Trust Administration and Trustees Duties Flashcards
(14 cards)
What is a trustee and to whom do they owe a duty too?
A trustee is charged with safeguarding trust property and following settlor’s instructions.
Must use all powers allowed in trust to act as a reasonably prudent person in managing the trust.
What is the Duty of Loyalty and Good Faith?
The trustee must adminster the trust:
1) In good faith
2) In accordance with terms and purposes
3) In interests in beneficiares
ESSAY TIP: In a discretionary trust, is a trustee immune from review?
No! Even in a discretionary trust where trustee has discretion to make transfers, the trustee can be subject to review if he failed to exercise good judgment
For example, personal decisions that are unrelated to settlor’s goals can be overturned.
What is the Duty of Impartiality?
Trustee has a duty to be impartial.
Must balance interests of present and future beneficiaries by investing property so that:
1) It produces a reasonable income
2) While preserving the principal for remaindermen
What is the Duty of Loyalty?
A trustee is bound by the duty of loyalty to administer the trust solely in the best interests of the beneficiaries when managing the trust.
What is self dealing and how does it violate the duty of loyalty?
A trustee is generally prohibited from engaging in self-dealing by buying or selling trust assets because it causes a conflict of interest between the trustee’s duties to the beneficiaries and the trustee’s own personal interest.
This is true even when the purchase or sale is at fair market value.
What is the no further inquiry rule regarding self dealing?
Self-Dealing raises an irrebuttable presumption that the duty of loyalty was violated.
The good faith motivations or reasons behind a trustee’s actions are irrelevant. Can only avoid liability if
1) Transaction was objectively fair and reasonable
2) Not affected by a conflict of interest
What is the Duty to be Impartial?
Trustee must balancing conflicting interests of present and future beneficiaries.
Does not mean that each beneficiary be treated equally.
What is the Duty of Care?
Trustee must exercise reasonable care, caution and skill when managing the trust.
Includes when the trustee is making investments!
What is the Duty to Diversify?
A trustee must adequately diversify the trust investments to spread out the risk of loss.
What are the remedies when a trustee breaches their fiduciary duties?
1) Constructive Trust
2) Suit for Damages
3) Remove Trustee
What is a constructive trust?
The court may impose a constructive trust when the court concludes that the person holding title to the property, if permitted to keep it, would profit by a wrong or would be unjustly enriched.
Requires:
1) Defendant currently holds title
2) Retention would unjustfully enrich defendant
The plaintiff will either acquire the property or, if it is sold, may obtain the sale proceeds.
What are damages?
A beneficiary may sue the trustee for
1) Lost profits
2) Lost interests
3) Other losses resulting from breach
When may the beneficiaries remove a trustee?
When they have violating a breach of a fiduciary duty.
