I once worked with a family in Brooklyn where a father named his eldest son as trustee for his two younger siblings. The son, an ambitious entrepreneur, saw the trust’s assets as stagnant capital. With the best intentions, he invested a substantial portion into a tech startup he believed in. When the startup failed, the family inheritance was decimated—and the siblings sued him for breaching his fiduciary duty. He thought he was being a good brother; the law, however, saw him as a failed fiduciary.
This story is common. Naming a trustee feels like an act of trust, a recognition of character. But in the eyes of the law, it’s the appointment of a fiduciary—a role with legally enforceable duties that go far beyond simple honesty. It is a position of stewardship, not ownership.
The Fiduciary Standard: More Than a Promise
A fiduciary duty is the highest standard of care in law, requiring the person entrusted with assets—the trustee—to act solely for the benefit of another—the beneficiary. This is not a suggestion but a rigid legal framework governing every decision a trustee makes. The core obligations include:
- The Duty of Loyalty: The trustee must act exclusively in the interest of the beneficiaries. There can be no self-dealing, no co-mingling of personal and trust assets, and not even the appearance of a conflict of interest. A trustee cannot, for example, sell a trust-owned property to their own spouse, even at a fair market price.
- The Duty of Impartiality: When a trust has multiple beneficiaries, the trustee cannot play favorites. This becomes complicated with income beneficiaries (who receive income during their lifetime) and remainder beneficiaries (who receive the principal after). The trustee must balance their competing interests, a task that requires deliberate judgment.
- The Duty of Prudence: This is where good intentions can go wrong. A trustee must manage the trust’s assets as a “prudent” person would, which involves protecting the principal, managing risk, and seeking reasonable growth.
Failing to meet these standards exposes a trustee to personal liability. If a poor decision causes a financial loss, a beneficiary can petition the New York Surrogate’s Court to have the trustee removed and even surcharged—forced to personally repay the trust for the losses.
New York’s Prudent Investor Act
New York codifies the duty of prudence in law. A trustee’s investment decisions are governed by Estates, Powers and Trusts Law (EPTL) § 11-2.3—the Prudent Investor Act. This statute moves beyond a simple list of “approved” investments, requiring a trustee to manage a portfolio based on a total return strategy.
What does this mean in practice? A trustee cannot just put all the trust assets into a low-yield savings account to “keep it safe.” That could be a breach of duty because inflation would erode the assets’ value. Conversely, as my client’s son learned, a trustee cannot gamble the assets on highly speculative ventures. The law requires a balanced, diversified approach suited to the trust’s specific purpose, timeline, and the needs of the beneficiaries. It demands a strategy. Stewardship.
Choosing a Trustee: Family Member vs. Corporate Fiduciary
When creating a trust, the most personal decision is choosing its custodian. The choice is between an individual—a family member or friend—and a corporate trustee, such as a bank or trust company.
A family member knows your values and your beneficiaries. They bring a personal touch an institution cannot. However, they may lack the financial sophistication to manage assets according to the Prudent Investor Act. They are also more susceptible to emotional pressure from family members, which can create conflicts and undermine their duty of impartiality.
A corporate trustee offers professional asset management, regulatory oversight, and complete impartiality. They are experts in trust administration and investment. The trade-off is a lack of personal connection and the fees they charge. For some families, a hybrid approach works well—appointing a family member and a corporate fiduciary as co-trustees to get the benefits of both.
Choosing a trustee is not an honorary title. It is a job with serious legal responsibilities. The right choice hinges on the complexity of your assets, the needs of your beneficiaries, and your family’s dynamics. It requires a clear-eyed assessment of who is truly equipped for the task.
Formalizing the duties you expect from a trustee is a critical first step. If you are creating a trust or rethinking who should serve as its steward, we can schedule a meeting to draft trustee provisions that articulate your intentions and protect your legacy.
