Duty of Loyalty: A Non-negotiable Rule for Trustees

A bedrock principle for a trustee is tied to their duty of loyalty, which requires the professional to act solely in the best interests of the trust and its beneficiaries. Trustees must strictly avoid any conflicts of interest or self-dealing, no matter how “minor” the act. 

Northeast Private Trustees clients can rest assured we place their trusts and beneficiaries first. Here’s how we do it: 

1. Acting in the Best Interests of the Beneficiaries

The trustee must prioritize the beneficiaries’ interests above their own or anyone else’s. Examples of this in action include: 

  • Negotiating appropriate fees for the services of skilled professionals.  
  • Establishing reasonable rules for requesting funds from the trust that works for the beneficiaries and not just the trustee.  
  • Avoiding letting assets linger in cash at minimal rates of return longer than necessary for foreseeable requirements while being mindful of investment risk. 

2. Avoiding Conflicts of Interest

A trustee must not engage in transactions where their personal interests conflict with those of the trust. For example: 

  • Even if they plan to pay market price for the mantle clock that didn’t sell at the yard sale or auction, a trustee should not participate in purchasing items held in the trust they are handling.   
  • A trustee should never consider utilizing funds from a trust for their own business or personal endeavors in any capacity. 

If a potential conflict arises, the trustee must fully disclose the conflict to the beneficiaries and, if necessary, seek court approval before proceeding.

3. No Self-Dealing

Self-dealing occurs when a trustee uses their position to benefit themselves, directly or indirectly. An example of this might be a trustee hiring themself or their firm as a money manager, lawyer or tax preparer. While this could be viewed as a logical extension of their services, it would be best for the trustee to be approved for hiring in one of the following ways: 

  • Inclusion in the trust documentation (most modern trusts allow this; however, this is not always the case)  
  • The trust grantor expressly approved the hiring 
  • All beneficiaries consent after full disclosure 
  • A court approves the hiring

4. Impartiality

When there are multiple beneficiaries, the trustee must act impartially and not favor one party over another unless the trust terms specify otherwise. For example, a trustee may not: 

  • Allocate assets with tax liabilities (such as IRAs or low tax basis stock) to the beneficiaries they do not like and assets with no taxes to their favorite beneficiaries (their family members or themselves). 
  • Pay one beneficiary to meet their needs without inquiring about the needs of all beneficiaries.

5. Full Disclosure and Transparency

Trustees should express the terms of their services fully and clearly and notify beneficiaries of any changes. Professional trustees know they cannot disavow the duty of loyalty as well as act with prudence and in good faith. 

Northeast Private Trustees serves as an independent, professional, corporate fiduciary and provides support services to law and accounting firms and individuals for trusts administered in both Massachusetts and New Hampshire. We collaborate with longtime financial advisors, accountants, law firms, senior living advisors, property managers, specialized trustees, and others to conduct many management and advisory functions for a perfect blend of rapport, professionalism and confidence.

Contact our professionals today.