Also known as: breaches of trust · breach of fiduciary duty
Written by attorneys · grounded in primary & secondary sources — see below
A violation by a trustee of a duty the trustee owes to a beneficiary. The violation may be willful, fraudulent, negligent, or inadvertent and subjects the trustee to removal and personal liability.
Brooke Bryant, sole beneficiary of a trust holding Baxter Dynamics stock, learned that trustee Byron Bishop planned to sell shares below market value to a related party. Brooke signed a written consent approving the sale after receiving full disclosure of the price and relationship. When the sale later caused a modest loss, Brooke sued Bishop for breach of trust. The court dismissed the claim because Brooke's knowing consent released the trustee from liability.
Beatrice Brown served as trustee under a will directing distribution of trust assets to the settlor's children upon the life beneficiary's death. Brown instead transferred the assets directly to the life beneficiary's unrelated companion, an impermissible appointee under the power of appointment. The children sued Brown for breach of trust. The court held that the transfer itself constituted a breach regardless of Brown's good faith.
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Bradley Banks, promoter of Boulder Construction, purchased land for $400,000 and resold it to the newly formed corporation for $650,000 without disclosing his profit to all contemplated original investors. After the corporation discovered the markup, it sued Banks for breach of fiduciary duty. The court ordered disgorgement of the secret profit because full disclosure and ratification had not reached every initial shareholder.
Bianca Blanco, trustee of a trust owning Bright Path Foods shares, announced plans to pledge the shares as collateral for a personal loan. Beneficiary Boubacar Bah petitioned the court to stop the transaction. The court issued an injunction preventing Blanco from committing the breach of trust by encumbering trust assets for her own benefit.
Trustee Brooke Bryant received a will-authorized appointment from the life beneficiary directing distribution of trust assets to the settlor's two children. Bryant transferred the property to the children after confirming they were permissible appointees and had no reason to suspect any violation of the donee's authority. The disappointed remainder beneficiary sued, but the court found no breach of trust.
New trustee Byron Bishop discovered that former trustee Beatrice Brown had improperly diverted trust funds to her own account. Bishop took no action to recover the assets or notify beneficiaries. The beneficiaries sued Bishop for breach of trust. The court held Bishop liable for failing to take reasonable steps to compel delivery of trust property and redress the known prior breach.
No. Consent, release, or ratification bars liability only if the beneficiary knew of the material facts and rights and the trustee did not induce the consent through improper conduct. Otherwise the trustee remains liable.
A court may enjoin the breach, compel performance of duties, order the trustee to redress the breach by paying money or restoring property, or remove the trustee. The choice depends on the nature and timing of the breach.
A transfer to an impermissible appointee is always a breach. A transfer to a permissible appointee is not a breach unless the fiduciary knew or had reason to know the appointment violated the donee's authority.
Yes. The successor must take reasonable steps to compel delivery of trust property and to redress any breach of trust committed by the former trustee that the successor knows about.
…nor possession of any res , but adjudges only personal rights of the beneficiaries to surcharge their trustee for negligence or breach of trust. Accordingly, it is said, under the strict doctrine of Pennoyer v. Neff , 95 U. S. 714, the Surrogate is without jurisdiction as to nonresidents upon whom personal service of process was…