How can a trustee hold an interest in the property?
The trustor creates the trust and places the asset or property into the trust to be held and transferred. The benefit of the trust will be passed to the beneficiaries upon death. These beneficiaries receive the assets like property once certain conditions occur. For example, following the death of the trustor. The trustee will manage the trust and ensure it is carried out according to the trustor’s wishes. A trustee can be a beneficiary but, the trustee typically holds the property for the benefit of another. (Estate of Yool (2007) 151 Cal.App.4th 867, 874.) This may impact future rights and interests in property, so the right to partition will only be upheld if it is in the best interest of the parties. (CCP § 872.710.)
The trustee will likely be able to seek partition even as a beneficiary. The trustee must first retain the property until, in their judgment as the trustee, disposition of the property should be made. (Prob. Code § 16220.) The trustee themselves must also make the judgment that selling the property is in the best interest of the trust and show they have the express power to dispose of the property by sale. (Prob. Code § 16226.) If the trust has terminated, partition can occur without actual reconveyance of the property by the trustee. (Gardiner v. Cord (1904) 145 Cal. 157, 163.)
How can a trustee bring a partition suit?
In order for a trustee to file a partition suit, they must be a co-owner of the property and not a disinterested party. (O’Bryant v. Bosserman (1949) 94 Cal.App.2d 353, 355.) The trust must also have been carried out. However, ultimately the court has broad discretion to determine whether a trustee has the ability to bring such a suit. (CCP § 872.710 (c).) The trustee must show their partition suit is in the best interest of all parties. This prevents the trustee from leveraging their position as trustee to serve their interest in the property.
For a trustee to be in charge of the administration of the trust, the settlor must have named them within the trust document or be appointed by the court. Because of their position in managing the trust, any partition attempt goes through the trustee. This is why the court has discretion to decide if a trustee’s partition action is proper.
If the trustee is managing an express trust this may restrict the trustee’s ability to bring a partition action. In the case of an express trust, the court may order the property to be sold, essentially deciding whether partition is appropriate regardless of what the trustee is entitled to under statute. (Richmond v. Dofflemyer (1980) 105 Cal.App.3d 745, 758.) The partition cannot be used to get around an express trust or get around the person performing their functions as a trustee. (Varni v. Devoto (1909) 10 Cal.App. 304, 306-307.)
What issues might a trustee face?
As the trustee and beneficiary, it is possible they will face issues bringing a partition suit. Any other beneficiaries could file a petition to restrain the sale if they believe it is a breach of trust. (Prob. Code § 17200 (b)(12).) However, because of the authority exercised by the trustee in authorizing the sale, they are likely to face allegations that they have breached their fiduciary duty to the other beneficiaries. (Starr v. Ashbrook (2023) 87 Cal.App.5th 999, 1024.) There is also the risk that they will face allegations by other beneficiaries that they are being self-serving or abusing their authority as trustee in attempting to partition the property.
What would an example of a partition action look like?
For example, a trustor gives her home to her two children Shawn and Julie. Shawn and Julie are beneficiaries of the trust who will receive the property as co-owners once their mother passes away. Once their mother dies, the trust is set up to be managed by Shawn as a trustee. As such, Shawn is going to manage any property or assets his mother put into her trust. Shawn, along with being a trustee is also a beneficiary of the trust. This means he has a co-ownership interest in the home along with his sister Julie. Shawn could want to partition the property if Julie wanted to keep it and Shawn wanted to take his inheritance out of the home.
Shawn would need to make sure there is no express statement in the trust that states the home cannot be sold for a number of years. This would directly bar his lawsuit. A lawsuit would also be barred if his mother had explicitly stated in the trust that she wanted the home to continue to be owned by both of them. The court may interpret a partition action as against the best interests of the trust or the purpose of the trust if this was the case. If there was no express trust or indications that he could not partition the trust, Shawn could file for partition.
The court would determine if the home could be partitioned. The court would determine Shawn’s suit for partition was in line with the trust and with his duties as a trustee. If the court allowed partition, the home would likely be sold and the proceeds distributed between Julie and Shawn. Because there is no future interest and the trust had been distributed Shawn would not need to be a trustee and oversee the funds. The court would also not need to create a new trust to manage the proceeds.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property ownership interest disputes at trial and help you pursue solutions like partition actions. We are here to help.