Administration

Question 1

Discretionary Powers

Answer 1

Powers that the trustee may or may not perform as they determine to be appropriate; must act in good faith.

Question 2

Imperative Powers

Answer 2

Powers that a trust instrument requires a trustee to exercise.

Question 3

Trustee’s Duties

Answer 3

Administer trust
Impartiality
Loyalty
Report
No commingling
Preserve property and make it productive

Duties are to beneficiaries (though to settlor in many states if it’s a revocable trust).

Question 4

Administer

Answer 4

Trustee must act in good faith and a prudent manner in accordance with the terms and purposes of the trust instrument and the interests of the beneficiaries.

Question 5

Impartiality

Answer 5

If there is more than one beneficiary, the trustee must act impartially, taking into account any of their differing interests.

Question 6

Loyalty

Answer 6

A trustee cannot engage in self-dealing or indirect self-dealing. Any transactions involving self-dealing are voidable by the beneficiaries (unless consent, failure to bring suit in enough time, court approval).

Question 7

Report

Answer 7

A trustee must respond to requests for information and provide an annual accounting of the trust.

Question 8

Commingling

Answer 8

A trustee must earmark trust property and keep it separate from their own property or property of other trusts.

Question 9

Preserve and Productive

Answer 9

The trustee must preserve the trust property and keep it profitable by making proper investments.

Question 10

Investments

Answer 10

A trustee must exercise reasonable care and caution when investing and managing trust assets. Investment decisions are evaluated in the context of the entire trust portfolio and as part of an overall strategy.

Question 11

Diversification

Answer 11

A trustee must diversify the investments, unless it’s reasonable to determine that the purposes of the trust are better served without diversification.

Question 12

Delegation

Answer 12

A trustee can delegate investment functions but must act prudently in selecting an agent, establishing the scope and terms of the delegation, and periodically reviewing the agent’s decisions.

Question 13

Liability

Answer 13

A trustee is not liable for breach of trust if he acted in reasonable reliance on the terms of the trust, beneficiaries consented to the conduct, or beneficiaries ratified the transaction.

Exculpatory clauses will not save from liability if they allow breaches committed in bad faith or reckless indifference or if it appears the trustee influenced settlor to include them.

Question 14

Damages

Answer 14

If a trustee commits a breach of trust, the trustee is liable for the greater of the amount necessary to restore the trust property or the trustee’s profit from the breach.