Liabilities of the Trustee

Question 1

Remedies for Breach of Trust

Answer 1

If the trustee commits, or is about to commit, a breach of trust duties, the court may: (1) enforce specific performance of the trustee’s duties, (2) enjoin the trustee from committing a breach of trust, (3)
compel the trustee to pay money or restore property, or (4) suspend or remove the trustee.

Question 2

Damages to Beneficiaries for Breach

Answer 2

If a trustee commits a breach of trust, the trustee is liable to the beneficiaries for the greater of:
* The amount necessary to restore the trust property and distributions to what they would have been absent the breach, or
* The trustee’s profit from the breach

Question 3

Remedies for Self-Dealing

Answer 3

In the case of self-dealing, the beneficiary may have a choice of the following remedies:
* Affirm the transaction if the trust profited
* Set aside the transaction if the trust lost money
* Trace profits from the trustee if the trustee profited

Question 4

When Trustee Is Not Liable for Breach

Answer 4

A trustee is not liable to a beneficiary for a breach of trust if: (1) the trustee acted in reasonable reliance on the terms of the trust; or (2) the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction, so long as the beneficiary was not improperly induced.

Question 5

Effect of Exculpatory Clauses

Answer 5

Exculpatory clauses are void if they: (1) relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference; or (2) appear in the trust instrument because of the trustee’s abuse of a confidential relationship with the settlor

Question 6

Liability of Co-Trustees

Answer 6

Generally, a trustee will not be liable for the acts of co-trustees if the trustee did not join in the action and exercised reasonable care in preventing the breach of trust or compelling the co-trustee to redress the breach.

Question 7

Removal of Trustee

Answer 7

The court may remove a trustee on its own motion or upon request by the settlor, a beneficiary (unless the trust is revocable and the settlor has capacity), or a co-trustee. There are numerous grounds upon
which a trustee may be removed, including the following:
* Incapacity
* Unfitness (for example, convicted of a crime or chemically dependent)
* Commission of a serious breach of trust
* Serious conflict of interest
* Insolvency (because a trustee is more likely to embezzle if they are in financial trouble)
* Extreme hostility between the trustee and beneficiaries but only if it would interfere with proper trust administration
* Refusal to post any required bond
* Refusal to account
* Lack of cooperation among co-trustees that substantially impairs trust administration
* Unwillingness or persistent failure to administer the trust
* Substantial change of circumstances so that removal is in the best interest of all beneficiaries

Question 8

Contracts on Behalf of Trust Estate

Answer 8

The general rule is that a trustee may sued on the contract in the trustee’s fiduciary capacity. A third party may sue the trustee personally only if the trustee, in entering into the contract, failed to reveal the fiduciary relationship either by indicating their role as trustee in their signature or by referring to the trust.