Frequently Asked Questions
Problems with Trustees
I am a beneficiary of a trust, and I am not happy with the trustee. What can I do? Texas statutes and case law give beneficiaries certain rights and remedies. The first place to look, however, is the trust document. The trust instrument may provide beneficiaries with specific remedies, such as a procedure allowing the beneficiaries to replace a trustee under certain circumstances. A lawyer familiar with trust law can help.
I can’t figure out what the trustee is doing with the trust funds. Do I have the right to know? Yes. Trustees are fiduciaries and owe certain duties to the beneficiaries of the trust. If you are a beneficiary of the trust, the trustee has a duty to provide you with certain information upon request, including a statement of trust assets, receipts, expenditures and distributions to beneficiaries.
What if the trustee will not give me the information I want?. The trustee’s failure to comply with a reasonable request for information may be a breach of the trustee’s fiduciary duty to you as a beneficiary, which can be the basis of a lawsuit. In addition, the Texas Trust Code gives the beneficiaries the right to demand a formal accounting once a year, in which the trustee must report all trust property that the trustee is administering, all receipts, disbursements and other transactions, the name and location of the banks where the cash is deposited, and all known liabilities of the trust. The beneficiaries’ statutory right to an accounting can be enforced in court. Also, the trust instrument itself may require the trustee to account periodically or may give the beneficiaries the right to request more frequent accountings.
It appears that trustee is mishandling the trust property. What should I do? You should have an attorney review the trust to see if it contains provisions relating to the removal of a trustee. If the terms of the trust do not provide another means of dealing with the problem, you may be able to bring an action in court, where the judge has the power to remove a trustee if you can show that the trustee has violated or attempted to violate the terms of the trust, the trustee has become incompetent, or if the judge finds that the trustee should be removed for other cause. “Other cause” might exist where the trustee has breached fiduciary duties to you as beneficiary by, for example, self-dealing, failing to make required distributions, or stealing trust property.
The trustee is doing a terrible job of managing the trust property. It has declined in value. What can I do? The fact that trust investments have declined in value probably is not, by itself, a breach of the trustee’s duty. The trust instrument may include an investment standard which the trustee is required to meet. If the trustee's performance falls short of that standard, you may be able to sue the trustee for damages, seek his removal or pursue another remedy. If the trust instrument contains no contrary investment standard, then the trustee has a duty to comply with the prudent investor rule, which requires the trustee to consider many factors in deciding how to invest the trust assets. Under the prudent investor rule, the possible liability of the trustee is based on the performance of the entire portfolio, not just a single investment. If the trustee fails to meet the prudent investor rule standard, the beneficiaries of the trust may have a cause of action against the trustee for damages to the trust.
The law holds trustees to very high standards of conduct. If the trustee's conduct is unfair or unreasonable, there may be something the beneficiary can do. Contact The Karisch Law Firm, PLLC for more information.