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Trusts > EIGHTH CONCEPT: TRUSTEE POWERS AND DUTIES > Flashcards

EIGHTH CONCEPT: TRUSTEE POWERS AND DUTIES Flashcards

1
Q

What kinds of powers does the trustee have?

A

[A] Trustee has all enumerated powers.

[B] Trustee has all implied powers, too.

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2
Q

Define implied power for a trustee

A

helpful and appropriate to carry out the trust purpose.

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3
Q

What are some examples of some implied powers of a trustee?

A
  1. the power to sell trust property
  2. the power to incur expenses
  3. the power to lease
  4. the power to borrow (just modernly, under common law there wasn’t this power)
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4
Q

What 6 duties are owed by the trustee to the beneficiary?

A
  1. Duty of Loyalty
  2. Duty to Invest
  3. Duty to Earmark
  4. Duty to Segregate
  5. Duty to Account
  6. Duty of Due Care
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5
Q

What is the definition of the duty of loyalty for a trustee?

A

Requires that the trustee administer the trust for the

benefit of the beneficiaries, having no other consideration in mind.

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6
Q

Can the trustee engage in self dealing?

A

No

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7
Q

Trustee prefers one beneficiary, his child, over the other beneficiaries. What is this an example of? what duty does it breach?

A

Self dealing. This breaches the duty of loyalty.

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8
Q

Trustee sells trust property to trustee’s spouse. What is this an example of? what duty does it breach?

A

Self dealing. This breaches the duty of loyalty.

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9
Q

Trustee-lawyer hires himself. What is this an example of? what duty does it breach?

A

Self dealing. This breaches the duty of loyalty.

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10
Q

What are the Consequences of finding breach of the duty of loyalty or self dealing by the trustee? when there is a loss?

A

If there is a loss, the trustee is “surcharged,” meaning that the trustee has to make good the loss.

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11
Q

What are the Consequences of finding breach of the duty of loyalty or self dealing by the trustee? when the trustee makes a profit?

A

If the trustee makes a personal profit, then with respect to those ill-gotten profits, the trustee is a constructive trustee: must turn over those profits to the intended beneficiary.

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12
Q

There are 3 alternative rules of the duty to invest. The first is State Lists test. What are state lists?

A

Some states have lists which trustee must follow in the absence of directions in the trust.

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13
Q

What are good investments for the duty to invest where there are state lists?

A
  1. federal gov bonds
  2. federally insured certificates of deposit
  3. first deeds of trust in real estate
  4. sometimes stocks of publicly traded corporations (depends on the jurisdictions)
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14
Q

What can a trustee never invest in if he is in a list state?

A

New business, and second deeds in real estate.

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15
Q

There are 3 alternative rules of the duty to invest. Some states follow the prudent person test approach. What does the prudent person test say?

A

The duty to invest requires the trustee to act as reasonably prudent person investing his own property, trying to maximize income while preserving corpus.

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16
Q

If the duty to invest follows the prudent person test approach, and the trustee holds himself out as having greater skill will he be held to the same standard?

A

No, he will be held to a higher standard.

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17
Q

Which investments are scrutinized under the prudent person test?

A

Each individual investment is scrutinized

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18
Q

In the prudent person test jurisdictions what are good investments?

A
  1. federal government bonds
  2. first deeds of trust in real estate
  3. federally insured certificates of deposit.
  4. blue chip stocks
  5. mutual funs (depends on jurisdiction)
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19
Q

In the prudent person test jurisdictions what can the trustee never invest in?

A

new businesses and second deeds of trust.

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20
Q

There are 3 alternative rules of the duty to invest. I most states they follow the prudent investor act. What does the act provide?

A

the trustee must invest as a “prudent investor.”

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21
Q

How is performance measured in a prudent investor context?

A

each individual investment is not scrutinized, but, rather, performance is measured in the context of the entire trust portfolio.

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22
Q

Under the prudent investor act are there any invalid investments?

A

any investment is not per se invalid.

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23
Q

Are derivatives or futures contracts invalid under the prudent investor act?
what about under the common law prudent person test?
What about under states list?

A

derivatives or futures contracts, investments absolutely prohibited under state lists standard or the common law reasonably prudent person standard, may be appropriate in the context of an entire portfolio.

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24
Q

What are the 3 types of rules under the duty to invest?

A

1) states lists
2) common law prudent person test
3) prudent investor act

25
Q

under any standard for the duty to invest, the trustee has a duty to _______ .

A

diversify

26
Q

Why does the trustee have a duty to diversify under the duty to invest?

A

so that if there is a loss the entire portfolio is not wiped out.

27
Q

Do state lists and the common law

prudent person test allow speculating?

A

No

28
Q

What if trustee breaches the duty to invest?

A

In any jurisdiction, trustee must make good the loss.

29
Q

What if trustee breaches the duty to invest and there is a profit?

A

the beneficiaries affirm the transaction

30
Q

What if trustee breaches the duty to invest and the

trustee makes two investments one makes money and the other loses money?

A

the trustee is surcharged for the loss while the beneficiaries affirm the transaction that made money

31
Q

Is there netting allowed by the trustee for breeches of the duty to invest where one makes money and the other does not?

A

No.

32
Q

What is the duty to earmark?

A

This requires the trustee to label trust property as a trust property.

33
Q

What are the consequences of the trustee breaching the duty to earmark under the common law approach?

A

If trustee breaches the duty to earmark and there is a loss, the trustee is held personally liable.

34
Q

Does there need to be a causal relationship between the failure to earmark and the loss under the common law approach?

A

No

35
Q

if the stock market crashes and there is a loss on trust property that is not earmarked who is liable under the common law approach?

A

The trustee.

36
Q

What are the consequences of the trustee breaching the duty to earmark under the modern law approach?

A

If there is a failure to earmark and there is a loss, the trustee is held personally liable only ifthe loss was caused by the failure to earmark

37
Q

If trustee fails to earmark and she holds the
trust property in her own name and her own personal creditors subsequently attach and end up keeping that asset, who is liable under the modern law approach?, why?

A

The trustee, the failure to earmark caused the loss. (could be held liable under either approach in this hypo)

38
Q

What is the consequence for a breech of the duty to segregate?

A

If trustee breaches the duty to segregate, the trustee can be removed and be held liable for any loss.

39
Q

What is the duty not to delegate in trusts?

A

The trustee can rely on professional advisors in reaching a decision, but the trustee cannot delegate decisionmaking authority to these advisors.

40
Q

Under common law can a trustee delegate the
duty to invest to a professional money manager?
What about under modern law?

A

Under the common law, a trustee could not delegate the duty to invest to a professional money manager.
Modernly, a trustee can delegate this duty

41
Q

Can the trustee delegate trust responsibilities to another trustee?

A

No

42
Q

Under the common law (duty not to delegate), in the absence of a contrary provision in the trust instrument, trustees must act _______________

A

unanimously

43
Q

Under the modern law (duty not to delegate), trustees can act by _____________ decision

A

majority

44
Q

Define the duty to account

A

requires the trustee too a regular basis to give the beneficiaries a statement of income and expenses of the trust.

45
Q

What if the trustee fails to render an accounting to the beneficiaries, what do the beneficiaries do?

A

the beneficiaries would file an action for an accounting.

46
Q

Define the duty of care for a trustee

A

The trustee must act as a reasonably prudent person dealing with his own affairs.

47
Q

Can you always discuss the duty of care for a trustee on the bar exam

A

yes

48
Q

What are the 5 remedies for breach of a duty or duties by a trustee?

A

[1] Damages.
[2] Constructive trust remedy.
[3] Tracing and equitable lien on property (see Remedies outline).
[4] Ratify the transaction if good for beneficiary.
[5] Remove trustee.

49
Q

Under the common law rule if there is a liability for a contract against a trust who is sued?

A

The trustee in his personal capacity (his assets are at stake.

50
Q

If the trustee acted acted within his trustee capacity which brought about the liability in contract, what can he get form the trust?

A

Indemnity.

51
Q

When is the only time, under common law that the trust would be sued and not the trustee in his on personal capacity?

A

if the contract itself provided that in the event of a breach by the trustee, the trustee is to be sued in his representative capacity.

52
Q

What if the trustee, in a common law jurisdiction, signed the contract, “John Smith, as trustee of the ABC Trust.” Who would be sued, the trust or the trustee?

A

The trustee.

53
Q

Under the modern law rule if there is a liability for a contract against a trust who is sued?

A

If the other person to the contract, the promisee, knows that the trustee is entering into the contract in his representative capacity, then the trustee must be sued in his representative capacity.

54
Q

Under the modern law rule if there is a contract liability and the other person to the contract, the promisee, knows that the trustee is entering into the contract in his representative capacity, are the trustee’s personal assets at stake?

A

No

55
Q

Under the modern law rule if there is a contract liability and the trustee signs the contract, “John Smith, as trustee of the ABC Trust,” Who can be sued?

A

the trustee must be sued in his representative capacity

56
Q

If there is a liability in tort for a trustee who gets sued under common law?

A

The trustee is sued in his personal capacity.

57
Q

Under common law, If the trustee was without personal fault, the trustee can get indemnification from ________

A

trust assets

58
Q

If there is a liability in tort for a trustee (who acts in his trustee capacity) who gets sued under modern law?

A

the trustee is sued in his representative capacity.

59
Q

What are the CMR duties of the trustee?

A

1) Duty of Care
2) Duty of Loyalty
under duty of loyalty:
Trustee cannot buy or sell trust property
Trustee may not sell property of one trust to another
May not borrow trust funds nor loan
Cannot personally gain
cannot invest in his own stock
duty to account
3) Duty to separate and earmark trust
4) duty to perform personally (prohibition on delegation)
5) duty to defend trust from attack
6) duty to preserve trust property and make it productive

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