Article Title

Of Punctilios and Paybacks: The Duty of Loyalty Under the Uniform Trust Code

Publication Title

Missouri Law Review

Keywords

duty of loyalty, fiduciaries, trustees

Document Type

Article

Abstract

Loyalty has been cited as the most desired of traits from those who serve others. One reason that loyalty is so highly valued is that it is impossible to guarantee and impossible to buy. The trust law concept of the duty of loyalty acknowledges that human nature will cause any person to favor his or her personal interests over the interests of another, and it is this assumption of disloyalty that gives rise to the strict prohibitions of trustee conflicts of interest required under the label of "duty of loyalty."

The duty of loyalty has been called "the essence of the fiduciary relationship" and even has been considered an expression synonymous with fiduciary. The fiduciary relationship relies on the fiduciary's loyalty to the beneficiary, and, as the beneficiary is assumed to be on the losing end of any conflict with the fiduciary's personal interests, loyalty can be preserved only if the relationship is stripped of the possibility of such conflicts.

The duty of loyalty is, therefore, not the duty to resist temptation but to eliminate temptation, as the former is assumed to be impossible. The trustee is at the pinnacle of fiduciary duty and is held to the highest standards. As compared to other fiduciaries, the trustee holds the highest level of control over the other's property. It, therefore, follows that the trustee's duty of loyalty will be paramount and unforgiving, at least one hundred percent. Of course, the trustee has a harder job than Mr. Goldwyn's employees because a trustee's duty of care is certainly higher than fifty percent.

Generally, if a trustee breaches her duty of loyalty by self-dealing, there is no further inquiry and the transaction is voidable by the beneficiaries regardless of the fairness of the transaction. If the breach is a less direct conflict, a trustee may be able to uphold the transaction by proving fairness. The Uniform Trust Code ("UTC") follows the approach of predecessor uniform statutes and some state codifications in leaving the core of the common law duty of loyalty intact, with only minor relaxations of the duty in specific instances where convenience far outweighs risk. However, the UTC has rearranged somewhat the parameters for determining when a transaction's fairness will be available to the trustee as a defense and, in doing so, has added functional tests and clarity.

This Article summarizes the common law origins of the duty of loyalty and various past attempts at codifying the duty. It then analyzes the UTC's formulation of the duty and discusses how it provides guidance to both the acting trustee and to the court in determining whether a breach has occurred.

This document is currently not available here.

Share

COinS