Beneficiaries of an Estate are sometimes concerned that an Estate Trustee may be mismanaging Estate assets in one way or another. When this happens, open and frank communication between the Estate Trustee and the beneficiaries can often go a long way to resolving the issue.
In certain circumstances, however, more may be required. When this happens, a beneficiary will often turn first to demanding an “accounting” from the Estate. While the term is somewhat confusing, in this context an “accounting” refers to a detailed listing of all money coming into and out of an Estate, organized chronologically. The accounting can then be analyzed to determine whether any mismanagement has occurred, or whether additional documentation or explanation is needed to support or explain any of the entries in the accounting.
If an Estate Trustee refuses to provide an accounting, or if a beneficiary believes that there has likely been mismanagement, then the beneficiary can apply to the court for a formal “passing of accounts.” This is a process in which the Estate Trustee must put their accounting before the court for approval. The beneficiary will be able to raise objections to the accounts, and if necessary, there will be a hearing in which the court receives evidence and determines whether the Estate Trustee has acted appropriately. If the court finds that the Estate Trustee has engaged in mismanagement, then the court will likely require the Estate Trustee to make restitution to the Estate.
Importantly, the process of a passing of accounts can be used not just to challenge the financial management of the Estate, but also to challenge the level of compensation claimed by the Estate Trustee. While an Estate Trustee is generally entitled to compensation for their work done on behalf of the Estate, a beneficiary may feel that the Estate Trustee is proposing an excessive amount of compensation. If the parties cannot reach an appropriate settlement, then the passing of accounts process provides a mechanism by which a court can decide upon the proper compensation.
Removal of an Estate Trustee
In addition to the passing of accounts process, another option for a beneficiary who feels that an Estate is being mismanaged is to seek a court order removing and replacing the Estate Trustee.
It is important to note that this is a fairly extreme remedy. Estate Trustees are generally given a wide amount of latitude to carry out the administration of the Estate. Most Wills makes it clear that an Estate Trustee is invested with a significant amount of authority and discretion in making decisions related to the administration of the Estate. So long as they are acting within the bounds of reason, a court will be very hesitant to order an Estate Trustee removed. However, if there is clear evidence of mismanagement, then a court can be persuaded to remove an Estate Trustee.
Making a claim for negligence, breach of trust, or breach of fiduciary duty
A final option is for a beneficiary to make a direct civil claim against an Estate Trustee for negligence or breach of trust. An Estate Trustee owes a duty to beneficiaries to act in their best financial interests. If an Estate Trustee is negligent in carrying out that duty, then a beneficiary can claim for damages suffered as a result. Depending on the specific circumstances, a beneficiary might also be able to plead the claim as being a “breach of trust” or “breach of fiduciary duty.” A beneficiary should seek the assistance of a lawyer to make sure that their claim is structured properly.
If you are a beneficiary who believes that an Estate has been mismanaged, or if you are an Estate Trustee defending against wrongful accusations of mismanagement, contact Miller Thomson’s estate litigation team.