Implied Trustee Powers
- sell trust property
- lease trust property
- incur reasonable expenses
- hire agents
- mortgage trust property
- repair
UTC Powers
- Conferred by terms of trust
- unmarried competent owner has over individually owned property
- any other powers appropriate to investment, management, and distribution
- power to collect and hold assets,
- operate a buisness
- acquire an undivided interest in a trust asset
- enter into a lease
- vote securities
- pay taxes
- insure assets
- make distributions
Duty to Administer Trust
Duty to personally administer the trust in good faith and in a prudent manner, in accordance with the terms and purposes of the trust instrument and the interests of the beneficiaries. If they have higher skills and expertise, they will be held to a higher standard.
Duty of loyalty
A trustee cannot enter into any transaction in which the trustee is dealing in their individual capacity with the trust, absent court approval. Trustee’s good faith or actual benefit to the trust is irrelevant.
Remedies for beneficiary include affirming the transaction, setting aside the transaction or tracing the profits.
Beneficiary’s rights in the case of a prohibited self-dealing transaction
A transaction involving trustee self-dealing is voidable by the beneficiary affected by the transaction unless 1) a court or terms of the trust approved it, 2) the beneficiary fails to bring suit in time, 3) the beneficiary gave consent, ratification or release, or 4) involves a contract from before the trustee became trustee.
Duty to Report
A trustee must 1) provide the qualified beneficiaries with the trustee’s name, address and telephone number; 2) respond to beneficiary requests for info about the trust’s administration and provide a copy of the trust instrument if requested, 3) furnish an actual accounting of the trust.
Duty to Enforce claims and defend trust from attack
that’s it
Duty to preserve trust property and make it productive
The power to invest is implied. The trustee is expected to lease land, collect claims and invest money. Breach of this duty results in damages in the amount of normally accrued income from proper investments.
Trustee’s Investments
UPIA governs a trustee’s investment responsibilities but the trust terms can expand or limit these.
A trustee may exercise reasonable care, skill and caution when investing and managing trust assets.
Factors in investment decisions
- general economic conditions
- inflation or deflation
- expected tax consequences of investment decisions
- the expected total return from income and appreciation of capital
- needs for liquidity, regularity of income, and preservation or appreciation of capital
- Must be exclusively for the beneficiary’s benefit!!! No social investing
Delegation of Investment Functions
Permissible. But only if a prudent trustee of comparable skills can properly delegate. The trustee must act prudently in selecting an agent, establishing the scope and terms of the delegation, and periodically reviewing the agent’s decisions.
Not liable to beneficiaries for decisions or actions of the agent.
Trustee is Not liable for breach when…
- the trustee acted in reasonable reliance on the terms of the trust,
- the beneficiary consented to the conduct, released from liability or ratified
Exculpatory Clauses
Are void if they 1) relieve the trustee of liability for breach of trust committed in bad faith or with reckless indifference, or 2) appear in the trust instrument because of the trustee’s abuse of a confidential relationship with the settlor.
Adjustment Power
- IF the trustee determines that by distributing only the trust’s income the trustee is unable to comply with the requirement that all beneficiaries be treated fairly, the trustee may adjust between principal and income to the extent necessary.
- Consider:
- Nature, purpose and expected duration,
- intent of settlor
- identity and circumstances of beneficiaries
- the needs of liquidity, regularity of income
- nature of trust assets
- tax consequences -→ adjustment not permitted if adverse tax consequences!
Income Receipts
- ordinary receipts for use or investment of trust property
- cash dividends
- proceeds from contracts insuring trustee against loss
- 10% of payment from a deferred compensation plan
- 10% of proceeds received from a liquidating asset
- 10% of proceeds received from a working interest
income expenses
- 50% of regular compensation of the trustee and any person providing investment services
- 50% of all expenses for accountings, judicial proceedings and other matters affecting income
- ordinary expenses
- insurance premiums covering loss of principal asset
principal receipts
- extraordinary receipts
- stock dividends
- proceeds from life insurance policy naming trust or trustee as beneficiary
- 90% of payment from a deferred compensation plan
- 90% of proceeds received from a liquidating asset
- 90% of proceeds received from a working interest
principal expenses
- 50% of regular compensation
- 50% of expenses for accountings, judicial proceedings, etc
- Expenses of a proceeding that concerns a principal interest
- payments on the principal of a trust debt
- estate taxes
- disbursements related to environmental matters
