Trustee Duties Flashcards
Fiduciary Duties
The trustee is charged with safeguarding the trust property, and following the settlor’s instructions. He acts as a fiduciary, and has all of the powers set forth in the trust, and all powers necessary to act as a reasonably prudent person in managing the trust.
The trustee has a duty to administer the trust in good faith, in accordance with its terms and purposes, and in the interests of the beneficiaries. He must exercise good judgment, and any decision he makes based exclusively on personal reasons unrelated to the settlor’s goals can be overturned.
Duty of Impartiality/Loyalty to Remaindermen
A trustee owes a duty of loyalty to all the beneficiaries. He must balance the interests of the present and future beneficiaries by investing the property so that it produces a reasonable income while preserving the principal for the remaindermen.
Duty of Loyalty : Self Dealing/Conflict of Interest
A trustee has a duty to act solely in the best interests of the beneficiaries when managing the trust. When a trustee buys or sells trust assets for his own benefit, he breaches the duty of loyalty Also, a trustee has a duty to act in good faith and must act reasonably in executing their duties. If a trustee engages in self-dealing, courts apply the “no further inquiry rule,” wherein the trustee’s good faith and reasonableness of the transaction are irrelevant.
But, if self-dealing is authorized either by the trust itself or by all of the beneficiaries then there is no self-dealing as long as it is still reasonable. If there is self-dealing the beneficiaries can set aside the transaction, or they can take the benefit of it. If there’s profit from the self-dealing beneficiaries can recover any money from it.
When a trustee takes trust assets and invests it into a corporation that they own or invests into property that they own, there is a conflict of interest
Duty of Care: Duty to Invest
A trustee has a duty to invest prudently.
At common law, trustees were limited to statutory lists of acceptable investments unless the trust expressly provided otherwise. Good investments were govt bonds, federal insured certificates of deposits, public stock and co-stock.
Under the UPIA, the trustee has broader abilities to invest, but must act as a prudent investor would in the context of the entire portfolio, when investing his own property, and must exercise reasonable care, caution, and skill when investing and managing the trust.
If they have specialized skilled in investing, they should utilize those skills. Trustee must invest reasonably with reasonable care caution and skill when investing in assets.
Duty of Care: Duty to Diversify Assets
In carrying out his duty of care, he must adequately diversify the trust investments to spread out the risk of loss. While risky investments are allowed (and may be desirable due to the correlation between risk and reward), whether an investment’s risk is tolerable will depend on the size and purpose of the trust. A trustee must make property productive and pursue all opportunities from it to generate money and income, such as renting trust property.
Duty of Care: Duty to Disclose and Account
A trustee has a duty to disclose to the beneficiaries complete and accurate information about the nature and extent of the trust property. He must also periodically account for actions taken on behalf of the trust.
Trustee Powers
Has powers expressly granted in the trust, and powers necessary to act as a reasonably prudent person in managing the trust, including the implied power to contract, sell, lease, or transfer the trust property.
