Did Your Trustee Breach Their Fiduciary Duty?
A fiduciary is a person or entity that is legally required to act in the best interests of another person or entity. The most common type of fiduciary relationship is a trustee that is appointed to manage assets on behalf of the beneficiaries of a trust. When a trustee fails to properly carry out this responsibility, it’s called a breach of fiduciary duty. If you believe that a trustee is not acting in your best interest, it’s important to contact an attorney experienced in the laws and regulations regarding fiduciaries as soon as possible to discuss actions that can be taken to preserve your financial interests. Contact us right away.
Must a Breach of Fiduciary Duty By a Trustee Be Intentional?
A breach of fiduciary duty isn’t always intentional or straightforward. Some breaches are subtle, such as being more generous to one beneficiary than another or making inappropriate investments. When a trustee is a family member they may not understand the importance of certain formalities, such as how their conduct puts the assets of beneficiaries in jeopardy or benefits one beneficiary more than another. That’s why an experienced fiduciary duty attorney will often advise families to put a bank in charge of a trust, rather than a family member who lacks experience and could be swayed into breaching their duty by the emotional pleas of beneficiaries who request immediate funds. In some cases a breach occurs because a trustee is so busy with their own life that they mismanage the trust or neglect their duties. If you suspect that you’re a victim of a trustee that’s not performing their duties as they should, it’s important to contact a trustworthy attorney quickly, before assets are lost.
Commingling of Assets
The term commingling refers to mixing money that should remain segregated. Trustees have a duty to keep assets of the trust separate from non-trust assets, and to ensure that all trust assets are in accounts in the name of the trust, never in the name of the trustee. This means that a trustee must never deposit any trust funds into their own personal account, or an account for a business owned by them, for convenience or any reason whatsoever. For example, a trustee that’s having cash flow problems may not, under any circumstances, borrow money from the trust assets for their own personal use. A beneficiary should never be asked for their permission to do so, and a trustee making such a request would be in breach of their fiduciary duty.
Conflicts of Interest, Self-Dealing and Misappropriation
A trustee is in breach of their fiduciary duty when they engage in practices that use the assets of the trust, or their position as trustee, to benefit themselves personally. These are some examples of the types of self-dealing that create a conflict of interest:
- Using assets of the trust to pay personal debts;
- Sale of trust assets for less than fair market value to themselves, a business entity they have a stake in or to another trust they manage;
- Hiring a business that the trustee has a stake in to perform services for the trust at rates higher than the going rate in the community;
- Investing trust assets in a business the trustee has a stake in and
- Charging excessive fees for services as a trustee.
Trustees are not completely prohibited from business dealings with the trust they manage, but such transactions are subject to greater scrutiny to ensure that the trustee is not self-dealing. For example, a trustee may enlist the services of their relative to perform educational tutoring services under a trust that provides for such educational enrichment for a beneficiary, but fees charged must be the same as for the tutor’s other clients. A trustee may purchase a vehicle owned by a trust, but it cannot be for less than the blue book value. In some cases a trustee will commit blatant misappropriation, such as transferring cash assets into their own accounts and transferring assets into their own name. If you suspect a conflict of interest, self-dealing or misappropriation, it’s important to speak to a trust attorney about taking immediate legal action.
Recordkeeping Requirements
One of the most important duties of a trustee is to maintain complete, accurate and current records of all financial transactions of the trust. These are some examples of the type of recordkeeping that a trustee is required to maintain for a period of seven years:
- The nature and value of trust assets initially received;
- Additional principal and income into the trust;
- The amount of principal that is disbursed and the recipients;
- Commissions, fees and taxes paid;
- The amount and location of any cash balance and
- Any other expenditures, losses or gains of the trust.
If you suspect something has gone missing from your trust and your trustee is delaying or refusing to provide these records, there’s a good chance that something is amiss. In order to protect your rights as beneficiary, it’s important to speak to a trust attorney as soon as possible before assets are lost.