Being a trustee comes with significant responsibilities, including overseeing agents, co-trustees, and predecessors. If you are a trustee, you must understand your liability for someone else’s actions or inactions. This information is crucial for fulfilling fiduciary duties effectively.
What Is a Trustee’s Role?
A trustee holds and manages assets on behalf of another party, known as the beneficiary. Trustees play a pivotal role in ensuring a trust’s terms are followed, and assets are administered in the beneficiaries’ best interest.
A trustee’s responsibilities include:
- Managing investments
- Maintaining accurate records
- Distributing assets according to the trust's stipulations
- Ensuring compliance with relevant laws and regulations
Trustees must act with a high degree of care, loyalty, and impartiality, making decisions to uphold the trust's intentions.
A Trustee's Liability for an Agent’s Acts
Generally, trustees are not liable for the actions of agents, but there are exceptions to this rule.
A trustee could be held accountable for an agent’s actions when:
- Directing the agent's actions
- Concealing the agent's actions
- Delegating authority inappropriately
- Failing to prudently select or review the agent
- Neglecting to address an agent’s wrongful acts
Trustee Liability for Acts of Co-Trustees
Similarly, trustees are usually not liable for breaches committed by co-trustees. However, they can be held liable if they:
- Participate in the breach
- Improperly delegate trust administration
- Knowingly approve or conceal the breach
- Negligently enable the co-trustee's actions
- Fail to compel the co-trustee to rectify the breach
In situations where multiple trustees are implicated in a breach, joint and several liability may apply. This legal principle allows a beneficiary to pursue claims against any one of the trustees for the full amount of damages incurred. These damages could apply to all trustees, regardless of each trustee's individual level of fault.
A Trustee's Liability for Predecessor Trustee Acts
Successor trustees generally aren't liable for breaches by their predecessors unless:
- They allow the breach to continue.
- They fail to take reasonable steps to recover trust property.
- They fail to address a breach they knew about or should have known about.
Legal Protection for Trustees
Successor trustees can take legal action against others for failing to conduct proper due diligence. Outside parties may be held liable for breaching fiduciary duties even without formal trustee appointments, acting as de facto trustees.
If trustees discover bad faith actions from outside parties, they should take immediate action. Doing so helps shield them from liability, as it helps prove they were not involved. Good legal counsel is invaluable in these situations.
For personalized guidance on trustee responsibilities and legal matters, consult with OC Trial Group. We're here to help you navigate trust administration with confidence. You can reach us online or by phone at (949) 270-3424.
