What remedies are available if trustees have breached their duties?
Full Question:
Answer:
Trustees have certain legal duties in relation to the management of the trust. The most important duty is the duty of loyalty. Since trustees are the legal owners of the trust property, the duty of loyalty prevents the trustee from taking advantage of the legal ownership to use the trust property for his own benefit. The trustee must act in good faith when entering into transactions and invest prudently.
If the trustee doesn’t perform his or her duties as stated, i.e. if he or she acts in a way that is disloyal or careless regarding the wishes of the estate holder, then he or she can be considered in breach offiduciary duty. This is legally an abuse of trust, and that person or company can be held responsible.
It can be difficult to determine exactly when an abuse of trust has taken place, simply because the trustee’s position does allow for him or her to make judgment calls to a certain extent; this means not all of the rules are cut and dried. However, if the evidence seems to show that the person didn’t act with reasonable care, skill, or prudence, he or she may be liable.
Typically, an abuse of trust case is brought against a trustee by one of the beneficiaries, since they are the ones who suffer at the hands of his mistakes. There is no official enforcer of the trustee’s job, aside from the beneficiaries to whom he is responsible; however, a beneficiary who feels that his or her rights are not being protected, or who feels that the wishes of the deceased are not being upheld, has every right to file a claim against the trustee. Some common scenarios in which a breach of trust has taken place include:
•The trustee’s own finances are mingled with the estate (this is not uncommon, given that the trustee is sometimes a family member; however, clear records must be kept and the trustee must make every effort to create distinction between his funds and those of the estate; if this is not done, it constitutes a breach.
•Conflicts of interest in which the trustee may have personal reasons to act in a way that goes against the wishes of the deceased and best interests of the beneficiaries. A trustee must not profit from the trust, borrow from the trust, or any number of other transactions that would benefit the trustee personally.
•The trustee fails to stop a co-trustee or other responsible party from acting in a way that constitutes a breach of trust; any co-trustees are jointly responsible for the behavior of all.
Filing a Claim for Breach of Fiduciary Duty by the Trustee
If a beneficiary wants to file a breach of trust against a trustee, he or she must generally do so within one year ofthe incident’s original documentation. If the court agrees that the breach took place, in most cases a third party will step in and ensure that the beneficiary’s claim is handled properly and he or she is given what he is entitled to have according to the will or trust. Depending on the nature of the breach and whether or not it can be clearly proven, the trustee may also be subject to removal from the position and ordered to pay fines and/ or compensation to any beneficiaries injured by his or her actions. In addition, a beneficiary may sue a trustee personally in their capacity as the trustee in probate court.
In South Carolina the statutes provide court procedures for removal of a trustee who may have breached the trust given to him/her.
§ 62-7-706 - Removal of trustee
Current as of: 2009
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(a) For the reasons set forth in subsection (b), the settlor, a cotrustee, or a beneficiary may request the court to remove a trustee, or a trustee may be removed by the court on its own initiative.
(b) The court may remove a trustee if:
(1) the trustee has committed a serious breach of trust;
(2) lack of cooperation among cotrustees substantially impairs the administration of the trust;
(3) because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries; or
(4) there has been a substantial change of circumstances or removal is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.
(c) Pending a final decision on a request to remove a trustee, or in lieu of or in addition to removing a trustee, the court may order such appropriate relief under Section 62-7-1001(b) as may be necessary to protect the trust property or the interests of the beneficiaries.