Trust - Trustee's Fiduciary Duties

Question 1

Remedy for Breach

Answer 1

Trustee is personally liable.

Surcharge: Beneficiaries can sue trustee to have him pay damages suffered by trust:
* amount necessary to restore trust property
* amount of the distribution they would’ve received without breach
* if trustee engaged in self-dealing, any profit made by trustee

Removal: Beneficiaries can ask court to remove trustee

Question 2

Trustee’s Duties

Answer 2

Duty to Administer Trust
* Must administer in good faith and prudent manner in accordance with terms of trust

Duty of Loyalty - Self-Dealing
* Owes duty of undivided loyalty to trust and beneficiaries
* Can’t enter transaction involving trust
* Cannot borrow or use trust funds for herself

Duty of Care - Prudence
* Must exercise care and diligence that reasonably prudent person would in managing own property

Duty of Impartiality
* If more than one beneficiary, trustee must act impartially and can’t favor one beneficiary

Duty of Fairness to ALL Beneficiaries
* If trust has successive beneficiaries, trustee has duty to both income beneficiaries (that trust property produces income) and remaindermen beneficiaries (that value of trust property won’t fall)

Duty to Separate Trust Property
* Trust assets must be kept separately from trustee’s personal assets
* If he doesn’t, any loss presumed to be that of trustee, not trust

Duty to Preserve Trust Property
* Must protect and preserve trust property
* Must make property productive, which includes duty to invest them within reasonable time and continually review investments

Duty to Diversify
* Must diversify trust investments

Duty to Account
* Must keep and render accounts
* Must provide information to beneficiaries upon request

Question 3

Duty to Invest

Answer 3

Uniform Prudent Investor Act: Trustee must invest and manage trust assets as as a prudent investor would
* Prudence is based on overall investment strategy, not each individual investment
* Must make investments within reasonable time of receiving trust assets

Must take into account:
1. general economic conditions
2. inflation/deflation
3. tax consequences
4. role each investment plays in trust portfolio
5. expected total return from income/appreciation of capital
6. beneficiaries’ other resources
7. need for liquidity, regular income, and preservation/appreciation of capital
8. asset’s special relationship/value to trust purpose or a beneficiary

Question 4

Co-Trustees

Answer 4

Each co-trustee owes beneficiary duty of prudent participation in administering trust
* Must act unanimously in administering trust
* One co-trustee can’t delegate full administration of trust to another

Question 5

Third Party

Answer 5

If third party knowingly participates in breach of trust, becomes liable for loss to trust estate

If third party innocently participates, only must return trust property that was transferred to him (or if exchanged, restore value of trust property)

Question 6

Defenses

Answer 6

Consent: If beneficiaries expressly/impliedly consented to breach, can’t sue
* Mere failure to object to breach isn’t consent

Laches: Must sue within reasonable time

Discretion: If trustee’s action was within broad discretion granted to him, it’s OK

Support Trust: If trust intended to support a beneficiary, then it’s OK to favor that beneficiary over others