Trust Administration

Question 1

Trustee’s Powers

Answer 1

(1) Unless otherwise limited, trustees have statutory powers including the power to:
a. sell or mortgage an asset
b. lease trust property for a term that extends beyond the term of a trust.
c. borrow money
d. make loans out of trust assets
e. vote shares of stock held in trust
f. settle claims by or against the trust
(2) The trustee has inherent authority to employ agents, make repairs to trust property, and take other similar and related actions that are necessary and appropriate.

Question 2

Discretionary Powers

Answer 2

A trustee must exercise all discretionary powers in good faith and in accordance with the trust and the interests of the beneficiaries.

Question 3

Actions by Co-Trustees

Answer 3

Co trustees may exercise their powers by majority action if unable to agree unanimously.

Question 4

Trustee liabilities and duties

Answer 4

Duty of Reasonable Care
Duty to Invest as a Prudent Investor
Duty of Loyalty
Duty not to Commingle
Duty to Account
Duty of Impartiality

Question 5

Acceptance of duties

Answer 5

Trustee’s liabilities and duties

(1) Acceptance of duties: Once a trustee accepts the trust, he has
a. a duty to take control of the trust property, hold, preserve, and administer it;
b. a duty to enforce claims in favor of the trust and defend actions against the trust; AND
c. a duty to do whatever is necessary and lawful for the preservation of the trust propery.

Question 6

Duty of Reasonable Care

Answer 6

(2) Duty of reasonable care and skill

a. Generally: a trustee shall administer the trust as a prudent person would.

Question 7

Investment Duties

Answer 7

b. Investment duties (prudent fiduciary): if the trustee is authorized to invest, but no standard of investment is provided for, the statutory “prudent investor” rule applies
c. Permissible investments: no limitations on the type of investment—the trust portfolio will be considered as a whole to determine whether overall risk and return are appropriate.
d. Diversification: a trustee must diversify investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.

Question 8

Deviation from Trust

Answer 8

(3) Deviation from trust: The trustee of an inter vivos revocable trust may follow directions from the settlor, even if those directions re different from the terms of the trust.

Question 9

Delegation of Duty

Answer 9

(4) Delegation of duty: A trustee may delegate duties and powers if the delegation is prudent
a. the trustee has a duty to monitor his agent’s conduct
b. the trustee has a duty of care in the selection of agents for the trust.
c. if the trustee complies with the above, he is not personally liable for the agent’s actions.

Question 10

Liability of a Co-Trustee

Answer 10

(5) Liability of a co-trustee
a. A co-trustee is liable to the beneficiary if he participates in a breach of trust with another co-trustee or improperly delegates trust duties or acquiesces in a breach of trust by the co-trustee or fails to use reasonable care (thereby making the co-trustee’s breach possible).
b. If a dissenting co-trustee fails to join in the improper act, he is not liable, even if he joins in the act, provided he gave previous notice of his dissent and the action is not a “serious” breach of trust.

Question 11

Duty of Loyalty

Answer 11

a. A trustee owes a duty of loyalty to the beneficiary and may not profit from the trust outside of permissible compensation for his services.
b. A trustee normally may not by trust property, and such a transaction is void at the option of the beneficiary unless

i. the transaction is specifically authorized by the trust,
ii. the court approves the transaction, OR
iii. the beneficiaries consent to or ratify the transaction.
iv. Fairness of the transaction and good faith of the trustee are not defenses to self-dealing.

c. Any profit realized by a trustee in dealings with the trust belongs to the trust and is held constructively for the beneficiary.

Question 12

Duty of Impartiality

Answer 12

Duty of impartiality: a trustee must act impartially to all beneficiaries.

Question 13

Duty to Account

Answer 13

Duty to account: a trustee has a duty to keep accurate accounts with respect to the administration of the trust

a. the trustee must provide beneficiaries with copies of the trust
b. a beneficiary is entitled to a statement of the account of the trust annually and on termination of the trust or change of the trustee.

Question 14

Duty not to commingle

Answer 14

a. A trustee must keep trust property separate from the
trustee’s own property.
b. A trustee managing two or more trusts may invest the
property of the trusts wholly, provided the records are
kept clearly reflecting the separate interests of each
trust.

Question 15

Payments to the Trustee

Answer 15

(1) Compensation: a trustee may receive payment of reasonable compensation.
(2) If a trustee has used his own funds to pay proper trust expenses, he is entitled to reimbursement out of trust funds.

Question 16

Enforcement against trustee

Answer 16

(1) Judicial power to construe trust: if the trust instrument is unclear as to the powers and duties of the trustee, the trustee may ask the court to interpret the trust and instruct the trustee (except as to matters entirely in his discretion); all beneficial parties must be made parties to such an action.
(2) Probate court has exclusive original jurisdiction over the internal matters of trusts; jurisdiction over matters external to trusts are shared concurrently between the probate and circuit courts
(3) Matters involving trusts may be removed to the circuit court within 10 days of the time for filing responsive pleadings.
(4) A settlor may select the applicable state law to govern the trust.

Question 17

Nature of Remedy

Answer 17

(5) Nature of remedy
a. If the trustee has a clear duty to pay a fixed sum of money, the beneficiary may maintain an action at law.
b. The remedy for all other matters sounds in equity.
c. Beneficiary may seek redress in the courts for breach of fiduciary duty.
d. The settlor traditionally may not sue unless he is a beneficiary.
e. One co-trustee may sue another who has committed a breach, and a successor trustee may sue the trustee replaced.

Question 18

Breach of Trust

Answer 18

(6) Breach of trust
a. The violation by a trustee of a duty owed to a beneficiary is a breach of trust.
b. A trustee is not liable if the trustee has reasonably relied upon the terms of the trust instrument.
c. A trust that purports to hold a trustee harmless from liability is unenforceable to the extent that it attempts to prevent liability for bad faith or reckless indifference or to the extent that it was inserted in a breach of fiduciary duty.

Question 19

SoL and Beneficiary Remedies

Answer 19

(7) Statute of limitations and beneficiary remedies
a. Unless previously barred, a claim against a trustee is barred
i. one year after a beneficiary receives a report or accounting that adequately discloses the potential claim; OR
ii. three years after the first to occur of the following
1. removal, death, or resignation of trustee;
2. termination of beneficiary’s interest;

OR

3. termination of the trust.
   b. The limitations period is not tolled merely because a remainderman’s interest is contingent.

Question 20

Attorney-CLient Privilege

Answer 20

(8) Attorney-client privilege: otherwise privileged conversations are not privileged as against discovery by the beneficiaries of the trust.

Question 21

Trustee Personal Liability to Non-Benficiaries

Answer 21

a. A trustee is not personally liable for claims based on contracts properly entered into by trustee in a fiduciary capacity in the course of administration of the estate, unless the trustee fails to reveal his or her fiduciary capacity
b. A trustee is personally liable for obligations arising from ownership or control of property of the trust estate or for torts committed in the course of administration only if the trustee is personally at fault.

Question 22

(2) Liability of trust estate

Answer 22

a. Claims based on contracts, obligations related to land, or torts committed in the course of trust administration may be asserted against the trust estate
b. Apportionment of liability between the trust estate and the trustee individually may be determined in a separate proceeding.