When Trustees Waste or Steal Trust Assets

An estate planning trustee, by legal definition, is obligated to use their best reasonable effort to meet the terms of the trust, or of the deceased, as stated in the will or trust document. Trustee(s) manage the dispersal of property to beneficiaries, handle funeral expenses and creditors, generally ensures the will is properly filed and pursued in probate, and takes care of other general duties related to a final accounting of the estate. Most generally, trustees manage assets in a trust.

Possible Breach of Fiduciary Duty by a Trustee

The acts of the trustee, because they are generally open to examination by interested parties, are specifically subject to scrutiny by beneficiaries and others involved with the estate. Allegations that the trustee is not performing their duties are made by the filing of an objection in court.

Specific grounds must be more substantial than merely making mistakes. A trustee who is not meeting legal requirements, who is not acting impartially or using reasonable judgement, or who is willfully ignoring the law, such as by self-dealing (stealing, modifying terms, wasting money, or otherwise acting inappropriately) may be sued for breach of fiduciary duty.

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Civil Consquences

Should a trustee be held in breach, there are a number of specific civil consequences they may face, along with special damages:

• Constructive fraud, a tort of deliberate omission or alteration of facts, often in order to benefit self or someone else, is just one example of a serious breach of fiduciary duty, and may lead to fines and repayment to beneficiaries. Though extreme, courts can even remove a trustee for such a breach.

Reporting a Breach

A person does not have to be a beneficiary to complain about a trustee to investigative agencies (beyond a court). Many people become aware of financial abuse occurring to a frail or infirm person. In fact, some complaints by a beneficiary may be seen as nothing more than nuisance and annoyance. Wrongfully bringing complaints against a trustee who is simply refusing to give in to a beneficiary’s demands can result in the court assessing court costs against the wrongfully complaining beneficiary.

It can also occur that an attorney, whether because they are incompetent or dishonest in handling an estate or trust, cannot be trusted to correct their actions. Complaints to state bar associations, while usually effective, are not always timely enough to prevent harm. If the allegations of harm are to protect a senior or disabled individual, every state has mechanism for complaints to special departments of human services.

Documenting a Breach of Fiduciary Duty

The more information you can provide documenting the possible breach, obviously, the better. If the lawyer or advisor to whom you speak, after requesting an accounting of the trust from the trustee and examining the actions of the trustee, agrees that there is a pattern of suspicious activity taking place by the trustee, the next step may be filing a court complaint, at which point with the help of your lawyer you will have the opportunity to present your case to the court and tell the court why the trustee is in breach of fiduciary duty. If the court agrees, the trustee may be held accountable and may be liable for any losses to the trust or for any misappropriated income or assets.

All told, the investigation into breach of fiduciary duty by the trustee may include an independent review of the actions taken by the trustee, an accounting of how assets are being spent and managed, and even review by expert forensic accountants to identify possible fraud.

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Case Studies: Breach of Fiduciary Duty by Trustees

Case Study 1: John’s Mismanagement

John, the trustee of his father’s estate, fails to distribute assets according to the trust terms. Beneficiaries allege impartiality, self-dealing, and financial waste. They sue John for breach of fiduciary duty.

Case Study 2: Sarah’s Constructive Fraud

Sarah, a trustee of a family trust, alters facts to benefit herself, constituting constructive fraud. The court fines her, orders restitution to beneficiaries, and considers removing her as trustee.

Case Study 3: Mark Reports Financial Abuse

Mark, a concerned neighbor, reports financial abuse by a trustee targeting an elderly person. Reporting to investigative agencies and special departments helps protect vulnerable individuals.

Case Study 4: Lucy’s Documentation of Breach

Lucy suspects her late husband’s trustee is engaged in suspicious activities. With her lawyer’s assistance, she documents a pattern of breach, requests an accounting, and files a court complaint.

Conclusions

In situations where the trustee is a family member or friend, these scenarios can quickly become highly emotional and stressful, as the trustee will be personally involved with and related to the others with interest in the estate.

Trust your best judgment and instincts. Waiting until you feel sure of the situation is typically too late. This is a prime area where you should involve an attorney who can move quickly to investigate and correct incompetence or even fraud and assist you in petitioning a court for redress.

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