $100,000 in fair market value; above that, a court may terminate or modify it on petition (§15408).

Spendthrift terms and the trustee's hands

A provision restraining the transfer of a beneficiary's interest in income or principal is given effect (§§15300, 15301), and where the trustee pays a beneficiary as much as it sees fit, a creditor of the beneficiary may not compel any payment (§15303). The exceptions are the statute's: a settlor who is also a beneficiary (§15304), support judgments (§15305), restitution judgments (§15305.5), public support (§15306) and amounts beyond the beneficiary's support needs (§15307). A trustee served with a creditor's order is in territory where many trustees consult a licensed California attorney of their choosing before paying anyone.

Directed trusts: when someone else holds the power

The terms of a trust may grant a trust director — someone other than the trustee — a power of direction over some aspect of administration (§16608), under the California Uniform Directed Trust Act (§16600 and following, from January 1, 2024). A directed trustee takes reasonable action to comply with the director's exercise of the power and is not liable for that action, but may not comply where compliance would be willful misconduct (§16614). Unless the terms say otherwise, the trustee has no duty to monitor the director or to advise anyone where the trustee might have acted differently (§16618); the two exchange the information reasonably related to their powers and duties (§16616).

Powers and the people who deal with the trustee

Third persons are protected so that a trustee can act. A person who deals with a trustee in good faith, for valuable consideration and without actual knowledge that the trustee is exceeding or improperly exercising its powers, need not inquire into the trustee's power, and is protected in dealing with the trustee as if the trustee had and were properly exercising the power (§18100). A certification of trust — an acknowledged declaration signed by all currently acting trustees, confirming the trust, the trustees and their powers without the dispositive terms — is the usual proof institutions ask for, and a person who relies on it without knowing it is wrong is protected (§18100.5).

A trustee who contracts properly in its fiduciary capacity is not personally liable on the contract, unless it fails to reveal that capacity and identify the trust, or the contract provides otherwise (§18000).

Co-trustees, delegation, and the end of a trustee's powers

Unless the instrument provides otherwise, a power held by two or more trustees may be exercised only by their unanimous action (§15620). A trustee may delegate investment and management functions as prudent, exercising prudence in selecting the agent, setting the scope and terms of the delegation and reviewing the agent's performance (§16052), but may not delegate acts it can reasonably be required to perform personally (§16012).

A trustee's powers end with the trusteeship — on resignation by a method §15640 names, or removal under §15642 — and at the trust's termination the property is disposed of as §15410 directs.

The ways trustees exceed their powers

The breaches that reach California courts are usually powers used against the duties that bound them.

• Selling to oneself, a relative or a business one controls without the authority the instrument or a court gives (§16004).
• Treating "sole and absolute discretion" as permission to act arbitrarily (§§16080–16081).
• Acting alone where the instrument names cotrustees and requires no less than unanimity (§15620).
• Holding a concentrated or unproductive portfolio without the prudent investor's review (§§16047, 16049).
• Conditioning a required distribution on a release (§16004.5).
• Decanting without the 60-day notice §19507 requires.

When a licensed California attorney is the right next call

TrusteeClear organizes the record; it does not give legal advice and it does not decide any of these questions for you. Many trustees bring the record to a licensed California attorney of their choosing before a sale to a family member, a decanting or a notice of proposed action, a creditor's order against a beneficiary's interest, or a discretionary distribution the instrument leaves open.