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When does a trustee violate their fiduciary duty?

Trusts are a legal tool that can offer the creator greater control over the distribution of assets. The trust is administered by a named trustee, who then distributes the assets to the beneficiaries. But what happens when the trustee makes a mistake?

Trustees are expected to act in the beneficiary’s best interests

Trustees have a fiduciary duty to the beneficiaries of the trust. In this case, a fiduciary duty is a legal duty to act in the best interest of a beneficiary. A trustee agrees to take on a fiduciary duty to manage the assets of a trust for the benefit of the named beneficiaries.

These duties generally fall under two broad categories. The duty of loyalty and the duty of care. A conflict of interest could lead to allegations of a failure to meet the duty of loyalty while a failure to take the responsibility of managing the assets seriously could qualify as a breach of the duty of care.

A failure can result in a lawsuit

A violation of the fiduciary duty can result in personal liability. A breach could be intentional or the result of neglect. In most cases, the beneficiary would need to establish the following elements to build a case against the trustee:

  1. Duty. First, the beneficiary must show that the accused had a duty to serve as a trustee.
  2. Breach. Next, the beneficiary will need to show the trustee failed to meet this duty. Examples can include a failure to disclose a conflict of interest or the misappropriation of funds.
  3. Damage. Finally, that the breach resulted in damages, such as a loss of funds.

In some cases, the beneficiary could also push for punitive damages. These are additional funds meant to serve as a type of financial penalty for the trustee’s wrongdoing.