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Mistrusting the trustee: how to handle trustee malfeasance

A trust is a common estate planning tool, but they require a trustee to manage them. While one hopes the trustee they choose is honest, ethical and trustworthy, trustee malfeasance happens. When a trust is mismanaged the funds meant for beneficiaries can be greatly reduced or even lost. Keeping a watchful eye on a trust can help you spot mismanagement before considerable damage is done.

 

Is it intentional or a mistake?

As noted, a trustee should be trustworthy, but competence also plays a role. If a trustee is acting incompetently that is considered mismanagement. Making an erroneous mistake can highlight poor judgment skills and bring into question the trustee’s capability. If the trustee is not capable of managing funds for the beneficiaries they can be removed with legal action.

More insidious are trustees who commit malfeasance. Malfeasant trustees knowingly make decisions that go against the best interest of the trust. This can include “borrowing” money from the fund or distributing money to non-beneficiaries. A trustee is required to document every transaction involving the trust. Is malfeasance is involved the documentation may be missing, indicating that something is amiss.

Removing a trustee

If you believe the trustee is not adequately performing their duties you can ask them to surrender the role. In some cases the trustee has mismanaged the trust because they were overwhelmed and will gladly surrender the role. Depending on how the trust was written, a beneficiary may simply be able to remove and replace a trustee. However, if the trustee is unwilling to surrender their role, legal action may be your only recourse.

Having the court intervene can be costly and time consuming, but hiring an attorney and having documentation to substantiate your claims against the trustee will make the process easier.

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