Trustees play a critical role in managing and safeguarding assets within a trust. However, there are instances where trustees fall short of their responsibilities, leading to financial losses and unnecessary strain for the trust’s beneficiaries. In some cases, these violations must be addressed through litigation.
What Is a Trustee?
A trustee is a central figure in a legal arrangement known as a trust. In this arrangement, the grantor who creates the trust transfers ownership of certain assets to the trust, which is managed and protected by a trustee for the benefit of a third party called the beneficiary. The trustee has legal ownership of the assets but not beneficial ownership, meaning they cannot use the assets for their own gain.
Roles and Responsibilities of the Trustee
Under Texas law, trustees must act with prudence, diligence, loyalty, and impartiality. Specifically, the law requires trustees to do the following.
- Trustees are obligated to invest and manage the trust’s assets as a prudent investor would, considering the trust’s purpose, terms, distribution needs, and other circumstances.
- Trustees should consider various circumstances when making decisions, including economic conditions, inflation, tax consequences, expected returns, and beneficiaries’ liquidity needs.
- Trustees must verify facts that are relevant to investment and management decisions.
- The law expects trustees with special skills or expertise to employ those skills in their duties.
- Trustees must diversify the trust’s investments unless they determine it’s in the trust’s best interest not to do so due to exceptional circumstances.
Remain Loyal and Impartial
- The trustee has a duty to invest and manage the trust’s assets solely for the benefit of the beneficiaries named in the trust.
- If there are multiple beneficiaries, the trustee must act impartially and consider the differing interests of those beneficiaries.
- Trustees can delegate investment and management functions as long as they exercise reasonable care in selecting an agent, setting the terms of the delegation, and periodically reviewing the agent’s actions.
- Agents have a duty to the trust to act with reasonable care in line with the delegation’s terms.
What Is a Breach of Fiduciary Duty?
The trustee has breached their duty of fiduciary care when they fail to act in the best interests of the trust’s beneficiaries or otherwise fail to uphold their responsibilities under the law or the terms of the trust. As fiduciaries, trustees are accountable for managing, protecting, and distributing the trust’s assets. This position demands a high level of care, loyalty, and honesty.
Breaches can manifest in various ways, such as mismanagement of trust assets, self-dealing, neglecting to provide accurate accountings, or failing to distribute assets according to the trust’s stipulations. These violations erode the foundational trust that grantors place in a trustee and can lead to significant legal and financial consequences.
Beneficiaries’ Rights When a Breach Occurs
When a trustee breaches their fiduciary duty, beneficiaries have the right to take specific actions to protect their interests. Per Texas law, interested persons can petition the court to remove a trustee under several circumstances that indicate a violation of their duties.
Removal is permissible if a trustee:
- A trustee has materially violated or even attempted to violate the trust’s terms, leading to significant financial loss to the trust
- A trustee fails to make an accounting required by the terms of the trust or by law
- A trustee becomes incapacitated or insolvent or neglects to properly account for their actions
- The court finds other reasons for removal
Importantly, beneficiaries have the right to consider any violation leading to the trustee’s removal as a breach of trust. This allows them to pursue litigation and potentially recover losses they incurred due to the trustee’s misconduct.
Contact a Trustee Misconduct Attorney Now
If you suspect a trustee has breached their fiduciary duty to you as an interested party, reach out to a trustee misconduct attorney at Hargrave Law right away. You can contact us online or reach us by phone at 817-968-7191.