Trustees have a difficult job and bear a lot of responsibility. Whether you are a trustee or a beneficiary of a trust, you should understand both the powers and the responsibilities of a trustee. You also need to know when a trustee can be removed and replaced. Many of the powers and responsibilities of a trustee are contained within the trust document, so they vary case by case. The law also lays out certain requirements for a trustee’s fiduciary duties.
All trustees are fiduciaries, which means that they have a legal right to handle someone else’s money and assets. They have a duty to act for that person or entity’s benefit. In other words, they must handle the assets in the way a prudent owner would handle them. They also must account for their actions, both literally and ethically. Some people appoint a professional trust company to perform this task. Others appoint a trusted family member or friend.
What does the trust say?
The trust instrument is the document that lays out the rules of the trust. This includes who will act as the trustee, and may even name alternate or successor trustees. For example, the grantor (or settlor) who creates and funds the trust may appoint themselves as the first trustee. They may also appoint someone else to take over as the successor trustee when certain conditions are met, such as the grantor’s death or incompetence. In this scenario, if the beneficiaries and successor trustee fear the grantor is becoming incompetent, they may seek a doctor’s opinion to help them decide if it is time for the successor trustee to take over.
Breach of fiduciary duty – or worse
Without a provision in the trust allowing for the trustee’s removal, a challenger must show that the trustee has somehow failed in their duties. A claim could include any number of allegations, such as:
- Comingling of funds – The trustee cannot mix trust funds with their personal funds.
- Neglect or incompetence – The trustee must be able to show they are up to the job. Missed filing deadlines or sloppy accounting could prove they are not.
- Conflict of interest – The trustee cannot sell or invest the trust’s assets in a way that personally benefits the trustee.
- Disloyalty or collusion – The trustee cannot act in any way that would harm the trust.
- Failure to communicate or keep an account– The trustee must be available to answer beneficiaries’ questions, respond to requests in a timely manner and provide all necessary accounting information.
- Theft – This one may seem obvious, but the trustee cannot use the funds for themselves or defraud the trust. If the trustee is also a beneficiary, they may receive a regular distribution per the trust terms.
Trusts are complex documents, and Louisiana law allows for many different types of trusts. They all have their own specific rules and guidelines. If you have concerns regarding a trust where you are either the trustee or a beneficiary, seek legal help to determine your options.
