Trust Administration and the Trustee's Duties

Question 1

How do you determine trustee’s powers?

Answer 1

Look to document.

Modern trend is to grant trustee all those powers necessary to act reasonably prudent person, including power to transfer, lease trust property, pay taxes, and sever or consolidate trust property.

Question 2

What are a trustee’s duties?

Answer 2

Duty of Loyalty

• Objective
• No self-dealing
• Governed by the no further inquiry rule: if you have self dealt, court does inquire into reasonableness.
• Even if allowed, must still be reasonable and fair.
• Conflict of interest, must be reasonable and good faith.

Duty of Care

• Subjective (good faith)
• Special skills must be used if have.
• Reasonably prudent person.
• Delegation: common law: no. Modern trend: permitted. Duty to oversee.
• Investments: Old Rule: limited to specific list of investments. Modern Rule: prudent investor rule: has discretion, trustee expected to diversify asses to spread the risk of loss.
• Duty of impartiality: trustee has a duty to balance competing interest. Old Rule: life beneficiary gets income, remainder holder gets principal. Modern Rule: the allocation between income and principal must be balanced to treat life tenants and remainder holders fairly.
• Administrative duties: inform beneficiares, duty to account