When someone creates a Trust, there is also a Trustee who must take charge. The Trustee is the person or entity that manages the assets in the Trust on behalf of the Beneficiaries. Most of the time Trustees do their jobs well. But sometimes they don’t. The failures may be so bad that they constitute a breach of trust.
A breach of trust occurs when a Trustee fails to fulfill the legal duties imposed on the role. It’s a specific type of breach of fiduciary duty.
Understanding these duties, recognizing breaches, and knowing the remedies available can help Beneficiaries protect their interests and ensure Trustees properly carry out their responsibilities.
Duties of a Trustee
Under the Tennessee Uniform Trust Code, Trustees owe fiduciary duties to the Beneficiaries. These duties exist to safeguard the Trust’s assets and ensure that the Trustee serves the Beneficiaries’ best interests.
The duties of a Trustee primarily include:
- Duty of Prudent Administration: Managing the Trust’s property with care, skill, and diligence, consistent with the Tennessee Uniform Prudent Investor Act (which requires investing Trust assets in a reasonable manner).
- Duty of Loyalty: Acting solely in the Beneficiaries’ best interests, and avoiding conflicts of interest with the Trustee’s own interests or with others.
- Duty to Inform and Report: Keeping the Beneficiaries informed about the Trust’s administration and providing them with regular updates about the Trust’s assets.
- Duty of Impartiality: Treating all Beneficiaries fairly and without favoritism.
The Trustee must also follow the terms set out in the Trust. Each Trust can have a variety of different instructions depending on the Settlor’s intent.
Some Trusts may have specific investment strategies, and others may have a highly detailed plan of distribution. The Trustee must carry out the Trust’s purpose as closely as possible.
Common Examples of Breach of Trust
Trustees who fail to carry out these duties may be found liable for breach of trust. Here are some common examples of situations that can constitute a breach of trust.
- Failure to Invest Prudently: A Trustee leaves a large amount of money in a non-interest-bearing account for years, failing to generate reasonable returns. The Prudent Investor Act requires Trustees to invest Trust assets wisely, balancing risk and return. Neglecting this duty can significantly diminish the Trust’s value and can be a breach of trust.
- Failure to Inform and Report: A Trustee does not provide the Beneficiaries with any statements about the Trust’s assets for several years, even after receiving requests for them. Trustees are obligated to keep Beneficiaries informed about the overall administration of the Trust.
- Failure to Be Impartial: A Trustee shows favoritism by distributing more funds to one Beneficiary than the others without a valid reason. This violates the duty of impartiality, which requires Trustees to act fairly toward all Beneficiaries and protect each of their interests.
- Improper Delegation of Duties: A Trustee delegates critical responsibilities to an unqualified third-party without proper oversight, leading to loss of Trust assets. Trustees must administer the Trust personally, or ensure that delegated tasks have competent professionals handling them.
Remedies for Breach of Trust
When a breach of trust occurs, the law provides several remedies to protect Beneficiaries and address any harm. Some of the remedies laid out in the Tennessee Uniform Trust Code include the following.
- Compel Performance: A court may order the Trustee to perform their duties correctly. For example, if a Trustee fails to provide an accounting, the court can require them to produce the necessary documentation to the Beneficiaries.
- Issue an Injunction: The court can issue an order prohibiting the Trustee from committing further breaches of trust. This remedy is often used to prevent ongoing harm to the Trust.
- Award Money Damages or Restitution: Trustees may be required to restore lost assets, pay monetary damages, or return misappropriated property to the Trust. This ensures the Beneficiaries are compensated for the harm resulting from the breach of trust.
- Order an Accounting: If Beneficiaries suspect mismanagement, the court can require the Trustee to provide a detailed account of the Trust’s administration. This transparency can uncover further breaches and guide what other remedies may be needed.
- Remove the Trustee: In cases of serious breaches or repeated misconduct, the court may remove the Trustee and appoint a Successor. This remedy protects the Trust from further harm by that Trustee and restores the Beneficiaries’ confidence in the Trust’s administration.
The courts also have the power to order other types of relief as may be appropriate under the circumstances. Every Trust situation can be unique based on the trust instrument, assets, and parties involved.
Additionally, Tennessee trust law allows courts to award attorney’s fees and costs to the prevailing party in breach of trust cases. This is an exception to the normal rule that each party pays their own attorney’s fees.
Protecting Against Breach of Trust
Trustees play a critical role in managing Trust assets and serving Beneficiaries. When Trustees fail to meet their obligations, Beneficiaries can suffer significant financial harm. This is why it’s highly important to choose your Trustee wisely.
By understanding Trustee duties, recognizing breaches of trust, and using the appropriate remedies, Beneficiaries can protect their interests and hold Trustees accountable.
If you see problems with the administration of your Trust, it’s important to take action now to prevent further harm.
Connell Law, PLLC assists Beneficiaries in Middle Tennessee with protecting their interests in a Trust. Reach out to us today to request a free consultation.
