Administration

Question 1

Duty of Loyalty

Answer 1

Prohibits self dealing by the fiduciary.

Trustees cannot:

1) Buy or sell assets to itself
2) Borrower trust funds
3) Seller assets from one trust to another
4) Engage in any transaction in which they seek to secure a personal gain.

Question 2

What are the rights of a beneficiary if a trustee engages in self dealing?

Answer 2

Trace and recover the property or item for the benefit of the trust

Question 3

What is an additional restriction on corporate trustees?

Answer 3

Corporate trustees cannot purchase its own stock as a trust investment.

It can retain its own stock if it is part of the original trust property. Must meet the prudent investor standard.

Question 4

What is a restriction on a trustee who is also a beneficiary?

Answer 4

The trustee may not make discretionary distribution directly or indirectly to itself.

Question 5

When is there not a restriction on a trustee who is a beneficiary?

Answer 5

1) Settlor of revocable trust
2) Trust where the Settlor’s spouse is trustee/beneficiary
3) Any distribution for the trustee/beneficiary’s health, support, maintenance or education.

Question 6

Duty to Invest Prudently

Answer 6

Except as set forth in a trust, a trustee must manage property as a prudent investor considering the purposes, terms, distribution requirements, and other circumstances of the trust.

Trustee should pursue an overall investment strategy reasonably suit for the trust.

Question 7

Duty to Invest Prudently Standard

Answer 7

Trustee must adhere to standard of reasonable care, skill, and caution in making investment decisions.

Question 8

What are the duties of Prudent Investor Standard

Answer 8

1. Duty not to commingle - can’t mix assets from 1 trust to another.
2. Duty to balance return with potential risk - potential for gain must be high to justify a high risk investment.
   3) Duty to diversify investments
   4) Duty to keep trust productive - duty to get a reasonable return

Question 9

What is the test used to assess investments?

Answer 9

The Portfolio View

Look at the whole portfolio to determine if there are any issues.

One under performing asset is not fatal as long as the total return (income and capital appreciation) of the overall portfolio is reasonable.

Question 10

What is the duty to Preserve and Protect Trust Property?

Answer 10

Prudent investment and the duty to insure the trust property against lossess

Question 11

What is the duty of impartiality?

Answer 11

Absent a trust provision to the contrary, a trustee must be fair and impartial to all beneficiaries.

Question 12

Duty to Account and Inform

Answer 12

A trustee has the duty to account periodically (annually) to the beneficiaries and keep them reasonably informed about the administration of the trust.

Question 13

How can a corporate trustee take title to stock ?

Answer 13

In the name of a nominee, a bank officer. However, the trustee is liable for acts of the nominee.

Question 14

Can a trustee invest in common trust funds or is this commingling?

Answer 14

Trustee can invest in common trust funds which are accounts created by corporate trust companies where smaller trusts are combined for investment purposes - allows for greater diversification.

Allowed by statute.

Question 15

If there are multiple trustees, how are decisions made?

Answer 15

Decisions are made by the authorization of the majority.

Question 16

If a trustee does not consent to an action taken by the other trustees, are they liable for the acts of the other trustees?

Answer 16

No - there is no liability if they don’t participate in the transaction or as long as the individual has dissented (even if they ultimately carry out an act)

Question 17

What is the standard of liability for co-trustees?

Answer 17

A co-trustee who joins in an action at direction of the majority of trustees is not liable for an action if he notifies any co-trustee of his dissent before the action is taken.

Question 18

Can a co-trustee resign?

Answer 18

Yes - must given written notice to the settlor if living, co trustees, and all qualified (living) beneficiaries.

Question 19

If a co-trustee resigns, are the other trustees required to find a replacement?

Answer 19

Only if the trust instrument requires it.

Question 20

How is a trustee selected if the trust document states that there will always be a certain number of trustees?

Answer 20

In Fl, vacancy can be filled by unanimous consent of all living beneficiaries or by court appointment.

Question 21

What are a beneficiary’s option when a trustee breaches a fiduciary duty (breach of trust)?

Answer 21

1) Ratify the transaction and waive the breach
2) Sue for the resulting loss - a surcharge. The issue is usually the measure of damages.
3) Trace and recover the property for trust

Question 22

Is the breach of a fiduciary duty an automatic wrong?

Answer 22

Yes - good faith and reasonableness is no defense or justification.

Question 23

What is a third party’s right when the trustee commits a tort?

Answer 23

A third party can sue the trustee for torts committed by the trustee or its agent.

The trustee may not be sued personally unless personally at fault.

If the trust estate is sued, the estate may seek indemnification from the trustee individually.

Question 24

What is a third party’s right when the trustee breaches a contract?

Answer 24

Third party can sue for breach of contract against the trustee in its representation capacity.

Trustee is not personally liable unless stipulation in contract imposes personal liability.

Question 25

What happens when a trustee commits multiple breaches?

Answer 25

Each breach is judged separately. You can ratify one and reject another action.

Question 26

Does it matter if the trustee obtained a greater return if the act is a breach of the terms of the trust?

Answer 26

No - that is no defense.

Question 27

Is a successor trustee liable for the torts of prior trustee?

Answer 27

No unless they continue the breach and don’t address it.

Question 28

What are the options if a successor trustee discovers the breach of prior trustee?

Answer 28

Successor trustee can:
1) Sue for breach of trust
2) Get a release from obligation to so by super majority of the trust beneficiaries
3) Send a written notice to the trust beneficiaries.
This will start a 6 month statute of limitation with respect to any beneficiary that receives the written notice.

Question 29

Under the Uniform Prudent Investor Act, can a trustee delegate its responsibility?

Answer 29

A trustee may delegate the investment decision provides the trustee exercises reasonable care, skil, and caution in selecting the agent, defining the scope of delegation, and periodically reviewing the actions and decisions of agents.

Question 30

What is a critical issue with delegating a reasonability?

Answer 30

Failure to select an agent with experience - failure to use due care - surcharge sue

Question 31

Does simply telling a beneficiary of improper delegation enough to get shield for liability?

Answer 31

No there must be express consent

Question 32

A beneficiary who consents or participates in a breach of trust waives his right to sue. True or False?

Answer 32

True.

Question 33

If a trust is revocable, to whom dues a trustee owe duties to?

Answer 33

Only the settlor. The trustee is immune from suits by any other beneficiary.

Question 34

What does the income beneficiary receive?

Answer 34

The net income

Question 35

What does the remainder man receive?

Answer 35

The trust corpus at the termination of the trust.

Question 36

What accounts must items of receipts and expenditures be allocated to?

Answer 36

Income or Corpus

Question 37

What are income receipts?

Answer 37

Interest
Rent
Dividends on stock paid in cash
10% of accounts received as annuity or mineral royalty

Question 38

What are principal receipts?

Answer 38

Proceeds from the sale of trusts
Stock splits
Dividends paid in stock are principal

All proceeds not income but are principal.

Question 39

Where are ordinary expenses incurred in the production of income (repairs/interest/taxes) charged to?

Answer 39

Income account

Question 40

Where are extraordinary expenses like capital improvements and income taxes on sale of property charged to?

Answer 40

Principal account

Question 41

How is the trustee’s fee charged?

Answer 41

50/50 between income account and principal account.

Question 42

Power to adjust accounting rules

Answer 42

Trustee may adjust the normal accounting rules if necessary to comply with the duty of impartiality.

This does not apply if the trustee is a beneficiary of the trust.