A trustee is tasked with managing the assets in a trust for the benefit of the trust's beneficiaries, and handling assets in the manner dictated by the terms of the trust. When a trustee fails in his or her duties, it is referred to as breach of fiduciary duty.
Breach of fiduciary duty can come in many forms. Sometimes, the trustee will flat out take money from the trust. More frequently, the breach may be subtle, and may not even be done maliciously, which does not make the breach any less wrong or the trustee any less accountable. For example, the trustee may favor one beneficiary over another, neglect to pay taxes or make bad investments with the money in the trust.
Often, breach of fiduciary duty on the part of the trustee may not be immediately apparent, but there are signs that beneficiaries should watch for. Here are three common signs that a trustee has breached fiduciary duty:
Commingling of assets: The trustee should keep his or her personal assets separate from the assets of the trust. Any indication that the trust's assets and the trustee's personal assets have been mixed is a bad sign.
Conflicts of interest: The trustee is supposed to do what is best for the trust and its beneficiaries. If he or she is making decisions that show more interest in the needs of another party, such as investing in a friend's business or hiring a friend who is a contractor, it might be evidence the trust is being mishandled.
Incomplete records: The trustee must keep very careful records showing any transactions, investments, money coming into the trust and money going out of the trust. If the trustee is not able to produce these records upon request, it may be indication of wrongdoing.
Beneficiaries must be aware that these are not the only signs of breach of fiduciary duty, but they are common ones. Sometimes they are hard to see, or ignored because the trustee is a friend or family member.
Beneficiaries have rights and can take action if they feel a trustee has abused a trust. The sooner that action is taken after learning that something is wrong, the sooner the matter can be resolved and damage to the trust can be prevented.