TRUST ADMINISTRATION Flashcards
Trustees
Trustees have enumerated powers and implied powers (do what is appropriate to carry out the trust purpose).
Trustees Powers
Sell any real or personal property, mortgage property, lease, make ordinary repairs, contest, compromise or settle claims, manage the corpus of the trust.
A trustee CANNOT: self-deal, borrow money against the trust or for it, continue a business – trustee is liable for losses incurred by the business unless trustee has court approval to continue business.
Trustees Duties
Loyalty, Care (RPP), Earmark (label trust prop), Invest, Segregate (no commingling), Delegate (no delegating decision making; can rely on professional opinions), Account (stmt to benes of income & expenses), Make Res Productive, Fairness to Beneficiaries, diversify.
Self-Dealing
Five prohibitions:
(1) cannot buy or sell trust assets to themselves or to the trust;
(2) cannot borrow trust funds from or for the trust;
(3) cannot lend money to the trust;
(4) profit from serving as trustee (except for appropriate trustee fees);
(5) corporate trustee can’t buy its own stock as a trust investment. Two affirmative duties: Duty to (1) segregate trust assets from personal assets; (2) duty to earmark trust assets by titling them in trustees name. A BFP cannot be sued by the beneficiary if they purchased for value w/o notice.
Trustees Duty of Loyalty
Trustee must not engage in self-interested transactions.
Trustees Duty of Care
Must act as a reasonably prudent person dealing with his own affairs.
Trustees Duty to Invest
Some jurisdictions have lists which a trustee must follow in the absence of directions in the trust with regard to investments. Under the common law prudent person test, the duty to invest requires the trustee act as a reasonably prudent person investing his own property, trying to maximize income while preserving corpus.
Remedy for Breach
When a trustee breaches his duties, beneficiaries can:
(1) choose to ratify the breach;
(2) sue to remove the trustee;
(3) sue the trustee for any losses (Surcharge action).
Uniform Prudent Investor Act.
The trustee must invest as a prudent investor, and performance is measured in the context of the entire trust portfolio. Factors considered in making investment decisions:
(1) general economic conditions;
(2) possible effect of inflation or deflation;
(3) expected tax consequences of investment decisions or strategies;
(4) diversification.
Liability of Trustee to 3P (Contract)
Contracts. In dealing with liability of contracts, look to see how the trustee signed the K: if signed only on behalf of trust, no personal liability; signed personally and merely mentioned trust = personal liability.
Will Trustee be liable to the trust - Ask – was the K within power of trustee and was he acting in the course of proper administration of trust? Trustee can be indemnified if he was acting within his powers and is not personally at fault.
-Modern Rule. If the 3P knows the trustee is entering into the contract in his representative capacity, then the trustee must be sued in his representative capacity and is NOT personally liable.
Liability of Trustee to 3P (Torts)
Trustee is liable in tort when committed in his personal capacity, but the trustee can be indemnified from the trust assets if
(1) acting within trustee powers and (2) not personally at fault.
Modern Rule: The Trustee can be sued in his individual capacity only if the trustee is personally at fault, BUT if an agent committed the act, the trustee can only be sued in his representative capacity.
Exculpatory Clauses
Cannot be used to shield trustees from liability for a breach of a fiduciary duty in a testamentary trust because relieving an executor or testamentary trustee from liability for negligence is void as against public policy. However, can be used in a lifetime or inter vivos trust.
