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Can a Beneficiary Sue a Trustee? Everything You Need to Know

Lawyer at desk wrirting. Can a beneficiary sue a trustee?

Can a beneficiary sue a trustee? The answer is “yes” under certain circumstances. It’s important to understand your rights as a beneficiary and the various legal implications that suing a trustee may have. In this guide, we will explore how to go about filing a claim against a trustee, the risks involved, and what protections are available for beneficiaries of trusts.

What Are the Reasons for Suing a Trustee?

There are a few primary reasons why a beneficiary may choose to sue a trustee. These can include:

Breach of fiduciary duty.

If a trustee fails to act in the best interests of the beneficiaries or violates the terms of the trust, the beneficiaries may be able to sue for breach of fiduciary duty.

Self-dealing.

A trustee has a duty to act solely in the interests of the beneficiaries and not in their own self-interest. If a trustee engages in self-dealing by using trust assets for their own benefit, a beneficiary may have grounds to sue. In other words, the trustee cannot use trust funds for personal gain but must use them for the benefit of the beneficiaries.

Mismanagement of assets.

If a trustee mismanages trust assets, such as by making poor investment decisions or failing to properly maintain property, a beneficiary may have grounds to sue.

Failure to make distributions.

A trustee has a duty to distribute trust assets to the beneficiaries in accordance with the terms of the trust. If a trustee fails to make distributions as required, a beneficiary may be able to sue for breach of trust.

Failure to keep beneficiaries informed about the trust.

A.R.S. Section 14-10813 provides:

Unless the trust instrument provides otherwise, a trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless the trustee determines that it is unreasonable under the circumstances to do so, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.

What Does It Take to Initiate a Lawsuit Against a Trustee?

Before filing a lawsuit against a trustee, you should have an understanding of the trust document and your rights as a beneficiary. If possible, it is always best to resolve any issues directly with the trustee. However, if this is not possible or you can’t reach a resolution, then you may need to start legal action. Before filing a lawsuit against a trustee, there are several factors to consider in order to determine if pursuing litigation would be worth it. For example, statutes of limitations (time frames) and other laws may also impact the potential success of a lawsuit. Also, be careful if the trust includes a No Contest Clause, also known as an In Terrorem Clause.

Can a Beneficiary Sue a Trustee for Breach of Duty?

Yes. When suing a trustee for breach of duty, liability for damages is determined by the law in individual states. In Arizona, for example, a trustee’s fiduciary duties are partly set forth in the statutes, and partly in court case opinions. Here are just some of the duties of a trustee:

  • Duty to Administer the Trust. A.R.S. Section 14-10801 provides, “On acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries and in accordance with this chapter.”
  • Duty of Loyalty. A.R.S. Section 14-10802 provides, “A trustee shall administer the trust solely in the interests of the beneficiaries.”
  • Duty of Impartiality. A.R.S. Section 14-10803 provides: “If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing and distributing the trust property, giving due regard to the beneficiaries’ respective interests.”

These are just a few of a trustee’s many duties. Generally, a trustee can be held liable for any losses caused by their breach of duties or failure to fulfill the trust’s purpose. Depending on state law, a beneficiary may also be able to seek reimbursement from the trustee directly. It is important to consult with an experienced trust litigation attorney.

What Is Required to Prove Breach of Fiduciary Duty in Arizona?

If a beneficiary in Arizona wishes to sue the trustee of the trust for breach of fiduciary duty, they must prove that the trustee has failed to exercise reasonable care, loyalty, and obedience in administering the trust. Specifically, they must show that the trustee has not acted solely in the interests of all beneficiaries, has failed to act with care or prudence when dealing with trust assets or investments, or failed to act honestly and faithfully in matters related to the trust.

What Powers Does the Court Have Regarding Suing a Trustee?

The court has a variety of powers available to it when ruling in cases concerning trusties. These include issuing orders binding the trustee, ordering them to account for their actions and pay damages, or removing the trustee from their post if they are found guilty of breach of trust or misconduct. The court may also award legal costs incurred by the beneficiary, order that assets be returned to the trust, or vary and revoke any alterations made to the trust deed by the trustee.

Conclusion: Can a beneficiary sue a trustee?

In conclusion, yes, a beneficiary can sue a trustee for breach of trust or other violations of the trustee’s fiduciary duty. If you’re a beneficiary who believes that a trustee has breached their duties, it is important that you take action now. Otherwise, your legal claims may be barred (stopped) due to the passage of time.

Let Us Help You.

If you want to sue a trustee, give us a call at 602-443-4888. We have been handling trust disputes and litigation since 2007.

ABOUT THE AUTHOR

Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law.

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