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Trust beneficiaries: Does your trust have a fraudulent trustee?

Trusts are named "trusts" because they create a legal contract that the trust creator and his or her beneficiaries rely on. This legal contract lays out specific instructions, and names a trustee who is legally bound to follow those instructions -- all for the benefit of one or more parties: the beneficiaries.

If you are the beneficiary of a trust, and you believe that the trustee who is managing the trust assets is committing fraud or negligence, you may want to look into your legal rights and options immediately.

What are the responsibilities of a trustee?

The most important responsibility of every trustee is to follow the terms and conditions written in the trust for the benefit of the beneficiaries. This means that the beneficiaries' interests will always supersede the interests of the trustee. In legal terms, this responsibility of the trustee is known as his or her "fiduciary obligation" to beneficiaries. These beneficiaries include those who are currently benefiting from the trust and those who may benefit from the remainder of the trust in the future.

A trustee must also maintain records that accurately show all trust income and all trust payments. These records must include more than just federal tax return information.

When do trustees fail in their duties to the beneficiaries?

Here are some of the most common ways that trustees fail to fulfill their duties to the trust and its beneficiaries:

  • If the trustee neglects to maintain complete or accurate records, the trustee could face liabilities in court when his or her actions are called into question.
  • When trustees act in a way that serves their self-interests, this could represent a breach of his or her fiduciary duties. Sometimes, trustees who are also beneficiaries act in a way that enriches them while harming other beneficiaries and/or the remainder beneficiaries of the trust.
  • If a trustee "borrows" assets out of the trust for his or her own benefit, this could be a case of outright theft. Since trustees tend to have unfettered access to the trust funds, they could borrow money to get themselves through a financial rough patch, but if the borrowing falls outside of the terms laid out in the trust, this would be a breach of fiduciary duty.
  • Poorly managing the trust assets is another potential example of a breach of the trustee's responsibilities.

Is a trustee mismanaging your trust?

In cases of trustee mismanagement, the beneficiary will have the right to pursue a legal action against the trustee in court. If successfully navigated, an action like this could force the trustee to pay back the trust for damages his or her negligence caused.

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