Trustee entitled to rely: Overview, definition, and example
What does "trustee entitled to rely" mean?
The phrase "trustee entitled to rely" refers to the legal principle that a trustee can depend on certain information or documents, typically provided by professionals or third parties, without being held liable for acting on that information in the course of carrying out their duties. This concept is often outlined in trust agreements or fiduciary laws, acknowledging that trustees are not expected to be experts in every field but are entitled to rely on qualified individuals or organizations for specific advice or information, such as legal, accounting, or investment counsel.
This principle helps protect trustees from liability in cases where they act in good faith based on the advice or information provided by trusted advisors. However, the trustee is still required to exercise reasonable care, skill, and caution when relying on such information.
Why is "trustee entitled to rely" important?
The "trustee entitled to rely" principle is important because it provides legal protection for trustees in performing their fiduciary duties. Trusts can involve complex financial, legal, and administrative matters, and trustees are often required to make decisions based on specialized knowledge. The rule allows trustees to delegate certain responsibilities to professionals, such as lawyers, accountants, or investment managers, without fearing liability if they rely on the advice or reports of those professionals.
For trustees, this protection reduces the risk of legal exposure when they act on information that they reasonably believe to be accurate and reliable. For beneficiaries, this principle ensures that trustees are encouraged to seek expert advice to ensure proper management of the trust.
Understanding "trustee entitled to rely" through an example
Imagine a trustee who is managing a family trust and must decide how to allocate the trust's assets. The trustee, not being an investment expert, consults with a professional financial advisor, who recommends a diversified portfolio. The trustee is entitled to rely on the advice of the financial advisor when making the investment decisions for the trust, provided they act in good faith and follow the advice they believe to be in the best interest of the trust beneficiaries.
However, if the financial advisor provides faulty or misleading advice, and the trustee was negligent in not verifying it, the trustee could still be held responsible. But as long as the trustee acted with reasonable care in relying on a qualified professional’s advice, they would likely be protected from liability.
Example of "trustee entitled to rely" clause
Here’s an example of how the "trustee entitled to rely" principle might be written in a trust agreement:
"The Trustee shall be entitled to rely upon the opinions, advice, or reports provided by any professionals or advisors, including attorneys, accountants, or financial advisors, in the course of managing the Trust. The Trustee shall not be held liable for any actions taken based on such reliance, as long as the Trustee acts in good faith and with the reasonable belief that the information relied upon is accurate and reliable."
Conclusion
The "trustee entitled to rely" principle helps protect trustees from liability when they make decisions based on the advice or information provided by qualified professionals. By allowing trustees to rely on expert guidance, this principle encourages informed decision-making and efficient trust management. However, trustees must still exercise due diligence and act in good faith to ensure that they are fulfilling their fiduciary duties responsibly. This principle provides a balance between protecting trustees and ensuring the best interests of the beneficiaries are maintained.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.