Trustee's Powers and Responsibilities Flashcards
What are the sources of a trustee’s powers?
The trust instrument and statutory or implied law
A trustee’s powers can be expressed or implied by the trust document or necessary to fulfill the trust’s purposes.
What powers does a trustee have unless expressly precluded by the trust instrument?
- Settle or abandon trust claims
- Borrow money
- Sell or lease trust assets
- Incur reasonable expenses for trust property maintenance
True or False: A trustee can invade trust principal for a beneficiary entitled only to income.
False
A trustee has no implied power to invade trust principal for a beneficiary entitled only to income.
What is the standard of a trustee’s discretion often based on?
The beneficiary’s health, education, maintenance, and support (HEMS)
What duty does a trustee owe to the beneficiaries?
A duty of utmost loyalty and good faith
What actions are prohibited for a trustee to avoid self-dealing?
- Self-dealing with trust assets
- Obtaining personal benefits outside agreed-upon fees
- Interacting with beneficiaries in business transactions without disclosure
What is an example of self-dealing by a trustee?
A trustee buying assets from the trust
What must a trustee do when engaging in business transactions with beneficiaries?
Disclose all facts and ensure the transaction is fair
What is a trustee’s affirmative duty regarding trust property?
To preserve and enhance trust property
Define ‘Principal’ in the context of a trust.
The amount originally received, plus capital gains, minus debts, expenses, and capital losses
What does the Uniform Principal and Income Act (UPIA) specify?
The distribution of receipts between trust principal and income
What types of expenses are allocated to income and principal?
- Ordinary expenses: Allocated to income
- Extraordinary repairs: Allocated to principal
According to the Prudent Business Person Rule, how must trustees invest?
With the skill, care, and prudence of a reasonably competent business person
What is required from a trustee with superior business expertise?
To apply a higher standard of care, skill, and prudence
True or False: A trustee is liable for decline in trust property value due to general economic conditions.
False
What constitutes acceptable investments for a trustee?
- Government or highly rated bonds
- Blue-chip stocks
- Quality mutual funds
What must a trustee do if lacking the necessary background for investment decisions?
Delegate investment functions
What happens if a trustee breaches a duty to the beneficiaries?
The trustee is liable for the results of the breach
What must a trustee return if they use trust assets to buy property that appreciates?
The trust property and the appreciation in value
What is the role of an exculpatory clause in a trust?
To relieve the trustee of liability for potentially wrongful acts
Under what conditions can a trustee be removed?
For cause, such as breach of duty or incapacitation
What rights does a successor trustee have?
All the rights and duties of the predecessor
