Also known as: trustee duties · trustees’ duties · trustee duty · fiduciary duties · trustee obligations
Written by attorneys — see sources below.
Fiduciary obligations imposed on a trustee to administer the trust solely in the interest of the beneficiaries. These obligations include the duty against self-dealing, the duty not to commingle trust assets, and the duty not to delegate discretionary functions.
Tara Tran served as trustee of a family trust that previously represented both the insurer and injured relatives in litigation. When one former client became a defendant in a related uninsured-motorist claim, the successor trustee discovered that Tara still held confidential information from the joint representation. The court disqualified Tara from continuing as trustee because her prior fiduciary duties created a non-consentable conflict.
Tabitha Taylor created an inter vivos trust naming herself as trustee and retaining broad powers to distribute principal to herself for any reason. After her death the executor argued the retained powers caused the trust corpus to be included in her estate. The court held that the powers were so extensive that Tabitha had not relinquished dominion, violating her duty to separate her personal interests from those of the beneficiaries.
The executor paid the federal estate tax that included the value of the trust principal and filed suit for a refund in the district court. All facts were stipulated for the district court proceeding. The district court ruled for the government. The executor appealed to the United States Court of Appeals for the First Circuit. The decedent had been a donor to three inter vivos trusts previously established by his wife. He served as a trustee of the trusts until the date of his death. The initial life beneficiary was the decedent's adult son. Eighty percent of the trust income was normally payable to the son, with the balance added to principal. Subsequent beneficiaries were the son's widow and his issue. The trust instruments contained powers in Article 4 and Article 7. Article 4 permitted the trustees in their absolute discretion to increase the percentage of income payable to the son when needed in case of sickness or desirable in view of changed circumstances. The trustees could also cease paying income to the son and add it all to principal during such period as they decided the stoppage was for his best interests. Article 7 gave the trustees broad administrative powers, including discretion to acquire investments not normally held by trustees and authority to determine what was to be charged or credited to income or principal. It further empowered the trustees generally to do all things in relation to the trust fund which the donor could do if living and the trust had not been executed. The government claimed that the powers in the two articles required inclusion of the trust corpus in the decedent's estate. The executor disputed this position after paying the tax and seeking recovery. The district court had ruled against the executor on the stipulated facts, leading directly to the appeal.
View caseTonya Takahashi designated her spouse as beneficiary of an ERISA-governed life insurance policy and pension plan. After divorce a state statute automatically revoked the designation. The court held the state law was preempted because it interfered with the plan administrator's fiduciary duty to follow the plan documents and distribute benefits according to the named beneficiary.
Donna Rae Egelhoff was married to David A. Egelhoff. Mr. Egelhoff was employed by the Boeing Company, which provided him with a life insurance policy and a pension plan. Both plans were governed by ERISA, and Mr. Egelhoff designated his wife as the beneficiary under both. In April 1994, the Egelhoffs divorced. Just over two months later, Mr. Egelhoff died intestate following an automobile accident. At that time, Mrs. Egelhoff remained the listed beneficiary under both the life insurance policy and the pension plan. The life insurance proceeds, totaling $46,000, were paid to her. Respondents Samantha and David Egelhoff, Mr. Egelhoff's children by a previous marriage, are his statutory heirs under state law. They sued petitioner in Washington state court to recover the life insurance proceeds. In a separate action, respondents also sued to recover the pension plan benefits. The trial courts, concluding that both the insurance policy and the pension plan "should be administered in accordance" with ERISA, granted summary judgment to petitioner in both cases. The Washington Court of Appeals consolidated the cases and reversed. Applying the statute, it held that respondents were entitled to the proceeds of both the insurance policy and the pension plan. The Supreme Court of Washington affirmed. Courts have disagreed about whether statutes like that of Washington are pre-empted by ERISA. The Supreme Court granted certiorari to resolve the conflict.
View caseThaddeus Tran and Tiffany Torres formed a joint venture to lease and renovate a hotel. Tran learned of an adjacent property that would greatly enhance the venture's value but took the lease in his own name without informing Torres. The court held that Tran breached the duty of loyalty by failing to offer the opportunity to the venture first, requiring him to account for the profits as constructive trustee.
On April 10, 1902, Louisa M. Gerry leased the Hotel Bristol at the northwest corner of Forty-second Street and Fifth Avenue in New York City to Walter J. Salmon for a twenty-year term beginning May 1, 1902, and ending April 30, 1922. The lease required Salmon to convert the building into shops and offices at a cost of two hundred thousand dollars. All alterations became accretions to the land. While negotiating the lease with Gerry, Salmon entered into a joint venture agreement with Morton H. Meinhard. Meinhard agreed to pay half the funds needed to reconstruct, alter, manage, and operate the property. Salmon received sole power to manage, lease, underlet, and operate the building. Net profits were to be divided forty percent to Meinhard for the first five years and fifty percent thereafter. Losses were to be shared equally. The venture operated the reconstructed property at a loss in its early years and later at a profit. It generated substantial returns for both parties until the lease approached its end. In late 1921, Elbridge T. Gerry, who had acquired the reversion and owned adjoining lots on Fifth Avenue and Forty-second Street, approached Salmon alone after failing to interest other parties in a larger development plan. On January 25, 1922, Gerry executed a new lease to Midpoint Realty Company, a corporation owned and controlled by Salmon. The new lease covered the entire tract for twenty years with successive renewal options extending up to eighty years. It required demolition of existing buildings after seven years and construction of a new three-million-dollar building. Annual rents ranged from three hundred fifty thousand to four hundred seventy-five thousand dollars. Salmon personally guaranteed performance until the new building was completed and paid for. Salmon did not inform Meinhard of the negotiations or the new lease until February 1922. Upon learning of it, Meinhard demanded that the lease be held in trust for the venture and offered to share the guaranty obligations. Salmon refused, prompting this suit. A referee awarded Meinhard a twenty-five percent interest in the lease. On cross-appeals the Appellate Division modified the judgment to enlarge the interest to one-half of the entire lease. The defendants appealed. Separately, in 1917 Meinhard had assigned his entire interest in the joint venture agreement to his wife. She reassigned it to him before suit was commenced. Salmon continued to deal with Meinhard on the basis that the enterprise remained subsisting.
View caseA trustee must administer the trust solely in the beneficiaries' interest. This includes the duty against self-dealing, the duty not to commingle assets, and the duty not to delegate discretionary functions.
A trustee's retained power to distribute principal to herself for any reason prevents the trust corpus from being excluded from her estate. The power must be so broad that the settlor-trustee never relinquished dominion and control.
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A state statute that automatically revokes a beneficiary designation upon divorce is preempted by ERISA. The plan administrator must follow the plan documents to discharge its fiduciary duty of following the named beneficiary.
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A co-trustee who learns of an opportunity that would benefit the trust and takes it personally must account for the profits as a constructive trustee. The duty of loyalty requires the opportunity to be offered to the trust first.
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…There were to be certain pre-emptive rights for each in the contingency of death. The two were coadventurers, subject to fiduciary duties akin to those of partners ( King v. Barnes , 109 N. Y. 267). As to this we are all agreed. The heavier weight of duty rested, however, upon Salmon. He was a coadventurer with Meinhard, but…