What Happens When a Trustee Violates the Trust?

trustee is a person or firm that holds and administers property or assets for the benefit of a third partyWhen setting up an estate plan, one of the most significant decisions involves choosing a trustee to manage and administer the assets of a trust. At the Law Office of Chris W. Chong, we guide individuals and families through the process of selecting a trustworthy trustee and understanding the role they play. A trustee’s duties are defined by both the trust agreement and the law, primarily focusing on managing the trust’s assets responsibly and in the best interests of the beneficiaries.

What Is a Trustee?

A trust is a legal arrangement where one person (the grantor) gives another person (the trustee) control over their property and other assets. The trustee holds legal title to the assets while being charged with managing and distributing them according to the grantor’s wishes – those wishes are spelled out in a trust document. Trusts are often used as part of estate planning strategies. Trustees have these important fiduciary duties:

What Constitutes a Breach of Trust?

A breach of trust is a serious violation that undermines the very foundation of trust administration, where a trustee deviates from their fiduciary duties — obligations set forth to act in the utmost good faith and loyalty towards the trust’s beneficiaries. The spectrum of actions constituting a breach of trust is broad, encompassing the following. For guidance on breaches of trust, consult the experienced estate planning attorney at the Law Office of Chris W. Chong.

Self-dealing

Self-dealing occurs when a trustee uses their position to benefit personally from the trust’s assets, rather than focusing on the beneficiaries’ interests. This could include buying property from the trust at a below-market price or selling their own property to the trust at an inflated price. Self-dealing undermines the principle of loyalty that trustees must adhere to and can lead to significant financial losses for the trust.

Mishandling or Misappropriating Trust Funds

Mishandling trust funds involves any form of negligence or carelessness in managing the trust’s assets that results in financial harm. Misappropriation, a more egregious offense, occurs when a trustee outright steals or uses trust funds for purposes not authorized by the trust document. Both actions betray the beneficiaries’ trust and can lead to legal consequences for the trustee, including restitution and removal.

Making Risky or Unauthorized Investments

Trustees are expected to invest the trust’s assets prudently, taking into account the terms of the trust and the interests of the beneficiaries. Engaging in high-risk investments without authorization or in contradiction to the trust’s terms can be deemed a breach of fiduciary duty. Trustees must balance risk and return, ensuring the trust’s assets are not unduly endangered.

Failing to Diversify Trust Assets

A cornerstone of prudent investment strategy is diversification — spreading investments across different asset classes to mitigate risk. A trustee’s failure to diversify the trust’s assets, putting too much into a single investment or asset class, can expose the trust to unnecessary risk and volatility, potentially leading to losses that could have been avoided through a more balanced investment approach.

Failing to Keep Beneficiaries Informed

Trustees have a duty to keep the beneficiaries reasonably informed about the trust’s affairs, including its administration and the assets’ performance. Failure to provide regular updates, account statements, or responses to beneficiaries’ inquiries not only erodes trust but can also mask other breaches of duty. Transparency is key to maintaining a healthy relationship between trustees and beneficiaries and ensuring the trust is administered in accordance with its terms and for the benefit of the beneficiaries.

Legal Actions Against the Trustee

A violation of trust can lead to legal action by the beneficiaries. These actions can result in the court ordering the trustee to correct the mismanagement, return misappropriated funds, or even pay punitive damages. For those looking to understand more about the legal grounding of these actions, visit our page for additional insights.

Removal of the Trustee

Beneficiaries can petition for the removal of a trustee who violates their duties. The court will typically require evidence of the trustee’s inability to execute duties properly, lack of fidelity to the trust’s objectives, or failure to comply with terms of the trust.

Financial Repercussions

Trustees found in breach may be personally liable for any losses incurred by the trust due to their actions. This can include reimbursement for any financial losses and, in extreme cases, additional financial penalties.

Act Today to Secure Your Estate

Ensuring that your estate is in capable hands is crucial. Should you find yourself facing complications with a trustee, do not hesitate to seek professional advice. The Law Office of Chris W. Chong is committed to upholding your interests and those of your loved ones. With our deep understanding of Utah’s estate laws, we are well-equipped to help you address and resolve any issues with trust administration. Contact us today to schedule a consultation.

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