To whom does a trustee ultimately have a fiduciary duty?

On Behalf of | Oct 1, 2021 | Estate Planning

Accepting the role of trustee means taking on a lot of work. It also means assuming a fiduciary duty. The trustee managing a trust, controlling its assets and making distributions to beneficiaries will need to perform their duties appropriately and in a timely manner.

A fiduciary duty is the highest degree of obligation that one person can have to other people under the law. It involves putting those other party’s best interests above even your own needs.

Fulfilling that fiduciary duty requires attention to detail and an understanding of the obligation itself. Who ultimately benefits from the fiduciary duty of a trustee?

The trustee has an obligation to the trust itself, as well as its beneficiaries

A trustee’s primary obligations are to maintain the trust and to follow the instructions it provides regarding the distribution of assets.  A trustee may need to make decisions about how to manage or invest trust resources. Sometimes, they may have to secure and sell physical assets or conduct transactions on behalf of the trust.

Every step that a trustee takes should reflect what is best for the assets within the trust. Preserving them and maximizing their value is an important part of a trustee’s responsibility. The beneficiaries of the trust are the ones to whom the trustee is ultimately responsible.

While the beneficiaries don’t control a trustee’s actions, they are the ones who benefit from the assets in the trust. Their needs and the benefits they derive from the trust should guide a trustee’s decisions, not the possibility of personal gain. If a trustee fails to put the needs of the beneficiaries before their own, they could find themselves facing litigation.

How do beneficiaries establish a breach of fiduciary duty?

When beneficiaries believe that someone let a conflict of interest or a desire for personal profit affect how they manage the trust, the beneficiaries can potentially challenge the trustee in court.

Showing that a trustee or a member of their inner circle profited from a transaction that was not beneficial for the trust could help prove a breach of fiduciary duty. Decisions made by the trustee or actions they perform that diminish the value of the trust or that undermine the rules set forth in the documents could lead to legal challenges and litigation. Understanding when a trustee could face litigation can help you protect yourself if you manage or receive assets from a trust.