When someone creates a trust, they expect the trustee they choose to manage the assets effectively and carry out their wishes. Trustees have a legal obligation to act in the best interests of the beneficiaries.
However, not every trustee fulfills those duties as they should. Trustee misconduct can cause serious financial harm to beneficiaries. Therefore, recognizing the warning signs can help beneficiaries protect the assets intended for them.
The role of a trustee
A trustee is responsible for managing the trust’s assets, which may include:
- Handling investments
- Paying any bills and taxes
- Distributing the assets according to the trust document’s terms
- Keeping accurate records
Trustees have a fiduciary duty to the beneficiaries, which means everything they do regarding the trust must be in the beneficiaries’ best interests, and they must act honestly, loyally and prudently at all times. If a trustee violates these duties, then the beneficiaries may have grounds to challenge the trustee’s actions in court.
Red flags
Every situation is different, but some common warning signs may indicate a trustee is failing in their obligations. One of the biggest red flags is the lack of communication between the trustee and beneficiaries.
Beneficiaries are generally entitled to information about the trust. If the trustee consistently ignores requests for updates or withholds important documents, it could be the trustee’s attempt to conceal mismanagement.
Part of being a trustee involves maintaining detailed records of trust income, expenses, investments and distributions. Beneficiaries have the right to request an accounting. If the records are incomplete, inconsistent or unavailable, they need to take the situation seriously.
What is self-dealing?
One of the most serious forms of trustee misconduct is self-dealing. This occurs when a trustee uses the trust’s assets for their own personal gain rather than acting in the beneficiaries’ best interests. Examples include:
- Using trust funds for personal expenses
- Selling trust property to themselves or relatives below fair market value
- Favoring one beneficiary unfairly
Beneficiaries who suspect trustee misconduct should not ignore the warning signs. Early action may prevent further harm. Discussing the situation with a legal professional can help them to evaluate the situation, review their options and pursue legal action to protect trust assets.
