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What if a trustee violates fiduciary duties?

On Behalf of | Sep 8, 2022 | Estate Litigation |

Acting as the trustee of a family trust can lead to difficult scenarios where beneficiaries have differing needs and wants. Kentucky law requires trustees to abide by certain principles in accordance with their fiduciary duties to the trust as a whole, including all beneficiaries. All trustees need to have a firm understanding of what those duties entail.

And if they violate those duties, it is possible to bring legal action against them.

The duty of loyalty

The duty of loyalty sits as the cornerstone of acting as a fiduciary. A trustee must put the needs of the trust (and its beneficiaries) ahead of his or her own needs. From this duty of loyalty stems the other duties.  If a trustee has a personal conflict of interest with something that would be in the trust’s best interests, they must declare that conflict and either step away or receive permission from the beneficiary to act anyway. Conflicts of interest can include actions that benefit the trustee’s close family members, as well.

If a trustee breaches this duty of loyalty, the court may allow the beneficiary to void certain actions taken by the trustee. For example, say a trustee sells the beneficiary’s family home against the beneficiary’s wishes to a development company in which the trustee’s wife has a financial interest. That transaction is a clear conflict of interest and not in the beneficiary’s best interest. The beneficiary may be able to void that sale even if the sale made a profit for the trust.

Duty of fair dealing and prudent administration

The trustee must act as any prudent person would in their shoes when it comes to following the directions in the trust. That means dealing fairly and in the same manner they may treat their own property. If you would not take a similar risk with your own assets, then you probably should not do so with the trust assets unless it is an action specifically proscribed in the trust itself.

Duty of impartiality

Trusts can and often do have multiple beneficiaries. When the needs of beneficiaries collide, they must choose the route most equitable to the trust as a whole unless the trust specifically provides for preferential treatment of one beneficiary over another. For example, if you have one beneficiary entitled to distributions of the trust principle and another who will receive the remainder, you may need to carefully balance your duty to each beneficiary. This does not necessarily mean an equal distribution. Rather, it means an equitable outcome based on the trust and the trust assets.

Tread carefully

If you are an appointed trustee, proceed with caution. This task is often complex and thankless and it is very easy to make a mistake. When you are unsure of your next move, seek counsel from an attorney or the court before acting.

Similarly, if you are a beneficiary who believes there has not been fair dealing, it makes sense to talk with an attorney about your legal options for ensuring fairness.


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