Trust Administration Flashcards
Trustee’s source of powers
i. Express powers
1. Granted by OR in trust instrument
2. Provided by state statute
3. Decreed by court
ii. Implied powers—stuff that’s necessary or appropriate to carry out the terms of the trust if those powers aren’t expressly forbidden by the trust. Usually in state statute
1. to sell/ lease trust property
2. Incur reasonable expenses
3. Hire agents
4. Mortgage trust property
5. Repair
Trustee’s exercise of powers
i. If multiple trustees- majority can act
1. some states unanimity required
ii. Mandatory powers—must do so. Pay BE 1k a month or invest in Apple.
iii. Discretionary Powers—OR may permit TE to excersise some powers as TE sees fit.
1. Liability for abuse of discretion or failure to exercise discretion—i.e. just sits back and does nothing.
2. Grant of absolute discretion is subject to court review.
a. Absolute/ unbridled discretion is not possible. Because there wouldn’t be a trust then.
b. Always reviewable for abuse
Trustee’s duties
- administer according to terms of trust.
- duty of loyaly and utmost good faitht. can’t invest socially solely for interestof beneficiary.
- avoid self-dealing other than compensation. can also get compensation for legal work. Trustee nor any family, friends, associates may benefit. good faith in self dealing is irrelevant-
- keep accurate records and render them upon demand
- general standard of care
- investment standard of care
- duty to review trust property
- duty of impartiality b/w beneficiaries
- can delegate duties. still must be reasonable in selecting agent, establishing scope of delegation, review agents’ actions. trustee not liable if delegation is proper.
Trustee general and investment standard of care
e. General standard of care—skill and care of a reasonable person w/r/t trust property
b. Must segreate Trust Property—no commingling. i. if a portion of commingled assets increase in value, it is presumed that the assets of the TRUST are the ones that increase, so TE just gets back what he put in.
f. Investments standard of care—Prudent investor standard
i. OR’s instructions—OR may be able to change the standard.
1. Basic rule—TE must invest as a prudent investor, and consider the following factors
a. Trust purposes
b. Trust terms
c. Distribution reqs—for ex will distribution happen now or in 10 years
d. Other circumstances
3. Portfolio Approach—view all investments together. Each investment doesn’t have to be individually examined (old rule). View in the context of the portfolio as a whole and part of an overall investment strategy having risk and return objectives reasonably suited to the trust. Some speculation is appropriate and even required.
4. Comprehensive factors- overall shape of economy, effect of inflation, tax consequences, role of each investment in portfolio,expected income and appreciation, BE’s tolerance for risk and other resources, BE need for liquidity/regular income, special sentimental attachment to asset and purposes of trust or beneficiary
5. Diversification
a. General rule, diversification is required
b. Exception—TE reasonably determines that because of special circumstances the purposes of the trust are better served without diversifying.
i. For ex farmer’s farm is in a trust. Better to have farm as only investment instead of diversifying.
- Trustee’s conduct viewed at time of decision
a. no hindsight, no Monday morning quarterbacking - Trustee with special skills—bound to use those skills. For ex. lawyer may be held to higher standard. Or if you advertise you have higher standards
- Trutee with lower skills—not a defense
Remedies of beneficiaries
a. Money damages—surcharge the TE personally. TE may be liable for
i. Lost profits
ii. Depreciation in value of trust property
iii. Profits earned by TE
b. Remedies for self-dealing. BE may have a choice.
i. Affirm tx—if trust profited
ii. Set aside tx—if trust lost
iii. Trace profits—if TE profited. Get $ back for the trust.
c. Removal of TE—absent instructions in the trust instrument, the BEs have to go to court
i. Grounds
1. Incapacity
2. Unfit, eg crime conviction
3. Serious breach of trust
4. Serious conflict of interest
5. Insolvency (more likely to embezzle)
6. Extreme hostility between TE and BE, but only if it would interfere with proper administration
a. But some hostility is expected. BE can be greedy.
7. Refusal to post a required bond—some states require bond by TE
8. Refusal to account
ii. Courts consider OR’s intent—for ex. if OR knew TE was in a conflict of interest situation.
d. May resign by giving 30 days notice or court approval.
TE liability to 3P
a. Trust isn’t a legal entity. Cannot sue or be sued. Trustee has obligations to 3Ps though.
i. Liability in K
1. General rule—TE is liable.
2. Exception—provision in contract excluding TE’s personal liability.
Liability in Ks-
TE may be sued personally on the k only if he failed to reveal his representative capacity and identify the trust.
3. Indemnification for TE or reimbursement from trust property—if k was properly entered int for the trust and trustee not in breach.
ii. Liability in torts
2. Under uniform trust code—TE liable only if TE personally at fault
iii. Trust is created as of the OR’s death, and TE’s acceptance relates back to OR’s death date. TE can be liable on tort claims prior to accepting.
