Trustee Powers

Question 1

Duty to Administer the Trust

Answer 1

must continue to administer until it terminates

common law - trustee owes beneficiaries the duty to act with care, skill, and prudence

UTC - trustee must administer trust; in good faith, in accordance with the trust purpose and terms, and in the interests of the trust beneficiaries

Question 2

Self-Dealing (Duty of Loyalty)

Answer 2

trustee must administer trust solely in the interests of the beneficiaries

Question 3

if trustee engages in self dealing …

Answer 3

1. the transaction is voidable by the beneficiary affected; OR
2. beneficiary can seek damages

Question 4

Exceptions to prohibition on self-dealing

Answer 4

1. authorized by trust terms;
2. approved by the court;
3. beneficiary did not commence a judicial proceeding within the required time;
4. beneficiary consented, ratified, or released the trustee of liability;
5. transaction occurred before the person became a trustee

Question 5

Investment & Prudent Investor Rule (Duty of Care)

Answer 5

trustee must exercise the degree of care, skill, and prudence of a reasonable investor investing his own property

MUST diversify assets, avoid risky investments, and keep the trust assets productive

Question 6

Principal & Income Allocations

Answer 6

trust receipts and disbursements are allocated to either principal or income (usually determined by state law)

Question 7

Allocated to Income:

Answer 7

1. receipt of rental payments from real/personal property;
2. money received from an entity (cash dividends, interest on investments); and
3. ordinary expenses and repairs

Question 8

Allocated to Principal:

Answer 8

1. proceeds from the sale of a principal interest;
2. all other property received - other than money received from an entity; and
3. extraordinary expenses and repairs

Question 9

Conflict of Interest (Duty of Loyalty) - a transaction is presumed to be affected by a conflict of interest if entered into by:

Answer 9

1. trustee’s spouse;
2. trustee’s descendants, siblings, parents, or their spouses;
3. agent or attorney the trustee; OR
4. an entity that trustee has an interest in that might affect the trustee’s best judgment

Question 10

No Further Inquiry Rule

Answer 10

a transaction entered into by trustee for the trustee’s own benefit is AUTOMATICALLY presumed to be a conflict of interest

1. voidable without further inquiry (fairness or good faith is immaterial)
2. presumption is rebuttable for person who has close business or personal relationship with trustee if trustee shows the transaction was not affected by any conflict

Question 11

Duty to Act Impartially (Duty of Loyalty)

Answer 11

trustee MUST act impartially giving due regard to the beneficiaries’ respective interest

CANNOT be influenced by personal favoritism or animosity

Question 12

Acting in Accordance w/ Settlor’s Wishes

Answer 12

Revocable Trust - owes duties only to the settlor (NOT liable for acting in accordance with the settlor’s wishes)

Irrevocable Trust - owes duties to the settlor AND the beneficiaries (MAY be liable for acting in accordance with the settlor’s wishes if it’s to the exclusion of the beneficiaries)

Question 13

Trustee has the duty to _________ trust property and make it ____________.

Answer 13

Preserve; productive

Question 14

The trustee’s duty of loyalty extends to _________________.

Answer 14

all beneficiaries equally