Trust Administation

Question 1

Fiduciary Law dictates 2 main duties

Answer 1

Duty of loyalty – forbids self-dealing & adverse conflicts of interest
Duty of prudence – imposes objective reasonableness standard

Question 2

Co-Trustees actions under traditional law

Answer 2

Needed to act with unanimity

Question 3

Co-Trustees actions under modern law

Answer 3

majority can act if 3 or more tt’s

Question 4

Duty of inquiry under CL and UPC

Answer 4

Common law – required 3rd party to make inquiry

UTC §1012 – eliminates duty; replaces with duty to act in good faith

Question 5

no further inquiry rule

Answer 5

once self-dealing is shown, no further inquiry & transaction is voidable by beneficiary;
–> TT’s good faith & reasonableness are irrelevant

Question 6

Defenses for Self-dealing

Answer 6

• -> Settlor authorized the self-dealing transaction

- -> Beneficiaries consented to transaction after full disclosure

Question 7

Exceptions for When bank is TT

Answer 7

• ->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

Question 8

Beneficiary Remedy against Self-dealing TT

Answer 8

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

Question 9

2 additional duties under fiduciary law

Answer 9

Duty of Impartiality

Duty to inform and account

Question 10

5 Administrative requirements under duty of prudence

Answer 10

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]

Question 11

Investment function: prudent person role, traditional view

Answer 11

Traditional: define “prudence” negatively as absence of “speculation,” & then label particular products & techniques as speculative for all time & purposes

Question 12

Investment function: prudent person role, modern view

Answer 12

Modern: prudence measured principally by the process; increased sensitivity to risk tradeoff; diversification; delegation

Question 13

TT’s discretion under distribution function

Answer 13

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

Question 14

Delegation standard for TT

Answer 14

UTC §807 – prudent TT of comparable skill

Question 15

Duty of impartiality

Answer 15

“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

Question 16

Requirement of affirmative disclosure

Answer 16

most states, as in §813(c), impose on TT duty of periodic accounting to beneficiaries

Question 17

TT liability for breach

Answer 17

avoided if facts of breach are fairly disclosed in accounting filed with Court, notice to beneficiaries, and no timely objection.

Question 18

Duty to inform and account

Answer 18

Ongoing duty to keep beneficiaries informed about Trust administration, in particular information needed by beneficiaries to protect their Trust interests. UTC §813