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Duty of Loyalty


A trustee owes a duty of loyalty to the beneficiaries and cannot place the trustee's own interests above those of the beneficiaries. Between loyalty and prudence, the duty of loyalty is more "fundamental" of the two. The duty of undivided loyalty springs from the trust relationship rather than from any provision of the trust instrument. It is the bedrock of the trust relationship. This fundamental tenet requires that the Trustee refrain from taking advice or direction that could conflict with the interests of the beneficiaries. A transaction affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary who is affected by the transaction. To be sure, the duty of loyalty is not a passive duty, but requires affirmative action by the trustee who must do all that can honestly be done for the furtherance of the interests of the trust. A trustee commits a breach of trust if he uses trust property for his own purposes without authority in the terms of the trust, statutory authority, the informed consent of the beneficiaries, or a court order.5

Corporate trustees utilize a collection of human beings performing a myriad of tasks, thus, there is ample opportunity for the corporation and the individual directors and officers to directly and indirectly self-deal through a thicket of complicated financial transactions not readily apparent to those outside the inner workings of the institution. As a general rule, neither the corporate trustee nor its directors or officers should directly or indirectly enter into self-dealing transactions that involve trust property, and should also avoid directing trust business to subsidiaries or affiliates in which it has a controlling interest, or its proprietary mutual funds.7

Consistent with the duty of loyalty, a trustee may not favor one trust over another, put the interests of creditors ahead of the beneficiary's, or delegate the entirety of the trust administration. If a delegation of duty is deemed necessary by the trustee, the trustee has a duty to prudently select, instruct, and monitor the delegated agent. A trustee who exercises reasonable care and skill in delegating his duties is not liable to the beneficiaries or the trust for improper action of the agent to whom the performance of a particular function was delegated. In certain situations, a trustee has a duty to seek the advice of consultants and advisors for the proper administration of the trust.


3 Scott & Ascher §17.2.
Restatement (Third) of Trusts §78 cmt. c(2)
UTC §802 cmt.
Restatement (Second) of Trusts §2 cmt. b, §170.
Scott & Ascher §17.2.3.
See Brown, The Punctilio of an Honor the Most Sensitive, 131 Tr. & Est. 24-24 (1992).
Restatement (Third) of Trusts §78 cmt. d; Comptroller of the Currency Trust Interpretation No. 273 (Sept. 25, 1992).
4 Scott &am Ascher §24.30.