There are two different types of lawsuits that Trustees have to worry about. One is a lawsuit from an outside party. That’s the type of lawsuit that can potentially be filed against anyone. For example, if a real estate transaction goes bad, someone may want to sue the Trust and the Trustee. With that type of lawsuit, the Trustee will likely use the Trust money to defend the Trust against the claims. That’s fairly straight forward.
The other type of lawsuit the Trustee may have to worry about is one that is filed by the Beneficiaries against the Trustee for breach of trust, mismanagement of trust assets, or violating Trustee duties and obligations. I’m sure that most Trustees would prefer to figure out how to avoid being sued by a Beneficiary. Fortunately, there are a number of ways to prevent these types of lawsuits. The first is to communicate with your Beneficiary. The more you inform the Beneficiary of what’s going on, the better relationship you’ll have with that Beneficiary and the less likely they will feel compelled to sue you in the future. That makes sense.
Filing a Court Accounting with the Court
You also can file a Court Accounting with the Court. When the Court approves your Trust Accounting, the Beneficiaries can’t come back later to sue you for breach of trust. You could also ask for a Release from the Beneficiary. If they sign a legal Release releasing you from your legal liabilities, then you don’t have to worry about a future lawsuit.
But the best course of action for any Trustee is to administer the Trust properly, account fully, make sure that your financial transactions are transparent, and communicate with your Beneficiaries. If you do the right thing, you are a lot less likely to need to worry about a future lawsuit.
