Trust litigation: What constitutes a breach of fiduciary duty?

On Behalf of | Feb 1, 2023 | Estate And Trust Litigation

When your loved one created a trust and named you as one of the beneficiaries, they also appointed a trustee. This is the person or entity tasked with managing trust assets on your behalf. The trustee owes the trust beneficiaries a fiduciary duty, and they must always act in their best interests.

However, it is not always the case. Some trustees overstep their mandate, seeking to benefit from the trust. It is unlawful, and, as a beneficiary, you ought to take appropriate action and protect your interests.

Examples of a breach of fiduciary duty

It is important to note that not all mistakes that result in financial loss to trust beneficiaries are considered a breach of the fiduciary duty owed. Only actions that amount to negligence, intentional misconduct or a reckless disregard for the beneficiaries’ interests may meet the legal definition of a breach of such duty.

Breach of fiduciary duty can take many forms, including:

  • Mismanagement of trust assets: A trustee must manage trust assets in a responsible and prudent manner. Mismanagement of trust assets, such as investing in risky or fraudulent schemes, can result in a breach of fiduciary duty.
  • Conflict of interest: A trustee must avoid conflicts of interest in trust management. For example, a trustee should not use trust assets for their own benefit or that of their friends or family members.
  • Failure to follow trust terms: A trustee must follow the terms and conditions of a trust as set forth in the trust document. They should not alter them in any way. Otherwise, it may be considered a breach of fiduciary duty.
  • Failure to account: Upon request, a trustee must provide regular accounting of trust activities and financial statements to the beneficiaries within a reasonable time. Failure to do so can be considered a breach of fiduciary duty.

What can you do about it?

There are other forms of a trustee’s breach of fiduciary duty not listed above, and some may not be so apparent. If you suspect that your trustee is not acting right or notice any red flags, it is best to seek legal counsel on the way forward. The earlier, the better.

Breach of fiduciary duty can result in significant financial loss to trust beneficiaries, and you should not wait until it is too late. It may be impossible to recoup your losses if you wait too long.