Can the director trustee pay her/his attorneys’ fees out of the directed trust under the California Directed Trust Act? In certain circumstances a related question might be whether the director Trustee can do so without Court approval. And yet another related question might be, with respect to the specific trust in question, does the director trustee have authority and access to the trust’s money accounts?

First look at the terms and provisions of the specific directed trust that is at issue. What do those terms and provisions say, and does the director trustee have authority and access to the directed trust’s money accounts?

More broadly, however, and even if the trust does contain appropriate terms and provisions and even if the director trustee does have authority and access to the directed trust’s money accounts, also consider the provisions in the California Directed Trust Act, any relevant provisions in the National Uniform Directed Trust Act, and whether it is or might be the directed trustee who independently or separately will pay or be paying the director trustee’s attorneys’ fees.

In addition to the discussion above, under the California Directed Trust Act consider Probate Code sections 16608, 16612, 16614, 16628, and 16630. In general, Probate Code section 16608 broadly states the powers, terms and provisions that pertain to the director trustee, and that the director trustee is required to take reasonable action to comply with the powers, terms and provisions specified in the trust except for willful misconduct (if that is what the trust provisions so provide). In relevant part, section 16612 provides that the terms of the trust may vary the director trustee’s duty or liability, but that the director trustee has a fiduciary duty and liabilities. Section 16614 is one of the sections that provides for director trustee duties and liabilities. Section 16628 states that unless the terms of the trust provide otherwise, the rules applicable to a trustee apply to a director trustee regarding the matters and Probate Code sections that are specified in section 16620 including sections 15600 and 15601; section 15602; section 15681; resignation or removal under Article 3; and the vacancy and appointment of a successor under section 15660. Section 16630 further states that in applying the California Directed Trust Act, “consideration shall be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.”  

Turning to the National Uniform Directed Trust Act, in addition to the discussion above, under the UDTA consider Section 14 (Defenses in Action Against Trust Director) which contains the following Comment:

Attorney’s fees and indemnification. Attorney’s fees and indemnification for a trust director are governed by Section 6(b)(1), which establishes a default rule that allows a trust director to exercise “any further power appropriate to the exercise or nonexercise of a power of direction granted to the director.” By default, therefore, a trust director has a power to incur attorney’s fees and other expenses and to direct indemnification for them if doing so would be “appropriate” to the exercise of the director’s express powers.

In relevant part the UDTA at Section 6 (Powers of Trust Director) states:

(a) Subject to Section 7, the terms of a trust may grant a power of direction to a trust director.

(b) Unless the terms of a trust provide otherwise:

(1) a trust director may exercise any further power appropriate to the exercise or nonexercised of a power of direction granted to the director under subsection (a); and

(2) trust directors with joint powers must act by majority decision (unless the terms of the trust provide otherwise).

In relevant part the Comment for Section 6 further states that the drafting committee specifically contemplated that subsection (a) would validate terms of a trust that granted a power to a trust director to:

            “[P]rosecute, defend, or join an action, claim, or judicial proceeding relating to the trust;”

See also the Comment pertaining to Section 6(b) which (if so provided in the terms and provisions of the specific trust) provides the director trustee with authority and further appropriate powers to carryout her or his other powers including (1) to incur such reasonable costs; * * * * (4) to prosecute, defend, or join an action, claim or judicial proceeding relating to a trust; and (5) to employ a professional to assist or advise the director in the exercise or nonexercised of the director’s powers.

However, also be aware that the Comment to Section 6 in pertinent part states the following which might or might not be relevant to your specific circumstance: “This subsection does not, however, override the background law that regulates the formation of a trust, such as the requirement that a trust be lawful, not contrary to public policy, and possible to achieve.”  

This will be a developing area of law. However, my view is that if the specific trust in question states that the director trustee’s attorneys’ fees will be or shall be paid then there is authority and power to do so. However, even in that circumstance if the director trustee’s attorneys’ fees are going to be significant or if they are going to be incurred on or for a subject matter about which a Court  might have questions, consider whether or not to petition the Court for prior approval of the payment of those fees, and in other circumstances where the payment of the director trustee’s attorneys’ fees is less certain under the powers, terms and provisions of the specific trust at issue, again consider whether or not to petition the Court for prior approval of payment.

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Thank you for viewing this discussion. Please do pass this blog and blog post and information to other people who would be interested as it is only through collaboration and sharing that great things and success are more quickly achieved. If you are interested in discussing anything that I have said in the discussion above or in either of my two blogs (see blog addresses below), or if you simply want to reach out or are seeking assistance, it is best to reach me by email at dave@tateattorney.com.

David Tate, Esq. (and inactive CPA)

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Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation, or as or for my opinions and views on the subject matter.

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David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.