A trustee is not permitted to delegate his responsibilities to a co-trustee. A trustee is subject to liability when he improperly delegates his investment responsibility to an alternate trustee.
A donor set up a trust for the benefit of children and grandchildren, with the remainder of the estate to pass to a hospital upon the death of the life income beneficiaries. The trustee delegated the investment of the trust to a co-trustee, a broker, who embezzled funds from the trust. The hospital filed an action against the trustee for breach of fiduciary duty, contending that the trustee was liable for the full amount that was embezzled. The trial court denied the hospital's petition, but the appellate court vacated the decision. The trustee appealed.
Did the trustee's delegation of investment power to the broker constitute a breach of fiduciary duty, and if so, was the trustee's action the proximate cause of the loss?
The court held that the trustee breached the prudent man standard when she transferred investment power to the broker. However the court vacated the decision of the court of appeals and remanded for a determination as to whether the trustee's actions were the proximate cause of the loss.