Trust Administration

Question 1

Appointment of Trustee

Answer 1

Appointment -

1. Trust may appoint or court may appoint if unnamed;
2. Co-trustees must act unanimously (unless the instrument states otherwise)

Question 2

Resignation of Trustee

Answer 2

Resignation -

1. The trustee is unable to continue due to illness, etc.
2. Trust requires greater responsibilities than originally agreed;
3. Disagreement with beneficiary that is detrimental to trust,
4. The trustee’s resignation will result in substantial FINANCIAL BENEFIT and SAVINGS
5. There’s another co-trustee, so resignation wouldn’t be harmful, or
6. Resignation wouldn’t SUBSTANTIALLY DISADVANTAGE the trust.

Question 3

Duty of Loyalty of Trustee

Answer 3

ABSOLUTE DUTY OF LOYALTY

• The trustee’s fiduciary duty is to act with undivided loyalty
• Prohibited from ANY self-dealing (Good faith is NO DEFENSE)
• Can’t co-mingle funds in private trusts (but CAN in commercial trusts to maximize profits)

Question 4

Trustee’s Duties

Answer 4

1. Duty to keep beneficiaries reasonably informed and to render accountings (at least once annually)
2. Duty to distribute trust income at least annually (unless provided otherwise)
3. Duty not to delegate any investment/management duty unless the trustee uses reasonable care, skill, and caution in SELECTING and SUPERVISING the agent
4. Duty to use reasonable business judgment in administering the trust and to use any special skills that the trustee might have.

Question 5

Trustee’s Investment Duties

Answer 5

1. Standard of Prudence - Trustee must exercise the judgment and care, under the circumstances then prevailing, that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation, considering probable income and safety of capital.
2. Portfolio Management - Court looks at the performance of the entire portfolio of investments. You can (in GA) invest in every kind of investment, real, personal, and mixed.

Question 6

Factors Considered in Making Investment Decisions

Answer 6

1. General economic conditions
2. Anticipated tax consequences
3. Anticipated duration of the account
4. The needs of the beneficiary
5. The size of the trust corpus
6. The intent of the settlor
7. The nature and duration of the trust

Question 7

Specific Duties of Trustee

Answer 7

1. Duty not to speculate;
2. Duty to maintain marketability;
3. Duty to keep trust productive;
4. Duty to diversify;
5. Duty not to delegate investment decisions without careful selection and oversight of the agent;
6. Duty not to co-mingle (unless corporate trustee)
7. Duty of impartiality

Question 8

Allocation

Answer 8

Where a trustee balances responsibility to both income and principal beneficiaries by investing in income producing assets as well as long-term principal enhancement.

Question 9

Georgia Flexible Trust Income Act

Answer 9

Act that allows the trustee to characterize assets, such as capital gains, as income whenever the income portion of the trust is so small as to be unfair to the income beneficiary. Thus, trustee has power to:

1. Power of Adjustment - Can allocate property as to income or principal and vice versa.
2. Power to Convert to Unitrust

Question 10

Unitrust

Answer 10

A trust that pays out a certain percentage of the assets every year, regardless of whether that percentage represents the actual income earned.

• Statutory rate is 4% (trustee can have between 3-5%)
• Must be court approval OR approval from ALL of the beneficiaries

Question 11

Charges Against Income and Principal

Answer 11

Generally, the following are paid from the income of the trust:

a) ordinary expenses of administration;
b) one-half of the trustee’s compensation;
c) Income taxes;
d) One-half of the cost of any accountings.

*All other charges are made against the principal

Question 12

Causes of Action Available Against Trustee

Answer 12

Causes of action for breach of trust:

a) To recover damages - loss, depreciation, court costs, atty fees, any profit made, etc.
b) To compel a trustee to perform;
c) To enjoin the trustee from the breach;
d) To compel the trustee to redress the breach;
e) To appoint a temporary trustee;
f) To remove the trustee; or
g) To deny the trustee any compensation

Question 13

Damages with which the Trustee May be Charged

Answer 13

1. Loss or depriciation value caused by the breach
2. Any profit made by the trustee
3. Any other amount that would have accrued absent the breach
4. In the court’s discretion, court costs and attorney fees

Question 14

Limiting or relieving liability for trustee?

Answer 14

No provision in a trust may relieve a trustee from liability for a breach of trusts that is committed:

1. In bad faith
2. Intentionally
3. With reckless indifference