Trustee's Duties Flashcards
Powers of Trustee
- Powers expressly conferred by trust
- Powers an individual has over own property unless limited by trust
- Powers appropriate to achieve investment, management, and distribution of trust property not forbidden by tryst
- Powers conferred by UTC unless limited by trust
Duties of Trustee
- Duty to administer trust - must act in good faith and in a prudent manner, in accordance with trusts’t terms and purposes and beneficiaries interests
- Loyalty - no self-dealing –> if duty is breached, transaction is voidable by beneficiary unless authorized by trust; beneficiary fails to bring suit; beneficiary consent; or transaction involves claim before trustee took appointment
Note: Settlor can waive self-dealing restrictions
- Duty to Report - keep beneficiaries reasonably informed
- Duty to separate property - no commingling with own property
- Duty to enforce claims and defend trust from attack
- Duty to preserve property and make it productive
- investments must be prudent; trustee must use reasonable care, skill, and caution
- trustees with special skills are held to that standard
- trustee must diversify
- investment decision may be delegated if a prudent trustee would do so
- prudence evaluated in terms of overall strategy
What happens if a trustee commits a breach of trust?
Court can:
1. order specific performance of trustee’s duties
2. issue injunction against trustee
3. compel trustee to pay money or restore property
4. suspect or remove trustee
In event of breach, what will trustee be liable for?
Liable to beneficiaries for the greater of:
1. amount necessary to restore trust property to what they would have been absent breach; or
2. trustee’s profits from breach
Defenses for Trustee Breach
- Trustee acted in reasonable reliance on trust terms
- Beneficiary consented, released trustee from liability, or ratified transaction
- Trustee not liable for acts of co-trustees if did not join in action and exercised reasonable care in preventing breach or compelling co-trustee to redress breach
- exculpatory clause relieving trustee of breach (Note: clause will be void IF relieving trustee of breach committed in bad faith or reckless indifference or appear in trust because of trustee’s abuse of confidential relationship with settlor)
Allocation of Receipts and Expenses - UPAIA
- trustee must administer impartially; must be fair to all beneficiaries
- interest and dividend income to income beneficiary
- if such distribution does not effectuate trust purpose and is unfair, trustee may adjust between principal and income - receipts
- income
- principal - expenses
Can a trustee’s duties be enlarged after accepting?
No - generally, a trustee’s duties cannot be enlarged after he has accepted.
What if a trustee does not exercise his powers in accordance with the trust terms?
Breach occurs.
What constitutes abuse of power on part of the trustee?
depends on the extent of discretion conferred unto the trustee. however, even if the trustee’s power is absolute, a court will interfere if the trustee acted in bad faith and dishonestly.
What is included in the duty to invest?
A fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of the designated beneficiaries. Includes the duty to diversify.
What is the prudent investor rule?
Under the UPIA, the trustee must invest and manage trust assets as a prudent investor would, taking into account the purposes, terms, distribution requirements, and other circumstance software the trust.
To satisfy the standard of prudent, the trustee must exercise reasonable care, caution, and skill.
A trustee must also diversify the investments of the trust unless the trustee reasonably determines that, due to special circumstances, the purposes of the trust are better served without diversification.
May a trustee delegate his duties?
Yes - he may delegate his actions onto an agent if he exercises reasonable care, skill, and caution in selecting, delegating, and reviewing the agent’s actions.
what is the duty of care?
the trustee must exercise reasonable care with respect to trust property, which means investing trust funds within a reasonable time and selling and reinvesting as needed.
to act prudently, the trustee must exercise reasonable care, skill, and caution.
prudence is evaluated as to overall portfolio, and the trustee has a duty to diversify investments absent special circumstances.
what is the duty of impartiality?
if there is more than one beneficiary, the trustee must generally act impartially in managing the trust assets, taking into account the beneficaries’ interests.
what is the duty of loyalty?
- when the trust is revocable, the settlor is treated as the owner of the trust assets, and the trustee’s duties are owed to him.
a trustee owes a duty of undivided loyalty to the trust and its beneficiaries.
absent court approval or a contrary trust provision, a trustee cannot enter into any transaction with the trust (no self-dealing)
a self-dealing trustee’s good faith or benefit to the trust is irrelevant.
if a prohibited action takes place, the beneficiary may: (i) set aside the transaction; (ii) recover the profit made by the trustee; or (iii) ratify the transaction
