Trustee Duties Part 1: Loyalty and Care

/ December 5, 2010

Trustees are given certain responsibilities and duties when administering a trust.  These responsibilities can vary depending upon the trust instrument or document, but there are a few duties that apply broadly to all trustees.  This article will cover the two main duties, those of Loyalty and Care, that all trustees must understand before accepting the role of trustee.

The Restatement Third of Trusts  (a leading resource on the administration of trusts) defines a trust as,

“ . . . A fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee.” [Emphasis added]

While the trustee’s most obvious function is to hold title to the trust property, the duties of the trustee encompass more than simply managing assets. A successful trusteeship requires the diligence and attention to detail along with an ability to maintain relationships with and among various beneficiaries of the trust.  Most of all the trusteeship requires trust.

The various duties of a trustee are fiduciary in nature and surround an obligation to manage the property that is placed in the trust. The Restatement 3rd states, “a person in a fiduciary relationship to another is under a duty to act for the benefit of the other as to matters within the scope of the relationship.”[1]

The scope of the relationship is dictated by the trust instrument and can vary depending upon the purpose of the trust.  A trustee’s fiduciary duties encompass two broad duties – the duty of loyalty and the duty of care.  The more specific duties under each of these broad duties includes, but is not limited to, the duty to follow the trust instrument, the duty of independence, the duty to avoid self-dealing, the duty to invest prudently, the duty of confidentiality, and the duty to inform beneficiaries.

Duty of Care and the Duty of Loyalty

The duty of care is a general standard that all trustees must follow in administering a trust.  Most state statutes provide for the specific standard of care (usually a version of the prudent man standard) while allowing a settlor to reduce or increase the standard for a particular trustee.[2] In almost all states this standard holds a trustee liable for negligence.

The duty of loyalty is the requirement that trustees act in good faith in all matters relating to the administration of the trust.  “A trustee must avoid conflicts of interest and cannot favor any beneficiary over another unless so provided in the instrument.”[3] The Minnesota Supreme Court addressed the duty of loyalty in 1934 saying, “[The trustee’s] primary duty [is] not to allow his interest as an individual even the opportunity of conflict with his interest as trustee.”[4] That being said, the court of appeals recently stated that trustees who take actions that are “explicitly authorized by the terms of the trust” do not breach their duty of loyalty.[5] Actions made by the trustee that appear to be in violation of the duty of loyalty must be supported by powers or instructions that are clearly stated in the trust instrument.

[1] Restatement Third Trusts (2003) § 22

[2] Beyer, Gerry W., Teaching Materials on Estate Planning, 3rd edition (2005), p.65

[3] Beyer, Gerry W., p. 68

[4] Smith v. Tolversen, 190 Minn. 410, 413

[5]In Re The Revocable Trust of Naomi Margolis, 731 N.W.2d 541 (2007)

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