A trustee has an obligation to the beneficiaries of an estate. Specifically, they have a fiduciary duty. They should act in the best interests of beneficiaries by properly managing trust resources.
Their goal should be to optimize what beneficiaries ultimately receive from the trust and to uphold the terms of the trust documents. Most trustees are fastidious about fulfilling their fiduciary duties. Unfortunately, sometimes, those who hold positions of trust use their authority for personal gain.
They breach their fiduciary duty by prioritizing their own enrichment over the protection of the people who rely on the trust for resources. Beneficiaries may need to keep an eye on trust administration so that they can identify warning signs of misconduct.
What are some of the more common ways that trustees might breach their fiduciary duties?
1. Self-dealing
Self-dealing involves agreeing to business arrangements that are more beneficial for the trustee than for the trust. For example, perhaps the trustee is a licensed accountant. They may hire their own professional practice to provide services for the trust. However, they may charge more than competitors or do substandard work. Awarding contracts related to trust operations to businesses or individuals who have ties to the trustee can be a form of self-dealing that violates the fiduciary duty of the trustee and diminishes trust resources for their personal gain.
2. A lack of communication
Trustees have to be proactive about managing resources. They should communicate with beneficiaries whenever there are significant transactions or transfers in the works. Beneficiaries should receive information about the state of the trust and the resources it manages. When trustees do not fulfill their obligations to communicate regularly and provide transparency to beneficiaries, that can be a warning sign of inappropriate conduct occurring behind the scenes.
3. Overcharging for services
Technically, trustees have a right to charge the trust for the work that they perform. However, the compensation they request should have a basis in current market rates and actual time serving the trust. When trustees overcharge for their services, they unfairly diminish the resources of the trust to increase their own pay. Such circumstances may warrant attempts to remove the trustee from their position.
Trust litigation can replace a trustee who has reached their fiduciary duty or even hold them financially accountable for the impact of their financial misconduct. Documenting concerns about trust management and discussing those issues with a legal professional can help beneficiaries protect trust resources.