When you work with an estate planning attorney who manages them and navigates the complexities of probate and trust litigation, you will learn how important it is to select a trustee capable of handling and overseeing your financial affairs. Although this blog will focus heavily on trustee malfeasance, we will look at ways to prevent it. Don’t always assume that when a trustee gets removed, it is because they were deliberately failing in their fiduciary duties. Anyone who assumes the role of trustee must know what trustee malfeasance is, the financial obligations associated with the position, and what measures can be undertaken to prevent a breach of fiduciary duty.
Understanding Trustee Malfeasance
Trustee malfeasance speaks to the trustee’s misconduct or breach of fiduciary duties—and there can be scenarios that involve both. Trustees are legally obligated to act according to the best interests of the trust’s beneficiaries. This applies to all components of their duties as they manage the assets in the trust. Their actions must align with the directions provided in the trust and any relevant laws. Additionally, there are different types of duty.
- Duty of Loyalty: Trustees must act in the best interests of the beneficiaries. Trustees can be challenged when the beneficiaries believe that the trustee is making decisions based on personal interest. Typically, these can surface when a conflict of interest or one or more beneficiaries accuse them of “self-dealing.”
- Duty of Prudence: The trust’s assets must be handled with reasonable care, skill, and diligence. Using practical examples, trustees need to preserve and grow the trust, and their decisions should align with those goals.
- Duty of Accounting: This ties back to what we discussed previously. Trustees have extensive financial obligations. For instance, when you oversee a trust, you will maintain financial records and provide accounting statements at regular intervals. To meet the demands of their role, they must have a pulse on how the trust spends and receives money, the expenses associated with maintaining the trust, and any distributions it makes. Transparency is critical to ensuring that a trustee isn’t accused of being negligent.
- Duty of Impartiality: The trustee is an extenuation of the trust. They cannot give preferential treatment to one beneficiary over another. When assets get distributed, it has to be in accordance with the terms of the trust.
Preventing Accusations of Malfeasance
This begins with the person creating the trust. For example, when someone needs to select a trustee, they may know of someone who has demonstrated that they possess integrity and have a solid reputation of being trustworthy and reliable. In many instances, this is not enough. Choose a trustee with a base of financial knowledge and management experience. If you don’t know anyone that meets this criteria, talk to your attorney about the possibility of using a professional trustee or a corporate fiduciary.
Additionally, choose your attorney carefully. The trust must be written in a way that includes clearly defined terms. Experienced estate planning attorneys create trusts that limit any room for misinterpretation—which pave the way for future disputes. When you meet with an attorney, you can also review whether you should include a co-trustee or a trust protector. (Trust protectors are independent third parties that can remove or replace a trustee if they fail to meet the role’s requirements.) Think of it as incorporating checks and balances into your trust. These people will monitor the actions of the primary trustee.
Get in Touch with Luis E. Barreto & Associates
When you understand the duties and responsibilities of a trustee, you can incorporate preventive measures. The goal is to reduce the likelihood of malfeasance by building a trust alongside an experienced estate planning attorney and selecting a person who can rise to the demands of the position. Conversely, if you suspect trustee misconduct, contact Luis E. Barreto & Associates and set up a free initial consultation. We have extensive experience with probate and trust litigation, and we will explore all the legal options available to help to find a resolution.
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