Can Assets Be Sold During Trust Litigation

I recently met with Emily, a woman frantic over a trust dispute with her brother, David. Their mother’s trust, established just months before her passing, was now embroiled in accusations of undue influence. David, who had been her primary caregiver, received a disproportionate share of the estate, including the family home Emily cherished. The problem wasn’t just the unequal distribution; Emily discovered a signed, handwritten codicil – the only one ever created – completely reversing the intended inheritance, and David claimed he never received it. The court, of course, needed to see it. But David, seizing the opportunity, had already listed the house for sale, intending to close escrow before Emily could even file a formal objection. The potential loss of a lifelong connection to that property, and the feeling of being intentionally sidelined, was devastating. It’s a scenario I’ve seen play out too many times over my 35+ years practicing as both an Estate Planning Attorney and a CPA.

The short answer is yes, assets can be sold during trust litigation, but it’s rarely straightforward, and often strategically timed to create maximum hardship for the opposing party. Understanding the rules governing these sales, and how to protect your interests, is critical. A trustee has a fiduciary duty to manage trust assets responsibly, which includes the authority to sell them. However, that authority isn’t absolute, particularly when litigation is pending.

What Steps Must a Trustee Take Before Selling Trust Assets?

Generally, a trustee must act with reasonable prudence, considering the best interests of all beneficiaries. Selling an asset during litigation is held to a higher standard of scrutiny. Before proceeding, the trustee should (and often, a court will require) either obtain court approval or provide detailed notice to all interested parties. This notice should outline the asset to be sold, the proposed sale price, the reasons for the sale, and an opportunity for beneficiaries to object. Failing to do so can expose the trustee to personal liability for breach of fiduciary duty. However, “should” isn’t the same as “must”, and a proactive beneficiary often has to force the issue.

Can a Beneficiary Stop a Sale in Progress?

Yes, a beneficiary can attempt to halt a sale, but it requires swift action. A motion for a temporary restraining order (TRO) or preliminary injunction can be filed with the court, requesting an immediate halt to the sale. The beneficiary must demonstrate a likelihood of success on the merits of their underlying claim (e.g., undue influence, breach of fiduciary duty) and that irreparable harm will occur if the sale proceeds. Irreparable harm isn’t simply the loss of potential inheritance; it’s something uniquely damaging, like the loss of a family heirloom or a business essential to the beneficiary’s livelihood. A court will weigh the potential harm to the beneficiary against the interests of preserving the asset and allowing the sale to proceed. This is where timing is everything. Waiting even a few days can be fatal to your case.

How Does a “No-Contest Clause” Impact a Sale?

Many trusts contain “No-Contest Clauses” – provisions designed to discourage beneficiaries from challenging the trust’s terms. While these clauses are often touted as a deterrent, they are not ironclad. Under Probate Code § 21311, a “No-Contest Clause” is only enforceable if the challenger brought the lawsuit without probable cause; simply suing the trustee does not automatically trigger disinheritance. Therefore, a beneficiary contemplating a challenge must carefully weigh the risk of losing their entire inheritance against the potential benefits of pursuing their claim. Successfully navigating this requires a detailed understanding of the evidence and a strong legal strategy.

What if the Asset is Difficult to Value?

As a CPA, I see a lot of situations where accurate valuation is a major sticking point. Business interests, real estate with unique features, and collectibles often require expert appraisal. If the trustee proposes a sale at a price that seems unreasonably low, a beneficiary can request an independent valuation. Disputes over valuation can significantly delay the sale and add to the cost of litigation. Moreover, the increased value realized from a proper valuation can dramatically impact the ultimate distribution to beneficiaries. This is precisely where the expertise of a CPA is invaluable – not just in determining fair market value, but also in understanding the tax implications of the sale, specifically the potential for a step-up in basis that can minimize capital gains.

What About Digital Assets & Evidence?

Increasingly, disputes revolve around access to digital assets – emails, texts, and online accounts – that may contain critical evidence of undue influence or incapacity. Without specific RUFADAA authority (Probate Code § 870), a trustee or beneficiary may be legally blocked from subpoenaing critical digital evidence (emails, DMs, cloud logs) needed to prove undue influence or incapacity. Securing this evidence early in the litigation is crucial, and often requires a separate, specialized subpoena process.

What if There’s a Dispute Over Missing Assets?

Sometimes, assets are simply “missing” – not properly titled in the trust, or unaccounted for. For deaths on or after April 1, 2025, if the dispute involves a home valued up to $750,000 that isn’t titled in the trust, a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151) may be a faster resolution than a full Heggstad trial. It’s important to distinguish between a Heggstad Petition and an AB 2016 proceeding. A Heggstad petition requires proving that trust assets were used to benefit the wrong party. AB 2016, the new law, offers a streamlined process for transferring property that was inadvertently left out of the trust.

What causes California trust administration to fail due to poor funding, vague terms, or trustee misconduct?

California trusts are designed to bypass probate and maintain privacy, yet they often fail when assets are not properly funded, trustee duties are ignored, or ambiguous terms trigger disputes. Even with a signed trust document, families can face court battles if the “operations manual” of the trust isn’t followed strictly under the Probate Code.

California trust planning is most effective when the structure is matched to the specific family goal and assets are fully funded into the trust name. When administration is handled with transparency and adherence to the Probate Code, the trust can fulfill its promise of privacy and efficiency.

Verified Authority on California Trust Litigation & Disputes

• The 120-Day Rule (Probate Code § 16061.7): California Probate Code § 16061.7
  The most critical statute in trust litigation. It establishes the 120-day deadline for contesting a trust after the notification is mailed. Missing this deadline usually ends the case before it starts.
• Caregiver Presumption (Probate Code § 21380): California Probate Code § 21380
  This statute protects seniors by presuming that gifts to care custodians are the result of fraud or undue influence. It is the primary weapon used to overturn “deathbed amendments” that favor a caregiver over family.
• No-Contest Clauses (Probate Code § 21311): California Probate Code § 21311
  Defines the strict limits on enforcing penalty clauses. It explains that a beneficiary can only be disinherited for suing if they lacked “probable cause” to bring the lawsuit.
• Petition for Instructions (Probate Code § 17200): California Probate Code § 17200
  The “gateway” statute for most trust litigation. It allows a trustee or beneficiary to petition the court for instructions regarding the internal affairs of the trust, from interpreting terms to removing a trustee.
• Asset Recovery “Backup” (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute provides a streamlined path (Judge’s Order) to resolve disputes over ownership of a primary residence valued up to $750,000, often avoiding costly Heggstad litigation.
• Digital Discovery (RUFADAA): California Probate Code § 870 (RUFADAA)
  Essential for modern litigation. This act governs who can access a decedent’s digital communications—often the “smoking gun” evidence in undue influence or capacity trials.