What if You Violated an Irrevocable Trust?

A trust is a legal agreement that is established when you ask someone to hold your assets, such as money or property, to be used for the benefit of one or more people, known as "beneficiaries." The person charged with the responsibility of guarding the trust assets is referred to as the trustee. An irrevocable trust is a trust that cannot be revoked except in special situations. If the trustee of an irrevocable trust violates the terms of the trust, a number of consequences may follow, including removal as trustee or revocation of the trust by a court, as well as a civil lawsuit or prosecution for criminal fraud.

The possible consequences of violating an irrevocable trust will vary somewhat by state. Each individual state has the authority to enact its own laws in the United States, so long as they do not infringe upon federal law or violate the rights contained in the U.S. Constitution. Therefore, laws relating to the creation, administration and revocation of trusts are enacted at the state level. Likewise, criminal statutes and rules of civil procedure can vary from one state to another; however, there are a number of common remedies that are found among the states when a trustee violates the terms of a trust.

The term "irrevocable trust" can be misleading. In reality, an irrevocable trust can be revoked in most states under certain circumstances. For example, an irrevocable trust can often be revoked by agreement of the maker and all beneficiaries of the trust. If a trustee has violated the terms of a trust, a court may interfere and replace the trustee, alter the terms of the trust or revoke the trust entirely and distribute the remaining assets held by the trust, if the court believes it is in the best interests of the beneficiaries.

For a trustee who has violated an irrevocable trust, a civil lawsuit is frequently a viable remedy for either the maker or beneficiaries of the trust. Although a trustee can violate a trust in numerous ways, the most common allegations of serious violations are that the trustee misappropriated the assets of the trust. Anyone who was injured by such a violation may be entitled to file a civil lawsuit based on fraud, or a similar claim, in an attempt to recover monetary damages for the violation.

Criminal fraud charges may also apply when a trustee violates an irrevocable trust. Fraud may be a crime in and of itself or may be only an element in other crimes; however, whether charged alone or used as an element in another crime, intentionally misappropriating assets of a trust can have serious criminal consequences. Typically, the major difference between civil and criminal fraud relates to the intention of the person who committed the fraud. If the fraud was done on purpose, then it is more likely to qualify as a crime. On the other hand, if the fraud was committed by negligence, or not on purpose, then it may only qualify as civil fraud.