LawShelf courses have been evaluated and recommended for college credit by the National College Credit Recommendation Service (NCCRS), and may be transferred to over 1,500 colleges and universities.

We also have established a growing list of partner colleges that guarantee LawShelf credit transfers, including Excelsior College, Thomas Edison State University, University of Maryland Global Campus, Purdue University GLobal, and DeVry University.


See Also:


A legal exemption from penalties or liabilities incurred by one’s actions.

The refusal or rejection of personal liability.

A wrongful act, injury or damage for which a civil action can be brought.

Constructive trust:
A remedial device, created by operation of law, when property is improperly acquired by someone who is not entitled to the property; imposed to cure wrongdoing or prevent unjust enrichment.

Exculpatory clause:
A contract clause which releases one of the parties from liability for his or her wrongful acts.

Much like executors or administrators, who also act in a fiduciary capacity, trustees can incur personal liability for their actions.

Contract liability

A trustee is personally liable on all contracts executed during the course of the trust administration, unless the trustee specifically limits her personal liability by the terms of the contract (i.e., inserting a disclaimer) or unless a statute serves the same function. Although, the trustee has the right to indemnification from the trust estate for any losses, as long as the trustee acted properly in carrying out her duties.

EXAMPLE: Vera is the trustee of her brother, Stanley’s trust estate. To shield herself from personal liability on a contract she had to enter into for the trust, she added the following stipulation: “This contract is given by Vera Dinkins, as the trustee of the Stanley Dinkins trust fund, and not individually; it constitutes a promise to pay only to the extent that the assets of the trust are sufficient for such purpose and it is expressly agreed that any judgment will only be satisfied out of the assets of the trust and not out of Vera Dinkins’ individual assets.” See, e.g., Goldwater v. Oltman, 210 Cal. 408 (1930).

A disclaimer will not be valid if the trustee acted improperly (e.g., exceeding her powers or acting imprudently).

Tort liability

Again, the trustee is personally liable for torts committed by the trustee or her agent(s) in the course of administering the trust. Yet, the trustee has a right to indemnification from the trust estate if she was not personally at fault.

EXAMPLE: Libby, as trustee for a trust that contains an apartment building, fails to obtain liability insurance under circumstances that constitute a breach of duty. A visitor to the building falls due to the building superintendent’s negligence. In this instance, Libby would not be eligible for indemnification because she was remiss for not securing the appropriate insurance against this type of incident. If she had purchased the policy, this type of loss typically would have been covered under the policy. So, Libby would be personally liable for the visitor’s expenses associated with the fall.

Breach of trust liability

If the trustee breaches any of the previously mentioned fiduciary duties, only the beneficiaries have standing to complain. The beneficiaries can seek equitable relief or damages against the trustee. Equitable relief involves:

  • Suit to enjoin or compel proper performance of fiduciary duties;
  • Suit to remove the trustee and have another trustee appointed; or
  • A constructive trust for when the trustee misappropriates trust assets.

Damages involve monetary compensation from the trustee for any losses. Compensable losses can stem from the trustee making improper investments (e.g., by not diversifying or by excessive conservatism), which lead to a loss or depreciation in the value of the trust’s assets, or failing to make the assets productive—amounting to a breach of trust.

EXAMPLE: Adrian is the trustee for a trust fund that contains marketable securities. Adrian negligently invested $15,000 of the trust’s assets in technology stocks. The investment in technology stocks turned out to be imprudent. Now, that investment is only worth $2,500. Given Adrian’s improper investment strategy, he is personally liable for the $12,500 loss.

Jurisdictions are split as to how to assign personal liability to the trustee if there is another transaction involved that yields a gain for the trust and netting the two together yields an overall gain. Generally, gain from an improper investment cannot offset loss on the other investment. If, however, the gains and losses are attributable to only one breach of trust, some courts will allow an offset.

EXAMPLE: Adrian is the trustee for a trust fund that contains marketable securities worth $30,000. Adrian invests $15,000 of the trust funds in energy stocks; an investment that turns out to be imprudent. Now, that investment is only worth $2,500, yielding a $12,500 loss. A second imprudent investment in technology stocks, also of $15,000, turned out better. Now that investment is worth $25,000, yielding a $10,000 gain. Given Adrian’s improper investment strategy, he is personally liable for the $12,500 loss. Usually, the $10,000 gain from the profitable investment cannot be used to offset the loss.

A trustee is also liable for any profit made by him personally through his breach of trust.

EXAMPLE: Adrian is the trustee for a trust fund that contains marketable securities. Adrian was bullish on technology stocks and wanted to invest in the market himself. He did not have enough funds to open up an account so he borrowed $20,000 from the trust and invested it. His inkling was right because the stock is now worth $100,000. Since Adrian used the trust’s funds for the investment, he is not entitled to the $80,000 profit. Rather, that money belongs to the trust.

A trustee is also personally liable for missed profits.

EXAMPLE: Adrian is the trustee for a trust fund that contains marketable securities. The trust agreement clearly stated that certain securities were to be retained in the trust fund. Adrian felt these securities had already reached their peak so he sold them and put the money in an interest bearing bank account. Subsequently, the stock that he had sold for $35,000 was now worth $55,000. Due to Adrian’s improper action, he is personally liable for the $20,000 lost appreciation that should have accrued to the trust estate.

Some trust agreements may contain an “exculpatory clause” to exempt the trustee from liability for these errors in judgment. As with other aspects of establishing a trust, the settlor has to specifically agree to the insertion of such a provision. Yet, it would be against public policy to excuse the trustee from a breach of trust due to gross negligence, intentional actions or bad faith dealings.

EXAMPLE: Liv, an attorney and trustee of Manuel’s trust, draws up the trust document for Manuel, who is not a person with much business experience. She inserts an exculpatory clause without discussing it with him. Manuel did not seek independent advice on the clause (or the agreement) before signing it. Here, the exculpatory clause would be ineffective to shield Liv from liability because Manuel never effectively agreed to it.