Trust Administration & Fiduciary Duties Flashcards
7 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Trust Administration & Fiduciary Duties flashcards as text
A directed trust arrangement differs from a traditional trust primarily because:
Answer: An advisor or committee holds authority over certain trust functions, limiting the trustee's role
In a directed trust, specified functions (such as investment or distribution decisions) are controlled by an advisor or committee, and the trustee follows those directions within legal limits.
The 'prudent investor rule' replaced the earlier 'prudent man rule' primarily by:
Answer: Allowing portfolio-level risk management and modern investment strategies
The prudent investor rule embraced modern portfolio theory, permitting broader investment strategies evaluated at the portfolio level rather than investment by investment.
A trustee sells trust real estate to the trustee's adult child at fair market value. This transaction is:
Answer: A self-dealing violation because the trustee's family benefits from the transaction
Transactions that benefit the trustee's family members are generally treated as self-dealing under the duty of loyalty, even at fair market value.
Which of the following trust expenses is typically charged to principal rather than income?
Answer: Capital improvements to trust real property
Under the Uniform Principal and Income Act, capital improvements to trust property are charged to principal because they enhance the long-term asset value.
A 'no-contest' clause is generally unenforceable in a state that requires:
Answer: Probable cause for the contest to override the clause
Some states (and the Restatement Third of Trusts) hold that a no-contest clause is unenforceable when the beneficiary had probable cause to contest the trust.
Under the Uniform Trust Code, a trustee who fails to send required notices to qualified beneficiaries within the prescribed period may face:
Answer: Personal liability for damages resulting from the failure to notify
Failure to provide required notices can expose the trustee to personal liability for losses beneficiaries suffer because they lacked the information needed to protect their interests.
A trust provides that the trustee 'may' distribute income at the trustee's discretion. A court reviewing such a provision would generally hold that:
Answer: The trustee's discretion is subject to good faith and proper purpose standards
Even broad discretionary powers are subject to the implied obligation that the trustee exercise discretion in good faith and in accordance with the trust's purposes.