At Katzner Law Group, we often advise individuals who either serve as trustees or are beneficiaries under a trust. One of the most important—and commonly misunderstood—areas of trust administration is a trustee’s fiduciary duty. When this duty is violated, it can lead to serious consequences for both the trustee and the trust’s beneficiaries.

A breach of fiduciary duty occurs when a trustee fails to act in the best interest of the beneficiaries, whether intentionally or through negligence. These violations can lead to financial loss, emotional stress, and prolonged legal battles. Understanding the nature of fiduciary duties, what breaches look like, and how to protect your rights is essential.

What Is a Trustee’s Fiduciary Duty?

A fiduciary duty is the highest legal obligation recognized by law. Trustees are bound to act with loyalty, integrity, impartiality, and due diligence in managing the trust assets for the benefit of its beneficiaries.

Core Fiduciary Duties of a Trustee

1. Duty of Loyalty – Trustees must always act in the best interest of the beneficiaries, never putting their interests above the trust.
2. Duty of Care – Trustees must manage trust assets prudently and with the same care they would use in managing their affairs.
3. Duty of Impartiality – The trustee must treat all parties equitably if a trust has multiple beneficiaries.
4. Duty to Account – Trustees must maintain accurate records and keep beneficiaries informed with periodic reports.
5. Duty to Avoid Conflicts of Interest – Any appearance of impropriety, favoritism, or personal gain from trust assets is a red flag.

These duties are defined and reinforced in New York’s Estates, Powers and Trusts Law (EPTL), particularly under EPTL §11-1.1, which outlines trustee powers and responsibilities.

What Constitutes a Breach of Fiduciary Duty?

A breach occurs when a trustee either fails to fulfill these duties or actively acts against them, resulting in harm to the trust or its beneficiaries. Breaches can be intentional (such as fraud or theft) or unintentional (like negligence or mismanagement).

Common Examples of Fiduciary Breach:

• Embezzlement: A trustee misappropriates funds from the trust, diverting them for personal use—one of the most serious forms of misconduct.
• Commingling of Assets: The trustee mixes personal funds with trust assets, violating accounting standards and making it difficult to track the trust’s value.
• Self-Dealing: The trustee uses trust property for personal gain, such as selling assets to themselves at a reduced price or benefiting from trust investments.
• Negligent Investment Choices: Investing trust funds in highly speculative ventures or failing to diversify the portfolio—leading to unnecessary losses.
• Failure to Distribute: A trustee deliberately withholds distributions or delays them without valid cause.
• Inadequate Recordkeeping: Not providing annual reports or a clear accounting to beneficiaries.
• Losses from Inaction: Trustees may also be liable for damages due to failure to act, including not selling a depreciating asset or not paying taxes, which results in penalties.

In New York, trustees are required to act with reasonable care, skill, and caution. Courts will consider whether the trustee adhered to the standards outlined by New York laws and whether any “wrongful act or omission” caused harm to the estate or trust.

Signs a Trustee May Be Violating Their Fiduciary Duty

If you’re a beneficiary, it’s important to recognize red flags that may indicate a breach of duty. These signs include:

• Unexplained depletion of trust assets
• Late or missing distributions
• Refusal to provide documentation or accounting reports
• Sudden or unauthorized changes to trust terms or investments
• Poor communication or evasiveness when questioned

In many cases, trustees may not even realize they’re in violation—especially if they’re inexperienced or unadvised. But even unintentional mistakes can still have serious legal implications.

Legal Consequences for a Trustee’s Breach

When a trustee breaches their fiduciary duty, the beneficiaries—or even the court itself—can take legal action. The severity of the consequences depends on the nature and scope of the misconduct.

Possible Legal Repercussions:

1. Removal of Trustee – Courts can remove a trustee and appoint a successor if it’s in the best interest of the trust.
2. Surcharge Orders – Trustees can be ordered to reimburse the trust for losses directly caused by their actions.
3. Restitution & Damages – Beneficiaries may sue for compensation, including interest and punitive damages in egregious cases.
4. Criminal Liability – In cases involving theft, embezzlement, or fraud, the trustee may face criminal prosecution and jail time.
5. Injunctions – Courts may issue injunctions to prevent a trustee from taking certain actions while the matter is being investigated.

According to the New York State Unified Court System, fiduciaries who fail to comply with their legal responsibilities may also be subject to contempt proceedings or disciplinary sanctions.

Real-Life Scenario

Imagine a scenario where a family trust was created to hold real estate and cash investments for the benefit of three siblings. The named trustee, one of the siblings, begins using the trust’s funds to renovate their own home, justifying it as a “temporary loan.”

The trustee also sells one of the trust’s properties—below market value—to a friend. After several months, the beneficiaries notice the trust account statements are missing and that communication from the trustee has all but stopped.

This is a textbook example of:

• Self-dealing
• Embezzlement
• Failure to account

If not corrected, this trustee could face removal, legal penalties, and even criminal charges.

How to Respond to a Breach

If you suspect a breach of fiduciary duty, it’s crucial to act swiftly:

1. Request an Accounting – Trustees are required to provide detailed records. You may also request a formal judicial accounting in probate court.
2. Document Everything – Keep all communication, documents, and financial records for reference.
3. Consult a Trust Attorney – Legal guidance can help you understand your rights, assess the situation, and determine next steps.
4. File a Petition – If needed, file a petition in Surrogate’s Court to remove the trustee or seek restitution.

For more on fiduciary responsibilities and legal remedies in New York, the NYC Surrogate’s Court website offers helpful procedural information.

Preventing Fiduciary Duty Violations

Trustors (those who create a trust) and trustees can take proactive steps to reduce the risk of violation:

Tips for Trustors:

• Choose a trustee with experience or seek a professional fiduciary.
• Include detailed instructions in the trust document.
• Require co-trustees or regular third-party reviews.
• Set reporting requirements and timelines for accountability.

Tips for Trustees:

• Keep trust assets in separate accounts—never commingle.
• Maintain accurate, transparent records.
• Avoid transactions that could create a conflict of interest.
• Work with estate attorneys, accountants / CPA’s, and financial advisors as needed.
• Communicate regularly with beneficiaries and answer questions promptly.

By proactively managing duties and understanding legal obligations, trustees can avoid costly mistakes and build trust among beneficiaries.

How Katzner Law Group Can Help

At Katzner Law Group, we focus exclusively on estate planning, trust administration, probate, and fiduciary litigation. Whether you are:

• A beneficiary concerned about a trustee’s actions
• A trustee seeking advice on how to avoid legal pitfalls
• Or a trust creator (settlor) who wants to ensure your trust is structured correctly

…our experienced team can guide you every step of the way.

We help clients understand their rights and responsibilities and provide proactive legal solutions to minimize conflict, protect assets, and ensure compliance with New York fiduciary laws.

Talk to an Estate Planning Attorney Today

Don’t wait until it’s too late. Whether you’re a trustee trying to do the right thing or a beneficiary concerned about misconduct, legal guidance is essential. A single misstep can jeopardize the financial security of everyone involved.

Call Katzner Law Group today at 855-528-9637 or contact us online to schedule a confidential consultation.

We’re here to help you navigate complex trust issues with confidence, clarity, and compassion.