Duties of the Trustee Flashcards
DUTIES OF THE TRUSTEE
Trustees owe their fiduciary duties to the beneficiaries of the trust. In some states, a trustee of a revocable trust owes duties only to the settlor.
Duty to Administer Trust
Once the trustee accepts the position of trustee, the trustee is bound to follow the terms of the trust and will be liable for noncompliance. The trustee has a duty to personally administer the trust in good faithand in a prudent manner, in accordance with the terms and purposes of the trust instrument and the interests of the beneficiaries. If a trustee has special skills or expertise, they will be held to a higher
standard. If there is more than one beneficiary, the trustee must act impartially, taking into account any of their differing interests.
Duty of Loyalty
Absent court approval or express waiver in the trust instrument, a trustee cannot enter into any transaction in which the trustee is dealing with the trust in their individual capacity. A trustee owes a
duty of undivided loyalty to the trust and its beneficiaries
Beneficiary’s Rights in Case of Prohibited Transaction
A transaction involving trustee self-dealing is voidable by the beneficiary affected by the transaction unless: (1) a court or the terms of the trust approved it; (2) the beneficiary failed to bring suit within the prescribed time period; (3) the beneficiary gave their consent, ratification, or release; or (4) it involves a contract or claim arising before the trustee became trustee.
Duty to Report
A trustee must: (1) provide the qualified beneficiaries with the trustee’s name, address, and telephone number; (2) respond to beneficiary requests for information about the trust’s administration and
provide a copy of the trust instrument if requested; and (3) furnish an annual accounting of the trust.
Duty to Separate Trust Property and Keep Records—No Commingling
A trustee may not commingle trust property with their own property or that of another trust. The trustee must also “earmark” trust property by labeling it as trust, rather than individually owned, property. This keeps the trust property from being confused with the
trustee’s own property.
Duty to Enforce Claims and Defend Trust from
Attack
The trustee has a duty to enforce claims of the trust and to defend the trust.
Duty to Preserve Trust Property and Make It
Productive
The power to invest is normally implied from the duty to make trust property productive. The trustee is expected to take actions to, for example, lease land, collect claims, and invest money
INVESTMENTS
In virtually all states, a trustee’s investment responsibilities are governed by the Uniform Prudent Investor Act (“UPIA”). The trust terms can expand or limit the trustee’s powers—UPIA provisions apply only if there is no contrary provision in the trust instrument. If the trust instrument provides that investments may be made in the trustee’s discretion, it is a question of interpretation whether the trustee’s power is expanded beyond the UPI
Uniform Prudent Investor Act
a. Standard of Care
A trustee must exercise reasonable care, skill, and caution when investing and managing trust assets.
b. Portfolio Approach—Prudence Evaluated as to Overall Investment Strategy
Investment decisions must be evaluated in the context of the entire trust portfolio (corpus) and as part of an overall investment strategy that has risk and return objectives reasonably suited to the particular
trust. Thus, some speculation may be appropriate or even required.
c. Any Type of Investment Permitted
The UPIA permits a trustee to invest in any kind of property or any type of investment provided the trustee acts
Trustee with Special Skills or Expertise
Trustees with special skills or expertise, or who have represented themselves as having such knowledge, have a duty to use such skills or expertise. Thus, a professional trustee or attorney may be held to a
higher standard.
Trustee with Lower Skills
A trustee cannot excuse a breach by proving the trustee possesses and exercises in the trust’s private affairs subnormal business judgment.
Duty to Review Trust Property
When the trustee assumes office, the trustee must review the trust assets to bring them into compliance with the prudent investor rule. If imprudent investments are discovered by a successor trustee, the successor trustee may need to sue the prior trustee for breach of duty
