A trustee has authority over the assets that someone uses to fund a trust. They take over the management and distribution of those assets, often for a small amount of compensation for the services that they provide. Although family members of the person who created the trust and beneficiaries who may rely on trust assets in the future sometimes question the decision to name a specific trustee, typically even those dissatisfied with a testator’s decisions will respect their performance.
However, there are scenarios in which people may initiate fiduciary litigation because of a trustee’s choices. People generally can’t sue a trust, so their only option may be litigation against the fiduciary who is administering it.
When might beneficiaries or family members take legal action against the individual tasks with managing a trust and its assets?
They embezzle or engage in self-dealing
Embezzlement is a common issue when one party has control over assets that technically belong to someone else. A trustee won’t have much formal oversight, and so they might engage in misconduct, including taking ownership of assets intended for the beneficiaries of the trust. It can also damage the trust if the trusty intentionally hires friends, family members or a business that they own to provide services for the trust. Those self-dealing practices could end up costing the trust more than it would pay for the same work from someone else.
They don’t follow the trust instructions
Sometimes, a personal grievance with one of the beneficiaries might motivate the trustee to refuse requested distributions of trust assets that technically comply with the trust paperwork. Other times, they might delay claims or fail to respond to them at all in the hopes that beneficiaries will stop asking. If a trustee has failed in their obligation to administer the trust in the way lined in the trust documents, then the beneficiaries may have grounds to legally challenge their inaction or failure to abide by the trust instructions.
They demonstrate incompetence or fail to act
Some trustees mean well but are incapable of managing the complicated assets in the way that they need to for the sake of the beneficiaries. Others simply don’t have the time to properly manage trust assets and distribute resources as appropriate. In scenarios in which a trustee has diminished the value of a trust through incompetence or inaction or where their delays in administration have caused hardship for the beneficiaries, it may be possible to ask the courts to replace them with someone more capable of fulfilling the obligations of trust administration in a timely fashion.
Learning more about the common issues that lead to litigation aimed at removing a trustee or diminishing their personal authority may help trustee better fulfill their obligations and avoid unnecessary conflict.