Trustee Powers and Duties Flashcards
Where does trustee get its power?
The powers:
* Expressly conferred upon them by trust terms
* Those conferred upon them by UTC (broad powers)
* Implied powers–those that are necessary or approrpiate to carry out the purpose of the trust
* The power that an unmarried individual has over their own property (e.g., sell property, incur reasonable expenses, etc.)
What happens if there are multiple trustees?
Co-trustees who are unable to reach unanimous decision may use majority decision
When is a trustee liable for the exercise of discretionary powers?
When the decision reflects an abuse of discretion or no discretion at all (there’s no such thing as unreviewable discretion)
What is the standard of care for a trustee when they are investing?
- State and federal obligations–no liability (e.g., bonds)
- Otherwise must invest in the same manner as a prudent investor unless the trust instrument changes this default standard
- Analyzed at the time the investment is made
- Trustee with higher skills must use them
- Must regularly review investments
What approach is taken in looking at a trustee’s investments?
Portfolio approach–an investment that may seem imprudent on its own may be perfectly reasonable as part of a broader investment portfolio
* Trustee must diversify investments of the trust unless the trustee reasonably determines that, because of special circumstances, purposes of the trust are better served without diversification
May a trustee delegate investment and management functions?
Yes, but must exercise reasonable care in selecting an agent and in periodicially reviewing agent’s performance
How long does trustee have to invest any collected funds?
A reasonable time not to exceed four months
What is a P and I trust
Principal and interest–interest goes to a set of people and principal will go to another (often the settlor)
What is the trustee’s allocation/adjustment power?
Default rule is that the trustee can reallocate or adjust investment returns to carry out the trust purposes
* Example–“income to twin daughters for life and then to their descendants in equal shares,” and income becomes quite low (can sell some of the land to raise funds for income)
What does the UPAIA consider principal?
- When an asset of the trust is sold, it is principal (return of investment plus appreciation)
- Eminent domain award
- Insurance award
- Stock split/other reorganization
- Wasting assets (90%) (e.g., oil lease)
What does the UPAIA consider income?
- Receiving rent
- Interest earned on trust investment
- Cash stock dividend
- Wasting assets (10%)
What money spent is taken from principal?
- Capital tax gains
- Extraordinary repairs (i.e., capital improvements)
- 50/50 to pay trustee
What money spent is taken from income?
- Ordinary tax
- Ordinary repairs
- 50/50 to pay trustee
What are the trustee’s duties?
- Administer according to terms
- Duty of loyalty to all beneficiaries (no self-dealing)
- Keep accurate records and provide accountings
- In administering the trust, behave in the way a prudent person would behave in managing someone else’s property (i.e., no commingling)
- Make property productive and protect/insure
Liability of Trustee to Beneficiaries–What remedies are available?
- Money damages (i.e., lost profits, depreciation, trustee’s profits)
- Enforce specific performance of trustee’s duties
- Enjoin trustee from committing breach of trust
- Suspend trustee (incompetence, unfitness, breach of trust, conflict of interest, personal insolvency, extreme hostility)
