Pg 36

Question 1

What is involved in the duty to inform and account?

Answer 1

Duty to promptly respond to a reasonable request by beneficiaries for information at any time

Question 2

What is the rationale for allowing beneficiaries to make a reasonable request to a trustee for information at any reasonable time?

Answer 2

The beneficiaries must be able to protect their interest in the trust and have access to information that is related to that interest.

Question 3

Can a trust document limit of beneficiary’s right to information?

Answer 3

Yes, but it cannot eliminate that right completely because a settlor cannot override a beneficiary’s right to information that is reasonably necessary to protect his interest in the trust

Question 4

What is the exception to the duty to inform and account for blind trusts?

Answer 4

When a settlor deliberately keeps a beneficiary uninformed about a trust investment for public confidence in the integrity of his decisions as a government official, then the trustee, for his own protection, gets the opinion of counsel.

Question 5

What is the remedy for the breach of the duty to inform and account?

Answer 5

The beneficiary can get a court order compelling the trustee to provide an accounting and the requested information. If the breach caused loss to the trust because the beneficiary could’ve discovered a bad investment sooner, then damages can be gotten.

Question 6

What is involved in the trustee’s duty to earmark trust property and not to commingle trust property with non-trust assets?

Answer 6

Trust property should be designated as trust property so that the world knows and acknowledges it as trust property and it is distinct from the trustee’s own property. This means a deposit in a bank to be made in a separate account in the name of the trustee as trustee, and title to land should be taken and recorded the same way

Question 7

If an asset, such as real property, is recordable, what does the trustee have to do?

Answer 7

Record title in his name “as trustee of the trust“ and not in his own individual capacity

Question 8

If an asset is money, what must the trustee do with that money?

Answer 8

He must put it in a separate at bank account in his name “as trustee of the trust“

Question 9

If there is no way for a trustee to earmark property, what must a trustee do?

Answer 9

Keep adequate internal records to be sure that he can identify and keep the trust property distinct

Question 10

What is the rationale for the duty to earmark and not to commingle trust property?

Answer 10

If there is a profit or loss, you must be able to allocate that to the trust

Question 11

If a trustee invests trust assets in the stock market and some of his own money too, and then some of the stock goes up and some of it goes down, if the trust property isn’t earmarked, what happens?

Answer 11

The trustee could say that the good stock was his in the bed stock was the trust’s.

Question 12

What are the two major reasons for the trustee of a trust to have a duty to earmark and not commingle?

Answer 12

• it is important to keep track of losses and profits for the trust
  – it helps stop creditors of the trustee from trying to collect against the trust property

Question 13

Since trust property is technically in the trustee’s name, what stops the trustee’s creditors from reaching it?

Answer 13

Even though it looks like the trustee has title because legal title is in his name, the beneficiaries have equitable title

Question 14

If a trustee loses assets because he didn’t earmark them, what happens?

Answer 14

He is liable to the beneficiaries for those assets

Question 15

If a trustee commingles trust assets with his own, what happens?

Answer 15

That is a breach of the duty to earmark and not to commingle, and the beneficiaries can get a court order to compel the trustee to sever the interests and probably to get the trustee removed

Question 16

Modernly, if a beneficiary wants to sue a trustee for damages from commingling or failure to earmark, what must he prove?

Answer 16

Causation

Question 17

If a trust has jewellery and the trustee stores it in his own safety deposit box with his own jewelry, and then the bank explodes and everything in the box is destroyed, is the trustee in trouble for failure to earmark?

Answer 17

No, because even if the trust property had been in its own box, it still would’ve been destroyed, so the trustee’s action didn’t cause the damages, and since the modern view says that the beneficiary must prove causation, that’s not possible here.

Question 18

Is it possible for a trustee to pool trust property for investments?

Answer 18

Yes, the trustee can join investments from separate trusts if he maintains clear records of the respective interests. Pooling assets from multiple trusts can get better investment opportunities, more interest, and greater diversification

Question 19

What is a remedy for breach of a duty to earmark?

Answer 19

– old authority: if the trustee committed breach by not earmarking, the trustee would be strictly liable for any loss, even if it wasn’t caused by the failure to earmark
– modernly: the trustee is liable only if the loss results from failure to earmark and not liable for loss from general economic conditions.

Question 20

What are the damages for the breach of a duty to earmark or duty not to commingle trust property?

Answer 20

The losses that were caused as a result

Question 21

What is involved in the trustee duty to collect and protect trust property?

Answer 21

The trustee must take reasonable steps to take control of and protect the trust property in a way that is reasonable depending on the circumstances.

Question 22

What is the difference between the responsibility of a trustee if he negligently fails to collect and protect trust property versus if he intentionally fails to do that?

Answer 22

– negligence: breach of duty of prudence

– intentional: breach of loyalty and duty of prudence

Question 23

What all is involved in the duty to collect and protect trust property?

Answer 23

• physically secure property in a secure location
  – provide financial protection through insurance or payments
• pay taxes, mortgage payments, maintain and keep up the property to mitigate depreciation
  – administrative functions like recordkeeping

Question 24

What is involved in the prudent investor rule as a subset of the duty to collect and protect trust property?

Answer 24

This requires a trustee to invest and manage funds of the trust as a prudent investor would in light of the purposes, terms, distribution requirements, and other circumstances of the trust. He doesn’t need to be an expert, he just has to be a reasonably prudent person

Question 25

What is the remedy for the breach of a duty to collect and protect trust property by a trustee?

Answer 25

If the trust loses out on the benefit of having property as part of the trust res, then it gets the value of that asset. Damages are the difference in value between the property currently and what it would’ve been with adequate protection. This can be the whole value if it was foreclosed on, lost, stolen, or diminution in value if it was damaged

Question 26

What is involved in the trustee duty to bring and defend claims?

Answer 26

Trustees have a duty to use the legal process to protect trust assets. This means they must bring or defend claims against third parties. Because valid legal claims against others are considered property of the trust, the trustee has an obligation to protect them. But the trustee can consider the cost-benefit of bringing and defending claims and must make the best economical decision for the trust

Question 27

Does a trustee have a duty to pursue claims against former trustees or co-trustees?

Answer 27

Yes. Once the trustee takes over he must apprise himself of what the trustees before him were doing and he must monitor what co-trustees do. If he knows about or should’ve known about something untoward, he has an obligation to pursue available remedies for the trust. This could involve having a trustee removed, suing for damages, etc. If a trustee refuses to sue, the beneficiaries can bring a derivative suit

Question 28

Who are people that a trustee may have a duty to pursue a legal claim against?

Answer 28

• a contractor that did bad construction work on a house owned by the trust
  – a previous trustee that didn’t pay property taxes on the trust house and now the trust it owes penalties
  – a co-trustee that used a trust house as collateral for a personal loan

Question 29

What are the remedies for breach of the duty to bring and defend claims?

Answer 29

Beneficiaries can bring a derivative suit against a third-party, co-trustee, or predecessor, plus any current trustee for failure to pursue a claim and seek damages for all losses caused by it. The trustee can then seek indemnification or contribution from the first guilty party