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Legal Memorandum: Beneficiary's Fiduciary Relationship with Trustees

Issue: What are the standards under New York law applicable to the beneficiary’s actions when it is arguable that the beneficiary has undermined the operation of the trust by obstruction and delay for the purpose of forcing the trustee to give the beneficiary an advantage to the detriment of other beneficiaries?

Area of Law: Estate Planning & Probate
Keywords: Liabilities of a beneficiary; Breach of trust; Trustee's fiduciary duties
Jurisdiction:  New York
Cited Cases: 22 N.Y.S.2d 258
Cited Statutes: Restatement (Second) Trusts § 201
Date: 07/01/2009

Although the beneficiary is in a fiduciary relationship with the trustee, it is only the latter who owes fiduciary duties to the other.  That is, the beneficiary does not owe fiduciary duties to the trustee or the trust.  That said, nonetheless, the beneficiary does not have carte blanche to abuse the trust or the trustee, and could incur potential liabilities for certain conduct that injures the trust or other beneficiaries.  4 Scott and Ascher, supra, at 1845.  At least three potential liabilities of a beneficiary to co-beneficiaries may be relevant here.

First, when one of several beneficiaries misappropriates or otherwise wrongfully deals with trust property, the beneficiary’s interest is subject to a charge by the trust for the amount of the loss.  In re King’s Estate, 174 Misc. 937, 22 N.Y.S.2d 258, 259 (Surr. Ct. 1940).  See 4 A. Scott, et al., Scott and Ascher on Trusts 1845 (5th ed. 2007).  Indeed,

[t]here is no doubt that when the trustee has paid to one beneficiary what should have been held for or paid to other beneficiaries, the other beneficiaries are entitled to have the amount of the overpayment made good, either by compelling the overpaid beneficiary to repay the amount directly or by requiring the trustee to withhold the amount from the beneficiary’s share unless the beneficiary has so changed position that it would be inequitable to compel him or her to do so.

 

4 Scott and Ascher, supra, at 1851-52 (citing […]

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