Appointing a Special Trustee for Specific Assets

I recently had a call with Emily, deeply distressed because her mother’s trust, drafted ten years ago, hadn’t anticipated the explosion in value of her vintage car collection. The original trustee, Emily’s brother, was a fantastic family man, but knew nothing about classic vehicles. He was facing increasing pressure from Emily and her siblings, along with valid concerns about proper insurance, maintenance, and, frankly, avoiding a lawsuit if something went wrong. Emily’s mother had painstakingly amassed this collection over decades – a legacy she wanted preserved, not diminished through mismanagement. The cost of inaction, Emily feared, was potentially hundreds of thousands of dollars in lost value and family conflict.

What Happens When a Trustee Lacks Specialized Knowledge?

This is a surprisingly common situation. We’ve been advising families in the Inland Empire for over 35 years, and I’ve seen numerous trusts where the chosen trustee simply doesn’t possess the expertise to manage a particular asset. It’s not a failing of the trustee; it’s a practical limitation. A general trustee can handle paying bills and distributing income, but when you have assets like a closely held business, valuable artwork, real estate holdings, or, as in Emily’s case, a significant collection, a different approach is often necessary.

The core of a trustee’s duty is to act with prudence and care. That means making informed decisions. A trustee operating outside their area of competence is violating that duty, and exposing themselves – and the beneficiaries – to potential liability. Simply delegating tasks isn’t enough; ultimate responsibility remains with the trustee.

How Does a “Special Trustee” Arrangement Work?

California law, under Probate Code § 16061.7, allows for the appointment of a ‘special trustee’ to manage specific assets within an existing trust. This isn’t about replacing the primary trustee; it’s about adding a layer of specialized expertise. The primary trustee retains overall responsibility for the trust, but delegates the management of certain assets – the car collection in Emily’s situation – to the special trustee. This special trustee then acts as an agent of the primary trustee, subject to their direction and oversight.

The trust document can authorize the appointment of a special trustee from the outset. More often, though, we’re dealing with situations like Emily’s where the trust was drafted before the need became apparent. In these cases, the primary trustee must petition the court for an order authorizing the appointment. The court will review the situation, consider the best interests of the beneficiaries, and determine if a special trustee is appropriate.

What are the Benefits of Using a Special Trustee?

• Expertise: The special trustee brings specific knowledge and experience to the management of complex assets, maximizing their value and minimizing risk.
• Reduced Liability: The primary trustee shares responsibility with the special trustee, reducing their personal exposure to potential claims.
• Preservation of Assets: Specialized care ensures the long-term health and value of assets like art, collectibles, or business interests.
• Peace of Mind: Beneficiaries can rest assured that valuable assets are being properly managed by a qualified professional.

What About the Costs Involved?

A special trustee is entitled to reasonable compensation for their services. This will depend on the complexity of the assets, the level of management required, and the trustee’s qualifications. It’s an additional expense, but it’s often justified by the potential savings in terms of asset preservation and reduced liability. As a CPA, I can also help analyze the cost-benefit of this arrangement, looking at factors like potential capital gains, step-up in basis, and long-term valuation.

What if the Trust Doesn’t Allow for a Special Trustee?

If the trust document doesn’t authorize a special trustee, there are still options. The primary trustee can petition the court to modify the trust to allow for one. Alternatively, the trustee can petition the court for instructions regarding the management of the asset. Or, if the situation is dire, a full trust reformation may be necessary, but this is more complex and costly.

Ultimately, the goal is to ensure that the trust assets are managed effectively and in accordance with the settlor’s wishes. Sometimes, that requires a little creativity and the willingness to adapt to changing circumstances. Emily’s situation is a perfect example – a proactive solution saved her family from a potentially damaging conflict and ensured her mother’s prized car collection would be enjoyed by future generations.

Verified Authority on California Trust Administration

• Mandatory Notification (Probate Code § 16061.7): California Probate Code § 16061.7
  The first critical step in administration. This statute requires the trustee to notify all heirs and beneficiaries within 60 days of death. It starts the 120-day clock for any contests, limiting the trustee’s liability.
• Trustee’s Duty to Account (Probate Code § 16062): California Probate Code § 16062
  Defines the requirement for annual and final accountings. Trustees must report all receipts, disbursements, and changes in asset value to beneficiaries.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Trustees must understand these rules before signing a deed to a beneficiary. Distributing real estate without filing the Parent-Child Exclusion claim can accidentally double or triple the property taxes for the heirs.
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
  Reflects the OBBBA permanent increase to a $15 million per person exemption (effective Jan 1, 2026). Trustees must evaluate if an IRS Form 706 is necessary to preserve “portability” of the unused exemption for a surviving spouse.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without explicit authority under this statute, a trustee may be blocked from accessing the decedent’s online banking, email, or cryptocurrency accounts, stalling the administration process.
• Financial Elder Abuse Reporting: California Attorney General Elder Abuse Section
  Trustees have a duty to report suspected financial elder abuse, even if the abuse is committed by a beneficiary.

How do California trustee duties and funding rules shape the outcome for beneficiaries?

Success in trust administration depends on more than just the document; it requires active management of assets, precise accounting to beneficiaries, and careful navigation of tax rules. Whether dealing with a blended family or complex real estate, understanding the mechanics of trust law is the only way to ensure the grantor’s wishes survive scrutiny.

Ultimately, the success of a trust depends on the details—proper funding, clear terms, and a trustee willing to follow the rules. By anticipating friction points and documenting every step of the administration, fiduciaries can protect the estate and themselves from liability.

Verified Authority on California Trust Administration

• Mandatory Notification (Probate Code § 16061.7): California Probate Code § 16061.7
  The first critical step in administration. This statute requires the trustee to notify all heirs and beneficiaries within 60 days of death. It starts the 120-day clock for any contests, limiting the trustee’s liability.
• Trustee’s Duty to Account (Probate Code § 16062): California Probate Code § 16062
  Defines the requirement for annual and final accountings. Trustees must report all receipts, disbursements, and changes in asset value to beneficiaries to ensure transparency and avoid surcharges.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute is a “rescue” tool for administration. If a home (up to $750,000) was left out of the trust, the trustee can petition for this order rather than opening a full probate.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Trustees must understand these rules before signing a deed to a beneficiary. Distributing real estate without filing the Parent-Child Exclusion claim can accidentally double or triple the property taxes for the heirs.
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
  Reflects the OBBBA permanent increase to a $15 million per person exemption (effective Jan 1, 2026). Trustees must evaluate if an IRS Form 706 is necessary to preserve “portability” of the unused exemption for a surviving spouse.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without explicit authority under this statute, a trustee may be blocked from accessing the decedent’s online banking, email, or cryptocurrency accounts, stalling the administration process.