What is a potential liability of a corporate trustee?

A corporate trustee has a fiduciary duty to manage trust assets in the best interests of the beneficiaries. One potential liability arises when a corporate trustee engages in transactions that could create a conflict of interest or deviate from prudent investment practices. Buying its own stock as a trust investment can represent a clear violation of this duty because it can lead to self-dealing, where the trustee prioritizes its own financial interests over those of the beneficiaries. This could compromise the trustee's ability to act impartially and could result in a loss for the beneficiaries if the stock performs poorly.

Other options present potential issues but do not align as closely with the core fiduciary responsibilities encountered by a corporate trustee. For example, commingling trust funds with company funds could certainly be a serious breach, but it specifically pertains to the proper management and accounting of funds rather than a conflict of interest in investment choices. Failing to document distributions or charging excessively for management fees are also significant concerns, but they are more about operational negligence or unreasonable fees rather than direct conflicts of interest associated with making investment decisions. Thus, the act of buying its own stock directly relates to how a corporate trustee must navigate conflicts between their interests and those of the trust beneficiaries, making it a particularly significant potential liability.