When the centerpiece of a trustee’s defense in a breach-of-fiduciary-duty action is an empty file cabinet and a general lack of recall

An incident of the trustee’s duty to be generally prudent, to account (or report) to beneficiaries, and to refrain from breaches of the duty of undivided loyalty, such as engaging in unauthorized self-dealing, is the trustee’s duty to keep adequate records of the trust’s administration. The trustee who enters into a self-dealing transaction with a beneficiary assumes the burden of proving that the transaction was not the product of undue influence, there being a presumption of undue influence. “The performance of these record-keeping responsibilities is…essential to a trustee’s duty to collect and safeguard the trust property and to the beneficiaries’ right to enforce the trustee’s duty to act with prudence, loyalty and impartiality, as well as to the trustee’s duty regarding reasonable and appropriate costs of administration.” Restatement (Third) of Trusts §83 cmt. a. Adequate means precise, clear, complete, and accurate. Id. It goes without saying that a general lack of recall, or worse, a stonewalling of the finder of fact, will not relieve the trustee of this burden of proof. In litigating a corporate trustee’s conduct in a given situation, whether it kept proper records could well have a bearing on whether it maintained an effective organizational structure, which in turn could have a bearing on whether it had exercised reasonable care and skill under the circumstances. See generally §6.2.11 of Loring and Rounds: A Trustee’s Handbook (2025), which section is reproduced in the appendix below. Obscurity visits responsibility upon the trustee. When there is a failure to keep adequate records, all doubts are resolved against the trustee. The Restatement (Third) of Trusts is generally in accord: “A trustee who fails to keep proper records is liable for any loss or expense resulting from that failure. A trustee’s failure to maintain necessary books and records may also cause a court in reviewing a judicial accounting to resolve doubts against the trustee. These failures by trustees may furnish grounds for reducing or denying compensation, or even for removal, or for charging the trustee with the costs of corrective procedures or of having to conduct otherwise unnecessary accounting proceedings in court.” Id. An agent with administrative discretion, the holder of a general power of attorney, for example, who transacts with his principal is also saddled with a presumption of undue influence, and thus also “assumes the burden of developing a record sufficient to prove any benefits were not received without sufficient consideration or under undue influence.” See Durr v. Volden, 10 N.W.3d 133, 137- 1 138 (N.D. 2024). As an aside, in Durr there is an unfortunate suggestion that a fiduciary, i.e., discretionary, power of attorney is fundamentally contract-based, which cannot be the case as an agency relationship with its enforceable rights and duties may arise even absent an exchange of consideration, gratuitously as it were. As to why the institution of the trust likewise is not fundamentally contract-based, see my Dec. 1, 2011 JDSUPRA posting, accessible below from the catalog of all my prior postings, or directly by clicking on to https://www.jdsupra.com/legalnews/the-academics-are-just-plain-wrong-the 17604/.