Duty of Loyalty
A trustee may not seek any advantage from a beneficiary. Nor may a trustee wield power for his or her own “aggrandizement, preference, or advantage” to the detriment of the beneficiaries. A breach of the duty of loyalty may be established by showing that the trustee placed his or her interest above those of the beneficiaries. Estate of Gump (1991) 1 CA4th 582. In Gump, the trustee threatened beneficiaries that the costs of audit would be charged solely to their income shares, in an attempt to pressure them into dropping objections to the trustee’s account. As a result, the reimbursement of the trustee’s litigation costs were denied even though the trustee had prevailed on most of the account issues.
Duty to Avoid Conflicts of Interest
A trustee has a basic fiduciary duty to avoid conflicts of interests. The basis underlying this duty reduces the likelihood that a trustee will actually breach the duty of loyalty by requiring them to avoid tempting situations. Conflicts may arise in situations where the trustee may profit from the use of trust assets. When a trustee obtains an advantage from a transaction between a trustee and a beneficiary, while in the process of administering the trust, the transaction is presumed to be a violation of the trustee’s fiduciary duty. The following are specific types of conflicts:
A trustee may not deal with himself or herself as an individual, even if the proposed transaction is fair and made in good faith. Trustees who temporarily diverted trust funds to themselves are guilty of self-dealing. Improper self-dealing is a breach of trust.
B. Conflicting Personal Interests
A trustee may be removed when there are irreconcilable conflicts between the trustee’s personal interest and those of the trust. A beneficiary, however, may serve as a trustee despite the inherent potential conflict of interest.
C. Conflicting Duties
In the cases where the trustee is also an officer or director of a company in which the trust has an ownership interest, the trustee might find himself or herself in a conflict with the fiduciary duties owed to the beneficiaries and shareholders.
Duty of Impartiality
The trustee has a duty to deal impartially with all beneficiaries of a trust and must act impartially in investing and managing trust property, while at the same time considering the differing interests of the beneficiaries. Blindly following the recommendation of the majority of beneficiaries, over objections of the minority, does not satisfy duty of impartiality. To remain Impartial, you must neverfavor one beneficiary over an other.
Duty of Disclosure
The trustee has the duty to keep all of the trust beneficiaries reasonably informed of the trust and its administration. See, Probate Code §16060. The trustee is also under a common law duty to fully disclose all material facts. See, Van de Kamp v. Bank of America (1988) 204 CA3rd 819. Finally, the trustee must furnish to each beneficiary all material information necessary to protect the beneficiary’s interest in the trust.
Duty Not to Delegate
The trustee has the duty to render personal services and not to delegate to others acts that the trustee should be reasonably expected to perform. The trustee cannot transfer his or her authority to others nor delegate the entire act of administration to a co-trustee or another person. If a trustee gives up control of the trust to another, whether an advisor or co-trustee, the trustee is personally responsible for any losses, irrespective of motive and whether the surrender of control actually caused the loss. This duty does not prevent the trustee from employing an agent when appropriate.
Duty to Keep Trust Assets Separate
The trustee must properly identify trust assets and keep those assets separate from his or her own. If a trustee ever combines trust assets with his or her personal assets, the trustee is in effect defeating the trust’s purpose.
Duty to Enforce or Defend Claims
The trustee has a general duty to take reasonable steps to enforce claims of the trust. The trustee does not have to enforce every claim. The standard is whether a prudent trustee would take steps to enforce a claim in such circumstances. The trustee must consider the costs of enforcing the claim, the chance of success, and the likelihood of collecting a judgment. The trustee also has the duty of taking reasonable steps to defend actions that may result in a loss to the trust.
If you have any questions about these duties, please feel free to call us at (714) 963-7543 or submit a question on the contact us page.