Trustee's Duties Flashcards
What powers does a trustee have?
(1) Powers granted expressly in the trust; and
(2) Powers necessary to act as a reasonably prudent person in managing the trust, including the implied power to contract, sell, lease, or transfer the trust property.
What fiduciary duties does a trustee owe?
Fiduciary Duties of Loyalty and Care (i.e. Duty of Prudence)
What is the standard for the duty of loyalty?
Two components: (1) Objective standard—Duty to act reasonably, and (2) Subjective standard—Duty to administer trust in good faith when investing property and otherwise managing the trust solely in the best interests of the beneficiaries.
Look out for: Self-dealing and/or conflicts of interest
What is self-dealing in the context of a trustee managing a trust?
When the trustee personally engages in a transaction involving trust property, a conflict of interest arises between the trustee’s duties to the beneficiaries and her own personal interest
What are examples of transactions are prohibited under the duty of loyalty?
Buying/selling trust assets; selling property between trusts that trustee manages; borrowing from or making loans to trust; using trust assets to secure personal loan; engaging in prohibited transactions with friends/relatives; or otherwise acting for personal gain through trustee position.
If trustee engages in self-dealing, what is the standard?
There is an irrebuttable presumption that trustee breached the duty of loyalty when self-dealing is an issue. There is no further inquiry into trustee’s reasonableness or good faith because self-dealing is a per se breach.
What is the standard for when self-dealing is authorized (e.g. by settlor, court order, or all beneficiaries)?
The court will still assess whether the transaction is reasonable and fair.
What is the remedy when a trustee engages in self-dealing?
The beneficiaries can set aside the transaction or ratify the transaction and recover the profits from the transaction.
What is the standard for assessing a conflict of interest transaction made by a trustee?
There is a rebuttable presumption of a breach of the duty of loyalty that can be rebutted by showing that the terms of the transaction were fair or that the transaction would have been made by an independent party.
What is the duty of care (i.e. duty of prudence)?
The trustee has a duty to act as a reasonably prudent person and treat the trust property as if it was his/her own.
Additionally, the trustee must follow the trust’s directions and carry them out in accordance with the trust.
What is the prudent investor rule?
The trustee must act as a prudent investor would act when investing his own property; Trustee must exercise reasonable care, caution, and skill when investing and managing trust assets.
What is the duty to diversify?
The trustee must adequately diversify the trust investments in order to spread the risk of loss under a total performance portfolio approach, but not if administrative costs would outweigh the benefits.
What is the duty to make the property productive?
The trustee has a duty to pursue all possible claims, derive the maximum amount of income from investments, sell assets when appropriate, secure insurance, pay expenses, and act within a reasonable period of time in all matters.
E.g. If the trust contains rental property, the trustee has a duty to try and rent the property
What is the duty to be impartial?
The trustee has a duty to balance interests of the present beneficiaries (must not favor one of the present beneficiaries over the others, unless the trust provides for it).
Additionally, the trustee must balance the interests of the present and future beneficiaries by investing property so that it produces a reasonable income for the income beneficiaries while preserving the principal for the remainder beneficiaries.
What is the duty to disclose?
The trustee must disclose complete and accurate information about the nature and extent of the trust property, including allowing access to trust records and accounts.
