A trust is supposed to streamline the distribution of a person’s assets after they pass away, but what happens when the person they entrust to fill that role makes questionable decisions?
Imagine your father created a trust that includes the family home and multiple other investments. Upon his passing, your elder brother becomes trustee. You later discover that your brother sold the family home to a company he owns at a price substantially lower than its appraised value.
You were never told about the transaction. When you ask your brother about it, he quickly dismisses you by simply stating that it was his decision to make, as the trustee. His response makes you wonder what rights beneficiaries have against a trustee.
While a trustee is given control over a trust’s assets, that doesn’t mean they are given free rein to do whatever they want with those assets.
At the same time, there is a difference between a decision that may be unpopular with beneficiaries and one that is actual trustee misconduct.
However, when a trust beneficiary does have a legitimate reason to believe that a trustee has breached their fiduciary duty, the law does provide legal mechanisms to hold a trustee accountable in Illinois.
Ultimately, whether or not you can challenge trustee actions in Illinois comes down to the terms of the trust document itself, and the duties and powers that the trustee has been given.
What Constitutes Trustee Misconduct in Illinois?
When someone accepts the role of trustee, they assume a legal responsibility to administer the trust in good faith, in accordance with the trust’s terms and the Illinois Trust Code. While trustees don’t own trust property outright, they are essentially managing it for the benefit of the trust and its beneficiaries. As part of this role, trustees have a number of fiduciary duties they owe to the trust. When a trustee violates a duty owed to a beneficiary as required by the trust and Illinois law, they may have committed a breach of trust.
Not every decision made by a trustee that turns out poorly automatically becomes misconduct. However, there are several types of conduct that can justify challenging trustee actions in Illinois.
Self-dealing and Conflicts of Interest
One of the most serious examples of a trustee’s breach of fiduciary duty in Illinois is when a trustee uses trust property, or their position as trustee, for personal benefit. Generally, a trustee is required to put the interests of the trust and its beneficiaries above their own personal interests.
The example we used earlier of a sibling trustee selling trust property to a company he owns at a significant discount could raise concerns about a trustee conflict of interest in Illinois and self-dealing.
Mismanagement of Trust Assets
Trustees have a responsibility to both manage and protect trust property. Some trusts give trustees discretion over when and how to make distributions or manage certain assets. However, having discretion does not necessarily mean a trustee can act however they want, but it can give them flexibility in making decisions. Whether that discretion was properly exercised will depend on the specific language of the trust and the circumstances of the trustee’s decision.
Trustee mismanagement of trust assets can occur when the trustee makes unauthorized distributions to themselves or other beneficiaries. It can also occur if the trustee fails to pay a property’s taxes, or allows it to fall into disrepair.
Whether a specific action constitutes misconduct depends on the specific circumstances, and what the trust documents allow the trustee to do. In some trusts, a trustee may have broad authority to sell property, make distributions, and spend trust funds for specific purposes.
A beneficiary disagreeing with a trustee’s decision doesn’t immediately mean the trustee has violated their fiduciary duty. It depends on the specific terms of the trust.
Improper Investments
Sometimes trustees are tasked with making investment decisions around trust assets. Illinois generally follows the “prudent investor” rule. This requires a trustee to act with reasonable care, skill, and caution when investing and managing trust assets. At the same time, the trustee must consider the trust’s purpose and distribution requirements.
Beneficiaries can challenge a trustee’s investment decisions, but an investment that loses money doesn’t necessarily mean there was misconduct on the trustee’s part. Markets can decline even when investments are managed appropriately. The question isn’t so much whether an investment lost money, but whether the trustee acted prudently and in accordance with the trust’s terms and the law when making and managing the investment.
Favoring Beneficiaries or Withholding Information
Trustees administering a trust with multiple beneficiaries have a duty to act impartially, taking their respective interests into account. However, that doesn’t necessarily mean every beneficiary must receive the same treatment. Under certain circumstances, the terms of the trust may allow or even require the trustee to favor one beneficiary over another.
Beneficiaries may also generally have the right to receive information about the trust, such as what assets it holds, and under appropriate circumstances, request an accounting from the trustee. If a trustee refuses to provide an accounting, the beneficiary may be able to seek court intervention.
What Can Beneficiaries Do to Hold a Trustee Accountable in Illinois?
When a beneficiary has concerns about a trustee’s mismanagement of trust assets, there are steps they can take to hold a trustee accountable in Illinois.
Consulting with an Illinois trust litigation attorney is often the first step. They can help you gather and review the trust documents against the trustee’s conduct. An attorney can also help formally request an accounting from the trustee. An accounting of trust assets can potentially reveal improper distributions, unauthorized expenditures or investments, or self-dealing. Should the trustee refuse to cooperate, court intervention may become available.
Challenging trustee actions doesn’t always mean going to court. In some cases, the parties may be able to resolve the dispute through negotiation and reach a nonjudicial settlement.
However, if a settlement cannot be reached, an Illinois court can order the trustee to perform duties, including providing an accounting, restoring property or halting misconduct.
In the most serious cases, it is possible for the court to suspend or remove a trustee when appropriate, but it isn’t automatic. A trustee can be removed under appropriate circumstances, including after a serious breach of trust or when the trustee is unfit, unwilling, continually fails to administer the trust effectively.
If the trust names a successor trustee, that person may take over. If there is no successor named, Illinois law provides other methods for filling the vacancy, including court appointment.
A trustee who commits a breach can ultimately be considered liable for damages. In Illinois, a trustee who has caused the trust to lose money or property may be required to restore what the trust lost. If they personally profited from their actions, they may be required to give up those profits.
What Does the Process of Challenging Trustee Actions Look Like in Illinois?
Formally challenging a trustee’s actions can involve several steps.
Step 1: Review the Trust
Whether a trustee has committed a breach of fiduciary duty in Illinois will depend on what the specific terms of the trust actually say.
Trust terms may grant trustees specific powers, establish distribution standards, authorize particular transactions, and establish procedures for resolving disputes. Trust terms are not always equal or standardized, so determining whether trustee misconduct has occurred depends on what powers the trustee was granted.
Step 2: Gather Records
Besides the trust documents, there are other useful records, including account statements, trustee accountings, distribution records, property records, and investment records. Emails, text messages, letters, and other correspondence with the trustee may also be useful.
These records allow a trust litigation attorney in Illinois to determine if there is evidence of an actual breach, rather than just a disagreement between the parties.
Step 3: Request an Accounting
Depending on the circumstances and the terms of the trust, beneficiaries may have the right to receive information about the trust and request an accounting of assets in writing from the trustee. If the trustee complies, it may be possible to negotiate a settlement and resolve the issue without litigation.
However, if a trustee refuses, provides an incomplete accounting, or the records reveal evidence of misconduct, litigation may become necessary.
Step 4: Attempt to Negotiate a Resolution
Depending on the circumstances, the parties may be able to negotiate a resolution without going to court. Illinois law also allows certain trust disputes to be resolved through a nonjudicial settlement agreement.
Step 5: File a Court Proceeding if Necessary
If the trustee is still uncooperative, an Illinois trust litigation attorney may petition the court for relief.
The options available to beneficiaries may include seeking an accounting, an injunction, damages, restoration of trust property, or the suspension or removal of the trustee.
In some cases, when there is an immediate risk of trust assets being transferred, sold, or otherwise dissipated, the beneficiary may need to seek protective relief, rather than letting the dispute play out.
Step 6: Litigate the Breach
If the case actually proceeds to court, it may require reviewing significant evidence: financial records, obtaining discovery, reviewing communications involving the trustee, evaluating investments, and determining whether the trustee acted in compliance with the trust terms and applicable law.
When Should You Seek Legal Help With a Trustee Dispute?
Not every disagreement between a trustee and beneficiaries will need to be resolved with legal help, but there are some red flags that may signal it’s time to consult with an Illinois trust litigation attorney.
When there is evidence of unexplained withdrawals, missing assets, conflicts of interest, suspicious investments, or a refusal to provide an accounting or follow the trust terms, it may be time to seek legal review.
Beneficiaries should also try to preserve any communications with the trustee as key pieces of evidence.
They also shouldn’t wait too long to seek legal help. If assets are being sold or investments made outside the scope of the trust terms, the longer you wait, the more difficult they can be to recover if there was in fact a trustee breach of fiduciary duty. The deadline for bringing a claim can also depend on the circumstances, including disclosures or accountings provided to beneficiaries.
If you have reason to believe there has been mismanagement of trust assets or a breach of duty of loyalty, consider contacting a trust litigation attorney in Illinois.
Staza Law helps families in the Chicagoland area challenge trustee actions. We can listen to your concerns, and help you understand the terms of the trust and how they apply to your situation. Together we can evaluate the strength of your claim.
Contact Staza Law today for an initial consultation, and let us help you hold trustees accountable.