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The equity court is there for the trustee as well as the beneficiaries
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Since time immemorial the chancery court has been the safe harbor that equity has
afforded the trustee who is in reasonable doubt as to his fiduciary rights, duties, and obligations,
or who finds himself an innocent bystander in a dispute among beneficiaries that is
compromising his ability to properly perform his fiduciary duties. The duties assumed by a
trustee are myriad and onerous. Among them is the affirmative duty to carry out the terms of the
trust. But what if a critical term is patently or latently ambiguous? A trustee who misdelivers
trust-accounting income and/or principal, for example, violates that duty and may be held
personally, even absolutely, liable for the consequences of the violation. What then is the
innocent trustee who is reasonable doubt as to who is entitled to what to do? Get a legal opinion,
distribute, and hope for the best? Not a good idea. Recall that even a trustee whose good faith
reliance on faulty legal advice has led him to misdeliver the trust property is not necessarily
immune from personal liability for the adverse economic consequences of that reliance, a topic
that is taken up generally in §8.32 of Loring and Rounds: A Trustee’s Handbook (2022). As
between the innocent beneficiary and the innocent fiduciary, the latter should bear the burden of
any consequential economic loss.
Equity vests in the trustee a constellation of fiduciary rights to lighten somewhat his
fiduciary burdens, one of which is the right at trust expense to seeks instructions or a declaratory
judgment from the equity court when there is reasonable doubt. It is well-established that a
trustee cannot be held liable for abiding by a court order, no matter how erroneous that order
may be. (Whether there may be a duty to appeal the order is a wholly different matter. See §6.2.6
of the Handbook). That “well-established” special immunization from fiduciary liability is, in a
nutshell, the “safe harbor” equity affords trustees. See Bangert v. Northern Trust Co., 839
N.E.2d 640, 645-646 (Ill. 2005). The fiduciary duty is to carry out the true terms of the trust; the
fiduciary right is to seek at trust expense the assistance of the court when there is reasonable
doubt as to what those terms actually are. When there is reasonable doubt, a trustee who fails to
exercise that right, again, a right that is exercisable at trust expense, has only himself to blame
for the consequences.
The constellation of fiduciary rights that equity vests in trustees is taken up generally in
§3.5.2 of Loring and Rounds: A Trustee’s Handbook (2022), which section and its sub-sections
are reproduced in their entirety in the appendix immediately below. The 2022 Edition of the
Handbook is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-
rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.
[see appendix next page]
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Appendix
§3.5.2 Rights of the Trustee [from Loring and Rounds: A Trustee’s Handbook
(2022), available for purchase at https://law-store.wolterskluwer.com/s/product/loring-
rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.].
To the extent to which the trustee is entitled to indemnity, he has a security interest
in the trust property. He will not be compelled to transfer the trust property to the
beneficiary or to a transferee of the interest of the beneficiary or a successor
trustee until he is paid or secured for the amount of expenses properly incurred by
him in the administration of the trust.70…
The trustee need not pay over income without deducting the compensation to which
he is entitled with respect to the income, and need not pay over principal without
deducting the compensation to which he is entitled with respect to the principal.
To this extent the trustee has a security interest in the trust property for his
compensation.71
In the tangle of legal relationships that is the trust, the trustee as well as the beneficiary has certain
rights. The trustee's rights are incident to holding the title (e.g., the right of possession and alienation) and
the office (e.g., the right to reimbursement and reasonable compensation).
§3.5.2.1 Right at Law to Possession
In the absence of statute, decision, or the settlor's contrary intention, the trustee, as holder of the legal
title, is entitled to the possession of the real property; thus the trustee may eject the beneficiary.72 With the
same qualifications, the trustee is entitled also to the possession of the personal property.
§3.5.2.2 Right at Law to Transfer Title
The trustee being as to the world the legal owner of the entrusted property may convey it to a third
party. The third party then will stand at law entitled in place of the trustee.73 Thus, a trustee may convey to
a third party for fair market value an entrusted residence in furtherance of the trust’s lawful purposes though
a beneficiary has been occupying the residence.74
70Restatement (Second) of Trusts §244 cmt. c.
71Restatement (Second) of Trusts §242 cmt. e.
72See generally 2A Scott on Trusts §175. But see generally V. Woerner, Annot., Right of appeal from
order on application for removal of personal representative, guardian, or trustee, 37 A.L.R.2d 751 (1954).
73See generally 4 Scott on Trusts §283.
74See, e.g., Cavagnaro v. Sapone, Nos. A139250 & A139990, 2014 WL 4808828 (Cal. Ct. App. Sept.
29, 2014) (unpublished) (“Although the trustors of the trust undoubtedly were concerned with the
welfare of their daughter, a contingent remainder beneficiary of the trust, the evidence confirms that
the sale is necessitated by current financial conditions and transgresses neither the terms nor purpose
of the trust.”).
