Trust Administration

Question 1

Trustee’s Powers: controlling statute

Answer 1

New York Fiduciary Powers Act (FPA) controls

-sets out powers that can be exercised by a trustee without court order and without express authorization in the trust

Question 2

Trustee’s Powers: powers

Answer 2

Can do almost anything,
EXCEPT:
-Self-deal
-Borrow Money
-Continue a Business (trustee is liable for losses incurred by the business unless trustee has court approval to continue the business)

Question 3

Trustee’s Powers: Self-Dealing

Answer 3

5 prohibitions:

(1) Trustee cannot buy or sell trust assets to himself
(2) cannot borrow trust funds
(3) cannot lend money to the trust (any interest earned must be returned to the trust, and any security given for the loan is invalid)
(4) cannot profit from serving as trustee (except for appropriate trustee fees) (cannot take advantage of confidential information received while acting as trustee)
(5) Corporate trustee cannot buy its own stock as a trust investment

2 affirmative duties on self-dealing:

(1) duty to separate trust assets from personal assets
- remedy for violation when commingled funds are used to buy asset: trust gets increase in value, trustee must incur losses
(2) duty to earmark trust assets by titling them in trustee’s name as a trustee

Question 4

Remedies for breach of fiduciary responsibilities

Answer 4

(1) beneficiary can sue to remove the trustee
(2) beneficiary can ratify the transaction and waive the breach
(3) beneficiary can sue for any loss (called surcharge)

Question 5

No further inquiry rule

Answer 5

Breach of fiduciary duty by engaging in self-dealing is an automatic wrong and no further inquiries need be made.

• good faith is not a defense
• reasonableness is not a defense

Question 6

Actions against third party when trustee engages in prohibited transaction

Answer 6

beneficiary cannot sue a BFP for value without notice
-to prevent BFP status, purchaser has to know that she was dealing with a trustee AND that the trustee was engaging in self-dealing

Question 7

Indirect self-dealing

Answer 7

Self-dealing rules also apply to loans or sales to a relative of the trustee; or to a business which the trustee is an officer; employee; partner or principal shareholder.

Question 8

Exculpatory Clauses

Answer 8

Cannot be used to shield trustee from liability for breach of a fiduciary duty in a testimentary trust (void against public policy)

Can be used in a lifetime trust