Trustee Powers and Responsibilities

Question 1

Source of trustee powers

Answer 1

(1) The trust instrument (either expressly or by implication), and
(2) Either granted by statute or implied in law as necessary or appropriate to accomplish the trust’s purposes

Question 2

Trustee automatic powers (unless expressly excluded)

Answer 2

Unless expressly precluded by the trust instrument, the trustee has the power:
(1) to settle or abandon trust claims,
(2) borrow money,
(3) sell or lease trust assets, and
(4) incur reasonable expenses necessary to maintain trust property

Question 3

Trustee duties

Answer 3

(1) duty of loyalty and good faith
(2) affirmative duty to preserve/enhance trust fund

Question 4

Trustee duty of loyalty and good faith

Answer 4

A trustee owes a duty of utmost loyalty and good faith to the beneficiaries in carrying out their obligations under the trust

Question 5

Prohibited actions of trustee

Answer 5

● Self-dealing
● Obtaining personal benefit (except trustee fees)
● Interacting with beneficiaries and having business transactions with them
● Obtaining any personal benefit from a third party with respect to trust dealings
● Permitting self to be in even an apparent conflict of interest regarding the trust and third parties

Question 6

Trustee self-deals, but gets better outcome

Answer 6

Self-dealing, in any manner (even if done in good faith and with good outcome
for the trust) with trust assets is PROHIBITED

Question 7

Permitted transaction with beneficiaries

Answer 7

Interacting with beneficiaries and having business transactions with them is only
allowed if all of the facts are disclosed to the beneficiary AND the transaction is fair

Question 8

Uniform Principal and Income Act

Answer 8

The Uniform Principal and Income Act specifies the distribution of receipts between trust principal and income

Question 9

How rent distributed under UPIA

Answer 9

Rents received are allocated to trust income, and then are distributed to the trust’s income beneficiary

Question 10

How cash dividends distributed under UPIA

Answer 10

Cash dividends received are allocated to trust income, and then are distributed to the trust’s income beneficiary

Question 11

How sales proceeds distributed under UPIA

Answer 11

Sales proceeds are allocated to principal of trust and protected for ultimate distribution

Question 12

How stock dividends are distributed under UPIA

Answer 12

Stock dividends are allocated to principal of trust and protected for ultimate distribution

Question 13

Prudent business person rule

Answer 13

In investing, trustees must use the degree of skill, care, and prudence that would be reasonably used by a business person in their own personal affairs

Question 14

Higher standard than prudent business person

Answer 14

If a trustee possesses superior business expertise or is a professional fiduciary
→ a higher standard is applied. The trustee will be held to the care, skill, and prudence of an individual or entity possessing those capabilities

Question 15

Liability of the trustee

Answer 15

Where a trustee breaches a duty to the beneficiaries, the trustee will always be liable for the results of the breach

Question 16

Liability if trustee uses trust assets to buy property that appreciated

Answer 16

If the trustee uses trust assets to buy property and the property increases in value → the trustee must return BOTH the trust property and the appreciation in value to the trust fund

Question 17

Liability if trustee uses trust assets to buy property that depreciated

Answer 17

If the trustee beaches their duty of care in investing and trust property depreciates in value → the trustee must personally recompense the trust for its losses