Trust Administration

Question 1

What is the duty of loyalty?

Answer 1

No self dealing by the fiduciary (Be able to spot the breaches of fiduciary duty and then be able to talk about the beneficiaries remedies)

Question 2

Residuary estate devised to trustee includes 500 shares of Acme stock. Considering the stock to be an inappropriate holding for the trust, the trustee sells the stock to itself at its market price on the date of sale. (The stock is listed on the New York Stock Exchange so there is no doubt about its value.) The stock goes up in value; what are the trust beneficiaries’ rights?

Answer 2

They can trace and recover the stock for the benefit of the trust
GR: Trustee cannot buy or sell trust assets to itself; Trustee cannot borrow trust funds; Trustee cannot sell assets from one trust to another trust; Corporate trustee cannot purchase its own stock as a trust investment. (But it can retain its own stock if a part of the original trust property – provided it is a permissible investment, must meet the “prudent investor” investment standard); Trustee cannot engage in any transaction in which she seeks to secure a personal gain (*Watch for self dealing in a transaction, where the trustee is on both sides of the transaction )

Question 3

What is the duty to invest prudently or Prudent Investor Rule?

Answer 3

Except as otherwise provided by the terms of the trust, a trustee must manage property as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust and by pursuing an overall investment strategy reasonably suited to the trust. A trustee must adhere to a standard of reasonable care, skill, and caution in making investment decisions. The elements include (Bar exam formula):

1. Duty not to commingle
2. Duty to balance return with potential risk
3. Duty to diversify investments
4. Duty to keep trust productive (To earn a reasonable rate of return on the investment; measured by the portfolio review (net return is positive))

Question 4

What is the Duty to Preserve and Protect Trust Property?

Answer 4

In addition to investing prudently, this duty frequently means that the trustee must insure trust property against casualty losses

Question 5

What is the duty of impartiality?

Answer 5

Absent a trust provision permitting trustee to prefer one beneficiary over another, a trustee must be fair and impartial to all beneficiaries.

Question 6

What is the duty to account and inform?

Answer 6

A trustee has a duty to account periodically (e.g., annually) to the beneficiaries and to keep them reasonably informed about the administration of the trust