One of the reasons that trusts are an effective estate planning tool is that the trustee is legally required to act in the best interests of the beneficiaries. However, it is increasingly difficult to hold trustees liable when they do not do so.
Trustees have tremendous power. Depending on the specific language of the trust documents, trustees can have wide latitude in deciding how trust assets will be invested and distributed. Giving trustees this power is important to make sure that the trust is operated in such a way as to maximize their value for beneficiaries.
With that power can also be the temptation for the trustee to act in his or her own interests instead of the beneficiaries. If that happens, then the trustee can be held liable.
That is the way everything is supposed to work, but as the Wills, Trusts & Estates Prof Blog explains in “The Many Ways Trustees Escape Liability” it can often be difficult to actually hold trustees to account.
Many people often waive their rights to hold a trustee liable either by consenting to a transaction before it is made or by signing a release from liability form. In both cases beneficiaries are supposed to be given full disclosure before waiving any rights. However, opinions about what constitutes full disclosure can vary.
Some trust documents themselves also limit the ability to hold trustees liable and courts always have the right to excuse a breach of duty by a trustee if the court finds it equitable to do so.
If you have a conflict with a trustee, make sure you receive expert legal advice about how to proceed. That will give you the best chance of holding the trustee liable for any abuse of power.
Reference: Wills, Trusts & Estates Prof Blog (Aug. 11, 2016) “The Many Ways Trustees Escape Liability”