When can a beneficiary sue a trustee?
When can a beneficiary sue a trustee?
When a trustee neglects or mismanages a trust, it can ruin their beneficiaries' financial security. But what can the beneficiary do about it? Can they sue the trustee for damages? Is there a statute of limitations on filing the lawsuit?
A common misconception is that beneficiaries have no legal recourse when an estate is mismanaged by a trustee. However, there are two ways that a beneficiary may be able to take action against an estate's trustee (or co-trustee).
The first way is if the trust gives the beneficiary explicit authority to take legal action against the trustee. Some trusts give the beneficiary this explicit authority by giving the beneficiary power to remove and replace trustees. Other trusts give explicit authority to beneficiaries to sue a trustee in violation of his or her fiduciary duty.
The second way is if there is a fiduciary duty between the parties. Some states have established laws regarding fiduciary duties, which means that some situations may give rise to implied fiduciary duties under certain circumstances. For example, your spouse has a fiduciary duty to manage your finances while you're alive—if they mismanage those finances while you're alive, they might be held liable upon your death for breach of fiduciary duty.
A beneficiary has the right to sue a trustee to enforce the terms of a trust agreement when the trustee fails to perform his obligations as stipulated in the trust agreement. Typically, courts will side with the beneficiary and require that the trustee perform his duties in accordance with the trust agreement.
A beneficiary may also sue a trustee for breach of fiduciary duty if he violates his obligation in good faith and without explanation or excuse. However, this is harder to prove because it requires a showing of bad faith, which may be difficult to prove. Beneficiaries can also sue trustees for fraud or misrepresentation in certain circumstances. For example, if a trustee makes false statements about the value of an asset, a beneficiary may have cause to file suit against him for fraud.
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Disclaimer: This is not legal advice and is simply an answer to a question and that if legal advice is sought to contact a licensed attorney in the appropriate jurisdiction.
