Trustee Powers

By incorporating by reference Va. Code § 64.1-57 and § 55-548.16, the trustee is afforded all the powers imaginable to the entire estate planning bar. Powers can, or course, be limited in relationship to the purpose of the trust. However, in most cases expansive powers are desirable to permit the current, and future trustees, to act in circumstance unforeseeable at the time the trust is formed.

In exercising its powers, the trustee has a fiduciaries responsibility to the beneficiaries of a trust. This is the highest duty known in civil law, and should not be ever taken lightly.

The trustee has a duty of loyalty to administer a trust for the benefit of the beneficiaries. Self-dealing transactions are voidable. A trustee must exercise great care to be impartial in trust management and distributions when there are two or more trustees.

The trustee preserves and protects the trust property for the benefit of all beneficiaries, income and residuary. The Virginia Uniform Prudent Investor Act [Prudent Investor Act] requires, unless expressly waived in the trust, that the trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the “prudent investor rule. The trustee shall act like an ordinary prudent man would do when dealing with his own property.

The Courts apply a higher standard of care for trustees who have special financial skills. In essence, the Prudent Investor Rule requires a trustee to preserve the trust property and to make it productive, while acting with reasonable care, skill, caution, and undivided loyalty to the beneficiaries. Trustee should be aware that fiduciary litigation is on the rise. The Center of Fiduciary Analysis reports a 22% compound annual increase in fiduciary litigation. When the trust document waives the Prudent Man Rule, beneficiaries have no recourse against the trustee poor investment performance. In Hoffman v. First Virginia Bank of Tidewater the court held that when the Prudent Man Rule has been waived, the trustee could only be liable for fraud, dishonesty or bad faith. Under the will, the trustee was given power to invest in any type of property “regardless of diversification or State laws.” The trustee invested in more than one-third of the trust assets in REIT securities which became “substantially worthless.” The court decided that the trustee was not liable.

No one beneficiary can be favored. In addition of diligence in preserving trust property, the trustee has a duty to document its actions by keeping complete and accurate records. Unless expressly limited in the trust, each beneficiary has a right to an annual accounting upon demand.