How to Handle a Trustee Not Acting in Beneficiaries’ Best Interest

Executive Summary

• If a trustee is not acting in the beneficiaries’ best interest, they are likely violating their fiduciary duties, leading to mismanagement of trust assets or failure to distribute funds appropriately.
• If they suspect a breach of trust terms, beneficiaries should review the trust document, monitor administration, record examples of misconduct, and communicate concerns with the trustee.
• Trying mediation from a third party may allow you to avoid going through time-consuming, expensive court processes to resolve concerns between trustees and beneficiaries.
• Consulting a qualified attorney can help you assess the viability of legal resolutions, such as petitioning courts for the trustee’s removal or seeking financial compensation for potentially mismanaged or lost assets.

Learning How to Address a Trustee Not Acting in a Beneficiary’s Best Interest

A trustee not acting in the beneficiaries’ best interest can jeopardize the integrity of a trust and generate a wide range of legal and financial issues. Since trustees are legally bound by their fiduciary duties, they are required to manage and distribute trust assets per the trust document’s instructions and must do so in good faith. Neglecting these responsibilities can qualify as a breach of trust and subject trust beneficiaries to asset-distribution delays or losses.

If a trustee fails to distribute trust assets properly, displays poor financial management of the assets, does not transparently communicate with trust beneficiaries, or self-deals, they may face litigation. Beneficiaries experiencing something similar should educate themselves on the trustee’s fiduciary duties and their own rights, review the trust’s provisions, record misconduct examples, and voice concerns to the trustee.

Resolution options may span from mediation to legal action, like petitioning for the trustee’s removal. Read through the suggestions below to know exactly how to handle a trustee who is not acting in a beneficiary’s best interest.

Understand the Fiduciary Duties of a Trustee

In general, trustees’ main responsibility is to manage trusts according to their terms while acting in the best interest of the beneficiaries as outlined by California Probate Code § 16000. Accordingly, a trustee’s fiduciary duties usually include:

• Loyalty – A trustee should avoid conflicts and self-dealing to ensure they act solely in the beneficiaries’ interests.
• Care – Trust assets must be managed responsibly, meaning trustees must make prudent, well-calculated investment decisions.
• Impartiality – If there are multiple trust beneficiaries, the trustee must treat them fairly and equitably following the trust’s provisions.
• Inform and account – Trustees must routinely provide trust beneficiaries with transparent updates and financial accountings upon request.

Failure to uphold the duties listed above can result in a breach of trust, making the trustee legally accountable for any financial losses or harm caused.

Know the Implications of Trustee Liability

Trustee liability arises from breaches of fiduciary duty, including the duty of loyalty, duty of care, impartiality, or reporting, and it can lead to severe civil and criminal penalties, ranging from financial restitution to legal repercussions for fraud or embezzlement. 

Trustees can be held personally responsible if their actions harm the trust or its beneficiaries, putting their own financial security at risk and making it important for them to perform their duties to the best of their ability. Beneficiaries need to understand the risk of trustee liability to help them know when to take action if a trustee is not acting in their best interest. For example, financial mismanagement, such as poor investments or failure to monitor trust performance, can warrant lawsuits for restitution.

Familiarize Yourself with Your Rights as a Beneficiary

Thankfully, as a trust beneficiary, you have a multitude of legal rights that ensure transparency and fairness in trust administration. Some examples of things trust beneficiaries are entitled to include:

• Receiving accurate information about trust assets and distributions.
• Accounting that reflects trust transactions, including income, expenses, and investment decisions.
• The ability to challenge a trustee’s actions if they seem to be violating the trust document or their fiduciary duties.

If a trustee fails to act in their best interest, such as refusing to give a beneficiary money, the beneficiary has the right to take action to protect their inheritance. For instance, they can work with a lawyer to recover funds or property from the trust if the trustee fails to make due and payable distributions.

Review the Trust Document for Specific Provisions

The trust document is the foundation for trust administration; it should explicitly outline the trustee’s duties and the beneficiaries’ rights to prevent ambiguities that could otherwise lead to misunderstandings and disputes between a trustee and beneficiary. Therefore, reviewing the document can help trust beneficiaries determine whether or not the trustee is complying with or violating their obligations.

Some examples of key provisions beneficiaries should examine include:

• Trust type – Determining if a trust is revocable or irrevocable can influence the distribution of trust funds, the type of information that must be given to certain beneficiaries, and how easy it would be to remove a trustee.
• Distribution terms – If distributions are not being made according to the trust’s instructions, the trustee may not be acting in the beneficiaries’ best interest.
• Trustee powers – Clarifying if the trustee is given the authority to make certain decisions can help reveal if they are disobeying certain guidelines.
• Dispute resolution clauses – Some trusts have provisions that require beneficiaries and trustees to seek third-party mediation or arbitration before litigation.

Consulting a qualified probate lawyer can help beneficiaries understand a trust document’s terms or seek court clarification if the trust terms are ambiguous. With legal guidance, they can also select the best course of action if they suspect a breach of trust.

Document Any Misconduct or Breaches of Duty

Suppose you suspect a trustee is not acting in the best interests of the beneficiaries. In that case, it is crucial to gather evidence—documentation is essential regardless of whether you decide to pursue mediation, arbitration, or legal action. Some tips for recording potential examples of trustee misconduct are:

• Preserve copies of trust-related financial statements and transaction records.
• Save correspondence with the trustee, especially regarding duty refusals
• Record self-dealing signs where the trustee used funds for personal expenses
• Keep track of any missed or delayed distributions that should have been made under the trust terms, using bank statements to support these claims.

Substantial documentation can help build a case against a trustee breaching their fiduciary duties, allowing trust beneficiaries to seek a surcharge against the trustee as a financial penalty for losses caused by their misconduct. Presenting your evidence to a trust litigation attorney can help you effectively address and prove claims of trustee misconduct.

Communicate Your Concerns with the Trustee

Before inciting formal legal action, beneficiaries are usually encouraged to discuss their concerns directly with the trustee. During these discussions, beneficiaries may discover that issues arose due to misunderstandings rather than intentional wrongdoing. In general, keeping open communication lines helps ensure trustees fulfill their responsibilities and remain transparent about trust asset management.

If a trust beneficiary suspects mismanagement but is unsure of the trustee’s intent, they can request a formal trust accounting to give them a chance to review financial activity. If they still need clarification, they can ask for a meeting with the trustee to discuss their concerns.

If communication fails and the trustee refuses to cooperate or provide requested information, the beneficiary may need to escalate the situation. They can seek mediation as a neutral way to resolve disputes, but some situations may demand litigation for a sufficient resolution.

Explore Alternative Dispute Resolution Options

Sometimes, mediation and arbitration can effectively resolve trustee-beneficiary conflicts without resorting to litigation. Mediation involves having an unbiased third party facilitate discussions between the trustee and beneficiaries to reach a mutually acceptable resolution without the court system. Arbitration is similar, but it involves a more structured process where the neutral third party issues a binding decision that is meant to eliminate future concerns.

These alternative dispute resolution options are usually faster and less costly than taking the matter to court, potentially saving time and money for both parties. Plus, many trust documents include an alternative dispute resolution clause requiring disputes to be handled through these methods before turning to litigation, usually to preserve trust assets, which are occasionally used for court-related expenses. However, legal action may be necessary if a trustee continues acting in bad faith.

Assess the Feasibility of Legal Action

Beneficiaries may exercise their right to sue a trustee for breach of fiduciary duty, especially if they fail to distribute trust assets as required, are unresponsive, or maintain poor communication. In many situations, trustees are considered personally liable for financial losses they have caused, meaning beneficiaries may be able to recover these lost funds in court proceedings. Still, securing timely legal counsel is essential to protect or recover trust assets. As soon as they suspect wrongdoing, beneficiaries should consult an attorney to assess the case and gauge the practicality of litigation.

Learn How to Petition for a Trustee’s Removal

In addition to seeking lost funds from the trustee’s misconduct, beneficiaries may be able to legally terminate a trustee if a trustee is violating their fiduciary duties. However, the beneficiaries usually have to petition the court for their removal. Some examples of potential grounds for trustee removal include:

• Mismanagement of trust assets
• Self-dealing of trust assets
• Failure to provide required information, like accounting
• Favoring certain beneficiaries over others in a multi-beneficiary trust
• Making negligent financial decisions that significantly harm the trust or its intended purpose

Beneficiaries must provide strong evidence of wrongdoing to successfully remove a trustee, such as financial records showing mismanagement or unauthorized transactions, written communication showing the trustee refusing to provide required information, or witness testimony from another beneficiary or financial professionals. 

Consulting an experienced trust litigation attorney can facilitate the effective collection and presentation of evidence. The court will review evidence to determine whether the trustee should be removed and, if necessary, it can help appoint a replacement.

Understand the Potential Outcomes of Legal Proceedings

Thankfully, the court may resolve a trustee not acting in the beneficiaries’ best interest in many ways. Some examples of outcomes that can occur if a trustee is found guilty of misconduct include:

• The court can temporarily suspend the trustee from their role
• The court may entirely remove the trustee and appoint a replacement
• The court can order the trustee to repay any mismanaged or lost funds
• The court may compel a trustee to do their job and provide accounting
• The court can impose financial penalties or other legal consequences on the trustee to make up for the losses they caused.

In addition to restoring lost or mishandled assets, the court may award attorneys’ fees and costs to the beneficiary if a trustee is found to have acted in bad faith; however, this depends on the circumstances of the defense. 

Consult with a Legal Professional for Advice

Trust disputes between beneficiaries and trustees can be complex, and navigating them without legal expertise can be exceptionally challenging. Some elements a trust litigation attorney can help with include:

• Identifying potential conflicts of interest and offering mitigation strategies
• Ensuring a trustee understands and fulfills their fiduciary duties
• Evaluating whether a trustee’s actions constitute a breach of trust
• Explaining potential legal routes a beneficiary can take
• Gathering evidence that shows a trustee’s misconduct
• Filing legal motions to seek trustee removal or repayment
• Representing beneficiaries in mediation, arbitration, or litigation

Your attorney may explain that beneficiaries have several legal tools to hold a trustee accountable, including: 

• Petitioning for removal – If the petition is approved, courts can replace trustees who fail in their duties, even on an irrevocable trust.
• Filing a lawsuit – Litigation can help beneficiaries recover lost funds, often from the trustee’s own resources.
• Seeking a surcharge – Beneficiaries can ask the court to order the trustee to compensate them for damages caused by the misconduct.

Seeking legal counsel as early as possible can help beneficiaries make informed decisions that protect their rights and avoid prolonged financial losses. 

Let RMO Lawyers Help You With Trust Administration

Taking swift action is crucial if you suspect a trustee is not acting in the beneficiaries’ best interest. A trustee who disobeys their fiduciary duties and violates the trust document’s terms by mismanaging trust assets, refusing to communicate with trust beneficiaries, or engaging in self-dealing can jeopardize your inheritance.

Contacting a qualified legal professional is the best way to assess the feasibility of certain legal actions, including asking the court to compel the trustee to perform their job.

The dedicated legal professionals at RMO Lawyers have substantial experience in trust and estate litigation. Our knowledgeable, compassionate team of attorneys is always ready to help beneficiaries enforce their rights, remove an unfit trustee, and recover mismanaged assets if a breach of trust exists. Schedule a free consultation with an experienced trust litigation attorney from RMO Lawyers to explore your options if a trustee is not acting in a beneficiary’s best interest.