Liability of Trustee in Contract and Tort

Question 1

What is the critical inquiry in determining trustee liability?

Answer 1

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1. IF trustee signed as the trustee: NO personal liability (e.g., “Fox Mulder Trust, by Dana Scully, Trustee” – no personal liability to Scully because she made it clear the K was with the trust)

IF trustee signed personally: PERSONAL LIABILITY

(e.g. “Dana Scully, Trustee for the Fox Mulder Trust” – personal liability, because Scully signed as herself and made her position merely incidental)

Question 2

If there is personal liability on the trustee, he may still be reimbursed by the trust. What are the two requirements?

Answer 2

1. The contract was within the powers of the trustee; AND
2. The trustee was acting in the course of proper administration of the trust.

Question 3

What is the personal liability of a trustee in tort?

Answer 3

Trustee is personally liable for all torts by:

1. Trustee OR
2. Trustee’s employees

Question 4

How can trustee get a reimbursement from the trust for tort claims? (2 requirements)

(What’s another option?)

Answer 4

1. Trustee must have been acting within his powers; AND
2. Trustee was NOT personally at fault.

(N.B. Trustee could also buy liability insurance and charge the cost to the trust!)

Question 5

What is the Trustee’s investment power duty?

Answer 5

Trustee must manage the property of the trust on behalf of the BENEFICIARY, meaning the investment of the corpus of the trust

Question 6

How can Trustee execute on his investment power?

(NY: Uniform Prudent Investor Act)

Answer 6

UPIA gives broad latitute to trustees to choose investments:

Trustee can pursue a “modern portfolio” theory of investment, where trustee creates a “custom-tailored investment strategy” for the trust.

Question 7

What are three factors to remember w/r/t trustee’s investment power?

Answer 7

1. Trustee MUST consider the role of each investment in the overall trust portfolio (N.B. Trustee does not have to look at each investment out of context; he can create a mixed-risk portfolio);
2. Trustee MUST consider the expected total return from income and capital gains; AND
3. Trustee is judged by a BJR-like standard – prudence at the time, not hindsight

Question 8

What is the key to UPIA?

Answer 8

Flexibility! Trustee must be allowed to shape the trust’s investment strategy to maximize total return while balancing income streams and fairness to beneficiaries.