Trust Administration and Fiduciary Duties
Core fiduciary duties
A trustee is bound by the trust instrument and by default fiduciary duties: loyalty, prudence, impartiality, confidentiality, the duty to account, and the duty to administer the trust solely in the beneficiaries' interest. The trustee must follow the terms of the trust, enforce claims, keep trust property separate, and avoid self-dealing unless the instrument expressly authorizes it. Discretionary powers are not unlimited: even "sole discretion" is reviewed for good faith, honesty, and proper motive.
Administration mechanics
Know the distinction between principal and income under the Uniform Principal and Income Act and the trustee's power to adjust or convert to a unitrust. The prudent investor rule governs investments, emphasizing total return, diversification, and risk management rather than income maximization. Trustees must also handle accountings, co-trustee coordination, delegation limits, and termination distributions.
Traps
Questions often test impartiality between income and remainder beneficiaries, the effect of a trustee who is also a beneficiary, and whether a beneficiary may demand accountings. Another trap is assuming a trustee must sell trust real estate or maximize current income; the standard is the beneficiaries' best interests under the trust terms, not a single objective.
Worked example
A trust holds a concentrated stock position paying a low dividend. The income beneficiary demands a sale into higher-yielding bonds. The trustee should weigh total return, risk, the trust's purpose, and impartiality. If the concentration creates unreasonable risk, diversification may be prudent; a wholesale shift to bonds solely to raise income may unfairly favor the income beneficiary over the remainder. Document the analysis.
Rule of thumb
If a trustee is also a beneficiary, treat any distribution as presumptively suspect unless an ascertainable standard and clear authorization apply.