How to Prove and Recover Damages for Trust Mismanagement

When a trust is created, the settlor, or creator of the trust, appoints a trustee who is legally responsible for administering the trust for the benefit of the trust beneficiaries. The trustee has a fiduciary duty to act in good faith and in the best interests of the beneficiaries. The trustee often has a lot of power. For example, it is the trustee who is responsible for investing the trust money and often for dispersing the trust’s assets according to the terms created by the settlor. When the fiduciary duty is breached and the trust is mismanaged, the effect on the beneficiaries can be significant. Therefore, it is important to understand how to prove and recover damages if you believe a trust has been mismanaged.
Proving Trust Mismanagement
Before you can recover damages for trust mismanagement, you must prove that it occurred. Generally, you will need to prove that the trustee did not act in the best interest of the trust beneficiaries. For example, you might prove that:
  • The trustee had a conflict of interest and acted in the best interest of someone other than the beneficiary;
  • The trustee either personally or professionally profited from actions he took as the trustee and did not report the profit to the beneficiaries;
  • The trustee was bribed or otherwise rewarded for making certain decisions with regard to the trust and was thus influenced by the reward rather than his duty to act solely in the best interest of the beneficiaries;
  • The trustee was negligent in managing the trust and did not take the proper actions to safeguard the best interests of the beneficiaries; or
  • The trustee acted in the best interest of one or more of the beneficiaries but not in the best interest of the majority of the beneficiaries.
Recovering Damages for Trust Mismanagement
Once you have proven trust mismanagement, you will need to establish how you were harmed by the mismanagement. Often, this requires financial experts who can reasonably predict what would have happened to the trust assets if the trust had been properly managed by the trustee. Generally, a Court will award you damages for the amount that the trust would have made but for the trustee’s mismanagement. You may also be able to recover damages for the unjust enrichment of the trustee and other financial awards as the Court deems equitable.
In some cases, additional criminal charges and penalties may be brought against a trustee for trust mismanagement. For example, in cases where the trustee committed tax fraud or a bank crime additional criminal penalties may apply.
Pursuing damages for trust mismanagement is important not only for the beneficiaries harmed by the trustee’s actions but also for the people involved in future trusts. Trusts are important estate planning tools but they are only effective if the trustee performs his fiduciary duties to the beneficiaries honestly. If this duty is not enforced by the courts then people will be less likely to create trusts, and take advantage of the many benefits of trusts, in the future.

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