Breach of Trust

• Author: Eileen E. Gillese, Martha Milczynski
• Pages: 167-180

167

CHAP TER 11

BREACH OF TRUST

A. INT RODUCTION

A breach of trust ta kes place whenever a trustee fails to fulf‌il hi s or

her obligations with respect to the administ ration 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 term s of the trust in strument,

the rules of equity, or statute. A breach can be either an act of com-

mission or omission; that is, it may be that the tr ustee commits an act

contrary to his or her duties or it may b e a failure to carr y out a duty.

Liability for breach arises whether the breach was innocent, negligent,

or fraudulent, and exists even if t he loss would have occurred without

the breach. In general, liability is not imposed to puni sh trustees but

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

had the breach not occurred. The exception to this general proposition

arises in the situation where the tru stee makes a prof‌it by vir tue of a

breach of obligation. In that case, t he trustee must di sgorge the prof‌it

to the benef‌iciaries even though they would not otherwise have been

entitled to it.

EXAMPLE: X and Y are co-t rustees. X is a lawyer, Y is not. X makes t he

decisions and Y acquiesces. The decisions lack t he requisite prudence and

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

the best interests of the tru st and the benef‌iciaries. I s Y liable as well as X?

Yes, both are liable. Intention is irrelevant, except to a determ ination

of fraud, which is not in issue in t his example. The standard to which