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On behalf of Pakis, Giotes, Burleson & Deaconson, P.C. Jan. 3, 2020

You hope that your parents chose the right person as trustee when setting up a trust, but now that they are gone, you suspect that things are not as they should be. How do you know if the trustee is mismanaging the trust’s assets or otherwise breaching his or her fiduciary duty?

Here are some signs that you need a new trustee.

The Trustee Is Not Keeping Adequate Records

As a beneficiary, you can request and should receive the financial information that shows the income and payments the trustee has made. There should also be records detailing how the trustee has managed the assets.

If the trustee provides you with tax returns, that is good, but it is not enough, as trust records contain different information from tax filing requirements.

The Trustee Has Mingled Personal Assets with Trust Assets

Perhaps the trustee acted carelessly or intended to set things right later. On the other hand, the trustee may have been covering up larger misappropriations. Regardless, mingling personal assets with trust assets crosses the line into the breach of fiduciary duty.

The Trustee Violates the Prudent Investor Rule

Texas law states that the trustee has a duty to you and other beneficiaries to abide by the prudent investor rule unless the trust has provisions that change, expand, restrict or eliminate the rule. So, the trustee has the responsibility to act with the care, caution and skill that any reasonable investor would. That is, he or she must consider the following when they are relevant:

  • Economic conditions

  • Potential for inflation or deflation to affect assets

  • Tax consequences

  • Total return and appreciation of the capital

  • Beneficiaries’ other resources

  • Special relationship or value of an asset to the purposes of the trust

Other factors may also apply, such as whether diversification will serve the purposes of the trust, or whether the trustee has some special expertise that he or she should use when considering investment opportunities.

It is important to scrutinize the details of the law and the instructions of the trust document when looking for evidence of a breach of duty.