Trustee liability

Question 1

Liabilities to the trust - enforcement by beneficiaries

Answer 1

1. beneficiaries can sue, including if settlor is a beneficiary
   i. a beneficiary (ex. unborn) can be represented by another in a virtually identical position (virtual representation) as long as there is no conflict of interest
2. outsiders cannot enforce the trust
3. trustee liability
   i. liable for direct losses from breach, any lost profits, and interest from the time of breach
   ii. can be enjoined from breaching
   iii. no offset of loss from one breach with gain from another

Question 2

Defenses to enforcement by beneficiaries

Answer 2

i. trust is not enforced if the beneficiaries consented to or joined in the breach
ii. beneficiary must sue within a reasonable time to prevent estoppel by doctrine of laches

Question 3

Enforcement by beneficiaries - third parties

Answer 3

i. trustee is liable for breaches of agents
a. the trustee directed, permitted, acquiesced, concealed
b. concealed the breach, or failed to take steps to redress
c. authority improperly selected or delegated, or failure to exercise supervision

ii. trustee is liable for breaches of co-trustees
a. the trustee directed, permitted, acquiesced, concealed
b. concealed the breach, or failed to take steps to redress
c. participated in breach or negligently disregarded duties
d. improperly delegated authority

iii. trustee is liable for acts of predecessor trustees if they knew or should have known about the breach and failed to compel redress, or were negligent in determining what property should have been delivered

Question 4

Enforcement by beneficiaries - exculpatory clauses are strictly construed, but enforced if:

Answer 4

i. no bad faith or recklessness in breach
ii. not inserted into the trust as a result of trustee’s abuse of a confidential relationship w settlor (e.g. trustee unduly influenced the settlor)
iii. not over broad: clauses that absolve trustee of liability for any breach is void

Question 5

Trustee liability to 3p liabilities in contract - liability in contract

Answer 5

1. common law:
   i. trustee is personally liable to third parties on contracts made during the administration, so the trustee’s personal assets are at stake
   ii. indemnification from trust if acting within power and with reasonable prudence
   iii. trustee is not at risk personally and is sued in a representative capacity only if the contract breached so provides
   a. not enough that the trustee signed as trustee
2. modern law: if the counter-party knows the trustee entered into the contract in representative capacity, trustee must be sued in representative capacity

Question 6

Trustee liability to third party liabilities in tort

Answer 6

1. common law:
   i. trustee is sued in personal capacity
   ii. indemnification from trust assets if not personally at fault
   a. ex. if an agent committed a negligent act or agent strict liability
2. modern law:
   i. individual/personal liability only if trustee is personally at faut
   ii. otherwise, sued in representative capacity