A trustee in Mississippi has a fiduciary duty to manage a trust according to a wide-ranging set of obligations and responsibilities.
If your trustee is breaching any of the rules, he/she can be replaced and, depending on the nature of the breach, may face trust litigation and be required to pay monetary or non-monetary damages.
If you’re a beneficiary, how do you know if a trustee is fulfilling their obligations or not? And, if you’ve been appointed as a trustee, how can you ensure you follow the rules?
Let’s run down the most common ways that trustees breach their fiduciary duties in Mississippi so that you can identify whether a trust is being managed properly.
What is a trustee?
A trustee is a person appointed to manage a trust—on behalf of the grantor and the beneficiaries of the trust.
Trustees have a fiduciary duty to manage the property and/or fund assets in the trust in the best interests of those that they represent. They must hold, manage, invest, and care for the trust’s assets with care, confidentiality, impartiality, and loyalty, as well as accurate accounting.
If the fiduciary duty is breached, it can lead to disputes and/or losses for the trust, which can have legal consequences—but what are the main reasons why this occurs?
Ways that trustees breach fiduciary duty in Mississippi
The most common ways for trustees to breach their fiduciary duty in Mississippi are:
Delegating essential trustee tasks to others
Trustees must manage essential tasks involved with trust administration themselves. That doesn’t mean that no tasks can be delegated but only tasks that trustees cannot reasonably manage themselves should be passed to others.
Management of the trust cannot be “outsourced” to a third party, for instance, unless this is specifically permitted in the trust documentation. However, if a certain task, such as renovating a property before selling it, is considered beyond the skills of the trustee, it can and should be delegated to another party with the required skills, while still being supervised by the trustee.
Each trustee case differs depending on the skill set of the trustee—which is why it’s important to appoint a capable trustee who can manage the required tasks suitably.
If a trustee delegates tasks but does not cause any financial losses to the trust, beneficiaries are less likely to flag this as a breach of duty.
Becoming a trustee of a second, conflicting trust
An “adverse” trust is where the trustee benefits from a relationship with a second trust to the detriment of the first.
The trustee of one trust has a duty not to knowingly become a trustee of another trust adverse to the interests of the beneficiaries of the first trust.
Conflicts can arise, particularly when an “A-B trust” arrangement exists. Many married couples use this strategy to ease the transfer of property process after one of the spouses dies. Because two trusts are involved, two trustees are required—but this may be the same individual.
In such cases, a perceived conflict of interest can arise between family members and the trustee, who is usually the husband or wife, especially if the trustee remarries. The trustee should then resign from one of the trusts or may face legal action for breach of fiduciary duty from an interested family member.
Failure to administer the trust according to its terms
When a trust is set up in Mississippi, the trust documents or deeds outline the terms by which it must be administered. The trustee should never deviate from the terms to suit their needs or beliefs.
Common examples of failing to administer the trust according to its terms include:
- Not distributing specific gifts to beneficiaries as stipulated in the deeds (providing sufficient assets are available to do so).
- Not distributing residuary gifts according to the clause(s) in the trust documents.
- Investing assets that were intended for other purposes by the grantor of the trust.
- Claiming verbal permission from the grantor to dispose of assets in a way that conflicts with trust documentation.
Failure to separate and identify trust properties
Trustees have a fiduciary duty to separate and identify trust property from their own assets so that the two are not confused. Failure to do so can reduce the inheritance for beneficiaries and lead to a lawsuit.
Some assets like real estate or vehicles are relatively easily defined and difficult to confuse. With cash, stocks, bonds or other fungible assets, it can be much more challenging, which is why accurate identification and record-keeping by trustees is essential.
Commingling funds can lead to losses for beneficiaries and be classed as a breach of fiduciary duty.
Behaving impartially to a trust beneficiary
Trustees must treat all beneficiaries equally as per the rules of the trust and under Mississippi law.
Impartial behavior that favors one beneficiary over another when managing or investing assets is likely to result in challenges from the other beneficiaries. Strict impartiality can be difficult when beneficiaries don’t see eye to eye and want different things or have different opinions on how to maximize returns from the trust—but the trustee is expected to manage the situation for the benefit of all concerned.
Not investing or managing trust assets prudently
Another duty of trustees is to manage and invest trust assets prudently, in the best interests of the beneficiaries, and to the best of their abilities.
Unless the trust states that assets should be distributed outright upon death, assets may be better off kept as they are when the trust is formed, invested prudently or sold, for instance—according to the main objectives of the trust.
A trustee must consider the objectives, contracts, distribution requirements, and other relevant circumstances when managing the trust, and must execute an investment strategy with reasonable care and skill, evaluating risk and return accordingly.
Breaching the trustee’s standard of care
The trustee’s standard of care, i.e. their obligation to meet a certain standard of care when managing the trust, applies whether or not trustees are being paid for their work.
If the trustee works for free, the beneficiaries may be more forgiving of mistakes unless they lead to serious, avoidable losses.
Failure to diversify trust assets
The failure to reasonably diversify assets is another breach of fiduciary duty if management and investment of the trust assets are required.
A reasonable investment strategy balances risk and reward and diversifies assets accordingly. Financial advice may be sought to accomplish this.
Unless the trust documentation states otherwise, putting “all the eggs in one basket” is rarely a sound strategy. If a failure to diversify results in losses for the trust, legal action may be taken against the trustee.
If you need to file or defend a breach of fiduciary duty claim in Biloxi or the rest of the Gulf Coast area of Mississippi, contact an experienced trust litigation lawyer at Rushing & Guice, PLLC for legal advice and assistance
