Trustee Duties, Liabilities, & Resignation/Removal

Question 1

If there are two trustees, they act unanimously?

Answer 1

Yes, unless contrary intent is expressed in the trust agreement.

Question 2

If there are more than two trustees, do they have to act unanimously?

Answer 2

No, most states only require a majority to act.

Question 3

Can a trustee’s duties be unilaterally enlarged by the settlor after the trustee has accepted his office?

Answer 3

No, unless there is an addition clause, which allows the settlor to contemplate enlarging the trustees responsibilities with additional trust assets. However, trustee may be able to reject additions.

Question 4

What powers does a trustee have?

Answer 4

A trustee can sell or contract, withdraw income, principal, or both from the trust to carry out the trusts purpose, and the power to modify in order to give the trustee the ability to change provisions of the trust to reflect the settlor’s intent.

Question 5

What duties does a trustee have?

Answer 5

The trustee must administer the trust in good faith, in accordance with its terms and purposes, and in the interest of the beneficiaries.

Question 6

What is self-dealing?

Answer 6

When a trustee personally engages in a transaction involving the trust property; a conflict of interest arises between the trustees duties to the beneficiaries and her own personal interest.

This creates an irrebuttable presumption that the trustee reached the duty of loyalty. Once self-dealing is established, there is no need for further inquiry into the trustees reasonableness or good faith because self-dealing is a per se breach of duty of loyalty.

Question 7

When is self-dealing allowed?

Answer 7

Even oneself dealing is authorized by the Settlor under the terms of the trust, by court order, or by all beneficiaries, the transaction will still be reasonable and fair for the trustee to avoid being liable for breach.

Question 8

What standard is applicable to conflict other than those that are self-dealing?

Answer 8

Akor all of by the reasonable and in good faith standard, not the no further inquiry standard.

Question 9

What is abuse of discretion?

Answer 9

When the trustee does not act in the best interest of the trust and its beneficiaries.

Question 10

When is the trustees duty delegable?

Answer 10

If a function goes to the heart of the trust or constitutes a critical function concerning the property, and the function is discretionary and is not delegable. Otherwise, if the function is merely ministerial and can be delegated, this is permissible.

Question 11

What is the duty to oversee decisions?

Answer 11

A trustee can delegate the determination of management and investment strategies, and other duties as would be prudent under the circumstances, but must oversee the decision making process. Otherwise, the trustee is responsible for actual losses, regardless of cause.

Question 12

What is the prudent investor rule?

Answer 12

Trustee is required to act as a prudent investor would one investing his own property but put less emphasis on the level of risk for each investment. The trustee must exercise reasonable care, caution, and scale on investing in managing trust assets unless the trustee has special skills are expertise, in which case he has a duty to utilize such assets.

Question 13

What factors will a quart consider when it determines whether the prudent investor role has been breached?

Answer 13

(1) General economic conditions
(2) role that investment plays in relation to trust’s overall investment portfolio
(3) distribution requirements of the trust
(4) trust’s need for liquidity, regularity of income, and preservation or appreciation of capital

Question 14

Are professional or corporate trustees held to a higher standard than individual trustees?

Answer 14

Yes. A presumed greater expertise creates a higher standard.

Question 15

What is the duty to diversify assets?

Answer 15

The trustee must adequately diversify the trust investments to spread the risk of loss.

Question 16

What is the duty to make property productive?

Answer 16

Trustee must preserve trust property and work to make it productive by pursuing all possible claims, driving the maximum amount of income from investments, selling assets when appropriate, securing insurance, paying ordinary unnecessary expenses, and acting within a reasonable period of all time in all matters.

Question 17

What is the duty to be impartial?

Answer 17

Trustee must be impartial in dealing with the beneficiaries of a trust. Beneficiaries do not have to be treated equally, but the trustee cannot be influenced by his personal favoritism or animosity toward individual beneficiary and administering the trust.

Question 18

What is a power of appointment?

Answer 18

A power given to a beneficiary enabling them to direct a trustee to distribute some or all of the trust property without regard to the provisions of the trust.

Question 19

What is the special power of appointment?

Answer 19

A special power of appointment about the donor to specify certain individuals or groups of the objects of the power, to the exclusion of others. Specifically, the special power of appointment exclusive donee, the donee’s creditors, and the donee’s estate as a permissible object.

Question 20

What happens when an appointment is ineffective?

Answer 20

Other valid appointments are not invalidated, but the property or interest that was invalidly appointed passes to the taker and default of appointment. That is the party who would have received the interest in the absence of any appointment.

Question 21

What is the beneficiaries’ right of enforcement?

Answer 21

Lost profits, lost interest, and other losses resulting from a breach of the trust or the responsibility of the trustee, and beneficiaries may sue the trustee and seek damages or removal of the trustee for breach. If the beneficiaries joined the breach or consented to the trustees actions, however, equity will prevent the beneficiaries from pursuing an action against the trustee.

Question 22

When can a trustee be liable for others’ acts?

Answer 22

Co-trustees are jointly liable; trustee is liable for a predecessors breach if he knew about it and failed to address it or was negligent in delivering the property; Generally not liable for breaches committed by an agent

Question 23

What is the trustee’s liability to third parties?

Answer 23

Unless otherwise specified in the trust instrument or in the governing contract, a trustee is personally liable on all contracts entered into and for tortious acts committed while acting a trustee. If he acted within the scope of his duties, then he is entitled to indemnification from the trust.

Question 24

How can a trustee resign?

Answer 24

By either providing at least 30 days notice to the qualified beneficiaries and any co-trustees, or obtaining court approval.

Question 25

When can a court refuse to appoint or remove a trustee?

Answer 25

If the purposes of the trust would be frustrated by the trustees appointment or continuance in office. Absent an express provision in the trust instrument to the contrary, neither the settlor nor the trust beneficiaries are entitled to see the removal of a trustee.

Question 26

Under what circumstances can a trustee be removed by the court?

Answer 26

When the trustee becomes in capable of performing his duties, the trustee materially breaches one or more of his duties, a conflict of interest arises, a serious conflict between the trustee and one or more beneficiaries developed, or the trust is persistently performing poorly as a result of the trustee‘s actions or in actions.