USA – CALIFORNIA Law and Practice Contributed by: Jennifer Jordan McCall, Ashley Huh and Matthew Perotti, Pillsbury Winthrop Shaw Pittman LLP
receive the equivalent of the benefits of performance. A petitioner can seek the disgorgement of the trus - tee’s profits through a money judgment against the trustee or seek to establish a rightful claim to specific assets. Punitive damages are awarded to discourage oppression, fraud or malice, further punishing the wrongdoer on top of the actual damages that were suffered. Ultimately, compensation hinges on a loss stemming from a recognised breach. 6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries The prevalence of corporate fiduciaries in California is directly related to the concentration of wealth. It is common for a grantor of a trust with substantial capital and assets to involve these corporate fiduciar - ies. These entities often possess specialised expertise and can help shield trustees from personal liability. When considering what constitutes ordinary care and diligence, a professional representative (corporate fiduciary) is held to a higher standard of care based on their presumed expertise. This higher standard of care applies to all professional personal representatives, whether individual or corporate. Note that, in 2024, California enacted both a California Uniform Directed Trust Act statute and a Professional Fiduciaries Act, CA AB-2148, providing much needed guidance. 6.2 Fiduciary Liabilities When a personal representative, including a trustee of a trust or a foundation, breaches his or her fiduciary duty, he or she may: • be responsible for any resulting loss incurred by the omission; • be forced to disgorge profits or compensation; and/or • be responsible for profit that would have accrued in the absence of this negligence. The fiduciary may avoid or minimise these liabilities by acting reasonably and in good faith given the cir - cumstances. A trustee may delegate investment func - tions as prudent under the circumstances. A trustee that properly selects an agent, establishes the scope
of delegation, and periodically reviews the agent’s performance will not be liable to the beneficiaries for actions/decisions of the agent. Many trusts include exculpatory clauses, providing for no trustee liability except for fraud or wilful misconduct, and the trustee may obtain directors’ and officers’ liability insurance. Self-dealing can result in the fiduciary insuring a posi - tive outcome in the related investment (becoming per - California law provides that a trustee shall invest and manage trust assets as a prudent investor would. The trustee must exercise reasonable care, skill, and cau - tion. A single investment or action is not inherently prudent or imprudent. Rather, the whole portfolio is considered a part of an overall investment strategy with a relative risk and return objective. In general, the obligation to diversify assets is a tenet of prudent investment. 6.4 Fiduciary Investment The trustee has a duty to diversify the investments unless, under the circumstances, it is prudent not to do so. Investments should be guided by the following criteria: • economic conditions; • risk management practices; • possible effect of inflation or deflation; • tax consequences; • expected total return of income and appreciation of capital; • needs for liquidity; and • other resources of the beneficiaries. sonally liable for any loss). 6.3 Fiduciary Regulation The trustee can operate a business within the trust property, and he or she can change its structure (ie, incorporation or dissolution). However, this is only per - mitted if the trust document or court allows it. 7. Citizenship and Residency 7.1 Requirements for Domicile, Residency and Citizenship Someone is a resident of CA if they are (i) present in CA for other than a temporary purpose or (ii) domiciled
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