April 21st, 2010
If the transferor, or grantor or settlor intends to create a trust the transferor will impose certain duties on the transferee with respect to the transferred property. Typically, the establishment of a trust relationship brings with it five fundamental duties:
- The duty to be generally prudent (to include the duty to segregate the property);
- The duty to act and to carry out the terms of the trust;
- The duty to be loyal to the trust (to include acting honestly and in good faith;
- The duty to give personal attention to the affairs of the trust: and
- The duty to account to the beneficiary.
If any one of these duties is totally lacking, there is a good chance that the transferee’s legal status with respect to the property is something other than that of a trustee.
Duty to Be Generally Prudent
The Uniform Trust Code, in Section 804, states that, “A trustee shall administer the trust as a prudent person would, by considering the purpose, terms, distributional requirements and other circumstances of the trust. In satisfying this standard the trustee shall exercise reasonable care, skill and caution. ” In addition, Restatement (Third) of Trusts, Section 77(2) states that, “The duty of prudence requires that the trustee exercise reasonable care, skill and caution in the administration of the trust.” In fact, Scott & Ascher in Section 17.6 indicates, ” It is not sufficient that a trustee uses such diligence as the trustee ordinarily employes in the trustee’s own affairs. The standard is an objective one, that of the prudent person.”
Restatement (Third) of Trusts is Section 77 and 77(1) indicates that the standard of prudence is a standard of conduct, not performance. A trustee’s action or inaction will not be judged in hindsight, but will be judged in light of the “purposes, terms and other circumstances of the trust.” It further states, “The duty to act with caution does not, of course, mean the avoidance of all risk, but refers to a degree of caution that is reasonably appropriate or suitable to the particular trust, it’s purposes and circumstances, the beneficiaries’ interest and the trustee’s plan for administering the trust and achieving it’s objectives.”
Restatement (Third) of Trusts Section 77 comment a and Section 801 of the Uniform Trust Code indicate one who holds oneself out as a professional trustee with special skills is under a duty to employ those skills. In fact, 3 Scott & Ascher, Section 17.6 states that the law has been tending in the direction of holding the corporate trustee to a higher standard of care than the standard to which an individual non-professional trustee is generally held.
Duty to Carry Out the Terms of the Trust
Addressing the trustee’s duty to carry out the terms of the trust the Uniform Trust Code, Section 801, states, “Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith in accordance with it’s terms and purposes and the interests of the beneficiaries.” Restatement (Third) of Trusts, Section 76 (1) and comment b, indicate “A person accepting the office of trustee has an affirmative duty to act, that is to say, to administer the trust diligently.”
Restatement (Second) of Trusts, in Section 164, comment a, and 2A Scott 0n Trusts, Section 164 and 154.1 state that the trustee has an overarching duty to carry out the intentions of the settlor as they have been manifested in the terms of the trust.Restatement (Third) of Trusts, Section 76 (2) indicates that in administering the trust, the trustee has a duty to ascertain his duties and obligations, the beneficiaries, and the purposes of the trust. He is then under a duty to “comply with the terms of the trust and applicable law in distributing or applying income and principal to to or for the benefit of the beneficiaries.” According to 3 Scott & Ascher, Section 17.14 and Restatement (Third) of Trusts, Section 76, comment f, the duty to read the governing instrument and get the facts is all part and parcel of the trustees duty to carry out the terms of the trust.