Specific Duties of Trustees: Master the Responsibilities of a Trustee

Question 1

What is the distinction between the duty to distribute income and the duty to preserve capital?

Accepted Answer

The duty to distribute income applies to all types of trust property, while the duty to preserve capital applies only to certain types

Answer

The duty to distribute income is a mandatory obligation, while the duty to preserve capital is a discretionary power

Answer

The duty to distribute income is owed to the beneficiaries, while the duty to preserve capital is owed to the settlor

Answer

There is no difference between the two duties

Question 2

What is the function of the Public Trustee in the UK?

Accepted Answer

To administer trusts where no other trustee is available or suitable

Answer

To oversee the administration of trusts

Answer

To act as a trustee for all trusts in the UK

Answer

To provide legal advice to trustees

Question 3

When are trustees entitled to be indemnified out of the trust fund?

Accepted Answer

Both (a) and (c)

Answer

When they are personally sued for breach of trust

Answer

When they incur expenses in the execution of their duties

Answer

When they are successful in defending a claim against them for breach of trust

Question 4

Which of the following is not considered a specific duty of trustees?

Accepted Answer

Duty to amend the trust instrument

Answer

Duty to invest

Answer

Duty to distribute income

Answer

Duty to preserve capital

Question 5

When making investment decisions for trust assets, trustees must comply with:

Accepted Answer

The prudent investor rule

Answer

The rule against self-dealing

Answer

The rule of impartiality

Answer

The rule of confidentiality

Question 6

Which of the following factors is irrelevant to the duty to distribute income?

Accepted Answer

The trustee's personal preferences

Answer

The terms of the trust instrument

Answer

The beneficiary's financial circumstances

Answer

The size of the trust fund

Question 7

The duty to preserve capital requires trustees to:

Accepted Answer

Take reasonable steps to protect the assets from loss or depreciation

Answer

Maintain the value of the trust assets

Answer

Prevent the beneficiaries from enjoying the assets

Answer

Distribute all income to the beneficiaries

Question 8

The duty of care requires trustees to:

Accepted Answer

Act with reasonable skill, care, and diligence

Answer

Maximize the returns on trust assets

Answer

Follow the settlor's instructions without question

Answer

Prevent conflicts of interest at all costs

Question 9

Which type of trust grants trustees broad discretionary powers in managing and distributing trust assets?

Accepted Answer

Discretionary trust

Answer

Fixed trust

Answer

Unit trust

Answer

Charitable trust

Question 10

The duty of impartiality requires trustees to:

Accepted Answer

Treat all beneficiaries fairly and equitably

Answer

Follow the settlor's wishes without deviation

Answer

Maximize the overall benefit to the beneficiaries as a group

Answer

Take into account the individual circumstances and needs of each beneficiary

Question 11

The overriding duty of trustees is to:

Accepted Answer

Act in the best interests of the beneficiaries

Answer

Avoid conflicts of interest

Answer

Invest the trust property prudently

Answer

Distribute income to the beneficiaries regularly

Question 12

According to the trust instrument, trustees must distribute income to beneficiaries:

Accepted Answer

At regular intervals determined by the trust instrument

Answer

At the end of each accounting period

Answer

When the beneficiaries request it

Answer

Only when the trust property generates sufficient income

Question 13

The standard of care required of trustees is:

Accepted Answer

The standard of care of a prudent investor

Answer

The standard of care of a reasonable person

Answer

The standard of care of an expert in trust law

Answer

The standard of care of the average trustee

Question 14

Which of the following is NOT a duty of trustees when investing trust assets?

Accepted Answer

To generate the highest possible return

Answer

To diversify the investments

Answer

To consider the beneficiaries' risk tolerance

Answer

To minimize risk

Question 15

If trustees delegate their duties without proper authority, they will be:

Accepted Answer

Personally liable for any loss or damage

Answer

The trust property will be forfeited

Answer

The beneficiaries will lose their rights to the trust property

Answer

There will be no legal consequences

Question 16

Which of the following is NOT a role of the court in supervising trusts?

Accepted Answer

To adjudicate disputes between beneficiaries

Answer

To appoint and remove trustees

Answer

To interpret the trust instrument

Answer

To give directions to trustees

Question 17

Rescission of the transaction is NOT a potential remedy for which of the following?

Accepted Answer

Negligence

Answer

Breach of trust

Answer

Conversion of trust property

Answer

Fraud

Question 18

Which of the following is **not** a specific duty of a trustee?

Accepted Answer

Duty to increase the value of the trust property

Answer

Duty to invest

Answer

Duty to distribute income

Answer

Duty to preserve capital

Question 19

A trustee must exercise the same level of care as a:

Accepted Answer

Reasonable person

Answer

Banker

Answer

Solicitor

Answer

Doctor

Question 20

A trustee has a duty to distribute income to the beneficiaries:

Accepted Answer

Within a reasonable time after it is received

Answer

As soon as it is received

Answer

Only if the trust instrument expressly provides for it

Answer

Only if the beneficiaries request it

Question 21

Which of the following is **not** a defence to a breach of trust?

Accepted Answer

Trustee's ignorance of the law

Answer

Change of circumstances

Answer

Beneficiaries' consent

Answer

Trustee's reliance on professional advice

Question 22

The duty to act in the best interests of the beneficiaries is known as the:

Accepted Answer

Fiduciary duty

Answer

Duty of care

Answer

Duty to invest

Answer

Duty to distribute income