Abuse of Trust: Trustees Gone Wild

Most people spend a significant amount of time considering every aspect of their estate plan. Often included in these decisions are detailed plans for the distribution of their estate based on their desires for their beneficiaries.  

As an individual creates an estate plan, they also do their best to choose a Trustee that can and will fulfill their wishes. This person (or organization) is given a significant amount of responsibility by the creators of the Trust. Also known as a fiduciary, the Trustee is legally bound to represent the Trust.

Because so much care is taken in creating an estate plan, when things go terribly wrong and a Trustee engages in a breach of fiduciary duty or abuse of trust by not following the rules of the Trust, it can be devastating to everyone involved.

When the Trustee Breaches Trust

The trustee must perform their responsibilities according to the terms of the trust. If the trustee does not perform his/her duties as they are spelled out then he/she can be considered in breach of fiduciary duty. A breach of fiduciary duty occurs commonly when a trustee acts in a way that is careless, disloyal or negligent with regard to the trust estate. When this occurs, the person or company responsible for the administration of the trust should be held responsible.

Most Common Trustee Breaches

Subtle trustee breaches of fiduciary duty are not always easy to recognize. However, even subtle mistakes can create an enormous financial impact. Here are some common situations where a trustee can breach their fiduciary duty:

The trustee mixes their finances with the finances of the estate.

This is actually a very common issue given that the trustee is many times a family member. To keep clear of this costly mistake, a trustee must keep completely separate accounts and records for the finances of the trust. If there is not a clear line, then there has been a breach of fiduciary duty.

The trustee engages in a conflict of interest.

This commonly occurs when the trustee acts in a way according to their own goals and not the goals of the trust. This becomes a problem when their goals are opposed to the wishes of the deceased and the beneficiaries. A trustee cannot borrow from the trust, profit from it or do anything with the trust money that would benefit them personally.

The trustee fails to enforce the trust against other responsible parties.

For example, if the trustee fails to stop a co-trustee from acting against the trust’s best interests then then the co-trustee is jointly responsible for the behavior.  

Who Can Sue the Trustee for Breach of Duty?

Almost every time, an abuse of trust case is brought by a beneficiary against the trustee. This is because they are the ones that are impacted by the trustee’s terrible decisions (or a complete lack of decision making). When a beneficiary has noticed that there is a breach of the trustee’s duty they will need to file a lawsuit.

If a beneficiary needs to sue a trustee in order to protect their inheritance they should speak with an abuse of trust lawyer at the first sign of trouble. If, after a lawsuit is filed, and the court agrees that the trustee has breached their duty to the beneficiaries, the trustee can be removed from their position and also ordered to pay back whatever estate funds that were lost because of the breach of duty.