Powers & Duties of Trustees Flashcards
Trustee’s General Duty
A trustee must administer the trust in 1) good faith, 2) in accorance with the trust purpose and terms, and 3) in the interests of the trust beneficiaries.
Trustee’s Duty of Care
A trustee must administer the trust as a prudent person would by exercising reasonable care, skill, and caution.
A trustee must take reasonable steps to take control of and protect trust property.
Trustee’s Duty of Loyalty
A trustee must administer the trust solely in the interest of the beneficiaries and cannot engage in self-dealing.
Trustee’s Duty of Loyalty: Impartially
If a trust has two or more beneficiaries, the trustee MUST act impartially in investing, managing, and distributing the trust property.
cannot be influenced by favoritism or animosity
Prudent Investor Rule
The trustee must exercise the degree of care, skill, and prudence of a reasonable investor investing in his own property.
* diversify assets
* avoid risky investments
* monitor and keep trust assets productive
Breach of Prudent Investor
Courts consider
1) the distribution requirements of the trust
2) general economic conditions
3) the role investment plays in relationship to trust portfolio
4) need for liquidity, regularity of income, and preservation
Acting With Settlor’s Wishes
Revocable Trust: owes duties only to settlor (during their lifetime)
Irrevocable Trust: owes duties to settlor and beneficiaries
Items Allocated to Income
1) receipt of rental payments
2) money received from entity (cash dividends, interest on investments)
3) ordinary expenses on repairs
4) Proceeds from contract insurance
5) Insurance premiums re loss of principal asset
6) Interest on mortgage payments
Items Allocated to Principal
1) proceeds from sale of a principal asset
2) all property received (other than entity money)
3) extraordinary expenses/repairs
4) estate taxes
5) payment on principal of trust debt
6) payments on prinipal of loan to trust
7) property taxes
Trustee Delegation
A trustee may delegate duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances.
Trustee Delegation Requirements
If a trustee delegates a duty, the trustee MUST excercise reasonable care, skill, and caution in:
1) selecting an agent,
2) establishing the scope and terms of delegation, and
3) periodically reviewing the agent’s actions to monitor compliance
Remedies for Breach of Trust
A court may:
1) enforce specific performance of the trustee’s duties
2) enjoin trustee from comitting breach
3) compel trustee to pay money or restore property
4) suspend or remove the trustee
Damages to Beneficiaries for Breach
Trustee is liable to beneficiaries for greater of:
1) amount necessary to restore trust property
2) the trustee’s profit from breach
