Serving as trustee of a revocable trust can feel like a natural extension of helping your loved one, especially when you’ve been chosen because they trust your judgment.
However, it's important to remember that a revocable trust is usually designed to be flexible during the trust creator’s lifetime and then shift into a more traditional estate-planning tool after that person passes away. That shift changes not only how the assets are managed but also when and how you, as the trustee, could potentially face legal claims against the estate.
At Nelson Law Firm in Bluffton, South Carolina, many of our clients often ask whether they can be personally sued while acting as a trustee and what that might mean for their own finances. Those questions are important because the trustee’s decisions can sometimes affect creditors and other interested parties. We can help you explore what to expect and how to handle these situations if or when they arise.
What It Means to Act as Trustee of a Revocable Trust
During the trust creator’s lifetime and while they’re still able to make decisions, a revocable trust usually operates with considerable flexibility. The creator can amend or revoke the trust, add or remove assets, and sometimes serve as their own trustee, which keeps everyday control close at hand while still laying groundwork for future administration.
When the trust creator becomes incapacitated or passes away, the trust often becomes irrevocable, and the successor trustee assumes full responsibility for the trust. At that point, the trustee’s focus shifts from the creator’s personal needs to the beneficiaries' interests, and the trustee's fiduciary duties tend to receive more scrutiny.
When you act as trustee, you are responsible for managing property that legally belongs to the trust, not to you personally. Your authority to manage a revocable trust will be outlined in the trust document and in state law, which together can guide you in collecting, safeguarding, investing, and distributing the assets.
Although the trust creator may be closely involved, as a trustee, you still owe duties to the beneficiaries and must follow the terms of the document carefully. Those duties usually include acting in good faith, avoiding self-dealing, keeping accurate records, and treating the beneficiaries fairly.
If a lawsuit has been levied against you as a trustee, the courts will examine whether you fulfilled your core duties or whether something went wrong that potentially harmed the trust or its beneficiaries.
Common Reasons Trustees Face Lawsuits
Trustees can be sued in their representative capacity on behalf of the trust, and, in more serious cases, they might also face personal liability claims. While each case depends on the specific facts and South Carolina law, our attorneys at Nelson Law Firm have identified several common reasons for trust litigation:
Breach of fiduciary duty claims: These cases often allege that the trustee acted carelessly, favored one beneficiary over another, or failed to follow clear instructions in the trust document.
Investment and asset management disputes: Beneficiaries may argue that the trustee chose unsuitable investments, left funds sitting in cash for too long, or failed to diversify the deceased's estate in a way that protected the trust’s value.
Accounting and transparency problems: Lawsuits may arise when trustees fail to provide timely accountings, maintain poor records, or ignore reasonable requests for information about trust activity.
Allegations of self-dealing: Claims that trust assets were used for personal benefit, that money was lent to the trustee, or that transactions unfairly benefited the trustee can lead to serious legal challenges.
When these disputes reach court, the judges usually examine whether the trustee acted prudently and in good faith under the circumstances, rather than expecting perfect results. However, the possibility of litigation is a key reason to pay close attention to the documentation, communication, and boundaries between personal and trust property.
Personal Liability vs Trust Liability
In many situations, lawsuits are brought against the trustee in their official capacity, which means any damages or settlements are paid from trust property rather than from the trustee’s personal bank account. This is common when the dispute is really about how trust assets were handled and whether the beneficiaries received what the document promised.
Personal liability is more likely when a trustee steps outside the trust’s terms, acts in bad faith, or mixes their personal funds with the trust's funds. For example, if a trustee uses trust money to pay their own debts or ignores clear conflicts of interest, a court might decide that it’s fair to hold them personally responsible for losses.
How to Reduce the Risk of Being Sued
Although trustees can be sued, there are practical steps you can take to reduce the chances of a dispute turning into full-blown litigation. Some common core practices that you can often use as a trustee include the following:
Carefully review the trust document: Take time to understand the trust’s terms, distribution standards, and investment directions. This can help you stay within the authority you’ve actually been given.
Keep separate and accurate financial records: Keep trust accounts separate from personal accounts and maintain organized statements, receipts, and ledgers. This can help prevent confusion and support your decisions.
Maintain regular communication with beneficiaries: Provide updates about significant decisions, expected timelines, and general trust performance. This can help reduce suspicion and avoid misunderstandings.
Make timely use of professional help: Work with accountants, financial professionals, and a trust lawyer when needed. This can help you make informed decisions and identify potential problems early.
As a trustee, building these habits into your regular routine can help make your administration of the estate fairer and more transparent, even if the beneficiaries don’t agree with every decision. That sense of fairness doesn’t remove the possibility of lawsuits, but it often narrows disputes and makes it easier to resolve disagreements before they escalate.
Insurance Options for Trustees and Personal Risk
Even when a trustee follows the trust document carefully, it’s natural to worry about personal financial exposure if something goes wrong. Insurance doesn’t erase all risk, but it can soften the impact of certain claims. When you’re responsible for significant trust assets, it’s worth learning about coverage options that may fit your situation:
Errors and omissions coverage: This type of policy may help with claims alleging that a trustee made avoidable mistakes, overlooked important information, or handled administrative tasks carelessly.
Fiduciary liability policies: These policies are often designed to cover allegations of breach of fiduciary duty, such as claims that a trustee favored some beneficiaries, ignored instructions, or mismanaged investments.
Personal umbrella liability policies: Some umbrella policies may extend limited protection for trustee activities, although coverage terms vary and may require special endorsements or riders.
Indemnification provisions in the trust: Many trust documents include language that allows the trust itself to reimburse a trustee for certain defense costs or losses, provided the trustee acted in good faith.
Insurance isn’t a substitute for careful, honest administration, but it can be part of a broader risk management plan for trustees handling ongoing responsibilities. It’s usually wise to review your policy's language with an insurance professional and speak with a trust lawyer before relying on coverage, so you know what’s truly protected and what isn’t.
Speak to an Experienced Trust Attorney in South Carolina Today
If you’re serving as trustee of a revocable trust or you’ve been asked to take on that role, it’s natural to worry about whether you could be sued and what that might mean for your personal finances. While lawsuits can sometimes happen, it's important to remember that there are means to protect yourself under South Carolina state law.
At Nelson Law Firm, our experienced estate planning attorney can help you review the trust document, understand your duties as a trustee, and identify practical steps to reduce risk while honoring the trust creator’s goals. Located in Bluffton, South Carolina, we serve clients throughout the South Carolina Lowcountry. Contact us today to schedule a consultation.
