May a Trustee use Trust Funds in Beneficiary Disputes?

In California, trustees have a fiduciary duty to act impartially and in the interest of all beneficiaries.¹ But what happens when a trustee uses trust funds to finance litigation that benefits only certain beneficiaries—or worse, targets others? Courts have drawn a clear line: a trustee may not use trust assets to litigate against beneficiaries in disputes over the validity of a trust or its amendments unless explicitly authorized by the trust instrument.

A trustee’s authority to spend trust funds is governed by California Probate Code § 15684, which allows reimbursement for “expenditures that were properly incurred in the administration of the trust” or those that “benefitted the trust.”² When a trustee steps into a dispute between beneficiaries over an amendment or interpretation of the trust, courts often find that such expenditures are neither neutral nor administrative—they are adversarial and, thus, outside the trustee’s scope of permissible conduct.

The Pitfall of Self-Interested Trusteeship

In Whittlesey v. Aiello, the court rejected a request for attorney fees from an attorney who represented the trustee, who was also a beneficiary, in a challenge to the validity of a trust amendment that changed the beneficiaries of the trust.³ The court found no basis for recovering expenses from the trust assets because the dispute was between competing beneficiaries and did not benefit the trust itself.⁴ Accordingly, the court held that the trustee’s attorney, in defending the amendment, was representing the interests of one side of the dispute over the other, not representing the neutral interests of the trust or the trustee.⁵

Terry v. Conlan is similar. There, a trustee—who was also a beneficiary—was not permitted to use trust assets to recover attorney fees incurred in defending a trust amendment that benefitted her personal position and those of her siblings.⁶ The court concluded this would violate the trustee’s duty of impartiality. She was not acting to preserve or administer the trust, but to favor her side in a dispute with another beneficiary.⁷ Her use of funds was deemed improper, and the expenditures were disallowed.

The Doolittle Exception: When the Trust Authorizes Defense

In Doolittle v. Exchange Bank, the Court of Appeal once again reinforced the rule requiring trustees to remain impartial and not use trust assets to defend the claim of one party against the other.⁸ The court provided clarification however as to the only instance where a trustee may defend a contested trust amendment: when the trust instrument expressly authorizes it.⁹ Thus, in that case the court upheld the trustee’s right to use trust funds to defend the settlor’s estate plan against a beneficiary’s contest. The key distinction? The trust expressly authorized the trustee to defend the trust and its amendments using estate funds.

Doolittle teaches a vital lesson: the trust instrument governs. If a settlor includes language directing the trustee to defend the estate plan at the expense of the trust, that directive will generally stand—unless it conflicts with other probate law principles or the amendment itself is facially invalid.

Fiduciary Duty Demands Impartiality

In Zahnleuter v. Mueller, a more recent case, the Court of Appeal upheld a surcharge against a trustee who used over $200,000 in trust funds to defend a contested trust amendment.¹⁰ The amendment lacked proper execution, and the trustee was found to have sided with certain beneficiaries over others. Because the trust’s original language explicitly did not authorize using funds to defend amendments, and the trustee failed to remain neutral, the court ordered full reimbursement of the expended assets.

As outlined above, courts have consistently found that a trustee must act with neutrality when beneficiaries are in conflict. A trust’s assets are not a war chest for litigation among heirs. Instead, trustees must maintain fidelity to the document’s terms and the principle of fair dealing. When a trustee aligns with one faction in a dispute over an amendment—or finances litigation to invalidate provisions benefiting others—the trustee risks violating his or her fiduciary duties. Without explicit trust authority, the trustee risks personal financial liability through surcharge orders.

What are Best Practices for Trustees?

When dealing with disputes among beneficiaries of a trust, trustees should:

1. Consult the trust instrument before incurring legal fees, particularly in disputes involving amendment challenges.
2. Remain neutral in contests between beneficiaries unless the trust explicitly authorizes involvement.
3. Seek court instructions under Probate Code § 17200 when uncertain about their authority to act.
4. Document all expenditures and ensure they are tied to trust administration, not intra-family disputes.

Conclusion

Trustees are stewards of the settlor’s legacy and they must uphold a strict duty of impartiality, not engage as adversaries in family disputes. Unless expressly authorized by the trust, trustees who fund or participate in adversarial litigation among beneficiaries risk personal liability. Courts will not permit the use of trust assets to litigate against the very beneficiaries trustees are obligated to protect.