Trustee's Duty of Care: Interactive Learning Quizzes for Law Students

Question 1

Which of the following is NOT a factor influencing the standard of care expected of a trustee?

Accepted Answer

The trustee's personal financial situation

Answer

The nature of the trust property

Answer

The purpose of the trust

Answer

The instructions provided by the trust's settlor

Question 2

A trustee may be held liable for losses resulting from:

Accepted Answer

Negligence or breach of trust

Answer

Acts of God

Answer

Investment decisions made in good faith

Answer

Acts of the beneficiaries

Question 3

The duty of care is:

Accepted Answer

Non-delegable

Answer

Delegable only to qualified professionals

Answer

Delegable to any third party

Answer

Delegable only with the consent of the beneficiaries

Question 4

Which of the following is NOT a type of breach of duty of care?

Accepted Answer

Force majeure

Answer

Negligence

Answer

Misfeasance

Answer

Ultra vires

Question 5

How have past court cases shaped the trustee's duty of care?

Accepted Answer

By providing examples of how the duty of care should be applied

Answer

By setting strict rules that must be followed

Answer

By replacing laws made by Parliament

Question 6

Under the Trustee Act 2000, trustees are required to exercise what standard of care?

Accepted Answer

The same care and skill as a reasonable person would

Answer

The highest possible standard of care

Answer

The same care and skill as a professional would

Answer

The same care and skill as they would with their own property

Question 7

The duty of care owed by a trustee is:

Accepted Answer

Objective

Answer

Subjective

Answer

Dependent on the value of the trust

Answer

Based on the trustee's personal circumstances

Question 8

A trustee may be liable for breach of duty even if they acted with good intentions. True or False?

Accepted Answer

True

Answer

False

Question 9

The duty of care owed by a trustee is an ongoing obligation. True or False?

Accepted Answer

True

Answer

False

Question 10

Which standard of care is NOT applicable to trustees?

Accepted Answer

The duty to seek professional advice on all legal matters

Answer

The duty to act in good faith

Answer

The prudent person rule

Answer

The duty to adhere to the terms of the trust

Question 11

What is the primary legal consequence of a trustee's breach of the duty of care?

Accepted Answer

Personal liability for losses suffered by the trust

Answer

Removal from the trusteeship

Answer

Criminal prosecution

Answer

Suspension of the trustee's powers

Question 12

Which of the following is NOT a potential defense to a breach of the duty of care?

Accepted Answer

Acting in accordance with the settlor's wishes, even if imprudent

Answer

Unavoidable circumstances beyond the trustee's control

Answer

Advice from a qualified expert

Answer

Reasonable belief in the propriety of the action

Question 13

Which of the following is NOT a potential remedy for a breach of the duty of care?

Accepted Answer

Rescission of the trust

Answer

Removal of the trustee

Answer

Compensation for losses suffered by the trust

Answer

Injunction to restrain the trustee from further breaches

Question 14

Under what circumstances may a trustee be held personally liable for losses suffered by the trust?

Accepted Answer

In all of the above circumstances

Answer

Only if they have acted fraudulently or in breach of trust

Answer

Only if they have failed to exercise reasonable care

Answer

Only if they have failed to take professional advice

Question 15

According to the Prudent Investment Rule, which action best exemplifies a trustee's adherence to their duty of care?

Accepted Answer

Diversifying investments across asset classes with varying risk levels

Answer

Investing heavily in a single, high-risk investment

Answer

Distributing trust income without considering long-term financial implications

Answer

Delegating investment decisions without monitoring performance

Question 16

How has the judiciary's role in shaping the duty of care for trustees evolved over time?

Accepted Answer

The judiciary's role has expanded, establishing more specific standards and remedies for breaches.

Answer

The judiciary's role has narrowed, focusing solely on severe breaches of duty.

Answer

The judiciary's role has remained largely unchanged, with courts respecting trustees' discretion.

Question 17

The duty of care applies to:

Accepted Answer

All trustees, regardless of their professional status, level of compensation, or the type of trust they administer.

Answer

Only trustees of charitable trusts, as they are held to a higher standard of care due to the public interest involved.

Answer

Only unpaid trustees who volunteer their time to manage trusts.

Answer

Only professional trustees with specialized training and expertise in trust management.

Question 18

Which of the following is NOT a valid defense to an action for breach of duty of care by a trustee?

Accepted Answer

Acting solely on the advice of an independent financial advisor without conducting any independent due diligence.

Answer

A good faith belief in the prudence of an investment, supported by objective evidence and industry best practices.

Answer

Contributory negligence on the part of the beneficiary, such as failing to monitor the trustee's actions or provide necessary information.

Answer

Proper delegation of duties to qualified professionals, provided the trustee exercises reasonable care in selecting and supervising them.

Question 19

The duty of care owed by a trustee is characterized as a:

Accepted Answer

Fiduciary duty, imposing a higher ethical and legal standard of care due to the position of trust and confidence involved.

Answer

Contractual duty, based on an explicit or implied agreement between the trustee and the beneficiaries.

Answer

Tortious duty, arising from a breach of a general duty of care owed to all individuals.

Question 20

A trustee who invests trust funds in an investment that is not authorized by the trust instrument or applicable law is likely to:

Accepted Answer

Be in breach of their duty of care, as they have exceeded their authority and potentially exposed the trust to unnecessary risk.

Answer

Only be liable if the unauthorized investment results in a loss of value to the trust.

Answer

Be protected by the prudent investment rule, which permits trustees to make reasonable investment decisions even if they result in losses.

Answer

Be immune from liability if they acted in good faith and believed the investment was in the best interests of the beneficiaries.

Question 21

A key aspect of the prudent investor rule, which guides trustees in making investment decisions, is to:

Accepted Answer

Diversify investments across different asset classes and within each class to reduce overall risk and enhance returns.

Answer

Invest solely in high-yield investments to maximize returns, regardless of the level of risk involved.

Answer

Invest only in blue-chip stocks, considered to be safe and stable investments with a proven track record.

Answer

Hold all investments in cash, considered the safest but least profitable asset class.

Question 22

The duty of care owed by a trustee includes a duty to:

Accepted Answer

Account for and maintain accurate records of all trust property, including assets, liabilities, and transactions.

Answer

Make all investment decisions personally, without seeking advice or delegating responsibilities.

Answer

Prepare tax returns for the trust, unless specifically authorized by the trust instrument.

Answer

Keep beneficiaries informed of all trust matters, even if they have not requested such information.

Question 23

The duty of care owed by a trustee is ongoing and continues throughout:

Accepted Answer

The entire duration of the trust, from its creation until its termination or distribution.

Answer

Only during the period of the trustee's appointment, as their duties end once they are replaced.

Answer

Only during the lifetime of the beneficiaries, as they are the primary beneficiaries of the trust.

Answer

Only during the lifetime of the settlor, as they created the trust and have the ultimate authority over it.

Question 24

A trustee's investment duty is primarily governed by the:

Accepted Answer

Prudent Man Rule

Answer

Duty of Loyalty

Answer

Duty of Disclosure

Answer

Duty of Diligence

Question 25

A trustee's primary duty of care includes the obligation to:

Accepted Answer

Act prudently and with due diligence when managing trust assets

Answer

Follow the instructions of the settlor implicitly

Answer

Maximize the profits of the trust

Question 26

The duty of care owed by a trustee is:

Accepted Answer

Personal

Answer

Strict

Answer

Joint

Answer

Vicarious

Question 27

The duty of care owed by a trustee is rooted in the principle of:

Accepted Answer

Fiduciary duty

Answer

Moral duty

Answer

Negligence

Answer

Contractual duty

Question 28

Which of the following is a standard governing the trustee's duty of care?

Accepted Answer

Exercising reasonable care and skill

Answer

Acting in the best interests of the beneficiaries

Answer

Delegating responsibilities diligently

Answer

Exercising the utmost care

Question 29

The "Modern Portfolio Theory" requires trustees to:

Accepted Answer

Exercise the care, skill, and caution of a prudent investor

Answer

Seek guaranteed returns on investments

Answer

Avoid investing in high-risk assets

Question 30

The duty of care owed by a trustee to the beneficiaries is:

Accepted Answer

Fiduciary

Answer

Tortious

Answer

Statutory

Answer

Contractual

Question 31

The delegation of duties by a trustee is permissible:

Accepted Answer

As long as reasonable care is taken in selecting and supervising the delegate

Answer

Only if the trust instrument expressly permits it

Answer

Never, as it is an inherent duty of the trustee

Question 32

When determining the standard of care expected of a trustee, which of the following factors is NOT taken into consideration?

Accepted Answer

The trustee's personal wealth

Answer

The nature of the trust property

Answer

The trustee's skill and experience

Answer

The size of the trust fund

Question 33

A trustee's decision to invest trust funds in high-risk assets could be considered a breach of which specific type of duty?

Accepted Answer

Duty of care

Answer

Duty of confidentiality

Answer

Duty of impartiality

Answer

Duty of loyalty

Question 34

The 'prudent person' rule is a legal principle that guides trustees in fulfilling their primary duty to exercise:

Accepted Answer

Duty of care

Answer

Duty to account

Answer

Duty of impartiality

Answer

Duty of loyalty

Question 35

In which of the following scenarios is a trustee most likely to be found liable for breaching their duty of care?

Accepted Answer

Failing to seek professional advice when handling complex trust assets

Answer

Delegating certain investment decisions to a qualified financial advisor

Answer

Investing trust funds in a diversified portfolio of reputable stocks

Question 36

The duty of care that trustees are obligated to uphold is:

Accepted Answer

A fiduciary duty

Answer

A tortious duty

Answer

A statutory duty

Answer

A contractual duty

Question 37

When assessing a trustee's compliance with their duty of care, courts will primarily consider the:

Accepted Answer

Objective standard of a reasonably prudent person

Answer

Standard of care applicable to professionals in a similar field

Answer

Standard of care set forth in the trust instrument

Answer

Subjective standard of the trustee's own beliefs

Question 38

A trustee must exercise the same level of care as a prudent person would in managing their own affairs. This principle is known as the:

Accepted Answer

Prudent Person Rule

Answer

Duty of Loyalty

Answer

Duty to Account

Answer

Duty of Impartiality

Question 39

Which factor does NOT affect the standard of care expected from a trustee?

Accepted Answer

The trustee's personal financial situation

Answer

The terms of the trust document

Answer

The size of the trust fund

Answer

The beneficiaries' ages and needs

Question 40

A trustee invests trust funds in a high-risk venture, resulting in substantial losses. They may be found liable for breach of the duty of care if they:

Accepted Answer

Failed to seek professional advice despite the investment's high-risk nature

Answer

Invested in a venture that was popular at the time

Answer

Made the investment decision based solely on personal preference

Question 41

The Trustee Act 2000 establishes a legal framework for investing trust funds. Which principle is NOT outlined in the Act?

Accepted Answer

Trustees should prioritize maximizing returns over preserving capital

Answer

Trustees must consider the suitability of investments for the beneficiaries

Answer

Trustees must exercise reasonable care and skill in investing trust funds

Question 42

Professional investment managers who serve as trustees are held to a higher standard of care than non-professional trustees because they:

Accepted Answer

Possess specialized knowledge and expertise in investment management

Answer

Are typically wealthier and can afford to take more risks

Answer

Have a greater legal responsibility than non-professional trustees

Question 43

Potential consequences of a trustee's breach of duty of care include:

Accepted Answer

All of the above

Answer

Potential removal from their role as trustee

Answer

Personal liability for the trust's financial losses

Answer

Reputational damage and legal action by beneficiaries

Question 44

Which defense may be valid for a trustee accused of breaching the duty of care?

Accepted Answer

Obtaining informed consent from all beneficiaries before making a risky investment

Answer

Arguing that they were inexperienced in investment management

Answer

Claiming that they acted in line with their personal investment philosophy

Question 45

The duty of care is a cornerstone of trust law because it ensures:

Accepted Answer

The proper management and preservation of trust assets for the benefit of beneficiaries

Answer

The protection of the trustee's personal interests in the trust

Answer

The equal distribution of trust property among beneficiaries