A Warning to a Self-Dealing Trustee in Pennsylvania

What happens when a trustee misuses a trust in such a way that does not affect the value of the trust but still substantially benefits the trustee and third parties? Despite the unchanged value of a trust, the Superior Court of Pennsylvania recently found that a breaching trustee can be surcharged for the value of the total benefit that he and other third parties received, causing this particular breach to turn a $45,000 loan into a surcharge potentially worth millions. 

In In re Credit Trust Under Will of Cameron, a trustee used a trust as collateral for a line of credit that was then used, in part, to assist the start-up of a marijuana company owned by the trustee’s step-daughter and her husband. The trustee’s $45,000 loan took part in enabling the marijuana company to become a multi-million dollar company. The beneficiaries of the trust argued that the trustee breached the duty of loyalty and should therefore be surcharged for the total financial benefit that the trustee and his family received, “whether in the form of wages, dividends, ownership interest in the business or otherwise.” In re Credit Trust Under Will of Cameron, No. 830 EDA 2024, 2025 WL 1064600, at *4 (Pa. Super. Ct. Apr. 9, 2025) (quoting Appellee’s Memorandum of Law, filed 5/1/23, at 8-9). Although the trust funds were separate and unaffected, and the credit line was repaid by the trustee, the Superior Court affirmed that a surcharge for the trustee’s breach would not be limited by the trust’s change in value, profits received, or benefits conferred unto the trustee himself. Rather, the trustee would be liable for all benefits received as a result of his breach. 

In Pennsylvania, a trustee is required to “administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries and in accordance with applicable law.” 20 Pa.C.S. § 7771 – UTC 801. A trustee’s duty of loyalty, or obligation to “administer the trust solely in the interests of the beneficiaries,” is governed by 20 Pa.C.S. § 7772 – UTC 802. When a trustee breaches his fiduciary duties, he “is liable to the beneficiaries affected.” 20 Pa.C.S. § 7782 – UTC 1002. 

While section 7781 of Pennsylvania’s consolidated statutes itemizes potential remedies for breaches of trust, the provision also includes a catch-all to prevent the limitation of remedies for beneficiaries. Subsection (b)(3) provides that court-ordered relief may include “compelling the trustee to redress a breach of trust by paying money, restoring property or other means.” The Uniform Law Comment to section 7781 explains that while “[t]his section identifies the available remedies[, it] does not attempt to cover the refinements and exceptions developed in case law.” In addition to remedies enumerated in this section, the court should consider “the common law of trusts and principles of equity.” Id. Additionally, the subsection’s reference to the payment of money includes the possibility of seeking a surcharge action against the trustee. 

In order to seek a surcharge, a beneficiary “bears the burden of showing a failure to meet the required standard of care.” Spinelli by Morris v. Fallon, 322 A.3d 956, 964 (Pa. Super. Ct. 2024) (quoting In re Estate of Westin, 874 A.2d 139, 145 (Pa. Super. Ct. 2005)). In In re Credit Trust Under Will of Cameron, a $45,000 loan from a trustee’s line of credit secured by a trust caused the trustee to be surcharged for the total benefit that the trustee and his third-party family members received, which included a resulting multi-million dollar marijuana company. Though the trustee attempted to argue that “a surcharge based on the amount of ‘benefit’ is overly broad and more difficult to calculate than pure ‘profit,’” the Court countered with the following: “Our case law makes clear that any concerns regarding a factfinder's ability to determine the amount of ‘benefit’ are outweighed by the need for punitive mechanisms to guard against the temptation for trustees to engage in self-dealing.” In re Credit Trust Under Will of Cameron, No. 830 EDA 2024, 2025 WL 1064600, at *9 (Pa. Super. Ct. Apr. 9, 2025). 

This case serves both as a cautionary tale for fiduciaries and guidance for beneficiaries seeking retribution against breaching trustees. It emphasizes the prohibition against self-dealing and conflicts of interest and clarifies the duty of loyalty to beneficiaries. 

Actual loss or harm to a trust is not required to prove a breach because the breach of trust itself is the harm that supports a claim by beneficiaries. The courts have reasoned that “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.” In re Paxson Tr. I, 893 A.2d 99, 120 (Pa. Super. Ct. 2006) (quoting In re Banes’ Estate, 305 A.2d 723 (Pa. 1973). 

Trustees should be deterred from any temptation to breach the duty of loyalty at the risk of facing a surcharge like the one in the Credit Trust.

If you have questions or concerns about your rights as a beneficiary of a trust or the actions of a trustee, call us at 412-209-3200 or email azampogna@palawfirm.com to schedule a free, no-obligation consultation.