Shriners Hospitals for Crippled Children v. Gardiner
733 P.2d 1110, 152 Ariz. 527 (1987)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A trustee has a non-delegable fiduciary duty to personally perform discretionary acts, such as making investment decisions, and breaches the prudent person standard by completely delegating such authority to another, even if the trustee lacks investment expertise.
Facts:
- Laurabel Gardiner established a trust, naming her daughter, Mary Jane Gardiner, as the trustee.
- The trust was to provide income for several family members, with the remainder passing to Shriners Hospitals for Crippled Children (Shriners).
- Laurabel Gardiner also named her grandson, Charles Gardiner, an investment counselor and stockbroker, as the first alternate trustee.
- Mary Jane Gardiner, who was not an experienced investor, placed the trust assets with a brokerage house.
- Mary Jane delegated all investment decisions concerning the trust assets to Charles Gardiner.
- Charles Gardiner subsequently embezzled $317,234.36 from the trust.
Procedural Posture:
- Shriners Hospitals for Crippled Children filed a petition in the trial court to surcharge trustee Mary Jane Gardiner for the embezzled funds.
- The trial court denied the petition, finding that Mary Jane was without fault.
- Shriners appealed the trial court's decision to the court of appeals.
- A divided court of appeals reversed the trial court's judgment.
- The Arizona Supreme Court then granted review of the case.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a trustee breach her fiduciary duty by delegating complete investment authority to another person because she lacks investment experience?
Opinions:
Majority - Hays, Justice (Retired)
Yes, a trustee breaches her fiduciary duty by delegating complete investment authority. A trustee has a duty to observe the standard of a prudent person dealing with the property of another, which includes personally performing responsibilities that involve discretion and judgment. While a trustee lacking specific expertise must seek out expert advice, they are not justified in simply relying on that advice without exercising their own judgment. The court found that Mary Jane's own accounting records and her attorney's admissions in court established that Charles was functioning as a 'surrogate trustee,' meaning Mary Jane had completely abdicated her non-delegable duty to manage investments. The prudent person standard is objective and does not account for a trustee's individual lack of education or experience; therefore, her inexperience was not a valid excuse for the delegation. The trust document's clause allowing the hiring of agents was interpreted as a provision for seeking advice, not as permission to delegate the core trustee function of investment management.
Analysis:
This decision reaffirms the fundamental principle of trust law that a trustee's core discretionary duties cannot be delegated. It clarifies that the duty to seek expert advice is not a substitute for the trustee's own duty to exercise judgment and maintain ultimate control over trust assets. The case serves as a critical warning to individual, non-professional trustees that their inexperience does not shield them from liability if they abdicate their responsibilities. Future courts will likely cite this case to hold trustees strictly accountable for improperly delegating discretionary functions, particularly in the realm of investment management.
