Pg 37 Flashcards
What is the default for a trustee’s powers?
Trustees have broad powers to act unless they are restricted by the trust instrument.
What is the difference between a power and the duty when it comes to a trustee?
- duty: mandatory. These are obligations that are put on the trustee either by law or in the trust instrument. I.e.: if the trust has a house in it, and the trustee has a duty to insure the house and pay the mortgage and taxes, he must do that
– power: discretionary. I.e.: if the trust has a house in it, and the trustee has the power to sell the house, he can do that but he doesn’t have to
What are the major powers that the trustee has?
All of the powers that an unmarried owner of property would have, unless specified otherwise. He can sell, mortgage, exchange, or deal with the property like any owner would. The trust document can expand, modify or restrict the default powers.
What is an exculpatory clause within a trust?
If the trust has language in it that says the trustee shouldn’t be liable for his actions, the courts usually limit liability for breaches of duty, but not for exceeding trustee powers. Courts will also not enforce this if it shields the trustee from liability for intentional or grossly negligent conduct. Normal negligence is OK, but not anything that is intentional or egregious.
What is the most fundamental trustee duty?
The duty of loyalty, because it colors how everything else works and everything that the trustee does.
Are the fiduciary duties of a trustee considered to be a specific duty?
No, this is a term that describes the nature of the trustee’s duties, because all of his duties are fiduciary.
What are all of the different duties of a trustee?
C RICE CLIP:
- Commingle
- Records
- Inform and Account
- Collect and Protect
- Earmark
- Claims (bring and defend)
- Loyalty
- Instructions (follow)
- Prudent Investment (duty of care)
What is the rule that you use to determine if the trustee exercised the powers from the trust properly?
Prudent investor rule
What are things that a trustee is entitled to?
– REIMBURSEMENT for expenses that are incurred in the administration of the trust
– reasonable COMPENSATION for the trustee’s efforts
– RESIGNATION. Common law: need all of the beneficiaries’ approval. Modernly: just need 30 days’ notice.
In what circumstance would a beneficiary be able to recover remedies with regard to a trust?
If the trustee breached his duty or exceeded his powers.
Is there usually a right to trial by jury in a suit by a beneficiary against the trustee for breach of the trust?
Not usually
What are the different remedies that are available to a beneficiary if a trustee has exceeded his powers or breached a duty?
- affirm the transaction – avoid the transaction – trace the assets into the hands of third parties to unwind the transaction - declaratory relief – sue the trustee for damages – remove the trustee
In what situation would a beneficiary affirm a transaction of a trustee that breached his duties or exceeded his powers?
If the breach was beneficial to the beneficiary. I.e.: if a house was worth $100,000 and the trustee sold it to himself for $110,000, and then the value dropped to $70,000, that was good for the beneficiaries.
If a trustee breaches a duty or exceeds his powers and a transaction happens with a third-party, is it always possible for beneficiaries to trace the assets into the third-party’s hands and then unwind the transaction?
Not if the third-party was a BFP who paid consideration without knowledge of the breach. If the third-party was a BFP, then the only thing the beneficiary can do is sue the trustee for damages.
What does declaratory relief look like as a remedy for breach of a trustee’s duties or powers?
The beneficiary can go to court to ask the court to stop the trustee from doing something or to order him to do something. I.e.: sell off underperforming assets, diversify, remove the trustee, etc.
If a beneficiary wants to sue a trustee for damages that came from the breach of his duty or the exceeding of his powers, what does the beneficiary have to prove?
Must establish causation between the loss to the trust and the trustee’s breach of duty or exceeding of powers
If a trust has an exculpatory clause that limits the trustee’s liability for breach, is that usually enforced?
Yes, unless the clause’s insertion was wrongfully gotten or it tries to absolve the trustee from liability for intentional or reckless behaviour
If a trustee breaches his duty of prudence, what are the damages a beneficiary can get?
The difference between what the trust currently has in it and what it would have had if the trustee had done what he was supposed to do
What are examples of a trustee imprudently investing?
Keeping an underperforming asset when the trustee should’ve sold it, failing to diversify, etc.
What are the damages the beneficiary can get if a trustee fails to collect trust property?
If the trust loses out on the benefit of having property as part of the trust res, then the beneficiary can get the value of that asset if it is destroyed or gone, or diminution in value if it is damaged.
What are the damages that a beneficiary can get if a trustee fails to protect an asset that is part of the res.
The difference in value between the property currently and what it would have been with adequate protection. This could be the whole value if the item was foreclosed on, lost, stolen, or it could just be diminution in value if the item was damaged
What are the damages that a beneficiary can get if a trustee fails to earmark?
The losses that were caused as a result
What are the damages that a beneficiary can get if a trustee fails to act impartially toward all beneficiaries?
If he favors income beneficiaries over remaindermen, or vice versa, the damages are whatever the beneficiary would be entitled to if the trustee had acted properly.
What are the damages that a beneficiary is entitled to if a trustee fails to inform and account?
The beneficiary can get a court order compelling the trustee to provide accounting and the requested information.
What is the remedy that a beneficiary can get against the trustee if he fails to pursue claims against third parties or co-trustees?
Beneficiary can bring a derivative suit against the third-party, a co-trustee, a predecessor, and any current trustee for failure to pursue the claim and seek damages for all losses that are caused by it. The trustee can then get indemnity or contribution from the first guilty party
What are the remedies the beneficiary can get if a trustee breached his duty of loyalty?
– profit: can recover any profit the trustee made
– loss to the trust: can recover any loss that the trust suffered
– fraud or egregious conduct: if it involves intentional wrongdoing, punitive damages can be given
If a trust is worth $100,000, and a trustee sells a house from the trust for $80,000, then the value goes up to $150,000, if the trust document says that the trustee cannot sell the house, how do you approach this on an essay?
Figure out the difference between the value that the trust currently has and what it would have had if the trustee had done what he was supposed to do. The trust has $80,000, but it should have $150,000, so the damages would be the $70,000 difference.
