Handling trusts can be frustrating, especially if you don’t have direct access to assets that you’re entitled to. It can be challenging to know when a trustee is mismanaging your money or what a trustee can and cannot do.
What Happens If A Trustee Does Not Follow The Trust?
Trustees have a legal obligation to follow the trust’s guidelines. If the distribution of assets is outlined in the trust, the trustee must comply. However, depending on the trust, trustees can have the authority to make judgment calls.
A trustee’s decision-making authority depends on how much discretion the trust gives them.
How a Trust Works.
A living trust, or revocable trust, is a document outlining how trust assets will be given to its beneficiaries. Living trusts are created by living trustees and can be revoked or amended at any time. When all of the trustees of a living trust die, it becomes an irrevocable trust and can no longer be changed. The management of the trust then falls to the successor trustee.
Successor trustees are appointed to ensure that the terms of the trust are fulfilled and the assets are handled correctly.
When a trust specifically outlines how assets should be managed, the trustee is legally obligated to fulfill those wishes. Failure to do so would constitute mismanagement.
There are two types of instructions in a trust: mandatory and discretionary. Mandatory provisions are instructions that trustees must follow. Discretionary provisions are instructions that a trustee can choose to follow. Failure of a trustee to follow discretionary provisions is not a breach of fiduciary duty.
What Constitutes Mismanagement or Breach of Fiduciary Duty?
Trustees commit a breach of fiduciary duty when they mismanage assets. Common examples of trustee mismanagement include:
- Failing to comply with the trust’s instructions
- Making self-interested decisions regarding the trust
- Showing a preference for one beneficiary over another.
Can a Trustee Refuse to Pay a Beneficiary?
In certain cases, a trustee can refuse to pay a trust beneficiary. Most frequently, this happens when the beneficiary is asking for funds that the trust doesn’t guarantee. This can also occur when there are not enough funds for what the beneficiary asked for.
Some trusts give additional leeway to the trustee. When the trustee has discretionary authority, they can be within their rights to refuse to pay a beneficiary.
There are situations when the trustee does not have grounds to refuse to pay a beneficiary. If a mandatory provision promises trust funds to a beneficiary then the trustee must comply. If they refuse to distribute the funds, the beneficiary has grounds to sue the trustee.
What Can I Do If a Trustee Doesn’t Distribute the Assets?
There are several options for beneficiaries who are experiencing trustee misconduct. Beneficiaries can ask the courts to compel trustees to distribute trust assets, review the trust, or remove the trustee.
A trustee might cite inadequate funds as a reason for not distributing assets. In this case, the beneficiary may have the right to request the trust’s accounting information.
A trust might have unclear instructions for how assets and trust distributions should be managed. In this situation, a beneficiary or a trustee can file a petition for instruction. A petition for instruction asks the courts to specify how assets should be managed when the trust is unclear.
When Should I Contact a Trust Litigation Attorney?
Legal options for trust management vary on a case-by-case basis. It depends on the trust and the situation to decide which avenue you should pursue. If you are unsure what your options are, you should consult a legal expert.
For more information about trust funds and estate planning give us a call at 800-840-1998.