The Fiduciary Duty: A Trustee’s Duty of Care – Winter 2018

This is the third and final installment in a series called, “The Fiduciary Duty.”  In prior articles, we covered the nature of a fiduciary’s duty and the “Duty of Loyalty,” with an emphasis on rules against self-dealing.  This article addresses a trustee’s “Duty of Care” in handling trust property.  Although common sense is essential to acting with reasonable care, common sense alone is not enough.  Trustees must be keenly aware of the provisions of the trust document, statutes governing their activities as fiduciaries, and the case law of the jurisdiction where they are administering a trust.

The Massachusetts Uniform Trust Code describes the Duty of Care as the obligation to handle a trust with “care, skill and caution.”  The Duty of Care has also been called the “duty to be generally prudent.”  Although the Duty of Care is difficult to define, here are some guiding principles:

  • A trustee must consider each activity in light of the overall purposes, terms, distribution requirements and other provisions in the trust document.
  • A trustee must give personal attention to the administration of a trust.
  • With respect to investment activities, a Massachusetts trustee should refer to the provisions of the Massachusetts Prudent Investor Act for guidance on the factors to consider in making investment decisions for a trust – even when investment functions have been delegated to an advisor.
  • In determining how to allocate receipts and disbursements to principal and income, a trustee must be aware of the Massachusetts Principal and Income Act (MPIA), which sets up certain standard allocations in the absence of trust provisions that expressly override them.
  • The ordinary diligence that a reasonable person might use in managing personal financial affairs may not be sufficient for managing the finances of a trust, where others depend on the trustee’s handling of trust assets.

If a trustee fails properly to exercise the Duty of Care, the trustee can be found personally liable for losses.   If you serve as trustee and have questions about the standards governing your conduct as trustee, please call a member of our Trusts and Estates Department for advice.

The Fiduciary Duty: A Trustee’s Duty of Care – Winter 2018
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