Trust Administation Flashcards
Fiduciary Law dictates 2 main duties
Duty of loyalty – forbids self-dealing & adverse conflicts of interest
Duty of prudence – imposes objective reasonableness standard
Co-Trustees actions under traditional law
Needed to act with unanimity
Co-Trustees actions under modern law
majority can act if 3 or more tt’s
Duty of inquiry under CL and UPC
Common law – required 3rd party to make inquiry
UTC §1012 – eliminates duty; replaces with duty to act in good faith
no further inquiry rule
once self-dealing is shown, no further inquiry & transaction is voidable by beneficiary;
–> TT’s good faith & reasonableness are irrelevant
Defenses for Self-dealing
- -> Settlor authorized the self-dealing transaction
- -> Beneficiaries consented to transaction after full disclosure
Exceptions for When bank is TT
- ->Bank TT to deposit Trust fund w/ its own banking dept.
- ->Institutional TT may invest Trust assets in a common fund or mutual fund that it operates
Beneficiary Remedy against Self-dealing TT
1) Hold TT accountable for any profit made on transaction
2) . If TT bought trust property, compel TT to restore it to Trust
3) . If TT sold his own property to Trust, compel TT to repay purchase price and take back property
2 additional duties under fiduciary law
Duty of Impartiality
Duty to inform and account
5 Administrative requirements under duty of prudence
1) . Duty to collect & protect Trust property [UTC §809]
2) . Duty to earmark Trust property [UTC §810(c)]
- —>TT must designate as Trust property rather than his own
3) . Duty not to commingle Trust funds w/ TT’s own funds
- ->TT guilty of breach of Trust if commingles [UTC §810(b)]
4) . Duty to keep adequate records of administration
- ->Higher standard of care for professional TTs [UTC §806]
5) . Duty to bring & defend claims [UTC §811]
Investment function: prudent person role, traditional view
Traditional: define “prudence” negatively as absence of “speculation,” & then label particular products & techniques as speculative for all time & purposes
Investment function: prudent person role, modern view
Modern: prudence measured principally by the process; increased sensitivity to risk tradeoff; diversification; delegation
TT’s discretion under distribution function
TT Discretion: even if TT’s discretion is described as sole, absolute, or uncontrolled, it is not in fact absolute.
—>Beneficiary can always call TT to account
UTC §814 – TT must exercise discretion in good faith and in accordance with Trust’s terms
Delegation standard for TT
UTC §807 – prudent TT of comparable skill
Duty of impartiality
“If a Trust has 2 or more beneficiaries, the TT shall act impartially in investing, managing, and distributing to the Trust property, giving due regard to the beneficaries’ respective interests.” UTC §803
–>Not aptly named; not equality but balancing by giving due regard to beneficiaries’ respective interests
Requirement of affirmative disclosure
most states, as in §813(c), impose on TT duty of periodic accounting to beneficiaries
TT liability for breach
avoided if facts of breach are fairly disclosed in accounting filed with Court, notice to beneficiaries, and no timely objection.
Duty to inform and account
Ongoing duty to keep beneficiaries informed about Trust administration, in particular information needed by beneficiaries to protect their Trust interests. UTC §813
