Detailed Answer
Under Colorado law, trustees owe strict duties to beneficiaries. When a trustee misuses trust assets—by diverting funds, making unauthorized investments, or failing to account for distributions—beneficiaries can take legal action under the Colorado Uniform Trust Code (CUTC).
1. Understand Trustee Duties
Trustees in Colorado must act in good faith, avoid conflicts of interest, and keep clear records. Key duties include:
- Duty of Loyalty: Act solely in beneficiaries’ interests.
- Duty to Account: Provide regular, accurate accountings of trust property.
- Duty to Invest Prudently: Follow the prudent investor rule.
2. Demand a Formal Accounting
Under C.R.S. §15-5-813, beneficiaries may request an accounting. Send a written demand detailing the period and information needed. If the trustee refuses or stalls, you can petition the court for an order compelling an accounting.
3. Petition for Removal of Trustee
If misuse of funds persists, beneficiaries can ask the district court to remove the trustee under C.R.S. §15-5-801. Grounds include serious breach of trust or inability to administer the trust effectively. The court will weigh whether removal serves the beneficiaries’ best interests.
4. Seek Monetary Relief (Surcharge)
Under C.R.S. §15-5-504, the court can surcharge (financially penalize) a trustee who breaches duties. The court may order repayment of misused funds, plus interest, and may award attorney fees and costs to the beneficiary.
5. File a Breach of Fiduciary Duty Claim
Beyond trust-code remedies, beneficiaries can bring a common-law claim for breach of fiduciary duty. Colorado courts allow equitable relief such as constructive trusts or equitable liens to recover assets.
6. Alternative Dispute Resolution
Consider mediation or arbitration if the trust documents require it. ADR can resolve disputes faster and at lower cost than litigation.
Disclaimer: This article is for educational purposes only and does not constitute legal advice. Consult a qualified attorney to discuss your specific situation.
Helpful Hints
- Gather all trust documents, bank statements, and correspondence before seeking relief.
- Keep records of every communication with the trustee.
- Act promptly—statutes of limitation may bar late claims.
- Look for fee-shifting provisions in the trust or statutes to recover attorney’s fees.
- Consider hiring a forensic accountant if the misuse involves complex transactions.