Legal Definitions - failure of trust

The term failure of trust refers to a situation where a trustee, who is legally responsible for managing assets or property for the benefit of others (known as beneficiaries), does not fulfill their duties as required by the trust agreement or by law. This can involve mismanagement, neglect, or acting against the beneficiaries' best interests, leading to harm or loss for the trust or its beneficiaries.

Here are some examples illustrating a failure of trust:

• Example 1: Mismanagement of Investments

  A trust was established to provide for a minor child's future education and living expenses. The trust document explicitly stated that funds should be invested in low-risk, diversified portfolios. However, the appointed trustee, believing they could achieve higher returns, invested a significant portion of the trust's assets into a single, highly speculative stock without proper research or diversification. When the stock market experienced a downturn, the trust suffered substantial losses, significantly diminishing the funds available for the child's education.

  This illustrates a failure of trust because the trustee breached their fiduciary duty to manage the funds prudently and according to the conservative investment mandate outlined in the trust, directly harming the beneficiary's financial future.

• Example 2: Neglect of Trust Property

  An elderly individual placed their primary residence into a trust, with their adult child named as the trustee. The trust stipulated that the property should be rented out to generate income for the elderly parent's care, and that the trustee was responsible for its maintenance. Over several years, the trustee neglected necessary repairs, such as fixing a leaking roof and maintaining the garden, leading to significant structural damage and a decrease in the property's rental value. The reduced rental income then impacted the parent's ability to afford necessary care.

  This demonstrates a failure of trust because the trustee's inaction and neglect of the trust's primary asset (the house) led to its deterioration and reduced its income-generating capacity, failing to uphold their duty to preserve and manage the trust for the beneficiary's benefit.

• Example 3: Improper Distribution and Self-Dealing

  A trust was created to distribute a collection of valuable antique coins equally among three grandchildren upon the grandparent's death. The trustee was also one of the grandchildren. Instead of distributing the coins fairly, the trustee secretly kept the most valuable coins for themselves, claiming they were "lost," and then distributed the less valuable remainder among all three, including themselves. They also significantly delayed the distribution process, causing further frustration and potential loss of value for the other beneficiaries.

  This is a clear failure of trust because the trustee engaged in self-dealing by taking valuable assets for personal gain and failed to carry out the trust's instructions for fair and timely distribution, acting against the interests of the other beneficiaries.