When you are named the trustee of a trust, it comes with responsibilities you need to be prepared to take. A trustee has a great deal of legal and ethical responsibility to ensure that the funds and property within a trust are managed properly and distributed to the beneficiaries of the trust according to the terms of the trust.
Understanding the details of these fiduciary duties and your role in the administration of the trust is essential. Mismanaging a trust can have severe consequences. Do you suspect a co-trustee has neglected their responsibilities to the decedent’s estate and the trust’s beneficiaries? If so, you can take action. Contact the Virginia trust litigation attorneys at Midgett Preti Olansen.
Unlike a revocable will, where a court may oversee the distribution of property during the probate process, trusts are not overseen by a court. Instead, it is the job of the trustee to oversee and administer the trust assets on behalf of the beneficiaries of a trust. Courts only become involved if somebody, like a beneficiary, who is legally allowed to contest the trust, does so.
As a trustee, your job comes with serious fiduciary responsibilities. You are expected to administer the trust in good faith on behalf of the beneficiaries. This involves loyalty, care, maintenance, and impartiality.
Some trusts include distributions to cover the costs of the trustee, but regardless, you must always be loyal to the wishes of the decedent (the settlor or grantor of the trust) and the rules laid out for distributions to the trust beneficiaries and the use of the trust property, whether it is money, real estate, business interests, or other trust assets. It is your job to be loyal to the beneficiaries’ interests and the terms of the trust agreement. You were chosen because the settlor trusted you, and any breach of trust can open you up to legal issues.
You are also responsible for the maintenance and care of the real property placed into the trust as part of the trust agreement. You are expected to take any reasonable steps to protect and maintain the trust assets and to ensure that they are neither wasted nor stolen. If, for example, the trust includes real estate, you are responsible for maintaining that real estate until it is sold or passed to the beneficiaries.
Impartiality is essential to a trustee’s job as a conservator of the trust’s property. You should have no interest in the trust other than to ensure that all instructions in the trust instrument are followed. You are responsible for seeing that qualified beneficiaries get what they are entitled to receive, that no conflict of interest interferes with the equitable distribution of property, and that the rules of the Virginia Uniform Trust Code are followed every step of the way with no malice, favoritism, or partiality interfering.
Other duties you must perform include exercising reasonable skill and care, giving personal attention when needed to the affairs of the trust, exercising efficiency in reasonable spending, protecting the property within, keeping detailed trust records, and defending and enforcing claims against the trust. Violating any of these responsibilities may represent a breach of fiduciary duty by the trustee.
A trustee’s sole duty is to the trust and the beneficiaries. If money must be withheld from the beneficiary, there must be a clear reason in the interests of the trust. If the trustee refuses to pay a beneficiary their just due or refuses to give an accounting to beneficiaries of the trust, this can represent a breach of fiduciary duty on the trustee’s part.
One red flag is when a trustee tries to seek a release of liability waiver. Very few exceptions exist where such a release is valid, but these are stringent circumstances. These include:
Asking the courts or beneficiaries to approve their account before distributing funds or property
Withholding part of the distribution that another interested party has reasonably disputed
Protecting the trust against claims by another person or entity besides one of the beneficiaries
Hanging on to a reserve to protect the beneficiary against unforeseen circumstances such as accounting fees, taxes, debts, and trust administration costs
If a trustee can show that a beneficiary caused damage to the trust assets, the trustee may be able to sue. If, for example, the beneficiary destroys trust property, such as a house where they are allowed to live but do not formally own, the trustee could sue on behalf of any contingent beneficiaries or other current beneficiaries who suffer harm due to the damage.
In this case, the trustee can and must sue the offending beneficiary. The rules for any trustee to sue include showing a proper cause of action, such as a tort, contract, or quasi-contract claim, and showing the resulting damages. Those who have standing to contest a trust include the beneficiaries, the trustee, and the heirs of the settlor.
A trustee generally cannot remove a beneficiary of the trust. Only the grantor has this ability. If the grantor dies, the trust becomes irrevocable. The trust may grant the trustee the right to decide when and how the beneficiary gets distributions, but they usually cannot change the beneficiary. However, the trustee should be able to justify any delays in distributing the trust property. Some reasons a trustee might withhold distributions include the following:
• The trustee believes the beneficiary cannot handle their own affairs due to mental deficiency.
• The trustee believes that the beneficiary will squander the distribution.
• The trustee has discretionary power expressly granted in the trust documents.
• The trustee believes that the beneficiary’s creditors will take the distribution.
• The beneficiary has not met the conditions to receive their inheritance as laid out in the trust documents.
• Someone has contested the trust, which could affect the beneficiary’s rights.
A trustee cannot usually sue a beneficiary except for the above-mentioned reasons. Likely, they only have two years to sue. This is the statute of limitations in Virginia. On the other hand, the beneficiary generally has only one or two years from the date the trustee breached his or her fiduciary duty, to sue the trustee for breach of trust.
In Virginia, the time frame can range widely for how long a court can take to find an outcome if a revocable trust, living trust, or irrevocable trust is contested within the statute of limitations. Trust litigation timelines vary based on the number and complexity of pleadings, additional challenges, appeals, and more.
If the issue is simple, and the parties are willing to come to a negotiated resolution, it can sometimes be resolved within months. If, on the other hand, the litigation is complex, particularly personal, or continually appealed from the circuit courts all the way up to the Supreme Court of Virginia, litigation can take years. It is vital that you work with a qualified estate and trust litigator if you face any trust litigation. Such court battles can be expensive, stressful, and time-consuming, and they could cause the beneficiaries to suffer while the suit is resolved.
Our legal team has the time and experience. Let us litigate on your behalf.
Apart from beneficiary distributions, there are several reasons why a trustee can remove money from an irrevocable trust. They can do so to pay for any upkeep costs of the trust itself, trustee fees, legal and accounting fees, and income taxes. In fact, they are bound by their fiduciary duty to pay the upkeep costs of the trust. This includes, for example, paying for the upkeep of real estate, paying medical bills or healthcare costs on behalf of a beneficiary (if this is part of the trust), and dealing with any legal challenges to the trust.
If you are the trustee of a trust, and a beneficiary is harassing you or being belligerent about the contents of the trust, it does no good to anyone to cave into their demands. You have a fiduciary duty to act within your rights and responsibilities to the trust. If they wish to take you to court over the matter, you will be more secure knowing that you followed all guidelines. If you have followed the trust guidelines, the law should also be on your side. Your attorney will help you get through the legal process if need be.
When you work with a trust administration and litigation attorney, you will receive knowledgeable representation from legal professionals who understand Virginia law and estate planning, who can represent your best interests and the best interests of the trust beneficiaries, and who can litigate on your behalf should you need help.
Beyond that, our experienced Virginia attorneys can oversee the administration of your trust. They can advise you on all aspects of the trust, from the distribution of assets to appointments of successor trustees to helping family members and beneficiaries get what they deserve pursuant to state law.
If you are worried about serving as a trustee, our reputable Virginia Beach estate planning attorneys can help. We are well-versed in all areas of estate planning, from conservatorships to power of attorney, serving as the testator of a will, and the responsibilities of a trustee in a living trust, revocable trust, testamentary trust, or irrevocable trust. Call us at 757-687-8888 or use our contact form to speak with a member of our team today.