Filing a Lawsuit Against a Trustee

When it comes to dealing with the property of a trust, the trustee occupies a special position. Many people do not realize that a trustee can be sued if they do not do their job properly. In particular, legal action may be warranted if the trustee violates their fiduciary duty.

What Is Fiduciary Duty?

The trustee operates under a principle called a fiduciary duty. This is what they owe to the trust. The trustee does not work for the beneficiaries, but they work for the trust itself.

This means that the trustee has a special relationship with the trust. They have to act for or on behalf of the trust instead of themselves. This extends to every single dealing of the trust. In general, a fiduciary duty means displaying good faith and trust.

When You Can Sue a Trustee

The trustee can be sued when there is a breach of the fiduciary duty. In broad terms, this occurs if the trustee has taken some action that places themselves or someone else ahead of the interests of the trust. The most common example of this is when the trustee engages in some sort of self-dealing. This could be when they engage in a transaction with the trust that is not beneficial to the trust. Alternatively, they could send trust business to a friend or family member who may have a conflict of interest.

When someone signs up to be a trustee, they are accepting potential liability for these types of transactions. The trustee can be held financially responsible for transactions such as these.

An estate planning lawyer may also advise you to sue should evidence arise involving the trustee committing fraud or embezzlement. This is another common ground of lawsuit against a trustee. If the trustee steals from the fund, they can be made to pay not only restitution but also damages and penalties above that.

The trustee also can be held legally responsible if they mismanage the assets of the trust. While they are not held to the standard of perfection, they must exercise a certain degree of care in handling the assets of the trusts. A fiduciary is allowed to make judgment calls and there is an understanding that not every decision will work out the right way. However, if there was some degree of negligence in the management of the assets, the trustee can be held liable.

There are many different possible outcomes of a lawsuit against the trustee. In addition to recovering money from the trustee, numerous other possible measures can be taken as a result of the lawsuit.

One of the common things that plaintiffs will demand is for the trustee to be replaced. The court can grant this relief and appoint a new trustee to manage the fund. This will give some relief because the trustee that has been breaching their duty will no longer have the responsibility for trust assets.

Another common remedy is to compel distribution of the trust assets. If the court finds that the trustee has breached their fiduciary duty, the court can dissolve the trust and mandate that the beneficiaries receive their share of the assets. This is often a preferred alternative because the beneficiaries can receive the assets earlier than they otherwise would have.

In addition, another remedy to seek is the termination of the entire trust. This is a drastic remedy, but the court will order it in extreme circumstances.

The way to start this is to take legal action seeking to force the trustee to give an accounting of the trust assets. Once this has happened and a breach of fiduciary duty is apparent, then the court may take additional action at the behest of the plaintiff who is a beneficiary of the mismanaged trust.

Getting Legal Assistance

As you have read, taking legal action against a trustee can involve many complicated variables. Beneficiaries will likely want to partner with an attorney before filing a lawsuit. To consult with an estate planning lawyer in Hackensack, NJ, contact the Knee Law Firm at (201) 996-1200.