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3 examples of trustee abuse of power

On Behalf of | May 6, 2024 | Estate Planning

When you designate a trustee for your estate or trust, you place a significant amount of trust in that individual to manage your assets responsibly and in accordance with your wishes. However, there are situations where trustees may abuse their power, potentially harming the beneficiaries’ interests.

Trustee abuse of power can lead to significant financial losses for the estate or trust, erosion of trust among the beneficiaries and legal disputes that can be time-consuming to resolve. Examples include the following.

1. Failure to keep beneficiary informed

A trustee should always maintain open communication with beneficiaries. However, when a trustee fails to provide updates on important matters such as investment performance or distribution status, it can lead to mistrust and suspicion among beneficiaries. This lack of transparency may result in disputes and legal challenges as beneficiaries seek accountability from the trustee.

2. Misappropriation of trust assets

Trustees are entrusted with managing trust assets for the benefit of the beneficiaries. However, in some cases, trustees may abuse their power by misappropriation of trust assets for their own personal gain. This could involve using trust funds for unauthorized expenses, making unauthorized investments or even outright theft of trust assets. Misappropriation of trust assets not only violates the trustee’s fiduciary duty but also undermines the integrity of the trust and jeopardizes the financial well-being of the beneficiaries.

3. Self-dealing

Self-dealing occurs when a trustee, who has a fiduciary duty to act in the best interests of the beneficiaries, engages in transactions that benefit themselves personally or their related parties at the expense of the trust. This unethical behavior often involves the trustee using trust assets for their own financial gain, such as purchasing property or assets from the trust at below-market prices, awarding contracts to companies they have a personal interest in or paying themselves excessive fees or compensation.

Legal guidance can provide invaluable information on dealing with such situations, helping ensure that trustees are held accountable for any breaches of their fiduciary duties.


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