If you are the beneficiary of a trust or if you are considering forming a trust to protect your assets, the potential for a trustee, the individual who manages the trust, to abuse their position or make poor decisions might be something that is weighing on your mind.
Trusts are created to manage and protect the assets in the trust for the best interest of named beneficiaries. A trustee has a fiduciary duty to manage trust assets for the benefit and best interests of the beneficiaries and to not act in any way that is self dealing.
However, trustees, who hold a significant amount of power, do not always fulfill their fiduciary duties and sometimes they can even abuse their power, taking advantage of the beneficiaries and/or the grantor (the person who formed the trust). If you’ve noticed any unexplained transactions or the trustee is unresponsive and difficult to get in touch with, then you may be worried that these could be signs of mismanagement or even misappropriation of trust assets.
What Are the Most Common Types of Trustee Abuse?
Trustee abuse can take many different forms, with some being quite obvious to the other parties involved and other forms of trustee abuse being very sophisticated and hidden. Probably the most prolific form of trustee abuse is the misappropriation of trust assets, either for their own personal gain or for purposes that were outside the terms of the trust. For example, a trustee might withdraw money to pay their office rent or home mortgage. They might be really blatant about it and purchase a car or go on a luxury vacation. It doesn’t matter if they intended to replace the money they took; it is still theft.
Self-dealing, where a trustee acts in their own interests at the expense of the beneficiaries, is another common form of trustee abuse. The trustee’s actions need not produce any harm to the beneficiaries; in fact, a trustee could act in self-dealing and actually generate a benefit to the beneficiaries, but if they did not disclose the interest they had in the transaction, they have still breached their fiduciary duties. This could include investing in a business in which the trustee has a financial interest or purchasing property from the trust at a rate lower than the market value.
Negligence or carelessness is another form of trustee abuse that, while it may not be willful or intentional, is characterized by a trustee’s failure to properly manage the trust and employ an adequate level of care in fulfilling their fiduciary duties. A trustee may act negligently by not maintaining property owned by the trust, making poor investment decisions, failing to diversify investments, or making very risky investments.
Finally, fraud is a form of trustee abuse that occurs when a trust makes a material representation of fact that they know to be false in order to cause someone to rely on this representation. In the context of a trust, fraud could occur if a trustee falsifies financial statements or lies about how trust funds are being spent.
How to Spot Trustee Abuse in New Jersey
One of the first signs of trustee abuse is missing funds or unaccounted transactions. If beneficiaries discover that trust funds are missing, they should demand an accounting. Providing beneficiaries with transparent records is an obligation of the trustee. If the numbers do not add up or if there are questionable transactions, then it might be necessary to involve a neutral third party to examine the records and determine what has happened.
If a trustee is very unresponsive to inquiries from beneficiaries or seems to dodge questions, this might also be a sign of trustee abuse. Trustees have a fiduciary duty to the beneficiaries of a trust and this includes being transparent with records and information pertaining to the trust and communicating with the beneficiaries appropriately.
Another red flag that could indicate trustee abuse is sudden changes in the trustee’s wealth, assets, or lifestyle. If a trustee had a fairly consistent lifestyle and then all of a sudden begins to purchase luxury items or go on fancy vacations, these changes coupled with a lack of transparency about trust affairs might be a sign of trustee abuse.
NJ Legal Consequences for Breaching Trustee Duties
If a trustee violated their fiduciary duties, they can be removed as trustee and face civil liabilities for damages suffered by the trust’s beneficiaries. These civil penalties will likely involve financial compensation for the beneficiaries and can vary greatly depending on the damage done. If their conduct was criminal in nature, then they may also be criminally liable for charges like theft or fraud. If found guilty, the trustee may be ordered to pay significant fines and could even be sentenced to jail time. It is important to note that the trustee can face both civil and criminal liability.
Suspect Trustee Abuse? Contact Chamlin, Uliano & Walsh to Discuss Your Case in Monmouth County, NJ
As stated above, the first step you should take as a beneficiary if you suspect that a trustee may be breaching their fiduciary duties is to request an accounting of the trust assets and any and all transactions and investments. Depending on the trust, you may wish for an accountant or another financial expert to help you examine the records and identify any potential issues. If you uncover a problem, it is wise to consult with an experienced trusts and estates lawyer who can advise you on your options and the best course of action. It might be possible to resolve the problem through mediation or it might become necessary to initiate estate litigation to remove the trustee and recover any damages.
For more information about your specific situation, we invite you to book a consultation with a member of our experienced and skilled legal team at Chamlin, Uliano & Walsh to better understand your options. We assist clients throughout the Middletown, Rumson, Toms River, Long Branch, Neptune, Wall, Freehold, Jackson, Holmdel and Southern New Jersey area with their wills and estates matters. Call (732) 440-3950 without delay for the assistance you need now.