What to Do When a Fiduciary Mismanages a Trust
If you’re the beneficiary of a trust, you have a stake in seeing the trust managed ethically and efficiently. If the trust is mismanaged or mishandled, its assets could be depleted or the trust could be bankrupted. If you suspect trouble, you need to take steps to enforce your rights before irreparable damage is done.
A trustee is a fiduciary who has a duty to act in the best interests of the trust’s beneficiaries, to manage the trust assets professionally and honestly, and to preserve the value of the trust. A fiduciary is often charged with investing trust assets, but must act as a prudent investor and may not attempt to profit personally from those investments. A fiduciary may not purchase trust assets. A fiduciary has the duty to keep accurate records and to fully disclose any and all financial transactions that involve the trust. The fiduciary also has a duty to defend the trust against lawsuits. If the fiduciary cannot perform certain duties himself, he must delegate those tasks to a competent individual.
If the trustee has violated any fiduciary duty, you as beneficiary have standing to file a claim in court for equitable relief or damages. Equitable relief is appropriate when you want the court to compel the fiduciary to do something, such as distribute trust income, or not to do something, such as invest in a questionable hedge fund. If the trustee’s mismanagement has resulted in the loss of trust assets, you can sue for monetary damages. Here you must prove the trustee was negligent in taking risks that a reasonably prudent investor would have avoided. A trustee is personally liable to the trust for losses due to negligence, recklessness or deliberate breaches of fiduciary duty.
If you have questions about your rights as a beneficiary of a trust, an estate litigation attorney at the Charles Law Offices can advise you on how to protect your interests.