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Trusts • Trustee Liabilities
TRUSTS#044
Legal Definition
At common law, the trustee may be sued in their personal capacity, but if there is no personal fault, they can seek indemnification from the trust assets. Under the modern view, the trustee must be sued in their personal capacity and is personally liable for torts only if the trustee is personally at fault (otherwise, the plaintiff recovers from the trust itself).
Plain English Explanation
Trustees are an extension of the trust and, while doing their job, may cause a tort or two. For example, maybe they were negligent and injured someone, or maybe one of their employees committed a tort while on the clock. We cover all these types of liabilities in the Torts deck.
Traditionally, the tort plaintiff would have to sue the trustee personally. Then, if the trustee could show that the tort was not a result of willful misconduct, they could recover from the trust to get paid back for whatever they paid the plaintiff. The downside to this, aside from being pulled into court, was that if the trust didn't have enough cash or assets to pay back the trustee, the trustee was just out of luck.
Under modern views, tort plaintiffs can directly go after a trust, which means they would only ever go after the trustee directly if they can show that the trustee was personally at fault for whatever tort occurred.
Traditionally, the tort plaintiff would have to sue the trustee personally. Then, if the trustee could show that the tort was not a result of willful misconduct, they could recover from the trust to get paid back for whatever they paid the plaintiff. The downside to this, aside from being pulled into court, was that if the trust didn't have enough cash or assets to pay back the trustee, the trustee was just out of luck.
Under modern views, tort plaintiffs can directly go after a trust, which means they would only ever go after the trustee directly if they can show that the trustee was personally at fault for whatever tort occurred.
Hypothetical
Hypo 1: Bob manages a trust that owns a large warehouse. While giving his friend Sam a tour, Bob distracts the forklift operator, causing an accident that breaks Sam's leg. Sam sues Bob personally. Result: Bob was personally at fault for distracting the driver and causing the accident. Under both the common law and modern view, Bob would likely be personally liable for Sam's injuries, so it is proper for Sam to sue Bob personally.
Hypo 2: Bob manages a trust. One day, while driving to inspect a new potential investment for the trust, Bob's brakes fail and he hits Sam, breaking Sam's legs. Bob was neither negligent in his driving or at fault for the brakes. Sam wants to sue for his damages. Result: Here, Bob was acting as an agent of the trust. The whole reason he was driving was to inspect some property for the trust's investments. As such, the tortious injury that he caused Sam was caused while he was properly performing his role. Under a traditional rule, Sam would still need to sue Bob personally, then Bob would need to recover the costs from the Trust by showing it wasn't his fault that it happened and the tort happened while he was performing his duties. Under the modern rule, Sam can directly sue the trust.
Hypo 2: Bob manages a trust. One day, while driving to inspect a new potential investment for the trust, Bob's brakes fail and he hits Sam, breaking Sam's legs. Bob was neither negligent in his driving or at fault for the brakes. Sam wants to sue for his damages. Result: Here, Bob was acting as an agent of the trust. The whole reason he was driving was to inspect some property for the trust's investments. As such, the tortious injury that he caused Sam was caused while he was properly performing his role. Under a traditional rule, Sam would still need to sue Bob personally, then Bob would need to recover the costs from the Trust by showing it wasn't his fault that it happened and the tort happened while he was performing his duties. Under the modern rule, Sam can directly sue the trust.
