Whenever money is involved, problems are bound to arise. Add to the mix that in trust law, the legal owner of property (the trustee) is different from the person whom the property is actually intended for (the beneficiary). So it’s not surprising that there are often conflicts between the beneficiaries and trustees of a trust.
One of the most common complaints is made by beneficiaries who feel that trustees are not property managing the assets in the trust. What to do if you find yourself in this situation?
Well, first of all, let’s further examine some reasons why this might happen. One thing to keep in mind is that serving as a trustee of a trust is a time-consuming and often-times, difficult job. Thus, the trustee might simply be doing a sloppy job or may not be the most well-qualified person to handle these assets in the trust. Another common scenario is the fact that the trustee might have a vested interest in the assets as well.
Take this (common) scenario: often times, the person who originally owned the assets and created the trust (the grantor) will leave the assets to the beneficiary, but only up to a point. For example, the beneficiary may only be allowed access to the trust assets on an as-needed basis, and perhaps only for the beneficiary’s lifetime. Once the beneficiary passes away though, the trust assets may go to someone else, possibly someone in the trustee’s family. If this is the case, then you can see why the trustee would be stingy in withholding money from the beneficiary. After all, the more assets that remain in the trust upon the beneficiary’s death, the more there is left for the next beneficiary of the trust.
The point is, there are many reasons why a trustee and beneficiary may not see eye-to-eye on how to manage the trust assets. The good news for beneficiaries is that there are a number of safeguards in place to make sure that trustees are doing their job properly.
First of all, the trustee owes the beneficiary fiduciary duties of due care and loyalty. This simply means that the law recognizes that the trustee has a special relationship to the beneficiary, and imposes a heightened sense of responsibility that the trustee owes to the beneficiary. By law, the trustee must act a reasonable person would and must act in the best interest of the beneficiary.
This next point will vary slightly among states, but generally the trustee also has a duty to invest the trust assets in order to have the trust produce reasonable income. States will vary in terms of what it means to reasonably invest trust property. For example, some states require that the trustee simply invest the trust assets in any type of “safe” investment, such as government bonds. Other states require that the trustee invest the money as a reasonably prudent person would. Still other states require that the trust portfolio as a whole must be invested in a prudent manner, which allows the trustee to diversify the investments.
Additionally, trustees must keep beneficiaries fully informed about what is going on with the trust. They are obligated to provide beneficiaries periodic accountings of the trust income and expenses. If the trustee does not provide this accounting, beneficiaries may go to court and order the trustee to produce the necessary documents.
So these are some of the safeguards and leveraging points you have in your arsenal if you find yourself as a beneficiary who has been slighted by the trustee. I also want to point out that in these situations, emotions are often running high and the first instinct may be to file a lawsuit. But suing can be an intense and laborious process, so I would like to offer some other possibilities for effectively dealing with these situations:
1. It may help to simply (and politely) ask the trustee to step down. In fact, the trust document often times provides for this very situation. The trust creator usually names, in the trust document, alternative and/or successor trustees in case the current trustee no longer performs.
Additionally, the trustee may even welcome this opportunity to step down. As I mentioned earlier, acting as a trustee is a lot of work. For large estates, acting as a trustee can even be a full-time job. Furthermore, acting as a trustee is not a position that most trustees even asked to do, but rather, were requested to do so by the grantor. And in return for all their hard work, the trustee is often not paid anything at all, or just some small monetary compensation as stated in the trust document. Therefore, all it could take would be to just ask the trustee to step down and let someone else do the hard work.
2. If that doesn’t work, then you may want to try private negotiations with the trustee to reach common ground on how you both think the trust assets should be managed. In fact, this may not be as terrible as most beneficiaries imagine it to be. For one thing, the trustee probably had a close relationship to the trust grantor, the very person who is leaving you his or her assets. Thus, as a beneficiary, you probably already have something huge in common with the trustee: some kind of close, personal or familial, relationship with the trust grantor.
Additionally, it may help to keep in mind that there was a reason the trust grantor chose this specific person to act as trustee. The grantor must have trusted and imparted this enormous responsibility to the trustee for a reason, and whether those reasons are well founded or not, you may want to at least consider them.
I understand that due to the nature of money and close relationships mixing together, tensions can run high in these situations. But there are many legal safeguards in place that protect you as the beneficiary. Additionally, you may have more in common with the trustee than you think, and in the end, preserving all the personal relationships involved may be worth more than the money itself.