Duty to Administer the Trust
must continue to administer until it terminates
common law - trustee owes beneficiaries the duty to act with care, skill, and prudence
UTC - trustee must administer trust; in good faith, in accordance with the trust purpose and terms, and in the interests of the trust beneficiaries
Self-Dealing (Duty of Loyalty)
trustee must administer trust solely in the interests of the beneficiaries
if trustee engages in self dealing …
- the transaction is voidable by the beneficiary affected; OR
- beneficiary can seek damages
Exceptions to prohibition on self-dealing
- authorized by trust terms;
- approved by the court;
- beneficiary did not commence a judicial proceeding within the required time;
- beneficiary consented, ratified, or released the trustee of liability;
- transaction occurred before the person became a trustee
Investment & Prudent Investor Rule (Duty of Care)
trustee must exercise the degree of care, skill, and prudence of a reasonable investor investing his own property
MUST diversify assets, avoid risky investments, and keep the trust assets productive
Principal & Income Allocations
trust receipts and disbursements are allocated to either principal or income (usually determined by state law)
Allocated to Income:
- receipt of rental payments from real/personal property;
- money received from an entity (cash dividends, interest on investments); and
- ordinary expenses and repairs
Allocated to Principal:
- proceeds from the sale of a principal interest;
- all other property received - other than money received from an entity; and
- extraordinary expenses and repairs
Conflict of Interest (Duty of Loyalty) - a transaction is presumed to be affected by a conflict of interest if entered into by:
- trustee’s spouse;
- trustee’s descendants, siblings, parents, or their spouses;
- agent or attorney the trustee; OR
- an entity that trustee has an interest in that might affect the trustee’s best judgment
No Further Inquiry Rule
a transaction entered into by trustee for the trustee’s own benefit is AUTOMATICALLY presumed to be a conflict of interest
- voidable without further inquiry (fairness or good faith is immaterial)
- presumption is rebuttable for person who has close business or personal relationship with trustee if trustee shows the transaction was not affected by any conflict
Duty to Act Impartially (Duty of Loyalty)
trustee MUST act impartially giving due regard to the beneficiaries’ respective interest
CANNOT be influenced by personal favoritism or animosity
Acting in Accordance w/ Settlor’s Wishes
Revocable Trust - owes duties only to the settlor (NOT liable for acting in accordance with the settlor’s wishes)
Irrevocable Trust - owes duties to the settlor AND the beneficiaries (MAY be liable for acting in accordance with the settlor’s wishes if it’s to the exclusion of the beneficiaries)
Trustee has the duty to _________ trust property and make it ____________.
Preserve; productive
The trustee’s duty of loyalty extends to _________________.
all beneficiaries equally
