Self-dealing by fiduciary

Question 1

Another way of saying trustee breached fiduciary duty

Answer 1

commit breach of trust

Question 2

Ways to breach fiduciary duty

Answer 2

self-dealing (2 hats)

acting imprudently

exercising power not given to trustee

Question 3

What can beneficiary do if trustee commits breach of trust? 3 options

Answer 3

1) bring action to remove trustee
2) RATIFY the transaction and WAIVE the breach (e.g. if imprudent investment goes up in value, “thanks for doing such a good job of investing”)
3) sue for resulting loss in SURCHARGE action

Question 4

If surcharge action involves SELF-DEALING, under the NO FURTHER INQUIRY RULE..

Answer 4

breach of fiduciary duty is an AUTOMATIC WRONG, so good faith reasonableness is no defense

Question 5

only issue in self-dealing case is…

Answer 5

measure of damages

Question 6

if trustee BORROWS trust funds and invests proceeds, if value of purchased property goes up in value, beneficiary can…

Answer 6

“trace” and claim the property for the trust via the imposition of a CONSTRUCTIVE TRUST

Question 7

Statute of limitations for action against trustee: 1 year if..

Answer 7

trustee gives ben a REPORT (accounting) that

1) discloses facts that show existence of potential breach of trust
2) informs ben of time allowed for commencing action

Question 8

Statute of limitations for action against trustee: if trustee doesn’t give ben a report, 5 years after the first to occur of (3 things)

Answer 8

1) trustee’s removal, resignation or death
2) termination of ben’s trust interest
3) termination or trust

Question 9

Indirect self-dealing: self-dealing rules also apply to loans or sales by trustee to…

Answer 9

relative

business entity of which trustee is an officer, partner, employee, principal shareholder