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Understanding Obligations When Serving as Trustee for a Minor Beneficiary

Photo of small happy boy. He is beneficiary of trust and has a trustee for a minor beneficiary.

Acting as the trustee for a minor beneficiary comes with a great deal of responsibility. It is important to understand your legal obligations so that you are able to fulfill them properly and meet any related deadlines. This guide will provide general information on what to expect when acting as a trustee for a minor beneficiary.

Know Your Fiduciary Duties As Trustee for a Minor Beneficiary.

It is important to understand the fiduciary duties you will have as a trustee for a minor beneficiary. These duties include:

Duty of Loyalty:

A trustee must always act in the best interests of the minor beneficiary and must not engage in any self-dealing or conflict of interest. A.R.S. Section 14-10802.

Duty of Prudence:

A trustee must act with reasonable care, skill, and caution in managing the trust assets, taking into account the purposes, terms, distribution requirements, and other circumstances of the trust. A.R.S. Section 14-10804.

Duty to Follow the Trust Terms:

A trustee must follow the terms of the trust and may not deviate from them unless authorized by the court or the trust instrument. A.R.S. Section 14-10801.

Duty to Keep the Beneficiary Informed:

A trustee must keep the minor beneficiary reasonably informed about the trust’s administration and management and provide regular reports as required by law or the trust instrument. A.R.S. Section 14-10813.

Duty to Make Trust Property Productive:

A trustee must make the trust property productive and invest it prudently to generate income and preserve the principal for the beneficiary’s benefit. A.R.S. Section 14-10902.

Duty of Impartiality:

A trustee must treat all beneficiaries equally and fairly, avoiding favoritism or discrimination. A.R.S. Section 14-10803.

Duty to Enforce Claims:

A trustee must enforce claims and defend actions on behalf of the trust, including legal actions against third parties. A.R.S. Section 14-10811.

A Trustee for a Minor Beneficiary Has Special Obligation to Account:

All trustees must keep accurate records and provide a full and accurate accounting of the trust property, income, expenses, and distributions to the minor beneficiary and other beneficiaries as required by law or the trust instrument. A.R.S. Section 14-10810 and -10813. However, this is especially important for minor beneficiaries. The reason is that a minor child is unable to protect themself legally. Even if they know a trustee is stealing money or mismanaging the trust, they are not old enough to hire a lawyer and bring a legal claim.

These duties ensure that the trustee acts in the best interests of the minor beneficiary and manages the trust assets with prudence, care, and diligence. You should be familiar with all relevant trust regulations and research any regulations related to your specific jurisdiction.

What Happens When a Trustee for a Minor Beneficiary Breaches Their Fiduciary Duties?

When a trustee breaches their fiduciary duties to a minor beneficiary, the beneficiary’s legal representative can take legal action against the trustee. Some potential consequences of a trustee’s breach of fiduciary duty include:

Removal of the trustee:

The court can remove the trustee and appoint a successor trustee if it determines that the trustee has breached their fiduciary duties to the minor beneficiary.

Damages:

The court can order the trustee to pay damages to the minor beneficiary for any losses caused by the breach of fiduciary duty.

Injunction:

The court can issue an injunction to prevent the trustee from continuing to engage in conduct that breaches their fiduciary duties.

Surcharge:

The court can order the trustee to pay a surcharge, which is a penalty for breaching their fiduciary duties, and can require the trustee to make restitution to the trust for any losses caused by their misconduct.

Criminal penalties:

In some cases, a trustee’s breach of fiduciary duty may constitute a crime, such as theft or embezzlement.

In addition to these legal consequences, a trustee’s breach of fiduciary duty can damage their reputation and make it difficult for them to serve as a trustee in the future. It is essential for trustees to understand their fiduciary duties and to act in the best interests of the minor beneficiary at all times to avoid these potential consequences.

Choose Appropriate Investments for a Minor Beneficiary.

When it comes to investing, you need to be especially mindful of your obligations as a trustee for a minor beneficiary. Your investments should be appropriate concerning their risk level and complexity. Usually, conservative investments with low-risk/low return are best suited for minors. You should also consider that many factors can impact whether an investment is suitable for the beneficiary’s needs, such as age and financial circumstances.

Manage Distributions in Compliance with the Law.

When investing for a minor beneficiary, you must take into consideration the laws governing individual accounts. Depending on the state in which you reside, there may be legal restrictions that determine when and how funds are available to the beneficiary. It is your responsibility as trustee to ensure distributions from the trust meet these legal requirements. You should also monitor contribution limits for such accounts, as exceeding them can have dire tax implications for both grantor and beneficiary.

Keep Detailed Financial Records and Document All Transactions.

When investing and managing the trust assets, it is essential to keep detailed financial records and to document all transactions. This includes account statements, receipts of payments, invoices, check stubs, tax forms, and any other documents that explain or confirm the trust’s activities. As trustee, you must show that you have properly managed the trust assets in good faith for the benefit of the minor beneficiary. Additionally, you will need to provide timely descriptions and reports about the financial well-being of the trust to its beneficiaries.

Understand the Terms of the Trust.

The terms of the trust are outlined in a written document called the trust instrument. It should include details such as the assets that comprise the trust, how the assets must be managed and invested, the duration of the trust, and any other important instructions regarding its management. As trustee, you need to clearly understand these terms in order to act responsibly on behalf of the beneficiary. Additionally, you should remain objective when making decisions about trust funds. Make sure you steer clear of any conflict of interest when making investments or other decisions on behalf of the trust.

If You Are Trustee for a Minor Beneficiary, Let Us Help You.

If you are serving as a trustee for a minor beneficiary, it’s important to have experienced legal representation to help you navigate the complex legal and financial issues involved. Our law firm has extensive experience representing trustees for minor beneficiaries. We can provide you with the guidance and support you need to fulfill your fiduciary duty and protect the interests of the beneficiary. Call us today at 602-443-4888 to schedule a consultation and learn more about how we can help you with your trustee responsibilities. Don’t wait until it’s too late – let us help you make informed decisions and ensure that the beneficiary’s needs are met (and that you don’t get into hot water by doing something wrong!).

Does A Trustee for a Minor Beneficiary Need to be Removed? Call Us.

If you suspect that a trustee has breached their fiduciary duties, it is crucial to act immediately to protect the minor’s interests. Trusts are powerful estate planning tools that can provide financial security and peace of mind, but they can also be vulnerable to abuse by unscrupulous trustees.

At Sudden Wealth Protection Law, our experienced attorneys are committed to helping clients navigate the complex process of removing a trustee for breach of fiduciary duty. We understand the legal and emotional challenges that come with these cases and are here to provide compassionate, effective representation every step of the way.

We can help you:

  • Understand your legal rights and options
  • Investigate the trustee’s actions and gather evidence of misconduct
  • File a petition with the court to remove the trustee and appoint a successor trustee
  • Recover damages and restitution for any losses caused by the breach of fiduciary duty
  • Ensure that the child’s interests are respected

Don’t wait to take action if you suspect that a trustee has breached their fiduciary duties. Contact us today at 602-443-4888 to schedule a consultation with one of our experienced attorneys. We are here to help you protect your interests and ensure that justice is served.

 

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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