If a trustee breaches their duties, the trust beneficiaries or co-trustees can take action to remove the trustee or correct the failure or breach. In this article, we discuss what a trustee’s responsibilities are, a trustee’s legal duties are, and a beneficiary’s options concerning a trustee who breaches their duty.
What Are a Trustee’s Responsibilities?
In creating a trust, the grantor designates beneficiaries who receive the assets and/or money stored in a trust as well as a trustee who handles the trust administration. A trustee is generally responsible for managing the trust assets and specifically:
- Collecting trust assets
- Approving (or rejecting) additional assets from the grantor or other parties
- Acquiring or selling assets
- Exchanging, dividing, or changing the character of trust assets
- Depositing trust money in an acceptable bank account
- Borrowing money from a financial institution, mortgage, or pledge trust within the duration of the trust
- Taking actions related to a business or enterprise to continue its operation, such as handling a merger, dissolving the organization, or contributing additional funds
- Exercising owner rights as it related to stocks or other securities, such as the right to vote or enter into a voting trust agreement, sell or exercise stock subscription or conversion rights, or deposit securities
- Repairing or making alterations or improvements to real estate property that is in the best interest of the property and beneficiaries
- Entering into a lease agreement or arrangement with a lessor concerning trust property
- Delegating tasks or responsibilities to another individual (a trust agent or professional)
- Insuring trust assets against loss or damages
- Insuring themselves as well as trustee agents and beneficiaries against potential liability
- Declining the administration of property or assets with little or no value
- Ensuring trust property adheres to evolving environmental laws
- Fighting or paying claims made against the trust
- Filing for and paying taxes
- Creating loans out of trust assets
- Appointing another trustee to act and make decisions for property in another jurisdiction
- Making asset distributions
- Resolving disputes regarding trust interpretations through mediation or arbitration
- Signing and delivering contracts in the facilitation of the trust administrations
- Finalizing the administration once the trust is terminated
- Creating a distribution proposal as it relates to terminating the trust
It is important to note that a trustee’s authority may be limited by the terms of the trust. Trustees have legal duties as it relates to managing the trust and representing the beneficiaries (see Utah Code § 75-7-801 to § 75-7-817), including:
- A duty to administer the trust following the trust terms in good faith and as quickly as possible.
- A duty of loyalty to trust beneficiaries, which means acting in their best interests.
- A duty to act impartially if the trust has two or more beneficiaries as it relates to investing, managing, and distributing trust assets.
- A duty to act prudently and avoid acting recklessly or negligently as it relates to the purposes, terms, and distributional requirements of the trust.
- A duty to use their unique skills or expertise if they are given this role because of those skills.
- A duty to incur only reasonable costs as it relates to trust assets and the trustee’s skills.
- A duty to reasonably control and protect the trust assets.
- A duty to maintain accurate, thorough records of the trust administration.
- A duty to keep trust assets separate from their personal assets and property.
- A duty to enforce and defend claims as it relates to the trust.
- A duty to remedy a breach of trust committed by a former trustee.
- A duty to inform qualified beneficiaries about the trust administration as well as relevant information that relates to their interests in the trust. Unless the terms of the trust prevent it, a trustee must adhere to requests from beneficiaries for annual reports about the trust assets, receipts, liabilities, etc., and/or copies of the trust instrument and the trustee’s contact information. Trustees must also inform beneficiaries of the existence of a trust (revocable or irrevocable) after being notified of its creation.
Can a Beneficiary Sue a Trustee?
If the trustee fails to do their job, breaches their fiduciary duties, acted negligently, or violated the beneficiary’s rights, you may be able to sue the trustee. Reasons to sue a trustee include but are not limited to:
- The trustee misappropriated trust assets for personal gain (i.e. they kept the proceeds from an asset’s sale or sold trust property without your knowledge.).
- The trustee was negligent, which led to a financial loss (i.e. they made an unnecessary, high-risk investment).
- The trustee acted without regard to the best interest of the beneficiaries (i.e. they sold trust assets to friends and family for well below market value without permission from the beneficiaries).
- The trustee withholds trust information without a valid reason (i.e. they fail to give the beneficiaries a report or copy of the trust when asked).
- The trusted acted impartially with different beneficiaries (i.e. they favored a few beneficiaries over others by giving them distribution details before the non-favored beneficiaries).
In addition to suing, beneficiaries can take the following actions if a trustee breaches their duties.
- Compel the trustee to remedy the breach by paying money, returning property, etc.
- Compel the trustee to perform the duties they previously failed to enact.
- Suspend the trustee and prohibit them from committing a breach of trust
- Remove the trustee
- Reduce or deny the trustee’s compensation
Under Utah Code 75-7-706, a trustee can be removed by the court (at the request of the grantor, a co-trustee, or beneficiary) if:
- The trustee committed a breach of trust.
- Co-trustees are not cooperating, which prohibits the continuation of trust administration.
- The trustee is deemed unfit, unwilling, or unable to efficiently carry out their duties, and a removal is in the best interest of the beneficiaries.
- All qualified beneficiaries request the removal of a trustee, and the court deems the removal to be in the best interest of the beneficiaries.
- There has been a substantial change in circumstances.
At Nelson, Taylor & Associates, we care about our clients and are equipped to help you work to protect the assets you are entitled to as a beneficiary or advise you on understanding the terms of the trust and your responsibilities as a trustee. If you are worried about a trustee’s misconduct or need help understanding your rights and duties as a beneficiary or trustee, contact us online or at (801) 901-7046 today.