VI. Trust Administration Flashcards
Appointment of a Trustee
- Usually the instrument names trustee or grants power of appointment of trustee to someone
- Vacancies filled in accordance with trust insturment or by court in manner consistent with creator intent
- No trust will fail for absence of trustee
Co-Trustees
- msut act unanimously unless
- the instrument governs otherwise or
- there is an emergency reqwuirement immediate action by fewer than all
Resignation of a Trustee
May resign pursuant to trust provisions OR may apply to the court for permission to resign IF:
- unable to continue due to ILLNESS
- requires GREATER RESPONSIBILITY than contemplated
- DISAGREEMENT with a beneficiary that is deterimental to the trust
- resignational will result in SUBSTANTIAL FINANCIAL BENEFITS AND SAVINGS;
- there is anoter CO TRUSTEE so resignation would not be harmful; OR
- resignation will not SUBSTANTIALLY EFFECT the trust
Must receive court or settlor approval for this–can’t just notify beneficiaries. Failure to do so may leave liability
Truestee’s Duty of Loyalty
Must act with UNDIVIDED LOYALTY.
- prohibited from SELF DEALING even if the transaction results in a profit for the trust or a benefit is conferred on the trust
- buying trust assets, borrowing trust funds,
- dealing with spouse or other family member
- dealing with company which actively involved in
- IGNORANCE is not a defense to self-dealing—ANY APPEARANCE of self-interest is sufficient
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Banks as Trustees
- Trustee Banks may deposit funds with themself as long as followed procedures (insurance interest paid) but
- cannot purchase its own stock with it
- can retain own stock if it was part of original trust assets
- can place into common trust fund and assign a partial interst in that fund to the trust if they can trace comingled property
- Private turstee cannot co-mingle–commercial ones may so to maximize return as long as they can ensure identification of assets
Conflict of INterest
- Trustee must always avoid any appearace of conflict of interest between herself and beneficiary (e.g. when trustee is also a beneficiary)
- GA law restricts a trustee/beneficiaries ability to distribute trust property to herself or to satisfy personal legal obligaiotns
- exception if the trust provides for discertionary power for health, support or maitnenance
- Otherwise must be operated by a co-trustee or an independt trustee appointed by the court if there is no co-trustee
Trustee Duties
- INFORMED: must keep beneficiaries REASONALBY informed.
- RENDER ACCOUNTINGS; generally don annually
- DISTRIBUTIONS: usually done annually unless provided otherwise
- REASONABLE CARE IN SELECTING AGENTS: for investment or managemnt. Must use reasonable care, skill and caution in selection and in supervision (this includes knowing you’re not the best person to do it)
- BUSINESS JUDGMENT: Use reasonable business judgment in administering trust and use any special skills trustee might have. Standard of prudcen risese with skills advertised
Trustee’s Investment Duties: Standard of Prudence
Trustee must exercise the:
- JUDGMENT AND CARE
- under the CIRCUMSTANCES THEN PREVAILING,
- that persons of
- PRUDENCE,
- DISCRETION
- and INTELLIGENCE
- exercise in the MANAGMENET OF THEIR OWN affairs
- not in reguard to speculatoin
- but in regard to the permanent disposition of their funds
- considering both
- the PROBABLE INCOME AND
- the PROBABLE SAFETY of their capital
If the trustee has any special skills or expertise or is named trustee based on those skills, under duty to use them
Trustee’s Investment Duties: Portfolio Management
Court will look at the perofmrance of the entire portfolio rather than the perofrmance of indivdiaul investments
GA allows investment in every kind of investment, real, personal and mixed
When making investment decisions, trustee may consider :
- general ECONOMIC conditions
- TAX consequences
- anticipated DURATION of account
- NEEDS of the beneficiary
- SIZE of the trust
- INTENT of the settlor
- NATURE AND DURATION OF TRUST
factors are also material as to whether a trustee may adjust income and principal, or perhaps convert into a unitrust
Trustee’s Investment Duties: Specific Duties of the Trustee
- Not to SPECULATE
- maintain MARKETABILITY of property
- keep trust PRODUCTIVE
- DIVERSIFY
- not to delegate investment decsiison without CAREFUL SELECTION AND OVERSIGHT of the agent
- duty not to COMINGLE (private trustee–commercial may as long as traceable)
- duty of IMPARTIALITY: balance interest of income and remainder beneficiaries
Trustee’s Investment Duties: Trustee’s Powers to Adjust Income and Principal
conflict over wehether to invest or distribute
Balance it through ALLOCATION between principal and income
Georgia Flexible Trust INcome ACt
gives trustee greater discertion in seeking to balnce interest of income and principal beneficiaries
May caharacterize assets, such as cpaital gains, as income whenever the income portion of the trust is so small as to be unfair to the income beneficiary
Two options:
1) Power of adjustment
2) power to convert to unitrust
Power of Adjustment
regardless of the character of the property (income or principal), trustee may exercisea power to ADJUST by allocating property that is technically income to rpincal and vice versa in a way that is FAIR AND IMPARIAL to all beneficiaries
- not permitted if brings about adverse consequence (e.g trustee being given general power of appointe etc.)
- or if it would diqualify the marital or charitable deduction
- or generate income teaxes for trustee
Power to Convert to a Unitrust
Trust that pays out a certain percentage of assets each year regardless of whether it represents annual income
Statute says 4% but trustee may request b/w 3-5% (based on annual calculation of principal assets–not 4% when converted)
Must have 1) court approval, OR 2) approval of all beneficiaries
Charges Against INcome and Principal
Expesnses Paid from the income of the trust:
- ordinary expesnse of ADMINISTRATION
- 1/2 of the trustee’s compensation
- income taxes
- 1/2 of the cost of any accountings
all other expenses come from principal
