Grantors establishing trusts are often cautious when selecting a trustee. They choose someone healthy, competent and available. Most of the time, trustees are fastidious about asset management and adherence to their obligations under the law. Beneficiaries typically feel secure knowing that trustees have control over resources and can make distributions as necessary.
Occasionally, those acting as trustees fail to put the best interests of beneficiaries above their own wishes. They may engage in self-dealing that ultimately diminishes the value of the trust. In such cases, concerned beneficiaries may have grounds to initiate legal action to replace the trustee and possibly even hold them accountable for the impact of their misconduct.
The problems created by self-dealing
Trustees often need to outsource certain tasks or responsibilities to professionals or businesses. Generally speaking, they should balance the need for competent support with the cost quoted by the outside party.
Preparing income tax returns, managing physical assets and similar responsibilities may warrant the paid services of an outside party. Trustees should make decisions about who to hire based on what benefits the trust itself and trust beneficiaries.
Self-dealing occurs when trustees award projects or contracts to outside parties due to their interest in a business or professional practice. They may profit from the arrangement, which creates a conflict of interests.
Additionally, they may allow the outside party to overcharge the trust instead of demanding reasonable rates based on current market conditions. Self-dealing may also result in the trust receiving substandard services, as there is less reason to worry about contract retention or complaints when compared with truly neutral, independent services.
If beneficiaries learn that a trustee hired their spouse as an accountant or contracted with their own property management company to maintain residents, there could be reason for concern about the costs imposed and the quality of services provided. Self-dealing is a common breach of fiduciary duty.
Breaches of fiduciary duty are actionable
When trustees look for ways to maximize their own enrichment at the expense of the trust, the people affected by their misconduct can take legal action. Litigation to remove a trustee and to demand compensation for the economic impact of their conduct can be an appropriate response to self-dealing.
Consulting with a probate litigation attorney can help concerned parties evaluate their unique situation and take appropriate legal steps to preserve trust resources as necessary.