§ 36C-8-802. Duty of loyalty. - North Carolina Statutes

§ 36C‑8‑802.  Dutyof loyalty.

(a)        A trustee shalladminister the trust solely in the interests of the beneficiaries.

(b)        Subject to therights of persons dealing with or assisting the trustee as provided in G.S. 36C‑10‑1012,a sale, encumbrance, or other transaction involving the investment ormanagement of trust property entered into by the trustee for the trustee's ownpersonal account, or that is otherwise affected by a conflict between thetrustee's fiduciary and personal interests, is voidable by a beneficiaryaffected by the transaction, without regard to whether the transaction is fairto the beneficiary, unless:

(1)        The terms of thetrust authorized the transaction;

(2)        The court approvedthe transaction;

(3)        The beneficiary didnot commence a judicial proceeding within the time allowed by G.S. 36C‑10‑1005;

(4)        The beneficiaryconsented to the trustee's conduct, ratified the transaction, or released thetrustee in compliance with G.S. 36C‑10‑1009; or

(5)        The transactioninvolves a contract entered into, or claim acquired by, the trustee before theperson became or contemplated becoming trustee.

(c)        In determiningwhether a sale, encumbrance, or other transaction involving the investment ormanagement of trust property is affected by a conflict of interest between thetrustee's fiduciary and personal interests, the transaction is rebuttablypresumed to be affected by a conflict of interest if the trustee enters intothe transaction with:

(1)        The trustee's spouseor a parent of the trustee's spouse;

(2)        The trustee'sdescendants, siblings, ancestors, or their spouses;

(3)        An agent, attorney,employee, officer, director, member, manager, or partner of the trustee, or anentity that controls, is controlled by, or is under common control with thetrustee; or

(4)        Any other person orentity in which the trustee, or a person that owns a significant interest inthe trust, has an interest or relationship that might affect the trustee's bestjudgment.

(d)        A transactionbetween a trustee and a beneficiary that does not concern trust property, butthat occurs during the existence of the trust or while the trustee retainssignificant influence over the beneficiary, and from which the trustee obtainsan advantage and which is outside the ordinary course of the trustee's businessor on terms and conditions substantially less favorable than those the trusteegenerally offers similarly situated customers, is voidable by the beneficiaryunless the trustee establishes that the transaction was fair to thebeneficiary.

(e)        A transaction notconcerning trust property in which the trustee engages in the trustee'sindividual capacity involves a conflict between personal and fiduciaryinterests if the transaction concerns an opportunity properly belonging to thetrust.

(f)         Notwithstandingsubsection (c) of this section:

(1)        An investment by atrustee in securities of an investment company, investment trust, or pooledinvestment vehicle in which the trustee or its affiliate has an investment, orto which the trustee, or its affiliate, provides services for compensation, isnot presumed to be affected by a conflict between personal and fiduciaryinterests if the investment otherwise complies with the prudent investor ruleof Article 9 of this Chapter. The investment company, investment trust, orpooled investment vehicle may compensate the trustee for providing thoseservices out of fees charged to the trust if the trustee at least annuallynotifies the persons entitled under G.S. 36C‑8‑813 to receive acopy of the trustee's annual report of the rate and method by which thecompensation was determined; and

(2)        Payment made by atrustee to an attorney, broker, accountant, or agent for services performed onbehalf of the trust in the ordinary course of business is not considered to beaffected by a conflict between the trustee's personal and fiduciary interestsif the payment is consistent with payments generally made for the same orsimilar services.

(g)        In voting shares ofstock or in exercising powers of control over similar interests in other formsof enterprise, the trustee shall act in the best interests of thebeneficiaries. If the trust is the sole owner of a corporation or other form ofenterprise, the trustee shall elect to appoint directors or other managers whowill manage the corporation or enterprise in the best interests of thebeneficiaries.

(h)        This section doesnot preclude any of the following transactions:

(1)        An agreement betweena trustee and a beneficiary relating to the appointment or compensation of thetrustee.

(2)        Payment ofcompensation to which the trustee is entitled under G.S. 36C‑7‑708.

(3)        A transaction thatis fair to the beneficiaries between a trust and another trust, decedent'sestate, or guardianship, or similar relationship of which the trustee is afiduciary or in which a beneficiary has an interest.

(4)        A deposit of trustmoney in a regulated financial‑service institution operated by thetrustee or an affiliate of the trustee.

(5)        An advance by thetrustee of money for the protection of the trust.

(i)         The court mayappoint a special fiduciary to make a decision with respect to any proposedtransaction that might violate this section if entered into by the trustee. (1999‑215, s. 1; 2005‑192,s. 2; 2007‑106, ss. 31, 32, 33.)