Principal and Income Allocation and Trustee Liability

Question 0

Adjustment Power - factors guiding trustee’s exercise of power

Answer 0

1. nature, purpose, expected duration of trust
2. intent of the settlor
3. identity and circumstances of beneficiaries
4. need for liquidity, regularity of payment, preservation of capital
5. type of assets held in trust

Question 1

Uniform Principal and Income Act

Answer 1

NY has adopted and act recognizes best investments may not realize “trust accounting income”

act imposes a duty of fairness to all beneficiaries when allocating receipts unless instrument indicates otherwise

Act also spells out trustee’s adjustment power

Question 2

Who can commence action against trustee for breach of trust

Answer 2

only beneficiaries or their guardians ad litem

Question 3

settlor interest in the trust once delivery of trust assets have been made

Answer 3

NONE

Question 4

Surcharge Action

Answer 4

action by beneficiaries that holds trustee personally liable for breach of trust

beneficiaries may also waive breach

Question 5

Actions are remedies available to beneficiaries against trustee for breach of duty of loyalty

Answer 5

self dealing - court can compel trustee to return any assets acquired with trust funds
or
recover profits made with trust assets
or
where commingled assets are used, he is liable for any appreciation or profits from funds

Question 6

Trustee liability for funds removed from trust that have been dissipated or are no longer identifiable

Answer 6

value of property and interest that could have been earned

Question 7

Trustee liability for damages for

Answer 7

1. losses resulting from improper investments
   losses cannot be offset by profits made from other imprudent investments
   EXCEPT
   losses and gains are attributable to a single transaction
2. failure to take reasonable steps to make assets productive

Question 8

Indemnification of trustee

Answer 8

trustee can obtain indemnification from trust to the extent of his personal liability to 3rd parties

Question 9

Trustee Liability for Torts

Answer 9

personally liable for torts committed by himself or his agents in the course of performing duties

may obtain reimbursement from trust where not personally at fault - strict liability, respondeat superior

where indemnification is appropriate, trustee remains liable if trust res is insufficient to pay plaim

Question 10

Trustee liability for contracts

Answer 10

specifically liable on contracts entered into on behalf of trust unless specific and explicit disclaims liability in writing

personally liable for contracts exceeding authority

Question 11

Indemnification for liability incurred by trustee for contracts

Answer 11

implied right of reimbursement for contracts that are for benefit of trust and within trustee’s authority

trustee remains liable if trust res is insufficient

where trust alone is liable on a contract, creditors must proceed directly against trust