What laws govern trusts in NY?
(1) Estate, Powers, and Trusts Law (EPTL)
(2) Surrogate's Court Procedure Act (SCPA)
What is a trust?
A fiduciary relationship in which one or more trustees are called upon to manage, protect, and invest certain property and any income it generates for the benefit of one or more named beneficiaries
Why are property transfers in a trust considered bifurcated?
Settlor transfers property to 2P trustee (who holds legal title) to be managed for benefit of 3P beneficiary (who holds equitable title)
No consideration required
How is trust property divided?
Trust property is divided between income and principal; equitable interest is divided between beneficiary holding possessory estate and beneficiary holding future estate
Revocable trust vs. Irrevocable trust
Revocable trust can be terminated by settlor at any time; irrevocable trusts cannot; NY law presumes trust is irrevocable and not amendable, unless stated otherwise
How can a trust be revoked?
Absent language within the instrument, any action manifesting settlor's intent to revoke will suffice; revocation = effective when action manifesting intent occurs
Mandatory vs. Discretionary Trusts
Mandatory requires trustee to distribute all trust income
Discretionary trust gives trustee power to distribute income at his/her discretion
RAP and Trusts
Trusts are subject to RAP, i.e., trust may fail if all interests do not vest within applicable period of perpetuities, unless it is charitable
NY courts have refused to adopt "wait and see" approach
NY presumes creator intended trust to be valid and has adopted "Saving Statute" rule of construction that creates presumption that parties intended that contingency would occur within 21 years from date of instrument, saving otherwise invalid transactions
What is NY's Suspension Rule?
Any estate in which conveying instrument suspends power of alienation for longer than lives in being at creation of estate + 21 years = VOID, i.e., at the end of life in being + 21 years, person(s) must be able to convey estate in fee simple (no requirement that transfer actually occur, just that it could occur)
Who are the parties to a trust?
(1) settlor (must be at least 18 and capable of entering into Ks)
(2) trustee (CL: same person cannot be sole trustee and sole beneficiary --> roles merge; NY eliminated merger doctrine--no merger as long as there are other beneficiaries other than just trustee)
What are the qualifications of a trustee?
Must have capacity to acquire and hold property for own benefit and capacity to administer trust
In NY, professional or business corporations (except those chartered specifically as trust company) and persons who are incompetent, convicted felons, or incapable due to intoxication, dishonesty, lack of understanding, or improvidence are unable to serve as trustees non-resident aliens can only serve as trustees if NY resident serves as co-trustee
Trustee must be given specific duties to perform or trust will fail and legal and equitable title will merge in beneficiary
What are the qualifications of a beneficiary?
Beneficiary possesses power to enforce trust instrument by virtue of holding equitable title to property; trust must name at least one beneficiary, even if such beneficiary is unborn at time trust is created
Any individual or entity can be named beneficiary as long as capable of taking and holding title to property
Valid beneficiary designations in NY:
(1) class containing "heirs" or "issue" of grantor
(2) any natural person
(3) charitable organization
(4) business organization subject to certain limitations
What is an express trust?
Trust created as a result of expressed intention of owner of property to create trust relationship with respect to property
Two categories of express trusts: (1) private express trusts, and (2) charitable trusts
What is a private express trust and what are the elements of a valid trust?
Trust that clearly states intention of settlor to transfer property to trustee for benefit of one or more ascertainable beneficiaries
To create valid trust, need to have
(1) prior or simultaneous intent (no precatory or ambiguous language),
(2) trust property owned by settlor at time of trust creation or property expected to be received in future (res; mere expectancy is insufficient),
(3) valid trust purpose,
(4) ascertainable beneficiaries (by name or definite class; exception = unborn children, charitable trusts)
What is an inter vivos trust?
An express lifetime transfer in trust
Lifetime trust must be (1) in writing, (2) signed by settlor and one trustee, and either (3)(i) notarized or (ii) executed in presence of two witnesses who also sign instrument
Transfers of real property must be in writing, but writing is not required for personal property; trustee takes legal title upon delivery of deed or personal property
When will a constructive trust be applied to an inter vivos trust?
When required writing is lacking; constructive trust orders purported trustee to distribute real property to intended beneficiaries outright, rather than in trust
When is parol evidence permitted with respect to inter vivos trusts?
Evidence outside of written agreement is allowed to show settlor's intent only if written instrument is ambiguous on its face (majority rule; followed by NY); minority of states allow parol evidence even if writing is not ambiguous
What is a pour over trust?
A pour-over devise is a provision in a will that directs distribution of property to a trust upon happening of an event, so that property passes according to terms of trust
Pour-over trust must be identified in will and sufficiently described in writing executed before or concurrently with will; if trust and will are revoked, then so is pour-over trust
What is a Totten Trust?
A designation given to bank account in depositor's name as trustee for named beneficiary; depositor retains control of passbook and ability to make deposits and withdrawals during his/her lifetime
Revocable by any lifetime act manifesting depositor's intent to revoke or by will
How is a life insurance trust created?
Grantor assigns policy on his life to trustee or designates trustee as beneficiary of proceeds; trust agreement must be in existence as of date policy is designated to trustee
In NY, unfunded revocable life insurance trust is valid, even if there is no res until death of grantor
What is a testamentary trust?
A trust whose terms are contained in writing in a will or in a document incorporated by reference into a will; must comply with applicable jurisdiction's statute of wills
Testamentary trusts are indestructible unless will authorizes revocation or amendment
NY exception to revocation = permits courts to terminate trust when it is no longer economically feasible to administer
What is the difference between a secret trust and a semi-secret trust?
Secret Trust = testamentary gift created in reliance on named beneficiary's promise to hold and administer property of another; intended beneficiary is permitted to present extrinsic evidence to prove promise; if proven by clear and convincing evidence, then constructive trust is imposed
Semi-secret Trust = when gift is directed in will to be held in trust, but fails to name beneficiary; extrinsic evidence not permitted, gift fails, and resulting trust is imposed
MAJORITY of courts still follow CL distinction; modern trend = imposing constructive trust for both secret and semi-secret trusts
What are the requirements for a charitable trust?
Must have charitable purpose and exist for benefit of community at large or for class of persons the membership in which varies
NY: charitable trust will not fail for indefiniteness or uncertainty of beneficiary when made for religious, charitable, educational, or benevolent purposes
Only AG has standing to challenge charitable trust; in NY charitable trusts subject to supervision of supreme court or Surrogate's court
RAP not applicable, unless charitable trust later transferred to non-charitable beneficiary
What constitutes a charitable purpose for the purpose of charitable trusts?
(1) relief of poverty
(2) advancement of education or religion
(3) promotion of good health
(4) government or municipal purposes
(5) other purposes benefiting community at large
Mixed trusts (charitable + non-charitable purposes) are not treated as charitable trusts; only charitable part is if there are two separate trust shares that are capable of being administered
NY: trusts for perpetual care of cemeteries and burial plots = charitable
Cy pres doctrine and charitable trusts
Under cy pres, court may modify charitable trust to seek alternative charitable purpose if original purpose becomes illegal, impracticable, or impossible to perform; court determined settlor's primary purpose and select new purpose as near as possible to original one
UTC and Restatement presume general charitable purpose and authorize application of cy pres, even if settlor's intent is unknown; NY has not adopted presumption and requires court to demonstrate that grantor had charitable interest
What is an honorary trust?
Trust that is not charitable, but also does not have private beneficiaries
e.g., trust for care of pet
Honorary trusts are enforceable in NY; limited to a term of 21 years
What is a remedial trust?
Passive trusts created by operation of law as equitable remedies
Only duty of trustee = to convey trust property to beneficiary
Two types = resulting trust and constructive trust
When is a resulting trust imposed?
When trust fails or where there is an incomplete disposition of trust property, court may create resulting trust requiring holder of property to return it to settlor or settlor's estate; clear and convincing evidentiary standard
Purpose = prevent unjust enrichment; imposed when party other than trust property holder supplied consideration --> rebuttable presumption of unjust enrichment of holder
Modern couts/NY weigh gravity of unjust enrichment in making determinations as to whether or not to impose resulting trust; NY does not recognize purchase-money resulting trust
When are constructive trusts used?
To prevent unjust enrichment if settlor causes fraud, duress, undue influence, breach of duty, or detrimental reliance by 3P on false representation, homicide, i.e., there must be wrongful conduct
Clear and convincing evidentiary standard
Constructive trustee only has duty of surrendering property
What elements need to be proved to establish a constructive trust?
(1) transferor and transferee share confidential or fiduciary relationship
(3) transfer in reliance on promise and
(4) unjust enrichment
What is a gift-over clause?
A trust provision that provides for disposition of trust property in event trust purpose fails; NY will honor gift-over clause before imposing equitable remedy
What instruments are available to protect trust property from creditors?
(1) Pour-over trust
(2) Support trust
(3) Discretionary trust
(4) Spendthrift trust
Is the beneficiaries right to receive income or principal from trust reachable by creditors?
Beneficiary's equitable interest is subject to involuntary alienation and is reachable by creditors of beneficiary to extent that it is reachable by beneficiary
Creditor cannot reach trust principal or income until such amounts become payable to beneficiary or are subject to demand
Beneficiary's right to receive income or principal and alienation
Beneficiary's equitable interest is freely alienable unless statute or trust instrument limits right
How are creditors avoided through a pour-over trust?
Assets poured over from will pass outside reach of testator's creditors as long as trust was executed before or simultaneously with will; also applicable to life insurance or other K proceeds
What is a support trust?
Trust that directs the trustee to pay income or principal as necessary to support trust beneficiary
Creditors cannot reach assets of support trust, except to extent that provider of necessity to beneficiary can be paid directly by trustee
What is a discretionary trust?
Trust where trustee is given complete discretion over whether to apply payments of income or principal to beneficiary
If trustee exercises discretion to pay, beneficiary's creditors can reach those assets, unless a spendthrift provision exists
Beneficiary of discretionary trust lacks standing to challenge actions of trustee unless there is clear abuse of discretion
What is a mandatory trust?
Trustee of mandatory trust has not discretion regarding payments and must follow instructions detailed in trust document on how and when to distribute trust property
What is a spendthrift trust?
Trust that expressly restricts beneficiary's power to voluntarily or involuntarily transfer his equitable interest
In NY, grantor may not create self-settled spendthrift trust merely to evade creditors
In NY, beneficiary of trust has no right to alienate or assign his interest in trust income unless grantor has provided otherwise; thus all trusts are spendthrift trusts
Restriction only applies as long as property remains in trust
Spendthrift provisions preclude beneficiary's interests from being reachable in bankruptcy proceedings
What types of creditors are exempt from spendthrift clause provisions?
Spendthrift clauses don't apply to
(1) children and spouses entitled to support
(2) creditors that provide basic necessities to beneficiary
(3) holders of federal tax liens
(4) excess income beyond that needed for support and education
(5) 10% levy available to judgment creditors
(6) transfers containing fraudulent conveyance with purpose to delay, defraud, or defeat creditors
If settlor is also the beneficiary, then spendthrift protection no available
When does a trust terminate?
(1) Automatically terminates when trust purpose has been accomplished
(2) Revocation by Will
(3) Court modification and termination
What is the Claflin Doctrine?
A trustee can block a premature trust termination if the trust is shown to have an unfulfilled material purpose, even if all the beneficiaries have agreed to terminate
Discretionary trusts, support trusts, spendthrift trusts, and age-dependent trusts all have intrinsically unfulfilled material purposes
When can a trust be revoked by will?
CL: trust expressly provided for revocability by will
UTC: trust can be revoked by will unless trust expressly provides for another method of revocation
NY: revocation of lifetime trust by will permitted as long as grantor expressly reserved right to revoke
When can a court modify or terminate a trust?
Court may modify trust if unanticipated events have caused purpose to be frustrated by its terms; may prematurely terminate trust if trust's purpose has been achieved, or if it has become illegal, impracticable, or impossible; however, court cannot alter rights of beneficiaries due to changed circumstances alone
Under NY law, trust can be terminated when the expense of administering it becomes uneconomical
How can a settlor terminate or modify a trust in NY?
Settlor may expressly reserve right to modify or terminate; if there is no reservation, then can modify only with consent of all beneficiaries and if proposed change will not interfere with primary purpose of trust
If trust contains a remainder in grantor's heirs, remainder will not prevent trust termination with consent of all beneficiaries, because remainder is not a beneficial interest
Can a minor or person adjudicated incompetent terminate a trust through a guardian in NY?
NO; neither can give consent to terminate the trust; if any trust beneficiary is a minor or incompetent, then the trust cannot be terminated
Can a trustee terminate a trust?
No, unless the trust instrument contains an express termination provision
How can a trustee be removed?
Court has power to refuse to appoint or to remove trustee if purposes o the trust would be frustrated by trustee's appointment/continuation; in NY, any person interested in trust can make application to remove trustee
(1) trustee has become incapable of performing duties
(2) trustee has materially breach one or more duties
(3) conflict of interest has arisen
(4) serious conflict between trustee and one or more beneficiaries, or between co-trustees has developed, or
(5) trust is persistently performing poorly due to trustee
However, if settlor knew of any of these problems when naming trustee, then will not be grounds for removal
What remedies are available for trustee's breach of trust?
(1) remove trustee
(2) ratify transaction and waive breach of trust, or
(3) bring surcharge action and sue for resulting loss
How is trust principal and income generally allocated?
Life beneficiaries entitled to trust income
Remaindermen entitled to trust principal
All assets received by trustee must be allocated to either income or principal, and allocation must be balanced to treat present and future beneficiaries fairly
What is the traditional approach to principal and income allocation?
Any money generated by trust property = income; any money generated in connection with conveyance of trust property = principal
What is the modern approach to principal and income allocation?
Uniform Principal and Income Act (UPAIA) focuses on TOTAL RETURN of Trust Portfolio
Under UPAIA, trustee is empowered to re-characterize items and reallocate investment return as necessary to fulfill trust purposes, as long as allocations = reasonable; if the trustee is also a beneficiary, cannot make adjustments under UPAIA
What are some of the factors that a trustee must consider when determining how to best exercise allocation of investment returns?
(1) settlor's intent and language of trust instrument
(2) nature, duration, and purpose of trust
(3) identities and circumstances of beneficiaries
(4) relative needs for regularity of income
(5) net amount allocated to income and increase/decrease in value of principal assets
(6) anticipated effect of economic conditions on income and principal, and
(7) anticipated tax consequences of adjustment
What is a unitrust?
A trust from which the lifetime beneficiaries are entitled to a fixed annual share of value of the trust principal; distinction between income and principal is not relevant
NY: permits optional calculation of income using unitrust amount
What is the "unproductive property" rule?
An income beneficiary is entitled to portion of proceeds of unproductive property, on theory that such portion represented delayed income thereon; however, with shift to trust portfolio approach, rule is seldom applied
What changes has NY made to its adoption of the UPAIA?
Amended the default mechanism for allocating principal and income
If (i) a trust/will is silent on allocation between principal and income, (ii) governing instrument does not give trustee discretion to allocate the item, and (iii) the statute is silent regarding allocation, then trustee must allocate to principal
How are receipts from an entity allocated?
Cash money from entity is characterized as income, unless money = capital gain for federal income tax purposes
All other property received from entity is characterized as principal
How are contract proceeds allocated?
Proceeds from life insurance policies or other Ks where trust/trustee is named as a beneficiary --> principal, unless K insures trustee against loss --> income
How are receipts from a deferred compensation plan (i.e., pension plan) allocated?
Depends on whether payor characterizes it as income or principal; if payor does not characterize as either, then 10% of payment is income and rest is principal
What are liquidating assets and how are they allocated?
Liquidating asset = asset whose value diminishes over time because asset is only expected to produce receipts over limited period (e.g., patents, copyrights)
Proceeds allocated: 10% income; 90% principal
How are mineral rights allocated?
10% income; 90% principal; NY varies allocation based on reason payment was received
What expenses will be charged to trust income?
(1) 1/3 of regular compensation to those who provide investment, advisory, or custodial services to trustee
(2) all or specified portion of accounting costs, court costs, and costs of other matters affecting trust interests
(3) ordinary expenses in their entirety
(4) insurance premiums
What expenses will be charged to trust principal?
(1) remaining 2/3 of regular compensation to those who provide services to trustee
(2) all of trustee's compensation as fee for acceptance, distribution, termination, or disbursements made to prepare property for sale
(3) all payments on principal of any trust debt
(4) all expenses of any proceeding that concerns an interest in principal
(5) estate taxes, and
(6) all payments related to environmental matters
What is the difference between possessory estate and future interest?
Possessory estate holds present right to possess property
Future interest holders hold present right to possess property in the future
CL: if future interest violated one of many technical drafting rules, it was typically null and void
What types of future interests can a grantor hold?
Reversion, possibility of reverter, or right of re-entry
What is a reversion?
Future interest where grantor has the right to possess property after a finite estate ends (e.g., life estate, estate for term of years, fee tail)
If grantor does not convey entire interest, but does not explicitly retain interest --> implied reversionary interest
What is a life estate?
When grantor conveys right to use or occupy property for life of designated person; beneficiary only receives an equitable interest
What is an estate for term of years?
When grantor conveys right to use or occupy property for a succinct, specified period of time
What is a fee tail?
When grantor conveys estate inheritable only by lineal descendants of original grantee, and not by any other close relative; abolished in NY
What is a possibility of reverter?
When grantor conveys fee simple determinable estate, grantor retains possibility of reverter, where right to possession reverts to grantor upon happening of specified condition or event; fee simple ends automatically
What is a right of re-entry?
When grantor conveys fee simple subject to condition subsequent, and upon happening of condition subsequent, grantor is deemed to have retained right to re-enter or retake possession, but fee simple does not end automatically
What is a vested remainder?
Remainder = vested if holder of interest is ascertainable, and no express condition precedent is required before interest become possessory
If a class is vested as to some, but still open, new members partially divest previous members of class in order to share property equally
What is an executory interest?
An interest (vested remainder subject to divestment or fee simple subject to executory limitation) that follows an interest held by the grantor
Are remainders transferable?
CL: vested remainders are and contingent remainders are not
Modern trend (NY) = both are transferable
When is a disclaimer of a gift effective?
UPC/NY: if life tenant disclaims gift, disclaimer is effective as long as it is executed within 9 months of indefeasible vesting of interest
Federal Tax Laws: disclaimer must be executed within 9 months of creation of interest in question to avoid estate or gift taxes
What is a generation-skipping transfer tax?
Tax owed when decedent passes property to remote descendants
What is a class gift?
Gift to group of individuals with an automatic right of survivorship; death of one class member --> member's share being redistributed among remaining class members
Restatement: share of deceased class member paid to class member's surviving issue (see p. 26 of Trust outline for more on Gifts to Surviving Children, Issue/Decedents, Adopted Children, Heirs, Rule in Shelley's Case, and Doctrine of Worthier Title)
What is a power of appointment?
Provides beneficiary with power to amend or override distributive terms of the trust; in NY, an unexecuted power of appointment will not prevent vesting of a future estate
In order for duties to be imposed on a trustee, what must a trustee do first?
Accept the trusteeship
What types of activities must the trustee do in order to safeguard the trust property?
Purchase insurance, earmark assets, record deeds, identify and locate beneficiaries, follow the settlor's instructions
What happens if there are two trustees?
Majority of state, including NY, require trustee to act with unanimity absent a contrary intent expressed in the trust agreement; if there are more than 2 trustees, then most states require a majority only
What is the basis of the trustee's powers over the trust?
CL: trustee limited to grant of power authorized within trust document or implicitly provided in light of trust's powers and purposes
Trustee can petition the court to obtain powers not expressly authorized in the trust
Modern Trend: court grants trustee all powers necessary to act as reasonably prudent person in managing the trust
What powers are given to the trustee under the New York Fiduciary Powers Act?
Act enumerates broad powers exercisable by trustee without court order or express authorization; grantor has right to expressly limit or expand statutory powers under trust instrument
What powers over the trust property does the trustee have?
Trustee generally has power to contract, sell, lease, or transfer trust property
NY: ability of trustee to lease property is limited to lease whose duration does not 10 years; option to sell is limited to period of 6 months
If settlor specifies that trustee cannot sell certain property, then trustee must get a valid court order to sell it; right to sell granted only if selling is necessary to save trust
Can a 3P be held liable for his role in breaching the trust?
CL: 3P has responsibility to inspect trust property before dealing with trustee; can be held liable for if any issues come up
Modern Trend (NY): provides that purpose of trust is to hold and manage trust property, and provides greater protection to 3Ps
If a trustee is granted complete discretion over the trust, is she immune from liability for violating interests of a beneficiary?
NO; if trustee failed to exercise judgment, not immune from review
To determine whether trustee violated fiduciary duty, must determine whether trustee acted reasonably (objective standard) AND in good faith (subjective standard)
What are the trustee's duties with regards to the trust?
(1) Duty of loyalty and good faith, which includes
(i) duty against self-dealing
(2) Duty of Prudence
(i) Duty to make decisions
(ii) Duty to invest trusts (duty to diversify assets, to make property productive, commingling trust funds, decision-making)
(iii) Duty to be impartial
(3) Duty to inform and account
(i) Duty to disclose
(ii) Duty to account
(4) Duty to secure possession
(5) Duty to maintain
(6) Duty to segregate
When will a trustee be held to have been self-dealing?
When a trustee PERSONALLY engages in transaction involving trust property; self-dealing = per se breach of duty of loyalty (no further inquiry rule --> irrebuttable presumption); e.g.,
(1) buying or selling trust assets
(2) selling property of one trust to another trust that trustee manages
(3) borrowing from or making loans to trust
(4) using trust assets to secure a personal loan
(5) engaging in prohibited transactions with friends or relatives
(6) otherwise acting for personal gain
(7) buying or selling trust assets to relatives or any business entity in which he has interest ("indirect self-dealing")
When is a trustee permitted to self-deal?
When it is authorized by the settlor under the terms of the trust, by court order, or by all beneficiaries; however, transaction must still be reasonable and fair for trustee to avoid liability
Are exculpatory clauses in a trust agreement valid?
Complete exculpatory clauses are void as contrary to PP; limited exculpatory clauses honored if there is no finding of bad faith or unreasonableness
NY: exculpatory clauses in testamentary trusts are invalid
Under the UTC, how can a trustee avoid liability?
If the trustee can prove that the transaction was objectively fair and reasonable and not affected by a conflict of interest
Many states have statutes permitting bank trust department to deposit trust assets in its own banking department; trustees are authorized to receive reasonable compensation for their services
What standard is applied to conflicts of interest that do not constitute self-dealing?
Assessed under the reasonable and in good faith standard
What does a trustee's duty of prudence cover?
(1) duty to make decisions
(2) trust investments
(3) duty to be impartial
Can a trustee delegate discretionary responsibilities?
Modern law: trustee may delegate responsibilities if it would be unreasonable for the settlor to require trustee to perform such tasks; however, if a function goes to the heart of the trust, or constitutes a critical function concerning property, then the function is discretionary and is not delegable; if the function is merely ministerial, then it can be delegated
Trustee can delegate the determination of management and investment strategies, but must oversee the decision-making process
What types of investments is a trustee permitted to make?
CL: limited to statutory list of acceptable investments unless trust instrument expressly authorized deviation from list
Model Prudent Man Investment Act (MPMIA): permits any investment that a prudent man would make, marring only speculative investments
Uniform Prudent Investor Act (UPIA) (NY): requires trustee to act as prudent investor would when investing his property; trustee must exercise reasonable care, caution, and skill when investing and managing trust; if trustee has special skill/expertise, then is expected to exercise that expertise, i.e., Modern Trend--Portfolio Approach
What duties does a trustee have under the Uniform Prudent Investor Act?
(1) Duty to diversity assets in order to spread risk of loss; trustee does not have to diversity if administrative costs would outweigh the benefits
(2) Duty to make property productive by pursuing all possible claims, deriving max income, selling assets, securing insurance, paying expenses, and acting within reasonable period for all matters
(3) Commingling trust funds (CL: each trust must be separate from each other and from trustee's own funds; modern: commingling of trust accounts is ok)
(4) Duty to make informed decisions
What happens if the trustee commingles the trust funds with own property and some of the property is either lost or destroyed?
Presumption = lost/destroyed property = trustee's and remaining property belongs to the trust
If one part of commingled assets increases in value and another decreases, presumption = assets with increased value belong to trust and assets with decreased value belong to trustee
What is the portfolio approach to trustee investments?
UPIA assess trustee's investments based on total performance of the trust, not just individual investments
Diversification has become increasingly important; also trustee's duty to create paper trail supporting reasonableness of actions
Risk tolerance varies greatly depending upon size and purpose of particular trust
Describe a trustee's duty to be impartial
Duty to balance conflicting interests of present and future beneficiaries by investing property so that it produces reasonable income wile preserving principal for remaindermen
Duty to Sell: trustee has duty to sell trust property within reasonable time if failure to diversity would be inconsistent with modern portfolio approach; delay in disposing of under/over-performing property creates duty in trustee to reallocate sale proceeds to those beneficiaries who were adversely affected by delay
What does a trustee's duty to disclose entail?
Trustee must disclose beneficiaries complete and accurate information about nature and extent of trust property, including allowing access to trust records and accounts; identify possible breaches of trust and promptly disclose such information to beneficiaries
If copy of trust instrument is requested, trustee must promptly provide it, unless otherwise provided by settlor; NY recognizes that such a duty exists
Trustee must notify beneficiaries if he intends to sell significant portion of trust assets
What does a trustee's duty to account?
Trustee must periodically account for actions taken on behalf of trust; trustees of testamentary trusts must account to probate court; UTC allows settlor to waive trustee's duty to report to beneficiaries, or beneficiaries can waive receipt of reports
NY: attempt to relieve a testamentary trustee from duty to account is void as against PP; NY case law has held that same PP is equally applicable to inter vivos trusts
What is constructive fraud?
If an accounting provided by trustee includes false factual statements that could have been discovered to be false had trustee properly investigated, then constructive fraud results
What is the trustee's duty to secure possession?
Trustee must secure possession of property within reasonable period of time; with testamentary trust, trustee must monitor executor's actions to ensure trust receives all to which it is entitled
What is the trustee's duty to maintain?
Trustee must take whatever steps an ordinary owner would take (insuring, repairing, maintaining) would in caring for real property
What is a trustee's duty to segregate?
Trustee must separate his personal property from trust assets; exception = when trustee invested in bearer bonds
CL: trustee was strictly liable for damages to trust property; modern trend: trustee liable only when breach causes damage to trust property
Co-trustee's are jointly liable, but liability may be limited if only one trustee acts in bad faith or benefited personally from breach; ways co-trustee may be liable
(1) consenting to action constituting the breach
(2) negligently failing to act to prevent breach
(3) concealing breach or failing to compel redress
(4) improperly delegating authority to co-trustee
These limitations also apply to successor trustee liability for breaches by pedecesors
Trustee is not liable for breaches committed by an agent UNLESS
trustee (1) directs, permits, or acquiesces to agent's act
(2) conceals the agent's act
(3) negligently fails to compel agent to redress wrong
(4) fails to exercise reasonable supervision over agent
(5) permits agent to perform duties that trustee was not entitled to delegate
(6) fails to use reasonable care in selection or retention of agents
No clear-cut standard for delegation of duties to agents exists; delegation should be limited to ministerial duties