Serving as a trustee is an important responsibility. In South Carolina, trustees are tasked with managing trust assets for the benefit of others, often family members or heirs. 

While it may seem like an honor to be appointed, it’s important to understand that this role carries significant legal obligations and risks. A trustee who makes mistakes, whether intentional or not, can face lawsuits, removal, or even personal financial liability. 

This guide explains the legal risks of serving as a trustee in South Carolina and offers strategies for protecting yourself.

Understanding the Role of a Trustee

A trustee is a person or institution appointed to manage and oversee the assets placed in a trust. In South Carolina, trustees are legally bound by fiduciary duties, which means they must act in the best interests of the beneficiaries at all times.

Key responsibilities include:

• Managing trust property in accordance with the trust document.

• Keeping accurate records and providing transparent accounting to beneficiaries.

• Making prudent investment decisions under the South Carolina Uniform Prudent Investor Act.

• Avoiding conflicts of interest that could harm beneficiaries.

Trustees must act with loyalty, care, and impartiality. Failing to uphold these duties can expose them to significant legal risks.

Key Legal Risks Trustees Face

A few legal risks that most of the trustees encounter:

Breach of Fiduciary Duty

Trustees owe a fiduciary duty to beneficiaries, meaning they must always prioritize the beneficiaries’ interests over their own. Breaches occur when a trustee engages in self-dealing, ignores trust terms, or mismanages trust property. 

In South Carolina, a breach can lead to lawsuits, court intervention, or even personal liability for financial losses.

Mismanagement of Assets

Improper investments, failure to diversify, or ignoring market risks can all lead to claims of mismanagement. South Carolina law requires trustees to act as a “prudent investor,” meaning decisions must be made with reasonable care and sound judgment. 

If assets decline due to reckless actions, the trustee may be held personally accountable.

Failure to Provide Proper Accounting

Trustees are required to maintain accurate financial records and provide regular updates to beneficiaries. When a trustee fails to report transactions or withholds information, disputes often arise.

Courts in South Carolina can compel trustees to provide full accountings and may impose penalties for noncompliance.

Conflicts of Interest

Trustees must remain impartial, treating all beneficiaries fairly. Issues arise if a trustee uses trust assets for personal gain or favors one beneficiary over another.

Even the appearance of a conflict of interest can lead to litigation and removal as trustee.

Tax and Legal Compliance Issues

Trusts often require tax filings, reporting obligations, and compliance with both state and federal law. 

Errors in tax preparation or late filings can result in penalties. In some cases, trustees may be held personally responsible for unpaid taxes, adding to their legal risk.

Consequences of Trustee Missteps

When trustees fail to meet their obligations, the consequences can be severe:

• Civil lawsuits from beneficiaries demanding compensation for losses.

• Personal financial liability, meaning the trustee must pay damages out of their own pocket.

• Court removal as trustee, often accompanied by reputational harm.

• Court oversight that limits the trustee’s ability to act independently.

• Strained family relationships, particularly when trustees and beneficiaries are relatives.

How Trustees Can Protect Themselves

While the risks are significant, trustees can take proactive steps to protect themselves:

• Maintain thorough records of every financial transaction and decision.

• Communicate openly with beneficiaries to prevent misunderstandings.

• Seek professional advice from financial advisors, accountants, and attorneys.

• Follow the trust document and state laws to the letter.

• Consider liability insurance or indemnification provisions, where available, to reduce exposure.

By managing the trust with diligence and transparency, trustees can reduce the risk of disputes and safeguard themselves from personal liability.

When to Seek Legal Guidance

Not every trustee situation is straightforward. Complex trusts, family conflicts, or disputes over asset management often require legal expertise. 

If you are uncertain about your duties or facing a potential dispute, consulting an experienced South Carolina trust attorney can help you avoid costly mistakes. Proactive legal guidance is far less expensive, and stressful, than dealing with litigation after the fact.

FAQs

1. Can a trustee be held personally liable in South Carolina?

Yes. Trustees can be held personally liable for breaches of duty, mismanagement of assets, or failing to follow state laws.

2. Do all trustees in South Carolina need a lawyer?

Not always, but working with an attorney can help ensure compliance with complex trust laws and reduce the risk of disputes.

3. Can a trustee resign if they feel overwhelmed?

Yes. Trustees may resign, but they must follow the trust’s terms and South Carolina legal procedures to ensure a smooth transition.

4. What happens if beneficiaries sue a trustee?

Beneficiaries can sue for damages, demand removal of the trustee, or request court oversight of the trust.

5. How long does a trustee serve in South Carolina?

A trustee serves until the trust terms are completed, they resign, or a court removes them for cause.

Conclusion

Serving as a trustee is not a simple administrative role, it is a legal responsibility that comes with real risks. Trustees who fail to meet their obligations may face lawsuits, financial liability, or removal. 

By understanding the duties involved, keeping accurate records, and seeking legal guidance, trustees can fulfill their role with confidence while minimizing personal risk.

If you have been appointed as a trustee in South Carolina or are currently serving and facing challenges, professional legal guidance can make all the difference. 
At Max Hyde Law Firm, we help trustees navigate complex trust responsibilities while protecting their rights. Call us today at (864) 804-6330 or fill out our online form to schedule a confidential consultation.