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12 Cards in this Set
- Front
- Back
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Duty of Loyalty |
No self-dealing by fiduciary
1. T cannot buy/sell trust assets to itself 2. T cannot borrow trust funds 3. T cannot sell assets from one trust to another 4. Corporate T cannot purchase its own stock as trust investment (can retain own stock if part of original trust property provided its a permissible investment (meets "prudent investor" investment standard) 5. T cannot engage in any transaction which T seeks to secure personal gain |
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Duty to Invest Prudently
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Except as otherwise provided by trust terms, T must manage property as PI would: consider purposes, terms, distribution requirements & other circumstances of trust & pursue overall investment strategy reasonably suited to it. T must adhere to a standard of reasonable care, skill, & caution in making investment decisions 1. Duty not to commingle (segregable from other assets) 2. Duty to balance return w/ potential risk 3. Duty to diversify investments: spread risk, not all eggs in 1 basket 4. Duty to keep trust productive: produce reasonable rate of return--> Portfolio review: T's compliance w/ PI Rule measured by; fact 1 or more assets held by trust are underperforming is ok as long as total return (income & capital appreciation) of overall portfolio is reasonable |
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Other duties of T |
Duty to Preserve & Protect Trust Property: In addition to investing prudently, T must insure trust property against casualty losses Duty of Impartiality: Absent provision permitting T to prefer 1 B over another, T must be fair & impartial to all Bs Duty to Account & Inform: T has duty to account periodically (annually) to Bs & keep them reasonably informed about admin. of the trust |
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POWERS OF T & SUCCESSOR T |
Corporate T (bank) may take register title to stock in name of nominee (bank officer itself) (statute eliminates this as breach for failure to take title to trust property). However, T is liable for acts of nominee (bank becomes guarantor) T may invest in common trust funds (Accounts created by corporate trust companies where several smaller trusts combined for purposes of investment; allows greater economy & diversification); allowed so no breach for commingling |
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T voting |
Modern (maj): Majority vote Traditional: Except in emergencies, T needs unanimous agreement Successor T: Only must appoint successor T (resigns/dies) if instrument explicitly requires it |
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LIABILITY FOR BREACH OF TRUST, TORTS, Ks |
Breach of Trust: Each breach is judged separately. T breaches fiduciary duty, B has choice: 1. B can ratify transaction & waive breach 2. Can surcharge T; sue for resulting loss 3. In self-dealing, B can "trace" & recover property for trust (T/executor borrows trust funds & invests, if value of purchased property goes up in value, B can claim property for trust) Exculpation clause: Clause relieving T of liability for breach of trust = unenforceable to extent it relieves T of liability for reckless/BF actions or clause was drafted by/at direction of T & settlor not represented by independent atty 2. Tort: Traditional: T is personally liable for all torts of self/agents; reimbursed from trust estate if T not personally at fault UTC change: T may be sued personally only if T was personally at fault. Otherwise, claimant must sue T in his rep. capacity 3. K: Traditional: T personally liable on K unless stipulation in K relieves T of personal liability UTC change: Claimant must sue T in rep. capacity; T may not be sued personally unless T failed to reveal her rep. capacity when T entered into K |
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CO-TRUSTEES & FAULT |
T who did not authorize/act in breach cannot be held liable unless there is element of fault New T who comes in & learns of breach must not continue it/must take proper steps to compel breaching T to redress it Delegations: T may delegate investment decisions to agent under UPIA, provided T exercises reasonable care, skill & caution in 1. Selecting A; 2. Defining scope & terms of delegation & 3. Periodically reviewing actions & decisions of A -Must have appropriate, well-researched A As long as trust is revocable, T who acts w/ consent of settlor can't be sued for breach by Bs |
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TRUST ACCOUNTING
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Income Bs entitled to net income while remaindermen entitled to trust corpus at termination of trust; thus items of receipts & expenditures must be allocated to correct account: income or corpus (principal) |
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TERMINATION OF TRUST |
Terminated/modified by consent of: 1. All existing/ potential Bs (must all be alive/of majority) 2. as long as no material purpose of trust will be frustrated (no future purpose to be served) Spendthrift clause makes trust indestructible (Bs cannot terminate) because idea that a further trust purpose of settlor to be served & it also cannot be reached by Cs Exception: spendthrift trust can be terminated by consent of all of Bs if settlor also consents Majority = revocable unless says irrevocable |
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TRUSTS IMPOSED BY OPERATION OF LAW: Resulting & Constructive trusts
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After court declares RT or CT, sole duty of T is to deliver legal title to B Resulting trusts: may arise on failure of express trust (semi-secret trust) or when express trust purpose is accomplished & corpus not exhausted or fails for any reason & trust is silent as to what happens Purchase $ resulting trusts: When consideration for purchase of property is paid by person other than person taking title Defenses: 1. Gift or 2. Loan; P tries to recast it as gift or a loan (not a trust) BFP: Sale/exchange by T of a RT or CT to BFP for value cuts off B's rights to transferred asset. BUT, T holds any consideration received on transfer in trust for B & if sale is not to BFP, B has choice of remedies: (i) impose trust on consideration received by T or (ii) impose trust on original asset in NON-BFP's hands Constructive trust: implied where person acquires title to property wrongfully to remedy unjust enrichment; CT T's only duty is to convey the property to the person who would have owned it but for the wrongful conduct 1. Title to property acquired by fraud, misrepresentation, duress or mistake 2. Oral trust of land under limited circumstances 3. Secret trust |
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POWERS OF APPOINTMENT |
General: POA holder not limited to class of Bs; she can appoint property to herself, her estate, or K to exercise, during life Special: Can only appoint to particular people; not herself, her estate or K to exercise To exercise POA, must explicitly say in will you are exercising POA & if required to make specific reference, POA holder must specifically reference that power in will Takers in Default: parties who take if POA is not exercised |
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Breach of Trust |
If T commits a breach of trust, T is liable to Bs, not the settlor, for the greater of: (i) amount needed to restore the trust property & distributions to what they would have been w/out the breach, and (ii) the T's profit from the breach |
