Trust Administration

Question 1

What are the three sources of a trustee’s power?

Answer 1

1. The New York Fiduciary Powers Act
2. Court order
3. The trust instrument

Question 2

What is an executor?

Answer 2

The person nominated in the testator’s will to act as personal representative and execute the will provisions

Question 3

What is an administrator?

Answer 3

The person appointed by the probate court as personal representative to administer the estate of a person who dies without a will, or where no executor is named, or where the named executor is unavailable

Question 4

What can a trustee NOT do?

Answer 4

1. Self-dealing
2. Borrow trust funds
3. Continue a business w/o court approval (liable for losses if no approval)

Question 5

What are a beneficiary’s rights to investigate the actions of the trustee?

Answer 5

The beneficiary can demand an accounting from the trustee / executor / administrator

Question 6

Can a trustee buy or sell assets from the trust to himself?

Answer 6

No, this is self dealing

Question 7

Can a trustee borrow trust funds?

Answer 7

No, this is self dealing

Question 8

Can a trustee lend money to the trust?

Answer 8

No, this is self dealing. Any interest earned must be returned to the trust and any security given is invalid.

Question 9

Can a trustee make money from serving as trustee?

Answer 9

Only by reasonable trustee fees. A trustee cannot take advantage of confidential information received while acting as trustee.

Question 10

Can a corporate trustee buy its own stock as a trust investment?

Answer 10

No, this is self-dealing

Question 11

What are the two affirmative duties regarding self-dealing?

Answer 11

1. Duty to keep trust / personal assets apart

2. Duty to earmark trust assets by titling them “in trustee’s name, as trustee”

Question 12

What is the remedy for commingling personal and trust funds?

Answer 12

1. If commingled funds are used to purchase an asset and the value goes down, there is a conclusive presumption that personal funds were used. You take the hit on any losses.
2. If commingled funds are used to purchase an asset and the value goes up, there is a conclusive presumption that trust assets were used and any profit goes to the trust.

Question 13

Can a trustee be removed for breach of a fiduciary duty?

Answer 13

Yes, if sued by the beneficiary

Question 14

Can a beneficiary ratify or waive a breach of a fiduciary duty?

Answer 14

Yes.

Example - prohibited transaction is beneficial to trust

Question 15

What it a surcharge action?

Answer 15

An action by a beneficiary against a trustee for any loss resulting from a breach of a fiduciary duty

Question 16

What is the No Further Inquiry rule?

Answer 16

A breach of a fiduciary duty by self-dealing is an automatic wrong and no further inquiry need be made.

Question 17

What does it mean when there is no further inquiry?

Answer 17

Breaching trustee cannot use defenses such as good faith or reasonableness. It’s like a form of strict liability.

Question 18

Can a beneficiary recover from a third party who is a BFP for value?

Answer 18

No.

Question 19

Can a trustee make loans or sales with a relative?

Answer 19

No, this is indirect self-dealing and likewise prohibited

Question 20

Can a trustee make a loan or sale to a business of which the trustee is an officer, employee, partner, or principle shareholder?

Answer 20

No, this is indirect self-dealing and likewise prohibited

Question 21

Can an exculpatory clause relieve a trustee of liability for breach of a fiduciary duty?

Answer 21

Yes, in a lifetime / inter vivos trust.

No, in a testamentary trust (void against public policy)