What is a rogue trustee and how can s/he be stopped? A rogue trustee is someone who stops following the instructions set forth in the trust documents1)Contrary to popular belief, a rogue trustee is not necessarily from Alaska. In legal terms, the failure to follow the trust is termed a “breach of fiduciary duties.” In such cases, the beneficiaries of the trust are responsible for holding the rogue trustee responsible. If the trustee refuses to admit and correct the breach, this process will require the Court’s intervention. The following brief article provides some background on trusts that I hope will protect you from the actions of a rogue trustee.
A rogue trustee: what to do next
After reviewing their options, the majority of my estate planning clients choose to prepare a revocable living trust as a means of distributing their property upon their passing. A trust is the best estate planning vehicle for many folks because it does not require probate for the estate to be distributed, and because it is more flexible than other estate planning options. Trusts are flexible, in part, because they allow for the appointment of a successor trustee; an individual who will administer the trust upon the passing of the clients if the primary is unable or unwilling to do so. A trust empowers a trustee to exercise his or her discretion to achieve the objectives of the trust. However, generally, a trustee may not simply decide what s/he would like to do and disregard the instructions of the trust entirely. A trustee who has substituted his or her own wishes in place of the instructions of the trust is a rogue trustee.
Our firm once represented a beneficiary of a trust who was the victim of a rogue trustee. Shortly after our client’s mother passed away, the trustee sent out a letter stating that she was in charge and that she could decide who got how much money and the conditions from which the listed beneficiaries would receive the gifts. The trustee withheld money from our client and our client’s daughter because the trustee felt like the beneficiaries were ungrateful, and because they refused to do exactly what was demanded of them. The problem was, of course, the trustee’s actions were contrary to the language contained in the trust2)The trust contained no language requiring our client-beneficiaries to make the trustee feel appreciated. As to if this type of condition is legally legitimate is another matter. To make matters worse, the rogue trustee took money from the trust and purchased a property for herself. Immediately upon recognizing the problem, we filed a petition to the Court asking that she be removed as trustee and otherwise held accountable for her actions. The Court forced her to provide an accounting showing how she had managed the money. Once the Court saw the extent of her breaches of fiduciary duties, the Court also removed her as trustee and appointed our client in her place.
If you or anyone you know is the beneficiary of a trust, and you are concerned that the trustee is not doing as instructed by the trust’s terms, please let us review the situation to ensure that a trustee has not gone rogue.
Footnotes [ + ]
|1.||↑||Contrary to popular belief, a rogue trustee is not necessarily from Alaska|
|2.||↑||The trust contained no language requiring our client-beneficiaries to make the trustee feel appreciated. As to if this type of condition is legally legitimate is another matter|