The Evolution of the Law of Trustee’s Powers and Third Party Liability for Participating in a Breach of Trust: An Economic Analysis

Abstract:     
The evolution of the law concerning a trustee’s powers and a third party’s liability for participating in a breach of trust generally supports efficiency in the law. The standard of liability for third parties participating in a breach of trust, as set forth in the recently adopted Uniform Trust Code, however, does not. From an economic perspective, the standard of liability for participating in a breach of trust allocates the risk of harm associated with a breach of trust between the trust beneficiaries and the third party who participated in the breach. Efficiency is promoted when the total costs associated with the breach of trust (the costs of the precautions plus the costs of a breach plus the administrative costs) are minimized. Over time the purpose of the trust has changed from preserving the trust property to managing it. At common low, a third party who participated in a breach of trust was basically strictly liable. As applied to the modern trust, the common law standard of liability became cumbersome and inefficient. This article examines the different approaches to third party liability in a breach of trust from an economic perspective, looking specifically at the Uniform Trustees’ Powers Act (“UTPA”) and the Uniform Trust Code (“UTC”).

Keywords: trustee, third party, liability, breach of trust, Uniform Trust Code, efficiency, Uniform Trustee's Powers Act, UTPA, UTC

JEL Classifications: K39, K19

Accepted Paper Series