Claims Against Trustees

Beneficiaries of a trust may bring various claims against trustees if they believe that the trustees have acted improperly or failed in their duties. Common claims include: 

1. Breach of Trust: A beneficiary can claim that the trustee has violated the terms of the trust or has failed to fulfil the trust’s objectives. This could involve mismanagement of trust assets, failure to distribute trust property according to the trust document, or unauthorized actions that go against the trust’s purpose.

2. Failure to Account: Trustees are required to provide beneficiaries with regular, accurate accounts of the trust’s administration. If a trustee fails to do this, beneficiaries may apply to the Court to get an order that the trustees must produce an account. The trustee might be compelled to explain how the assets have been handled and provide detailed records.

3. Mismanagement or Negligence: Trustees have a fiduciary duty to act in the best interests of the beneficiaries. If a trustee mismanages the trust’s assets — for example, by making risky investments, failing to diversify assets, or neglecting to safeguard trust property — beneficiaries might claim negligence or mismanagement.

4. Conflict of Interest: Trustees are required to avoid situations where their personal interests conflict with their duties to the trust beneficiaries. If a trustee has acted in a manner that benefits themselves at the expense of the beneficiaries, a claim for breach of fiduciary duty may be made.

5. Failure to Follow the Terms of the Trust: Trustees must administer the trust according to the specific terms laid out in the trust document. If a trustee acts outside the bounds of the trust’s instructions, beneficiaries can bring a claim to enforce the trust’s terms.

The remedies available to beneficiaries depend on the nature of the trustee’s wrongdoing. Common remedies include: 

1. Compensation: Beneficiaries may seek financial compensation for losses incurred due to the trustee’s actions or inactions. For example, if a trustee’s mismanagement led to a decrease in the trust’s value, the trustee might be required to make restitution to the trust from their own funds.

2. Removal of the Trustee: If a trustee has acted improperly, beneficiaries may seek their removal from the position. This might be requested if the trustee is incapable of carrying out their duties properly, or if a breach of trust has occurred.

3. Injunction: A beneficiary may seek a court order to stop a trustee from continuing harmful actions, such as selling assets contrary to the trust’s purpose.
4. Restoration of Trust Property: If trust property was wrongfully taken or misappropriated, the beneficiary may seek its return or the equivalent value.

5. Damages for Breach of Fiduciary Duty: In cases of severe misconduct, beneficiaries can seek damages for any losses suffered due to the breach of the trustee’s fiduciary duty.

Trustees have several potential defences they can raise in response to claims from beneficiaries: 

1. Compliance with Trust Terms: The trustee may argue that their actions were in full compliance with the trust document and that they acted in the beneficiaries’ best interests.

2. Good Faith and Reasonable Care: Trustees can defend themselves by demonstrating that they acted in good faith and with reasonable care, skill, and diligence in managing the trust’s assets. Trustees are required to act reasonably but not necessarily perfectly. Sometimes things will not work out as expected but the trustees will have a defence to any claim if they can show they have acted reasonably.

3. No Loss or Harm: A trustee may argue that no actual harm or loss occurred to the beneficiaries as a result of their actions. If the trust’s value hasn’t decreased or the beneficiaries haven’t suffered financially, the trustee may be able to argue that there’s no basis for the claim.

4. Consent of Beneficiaries: In some cases, if the beneficiaries have given informed consent to the trustee’s actions, the trustee might have a defence, especially if the consent was obtained before the disputed actions took place.

1. If a trustee is concerned that there may be a challenge to their conduct of the trust then they should get legal advice about their proposed course of action. That way, the trustee can point to that advice to show that their actions were reasonable. 
2. If trustees are concerned about a potential challenge to their choices, they can make an application to the Court for guidance. The trustees would be expected to set out their proposed course of action or else pose a question to the Court. The Court can then give directions as to how the trust should be managed, or can give blessing to a proposed course of action. This can be especially useful to trustees where the beneficiaries of a trust don’t agree as to what to do, or where they want to take a very substantial step in relation to a trust without there being any risk of personal liability.