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The Ultimate Guide to Trustee Malfeasance

A trustee, at its essence, is an individual or an entity appointed in the trust. They are responsible for managing the assets/funds and ensuring that designated beneficiaries receive the trust adequately. In the case of mismanagement, the funds might reduce or get lost.

This definition illustrates how much power is wielded by a trustee. And in a perfect world, a trustee would never exploit their position for personal gains. But trustee malfeasance is a common occurrence.

What is trustee malfeasance?

Trustee malfeasance is a broad term. It comprises of several offenses, both intentional and unintentional.

At times, trustees knowingly decide to go against the best interest of the beneficiary. It might include borrowing money from the trust or distributing it among non-beneficiaries without seeking permission.

Typically, a trustee has to document every transaction they make on the trust. If the document is unavailable, it is clear that there are some discrepancies within the accounts.

As noted, a trustee should be sincere, but competence also plays a significant role.  Making an erroneous mistake highlights poor judgment skills. In such cases, the competence of a trustee comes under question.

Examples of trustee malfeasance

The actions or complete inaction from a trustee may lead to legal liability. Here are some instances when trustee malfeasance might happen:

  • Failing to prevent a party from acting in a manner that would harm the trust
  • Failing to follow the obligations of the trust
  • Ignoring trust instrument about distribution and duties
  • Intermixing of an estate and personal property
  • Engaging in transactions beneficial to the trustee for the detriment of the trust

What are the trustee responsibilities?

According to the Florida Trust Code, trustees have various overlapping duties to the trust and beneficiaries.

The first duty of a trustee is to be responsible. They must abide by the legal restriction of deciding in the best interest of the beneficiaries. It should also fall in line with the implied or stated intentions of the trust document.

The trustee should also be informed of the altering laws in a state regarding estate and fund distribution.

What to do when trustees breach their fiduciary duties?

If the beneficiaries learn that the trustee is breaching their trust or are making decisions that are not in their best interest, they can take the trustee to court.

The trustee can be sued for breach of fiduciary duties. It will lead to the removal or replacement of the trustee. The law also penalizes the trustee to compensate for the financial loss.

Once the beneficiary decides to take the case of a fiduciary breach to court, they can hire a probate attorney for their representation. Technically, a beneficiary should ensure their appointed lawyer holds extensive experience in trust litigations.

There are instances in which the trust is established in a different state than the beneficiary’s state of residence. In this situation, the case is decided as per the state laws in which the trust is established.

For example, if the beneficiary relocated to Florida, but the trust was established in Texas, then the case would be decided as per the laws of Texas State. In this case, the beneficiary would need to hire a Texas Probate Attorney to contest the case.

During the proceedings, the beneficiary has the right to demand an audit of the trust’s accounts. They can also request for the relevant document. Taking a hard look at the documents allows you to understand whether the trustee is misusing the assets.

Removing a trustee

If you prove that the trustee is not performing their duties per the law, you can move for an extreme measure. In some cases, the trustee mismanages the funds because they feel overwhelmed. Those who are aware of their incompetence will gladly surrender the role.

Depending on the trust transcription, a beneficiary may have the right to remove and replace a trustee. But in cases when the trustee is unwilling to give up the role, a legal action might be your only option. As mentioned above, having an attorney up your sleeve is a wiser move in such cases.

How to prevent trustee malfeasance?

The best way to avoid trustee malfeasance is to make an informed decision when choosing a trustee. It should ideally be someone who genuinely cares for the beneficiaries and have their best interest at heart

If you are a beneficiary, you can prevent trustee malfeasance by closely watching your trustee’s move. One measure is to request and review for the accounts to prevent misuse or fraud in funds.

Final Thoughts

If you suspect that the trustee is depleting the assets, then having an attorney by your side is a good idea. No matter what complications arise in your relationship with the trustee, an attorney can help you figure out a way out of the troubles.

Prevention of trustee malfeasance requires careful evaluation of their performance throughout. We hope you find a reliable trustee who puts your best interest before everything.

Audrey Throne
Audrey Throne has an ongoing affair with the words that capture readers’ attention. Her passion for writing dates back to her pre-blogging days. She loves to share her thoughts related to business, technology, health and fashion.

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