Duty of loyalty
The duty of loyalty is a fiduciary's obligation to act in the interests of the beneficiaries and to keep self-interest out of decisions. For a trustee, practitioners describe it as administering the trust solely in the beneficiaries' interests. Owners of businesses, real estate and private investments, along with their spouses and adult children, meet the duty whenever a trust or estate holds family assets.
How it works
The duty of loyalty directs a trustee to put the beneficiaries' interests first in every decision about trust property.
Loyalty also appears in general commentary on fiduciaries. General fiduciary practitioners list acting prudently, treating beneficiaries fairly, acting without self-interest and preserving estate or trust assets as core expectations.
Virginia and South Carolina each attach a specific consequence to a conflict. Under Virginia's Uniform Trust Code, a trustee transaction affected by a conflict between fiduciary and personal interests is voidable by an affected beneficiary, subject to listed exceptions.
- A fiduciary acts prudently.
- A fiduciary treats beneficiaries fairly.
- A fiduciary acts without self-interest.
- A fiduciary preserves estate or trust assets.
Where it shows up for owners of businesses, real estate and private investments
Trusts that hold homes, vehicles or other family property create direct loyalty questions.
An owner whose trust holds a rental building can see how a trustee who is also a buyer or tenant sits on both sides of the same transaction.
South Carolina addresses the situation in its Probate Code.
Points that are easy to confuse
Loyalty and impartiality are related but listed as separate duties. Loyalty concerns whose interests the trustee serves, while impartiality concerns how the trustee treats the beneficiaries relative to one another.
Loyalty and prudence are also separate. Practitioners list acting prudently and acting without self-interest as distinct expectations, so a careful investment decision does not by itself answer a conflict question.
The exceptions differ by state. Virginia refers to listed exceptions in its Uniform Trust Code.
Common questions
What is the duty of loyalty for a trustee?
General fiduciary practitioners list acting without self-interest among the core expectations, alongside acting prudently, treating beneficiaries fairly and preserving estate or trust assets.
What happens when a trustee transaction involves a conflict of interest?
Under the South Carolina Probate Code, a trustee transaction affected by a conflict between personal and fiduciary interests is voidable by an affected beneficiary unless the trust terms authorize it or the court approves it.