Trust Mismanagement Explained: What Every Client Should Know
Trusts offer several advantages for both grantors and their beneficiaries. These legal arrangements allow people to determine how their assets will be distributed to their loved ones, favorite charities, and other parties after their passing. Trusts can protect people’s estates against debt collectors and may come with certain tax benefits. They can also be a powerful tool for financial planning in the immediate sense. However, it’s essential to be aware of the risks of trust mismanagement, which can undermine these benefits if a trustee fails to act in the trust’s best interests.
Placing Trust in the Wrong People
When grantors create trusts, they’re required to appoint trustees to oversee them. A trustee is responsible for managing the assets held in confidence and ensuring they’re distributed according to the grantor’s wishes when the time comes. Unfortunately, not all trustees are as trustworthy as they should be. In far too many cases, they act selfishly or irresponsibly, which can hurt everyone else involved. Knowing how to determine if a Trust has been mismanaged and how to handle such issues is the key to protecting your assets.
What Is Trust Mismanagement?
In general, trust mismanagement applies to any situation in which an appointed trustee doesn’t handle the assets in a trust appropriately. That can branch out in several directions. A trustee’s duties can differ based on the type of assets they manage and the terms of the trust. They may range from making investments to ensure a trust’s value grows over time to arranging for real estate to be maintained appropriately to cover a couple of the basics.
Trustees should also file tax returns and keep accurate, detailed financial records for the trusts they oversee. When it comes time to distribute the assets held in trust to beneficiaries, trustees are expected to do so promptly and per the grantor’s wishes. Any action that contradicts those responsibilities could be considered mismanagement.
Trustees must actively maintain the estates in their care. Failing to do so, such as ignoring the assets in the trust, is an example of mismanagement. From there, irresponsibly investing money held in trust may also be mismanagement. Though investing can be risky in its own right, and even the most promising investments can take unexpected turns, hazardous investments and significant recurring losses can be warning signs of mismanagement.
Additionally, mismanagement includes trustees acting out of greed rather than in the interests of a trust’s beneficiaries. That may entail stealing money outright or drawing no-fee advances from a trust. Another example might be pocketing a portion of the profits from a business that’s part of a trust. Taking money gained from investments and transferring ownership of real estate to themselves are instances of dishonest behavior as well. At the same time, if a trustee charges unreasonably exorbitant fees for their services, that may be an example of greedy, irresponsible behavior.
Safeguarding Trusts Against Mismanagement
Determining whether a trust is being mismanaged isn’t always easy. Proving that a trustee isn’t doing their job or is abusing their position can be even more difficult. If you believe a trustee isn’t handling a trust properly, don’t hesitate to take action.
Consider hiring an attorney to protect your rights and assets. An attorney can be invaluable in determining whether your suspicions are founded, proving wrongdoing on the trustee’s part, and ensuring they’re held accountable for their actions. Whether you’re a grantor or a beneficiary, relieving a greedy or irresponsible trustee of their duties and replacing them with someone who will handle the job with honesty and your best interest in mind is crucial.
