Trust Administration

Question 1

What are the powers of the trustee?

Answer 1

1. Powers expressly conferred by the trust.
2. Powers an individual has over own property unless limited by trust.
3. Powers appropriate to achieve investment, management, and distribution of trust property not forbidden by trust.
4. Powers conferred by UTC unless limited by trust.

Question 2

Powers of co-trustees:

Answer 2

if unable to reach a unanimous decision, must act by majority.

Question 3

Duties of the trustee:

Answer 3

1. duty to administer trust
2. duty of loyalty
3. duty to report
4. duty to separate trust property and keep records
5. duty to enforce claims and defend trust from attack
6. duty to preserve trust property and make it productive

Question 4

Duty to Administer Trust

Answer 4

Must act in good faith and in prudent manner, in accordance w the trust’s terms and purposes and beneficiaries’ interests.

Question 5

Duty of Loyalty

Answer 5

1. Trustee cannot enter into any transaction in which the trustee is dealing w the trust in their individual capacity.
2. Cannot buy assets from or sell assets to the trust
3. Cannot borrow from trust or loan to trust
4. Cannot personally gain through position
5. Corporate trustee cannot buy (but may retain) own stock
6. If duty is breached, transaction is voidable by beneficiary unless:
   a. Transaction authorized by trust or approved by court;
   b. Beneficiary failed to bring suit within prescribed time period;
   c. Beneficiary consented, ratified transaction, or released trustee; OR
   d. Transaction involves contract or claim from before trustee became a trustee.
7. Settlor can waive self-dealing restrictions.

Question 6

Duty to Report

Answer 6

1. Keep beneficiaries reasonably informed.
2. Must:
   a. provide the qualified beneficiaries with the trustee’s name, address and phone number;
   b. respond to beneficiary requests for information about the trust’s administration and provide a copy of the trust instrument if requested; and
   c. furnish an annual accounting of the trust.

Question 7

Duty to Separate Trust Property and Keep Records

Answer 7

1. No commingling with own property or other trusts’ property.
2. If the trustee commingles trust property with their own, losses are charged to the trustee, and gains are credited to the trust.
3. Must keep records of the trust’s administration.

Question 8

Duty to Preserve Trust Property and Make it Productive

Answer 8

1. Investments must be prudent; trustee must use reasonable care, skill, and caution.
   a. Trustees w higher skills are held to higher standard
   b. Trustee must diversify investment
   c. Investment decisions may be delegated if a prudent trustee would do so
2. Prudence elevated in terms of overall strategy.
3. Investment decisions must be evaluated in the context of the entire trust portfolio and as part of an overall investment strategy that has risks and return objectives reasonably suited to a particular trust.

Question 9

If trustee commits breach of trust, court can:

Answer 9

1. order specific performance of trustee’s duties;
2. issue injunction against trustee;
3. compel trustee to pay money or restore property; and
4. suspend or remove trustee.

Question 10

Trustee is liable to beneficiaries for greater of:

Answer 10

amount necessary to restore trust property and distributions to what they would have been absent breach; OR trustee’s profit from breach

Question 11

Trustee’s defenses

Answer 11

1. Trustee acted in reasonable reliance on trust terms
2. Beneficiary consented, released trustee from liability, or ratified transaction

Question 12

Effect of an exculpatory clause:

Answer 12

VOID if they:
(1) relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference; OR (2) appear in the trust instrument bc of the trustee’s abuse of a confidential relationship w the settlor.

Question 13

Liability for co-trustees?

Answer 13

Generally, trustee will not be liable for the acts of co-trustees if the trustee did not join in the action AND exercised reasonable care in preventing the breach of trust or compelling the co-trustee to redress the breach.

Question 14

Trustee must act impartially

Answer 14

trustees must administer trust impartially; must be fair to all beneficiaries.

Question 15

Trustee adjustment power:

Answer 15

1.If the trust calls for distribution of trust income to a beneficiary, the trustee must follow traditional accounting practices by distributing Interest and dividend income to the beneficiary.

2. If such distribution does not effectuate trust purpose and is unfair, trustee may adjust between principal and income.

Question 16

Allocation of Receipts:

Answer 16

1. Income = rental income, interest on bond or CD, money received from entity, liquidating assets and mineral rights – 10% rule.
2. Principal = proceeds of sale of asset, eminent domain awards, capital gains, property other than money received by entity, insurance proceeds where trust is beneficiary, liquidating assets and mineral rights – 90% rule.

Question 17

Allocation of Expenses:

Answer 17

1. Income = one-half trustee and consultant compensation; one-half accounting and legal expenses; ordinary expenses (interest payments on debt, ordinary repairs, taxes, insurance premiums).
2. Principal = one-half trustee and consultant compensation; one-half accounting and legal expenses; principal payments on debt; environmental costs.