Free tool · Equity and Trusts
Trustee Breach of Duty: Loyalty, Prudence and Remedies
A trustee owes the beneficiaries strict duties. The duty of loyalty forbids self-dealing: a purchase of trust property by the trustee is voidable however fair the price, unless the trust instrument, the beneficiaries or a court authorised it. The duty of prudence requires the trustee to invest as a prudent investor would, which usually means diversifying, judged by the process and not by hindsight. The trustee must also act impartially between beneficiaries, keep trust property separate from their own, give information and accounts, and delegate only with care. For a breach, beneficiaries can ask a court to remove the trustee, make the trustee restore the loss, hand over any profit, or impose a constructive trust. Choose what the trustee did to see the duty and the remedies.
Tool · Trustee Duty Checker
Probably a breach of the duty of loyalty.
Duty of loyalty: A trustee must administer the trust solely in the beneficiaries’ interest. A transaction in which the trustee deals with the trust for their own account is voidable by a beneficiary under the no-further-inquiry rule (Meinhard v Salmon; Restatement (Third) of Trusts § 78), however fair the price. The trustee cannot defend it by proving fairness. The fairness here does not save it.
Remedies for the beneficiaries
- Compel performance or enjoin the breach.
- Remove the trustee and appoint a successor.
- Disgorge the profit: they must hand over the profit made from the breach (12,000), even if the trust suffered no loss.
- Impose a constructive trust or an equitable lien on the property, and trace it into its products, even against third parties who are not bona fide purchasers.
- Deny or reduce the trustee’s compensation, and make the trustee personally liable for costs.
Takes what a trustee did and says which duty it engages (loyalty, prudence, impartiality, keeping property separate, informing and accounting, delegating) and whether it is a breach, with the remedies that equity gives a beneficiary: removal, surcharge, disgorgement, a constructive trust and tracing. Simplified general American principles (the Restatement, the Uniform Trust Code and the Uniform Prudent Investor Act); states differ. A teaching aid with invented facts, not legal advice. Runs in your browser; nothing is stored or sent.
How to use it
- Choose what the trustee did.
- Say whether the instrument, the beneficiaries or a court authorised it.
- Enter any loss to the trust and any profit the trustee made.
- Read the duty, whether it was breached and the remedies.
Common questions
What is the no-further-inquiry rule?
If a trustee deals with trust property for their own account, the transaction can be undone by a beneficiary without inquiry into its fairness. It is a strict rule meant to remove temptation.
What is the prudent investor rule?
A trustee must invest with the care, skill and caution of a prudent investor, considering the whole portfolio and the trust’s purposes and diversifying, and the conduct is judged at the time, not by the result.
Can a trustee keep a profit from a breach?
No. A trustee who profits from a breach of loyalty must give up the profit even if the trust lost nothing.
Learn the law behind the tool
This tool is part of our Equity and Trusts course, with lectures, concept maps, flashcards, interactive exercises and a capstone case. Equity and Trusts: Trustee Duties and Administration.
More free law tools
General information, simplified, mainly on American law, not legal advice. States and countries differ, and real cases turn on facts that a tool cannot capture.