Trust Administration and Trustee's Duties Flashcards
When can a third-party be liable for their role in the breach of a trust?
Third-parties must
-> act in good faith and give valuable consideration
AND
-> they are not liable if they act without actual knowledge that such action constitutes a breach of the trust
What is the rule regarding the trustee’s powers?
The trustee has the powers necessary to a ct as a reasonably prudent person in managing the trust (e.g., revoke, withdraw, or modify), including the implied power to K, sell, lease, or transfer the trust property.
What is the rule with regards to a trustee’s duty of loyalty and good faith?
Duty to administer the trust in good (subjective standard) AND to act reasonably (objective standard) when investing property and otherwise managing the trust solely in the best interests of the beneficiaries.
When does a conflict arise with regards to the actions of a trustee?
When the trustee personally engages in a transaction involving trust property, a conflict of interest arises between the trustee’s duties to the beneficiaries and her own personal interest.
What are prohibited transactions the trustee cannot do under self-dealing?
Prohibited transactions
-> buying or selling trust assets (when trustee is personally involved)
-> selling property between trusts that the trustee manages
-> borrowing from or making loans to the trust
-> using trust assets too ecure a personal loan
-> engaging in prohibited transactions with friends or relatives
OR
-> otherwise acting for personal gain through the trustee position
What type of presumption is established when trustee commits acts of self-dealing?
Is there further inquiry into the matter?
It is an irrefutable presumption that the trustee breached the duty of loyalty when self-dealing is an issue.
No further inquiry into the trustee’s reasonableness or good faith is required because self-dealing is a per se breach.
What exception exists with regards to self-dealing transactions?
Is there a limitation on the exception?
Even when self-dealing is authorized (by the settlor, court order, or all beneficiaries)
-> the transaction must still pre reasonable and fair to avoid liability for breach
What is a conflict of interest and under what standard is it assessed?
Assessed under the “reasonable and in good faith” standard if an alleged conflict of interest cannot be characterized as self-dealing.
What is the duty of prudence?
The trustee may delegate responsibilities if it would be unreasonable for the settlor to require the trustee to perform such tasks
-> HOWEVER, a critical function concerning the property is discretionary and not delegable
What is the trustee’s duty to oversee decision?
The trustee can delegate the determination of management and investment strategies BUT must oversee the decision-making process.
What is the prudent investor rule under trust investments?
What factors are looked at to determine compliance?
Requires the trustee to act as a prudent investor would act when investing his own property (putting less emphasis on risk level)
-> the trustee must exercise reasonable care, caution, and skill when investing and managing trust assets.
Factors considered in determining compliance include:
-> trust’s distribution requirements
-> general economic conditions
-> investment in relation to the trust’s overall investment portfolio
-> trust’s need for liquidity, income regularity, and preservation or appreciation of capital
What is a trustee’s duty to diversify?
The trustee must adequately diversify the trust investments in order to spread the risk of loss under a total performance portfolio approach, but not if administrative costs would outweigh the benefits.
What is a trustee’s duty to make property productive?
A trustee has a duty to make property productive by
-> pursuing all possible claims
-> deriving the maximum amount of income from investments,
-> selling assets when appropriate
-> securing insurance
-> paying expenses
AND
-> acting within a reasonable period of time in all matters
What is a trustee’s duty to be impartial?
A trustee’s duty to be impartial does not require that the trustee treat each beneficiary equally, BUT it does require a trustee not to be influenced by favoritism or animosity
-> the trustee must balance the interests of the present and future beneficiaries by investing property so that ir produces a reasonable income while preserving the principal for the remainder men
AND
-> sell trust property within a reasonable time if a failure to diversify would be inconsistent with the total performance portfolio approach.
What is the trustee’s duty to disclose and duty to account?
Duty to disclose
-> complete and accurate information about the nature and extent of the trust property, including allowing access to trust records and accounts, if the trustee intends to sell a significant portion of the trust assets
Duty to account
-> must periodically account for actions taken on behalf of the trust so that the trustee’s performance can be assessed against the terms of the trust
