New Jersey Trustee Research

Author: LegalEase Solutions

QUESTIONS PRESENTED

  1. What are the fiduciary duties of a trustee?
  2. What is the definition of the term “Fiduciary”?
  3. Law on improper and other ‘double dealing’ for self interest of Trustee?

 

SHORT ANSWERS

  1. Generally, the duties of a trustee are determined by the terms of a trust. But above all a trustee owes a duty of loyalty to the beneficiaries of the trust by not engaging in any practice that would be beneficial to him personally.
  2. Per Section 3B:1-1 of N.J.SA., a fiduciary includes guardians, substituted guardians, trustees and substituted trustees.
  3. When a trustee engages in the practice of double-dealing, both for causing a financial damage to the trust and for his financial benefit, it amounts to a breach of the fiduciary duties of a trustee.

 

RESEARCH FINDINGS

  1. Fiduciary Duties of a Trustee

“The general rule is that the nature and extent of the duties and powers of the trustee are determined by the terms of the trust.” Coffey v. Coffey, 286 N.J. Super. 42, 56 (App. Div. 1995) (quoting La Fortune v. Commissioner of Internal Revenue, 263 F.2d 186, 192 (10th Cir.1958)). “The [] fundamental duty owed by the trustee to the beneficiaries of the trust is the duty of loyalty and he is not permitted to place himself in a position where it would be for his own benefit to violate that duty.” In re Koretzky’s Estate, 8 N.J. 506, 528 (1951) (citing Liberty Title & Trust Co. v. Plews, 6 N.J. 28, 39, 77 A.2d 219 (1950)). When trustee manages a trust property, “[t]he trustee is under a duty to the beneficiary to keep the trust property separate from his individual property.” Coffey, 286 N.J. Super. at 55. Furthermore, “[a] trustee has a duty to ensure that the estate is distributed in accordance with the testator’s wishes and may seek instruction from the court when there is a valid doubt as to the testator’s intent.” Matter of Duke, 305 N.J. Super. 408, 439-40 (Ch. Div. 1995) aff’d, 305 N.J. Super. 407 (App. Div. 1997) (citing Howard Savings Institution v. Peep, 34 N.J. 494, 499, 170 A.2d 39 (1961)).

Similarly, when the money or property of a trust is being invested or reinvested and also when a trust acquires, retains, sells, exchanges and manages investments, the Superior Court of New Jersey in Matter of Will of Maxwell, 306 N.J. Super. 563, 585 (App. Div. 1997), has held that:

In investing and reinvesting money and property of a trust and in acquiring, retaining, selling, exchanging and managing investments, a fiduciary shall exercise the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. In making each investment, a fiduciary may, depending on the nature and objectives of the portfolio, consider the whole portfolio, provided that, in making each investment, a fiduciary shall act with the reasonable expectation that the return on each investment shall be commensurate with the risk associated with each investment. If the fiduciary has special skills or is named as the fiduciary on the basis of representations of special skills or expertise, he is under a duty to exercise those skills. The fiduciary shall be under a duty to manage and invest the portfolio solely in the interests of the trust beneficiaries and for the exclusive purpose of providing financial benefits to trust participants.

Id. at 585.

Moreover, “[t]he trustee is . . . duty[bound] to the beneficiary to exercise prudence in diversifying the investments so as to minimize the risk of large losses, and therefore he should not invest a disproportionately large part of the trust estate in a particular security or type of security.” Commercial Trust Co. of N. J. v. Barnard, 27 N.J. 332, 343 (1958). The trustee also has “a dual fiduciary duty to the remaindermen and the income beneficiaries; and diversification of the investments may be the course of prudence for the preservation of the Corpus, depending upon varying economic hazards and conditions.” Id. at 347. The fiduciary’s duty is concerned with the security of the trust Res and a reasonably adequate income.” Id.

  1. Definition of the term “Fiduciary”

N.J.S.A. 3B:1-1 defines the term Fiduciary. Section 3B:1-1 says that:

As used in this title, unless otherwise defined:

“Fiduciary” includes executors, general administrators of an intestate estate, administrators with the will annexed, substituted administrators, substituted administrators with the will annexed, guardians, substituted guardians, trustees, substituted trustees and, unless restricted by the subject or context, temporary administrators, administrators pendente lite, administrators ad prosequendum, administrators ad litem and other limited fiduciaries.

  1. Improper and other ‘double-dealing’ for self-interest of Trustee. 

“Defendants, shareholders and officers of a New Jersey corporation, were not residents of the state, and they operated a separate partnership in New York.” Pomeroy v. Simon, 29 N.J. Super. 439, 441 (App.Div. 1954). “Plaintiffs, the majority of shareholders instituted a shareholders derivative action against defendants for fraud based upon a contract between defendants’ foreign partnership and the New Jersey Corporation.” Id. at 441-42. “Plaintiffs alleged that defendants induced the agreement by fraud, misrepresentation, dereliction, double dealing, misconduct, and illegal and improper competition.” Id. at 443. “The trial court cancelled the agreement and issued a writ of attachment against defendants’ property held in New Jersey.” Id. at 444. “Defendants applied for an order quashing the writ of attachment and to dismiss the complaint, which was denied by the trial court.” Id. “Defendants claimed that the writ of attachment was unauthorized.” Id. “The court rejected defendants’ claim.” Id.

“Defendants, shareholders and corporate officers who operated an out-of-state partnership, sought review of an order from the Superior Court of New Jersey, which denied defendants’ motion to quash a writ of attachment entered against defendants and to dismiss a complaint by plaintiffs, the majority of shareholders, in a shareholders derivative action for fraud.” Id. at 445. The Superior Court held that “[a] corporate stockholders’ derivative action is the creature of equity.” Id. at 448. “The alleged wrongful double dealing of the defendant Harry Simon for the financial benefit of his partnership and to the financial disadvantage of the corporation of which he has been and is president and the surviving voting trustee implicates duties of a fiduciary character, and the claim of the corporation for a monetary recovery of its consequential loss is, in our opinion, a claim of an equitable nature intended to be embraced by subdivision “d” of N.J.S. 2A:26-2.” Id. at 448-49.

CONCLUSIONS

The fiduciary duties of a trustee are determined by the terms of a trust agreement. A trustee owes a duty of loyalty to the beneficiaries of the trust by avoiding engaging in any act that would be beneficial to him personally. Further, the term fiduciary includes guardians, substituted guardians, trustees and substituted trustees.

Above all, a trustee commits a breach of his fiduciary duties when he engages in double dealing, both for causing a financial damage to the trust and for his own financial benefit.