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Common ways trustees misuse their authority for personal gain

On Behalf of | Jan 22, 2025 | Litigation

The role of a trustee can be demanding. A trustee often takes on responsibilities that last for years. They have to manage trust assets and distribute them in accordance with the instructions provided by the trustor.

Depending on the assets used to fund a trust, the trustee may have to physically maintain investment real estate, make decisions about financial assets or run a small business. They have a fiduciary duty to the beneficiaries of the trust. They should always seek to act in the best interests of those receiving resources from trust.

Unfortunately, some trustees violate their fiduciary duty by putting their desires first. They may misuse their authority for personal gain. The following are the most common ways that trustees violate the responsibility that comes with their position.

Asset misappropriation

A trust can contain a broad assortment of different valuable resources. Particularly in scenarios involving extensive resources, trustees may believe that they can take certain assets for personal use without anyone else discovering their misconduct.

They may simply take physical property or perform financial transactions intended to enrich themselves at the expense of the trust. Anytime that a trustee steals or embezzles from the trust, their actions may be grounds for probate litigation. Beneficiaries may be able to remove them and hold them accountable for the value of misappropriated resources.

Self-dealing

A successful trustee likely has other sources of income and personal responsibilities. In some cases, they may run a small business or a professional practice. They could also be a salesperson at a successful local business. They might use their position as trustee to engage in self-dealing.

Self-dealing occurs when a trustee uses their authority to secure contracts for personal enrichment. In many cases, self-dealing involves establishing an inflated price point for goods or services provided to the trust when compared with what other similar businesses or professionals might charge. The trustee effectively uses their position as a way of generating additional income for themselves instead of seeking to optimize the value of trust assets.

Recognizing the early warning signs of trustee misconduct can help people identify when they may need to take legal action to remove a trustee. A trustee who has violated their fiduciary duty could do real damage to the trust and its beneficiary unless people take prompt action.