2023 New Mexico Statutes › Chapter 46A - Uniform Trust Code › Article 8 - Duties and Powers of Trustee › Section 46A-8-802 - Duty of loyalty.

A. A trustee shall administer the trust solely in the interests of the beneficiaries.
B. Subject to the rights of persons dealing with or assisting the trustee as provided in Section 46A-10-1012 NMSA 1978, a sale, encumbrance or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or that is otherwise affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless:
(1) the transaction was authorized by the terms of the trust;
(2) the transaction was approved by the court;
(3) the beneficiary did not commence a judicial proceeding within the time allowed by Section 46A-10-1005 NMSA 1978;
(4) the beneficiary consented to the trustee's conduct, ratified the transaction or released the trustee in compliance with Section 46A-10-1009 NMSA 1978; or
(5) the transaction involved a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee.
C. A sale, encumbrance or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by the trustee with:
(1) the trustee's spouse;
(2) the trustee's descendants, siblings, parents or the spouse of any of them;
(3) an agent or attorney of the trustee; or
(4) a corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment.
D. A transaction between a trustee and a beneficiary that does not concern trust property but that occurs during the existence of the trust or while the trustee retains significant influence over the beneficiary and from which the trustee obtains an advantage is voidable by the beneficiary unless the trustee establishes that the transaction was fair to the beneficiary.
E. A transaction not concerning trust property in which the trustee engages in the trustee's individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust.
F. An investment by a trustee in securities of an investment company or investment trust to which the trustee, or its affiliate, provides services in a capacity other than as trustee is not presumed to be affected by a conflict between personal and fiduciary interests if the investment otherwise complies with the Uniform Prudent Investor Act [45-7-601 NMSA 1978]. In addition to its compensation for acting as trustee, the trustee may be compensated by the investment company or investment trust for providing those services out of fees charged to the trust. If the trustee receives compensation from the investment company or investment trust for providing investment advisory or investment services, the trustee at least annually shall notify the persons entitled under Section 46A-8-813 NMSA 1978 to receive a copy of the trustee's annual report of the rate and method by which the compensation was determined.
G. In voting shares of stock or in exercising powers of control over similar interests in other forms of enterprise, the trustee shall act in the best interests of the beneficiaries. If the trust is the sole owner of a corporation or other form of enterprise, the trustee shall elect or appoint directors or other managers who will manage the corporation or enterprise in the best interests of the beneficiaries.
H. This section does not preclude the following transactions, if fair to the beneficiaries:
(1) an agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee;
(2) payment of reasonable compensation to the trustee;
(3) a transaction between a trust and another trust, decedent's estate or conservatorship of which the trustee is a fiduciary or in which a beneficiary has an interest;
(4) a deposit of trust money in a regulated financial-service institution operated by the trustee; or
(5) an advance by the trustee of money for the protection of the trust.
I. The court may appoint a special fiduciary to make a decision with respect to any proposed transaction that might violate this section if entered into by the trustee.
History:
Laws 2003, ch. 122, § 8-802; 2007, ch. 128, § 21.
ANNOTATIONS
The 2007 amendment,
effective July 1, 2007, adds Paragraph (3) of Subsection B and requires the trustee to notify the persons entitled to receive the trustee's annual report if the trustee receives compensation for providing investment or advisory services from an investment company or investment trust in which the trustee has invested trust funds.
Breach of the duty of loyalty.
— A transaction involving a conflict of interest in breach of the duty of loyalty is voidable at the beneficiary's option, and voiding such a transaction will require the trustee to disgorge personal profit gained through the breach if that profit would not have been earned had the transaction never occurred; the beneficiary is entitled to this profit, even if the transaction did not cause any loss to the trust. Miller v. Bank of America, 2015-NMSC-022,
rev'g
2014-NMCA-053, 326 P.3d 20.
Where trustee bank, in a breach of its duty of care, invested trust assets in an unproductive commercial building in direct violation of express trust provisions, which caused an $894,000 loss in the value of the trust, arranged loans to the trust from the bank's own affiliates that were secured by mortgages on the building, and collected loan fees and mortgage interest from the trust in breach of its duty of loyalty, and where the district court awarded $171,000 in damages without discussing the actual method of calculation for the restoration award, the court of appeals reversed the district court and awarded plaintiffs $894,000 to restore the value of the trust, but did not award disgorgement damages, holding that an award of restoration damages and disgorgement damages would amount to a double recovery. The New Mexico supreme court reversed the court of appeals, holding that both restoration and disgorgement damages were required under the New Mexico Uniform Trust Code, and remanded the case back to the district court for a recalculation of damages because it was unclear whether disgorgement damages, the mortgage interest and loan fees paid to the trustee, were included in the calculation of the restoration award. Miller v. Bank of America, 2015-NMSC-022,
rev'g
2014-NMCA-053, 326 P.3d 20.