A trustee may, depending on the circumstances of a trust, have a very challenging job. They are responsible for administering a trust in accordance with the written instructions for the trust while also abiding by all relevant state and federal statutes. It is typical for the party creating a trust to earmark compensation for the trustee. They may receive a small amount of pay or certain assets as compensation for their services. Unfortunately, some trustees resent the minimal compensation they receive and might engage in misconduct intended to enrich themselves.
Although they technically have a fiduciary duty to the beneficiaries of the trust, they may seek to act in their own best interests instead of the best interests of the beneficiaries. These are some of the ways that a trustee might abuse their position for personal profit.
Embezzling from the estate
The most blatant means of a trusty violating their fiduciary duty would involve intentional embezzlement. Someone with control over a trust resources might misappropriate them for personal use. They might take physical assets that belong to the trust or skim funds from an account held by the trust. Embezzlement could persist for years and could potentially diminish the value of the trust by many thousands of dollars before beneficiaries uncover this common and insidious form of misconduct.
Seeking secondary profits through administrative choices
Trust administration often involves the management of assets and the support of outside professionals. For example, if there is real property included in the roster of trust assets, a trustee may need to hire a property manager or a real estate agent. They might hire a company that they run themselves or a business owned and operated by someone with whom they have close personal ties. They may end up overpaying for those services and thereby diminishing trust resources for their personal benefit.
Letting bias influence administrative choices
A trustee often has some degree of discretion when making decisions about how they manage and distribute trust resources. In some cases, they might abuse their authority by intentionally distributing assets unevenly, possibly for the benefit of individuals with whom they have a close relationship. Favoritism could lead to not just unfair trust administration practices but possibly also kickbacks paid out by those who receive more from the trust than they likely deserve.
When beneficiaries start to recognize signs of misconduct on the part of a trustee, they may need to consider initiating litigation to preserve the value of the trust and their interest in those assets. Being able to identify trustee misconduct is, therefore, potentially a crucial first step toward preserving one’s interest in a trust.