Although trusts are not difficult to create, they do require a certain degree of trust administration. If you are presently serving as a trustee, particularly of an irrevocable trust, you must take care to faithfully execute the trust instrument’s instructions. If you do need assistance with trust administration, you should not hesitate to contact a qualified trust administration attorney for assistance.
What Happens If a Trustee Fails to Follow the Trust Instructions?
Trustees play an important role in overseeing and managing a trust, and they must act in the best interests of the beneficiaries. A trustee is responsible for following the instructions of a trust and properly distributing assets to the beneficiaries. If a trustee fails to follow through on their responsibilities, they can be held liable for fiduciary breaches.
If a trustee has breached their fiduciary duty, a beneficiary has several options:
- Contact an attorney to help communicate with the trustee. This can involve requesting a trust accounting and distribution through your attorney. The lawyer can also advise on expectations and help resolve disputes with the trustee.
- File a petition for trust accounting and distribution. This is done through the court, and requires that the trustee provide full accounting and documentation of the financial information.
- Petition the court to suspend and remove the trustee. This will likely require a trial where the beneficiaries will need to present evidence on why removal is necessary.
Trust administration can be complex and confusing. It is recommended that trustees work with an experienced attorney to help guide them through the trust administration process to help minimize and avoid disputes or miscommunication with beneficiaries.
Wisconsin Court Orders Ex-Trustee to Pay Sister $100,000
Recently, a Wisconsin appeals court affirmed an order removing the trustee of an irrevocable trust precisely because he failed to follow the trust’s instructions. The trust was first established over 20 years ago. The person who made the trust, known in legal terms as the settlor, operated a bed and breakfast in Lake Geneva, Wisconsin. The trust owned a 30% interest in the limited partnership that actually owned the property.
The purpose of the trust was to provide for the settlor’s adult daughter. Under the terms of the trust instrument, the trustee was required to distribute the quarterly income from the trust–i.e., the income generated on the 30% share of the limited partnership–to the daughter on a quarterly basis. The trustee could also make distributions from the principal of the trust as he saw fit to provide for the “health, education, and welfare” of the daughter or her children.
The trustee was the settlor’s son, who owned 60% of the limited partnership. According to the daughter, in the 20+ years of the trust’s existence, her brother never made any of the required income distributions from the trust. Nor did she or her children receive any distributions of principal.
The trust further required that when the daughter reached 50 years of age, which occurred in 2007, the trustee was supposed to “annuitize” the remainder of the trust’s assets. Basically, the trustee was supposed to start making annual principal payments to the daughter over the remainder of her expected lifetime. But again, the daughter said this never happened.
A Wisconsin circuit court judge agreed with the daughter that the son failed in his responsibilities. Accordingly, the court removed him as trustee, dissolved the trust, and ordered the son to pay his sister $100,000 in damages from his personal funds. This money reflected the income payments the daughter was entitled to but never received.
The son appealed this part of the judge’s decision, but the Wisconsin Court of Appeals, District II, said the ruling was “supported by ample evidence.”
Get Help from a Trust Administration Lawyer
The estate lawyers of Estate Law Partners, LLC assist clients in and around Madison, Wisconsin and Rockford, Illinois with all matters related to estate planning, trusts, and probate matters. Our dedicated attorneys will even make house calls if you are unable to come to our office.
To attend a free estate planning workshop or to receive our client planner to assess your estate planning mindset, contact our office by calling (608) 292-5185 or use our online contact form.