Trusts: Fiduciary Administration Flashcards
Powers of Trustee
Duties of Trustee
○ Care
○ Loyalty
○ To Separate Trust Property
○ To Perform Personally
○ To Preserve Property and
Make it Productive
(Prudence)
Duty of Care
Standard is that of reasonably prudent person managing own property
Duty of Loyalty
○ No self-dealing (duty of
undivided loyalty)
- Cannot buy assets from or
sell assets to the trust
- Cannot borrow from trust
or loan to trust
- Cannot personally gain
through position
- Corporate trustee cannot
buy (but may retain) own
stock
- If duty breached, beneficiary may:
□ Set aside transaction,
□ Recover profit; or
□ Ratify the transaction
- Settlor can waive self-dealing
restrictions
Duty to Separate Trust Property
○ No commingling with own
property or other trusts’
property
- Commingled property lost
or destroyed presumed to
be trustee’s
- If portion of commingled
assets increases in value,
presumed to be trust
assets
- If portion of commingled
assets declines in value,
presumed to be trustee’s
Duty to Perform Personally
Cannot delegate administration of trust
Duty to Preserve Property and Make it Productive (Prudence)
○ Investments must be
prudent; trustee must use
reasonable care, skill, and
caution
- Trustees with special skills
held to higher standard
- Trustee must diversify
investments
- Investment decisions may
be delegated if a prudent
trustee would do so
○ Prudence evaluated in terms of overall strategy
Types of Distributions
○ Mandatory
○ Discretionary
Mandatory Distributions
Trustee “shall” pay; the trustee MUST make specified distributions and failure to do so would be a breach of trust
Discretionary Distributions
○ Spray - trustee must
distribute all income but gets
to choose to which
beneficiaries and in what
amounts
○ Sprinkle - trustee may
accumulate income and add
it to principal or may
distribute to the beneficiaries
○ Support Trusts - trustee has
discretion to distribute trust
assets for a beneficiary’s
support and maintenance
