Can a Beneficiary Sue a Trustee?
Trusts are unique. A person (called a settlor) will create a trust and transfer ownership of assets to the trust. A trustee then manages these assets for the benefit of beneficiaries. However, it’s a mistake for beneficiaries to simply sit back, relax, and hope everything goes well. Some trustees act in ways that actively harm the trust—and the beneficiaries who are supposed to benefit from it. Call Surasky Law Firm if you are a beneficiary with questions about your rights to sue.
The Duties of a Trustee
Every trust is unique, so the duties of a trustee will depend on the trust document. Management could be complex or simple, depending on the assets in the trust.
With most living trusts, the settlor also names themselves as trustee. When they die, however, a successor trustee takes over. If you were named as a beneficiary in a living trust, you will likely remain one after the settlor’s death because the trust becomes irrevocable at that point.
When the settlor dies, a trustee will need to undertake trust administration. This process typically includes creating an inventory of assets and even taking possession of certain property. For example, the settlor’s car might be owned by the trust, but it’s currently in the possession of a cousin or friend. The trustee will need to take possession in order to distribute the asset to the appropriate beneficiary.
The terms of the trust will determine disbursements. As a beneficiary, you might receive a lump sum payment or regular payments from the trust. You might also receive specific assets, like a house or car, which was owned by the trust. You should be in contact with the trustee to find out what you are inheriting.
A trustee must always act in the best interest of the beneficiaries in everything that they do. The law imposes certain fiduciary duties, such as acting prudently and not engaging in self-dealing. Often, disputes erupt because beneficiaries do not think trustees are acting properly.
What Are Your Rights as a Beneficiary?
Beneficiaries should take an active role in ensuring the trustee is performing their job properly. If the trustee breaches their duties, you can typically sue.
Do Beneficiaries Have a Right to See the Trust?
It depends. If the settlor is living, then Section 62-7-813 of the South Carolina Code says the trustee’s duties are only owed to the settlor unless the trust states otherwise.
When a settlor dies, a trust will become irrevocable. At that point, a beneficiary has a right to receive a copy of the trust instrument. You can also request regular reports about financial transactions made by the trust. The trustee might refuse to hand this information over. You should contact an experienced South Carolina trust attorney.
Once you receive an accounting, beneficiaries should scrutinize it carefully. Look for any unexplained transfers out of the trust. Did a trustee transfer money to himself? A close family member? Those transfers are likely illegal.
Can a Beneficiary Sue to Invalidate a Trust?
Possibly. A trust is only valid if it was created according to state law and the settlor had the capacity to make the trust. A settlor also cannot be coerced or defrauded. For example, an elderly parent might have made a trust to benefit their caretaker. This is a classic example of possible undue influence. Although trust administration happens outside court, you can use the courts to challenge the validity of a trust.
When Can a Beneficiary Override a Trustee?
Trustees must follow the directions in the trust (if the trust is valid). For example, a trust might declare that you receive a lump sum of $100,000 a year after the settlor’s death. The trustee cannot refuse to follow the trust. In that respect, a beneficiary might need to go into court and file a lawsuit to compel the trustee to discharge their duties.
What happens if a beneficiary dislikes what the trust says? For example, imagine you want the $100,000 immediately. Or you really want $200,000 and not $100,000. Can you override the trustee? Probably not. In this example, you aren’t trying to override the trustee so much as you are trying to revise the trust.
In some cases, a trust can no longer serve its purposes, and beneficiaries might seek to dissolve it. Talk with an attorney if this is something you want to pursue.
When Can a Beneficiary Sue a Trustee?
Beneficiaries often sue trustees due to negligence, mismanagement, or criminal activity. For example, you might sue for:
Investing all the trust assets in risky investments, which decline in value.
Borrowing from the trust for personal needs, such as repairs on their home.
Embezzling from the trust.
Selling trust assets to a friend for below market value.
Pocketing some or all of the proceeds from a sale of trust assets.
Hiring a spouse or family member to manage trust assets and charging high fees.
In these examples, the trustee’s actions are harming the beneficiaries by reducing the value of the trust. Trustees sometimes try to benefit themselves or family members at the same time.
A beneficiary might also sue a trustee for:
Refusing to comply with the terms of the trust. A trust might limit the investments a trustee can make. The trustee can’t ignore these instructions.
Withholding disbursements for no valid reason. A trustee can’t refuse a disbursement to a beneficiary.
Unfairly favoring some beneficiaries over others. Of course, the trust itself might favor some beneficiaries over others. But the trustee can’t show favoritism without a legitimate reason.
Can a Beneficiary Remove a Trustee?
Possibly. There needs to be a reason to ask a court to remove a trustee. Typically, you need to show they did something wrong first. It’s not enough to simply dislike the trustee.
Does a Beneficiary Need to Hire a Lawyer?
They should. Trust litigation is complicated. The trustee will likely have a lawyer in their corner, paid for by the trust. So you should contact an experienced lawyer. Any lawsuit against a trustee needs solid evidence. A simple suspicion is rarely enough to base a lawsuit on.
Speak with Our Aiken, SC Trust Attorney for Help
Beneficiaries should be proactive in ensuring they receive everything they are entitled to. Call our firm today to schedule a consultation to speak with our trust attorney today.
