Under New Hampshire law, a Trustee serves in a fiduciary capacity and is legally obligated to administer trust assets exclusively for the benefit of the beneficiaries while carrying out the intentions expressed in the trust agreement. The New Hampshire Trust Code, which incorporates many principles of the Uniform Trust Code, establishes the legal standards governing Trustee conduct. Those standards require a Trustee to administer the trust in good faith, exercise reasonable care and prudence, avoid conflicts of interest, and remain faithful to the terms of the trust. A breach of fiduciary duty occurs whenever a Trustee fails to fulfill one or more of these legal obligations, regardless of whether the conduct was intentional or resulted from carelessness or neglect. Whether you are a Trustee or a beneficiary, it is crucial to understand the consequences of a breach of fiduciary duty. Toward that end, the attorneys at Legacy Care Law Firm explain several common ways that a Trustee might breach a fiduciary duty in New Hampshire.
Self-Dealing and Conflicts of Interest
A Trustee occupies a position of trust and, therefore, must never place personal financial interests ahead of the interests of the beneficiaries. As such, among the most serious ways that a Trustee can breach a fiduciary duty is by engaging in self-dealing. Self-dealing occurs whenever a Trustee uses trust property or authority to obtain a personal advantage that is inconsistent with the Trustee’s fiduciary obligations. This misconduct can take many forms. For example, a Trustee may attempt to purchase trust real estate for less than its fair market value, sell personally owned assets to the trust at inflated prices, or direct trust business toward a company in which the Trustee has a financial interest. Conflicts of interest may be less obvious but can be equally problematic. A Trustee who participates in a transaction involving the trust while maintaining an undisclosed personal or financial interest may violate the duty of loyalty even if the transaction appears reasonable.
Misappropriating Trust Property
Every dollar or item of property held in trust belongs to the trust itself and ultimately exists for the benefit of the beneficiaries, not the Trustee. Because of this, few actions undermine a trust more completely than the improper use or theft of trust assets. Misappropriation may include obvious misconduct, such as transferring trust funds into a personal account or using trust money to pay personal expenses. It may also involve less direct conduct, including making unauthorized loans to family members, allowing others to use trust assets without appropriate compensation, or diverting trust income for purposes unrelated to administration. Even temporary or seemingly harmless misuse of trust property can expose a Trustee to substantial liability. Courts often view these violations particularly harshly because they directly contradict the Trustee’s obligation to act solely in the beneficiaries’ interests.
Favoring One Beneficiary Over Another
Many trusts benefit multiple individuals whose interests may differ significantly. Some beneficiaries may receive current income while others are intended to receive the remaining trust assets years later while others may receive equal shares upon termination of the trust. A Trustee must administer the trust impartially unless the trust document specifically authorizes unequal treatment. Improper favoritism may occur when a Trustee consistently approves discretionary distributions for one beneficiary while denying similar requests from others without a legitimate basis. It can also arise if investment decisions are made solely to benefit one class of beneficiaries while unnecessarily harming another.
Ignoring the Instructions Contained in the Trust Agreement
The trust agreement serves as the governing document for the administration of the trust. Although New Hampshire law establishes important fiduciary standards, the trust itself frequently provides detailed instructions regarding investments, distributions, management authority, and termination. A Trustee generally must follow those instructions unless compliance is illegal, unconscionable, or impossible, or a court authorizes a different course of action.
Problems frequently arise when Trustees substitute their own judgment for the Settlor’s clearly expressed intentions. A Trustee may believe that a beneficiary should receive funds earlier than directed or conclude that a different investment strategy would produce better financial results, but personal opinions do not override the provisions of the trust.
Failure to Protect and Preserve Trust Assets
One of the Trustee’s most fundamental responsibilities is safeguarding trust property throughout the administration period. This duty extends beyond simply maintaining possession of trust assets, requiring the Trustee to take reasonable steps to preserve their value and protect them from foreseeable loss. Failure to preserve trust assets can occur in numerous ways. A Trustee may neglect necessary repairs to trust-owned real estate, allow insurance coverage to lapse, fail to secure vacant property, or ignore maintenance issues that eventually result in substantial financial losses.
Negligent Administration of Trust Assets
Not every breach of fiduciary duty involves intentional misconduct. In many cases, liability results from simple negligence. A Trustee is expected to administer trust property with the degree of care, skill, and caution that a prudent person would exercise when managing another person’s assets. Ignoring routine responsibilities or failing to remain informed about trust property can violate this standard. Negligent administration may include failing to reconcile financial accounts, overlooking investment statements, allowing important deadlines to pass, neglecting to collect money owed to the trust, or failing to maintain organized records documenting trust activity. In addition, a Trustee who cannot explain how trust funds were spent or why particular decisions were made may face increased scrutiny if beneficiaries later question the administration.
Failure to Diversify Trust Investments
The New Hampshire Trust Code generally requires Trustees to invest and manage trust assets prudently while considering the purposes of the trust, the needs of the beneficiaries, and overall investment risk. An important component of prudent investing is diversification because concentrating a substantial portion of trust assets in a single investment, industry, or asset class unnecessarily exposes the trust to avoidable risk. If that investment performs poorly, the resulting losses may significantly reduce the value of the trust.
Failing to Communicate with Beneficiaries
Beneficiaries are entitled to receive information concerning the administration of the trust and should be kept reasonably informed regarding significant developments affecting their interests. A Trustee should provide timely responses to reasonable requests for information, furnish required accountings, explain major administrative decisions when appropriate, and keep beneficiaries informed regarding important trust activities. Although a Trustee is not obligated to consult beneficiaries before making every administrative decision, maintaining open and professional communication demonstrates accountability and reinforces confidence in the administration process.
Do You Have Questions about a Breach of Fiduciary Duty in New Hampshire?
For more information, please join us for an upcoming FREE seminar. If you have questions or concerns about a potential breach of a Trustee’s fiduciary duty in New Hamsphire, contact our trust administration attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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