A Trustee has a legal obligation to follow the instructions and provisions set forth in the Trust and to deal fairly with the assets and the beneficiaries of the Trust. Beneficiaries have certain rights to review the Trustee’s performance and challenge actions that impact their interests or the value of Trust assets.
Trust Litigation allows Beneficiaries to monitor a Trustee’s performance, to challenge decisions that deviate from the Trust’s terms, and to obtain relief for harm caused. Trust Litigation may involve claims by one or more Beneficiaries contesting the validity Trust itself on grounds such as fraud, undue influence, coercion, and lack of capacity. In addition, claims may be bought against the Trustee for mismanagement or misappropriation of Trust assets, fraud, and breach of fiduciary duties. Further, attorneys involved in the drafting or execution of a Trust may be sued for any conduct that amounts to malpractice.
Estates, particularly those with of high-net worth individuals with substantial assets, including family corporations and Estates with large commercial holdings are susceptible to misconduct by the Personal Representative. Like a Trustee, a Personal Representative has a legal obligation to follow the instructions and provisions set forth in the Will or other Estate documents, and to handle all Estate assets fairly, honestly and competently. When they fail to do so, claims can be made against a Personal Representative for undue influence, coercion, lack of capacity, mismanagement or misappropriation of Estate assets, fraud, and breach of fiduciary duties.
Fiduciary Duties and Breach
Both Trustees and Personal Representatives owe fiduciary duties to the Heirs or Beneficiaries. Among the duties typically owed are: the duty to administer the Trust or Estate solely in the interest of the Beneficiaries; the duty of full disclosure of material facts when dealing on his or her own account; the duty to keep and render clear and accurate accounts of the administration; and the duty to take reasonable steps to take, keep control of, and preserve the Trust or Estate’s property. Trustees and Personal Representatives must also use their best judgment to deal fairly and honestly with Trust and Estate assets, and must refrain from any sort of conduct that involves a conflict of interest, or is intended to benefit themselves. Persons who violate these fiduciary duties may be liable for damage caused by their breach, including the payment of the opposition’s attorney’s fees.
If a Trustee or a Personal Representative commits a breach of trust, or threatens to commit a breach of trust, a beneficiary or co-trustee of the Trust may commence a proceeding for any of the following, as applicable:
- To compel the Trustee or Personal Representative to perform their duties.
- To enjoin the Trustee or Personal Representative from committing a breach of trust.
- To compel the Trustee or Personal Representative to redress a breach of trust by payment of money or otherwise.
- To appoint a receiver or temporary trustee.
- To remove the Trustee or Personal Representative.
- To set aside acts of the Trustee or Personal Representative.
- To reduce or deny compensation to the Trustee or Personal Representative.
- To impose an equitable lien or a constructive trust.
- To trace property that has been wrongfully disposed of and recover the property or its proceeds.
If the Trustee or Personal Representative commits a breach of trust, they are chargeable with any of the following, as applicable:
- Any loss or depreciation in value of the Trust or Estate resulting from the breach of trust, with interest.
- Any profit made by the Trustee or Personal Representative through the breach of trust, with interest.
- Any profit that would have accrued to the Trust or Estate if the loss of profit is the result of the breach of trust.
Elder Financial Abuse
Financial abuse of an elder (age 65 and older) or dependent adult occurs when a person or entity does any of the following: (1) Takes, secretes, appropriates, or retains real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud, or both; and/or (2) Assists in taking, secreting, appropriating, or retaining real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud, or both. Examples of taking, secreting, appropriating, obtaining, or retaining the real or personal property are when a caregiver forges a check to him/herself from the elder’s account, or a sibling misappropriates the inheritance of his disabled adult sibling.
Elder financial abuse is a crime that is committed behind closed doors, often by Trustees, Personal Representatives or family members. Changes in cognitive abilities, coupled with the fear of outliving resources, make seniors prime targets for financial abuse. Seniors with mild cognitive impairment but who are capable of performing the necessary activities of daily living to remain “independent” in the community are particularly vulnerable to being victimized. Those having trouble with their critical thinking skills can become confused and easily manipulated when it comes to managing their property, personal finances, and estates.
The law provides separate remedies for financial exploitation and undue influence of an elder by a Trustee or Personal Representative.