## Facts

- A testamentary trust paid income to four family beneficiaries, including Mary Jane Gardiner; the remainder was to pass to Shriners Hospitals for Crippled Children after all income beneficiaries died.
- The will named Mary Jane as trustee, with her grandson Charles as first alternate trustee and her grandson Robert as second alternate trustee.
- Mary Jane, inexperienced with investments, placed trust assets with a brokerage firm and allowed Charles, a stockbroker, to make all investment decisions for the trust.
- Charles embezzled $317,234.36 from the trust.
- Shriners, as remainderman, sought to surcharge Mary Jane personally for the full loss, alleging improper delegation and inadequate supervision.
- The trial court denied the surcharge; the court of appeals reversed; the state supreme court granted review.

## Issues

1. Whether the trustee breached her fiduciary duty under the prudent-person standard by delegating investment authority and control to another person.
2. Whether the trustee’s breach, if any, was the proximate cause of the trust’s $317,234.36 loss.
3. Whether a successor trustee could continue to serve while also acting as guardian and conservator for the predecessor trustee, given potential conflicts of interest.

## Decision

- The court held that Mary Jane breached the prudent-person standard by delegating to Charles responsibilities she reasonably could be expected to perform personally, including investment oversight and decisionmaking.
- The court declined to impose automatic liability for the full loss because proximate cause remained a fact question, particularly where the depletion may have resulted from Charles’s criminal embezzlement rather than imprudent investing.
- The court vacated the court of appeals’ decision and remanded for further proceedings to determine causation and appropriate remedies.
- The court directed the trial court to consider trustee removal and the possible need for a neutral trustee if conflicts existed, including conflicts arising from Robert’s dual role.

## Legal Principles

- A trustee must manage trust assets with the care of a prudent person dealing with another’s property.
- A trustee may seek and consider expert advice but may not abdicate core fiduciary responsibilities by delegating duties the trustee should personally perform.
- A trustee who breaches fiduciary duty is personally liable only for losses caused by the breach; causation must be proven and is not presumed.
- When losses stem from a third party’s wrongful conduct (including embezzlement), the court must determine whether the trustee’s breach was a proximate cause of the loss.
- Courts may remove trustees and appoint a neutral trustee when conflicts of interest threaten proper administration.

## Conclusion

The court ruled that the trustee violated the prudent-person duty by surrendering investment control to another without exercising independent judgment and supervision, but it required a remand because a surcharge depends on proof that the breach proximately caused the trust’s losses and because conflicts in ongoing trust administration might warrant trustee removal or appointment of a neutral trustee.


Shriners Hosps. for Crippled Child. v. Gardiner, 152 Ariz. 527, 733 P.2d 1110 (Ariz. 1987)