Trustee Duties/Liability Flashcards
What is a trustee’s duty of loyalty and good faith?
A trustee has a duty to administer the trust in good faith (subjective standard) and to act reasonably (objective standard) when investing property and otherwise managing the trust solely in the best interests of the beneficiaries.
Under the rule of self-dealing, what are generally prohibited transactions with trust property?
- Buying or selling trust assets (even at fair market value)
- Selling property of one trust to another trust that the trustee manages
- Borrowing from or making loans to the trust
- Using trust assets to secure a personal loan
- Engaging in prohibited transactions with friends or relatives
- Otherwise acting for personal gain through the trustee position
Requirements for an effective disclaimer
A disclaimer is not effective unless it is reduced to writing within nine months after the future interest would become “indefeasibly vested.”
How are adopted children treated under the modern trend and the UPC with regards to a class gift?
The modern trend is to presume that “children” includes adopted children absent a contrary intent.
Under the UPC, an adopted person is included in the class gift in accordance with the UPC rules for intestate succession, which provide that an adopted person is the child of his or her adoptive parent.
What is the prudent investor rule under the UPIA?
The trustee must act as a prudent investor would when investing his own property, and must exercise reasonable care, caution, and skill when investing and managing trust assets unless the trustee has special skills or expertise, in which case he has a duty to utilize such assets.
What standard is applicable when an alleged conflict of interest arises that cannot be characterized as self-dealing?
The “no further inquiry” standard is inapplicable, and the transaction is assessed under the “reasonable and in good faith” standard.
What is the irrebuttable presumption when self-dealing is an issue?
That the trustee breached the duty of loyalty; no further inquiry into the trustee’s reasonableness or good faith is required because self-dealing is a per se breach of the duty of loyalty.
What is the prudent investor rule under the UPIA?
The trustee must act as a prudent investor would when investing his own property, and must exercise reasonable care, caution, and skill when investing and managing trust assets unless the trustee has special skills or expertise, in which case he has a duty to utilize such assets.
Under the rule of self-dealing, what are generally prohibited transactions with trust property?
- Buying or selling trust assets (even at fair market value)
- Selling property of one trust to another trust that the trustee manages
- Borrowing from or making loans to the trust
- Using trust assets to secure a personal loan
- Engaging in prohibited transactions with friends or relatives
- Otherwise acting for personal gain through the trustee position
What is the beneficiaries’ right of enforcement?
Lost profits, lost interests, and other losses resulting from a breach of trust are the responsibility of the trustee, and beneficiaries may sue the trustee and seek damages or removal of the trustee for breach.
What is the trustee’s duty to diversify?
The trustee must adequately diversify the trust investments to spread the risk of loss.
What is a trustee’s duty to disclose?
A trustee must disclose to the beneficiaries complete and accurate information about the nature and extent of the trust property, including allowing access to trust records and accounts. The trustee must also identify possible breaches of trust and promptly disclose such information to the beneficiaries.
What is the trustee’s duty of prudent administration?
The trustee has a duty to administer the trust as a prudent person and must exercise reasonable care, skill, and caution with regard to trust property.
This includes duties to secure possession of property within a reasonable time; to maintain real property; and to segregate personal property from trust assets.
What is the trustee’s duty to be impartial?
A trustee 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, and sell trust property within a reasonable time if a failure to diversify would be inconsistent with the total performance portfolio approach.
The duty does not require that the trustee treat each beneficiary equally, but it does require a trustee not to be influenced by the trustee’s personal favoritism or animosity toward individual beneficiaries in administering the trust.
Rule against Self Dealing
When a trustee personally engages in a transaction involving the trust property, a conflict of interest arises between the trustee’s duties to the beneficiaries and her own personal interest.
