Breach of Fiduciary Duty in Contested Probate: Where Trustees Actually Go Wrong

Most trustees who end up facing a breach of fiduciary duty claim never stole anything. They kept loose records, paid themselves without checking their authority, favored one beneficiary over another without meaning to, or went quiet when a beneficiary started asking questions. Contested probate is full of honest people who took on a job they did not fully understand and then ran it the way they run their own money. That is the mistake. A fiduciary is not managing his own money, and the rules are stricter than almost anything else in private law.

My practice includes fiduciary litigation, so I spend a lot of time inside contested estates and trusts. The patterns repeat often enough to describe plainly. What follows is how these duties actually work, where they tend to break, and what a court looks at once a beneficiary files something.

What duties does a trustee or personal representative actually owe?

The core duty is loyalty. A fiduciary administers the estate or trust for the beneficiaries, not for himself. Every other duty is a version of that one. Self-dealing, meaning a transaction between the fiduciary and the estate, is suspect even when the price is fair. In many states it is presumptively improper unless the governing instrument allows it, every affected beneficiary consents, or a court approves it in advance.

Impartiality comes next. Where there are multiple beneficiaries, a fiduciary cannot run the administration for the one he likes or the one who calls the most. That duty gets genuinely hard when beneficiaries have conflicting interests, as they do when one holds an income interest and another takes the remainder. Then there is prudence. Most states apply some version of a prudent investor standard to trustees, which asks whether assets were invested and managed with the care a prudent person would use, judged across the whole portfolio rather than one holding at a time.

The last duty is the one people underestimate. A fiduciary owes beneficiaries information. The specifics vary by state and by instrument, but the general rule is that qualified beneficiaries are entitled to know what the fiduciary holds, what he did with it, and what he paid himself. In practice that means a periodic accounting. A fiduciary who will not account has already lost the first round.

Where does a breach of fiduciary duty claim usually start?

Often with silence. A beneficiary asks a question and does not get a real answer. Six months later that beneficiary has a lawyer. By then the dispute is not really about the original question anymore. It is about what the silence might have been covering.

The second common starting point is money that moved without a paper trail. One account gets used for everything. The fiduciary reimburses himself for mileage and a few meals and never writes it down. He takes a fee because he read somewhere that fiduciaries get paid, without checking the instrument or the statute. None of that is theft. All of it is very hard to defend two years later when someone wants a line-by-line explanation.

The third is the asset nobody dealt with. A house that never got listed. A closely held business the fiduciary kept running because the decedent would have wanted it that way. A concentrated stock position left untouched out of sentiment. Delay generates claims as often as bad transactions do, and it is harder to answer, because there is nothing in the file showing that a decision was ever actually made.

Is every mistake a breach?

No. Courts judge fiduciaries on process, not on results. Not every loss is a breach of fiduciary duty. An investment that lost money is defensible if the decision was made carefully, for stated reasons, consistent with the instrument and the beneficiaries’ interests. An investment that made money can still be a breach if the fiduciary had no business making it.

That distinction is why documentation carries so much weight. The fiduciary who can produce an appraisal, two competing offers, and a one-page memo explaining why he took the lower one is in a completely different position from the fiduciary who says he thought the price was fair. Same decision. Entirely different case.

States also differ on what the instrument can excuse. Many let a will or trust relax the standard of care to some degree. Almost none let a fiduciary be excused for bad faith or reckless indifference. Exculpatory clauses get read narrowly, and a clause inserted by the person who ended up serving as fiduciary gets read more narrowly still.

What happens once a beneficiary files a petition?

A breach of fiduciary duty case in probate usually arrives as some combination of three filings. A petition to compel an accounting. A petition to remove or suspend the fiduciary. And a claim for surcharge, which means asking the court to make the fiduciary personally pay the loss. Procedure varies by state, and so does which court hears what, but the shape is consistent. The beneficiary wants numbers, then wants the fiduciary out, then wants the money back.

The accounting fight comes first and often decides the rest. A complete accounting with supporting records narrows the case to a few contested items. An incomplete one expands it, because gaps get filled with inferences and the inferences are not generous. In many states the burden shifts once a conflicted transaction is shown, meaning the fiduciary has to justify it rather than the beneficiary having to condemn it.

Removal is a separate question from surcharge. A court can remove a fiduciary for hostility, deadlock or plain inability to administer without finding that a dollar went missing. Legal fees deserve their own line. A fiduciary can generally charge the estate for work that benefits the estate. Defending his own conduct is frequently not that, and courts do look closely at who is really being served by the bill.

How do fiduciaries keep an administration out of court?

The habits that prevent trouble are unglamorous. Separate accounts. Contemporaneous records. Written reasons for anything discretionary. Independent appraisals for anything hard to value, and especially for anything the fiduciary or a family member might want to buy. Compensation taken only on the authority in the instrument or the statute, and disclosed when taken.

Communication does more work than all of it. Beneficiaries who get regular, boring updates rarely sue. Beneficiaries who get nothing for a year assume the worst, and the worst they imagine is usually more interesting than the truth.

Where a decision is genuinely close, many states let a fiduciary get it blessed before acting, through written consents from the affected beneficiaries or an instruction from the court. That costs something up front. It costs far less than defending the same decision three years later with hindsight working against you.

Frequently asked questions

Can a trustee be held personally liable?

Yes. A surcharge judgment runs against the fiduciary personally, not against the trust, and in many states it can include lost investment return as well as the fees the fiduciary took. Some instruments and some statutes limit exposure for ordinary errors in judgment. None of them protect a fiduciary who acted in bad faith or simply ignored the duty.

How long does a beneficiary have to object?

It depends on the state and on what the fiduciary disclosed. Many states run a fairly short clock from the date a beneficiary receives a report or accounting that adequately discloses the transaction, and a much longer one where nothing was disclosed at all. Full disclosure starts the clock. Silence keeps it from running.

Does a trust that gives the trustee sole discretion settle the question?

Not by itself. Broad discretion gives a fiduciary real room on matters of judgment, like timing or amount. It does not remove the duties of loyalty, good faith and impartiality. A court will still review a discretionary decision that looks like it served the fiduciary rather than the beneficiaries.

Talk with Michael

Fiduciary litigation and contested probate are a significant part of my practice. If you are administering an estate or a trust and the questions have started to sound like accusations, or you are a beneficiary who cannot get a straight answer about what is happening with family assets, the file is worth a look early. These cases tend to get materially better or materially worse in the first few months. Reach me through our contact page.

By Michael Cherba, Senior Attorney, Complex Litigation, AEGIS Law