Powers & Duties of Trustees

Question 1

What does the trustee duty to administer the trust entail?

Answer 1

Must continue to administer trust until trust terminates and must hold trust assets until remaindermen are determined

Question 2

What are the common law duties owed by trustees to beneficiaries?

Answer 2

Duty to act with care, skill, and prudence

Question 3

What are the three requirements for administration if trusts under the UTC?

Answer 3

1. Good faith
2. In accordance with trust purpose and terms; AND
3. In the interests of the trust beneficiaries (even if the trust grants trustee broad “absolute” or “uncontrolled” discretion)

Question 4

What is the trustee duty of loyalty?

Answer 4

The trustee must administer the trust solely in the interest of the beneficiaries and cannot engage in self-dealing

Question 5

Based on the duty of loyalty, when is a transaction involving trust property voidable by a beneficiary?

Answer 5

A transaction involving trust prop that is entered into by the trustee for the trustee’s own benefit or that is affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction.

Question 6

Can a beneficiary seek damages for a trustee’s self-dealing?

Answer 6

Yes

Question 7

What are the five exceptions to the rule against self-dealing transactions by trustees?

Answer 7

1. If transaction authorized by terms of trust;
2. If transaction approved by court;
3. The beneficiary did not commence a judicial proceeding within required time;
4. The beneficiary consented to the conduct, ratified the transaction, or released the trustee of liability; OR
5. The transaction occurred before the person became a trustee

Question 8

What is the prudent investor rule/trustee duty of care?

Answer 8

Requires that a trustee exercise the degree of care, skill, and prudence of a reasons me investor investing his own property

Examples: diversifying trust assets, avoiding risky investments, and the duty to monitor investments and sell and reinvest investments as necessary to keep the trust assets productive

Question 9

Name some factors that a court must consider when assessing whether a trustee has breached his duty of care/the prudent investor rule

Answer 9

1. Distribution requirements of trust;
2. General economic conditions;
3. The role the investment plays in relationship to the trust’s overall investment portfolio; and
4. The trust’s need for liquidity, regularity of income, and preservation or appreciation of capital

Question 10

What items MUST be allocated to income?

Answer 10

1. Receipt of rental payments from real or personal property;
2. Money received from an entity (cash dividends, interest on investments);
3. Ordinary expenses and repairs

Question 11

What items MUST be allocated to principal?

Answer 11

1. Proceeds from the sale of a principal asset;
2. All other property received (other than money received from an entity);
3. Extraordinary expenses and repairs—those due to unusual or unforeseen occurrence that is beyond usual, customary, or regular kind