united-states civil-law trusts-and-estates
Serving as a trustee of a trust
<p>A person serves as a trustee of an asset protection trust without compensation. Suppose there is a problem and some of the money is missing from the trust.</p>
<p>Could the trustee be sued and have to pay money? Would it be a valid defense that since the trustee was not paid there was no contract and therefore the trustee is not liable?</p>

<blockquote>
<p>Could the trustee be sued and have to pay money?</p>
</blockquote>
<p>Yes.</p>
<blockquote>
<p>Would it be a valid defense that since the trustee was not paid there
was no contract and therefore the trustee is not liable?</p>
</blockquote>
<p>No.</p>
<p>There are no gray areas on either of these points. This is clear &quot;black letter law.&quot;</p>

<h2>Depends on how the money went missing</h2>
<p>A trustee owes a fiduciary duty to the beneficiaries irrespective of if they are being remunerated or not.</p>
<p>They are personally liable for any breach of that duty. However, they are not liable if the acted honestly, justly, and reasonably in discharging their duties under the trust.</p>
<p>So, if money is lost as a result of reasonable businesses or investment decisions made by and honest and just trustee, they are not liable. This may extend if the money went “missing” due to malfeasance by an employee or agent of the trust whom the trustee reasonably engaged (assuming the trust deed allows them to do this - most do), providing the trustee took reasonable precautions such as inquiring into their honesty or considering if they should insure against this risk.</p>
<p>However, if money is just “missing” and no one knows why, the trustee has clearly failed in their duty and would be personally liable.</p>

<p>It is normal for unpaid trustees (who are not beneficiaries) to have a clause in the trust document, holding them not liable.  This would not normally apply to misconduct by the trustee.</p>
<p>We have such a clause in our last three trust documents for our accountant, who is the third trustee and unpaid and independent.</p>
