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IAI Actuarial Core Principles · Business Management · Trusts and agency

Two co-trustees, Neha and Prakash, manage a trust. Prakash alone withdraws Rs 10 lakh and loses it in a speculative venture. Neha signed the cheque book routinely and never checked the accounts for two years. Beneficiaries sue both. Which statement best reflects the general principle on liability?

Neha can be liable for her own failure to supervise and check the accounts, even though Prakash caused the loss. As between them, she may seek contribution or indemnity from Prakash. Passive trustees are not automatically protected.

  1. AOnly Prakash is liable, since Neha did not personally benefit
  2. BNeither is liable because the loss arose from the market
  3. CNeha may also be liable for her own neglect in failing to supervise, and she may have a claim for contribution or indemnity from Prakash as between themselvesCorrect
  4. DNeha is liable and Prakash is not, as she was the senior trustee
  5. Liability is shared equally and automatically, with no consideration of fault

Explanation

Trustees must act jointly and with care, so passive neglect that allows a co-trustee's breach can make a trustee liable. As between the trustees, contribution or indemnity may be sought, and the more culpable trustee may bear more. Treating only the benefiting trustee as liable ignores her duty of care.

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