Trustee Duties Flashcards
What are the more salient duties a trustee holds?
- Duty of loyalty - no self dealing
- Duty to act prudently
- Duty to collect, control, and protect trust property (including duty to acquire liability insurance on trust assets)
- Duty to segregate trust property
- Duty to keep adequate records
- Duty of impartiality
- Duty to keep beneficiaries reasonably informed about material facts
- Duty to furnish a copy of trust instrument upon request of a beneficiary
- 60 day notice to beneficiaries
- Periodic and final accountings to beneficiaries
60-day notice rule: Within 60 days after accepting trusteeship, trustee must notify beneficiaries of what?
(i) trust’s existence
(ii) identity of the settlor(s)
(iii) their right to request a copy of the trust instrument
(iv) their right to an annual report
(v) trustee’s name, address, and telephone #
What does “self-dealing” mean?
(1) Trustee may not sell trust assets to himself or buy assets from himself for the trust.
(2) Trustee may not borrow trust funds.
(3) Trustee may not lend funds to the trust, and any interest earned on such a loan must be returned to the trust.
(4) Trustee may not profit from serving as trustee (except for compensation), as by taking advantage of confidential information received in his or her capacity as trustee, or by accepting a bonus for investing in a start-up company.
(5) Corporate trustee may not buy its own stock as trust investment.
What are the exceptions to the duty of loyalty/prohibition on self-dealing?
- if the trustee is also a beneficiary, the trustee may act to benefit himself/herself qua beneficiary
- if all beneficiaries consent, after receiving complete and full disclosure and without being induced by any improper conduct, the trustee may proceed with an action that amounts to self-dealing
- the settlor may waive the duty in the trust instrument, but must be made fully aware of the consequences
Virginia’s Uniform Prudent Investor Act (UPIA)
VA’s UPIA utilizes a PORTFOLIO THEORY of diversified investments, under which each element is evaluated for prudence, not individually, BUT IN REFERENCE TO THE PORTFOLIO, the beneficiary’s needs, and the terms specified by the settlor AT THE TIME OF THE INVESTMENT
Under the UPIA, investment returns are measured by…
total return, including growth, capital gains, and income
What are two ways a trustee may accommodate the expectations of both income beneficiaries and remaindermen?
(1) adjustment
(2) unitrusts
What is a good standard for the trustee under allocation?
The ten percent rule.
Va. Code characterizes as “insubstantial” a reallocation that would increase or decrease net income by less than ten percent.
How should trustee distribute trustee’s fees?
One-half charged against income
One-half charged against principal
How should trustee distribute ordinary expenses?
Routine expenses are charged against INCOME: account expenses that come up every year (e.g. property taxes, ordinary repairs, mortgage interest payments, etc.)
How should trustee distribute capital expenses?
Charged against and paid from PRINCIPAL: these are extraordinary expenses, capital improvements, environmental expenses, mortgage principal payments, etc.)
Unitrusts
A trustee may, without judicial approval, but after giving notice to the qualified beneficiaries, elect to make an income trust into a “total return unitrust.”
In a unitrust, the income beneficiary automatically receives a certain percentage (usually 3 or 4%) of the FMV of the trust each year, regardless of how much income the trust generated.
This reduces or eliminates concern about maintaining a fair balance between income and remaindermen beneficiaries.
True or False: A trustee may delegate trust powers and duties, including the investment power.
True.
The trustee is not liable for any actions taken by the agent chosen by the trustee if the trustee exercised reasonable care in…
(1) selecting the agent;
(2) establishing the terms of the delegation, and
(3) periodically reviewing the agent’s actions.
True or False: Each trustee has an affirmative duty to prevent a breach of trust by a co-trustee and each trustee is liable for the breach of a co-trustee.
True.
