Trustee Duties Part 3: Independence and Impartiality

/ January 21, 2011

The duty of independence requires that the trustee remain independent from and impartial to the various beneficiaries. Bogert’s Trusts and Trustees explains,

“A trustee who holds for successive beneficiaries owes a duty to them to administer the trust with impartial consideration for the interests of all the beneficiaries. He [or she] should not unnecessarily show a preference either for the current beneficiaries or for the remaindermen who may be or become entitled to principal at a future date. In making investments and sales, disposing of receipts, paying expenses, and making other decisions, the trustee should endeavor to act in such a way that a fair result is reached with regard to the interests of the current or income beneficiaries and those who take possession of their interests at a subsequent date.”[1]

Adhering to the duty of impartiality is not always a simple feat.  Trustees who are relatives of the grantor and/or related to the beneficiaries may encounter problems with administering the trust for a variety of reasons.  In a recent Minnesota case (in re the Trust of Margolis), the purpose of the trust was to pay income to Mrs. Naomi Margolis as she requested and then upon her incapacity, to pay for her medical care (health, maintenance, and support).  Albeit speculation, it is not difficult to understand how her husband, Mr. Margolis, thought that payment of the medical expenses had priority over the remainder beneficiaries’ interests. Like other non-professional trustees, he may not have been cognizant of his duty to the remainder beneficiaries’ rights and how they may be affected by these payments.

While the purpose of the trust was for the support and care of Mrs. Margolis, her children from a previous marriage were remainder beneficiaries and therefore had some rights with regard to trust assets. The existence of these rights coupled with Mr. Margolis’ personal gain from the distributions – he used trust assets to pay for his wife’s nursing care, technically an expense of his according to the legal duty to support a spouse – led to a breach of his fiduciary duty. One lesson (among many others) that we learned from the Margolis case was that the a trustee must be aware of the remainder beneficiaries interests and use complete independence and impartiality when making distributions.

[1] Bogert’s Trusts and Trustees, Chapter 26 § 541

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