What are the powers of the trustee?
- Powers expressly conferred by the trust.
- Powers an individual has over own property unless limited by trust.
- Powers appropriate to achieve investment, management, and distribution of trust property not forbidden by trust.
- Powers conferred by UTC unless limited by trust.
Powers of co-trustees:
if unable to reach a unanimous decision, must act by majority.
Duties of the trustee:
- duty to administer trust
- duty of loyalty
- duty to report
- duty to separate trust property and keep records
- duty to enforce claims and defend trust from attack
- duty to preserve trust property and make it productive
Duty to Administer Trust
Must act in good faith and in prudent manner, in accordance w the trust’s terms and purposes and beneficiaries’ interests.
Duty of Loyalty
- Trustee cannot enter into any transaction in which the trustee is dealing w the trust in their individual capacity.
- 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 is breached, transaction is voidable by beneficiary unless:
a. Transaction authorized by trust or approved by court;
b. Beneficiary failed to bring suit within prescribed time period;
c. Beneficiary consented, ratified transaction, or released trustee; OR
d. Transaction involves contract or claim from before trustee became a trustee. - Settlor can waive self-dealing restrictions.
Duty to Report
- Keep beneficiaries reasonably informed.
- Must:
a. provide the qualified beneficiaries with the trustee’s name, address and phone number;
b. respond to beneficiary requests for information about the trust’s administration and provide a copy of the trust instrument if requested; and
c. furnish an annual accounting of the trust.
Duty to Separate Trust Property and Keep Records
- No commingling with own property or other trusts’ property.
- If the trustee commingles trust property with their own, losses are charged to the trustee, and gains are credited to the trust.
- Must keep records of the trust’s administration.
Duty to Preserve Trust Property and Make it Productive
- Investments must be prudent; trustee must use reasonable care, skill, and caution.
a. Trustees w higher skills are held to higher standard
b. Trustee must diversify investment
c. Investment decisions may be delegated if a prudent trustee would do so - Prudence elevated in terms of overall strategy.
- Investment decisions must be evaluated in the context of the entire trust portfolio and as part of an overall investment strategy that has risks and return objectives reasonably suited to a particular trust.
If trustee commits breach of trust, court can:
- order specific performance of trustee’s duties;
- issue injunction against trustee;
- compel trustee to pay money or restore property; and
- suspend or remove trustee.
Trustee is liable to beneficiaries for greater of:
amount necessary to restore trust property and distributions to what they would have been absent breach; OR trustee’s profit from breach
Trustee’s defenses
- Trustee acted in reasonable reliance on trust terms
- Beneficiary consented, released trustee from liability, or ratified transaction
Effect of an exculpatory clause:
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 bc of the trustee’s abuse of a confidential relationship w the settlor.
Liability for co-trustees?
Generally, trustee will not be liable for the acts of co-trustees if the trustee did not join in the action AND exercised reasonable care in preventing the breach of trust or compelling the co-trustee to redress the breach.
Trustee must act impartially
trustees must administer trust impartially; must be fair to all beneficiaries.
Trustee adjustment power:
1.If the trust calls for distribution of trust income to a beneficiary, the trustee must follow traditional accounting practices by distributing Interest and dividend income to the beneficiary.
- If such distribution does not effectuate trust purpose and is unfair, trustee may adjust between principal and income.
Allocation of Receipts:
- Income = rental income, interest on bond or CD, money received from entity, liquidating assets and mineral rights – 10% rule.
- Principal = proceeds of sale of asset, eminent domain awards, capital gains, property other than money received by entity, insurance proceeds where trust is beneficiary, liquidating assets and mineral rights – 90% rule.
Allocation of Expenses:
- Income = one-half trustee and consultant compensation; one-half accounting and legal expenses; ordinary expenses (interest payments on debt, ordinary repairs, taxes, insurance premiums).
- Principal = one-half trustee and consultant compensation; one-half accounting and legal expenses; principal payments on debt; environmental costs.
