Fiduciary Duties Under Puerto Rico Trust Law

By Hans Riefkohl, Riefkohl Law • March 2026 • Part 11 of 12 in the Puerto Rico Trust Law Series

Your Trustee Owes You More Than You Think—But Less Than You Hope

When you establish a trust under Puerto Rico’s Act 60 regime, you’re entering a relationship governed by centuries of trust jurisprudence—Civil Code fiduciary principles, trust-specific statutory requirements, and over a century of case law that Puerto Rican courts have applied with increasing rigor. Many Act 60 investors assume they’ve handed off control entirely. The truth is more nuanced: your trustee stands in a position of quasi-absolute trust bound by enforceable legal duties that courts will police actively. But those duties have limits, defined by statute, by the trust instrument itself, and by a framework that has evolved dramatically since 2012.

This article maps the landscape of trustee fiduciary liability under Puerto Rico law—what’s required, what’s forbidden, what can be waived, and what it means for your trust’s long-term stability.

The Five Core Duties Under Puerto Rico Trust Act

Puerto Rico’s trust framework, codified primarily in Title 32 of the Puerto Rico Code (§3301 et seq.), establishes five core fiduciary obligations:

1. Duty of Loyalty (Deber de Lealtad)

The trustee must act solely in the interests of the beneficiaries. This duty is absolute and cannot be waived by exculpatory clause or trust amendment.

Self-dealing is prohibited. A trustee cannot:

• Sell trust property to itself or entities it controls
• Purchase trust assets at favorable terms
• Enter contracts where the trustee has undisclosed personal interests
• Divert trust opportunities to personal accounts

In practice, this means your trustee must disclose conflicts proactively. If your trustee serves multiple trusts or clients, it must manage conflicts through segregation, competitive bidding, or full disclosure to all beneficiaries.

2. Duty of Care (Deber de Diligencia)

The trustee must exercise reasonable care, skill, and caution—the “prudent person” standard as refined by §3352t and §3353m.

The statute enumerates 16 specific duties under §3352t(a) through (p):

• Act in good faith and in the beneficiaries’ best interests (duty of loyalty)
• Exercise reasonable care, skill, and caution as a prudent person (duty of care)
• Leverage special skills if the trustee possesses them
• Review and inventory trust property upon taking office
• Ensure investments and distributions are cost-reasonable
• Treat beneficiaries impartially (duty of impartiality)
• Apply the prudent investor rule (§3353m): risk appropriate to beneficiary needs
• Diversify investments to minimize concentration risk
• Maintain loyalty (no self-dealing)
• Avoid improper delegation and exercise caution in any necessary delegation of investment or asset management, with oversight of agents
• Keep accurate records
• Account to beneficiaries at least annually and on request
• Inform beneficiaries of material facts
• Segregate trust assets from personal funds
• Enforce claims and defend the trust as needed
• Properly dispose of trust assets upon termination in accordance with the trust terms

For Act 60 investors, this means institutional trustees (banks, trust companies) are held to a higher standard than individual trustees because they hold themselves out as professional fiduciaries with specialized expertise.

Section 3353m (unchanged through 2026) codifies Puerto Rico’s “prudent investor rule” for trust investments. Importantly, §3353m allows the trust instrument to modify or waive certain investment standards, stating that the prudent investor rule can be “expanded, restricted, eliminated, or otherwise altered by the provisions of a trust.” A trustee is not liable to a beneficiary to the extent the trustee reasonably relied on the trust’s provisions that alter the default rule. In practice, while the prudent investor rule is the default standard, the settlor can provide different investment directives, and a trustee following such authorized directives in good faith would not be liable for deviating from ordinary prudent investor norms.

3. Duty to Inform (Deber de Informar)

The trustee must keep beneficiaries informed and provide timely, accurate accountings.

Quarterly reports are required, containing at minimum:

1. Account opening balance
2. Receipts/income
3. Distributions made
4. Gains/losses
5. Expenses
6. Closing balance
7. Beneficiary list (where appropriate)
8. List of trust assets
9. Description of any litigation
10. Tax information
11. Material changes in law
12. Trustee compensation
13. Fees and costs

Annual reports must be filed by February 28 (Regulation 7839, commonly cited as Regulation 5839). This regulation, issued by the Office of the Commissioner of Financial Institutions (OCIF) pursuant to the Trust Companies Act, establishes detailed trust administration and reporting standards for professional trustees. The duty to account is affirmative—the beneficiary need not request it, and the trustee cannot avoid disclosure by claiming no loss occurred.

Puerto Rico courts have recently expanded this duty beyond traditional accounting to include affirmative disclosure of conflicts, material risks, and significant developments affecting the trust. Recent court decisions (including Rivera Nieves (2021) and Lecároz v. Méndez (2023), discussed below) require trustees to proactively disclose material facts, including changes in tax laws, potential conflicts, and major shifts in investment strategy. The trend in 2023–2025 is toward holding trustees to a high standard of transparency. Practitioners are advising that Act 60 investors include enhanced information rights in trust instruments in light of the Lecároz decision’s reminder that default law might not grant all desired information rights.

4. Duty of Impartiality (Deber de Imparcialidad)

When a trust benefits multiple classes of beneficiaries (e.g., life tenant and remainder beneficiaries), the trustee must treat all classes fairly.

The trustee cannot:

• Favor current beneficiaries over future beneficiaries
• Allocate investment gains solely to one class
• Distribute income while liquidating principal for favored beneficiaries

This duty often conflicts with maximizing income—a tension that courts resolve by requiring the trustee to balance interests and document its reasoning.

5. Investment Duty (Deber de Inversión)

The trustee must manage investments under the prudent investor standard, which requires:

• Diversification adequate to minimize concentration risk
• Risk tolerance matched to beneficiary needs and trust duration
• Compliance with any explicit investment restrictions in the trust document
• Regular review and rebalancing

The investment duty is independent—even if an investment performs well, a trustee who violates the instrument’s restrictions (e.g., “no non-AAA securities”) has breached fiduciary duty.

Standard of Liability: A Dual-Track Framework

Puerto Rico applies two different standards of trustee liability depending on the breach’s severity:

Ordinary Negligence Track

For routine administrative failures (missed deadlines, incomplete accountings, minor record-keeping gaps), ordinary negligence is the standard (the “prudent person” standard). The beneficiary must prove the trustee failed to exercise reasonable care. This is a significant change effected by the 2012 law: prior to 2012, the Civil Code protected trustees from liability for mere negligence, requiring proof of “willful neglect” or “gross negligence.” The 2012 reforms lowered the threshold by adopting modern trust standards inspired by the Restatement (Third) of Trusts and the Uniform Trust Code.

Manifest Negligence / Willful Misconduct Track

For serious breaches (self-dealing, misappropriation, gross negligence, willful misconduct or dolo), Article 862 of the Puerto Rico Civil Code applies a heightened liability standard. Once willful misconduct is shown, the trustee can be held liable without the beneficiary needing to prove a reasonable-person standard was breached—the extreme nature of the conduct speaks for itself. The burden may shift to the trustee to prove the absence of bad faith. This dual-track approach preserves the older Civil-Code concept that a trustee is absolutely liable for deliberate or grossly negligent breaches, while now also allowing claims for lesser negligence in day-to-day administration.

The 2012 Watershed

Pre-2012 Puerto Rico law imposed a much higher bar: trustees were liable only for gross negligence or willful misconduct. The 2012 Trust Act (Act 219-2012) was a watershed moment that modernized Puerto Rico’s trust law. By repealing the 1930 Civil Code’s trust articles (Arts. 834–874) and replacing them with a comprehensive Trusts Act, Puerto Rico shifted from a very protective regime for trustees to one more aligned with U.S. mainland trust standards. The reform dramatically expanded liability exposure by: (1) lowering the liability shield—eliminating the broad immunity that made it extremely difficult for beneficiaries to recover for ordinary negligence; (2) introducing the modern prudent investor rule (§3353m) and explicit investment duties such as diversification and risk-return analysis; and (3) enhancing disclosure and information rights through the Trust Act and regulations like Reg. 7839, specifying the content and frequency of trust reports.

For Act 60 investors: This means trusts created after 2012 (or amended to incorporate the new regime) expose trustees to significantly greater liability. The Trust Act amendments expanded the categories of actionable trustee conduct substantially.

The Duty of Loyalty in Practice: Case Illustrations

Detroit Bank & Trust Co. (1985)

A Puerto Rico court held a trust company’s director personally liable for $2.97 million in damages after finding:

• Failure to account over multiple years
• Self-dealing through liquidation of trust assets via shell companies
• Breach of personal integrity expected of a fiduciary

Critical holding: The corporate form does NOT shield individual trustees or corporate officers from personal fiduciary liability. This applies directly to Act 60 trusts managed by institutional trustees—the bank is liable, and its officers may face personal exposure.

Álvarez Méndez (Ongoing)

A trustee with broad discretionary authority rejected a lucrative offer to sell trust real estate. The beneficiary argued this constituted a breach of the investment duty.

Holding: Authority to act does not equal authority to breach fiduciary duty. Trustee discretion is not unlimited. Courts will second-guess discretionary decisions if they fall below prudent person standards, even when the trustee exercised subjective judgment.

Implication for Act 60 investors: Do not rely on discretionary trustee language to insulate your trustee from liability. Courts will impose an objective prudent person standard above the trustee’s subjective intent.

The Duty to Inform: Enforceable Independently

Rivera Nieves (2021)

The Puerto Rico Court of Appeals held (in late 2021) that the trustee’s affirmative duty to account exists independently of whether the beneficiary has suffered actual loss. A trustee cannot say, “I failed to account, but the trust broke even, so no harm.”

The court emphasized that accounting is a fiduciary duty unto itself—the beneficiary’s right to information is protected separate from damage claims. Rivera Nieves was not overturned by the Supreme Court and is consistent with general fiduciary principles. It strongly guides lower courts and underscores that in Puerto Rico, beneficiaries can demand accountings and disclosures as a matter of right. Trustees cannot use a “no harm, no foul” defense for not providing information.

Lecároz v. Méndez (2023)

A beneficiary sought inspection rights similar to shareholder rights under corporate law. The court held that beneficiaries do not automatically have shareholder-style inspection rights.

Critical implication: Your trust document must explicitly grant information rights. Silence on inspection, detailed accountings, or advance notice of trustee actions may be construed narrowly against the beneficiary.

Recommended practice: Act 60 trust instruments should specify:

• Frequency of accountings (quarterly minimum)
• Types of information required (13 categories under Regulation 7839/5839)
• Right to independent audit
• Right to inspect trust assets in person
• Trustee’s obligation to respond to information requests within 30 days

As a recent ruling by Puerto Rico’s highest court, Lecároz is binding precedent. It serves as a caution that beneficiaries only have those information rights provided by statute or the trust agreement, and if broader rights are desired, they must be written into the trust instrument.

Investment Compliance: A Strict Standard

Ramírez de Arellano v. BPPR (2025)

A trustee was required to invest exclusively in AAA-rated securities per the trust instrument. The trustee instead invested over $1 million in COFINA bonds (Puerto Rico sales tax revenue bonds), which carried no AAA rating and no federal guarantee.

When COFINA bonds lost over 50% of value, the beneficiary sued. The court held the trustee strictly liable despite market conditions or reasonable judgment.

Holding: Trustees are bound by explicit instrument restrictions and cannot substitute market judgment or contemporary practice for the settlor’s written requirements.

Institutional trustees face heightened scrutiny: Because institutional trustees (banks, trust companies) hold specialized expertise in bond markets and credit analysis, courts presume they understand credit ratings and restriction language. An institutional trustee’s claim of “misunderstanding” carries less weight. Ramírez de Arellano is a 2025 Appellate Court decision with a petition for review to the Supreme Court reportedly pending. If affirmed, it solidifies that trustees cannot escape responsibility for failing to follow the settlor’s investment instructions.

Act 60 implications: If your trust specifies investment restrictions (diversification minimums, no speculative assets, tax-efficient strategies), your trustee cannot deviate based on “market conditions” or “reasonable alternatives.” Document restrictions with precision.

Co-Trustee Liability: Joint and Several

When a trust has multiple trustees:

1. Joint and several liability applies. A beneficiary can sue either or both trustees, and recovery from one does not discharge the other.
2. Each co-trustee has an affirmative duty to monitor the other. A trustee cannot defend negligence by claiming, “I deferred to my co-trustee’s judgment.” This monitoring obligation derives from common-law trust principles adopted by Puerto Rico courts.
3. Conflicts of interest between co-trustees do not excuse passivity. If one trustee acts improperly and the other remains silent, the passive trustee is liable for breach of the monitoring duty.

Recommendation: If using co-trustees (e.g., an institutional trustee paired with a family member), establish clear protocols: segregated responsibilities, regular meetings, third-party audits, and documented communication.

Exculpation Clauses: What Can—And Cannot—Be Waived

Act 60 trusts often include exculpation clauses (or “no liability” provisions) to protect trustees. These clauses are strictly construed against the trustee under Puerto Rico law. Certain fundamental duties cannot be waived or excused by any clause. The duty of loyalty is absolute and cannot be eliminated by an exculpatory clause or trust provision. Any clause purporting to permit self-dealing or conflicts of interest is void against public policy unless expressly authorized by statute. Puerto Rico courts would refuse to enforce any provision attempting to relieve a trustee from liability for acts committed in bad faith, with intentional misconduct (dolo), or with gross or manifest negligence.

Exculpation clauses do NOT protect against:

• Breach of the duty of loyalty (self-dealing, conflict of interest)
• Breach of the duty of impartiality (favoritism among beneficiary classes)
• Willful misconduct or gross negligence (dolo or culpa grave)

They MAY permit:

• Modification of the investment standard (e.g., “trustee may invest in non-diversified accounts if trust income exceeds $50K annually”)
• Relaxed accounting requirements (e.g., “annual rather than quarterly reports”)
• Limitations on liability for ordinary negligence (with constraints)

Critical requirement: Any exculpation clause must be conspicuous, in plain language, and specifically reference the duty being modified. A generic “trustee is not liable except for willful misconduct” clause will not protect against ordinary negligence in accounting or investment oversight. Exculpation clauses are strictly construed against the trustee; any ambiguity will be resolved in favor of the beneficiary.

Trustee Removal: The High Bar (§3352z)

Under Puerto Rico law (Article 867 of the old Civil Code, now 32 L.P.R.A. §3352z, unchanged under the current Trust Act), removal of trustees is limited to three exhaustive statutory grounds:

1. Incompatible personal interests—The trustee’s interests conflict irreconcilably with beneficiary interests
2. Misappropriation, fraudulent, or negligent administration—Serious misconduct
3. Incapacity—Mental incompetence or legal disability to serve

Standing is limited to:

• The settlor (during lifetime)
• Any beneficiary
• The Attorney General (in the public interest)

Importantly, a successor trustee does not have standing to remove a predecessor—only the parties above can initiate removal.

Ríos Pérez (2014)

The court held that mere failure to account—absent evidence of actual misappropriation or manifest negligence—may not satisfy the removal standard. The court emphasized that removal is an extraordinary remedy.

Practical consequence: Beneficiaries cannot easily remove a trustee for administrative shortcomings alone. The bar for removal is higher than the bar for damages. A court may find the trustee breached the duty to account (awarding damages) while denying removal if the breach did not rise to “misappropriation” or “manifest negligence.”

Trustee Resignation: Not as Easy as You Think

Under Article 861 of the former Civil Code (now reflected in §3352y of Title 32), a trustee cannot resign by letter or unilateral declaration. Formal procedures are required:

1. Court approval (judicial authorization)
2. Formal notice to all beneficiaries
3. Accounting before resignation is final

Oriental Bank v. Pérez Mendoza (2014)

A bank trustee sent a resignation letter and claimed it was effective immediately. The court held the resignation void and held the trustee liable for all actions taken by its purported successor before court approval was obtained.

Consequence: The bank’s fiduciary duties continued despite its belief it had resigned. All distributions made by the successor trustee were technically unauthorized, creating liability for beneficiaries and the successor.

Triangle Cayman (2016)

A trustee claimed it could resign without court approval based on conflict of interest. The court rejected this argument: even a conflicted trustee must follow formal procedures.

Practice pointer: If you are seeking to remove or replace your trustee, file a petition in court. Do not accept a resignation letter or informal removal. Confirm the successor trustee’s appointment is by public deed (escritura pública).

Trustee Replacement Formalities: The Writing Requirement

Crespo Rivera (2024)

A trustee replacement was documented by letter. All subsequent trust actions by the “new” trustee were voided because the removal and appointment were not executed as a public deed.

Holding: Article 860 requires trustee removal and replacement to be documented in an escritura pública (public deed). A letter or informal document is insufficient.

Carvajal Narváez v. Scotiabank (2018)

The court enforced strict compliance with statutory formalities: failure to record a public deed of trustee replacement left the prior trustee technically still in place for third-party purposes, even if the settlor believed the change was effective.

Critical practice point: Any trustee replacement under Act 60 must be:

1. Documented in a public deed (escritura pública)
2. Recorded with the Registry of Property
3. Served on all known beneficiaries
4. Followed by an accounting and formal notice

The Executor-Fiduciary Overlap

Many Act 60 investors serve as both executor of a deceased beneficiary’s estate and trustee of the Act 60 trust. These roles create inevitable conflicts:

• Executor’s duty: Settle and close the estate quickly
• Trustee’s duty: Manage assets long-term for maximum benefit

If the estate includes property the trustee wishes to retain for the trust, the executor may be tempted to delay settlement. Conversely, the executor may liquidate assets prematurely to close the estate, contrary to trustee interests.

Best practice: Appoint different persons as executor and trustee. If the same person must serve dual roles:

• Obtain written approval from all beneficiaries
• Document all decisions with explanations of how executor/trustee roles were considered
• Consider hiring an independent fiduciary advisor
• Maintain segregated accounts and records for each role

Puerto Rico’s Dual-Tradition Fiduciary Framework

Puerto Rico’s trust law draws from two distinct traditions:

1. Civil law mandate doctrine (mandato)—A fiduciary holds authority as agent and must account for all actions
2. Common law trust principles—English/Restatement (Third) standards of prudent investment, diversification, and informed beneficiary rights

This hybrid framework gives Puerto Rican courts substantial flexibility in holding trustees accountable. A court can apply strict Civil Code accounting principles and Restatement prudent investor standards to the same trustee.

The advantage to beneficiaries: multiple avenues for relief. The risk to trustees: exposure to liability from multiple doctrinal angles.

Practical Recommendations for Act 60 Investors

Selecting Your Trustee

1. Define your trust’s primary objective. If wealth preservation and income stability, prioritize institutional trustees with conservative investment approaches. If growth and flexibility, consider individual trustees with specialized knowledge.
2. Evaluate institutional vs. individual trustees:
   • Institutional (bank, trust company): Higher liability standard, but continuity and professional management. Expect annual fees of 0.5–1.5% of assets.
   • Individual (family member, attorney, business advisor): More flexibility and personal relationships, but succession risk and lower professional standard. Expect fees of $0–$5K annually plus cost reimbursement.
3. Review the trustee’s conflict management processes. Ask:
   • How does the trustee manage multiple trust accounts?
   • What safeguards prevent self-dealing?
   • How are investment decisions documented?
   • Who audits the trustee?
4. Specify investment restrictions in writing. If you want no COFINA bonds, no private equity, no real estate without beneficiary consent—write it down in the trust document. “Prudent investor” language is not sufficient.
5. Grant explicit information rights. Draft language permitting quarterly accountings, annual audits, and beneficiary inspection rights. Do not rely on default statutory rights, which may be construed narrowly.

Monitoring Your Trustee

1. Establish a review calendar:
   • Quarterly: Review account statements and confirm distributions match the trust’s intent.
   • Annually: Obtain audited financial statements; verify compliance with investment restrictions; assess trustee compensation reasonableness.
   • Biannually: Meet with the trustee (in person if feasible) to discuss major transactions, beneficiary changes, and performance.
2. Request third-party audits. Do not rely solely on the trustee’s own accountings. Hire an independent CPA or trust auditor every 3–5 years, particularly if assets exceed $5 million.
3. Demand detailed explanations of material transactions. If the trustee sells a core asset, refinances a property, or changes investment allocations, require a written explanation tied to the prudent investor standard and the trust’s objectives.
4. Investigate red flags:
   • Missing or late accountings
   • Unexplained investment underperformance
   • Trustee’s personal transactions involving trust property
   • Changes in trustee’s financial condition (insolvency, criminal charges)
   • Beneficiary complaints about conflicts of interest

Replacing Your Trustee

1. File a petition in court. Do not try to remove a trustee by letter or agreement. Courts require formal proceedings.
2. Document the grounds—specifically, cite Article 867 grounds: incompatible personal interests, misappropriation/fraudulent/negligent administration, or incapacity.
3. Propose a successor in advance. Have the successor trustee prepared to accept appointment and provide a detailed investment and administration plan.
4. Obtain a public deed (escritura pública) documenting the removal and appointment. Record it with the Registry of Property.
5. Demand a full accounting from the departing trustee before releasing it from liability.
6. Notify all beneficiaries and third parties (banks, brokers, insurance companies) of the trustee change and update all accounts within 30 days.

Recent Developments (2023–2026): Expanded Disclosure Duties & Trustee Liability

Puerto Rico has continued to refine and enforce trust law from 2023 through 2026, with an emphasis on transparency and accountability. Recent court decisions have expanded the scope of the trustee’s duty to inform beyond traditional accountings. Modern decisions require trustees to proactively disclose material facts, risks, and conflicts of interest affecting the trust.

The Puerto Rico Supreme Court decided Lecároz v. Méndez (2023), clarifying limits on information rights but implicitly affirming the importance of the duty to inform. In Ramírez de Arellano v. BPPR (2025), the Appellate Court reinforced that trustees will be held strictly liable for deviations from trust terms. The 2024 Appellate ruling in Crespo Rivera strengthened procedural safeguards around trustee succession by voiding informal trustee replacements.

Additionally, Trust Act §3353l explicitly imposes joint and several liability on co-trustees and a duty for each co-trustee to monitor and prevent breaches by the other. A passive co-trustee can be held equally liable for failing to prevent a co-trustee’s breach.

No major legislative amendments to the Trust Act were enacted from 2023–2026 specific to fiduciary duties, but an important development was the full implementation of Puerto Rico’s new Civil Code (effective November 2020). The Trusts Act continues to govern with its 2017 amendments (e.g., Act 9-2017) integrated. In the regulatory sphere, OCIF has maintained active oversight of Puerto Rico trust companies, increasing compliance examinations and focusing on adherence to reporting rules and internal controls.

Trend in Puerto Rico Courts: Since the 2012 Trust Act reforms, Puerto Rico’s courts have increasingly enforced fiduciary duties with strict scrutiny. Whether mandating proactive disclosure (Rivera Nieves, 2021), limiting broad information claims (Lecároz, 2023), surcharging risky investments (Ramírez de Arellano, 2025), or insisting on formalities in trustee turnover (Pérez Mendoza 2014; Crespo Rivera 2024), the judiciary has signaled that trustees will be held to both the letter and spirit of the law.

This article provides general educational information about Puerto Rico trust law and is not legal advice. Act 60 trusts involve complex tax, property, and fiduciary law questions that require counsel licensed in Puerto Rico. Laws and regulations are subject to change; readers should verify current statutory and case law with counsel.

Related Articles in This Series

• Article 10: The Costs of Creating, Administering, and Terminating a Trust
• Article 12: Family Trust Planning Pitfalls