Trustee Administration

Question 1

What is the source of trustee’s power?

Answer 1

1. powers EXPRESSLY conferred in instrument, state law, and court decree +
2. any necessary implied powers to accomplish trust purposes

Question 2

What is an “imperative power” ?
What is the court’s role w regards to an imperative power?

What is a “discretionary power”?
What is the court’s role w regards to a discretionary power?

Answer 2

“imperative power” = trust instrument requires its exercise
-if trustee fails or refuses, court will order trustee to act upon petition

“discretionary power” = powers that trustee may or may not perform
-subject to review for “abuse of discretion”

Question 3

Does trustee have IMPLIED power to borrow money, mortgage or otherwise encumber trust property?

Answer 3

Traditionally –> No

Under UTC —> yes

Question 4

To whom does trustee owe duty?

Answer 4

If revocable trust –> trustee’s duties are owed exclusively to settlor

If irrevocable –> owes duties to all trust beneficiaries

Question 5

What standard of care applies to trustee?

Answer 5

Trustee must exercise that degree of care, skill, and caution that a REASONABLY PRUDENT PERSON would exercise in the care of her own property

NOTE –> if trustee has greater or special skill, she will be held to a higher standard

Question 6

What is trustee’s duty of loyalty?

Answer 6

A trustee owes a duty of undivided loyalty to the trust and its beneficiaries:

IN GENERAL –> absent court approval or express language in trust instrument, trustee cannot enter into any self-dealing transaction w trust

1. trustee cannot BUY or SELL trust assets even if price is a fair one
2. Trustee may not sell property of one trust to another trust of which she is also trustee
3. Trustee may not BORROW trust funds not loan her personal funds to the trust, and any interest paid on such a loan must be returned to the trust
4. Trustee cannot use trust assets to secure personal loan
5. Trustee cannot personally gain through her position as trustee
6. corporate trustee cannot investor in its own stuck (BUT CAN retain his own stock if it was part of original trust rest)
7. self-employment can constitute a form of self-dealing. However, if trustee renders extraordinary service she may be entitled to additional compensation

Question 7

What is the rule w regards to indirect self-dealing?

Answer 7

Same rules apply to sales or loans to trustee’s relatives and business associates, and to corporations of which trustee is a directors, officer or principal SH

Question 8

What is trustee’s duty to account?

Answer 8

T has duty to keep and render accounts

Question 9

To whom does the DOL extent?

Answer 9

All beneficiaries, unless trust provides otherwise

Question 10

What are beneficiaries rights if there is a prohibited transaction?

Answer 10

If prohibited transaction takes place, B has option:

1. set aside the transaction
2. recover any profit made by trustee
3. affirm the transaction

Question 11

What is trustee’s duty to separate and earmark trust property?

What happens if trustee commingles?

Answer 11

Trustee must keep trust assets physically separate

-trust property must be titled in name of trust

If trust property is commingled:

1. if some property is lost and destroyed, it is presumed that trustee’s property was lost and destroyed
2. if some property increases in value, and some decreases, it is presumed that trustee’s decreased

Question 12

What is trustee’s duty to perform personally (prohibition of delegation of duties)?

What is the remedy if she improperly delegates?

Answer 12

A trustee may only delegate acts that would be UNREASONABLE to require her to perform personally.

She MAY NOT –> delegate entire administration of a trust or discretionary functions, such as decisions to make discretionary distributions

INVESTMENT and MANAGEMENT DECISIONS:

• traditionally could not be delecated
• under UPIA (uniform prudent investors act) - may delegate

REMEDY IF THERE IS IMPROPER DELEGATION –> T becomes GUARANTOR and is responsible for actual losses, regardless of cause

Question 13

What is trustee’s duty to protect trust from legal attack?

Answer 13

Trustee owes duty to defend trust from legal attack UNLESS challenge is well founded

Question 14

What is trustee’s duty to preserve trust property and make it productive?

Answer 14

• Power to invest is normally implied from duty to make trust property productive
• Trustee is expected to take actions (lease land, collect claims, and invest money)

Measure of damages –> amount of income that would normally accrue from proper investments