Trustees' Powers, Fiduciary Duties, Liabilities Flashcards
Trustees’ K Liability
(1) CL
• trustee personally liable
- exception: K expressly relieves trustee of liability
• indemnification: w/in scope of trustee’s power; AND trustee not personally at fault
(2) Modern Law = if the other party to the K enters into the K w/ the knowledge that the trustee is acting in his/her representative capacity, the trustee can only be sued in his/her representative capacity
Trustees’ Tort Liability
(1) CL = personally liable
• indemnification = trustee w/o fault
(2) Modern Law
• trustee at fault = personal capacity
• trustee not at fault = representative capacity
Fiduciary Duties of Trustee
- duty of undivided loyalty
- duty of due care (duty to act w/ skill)
- duty to follow instructions
- duty to invest
- duty to perform personally
- duty to carefully select and supervise agents
- duty to physically separate assets
- duty to earmark assets
- remedies
- 3d party liability
Trustee’s duty of undivided loyalty
(1) must avoid self-dealing
(2) duty to keep and render account
(3) beneficiaries’ remedies
Trustee’s duty of undivided loyalty - must avoid self-dealing
- borrowing trust funds
- using trust assets to secure personal loan
- loaning personal funds to trust
- personally gain from position as trustee
- selling trust assets from one trust to another trust
- purchase of trust property
- sale of trustee’s property to the trust
- corporate trustee may not invest in own stock
Beneficiaries’ remedies for trustee’s duty of undivided loyalty
- affirm transaction
- recover profits/losses
- set aside transaction
Trustee’s duty of due care (duty to act with skill)
reasonable prudent person std: a trustee must exercise the care, skill, and caution that a reasonably prudent person would in managing his/her own property
Trustee’s duty to invest
1. Legal list jxns (types of legal lists: • permissive, • mandatory, •new businesses)
- CL = prudent person std
REQS:
• each individual investment must be prudent
• measured at time of investment
• investments constantly reviewed and changed if necessary - uniform prudent investor act
• measured at time of trustee’s action
• entire portfolio scrutinized
• affirmative duty to use special skill/expertise
CL for trustee’s duty to invest
reqs:
• each individual investment must be prudent
• measured at time of investment
• investments constantly reviewed and changed if necessary
Uniform Prudent Investor Act
for trustee’s duty to invest
- measured at time of trustee’s action
- entire portfolio scrutinized
- affirmative duty to use special skill/expertise
Legal list jxns for trustee’s duty to invest
types of legal lists:
• permissive,
• mandatory,
• new businesses
Duty to carefully select and supervise agents
(1) may delegate activities that would be unreasonable for trustee to perform
(2) delegation of investment decisions permitted - a trustee is permitted to delegate investment decisions that a prudent trustee w/ comparable skills would delegate under the circumstances
• reasonable skill, care, and caution in
- selecting agent
- establishing scope and terms of delegation
- periodically review of agent’s action
Duty to earmark assets
(1) CL = strict liability for any loss regardless of cause
(2) modern law = liable for damages caused by failure to earmark
Remedies for breach and duties by trustee
(1) damages = actual loss plus interest
(2) constructive trust
(3) equitable trust
(4) ratify transaction
(5) set aside transaction
(6) remove trustee
3d party liability
(1) Non BFPS (either knew/should have known) - transactions w/ non-BFP that breach the trust can be set aside by a beneficiary/trustee
(2) BFP > Beneficiaries
(3) Innocent Donee - an innocent donee will be required to restore the property to the trust but will not be liable for any damages
3d party liability for innocent donee
an innocent donee will be required to restore the property to the trust but will not be liable for any damages
3d party liability for non-BFPs
Non BFPS (either knew/should have known) - transactions w/ non-BFP that breach the trust can be set aside by a beneficiary/trustee
3d party liability for BFP
BFP > Beneficiaries
Sources of Trustee’s Powers
(1) Express powers = expressly granted to the trustee in trust instrument
(2) Implied powers = powers necessary to carry out trustee’s duties
• power to sell
• power to invest
• power to lease land
• power to pay expenses
• power to sue 3d parties - trustee has power to sue 3d parties on behalf of trust and its beneficiaries
• no power to incur debts, mortgage, or encumber property - gen rule is that a trustee does not have the implied power to incur debts, mortgage, or other encumber the trust’s property
Trustee’s implied powers
Implied powers = powers necessary to carry out trustee’s duties
- power to sell
- power to invest
- power to lease land
- power to pay expenses
- power to sue 3d parties - trustee has power to sue 3d parties on behalf of trust and its beneficiaries
- no power to incur debts, mortgage, or encumber property - gen rule is that a trustee does not have the implied power to incur debts, mortgage, or other encumber the trust’s property
The Clarflin Doctrine
termination of irrevocable trusts
(1) All beneficiaries agree; and
(2) No further material trust purpose
