As to the parties to a trust relationship, there are two categories of limited liability apropos trust administration: internal and external. Fiduciary liabilities of the parties vis-à-vis one another are internal. Said parties’ legal liabilities incident to trustee’s contracts with and torts perpetrated against third parties are external. Our fact pattern: Funded irrevocable inter vivos trust. Settlor-donor had reserved no powers, no beneficial interest. Entrustment non-fraudulent. Referenced handbook is Loring and Rounds: A Trustee’s Handbook (2023), available for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-trustees-hanbook-2023e/01t4R00000Ojr97QAB.

Internal. A trust being a fiduciary relationship with respect to property, all fiduciary duties run from trustee to current and future beneficiaries, as well as designated beneficiaries of remainder in corpus, whether an equitable property interest vested or contingent. Beneficiaries owe trustee no fiduciary duties back. §5.6 Handbook. A trustee’s fiduciary duties are extensive. Chap. 6 Handbook. Penalties for breaches can be severe. Chap 7 Handbook. Exculpatory trust terms purporting to cover intentional breaches unenforceable. §7.2.6 Handbook (See appendix below). Internal fiduciary liability personal. Chap. 7 Handbook. Absent enforceable exculpation, adverse economic consequences of a breach of trust borne by trustee, not trust estate. Beneficiary owes other beneficiaries no fiduciary duties absent beneficiary’s participation in a breach of trust, and vice versa. §5.6 Handbook. Whether trustee owes settlor fiduciary duties is complicated. Chap. 4 Handbook.

External. Innocent trustees have enjoyed circuitous quasi limited liability as to third-party claims in contract. The title-holding trustee was primarily on hook, but entitled to indemnity from trust estate, unless thirty-party claims incident to a breach of trust. §7.3.1 Handbook. Too bad for trustee if trust estate impecunious. The trustee was/is always free contractually to limit third-party recourse to entrusted assets. §7.3.2 Handbook. Nowadays an innocent trustee not personally liable if fiduciary capacity had been disclosed in contract. UTC §1010(a). As to liabilities of a USTEA “trust” (Uniform Statutory Trust Entity Act), third-party recourse limited to trust assets. Today trust estate generally primarily and exclusively on hook apropos tort liability, “unless trustee personally at fault.” §7.3.3 Handbook. Call this trustee qualified limited liability.

Beneficiaries’ personal external legal liability incident to trustee’s contracts non-existent, they not having legal title to entrusted assets. Hussey v. Arnold, 70 N.E. 87, 88 (Mass. 1904). Trustee not their agent. Taylor v Mayo, 110 U.S. 330, 334-335 (1884). Nor are beneficiaries personally liable to third parties for trustee’s external torts, whether or not trustee personally at fault. Scott & Ascher §27.1. An exception to beneficiary limited liability has been when trust terms vest in beneficiary power to control trust’s administration and disposition, e.g., revocable inter vivos trust or nominee trust. §9.6 Handbook. Here innocent trustee’s external liability limited. §9.6 Handbook. As to USTEA trusts, even an innocent “controlling” beneficiary’s liability limited apropos “trust” liabilities. As our trust was incident to a completed gift, innocent settlor subject to no external exposure going forward.