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Trusts • Remedies for Breach
TRUSTS#048
Legal Definition
The trustee is liable for all losses resulting from the breach, and will be *surcharged for the loss*. A loss from one breach cannot offset a gain from another breach; the trustee is still liable for the entire amount of the loss. As an additional remedy, the trustee can also be removed as trustee.
Plain English Explanation
If a trustee breaches their duty and causes harm to the trust, they will have to repay the trust for the cost of whatever damage it incurred. Note that sometimes a trustee may breach their duty and have it result in a gain for the trust. For example, imagine if a trust explicitly stated that the trustee may not invest in cryptocurrency, but the trustee decided to purchase Bitcoin anyway, resulting in a profit of $1 million. If the next day the trustee causes a breach that results in a loss of $10,000, they still have to pay the $10,000. They don't get to say, "But I made you a million bucks the other day!" And, if things get really bad, the trustee can always be removed as trustee and replaced with someone more willing to follow the rules
Hypothetical
Hypo 1: Bob is the trustee of a trust created by Sam. The trust document clearly states that investments in cryptocurrency are forbidden. However, Bob decides to invest a portion of the trust's assets in Bitcoin, contrary to the trust's instructions. This risky move pays off, and the trust gains $1 million. The very next day, Bob makes an unrelated poor decision in managing another part of the trust's assets, resulting in a $10,000 loss. Result: Despite the previous gain from the Bitcoin investment, Bob is still responsible for the $10,000 loss. The rule is clear: gains from one breach do not offset losses from another. Bob must compensate the trust for the $10,000 loss. Additionally, due to his disregard for the trust's instructions, Bob faces the risk of being removed as the trustee for not following the established rules.
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