Trustee’s Duty to Act Impartially
Most people aren’t surprised to learn that a trustee is legally required to act in an impartial manner, but they are surprised by the many ways in which the duty of impartiality can be invoked in day-to-day trust administration.
It’s easy to see, for example, how a trustee should treat all of the children in a single family equally, but the application of the duty of impartiality to other circumstances may be less obvious. A trustee must make investment decisions that protect the financial interests of all generations in order to be impartial to all of them. If the trustee decides to invest all of the assets of a trust in income-producing assets to provide the income beneficiary with a generous income, there is a risk that the trust portfolio won’t enjoy sufficient growth to meet the needs of future generations who may receive the corpus of the trust outright. Constructing an investment portfolio that treats all beneficiaries of all generations equally is a vital responsibility of a trustee.
The duty of impartiality comes into play in other circumstances, too. Some trusts give a particular beneficiary or group of beneficiaries the right to choose a trustee. A particular beneficiary may choose a trustee because of some pre-existing relationship, perhaps as the beneficiary’s accountant or financial advisor, or friend. In making this choice, the beneficiary may hope for the continued loyalty of the trustee in matters involving the trust, which places pressure on the trustee to favor the interests of that beneficiary over others beneficiaries. Such arrangements practically invite claims that the trustee has breached the duty of impartiality toward beneficiaries.
If you are asked to serve as trustee, you must ask yourself whether, in all circumstances, you can act with impartiality toward those who are beneficiaries of that trust. Do you have a strained relationship with one of them? Is it possible you have been asked to serve because one or more beneficiaries expects to have you as an exclusive advocate? If you accept such a charge, you may place yourself in the unenviable position of having to decide against a person who hoped for your loyalty or breach the duty of impartiality that you accepted by signing on as trustee.
Divided loyalties and conflicts of interest are among the most troubling problems a fiduciary may face. Properly evaluating a request to serve as trustee requires careful analysis and proper advice about the fiduciary duty. No fiduciary is exempt from concerns about impartiality. Proper legal advice is essential for understanding your responsibilities as trustee, evaluating potential conflicts, and making good choices that can help make your trusteeship successful.