Principal and Income, Administration

Question 1

What are the factors to determine how to balance the allocation of income and principal among beneficiaries?

Answer 1

1. Intent of settlor + trust intrument language
2. Nature, duration, purpose of trust
3. Identities + circumstances of beneficiaries
4. Economic conditions
5. Tax consequences

Question 2

What are the trustee’s duties?

Answer 2

1. Duty of care

2. Duty of loyalty

Question 3

What is the duty of loyalty?

Answer 3

Objective standard to determine whether the trustee acted reasonably

Question 4

What standard is self dealing evaluated under when determining whether there is a breach of duty of loyalty?

Answer 4

Self dealing is per se breach unless trust documents allow self dealing, in which case it must be reasonable and fair

Question 5

What standard is conflict of interest evaluated under when determining whether there is a breach of duty of loyalty?

Answer 5

Assessed under reasonable and good faith test

Question 6

What is the duty of care?

Answer 6

Trustee must act with the care that a person of ordinary prudence would practice in care of own estate

Question 7

How is duty of care applied to functions undertaken by the trustee?

Answer 7

1. Delegation - permitted if unreasonable for trustee to undertake + must oversee
2. Investments - prudent investor
3. Impartiality - treat beneficiaries balanced and fairly

Question 8

What are the trustee’s administrative duties?

Answer 8

1. Duty to inform beneficiaries of nature + trust of property
2. Duty to account on actions + health of portfolio

Question 9

What duties do investors on behalf of the trust have?

Answer 9

1. Duty to diversify

2. Reasonable care, caution, and skill when investing and managing trust assets