Profit narrowly defined is total revenue minus total expenses, i.e., net gain. Profit broadly defined is merely a synonym for benefit. When a trustee’s unauthorized self-dealing directly harms the trust estate, the trustee is personally liable to make the trust estate whole. The trustee, for example, purchases an asset for his own account from the trust estate for less than its fair market value and turns around and sells it to a third party for its fair market value. Equity fashions a cocktail of remedies for this breach of the duty of undivided loyalty, one of which is compelling the trustee to turn over to the trust estate the ill-gotten profit the trustee made on the transactions. But what if trustee’s unauthorized self-dealing results in no direct harm to the trust estate? Is the trustee off the hook? The answer is no. As a matter of public policy, the trustee may not engage in such activity with impunity. “It matters not that there was no fraud meditated and no injury done; the rule forbidding self-dealing is not intended to be remedial of actual wrong, but preventive of the possibility of it.” Hare and Wallace's Notes, 1 Lead. Cases in Eq., p. 210. Thus the trustee may be surcharged for the economic value of the total benefit that the trustee derived as a consequence of the unauthorized self-dealing. As an aside, equity generally does not get involved in the assessment of punitive damages. See §7.2.3.2 of Loring and Rounds: A Trustee’s Handbook (2025), which section is reproduced in the appendix below.
Assume the trustee, a poor credit risk, obtains a substantial personal credit line from a bank using the trust’s portfolio as collateral. The trustee draws down on the line of credit for personal business purposes. Eventually the trustee closes out his personal debt to the bank with personal funds and the collateral is released. The trust beneficiaries seek to surcharge trustee for the economic value of the general benefit the trustee derived personally from these shenanigans. The trustee’s defense that his liability should be limited to any ill-gotten profit he made in the narrow sense of the word as a consequence of his malfeasance falls on deaf ears. See, e.g., In re Credit Trust Under Will of Cameron, 335 A.3d 760 (2025).
How then does equity come up with an economic value for the general benefit that the trustee derived as a consequence of this breach of the duty of loyalty? For starters, the trustee should be personally liable to the trust estate for the interest that the trustee did not charge himself during the time he was borrowing the portfolio. Also, if the interest charged on a commercial personal line of credit secured by collateral would have been less than that charged on a non-collateralized line of credit then the trustee would have economically benefited to the extent of the difference. And then there is this: If funds from the personal line of credit had been the sine qua non of the trustee’s exploitation of business opportunities for personal purposes, then the trustee might be compelled to shift any economic benefit derived from that exploitation over to the trust estate. This would be the case even if the business opportunities themselves had not been acquired in the course of the trust’s general administration. Now that would be one serious benefit-based equitable remedy.
Please see full publication below for more information.
