When a trustee puts personal gain before the trust’s interests

Posted by iLawyer on Dec 26th, 2019 Firm News, Probate

The trustee who manages the major decisions and transactions for a trust has an obligation to the trust itself, the testator who created the trust and the beneficiaries. They should always put the best interests of the trust before their own personal interests. This obligation, known as a fiduciary duty, serves as a protection for the beneficiaries of the trust, as well as the people who create them as part of an estate plan.

The administration of a trust often involves the investment or liquidation of financial assets, the management or sale of major assets, such as real estate, and ensuring that beneficiaries comply with all obligations and terms when using trust assets.

Trustees should perform these duties with a focus on what will best uphold the intentions of the trust’s creator and comply with the written rules of the trust. When someone managing a trust puts their own needs ahead of what is best for the trust, they violate their fiduciary duty and leave themselves vulnerable to legal action.

Questionable transactions and short sales are warning signs

It isn’t always possible for beneficiaries and family members to successfully monitor the actions of a trustee during every stage of trust administration. However, certain major transactions will produce a paper trail that beneficiaries and heirs can scrutinize for signs of insider dealing and poor decision-making.

The process of liquidating or selling physical assets for the financial benefit of the trust is an important component of many estate trusts. Improperly managed, the sale of physical assets for less than their value could drastically reduce the overall worth of a trust and what family members and heirs have to count on in years to come. A trustee should do everything in their power to maximize the sale price for any assets they liquidate.

Even a sale within the family could diminish the value of the trust

Unless there are specific provisions about a sale within the family at a discounted price or a first right of refusal for certain assets, a trustee should always seek the highest sale price or at the very least a fair market value offer for major sales related to the trust.

Although the trustee may have a family member who wants to purchase a valuable asset from the trust, such as a piece of real estate, they should offer their price based on what others would pay for the asset. The same is true if a beneficiary wants to make an offer. A trustee who sells trust assets at reduced prices or below market value to friends or family members violates their fiduciary duty to the trust, its creator and its beneficiaries.

You can ask the court to intervene when a trustee violates their fiduciary duty

One of the reasons that people often include trusts in their estate plans is that they are more durable than a standard last will, meaning it is generally harder to bring a challenge against a trust than a last will. However, it is relatively straightforward to challenge a trustee who acts in their own interest rather than in the best interest of the trust.

As soon as you have any evidence of a trustee engaging in insider dealing or putting personal gain ahead of the best interest of the trust, you may have grounds to ask the Texas probate courts to remove the trustee and replace them with someone willing to act in the best interest of the trust.