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The terms of a trust instrument, when a writing is required, or the statements of a settlor, when she creates a trust, set specific powers or duties that the trustee has in administering the trust property. These express powers, which are unequivocal and directly granted to the trustee, frequently consist of the power to sell the original trust property, invest the proceeds of any property sold, and collect the income of the trust property and pay it to the beneficiaries. The trustee also has implied powers that the settlor is deemed to have intended because they are necessary to fulfill the purposes of the trust.

A settlor can order the trustee to perform a certain act during the administration of the trust, such as selling trust realty as soon as possible and investing the proceeds in bonds. This power to sell is a mandatory or an imperative power. If the trustee fails to execute this power, he has committed a breach of trust. The beneficiary can obtain a court order compelling the trustee to perform the act, or the court can order the trustee to pay damages for delaying or failing to use the power. The court can also remove the trustee and appoint one who will exercise the power.

Courts usually will not set aside the decision of a trustee as long as the trustee made the decision in good faith after considering the settlor's intended purpose of the trust and the circumstances of the beneficiaries. A court will not tell a trustee how to exercise his discretionary powers. It will only direct the trustee to use his own judgment. If, however, the trustee refuses to do so or does so in bad faith or arbitrarily, a beneficiary can seek court intervention.

A trustee, as a fiduciary, must administer the trust with the skill and prudence that any reasonable and careful person would use in conducting her own financial affairs. The trustee's actions must conform to the trust purposes. Failure to act in this manner will render a trustee liable for breach of trust, regardless of whether she acted in good faith.

A trustee must be loyal to the beneficiaries, administering the trust solely for their benefit and to the exclusion of any considerations of personal profit or advantage. A trustee would violate her fiduciary duty and demonstrate a conflict of interest if, for example, she sold trust property to herself.

A trustee has the duty to defend the trust and the interests of the beneficiaries against baseless claims that the trust is invalid. If the claim is valid, however, and it would be useless to defend against such a challenge, the trustee should accede to the claim to avoid any unnecessary waste of property.

Trust property must be designated as such and segregated from a trustee's individual property and from property the trustee might hold in trust for others. This requirement enables a trustee to properly maintain the property and allows the beneficiary to easily trace it in the event of the trustee's death or insolvency.

Generally, a trustee is directed to collect and distribute income and has the duty to invest the trust property in income-producing assets as soon as is reasonable. This duty of investment is controlled by the settlor's directions in the trust document, court orders, the consent of the beneficiaries, or statute. Some states have statutes that list various types of investments that a trustee may or must make. Such laws are known as legal list statutes.

One of the principal duties of a trustee is to make payments of income and distribute the trust principal according to the terms of the trust, unless otherwise directed by a court. Unless a settlor expressly reserves such power when creating the trust, she cannot modify its payment provisions. In addition, the trustee cannot alter the terms of payment without obtaining approval of all the beneficiaries. Courts are empowered to permit the trustee to deviate from the trust terms with respect to the time and the form of payment, but the relative size of the beneficiaries' interests cannot be changed. If a beneficiary is in dire need of funds, courts will accelerate the payment. This is called "hastening the enjoyment."

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Law Library - American Law and Legal InformationFree Legal Encyclopedia: Tonnage tax to UmpireTrust - Basic Concepts, Private Trusts, Creation Of Express Trusts, Methods Of Creation, Protection Of Beneficiary's Interest From Creditors