Supervision (Trustee) Flashcards
1) Trustee Authority
- Express
- Implied–those powers necessary to effectuate trust purpose
- Joint trustee:
- unanimous
- if one acts, need fault:
- failure to prevent
- participated in breach
- found out, but did nothing
2) Trustee Obligation: Elements
1) Due Care*
2) Loyalty*
3) No commingling/earmarking
4) Perform Personally*
5) Accounting to Beneficiaries
6) Defend Trust
7) Fairness*
2) Trustee Obligation: Due Care
Prudent Investor Rule: must exercise care of prudent business person managing his own property
Due Care:
- maintain/preserve trust assets (no offset) (insurance)
- marketability
- keep trust productive (portfolio view)
- diversify (portfolio view)
- not to speculate
- timely investments
2) Trustee Obligation: Loyalty
- No self-dealing
- No:
- buying or selling trust assets to self
- borrowing trust funds
- selling from one trust to another
- corporate purchase–buying own stock
2) Trustee Obligation: Perform Personally
-No delegation
- T liable if:
- fails to use reasonable care in selecting agents
- fails to remedy improper acts
- improper delegation (only purely ministerial, not discretionary powers)
2) Trustee Obligation: Fairness (Allocation Rules)
-Trustee must be fair to all beneficiaries (income as well as principal/remaindermen)
- Beneficiaries entitled to income:
- interest/dividends
- open mines–all receipts if before trust created
- open mines after–income from investments if any
- Remaindermen (principal):
- extraordinary receipts
- stock dividends; profits from sale of stock
- mines open after trust created–get principal (income from investments goes to beneficiaries)
3) Remedies: Breach of Trust
-Where trustee breaches fiduciary duty, beneficiaries have choice of options
3) Remedies: Options
- ratify transaction and waive the breach
- sue for resulting loss (name of action is surcharge)
- if it is self-dealing, then trace and recover property
3) Remedies: Other Issues
- No offsets for unrelated transactions. Offset if breach arises out of same transaction
- Liability for acts of others (agents and co-trustees)
- Exculpatory clauses–may not be valid (public policy)
- Ineffective Resignation–trustee liable for all losses until a successor is appointed
- BFP:
- cuts off equitable remedies against the BFP
- trustee holds consideration in trust
- if not BFP, beneficiary may:
- impose a constructive trust on consideration received by trustee; OR
- impose a constructive trust on the original asset
4) 3P Liabilities: Tort
- A 3P may sue trustee for torts committed by trustee and his agents (personal liability for torts committed within scope of trust supervision)
- Indemnification:
- trustee not personally at fault; AND
- tort normal risk inherent in activity
4) 3P Liabilities: Contract
- Personal liability for all contracts made within scope of trust supervision unless contract states otherwise
- Indemnification: if contract not a breach of trust
Relation Back
Once trustee accepts position, his fiduciary duty relates back to settlor’s death. Thus, a trustee may be liable for tort claims arising prior to acceptance.
