Trust Administration

Question 1

What are the Trustee’s powers?

(NY Fiduciary Powers Act)

Answer 1

Trusttee can do almost anything, e.g.,

1. Sell any real of personal property;
2. Mortgage property;
3. Lease property;
4. Make ordinary repairs;
5. Contest, compromise, or settle claims; AND
6. Do almost anything to MANAGE the corpus of the trust

(BUT see exceptions!)

Question 2

What are the three things a trustee MAY NOT do?

Answer 2

1. Engage in self-dealing;
2. Borrow money on behalf of the trust; OR
3. Continue to run a business placed in the trust (unless given court permission)

Question 3

What are the five prohibitions on Trustee self-dealing?

Answer 3

A trustee cannot:

1. Buy assets from the trust OR sell assets to the trust;
2. Borrow trust funds;
3. Lend money to the trust;
4. Profit from serving as trustee (except any appropriate trustee fees); OR
5. If a corporate trustee, buy its own stock as a trust investment

Question 4

What are two affirmative duties for trustees w/r/t self-dealing?

Answer 4

Trustees have the affirmative DUTY to:

1. Segregate trust assets from personal assets (If commingled funds are used to buy an asset and asset value goes down, conclusive presumption is that personal funds were used; if asset value goes up, conclusive presumption that trust funds were used)
2. Earmark trust assets by titling them in trustee’s name

Question 5

What are the three remedies for breach of fiduciary responsibilities w/r/t trusts?

Answer 5

1. Beneficiaries can sue to remove trustee;
2. Bs can ratify an improper transaction and waive the breach; OR
3. Bs can sue for any loss (a “surcharge action”)

Question 6

What is the no further inquiry rule w/r/t breaches of fiduciary duties in a trust?

Answer 6

If a trustee breaches his fiduciary duty by engaging in self-dealing, it is an AUTOMATIC WRONG.

• Good faith is NOT a defense.
• Reasonableness is NOT a defense.

Question 7

What if a trustee engages in self-dealing and sells trust property to a third-party?

Answer 7

If buyer is a bona fide purchaser (buyer for value without notice of title on the property), Beneficiary CANNOT sue!

Question 8

What must be true to keep a purchaser in a self-dealing transaction with a wrong-doing trustee from being a BFP?

Answer 8

To keep him from being a BFP, purchaser MUST know:

1. He was dealing with a trustee; AND
2. Trustee was engaging in self-dealing.

Question 9

When can an exculpatory clause be used?

Answer 9

Cannot be used to shield a trustee from liability for breach of fiduciary duty in a testamentary trust, BUT

Can be used for that purpose in a lifetime/inter-vivos trust.