Breach of Trust

• Author: EILEEN E. GILLESE
• Pages: 178-192

178

CHAPTER 11

BREACH OF TRUST

A. INTRODUCTION

A breach of trust takes place whenever a trustee fails to fulf‌il his or

her obligations with respect to the administration of the trust or fails

to dispose properly of the tr ust property. The breach may be a failure to

meet the obligations created by the terms of the trust instrument, the

rules of equity, or statute. A breach can be an act either of commission

or omission; that is, it may be that the trustee commits an act contrary

to his or her duties, or it may be a failure to carry out a duty.

Liability for breach of trust arises whether the breach is innocent,

negligent, or fraudulent, and exists even if t he loss would have occurred

without the breach. In general, liabilit y is imposed not to punish trus tees

but to restore the benef‌iciaries to the position they would have been in

had the breach not occurred. The exception to thi s general proposition

arises in the situation where the trustee makes a prof‌it by virtue of the

breach. In that case, t he trustee must disgorge the prof‌it to the benef‌ici-

aries even if they would not otherwise have been entitled to it.

EXAMPLE: X and Y are co-trustees. X is a lawyer, Y is not. X makes the

decisions and Y acquiesces. The decisions lack the requisite prudence, and

the trust suffers a loss. Throughout, Y acted as he did in the belief it was in

the best interests of the trust and the benef‌iciaries. Is Y liable as well as X?

Yes, both X and Y are liable. Intention is irrelevant, except to a deter-

mination of fraud or dishonesty, which is not in issue in this example.

The standard to which trustees are held is an objective one, not a sub-

jective one, so the fact that Y acted in what he thought was a prudent