Can You Sue a Trustee for Mismanaging a Trust?
Trusts are often used in estate planning to provide a number of benefits — including protecting assets from creditors and transferring wealth to the next generation. A trustee has considerable authority over how the assets in a trust are managed and owe a fiduciary duty to the beneficiaries. Unfortunately, not every trustee adheres to these duties. When a trust is mismanaged and a breach of trust is committed, a beneficiary may be entitled to sue for their damages.
What Is a Trust?
A trust is an estate planning tool that allows a third-party to hold property on behalf of a beneficiary who is selected by the individual who creates the trust. There are many different types of trusts that can be used, depending on the creator’s objectives. For example, they might be used to avoid probate, preserve assets, or reduce estate taxes.
Trusts fall into one of two categories — they may be revocable or irrevocable. When a trust is revocable, it can be changed at any time during the creator’s lifetime. An irrevocable trust cannot be changed at any time.
Can a Beneficiary Sue a Trustee?
When a trust is mismanaged and a breach of trust is committed, a beneficiary may be entitled to sue for their damages. If a trustee committed a breach of trust, it may be necessary to commence litigation to recover your damages.
If you are the beneficiary of a trust and suspect wrongdoing on the part of the trustee, you might be wondering, “can a beneficiary sue a trustee?”
Under Illinois law, a trustee has various duties and responsibilities when it comes to managing and controlling the assets in a trust. In addition to administering the trust assets in accordance with the instructions provided by the grantor, they must uphold the fiduciary duty that is owed to the trust and its beneficiaries. This means acting in the best interests of the beneficiaries, avoiding conflicts of interest, and not taking actions that would result in a personal benefit to them. A trustee must also invest assets in such a way that maintains or increases their value, and distribute them in a timely manner.
Failure to carefully and honestly carry out the duties required of them can result in a trustee being sued by a beneficiary. A lawsuit may be brought against a trustee under a variety of circumstances, including those involving:
- Misappropriation of trust assets
- Failure to provide annual accountings
- Wrongfully withholding assets from the beneficiaries
- Fraud and misrepresentation
- Failure to take reasonable steps to preserve the trust assets
- Commingling the assets in the trust
- Failure to disclose relevant information regarding the trust
- Mishandling trust property
- Delaying distribution of assets
Critically, the above misconduct can result in significant financial harm to a beneficiary. A violation of a trustee’s fiduciary duties can also lead to loss of assets that the grantor wished them to have — and constitute a breach of trust. In these cases, a beneficiary may be able to pursue a legal remedy in court.
What Are the Remedies for a Breach of Trust?
The Illinois Trust Code sets forth a variety of remedies in breach of trust cases. For instance, the court may compel the trustee to perform their duties or impose an injunction to stop the trustee from continuing their wrongful actions. They might also compel the trustee to redress a breach of trust by paying money, restoring property, or taking other action. Depending on the circumstances, a court might deem it appropriate to appoint a special fiduciary who will take possession of the trust and administer it.
Pursuant to Illinois law, a court has the broad authority to order equitable relief in a breach of trust case. Other remedies a judge might issue can include the suspension or removal of a trustee. Additionally, a court can deny the trustee the compensation they might otherwise have been entitled — or impose a constructive trust on the property in the trust. A court can also render an act by the trustee void or trace trust property wrongfully disposed of and recover the proceeds.
What Damages Can a Beneficiary Sue a Trustee For?
A trustee who committed a breach of trust can be held liable to the beneficiaries for their damages. If a breach of trust has been determined, Illinois law allows a beneficiary to receive the amount required to restore the value of the trust assets had the breach not occurred or the amount the trustee received due to the breach — whichever is greater.
Absent a breach of trust, a trustee is not legally liable to a beneficiary for any depreciation in the value of the trust property. They also cannot be held accountable for a breach for any benefit they received by reason of administration of the trust. In other words, a trustee cannot be held liable if the trust does not make a profit. They can only be held liable for loss of trust assets in instances of bad faith and wrongdoing, such as those listed above.
Contact an Experienced Trust Litigation Attorney
If a trustee committed a breach of trust, it may be necessary to commence litigation to recover your damages. Located in Rolling Meadows, the trust litigation attorneys at Litico Law Group serve the legal needs of trust beneficiaries and trustees for a wide variety of legal issues in Illinois. We welcome you to contact us at (847) 307-5942 to schedule a consultation to learn how we can help.