question.jpgIn Trusts and Estates

What is the trustee’s duty of loyalty?

All trustees owe a duty of loyalty to the beneficiaries of the trust, which means that the trustee must act in good faith to do things relating to the trust, ensuring that they are in the best interest of the beneficiary. The trustee must also avoid any conflicts of interest. The requirement that the trustee must avoid conflicts of interest means that the trustee cannot make deals which are in his or her own interest if they are at the expense of the trust and the beneficiaries. In addition, this duty is owed to all of the beneficiaries, so the trustee cannot favor one beneficiary over another unless the trust document explicitly provides for such favoritism. The duty of loyalty also means that the trustee cannot profit from his or her role as a trustee, except for any compensation which has been explicitly provided for by the trust document.

Many states have passes their own laws defining precisely what is included in this duty of loyalty, while in other states the duty of loyalty has been defined by common law (i.e., it comes from the courts). Among other things, the duty of loyalty generally means that the trustee cannot buy trust property for his or her personal use, cannot sell his or her personal property to the trust, cannot invest in the same property or securities that the trust is invested in and that the trustee must deal fairly with all of the trust beneficiaries.