For many Floridians, creating a revocable trust is a smart way to keep assets from going through probate and, in some cases, avoid certain estate taxes. In theory, the process is fairly straightforward: an individual, known as the grantor or settlor, transfers assets into a trust and names a bank, trust company, or individual (usually a family member) as their trustee.
Problems arise, however, when the grantor names a trustee who mismanages the trust and causes the trust’s beneficiaries to lose the money to which they were entitled. At that point, the beneficiaries may need to take legal action to recover damages from the mismanaged trust.
When Might a Trust Be Mismanaged
Naming a family member as a trustee often seems like the obvious choice. The grantor typically knows this person well and may also name them as one of the beneficiaries, giving that trustee good reason to carefully manage the trust. Unfortunately, there are some situations where the trustee may intentionally or unintentionally mishandle the trust and harm some or all of the beneficiaries as a result.
In one case that made the news back in 2012, a 73-year-old woman who was named the trustee of her grandson’s college trust fund used almost $100,000 from the trust to pay her gambling debts. In this situation, the grantor was most likely unaware of the woman’s gambling addiction and may have believed that since the woman was the grandmother of the beneficiary, she would be motivated to protect the trust.
A gambling addiction isn’t the only reason someone might mismanage a trust. Typically, the beneficiary taking legal action will have to prove that the trustee acted in one of the following ways:
• Due to a conflict of interest, the trustee used the trust to aid or support someone other than the beneficiary
• The trustee used the trust for their own personal profit without informing other beneficiaries of their gains (e.g. growing the money through investments without telling the beneficiaries)
• The trustee acted based on a bribe rather than in the best interests of the beneficiaries
• The trustee managed the trust in a way that disproportionately benefited one or more of the beneficiaries but that was not in the best interest of the majority of beneficiaries
• The trustee did not take the proper actions to safeguard the trust or act in the best interests of the beneficiaries
Proving That a Trust Was Mismanaged
A beneficiary may recognize that a trustee has mismanaged the trust, but it’s also necessary to prove it to the court in order to recover damages. In Florida, a trustee has some discretionary power when it comes to how they manage the trust, so beneficiaries must prove that the trustee did not act “in good faith and within the limits of sound execution.”
Any of the bad faith scenarios outlined in the last paragraph could prove trust mismanagement – as long as the beneficiaries have concrete evidence to back up their claim. The trustee is legally obligated to keep a record of any trust transactions, so in most cases when the trust was truly mismanaged, it should not be difficult to find evidence.
The beneficiaries must also prove that the trustee’s mismanagement caused them financial losses. In some cases, they may bring in financial experts who can testify that the beneficiaries would have received more from the trust if it had been reasonably managed. For example, a financial expert might be able to show that a trustee used the trust assets to make risky investments.
If the court finds that the trustee has, in fact, caused the beneficiaries to lose what they should have received from the trust, the court will award damages (typically in the amount determined to have been lost from the trust) to the beneficiaries. The beneficiaries may also receive additional financial awards from the court, particularly if the trustee has used the trust assets for their individual financial gain.
Talk to a Trust Litigation Attorney
If you’re a beneficiary and are unsure if a trustee has acted irresponsibly, you should consult with a Florida trust litigation attorney. While a trustee does have the freedom to, for example, invest trust assets and make tax decisions concerning the trust, they cannot act in any way that is not in the best interests of the majority of beneficiaries. You don’t have to sit back and let a negligent trustee whittle away your inheritance – you have the right to take legal action.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.