Fiduciary Responsibilities & Professional Collaboration Flashcards

Under the Uniform Prudent Investor Act (UPIA), which factor is NOT among those a trustee must consider when making investment decisions?

Answer: The personal investment preferences of the trustee

The UPIA requires trustees to consider economic conditions, portfolio context, and tax consequences, but a trustee's personal investment preferences are irrelevant and may constitute a conflict of interest.

When a CPA in an estate planning team identifies a potential tax-saving strategy that would also require restructuring the client's business entity, the most appropriate professional collaboration step is to:

Answer: Share the strategy with the attorney and business advisor before presenting to the client

Effective professional collaboration requires the CPA to share identified strategies with the full team—attorney and business advisor—before presenting to ensure legal, operational, and planning alignment.

A fiduciary holds a trust with a spendthrift provision. A creditor of the income beneficiary demands that the trustee redirect income distributions directly to them. The trustee should:

Answer: Refuse the demand, as spendthrift provisions generally protect trust distributions from creditor claims prior to receipt

A valid spendthrift provision prevents creditors from attaching trust distributions before the beneficiary actually receives them, so the trustee should refuse the creditor's demand.

An AEP who is also a licensed insurance agent recommends a client purchase a life insurance policy that pays the AEP a significant commission. This situation primarily raises which fiduciary concern?

Answer: Breach of the duty of loyalty due to a conflict of interest

Recommending a product that generates personal compensation for the fiduciary is a classic conflict of interest that implicates the duty of loyalty, requiring full disclosure or recusal.

In estate planning team meetings, which practice best supports each professional's independent ethical obligations while promoting effective collaboration?

Answer: Maintaining separate client engagement letters that define each professional's distinct role and responsibilities

Separate engagement letters that clearly define each professional's role protect independent ethical duties, establish individual accountability, and prevent scope-of-practice confusion.

A trustee receives a request from the primary beneficiary to invest the entire trust corpus in a single real estate venture the beneficiary controls. Under the UPIA, the trustee's most appropriate response is to:

Answer: Refuse and maintain a diversified portfolio absent compelling circumstances

The UPIA requires diversification as a default standard of prudence, and investing the entire corpus in a single venture controlled by a beneficiary would also create a prohibited conflict of interest.

When an estate planning attorney uncovers during document review that the client's existing irrevocable trust was improperly drafted by a prior attorney, the AEP on the team should:

Answer: Encourage the attorney to advise the client of the issue and potential remedies such as trust decanting or court modification

The AEP should support the attorney in fully disclosing the drafting problem to the client and exploring remedies such as decanting, non-judicial modification, or court reformation.