Brief Fact Summary. Laurabel Gardiner created a trust and appointed Mary Jane as trustee, Charles first alternate trustee, and Robert second alternate trustee. Jane did not have investment experience and left all the investment decisions to Charles. Charles, who was an investment counselor and stockbroker, embezzled $317,000 from the trust.
Synopsis of Rule of Law. A trustee is not permitted to delegate his responsibilities to a co-trustee. A trustee lacking investment experience must seek out expert advice. The trustee is not justified in relying on such advice but must exercise his own judgment. A trustee is not personally liable for losses not resulting from a breach of trust.
Whether Jane breached her duty as a trustee when she delegated all investment decisions to Charles, the fist alternate trustee who was an investment counselor and stockbroker?
Whether Jane’s breach caused the breach and loss suffered by the trust?
Yes. Jane breached her duty as a trustee when she delegated all investment decisions to Charles because a trustee may not delegate her responsibilities to a co-trustee. Jane did not participate in any of the investments. Even though Jane was not experienced in investment matters, she had a duty to seek advice but yet exercise independent judgment.
No. Because Charles embezzled the funds and the loss was not due to poor investments. Jane is not personally liable for any losses that did not occur as a direct result of her breach. Because of Charles profession, Charles was the type of person that Jane would have sought out. Also, the account was in Jane’s name. If Dean Witter Reynolds wrongfully allowed Charles access to the fund, Jane would not be liable.
Discussion. Jane could not delegate her responsibility even though she had no experience with investments. She was obligated to seek out advice and then exercise he own independent judgment. However, because the trust did not suffer a loss but for her improper delegation, she is not personally liable. Jane could not prevent an investor from embezzling funds from an account in her name.