Can You Sue a Trustee of a Trust?

Suing a Trustee – Your Legal Options

Beneficiaries or interested parties objecting to a trustee’s actions can bring a lawsuit against them. The court may require the trustee to pay the beneficiary’s legal fees or compensate the trust for losses caused by their actions.

Breach of Fiduciary Duty

A trustee has a fiduciary duty to act in the trust’s best interest. This means that a trustee has a duty of loyalty to the interests of the beneficiaries. A trustee must always inform the beneficiary of the trust status and activity. Regular and transparent communication between trustees and beneficiaries alleviates tension.

It’s also expected that trustees must keep thorough documentation of trust activities. They should record their decisions related to the trust in case lawsuits arise. Having a record of beneficiaries’ consent in a trust-related decision may be helpful if the beneficiaries later sue the trustee. Trustees should treat beneficiaries with fairness. They must observe and comply with all the terms of the trust. As a trustee, you must never favor your interests above the terms of the trust. You should never mix your assets with the trust’s assets.

Beneficiaries Have a Right to Sue the Trustee

Whether beneficiaries or other interested parties have grounds to sue a trustee for any reason depends on jurisdiction and case specifics.

Careless Trustee

We have already seen that a big part of what trustees are expected to do is wisely invest, manage, and distribute trust funds. Investing must be done per the laws of the state. In some states, the law provides guidelines for how trustees must invest funds. The trust document stipulates how the trustee should invest or manage the funds. Failure to adhere to these expectations can lead to a breach of fiduciary. Breach of fiduciary duty is the primary reason why trustees get sued.

Unresponsive Trustee

Beneficiaries can sue a trustee for breach of fiduciary duty if the trustee fails to disclose accountings. One of the key trustee duties is preparing and distributing accountings. These reports disclose the balance, investment, and expenditure history of the trust’s assets and liabilities.

Inaccurate Records

All financial records should show the inflow and outflow of money along with all the changes to the trust assets. Many states have laws that mandate trustees to prepare and share accountings annually. The trust document may also have further rules on this. Beneficiaries must receive timely reports.

Trustees should quickly respond to their requests for accountings or concerns related to accountings. If a beneficiary doesn’t receive proper records following their request, they can sue the trustee. Beware of statutory limitations. State laws and sometimes the trust document may impose deadlines for objecting.

Trustee Fee Issues

Occasionally, beneficiaries may find disparities between what the trustee takes as fees and what the law or the trust document stipulates. Trustees can earn a reasonable fee for their work – taken directly from the trust. But if a beneficiary sees this “reasonable” fee as too high by a beneficiary, they may bring up a lawsuit to solve the matter at the courts.

In these lawsuits, the burden of proof rests with the beneficiary to prove that the trustee is overcharging the trust. They may use evidence showing how the trustee spends less time managing the trust than they allege. They may also provide proof by demonstrating how the trustee doesn’t possess any special skill sets to warrant high fees.

What To Do When a Trustee Breaches Fiduciary Duty?

It can be an unfortunate situation to be in if a trustee handles your benefactor’s trust irresponsibly. Not to worry, though, because there are remedies. A trustee attorney can help you sue the trustee to recover lost funds and ensure fair distribution of assets per the terms of the trust.

The first thing to do is establish that the trustee owed you a fiduciary duty. If you are a beneficiary, this can be as easy as showing that your name is listed as a beneficiary in the trust document. Then, you must also prove the trustee’s identity by presenting appointment records.

Next, you must prove the breach of fiduciary duty. Proving a breach involves showing how the trustee failed to fulfill their responsibilities. It is proving how the trustee self-dealed or misappropriated trust funds. And if they acted negligently or blatantly stole funds from the trust, you will need audit records that prove the same.

Once a breach of a fiduciary is established, the next thing the courts will want to see is damage. You must demonstrate how the breach causes you to suffer harm and losses. These elements are complicated and best handled by trust attorneys.

When suing a trustee, you can demand any of the following:

• Trustee replacement
• Restitution for funds lost and other forms of suffering
• Criminal damages against trustee
• Personal liability on the part of the trustee
• Fines

Civil and criminal damages are possible in cases of massive self-dealing and breach of fiduciary. You should always report such matters to the police immediately upon discovery. This can help strengthen your lawsuit and guarantee that the culprit doesn’t flee. However, criminal charges are generally not brought up when it comes to negligence.

Removing a Trustee

Removing a trustee will depend on the extent of the damages and the seriousness of the trustee’s misdeeds. We should also note that the trust document may sometimes not allow beneficiaries to remove a trustee. Working with an experienced trustee litigation attorney can help you work around these obstacles to ensure that the trust is managed in safe hands.

In some states, beneficiaries can collectively remove a trustee, even for reasons unrelated to the trustee’s misdeeds. In many states, beneficiaries can quickly get the blessing of the courts to remove a trustee for gross acts, including theft and breach of fiduciary, negligence, and bad faith. On top of getting kicked out from their role, the courts may order the trustee to refund all lost time and money associated with the breach and its litigation.

The Risks of Being Sued as a Trustee

Here is an accurate picture of your likely outcomes following trustee litigation.

• Damages to the beneficiary: The first thing to consider is beneficiary damages. If the court rules in favor of the beneficiaries, you may be responsible for paying damages out of pocket.
• Trustee removal: Trust removal is perhaps the worst outcome to expect in severe matters. If the courts determine that you have drastically breached your fiduciary duty and violated trust terms, you may lose your role as a trustee.
• Criminal charges; possibly prison sentence: If the courts determine that you have stolen funds or defrauded the trust, you may face criminal charges with harsh fines or even jail time.

How a Trustee Can Stay Safe From Lawsuits

Understand your duties and responsibilities. Don’t take up the mantle unless you know what is required. This can help you prevent personal and legal problems, such as accidentally breaching fiduciary duty.

Practice proper bookkeeping. Having a ledger or working with an accountant who understands bookkeeping would be best. Keep track of all financial decisions you make around the trust. Similarly, save all communication records and interactions with beneficiaries and other interested parties. These records will strengthen your legal defense in the event of a lawsuit.

Be responsive. Open all lines of communication with beneficiaries. Keep them apprised of all happenings, including trust assets, expenditures, investments, acquisitions, and distributions. Don’t make decisions without consulting the beneficiaries. Don’t wait too long to respond to beneficiary queries about the status of the trust.

Lawyer up. You don’t have to wait for a lawsuit to work with a trustee lawyer. Prudent trustees consult and work with lawyers throughout the trust administration process. Doing this can help you make the right decisions around the trust, comply with the law, and safeguard yourself from personal liability.

When Trustees Sue Each Other

As a co-trustee, you don’t owe the other trustee the same fiduciary duty you owe the beneficiaries. However, because you owe the beneficiaries the duty to protect the trust’s assets, you must report or sue your co-trustee for breach of duty. You can file the charges at a probate court and work with a lawyer to protect the trust. If their misdeeds severely damage the trust, you can have the co-trustee wholly removed from the trust.

Contact a Trust Litigation Attorney

If you believe a trustee is improperly administering a trust, you must contact an experienced trust litigation attorney quickly. The lawyer will discuss the case details and explain what to do. If you delay, the courts may toss out the case before even hearing it. An attorney will help you work within the statute of limitations to avoid that.

Contact us today

Do you need legal assistance with matters of trust? Our experienced trust litigation attorney can help. We have the necessary skills and knowledge to protect your interests when dealing with trustee litigation. Contact us for a free case review.