Trust admin issues

Question 1

general trustees duties

Answer 1

1) loyalty: no self dealing

2) care: (prudent investor rule)

Question 2

self dealing rules

Answer 2

1) trustee cannot borrow trust funds
2) trustee cannot buy or sell trust assets to himself
3) trustee cannot loan funds to trust
4) trustee cannot profit from serving as trustee (x/c compensation)

Question 3

what are B’ remedies if T’e breaches any duty of loyalty

Answer 3

1) can ratify the transaction and waive breach
2) surcharge action: resulting from loss
-

Question 4

in self dealing of trustee is good faith an x/c for trustee

Answer 4

NO

• breach of fiduciary duty automatically wrong; good faith or reasonableness is no defense
• only issue is amount of damages

Question 5

can B’s trace and claim the property of a trust

Answer 5

yes

Question 6

x/c where B’s cannot trace trust funds

Answer 6

where there is a BFP

1) for value
2) w/o knowledge of breach of trust

Question 7

do self-dealing rules also apply to loans or sales made to relative of trustee

Answer 7

Yes

- and officer, director, partner etc. if business entity

Question 8

trustees investment power

Answer 8

1) prudence is measured by CONDUCT AT THE TIME WHEN INVESTMENT DECISION is MADE, not outcome or performance
factors:
- the role that each investment plays w/i the overall trust portfolio
- expected total return from income and capital gain

Question 9

when is prudence measured for investment decisive

Answer 9

at TIME OF THE INVESTMENT DECISION, not the outcome or performance

Question 10

what is a trustees adjustment power

Answer 10

can allocate capital gain and principal to income

Question 11

when is adjustment power ok

Answer 11

1) capital gain and principal can be allocated to income where appropriate
factors:
1) intent of S as to respective interests of B’s
2) any increase or decrease in value of trust assets
3) w/e the trust gives the trustee the power to distribute principal

Question 12

what is trustee’s duty to diversify

Answer 12

a trustee cannot put all investments in one stock (absent contrary provision)

Question 13

are exculpate clauses in trust ok

Answer 13

YES but not for

1) gross negligence
2) bad faith,
3) fraud or
4) intentional

Question 14

can B’s bring a direct cause of action against a 3rd party for something dealing with trust

Answer 14

NO

- trustee has to bring action

Question 15

x/c where B’s can bring direct suit against 3rd party

Answer 15

1) trustee is unable or unwilling to bring action

2) 3rd party participated with trustee in committing breach of trust

Question 16

when a trust is revocable, may a trustee be absolved from liability when it acted in accordance with the settlor’s directives

Answer 16

YES, because settlor may be treated as the effective owner