Source: Unif. Prudent Investor Act Sec. 7.

This section is consistent with the rules concerning costs in Section 227(c)(3) of the Restatement (Third) of Trusts: Prudent Investor Rule (1992). For related rules concerning reimbursement and compensation of trustees, see Sections 4-110 and 4-111. The duty to minimize costs applies to delegation to agents and hiring advisers as well as to other aspects of fiduciary investing. In deciding whether to delegate, the trustee must balance the projected benefits against the likely costs. Similarly, in deciding how to delegate, the trustee must take costs into account. The trustee must be alert to protect the beneficiary from "double dipping." If, for example, the trustee's regular compensation schedule presupposes that the trustee will conduct the investment management function, it should ordinarily follow that the trustee will lower its fee if delegating the investment function to an outside manager.

SECTION 4-307. REVIEWING COMPLIANCE. Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight.

For related rules governing trustee liability, see Sections 4-506 to 4-511.

SECTION 4-308. DELEGATION OF INVESTMENT AND MANAGEMENT FUNCTIONS.

(a) A trustee may delegate investment and management functions that a prudent trustee of comparable skills could delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:

(1) selecting an agent.

(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust.

(3) periodically reviewing the agent's overall performance and compliance with the terms of the delegation.

(b) In performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation.

(c) Except as otherwise provided in Section 4-502, a trustee who complies with the requirements of subsection (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.

(d) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this State, an agent submits to the jurisdiction of the courts of this State.

Source: Unif. Prudent Investor Act Sec. 9.

This section is the same as Section 9 of the Uniform Prudent Investor Act (1994), except that subsection (c) has been revised for coordination with the basic rule on liability for acts of agents in Section 4-502.

The duty to review the agent's overall performance under subsection (a)(3) includes the periodic evaluation of the continued need for and appropriateness of the delegation of authority. In particular circumstances, the trustee may need to terminate the delegation to comply with the duty under subsection (a)(1)(duty to use reasonable care, skill, and caution in selecting agent). This section provides special exceptions to the general rule concerning delegation (Section 4-207) and the trustee's liability for acts of agents (Section 4-502). See also Section 4-402(26)(power to hire accountants, auditors, investment advisors, etc.).

SECTION 4-309. LANGUAGE INVOKING STANDARD OF UNIFORM PRUDENT INVESTOR ACT. The following phrases or comparable language in the terms of a trust, unless otherwise limited or modified, authorize any investment or strategy permitted under this [Part): "investments permissible by law for investment of trust funds," "legal investments," "authorized investments," "using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital," "prudent man rule," "prudent trustee rule," "prudent person rule," and "prudent investor rule."

Source: Unif. Prudent Investor Act Sec. 10.

SECTION 4-310. APPLICATION TO EXISTING TRUSTS. This [Part] applies to trusts existing on and created after its effective date. As applies to trusts existing on its effective date, this article governs only decisions or actions occurring after that date.

Source: Unif. Prudent Investor Act Sec. 11.

This section is a specific application of the general transitional provisions in Section 6-101.

(a) A trustee, without authorization by the court, may exercise:

(1) the powers conferred by the terms of the trust;

(2) except as limited by the terms of the trust, powers conferred by this [Act], including the power to perform any act that a trustee could perform for the purposes of the trust under the standard of care prescribed in Section 4-210 or 4-303.

(b) This [Part] does not affect the power of a court to relieve a trustee from restrictions in the terms of the trust on the exercise of powers.

(c) The grant of a power to a trustee, whether by the terms of the trust, this [Act], or the court, does not in itself govern the exercise of the power. The exercise of a power by a trustee is subject to the trustee's fiduciary duties.

Source: CPC Section 16200-16202.

Subsection (a) is drawn from Sections 2(a) and 3(a) of the Uniform Trustee's Powers Act (1964). The introductory clause makes clear that the trustee has the powers as provided in this section without the need to obtain court authorization.

Subsection (a)(2) gives the trustee the statutory powers without the need to incorporate them. The specific list of powers is provided in Section 4-402. This subsection also recognizes the authority provided in the Uniform Prudent Investor Act. See Sections 4-301 to 4-310. Under this subsection, the trustee has the powers of a prudent person, without the need to obtain prior court approval. However, if the trustee desires court approval before exercising a power or desires court review after exercise of a power, the procedure provided in Section 5-201 et seq. is available.

The exercise of powers by the trustee is subject to various important limitations as recognized in this section and as provided elsewhere. Subsection (a)(2) makes clear that the exercise of statutory or "prudent person" powers is subject to limitations provided in the trust. Subsection (c) makes clear that the exercise of powers by the trustee is subject to the fiduciary duties owed to the beneficiaries. See also Sections 2-201(b) (powers after trust terminates), 4-103 (actions by cotrustees), 4-107 (powers of trustee who has resigned or been removed).

As to the construction of trust language that refers to "investments permissible by law for investment of trust funds," "authorized by law for investment of trust funds," "legal investments," "authorized investments," or "investments acquired using the judgment and care which men of prudence, discretion, and intelligence exercise in the management of their own affairs," or other words of similar meaning in defining the powers of the trustee relative to investments, see Section 4-309.

Subsection (b) is based on Restatement (Second) of Trusts Section 167 (1957). For a provision permitting the court to modify a trust due to unanticipated circumstances, see Section 2-204.

Subsection (c) recognizes that a power granted to the trustee from any source does not necessarily permit the exercise of the power, nor does it prevent the exercise of a power in a manner that conflicts with a general duty if the terms of the trust so direct, or where the trustee is directed so to act by a person holding the power to revoke the trust (see Section 3-105). For example, the terms of the trust may give the trustee discretion to favor one beneficiary over the others, in apparent conflict with the general duty to deal with beneficiaries impartially under Section 4-202(b). See also Section 4-201 et seq. (trustee's fiduciary duties).

SECTION 4-402. SPECIFIC POWERS OF TRUSTEES. A trustee may:

(1) collect, hold, and retain trust property received from a settlor or any other person until, in the judgment of the trustee, disposition of the property should be made; and the property may be retained even though it includes property in which the trustee is personally interested;

(2) accept additions to the property of the trust from a settlor or any other person;

(3) continue or participate in the operation of a business or other enterprise that is part of the trust property and effect an incorporation, dissolution, or other change in the form of the organization of the business or enterprise;

(4) deposit trust funds in an account in a financial institution;

(5) acquire or dispose of property, for cash or on credit, at public or private sale, or by exchange;

(6) manage, control, divide, develop, improve, exchange, partition, change the character of, or abandon trust property;

(7) encumber, mortgage, or pledge trust property for a term within or extending beyond the term of the trust in connection with the exercise of a power vested in the trustee;

(8) make ordinary or extraordinary repairs, alterations, or improvements in buildings or other trust property; demolish improvements; and raze existing or erect new party walls or buildings;

(9) subdivide or develop land; dedicate land to public use;

make or obtain the vacation of plats and adjust boundaries;

adjust differences in valuation on exchange or partition by giving or receiving consideration; and dedicate easements to public use without consideration;

(10) enter into a lease for any purpose as lessor or lessee with or without the option to purchase or renew and for a term within or extending beyond the term of the trust;

(11) enter into a lease or arrangement for exploration and removal of gas, oil, or other minerals or geothermal energy, and enter into a community oil lease or a pooling or unitization agreement, for a term within or extending beyond the term of the trust;

(12) grant an option involving disposition of trust property or take an option for the acquisition of property, including an option that is exercisable beyond the term of the trust; (13) with respect to shares of stock of a domestic or foreign corporation, any membership in a nonprofit corporation, or other property;

(i) vote in person, and give proxies to exercise, any voting rights with respect to the shares, memberships, or property;

(ii) waive notice of a meeting or give consent to the holding of a meeting; and

(iii) authorize, ratify, approve, or confirm any action that could be taken by shareholders, members, or property owners;

(14) pay calls, assessments, and any other sums chargeable or accruing against or on account of securities;

(15) sell or exercise stock subscription or conversion rights;

(16) consent, directly or through a committee or other agent, to the reorganization, consolidation, merger, dissolution, or liquidation of a corporation or other business enterprise, and participate in voting trusts, pooling arrangements, and foreclosures, and in connection therewith, deposit securities with and transfer title and delegate discretion to any protective or other committee as the trustee considers advisable;

(17) hold a security in the name of a nominee or in other form without disclosure of the trust so that title to the security may pass by delivery;

(18) deposit securities in a securities depository;

(19) insure the property of the trust against damage or loss and insure the trustee against liability with respect to third persons;

(20) borrow money for any trust purpose to be repaid from trust property;

(21) pay or contest any claim; settle a claim by or against the trust by compromise, arbitration, or otherwise; and release, in whole or in part, a claim belonging to the trust;

(22) pay taxes, assessments, reasonable compensation of the trustee and of employees and agents of the trust, and other expenses incurred in the collection, care, administration, and protection of the trust;

(23) make loans out of trust property to a beneficiary on terms and conditions the trustee considers to be fair and reasonable under the circumstances; and guarantee loans to the beneficiary by encumbrances on trust property;

(24) pay an amount distributable to a beneficiary, whether or not the beneficiary is under a legal disability, by paying the amount to the beneficiary or by paying the amount to another person for the use or benefit of the beneficiary;

(25) make a distribution of property and money in divided or undivided interests, pro rata or non-pro-rata, and adjust resulting differences in valuation;

(26) employ agents, including accountants, attorneys, auditors, investment advisers, appraisers or other persons, even if they are associated or affiliated with the trustee, to advise or assist the trustee in the performance of administrative duties;

(27) if the trust property does not exceed [$50,000] in value, terminate the trust and distribute the trust property in accordance with the probable intention of the settlor under the circumstances;

(28) combine two or more trusts with substantially similar terms;

(29) divide a trust into two or more separate trusts with substantially similar terms if the trustee determines that division of the trust could result in a decrease in current or future tax liabilities;

(30) sell, exchange, or participate in the sale or exchange of trust property between two or more trusts administered by the trustee if the trustee determines (i) the sale or exchange is fair and reasonable with respect to the beneficiaries of the trusts, and (ii) the trustee has given to the beneficiaries notice of all material facts relating to the sale or exchange which the trustee knows or should know;

(31) inspect or investigate property that the trustee has been asked to hold, or property owned or operated by an entity in which the trustee holds or has been asked to hold an interest for the purpose of determining the application of environmental law with respect to the property; and take action to prevent, abate, or otherwise remedy any actual or potential violation of any environmental law affecting property held directly or indirectly by the trustee;

(32) execute and deliver instruments that are useful to accomplish or facilitate the exercise of the trustee's powers; and

(33) prosecute or defend an action, claim, or proceeding in order to protect trust property and the trustee in the performance of the trustee's duties.

Source: CPC Section 16220-16249.

Most of the powers listed in this section are drawn from Section 3 of the Uniform Trustee's Powers Act (1964). Paragraphs (27) to (31) are new, however. In addition, several of the provisions of the Trustee's Powers Act have been modified.

Paragraph (3) authorizes the trustee to continue or incorporate a business. Any such decision by the trustee must be made in light of the standards of prudent investment stated in Part 3 of this article. The authority under this paragraph is broader than that granted under Section 3(c)(3) of the Uniform Trustee's Powers Act. Under the Trustee's Powers Act, a trustee may continue a business only if authorized by the terms of the trust or court order.

Paragraph (5) authorizes a trustee to acquire or dispose of property, for cash or on credit, at public or private sale, or by exchange. Under the Restatement, a trustee may sell on credit only if security is given. Restatement(Second) of Trusts Section 190, comment j (1957). A sale may also be voidable for conflict of interest. See Section 4-202.

Paragraph (21) authorizes a trustee to release claims. The determination of when to release a claim depends upon the duties imposed on the trustee. As a general matter, the trustee should be able to release a claim not only when it is uncollectible, but also when it is uneconomical to attempt to collect it. See also Sections 4-205 (duty to enforce claims), 4- 206 (duty to defend actions).

Paragraph (22) authorizes a trustee to pay compensation without prior court approval. For other provisions relating to trustees' compensation, see Sections 4-110. See also Sections 4-111 (repayment of trustees for expenses incurred), 4-402 (26)(power to hire agents).

Paragraph (23) allows a trustee to make loans to or guarantee loans of a beneficiary upon such terms and conditions the trustee considers fair and reasonable. The determination of what is fair and reasonable must be made in light of the fiduciary duties of the trustee and purposes of the trust. If the trustee requires security for the loan to the beneficiary, adequate security under this paragraph may consist of a charge on the beneficiary's interest in the trust. See Restatement (Second) of Trusts Section 255 (1957). The interest of a beneficiary that is subject to a spendthrift restraint may not be used for security for a loan under this paragraph. See Section 2-201 et seq. (spendthrift protection).

Paragraph (24) allows a trustee to make payments to another person for the use or benefit of the beneficiary. In an appropriate case, a distribution may be made to a custodian under the Uniform Transfers to Minor Act.

Paragraph (25) allows a trustee to make non-pro rata distributions and distribute undivided interests. The trustee also has the power to sell property in order to make the distribution. This paragraph recognizes the authority to take gains and losses into account for tax purposes when making distributions. This power provides needed flexibility and avoids the possibility of a taxable event arising from a non-pro rata distribution.

Paragraph (26) authorizes the hiring of agents. If the trustee is in doubt concerning the propriety of hiring an agent, the judicial procedure under Section 5-201 for obtaining instructions is available. An agent with a close relationship with the trustee or an insider may be hired when it is in the best interests of the trust, taking into account the duty of loyalty and duty to avoid conflicts of interest (see Section 4-202), and particularly as to routine matters, but in situations involving substantial matters, it is best to hire outside agents. The trustee has a duty to inform certain beneficiaries of agents hired, their relationship to the trustee, if any, and their compensation. See also Sections 4-207 (duty not to delegate), 4-209 (duty to use special skills), 4-502 (trustee's liability to beneficiary for acts of agent).

Paragraph (27) establishes a presumption that a trust with a value of $50,000 or less is inherently uneconomical. Consequently, court approval of the termination is not required. For the comparable provision on judicial termination, see Section 2-205.

Paragraph (28), on the authority to combine trusts, is drawn from the Texas Trust Code. See Tex. Prop. Code Ann. Sec. 112.057. This paragraph allows a trustee to combine two or more separate trusts even though their terms are not identical. Trusts often vary in almost imperceptible ways, such as the presence of differing perpetuities savings periods. For the comparable provision on judicial combination, see Section 2-206(a).

Paragraph (29), on division of trusts, is adapted from the Texas Trust Code. See Tex. Prop. Code Ann. Sec. 112.057. A division of trusts is often necessitated by a desire to obtain maximum advantage of exemptions available under the federal generation-skipping tax. For the comparable provision on judicial division, see Section 2-206(b).

Paragraph (30) permits sales or exchanges between two or more trusts that have the same trustee without running afoul of the duty of loyalty. See Restatement (Second) of Trusts Sec. 170, comm. r (1957). The trustee need not give notice to all beneficiaries. For limitations on the need to give notice, see Sections 3-103 (notice to beneficiary of revocable trust), 5-203 (virtual representation), and 5-204 (nonjudicial settlement).

Paragraph (31), which addresses concerns about possible liability for violations of environmental law, is drawn from the Texas Trust Code.

Paragraph (33) authorizes a trustee to prosecute or defend an action. As to the propriety of reimbursement for attorney's fees and other expenses of an action or proceeding, see Section 4-111 and comment. See also Sections 4-206 (duty to defend actions), 4-401(c) (exercise of powers is subject to duties), 4-603 (protection of persons dealing with trustees).

SECTION 4-501. VIOLATIONS OF DUTIES; BREACH OF TRUST.

(a) A violation by a trustee of a duty the trustee owes a beneficiary is a breach of trust.

(b) The remedies of a beneficiary for breach of trust are exclusively equitable.

Subsection (a) is drawn from Section 201 of the Restatement (Second) of Trusts (1957). While a trust is revocable, the trustee owes duties to the person holding the power to revoke and not to the named beneficiaries. See Section 3-103; see also Section 3-104 (holder of general power of appointment or power to withdraw property from trust treated as settlor).

Subsection (b) is drawn from Section 197 of the Restatement (Second) of Trusts (1957). For a list of remedies, see Section 4-505. Under this section, for example, the beneficiary may not commence an action against the trustee for breach of contract. See Restatement (Second) of Trusts Sec. 197 comment b (1957). However, the trustee may be found liable for the payment of money on account of the breach. See Section 4-505(a)(3) (compelling payment of money for breach of trust), 4-506 (measure of liability for breach of trust).

SECTION 4-502. LIABILITY FOR CONDUCT OF AGENTS.

A trustee is liable to a beneficiary for an act or omission of an agent employed by the trustee in the administration of the trust only if the act or omission would be a breach of trust if committed by the trustee and:

(1) the trustee could have directed the act of the agent;

(2) the trustee did not periodically review the agent's overall performance and compliance with the terms of the delegation;

(3) the trustee delegated to the agent the authority to perform an act that the trustee may not to delegate;

(4) the trustee did not use reasonable prudence in the selection of the agent or the retention of an agent selected by the trustee;

(5) the trustee concealed the conduct of the agent; or

(6) the trustee neglected to take reasonable steps to compel the agent to redress a wrong known to the trustee to have been caused by the conduct of the agent.

This section is consistent with Section 4-308 (delegation of investment and management functions), part of the Uniform Prudent Investor Act (1994). Paragraph (3) is consistent with the delegation rules governing investment and management under the Uniform Prudent Investor Act. See Section 4-308(a). Paragraph (4) refers to the use of "prudence" which includes the elements of reasonable care, skill, and caution under Section 4-210 (standard of care in non-investment functions) or Section 4-303(a) (standard of care in investment and management functions under Uniform Prudent Investor Act).

Paragraphs (1) and (2) are drawn from Section 225 of the Restatement (Second) of Trusts (1957). Whether a trustee has acted reasonably under this section depends upon application of the standard of care provided in Section 4-210. The trustee of a revocable trust is not liable where the agent's act is performed or omitted pursuant to the written instructions of the person having the power to revoke the trust. Similarly, the trustee of a revocable trust is not liable for hiring an agent where the trustee is directed to do so in writing by the person having the power to revoke. See Section 3-105. It should also be noted that the liability to beneficiaries does not include beneficiaries under a revocable trust during the time that the trust can be revoked. See Section 3-103; see also Sections 3-104 (holder of general power of appointment or power to withdraw property from trust treated as settlor), 4-201 (duty to administer trust).

The six paragraphs of this section state independent bases for imposition of liability on the trustee. For example, if the trustee has not used reasonable care in selecting or retaining an agent, the trustee may be held liable for the agent's breach under paragraph (4); but even if the trustee has no control over selection or retention of the agent, the trustee may still be held liable for the agent's breach under paragraph (1) if the trustee has the power to direct the agent's actions. It should be also noted that paragraphs (2), (5), and (6) apply regardless of whether the trustee has any control over the agent.

SECTION 4-503. LIABILITY FOR BREACH OF TRUST BY COTRUSTEE. A trustee is liable to a beneficiary for a breach of trust committed by a cotrustee only if:

(1) the trustee participated in the breach of trust;

(2) the trustee improperly delegated the administration of the trust to the cotrustee;

(3) the trustee approved, knowingly acquiesced in, or concealed the breach of trust;

(4) the trustee negligently enabled the cotrustee to commit the breach of trust; or

(5) the trustee neglected to take reasonable steps to compel the cotrustee to redress the breach of trust known to the trustee or of which the trustee had information from which the trustee reasonably should have known of the breach.

This section is drawn from Section 224 of the Restatement (Second) of Trusts (1957). For the duty of a trustee with respect to cotrustees, see Section 4-208. For exemption of a dissenting cotrustee from liability, see Section 4-602. It should also be noted that the liability to beneficiaries does not include beneficiaries under revocable trusts during the time that the trust can be revoked. See Section 3-103; see also Sections 3-104 (holder of general power of appointment or power to withdraw property from trust treated as settlor), 4-201 (duty to administer trust).

SECTION 4-504. LIABILITY FOR BREACH OF TRUST OF PREDECESSOR. A successor trustee is liable to a beneficiary for breach of trust committed by a predecessor trustee only if:

(1) the successor trustee knew or had information from which the successor trustee reasonably should have known of a situation constituting a breach of trust committed by the predecessor trustee;

(2) the successor trustee neglected to take reasonable steps to compel the predecessor trustee to deliver trust property to the successor trustee;

(3) the successor trustee neglected to take reasonable steps to redress a breach of trust committed by the predecessor trustee and known to the successor trustee or of which the successor trustee had information from which the successor trustee reasonably should have known of the breach.

This section is the same in substance as Section 223 of the Restatement (Second) of Trusts (1957), except that the language in paragraph (3) relating to what the trustee should have known differs from the Restatement. In certain circumstances it may not be reasonable to enforce a claim against a former trustee, depending upon the likelihood of recovery and the cost of suit and enforcement. It should also be noted that the liability to beneficiaries does not include beneficiaries under revocable trusts during the time that the trust can be revoked. See Section 3-103; see also Section 3-104 (holder of general power of appointment or power to withdraw property from trust treated as settlor). For provisions permitting a trustee to be relieved of liability for acts of a predecessor trustee, see Sections 4-509 (consent), 4-510 (release), 4-511 (affirmance).

The principles of this section should also apply when a trustee neglects to take reasonable steps to redress misconduct by a personal representative. See Section 4-205 (duty to enforce claims of trust).

SECTION 4-505. BREACH OF TRUST; ACTIONS.

(a) If a trustee commits or threatens to commit a breach of trust, a beneficiary or cotrustee of the trust may maintain an action or proceeding to:

(1) compel the trustee to perform the trustee's duties;

(2) enjoin the trustee from committing a breach of trust;

(3) compel the trustee to redress a breach of trust by payment of money or otherwise;

(4) appoint a receiver or temporary trustee to take posses sion of the trust property and administer the trust;

(5) remove the trustee;

(6) subject to Section 4-603, nullify an act of the trustee;

(7) to reduce or deny compensation of the trustee;

(8) subject to Section 4-603, impose an equitable lien or a constructive trust on trust property;

(9) subject to Section 4-603, trace trust property wrongfully disposed of and recover the property or its proceeds.

(b) The remedies provided in subsection (a) for breach of trust do not preclude any other remedy provided by statute or available under the common law.

Subsection (a) codifies in general terms the remedies available to a beneficiary or cotrustee where a trustee has committed a breach of trust or threatens to do so. For the applicable procedure, see Section 5-201 et seq. (judicial proceedings concerning trusts). As provided in subsection (b), the list of remedies in subsection (a) is not necessarily exclusive and is not intended to prevent resort to any other appropriate remedy. See Section 1-103 (common law of trusts); see also subsection (b) (remedies are exclusively equitable). The petitioner may seek any one or more of the remedies as is appropriate in the circumstances of the case. This section provides a general list of remedies and does not attempt to set out the refinements and exceptions developed over many years by the common law. The availability of a particular remedy listed in this section, and its application under the circumstances, are governed by the common law. See Section 1-103 (common law of trusts).

Subsection (a)(1) is consistent with Restatement (Second) of Trusts Section 199(a) (1957). Subsection (a)(2) is consistent with Restatement (Second) of Trusts Section 199(b) (1957).

The reference to payment of money in subsection (a)(3) is comprehensive and includes liability that might be characterized as damages, restitution, or surcharge. For the measure of liability, see Section 4-506. The characterization of monetary liability does not affect the fact that the remedies for breach of trust are exclusively equitable, as provided in subsection (b). In certain circumstances, rather than ordering the payment of money, it may be appropriate for the court to order the trustee to transfer tangible property as a remedy for breach of trust. See also Restatement (Second) of Trusts Section 199(c) (1957).

Subsection (a)(4) makes explicit the authority to appoint a receiver. See also Restatement (Second) of Trusts Section 199(d) (1957). This subsection also permits appointment of a temporary trustee where appointment of a receiver would be appropriate. See Section 4-109 (appointment of trustee to fill vacancy).

As to subsection (a)(5), see Restatement (Second) of Trusts Section 199(e) (1957). For provisions governing removing trustees, see Sections 4-105 (grounds for removal), 4-107 (delivery of property by removed trustee).

The authority under subsection (a)(6) to set aside wrongful acts of the trustee is a corollary of the power to enjoin a threatened breach as provided in subsection (a)(2). As recognized in the introductory clause of subsection (a)(6), the wrongful acts of the trustee may not be set aside if to do so would impair the rights of bona fide purchasers. See also G. Bogert, The Law of Trusts and Trustees 861, at 16-17 (rev. 2d ed. 1982).

Subsection (a)(7) is drawn from Section 243 of the Restatement (Second) of Trusts (1957).

The introductory clauses of subsections (a)(6), (a)(8), and (a)(9) recognize that this remedy is limited by the rights of a bona fide purchaser as provided in Section 4-603. See also Restatement (Second) of Trusts Section 202 (1957).

A successor trustee may also have standing to sue for a breach of trust. See Section 4-504. As to standing generally, see Restatement (Second) of Trusts Section 200.

SECTION 4-506. BREACH OF TRUST; LIABILITY; GOOD FAITH ACTIONS.

(a) A trustee who commits a breach of trust is chargeable for:

(1) any loss or depreciation in value of the trust estate resulting from the breach of trust, with interest;

(2) any profit made by the trustee through the breach of trust, with interest; or

(3) any profit that would have accrued to the trust and is the result of the breach.

(b) A trustee who is liable for interest is liable for the greater of:

(1) the amount of interest that accrues at the legal rate on judgments in effect while the interest accrued; or

(2) the amount of interest received.

(c) If a trustee has acted reasonably and in good faith under the circumstances known to the trustee, the court may excuse the trustee in whole or in part from liability under subsection (a) if equitable to do so.

Subsection (a) is drawn from Section 205 of the Restatement (Second) of Trusts (1957).

Subsection (b) clarifies the interest rate applicable to a determination of liability for a breach occurring before the operative date of this Act. Under this rule, the legal rate of interest on judgments in effect when the liability accrued is applied. Restatement (Second) of Trusts Section 207 charges trustees with compound interest under certain circumstances. Subsection (c) codifies the good faith exception to the general liability rules found in the Restatement. See Restatement (Second) of Trusts Section 205, comment g (1957).

As to defenses by the trustee, see Sections 4-507 to 4-511. The remedies provided in this section do not preclude any other remedy provided by statute or available under the common law. See Section 1-103 (common law of trusts).

SECTION 4-507. LIMITATIONS OF ACTIONS.

(a) Unless a claim is previously barred by adjudication, consent, limitation, or otherwise:

(1) If a beneficiary has received an interim or final account in writing, or other written report, that adequately discloses the existence of a claim of the beneficiary against the trustee for breach of trust, the claim is barred unless the beneficiary commences an action or proceeding to assert the claim within three years after receipt of the account or report. An account or report adequately discloses the existence of a claim if it provides sufficient information so that the beneficiary knows of the claim or reasonably should have inquired into its existence.

(2) If an interim or final account or other report does not adequately disclose the existence of a claim of a beneficiary against the trustee for breach of trust, the claim is barred unless the beneficiary commences an action or proceeding to assert the claim within three years after the beneficiary discovered, or reasonably should have discovered, the subject of the claim.

(b) For the purpose of subsection (a), a beneficiary is deemed to have received an account or report, as follows:

(1) In the case of an adult who is reasonably capable of understanding the account or report, if it is received by the adult personally.

(2) In the case of an adult who is not reasonably capable of understanding the account or report, if it is received by the adult's legal representative, including a guardian ad litem or other person appointed for this purpose.

(3) In the case of a minor, if it is received by the minor's guardian or, if the minor does not have a guardian, if it is received by a parent of the minor who does not have a conflict of interest.

This section is drawn in part from Section 7-307 of the Uniform Probate Code (1977). For provisions governing consent, release, and affirmance by beneficiaries to relieve the trustee of liability, see Sections 4-509 to 4-511. The reference in the introductory clause to claims "otherwise" barred also includes principles such as estoppel and laches that apply under the common law. See Section 1-103 (common law of trusts). See also Sections 4-508 (exculpation of trustee by provision in terms of the trust), 3-105(b) (nonliability for following instructions under revocable trust). During the time that a trust is revocable, the person holding the power to revoke is the one who must receive the account or report in order to commence the running of the limitations period provided in this section. See Sections 3-103 (limits on rights of beneficiary of revocable trust), 4-211(d) (exception to duty to account).

Subsection (b) provides special rules concerning who must receive the account or report for it to have the effect of barring claims based on the information disclosed. Under subsection (b)(2) it may be appropriate to seek the appointment of a guardian ad litem or some other person to receive accounts and reports where no conservator has been appointed for the person and there is serious doubt that the beneficiary can understand the account or report.

For the provisions relating to the duty to report information and account to beneficiaries, see Sections 4-211.

SECTION 4-508. EXCULPATION OF TRUSTEE. The terms of the trust can relieve a trustee of liability for breach of trust except:

(1) for breach of trust committed intentionally, with gross negligence, in bad faith, or with reckless indifference to the interest of the beneficiary; or

(2) for any profit the trustee derives from a breach of trust.

This section is the same in substance as part of Section 222 of the Restatement (Second) of Trusts (1957), except that the reference to gross negligence does not appear in the Restatement. For a special provision applicable to revocable trusts, see Section 3-105(b). Although a trust may not exculpate a trustee from liability for a profit from a breach, as provided in paragraph (2), the trust may limit the trustee's duties with the effect that the trustee does not commit a breach in that area. However, it is against public policy to attempt to eliminate liability for profits derived from a breach of a duty that the trustee does have. See Restatement (Second) of Trusts Section 222 comments b & c (1957).

Restatement (Second) of Trusts Section 222(3) also invalidates an exculpatory clause which was inserted in the instrument by an abuse of a confidential relationship.

SECTION 4-509. BENEFICIARY'S CONSENT; NONLIABILITY OF TRUSTEE.

(a) Except as otherwise provided in subsections (b) and (c), a beneficiary may not hold a trustee liable for a breach of trust if the beneficiary consented to the conduct constituting breach before or at the time it occurred.

(b) Consent of the beneficiary does not preclude a beneficiary from holding the trustee liable for a breach of trust if:

(1) the beneficiary was under an incapacity at the time of the consent or when the breach occurred;

(2) the beneficiary at the time consent was given did not know of the beneficiary's rights and of the material facts the trustee knew or should have known and the trustee did not reasonably believe that the beneficiary knew; or

(3) the consent of the beneficiary was induced by improper conduct of the trustee.

(c) If a trustee has an interest in a transaction adverse to the interest of a beneficiary, the consent of the beneficiary does not preclude the beneficiary from holding the trustee liable for a breach of trust under any of the circumstances described in subsection (b) or if the transaction to which the beneficiary consented was not fair and reasonable to the beneficiary.

Source: CPC Section 16463.

This section is the same in substance as Section 216 of the Restatement (Second) of Trusts (1957). See also Sections 4-507 (limitations on proceedings against trustee), 4-510 (release), 4-511 (affirmance). As to other rules that may limit the trustee's liability, see the comment to Section 4-507.

When one beneficiary has consented but others have not, courts give a remedy to the nonconsenting trustees. Restatement (Second) of Trusts Section 216, comment h. But consent by the settlor of a revocable trust binds all the beneficiaries under Section 3-103. See also Section 3-104 (consent by the holder of a power of withdrawal).

SECTION 4-510. BENEFICIARY'S RELEASE OR CONTRACT; DISCHARGE OF TRUSTEE'S LIABILITY. A beneficiary is precluded from holding a trustee liable for a breach of trust by the beneficiary's release or contract effective to discharge the trustee's liability to the beneficiary for the breach unless:

(1) the beneficiary was under an incapacity at the time of making the release or contract;

(2) the beneficiary did not know of the beneficiary's rights and of the material facts that the trustee knew or reasonably should have known and did not reasonably believe that the beneficiary knew;

(3) the release or contract of the beneficiary was induced by improper conduct of the trustee; or

(4) the transaction involved a bargain with the trustee that was not fair and reasonable.

This section is the same in substance as Section 217 of the Restatement (Second) of Trusts (1957). See also Sections 4-507 (limitations on proceedings against trustee), 4-511 (affirmance). As to other rules that may limit the trustee's liability, see the comment to Section 4-507.

SECTION 4-511. AFFIRMATION BY BENEFICIARY; NONLIABILITY OF TRUSTEE.

(a) Except as otherwise provided in subsection (b), if a trustee, in breach of trust, enters into a transaction that a beneficiary may reject or affirm, and the beneficiary affirms the transaction, the beneficiary may not thereafter reject it and hold the trustee liable for any loss occurring after the trustee entered into the transaction.

(b) The affirmance of a transaction by a beneficiary does not preclude the beneficiary from holding a trustee liable for a breach of trust if, at the time of the affirmance:

(1) the beneficiary was under an incapacity;

(2) the beneficiary did not know of the beneficiary's rights and of the material facts that the trustee knew or reasonably should have known and did not reasonably believe that the beneficiary knew;

(3) the affirmance was induced by improper conduct of the trustee; or

(4) the transaction involved a bargain with the trustee that was not fair and reasonable.

This section is the same in substance as Section 218 of the Restatement (Second) of Trusts (1957). See also Sections 4-507 (limitations on proceedings against trustee), 4-509 (consent), 4-510 (release). As to other rules that may limit the trustee's liability, see the comment to Section 4-507.

Restatement (Second) of Trusts Section 218, comment d, says that this rule applies only to breaches which give beneficiaries the option to affirm or disaffirm, but in other cases the trustee may be protected by laches.

PART 6. RIGHTS OF THIRD PERSONS

Section

4-601. Personal Liability; Limitations.

4-602. Dissenting Cotrustees.

4-603. Protection of Third Persons.

4-604. Certification of Trust.

4-605. Liability for Wrongful Taking, Concealing of Disposing of Trust Property.

SECTION 4-601. PERSONAL LIABILITY; LIMITATIONS.

(a) Except as otherwise provided in the contract or in this [Part], a trustee is not personally liable on a contract properly entered into in the trustee's fiduciary capacity in the course of administration of the trust unless the trustee fails to reveal the representative capacity or identify the trust in the contract.

(b) A trustee is personally liable for obligations arising from ownership or control of trust property or for torts committed in the course of administering a trust only if the trustee is personally at fault.

(c) A claim based on a contract entered into by a trustee in the trustee's representative capacity, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administering a trust may be asserted against the trust by proceeding against the trustee in the trustee's representative capacity, whether or not the trustee is personally liable on the claim.

(d) A question of liability as between the trust and the trustee personally may be determined in a proceeding under Section 5-201.

This section is drawn from Section 7-306 of the Uniform Probate Code (1977). However, unlike the Uniform Probate Code, this section excuses the trustee from personal liability on a contract where either the trustee's representative capacity or the identity of the trust is revealed in the contract. Under this section, it is assumed that either one of these statements in a contract puts the person contracted with on notice of the fact that the other person is a trustee. The protection afforded the trustee by this section applies only to contracts that are properly entered into in the trustee's fiduciary capacity, meaning that the trustee is exercising an available power and is not violating a duty. This section does not excuse any liability the trustee may have for breach of trust. To fall within the rule of subsection (a), either the trustee's status or the identity of the trust must be revealed.

Under subsection (b), a trustee is "personally at fault" when the trustee, either intentionally or negligently, acts, or fails to act, or commits a tort either intentionally or negligently. For rules governing the assertion of claims, see subsection (c). The question of ultimate liability as between the trust and the trustee is governed by subsection (d).

Restatement (Second) of Trusts Section 264 makes a trustee liable regardless of fault, including liability for acts of agents under respondeat superior.

Subsection (c) alters the case law rule that the trustee could not be sued in a representative capacity where the trust estate was not liable.

Under subsection (d), ultimate liability between an estate and trustee need not be determined before the third person's claim can be satisfied. It is permissible, and may be preferable, for judgment to be entered against the trust without determining the trustee's ultimate liability until later. Where judgment is entered against the trustee individually, the question of the trustee's right to reimbursement may be settled informally with the beneficiaries or in a separate proceeding in the probate court. For rules governing indemnification of trustees, see Section 4-111. See also Section 5-201 et seq. (proceedings against trustee by beneficiary).

SECTION 4-602. DISSENTING COTRUSTEES.

(a) A cotrustee who does not join in exercising a power held by three or more cotrustees is not liable to a third person for the consequences of the exercise of the power.

(b) A dissenting cotrustee who joins in an action at the direction of the majority cotrustees is not liable to a third person for the action if the dissenting cotrustee expresses the dissent in writing to any other cotrustee at or before the action is taken.

(c) This section does not excuse a cotrustee from liability for failure to discharge a cotrustee's duties as a trustee.

This section is drawn from Section 114.006(a) of the Texas Trust Code. See Tex. Prop. Code Ann. 114.006 (Vernon 1984).

As to the duties of cotrustees, see Sections 4-208 and 4-503. Under Section 4-103, cotrustees may act by majority vote unless otherwise provided by the terms of the trust.

SECTION 4-603. OBLIGATIONS OF THIRD PERSONS.

(a) With respect to a third person dealing with a trustee or assisting a trustee in the conduct of a transaction, if the third person acts in good faith and for a valuable consideration and without knowledge that the trustee is exceeding the trustee's powers or improperly exercising them:

(1) A third person is not bound to inquire as to whether a trustee has power to act or is properly exercising a power and may assume without inquiry the existence of a trust power and its proper exercise.

(2) A third person is fully protected in dealing with or assisting a trustee, as if the trustee has and is properly exercising the power the trustee purports to exercise.

(b) A third person who acts in good faith is not bound to ensure the proper application of trust property paid or delivered to the trustee.

(c) If a third person acting in good faith and for a valuable consideration enters into a transaction with a former trustee without knowledge that the person is no longer a trustee, the third person is fully protected as if the former trustee were still a trustee.

This section is drawn from Section 7 of the Uniform Trustees' Powers Act (1964). See also Sections 4-106 (vacancy in office of trustee), 4-107 (residual powers of resigning trustee).

SECTION 4-604. CERTIFICATION OF TRUST.

(a) A trustee may present a certification of trust to any person in lieu of providing a copy of the trust instrument to establish the existence or terms of the trust.

(b) The certification must contain a statement that the trust has not been revoked, modified, or amended in any manner which would cause the representations contained in the certification of trust to be incorrect and must contain a statement that it is being signed by all of the currently acting trustees of the trust.

(c) A certification of trust need not contain the dispositive provisions of the trust which set forth the distribution of the trust estate.

(d) A person may require that the trustee offering the certification of trust provide copies of those excerpts from the original trust documents and amendments thereto which designate the trustee and confer upon the trustee the power to act in the pending transaction.

(e) A person who acts in reliance upon a certification of trust without knowledge that the representations contained therein are incorrect is not liable to any person for so acting and may assume without inquiry the existence of the facts contained in the certification. Knowledge may not be inferred solely from the fact that a copy of all or part of the trust instrument is held by the person relying upon the trust certification. A transaction, and a lien created thereby, entered into by the trustee and a person acting in reliance upon a certification of trust is enforceable against the trust assets.

(f) A person making a demand for the trust documents in addition to a certification of trust or excerpts shall be liable for damages, including attorney's fees, incurred as a result of the refusal to accept the certification of trust or excerpts in lieu of the requested documents if the court determines that the person acted in bad faith in requesting the trust documents.

(g) This section does not limit the rights of beneficiaries to obtain copies of the trust document or rights of others to obtain copies in a proceeding concerning the trust.

SECTION 4-605. LIABILITY FOR WRONGFUL TAKING, CONCEALING OF DISPOSING OF TRUST PROPERTY. A person who, in bad faith, wrongfully takes, conceals, or disposes of trust property is liable for twice the value of the property, recoverable in an action by a trustee for the benefit of the trust.

ARTICLE 5. JUDICIAL PROCEEDINGS CONCERNING TRUSTS

Part

1. Jurisdiction and Venue.

2. Proceedings Concerning Trusts.

3. Transfer of Trust to Another Jurisdiction.

4. Transfer of Trust from Another Jurisdiction.

PART 1. JURISDICTION AND VENUE

Section

5-101. Subject Matter Jurisdiction.

5-102. Principal Place of Administration of Trust.

5-103. Jurisdiction Over Trustees and Beneficiaries.

5-104. Venue.

SECTION 5-101. SUBJECT MATTER JURISDICTION.

(a) The court having jurisdiction over a trust has exclusive jurisdiction of proceedings concerning the internal affairs of the trust.

(b) The court having jurisdiction over a trust has concurrent jurisdiction of:

(1) actions and proceedings to determine the existence of trusts;

(2) actions and proceedings by or against creditors or debtors of trusts;

(3) other actions and proceedings involving trustees and third persons.

Subsection (a) of this section is drawn from the first sentence of Section 7-201(a) of the Uniform Probate Code (1977). This section provides for exclusive jurisdiction in the court in matters involving the internal affairs of trusts. See Part 2 (commencing with Section 5-201).

Subsection (b) is drawn from Section 7-204 of the Uniform Probate Code.

SECTION 5-102. PRINCIPAL PLACE OF ADMINISTRATION OF TRUST.

(a) The principal place of administration of a trust is the usual place where the day-to-day activity of the trust is carried on by the trustee or the trustee's representative who is primarily responsible for the administration of the trust.

(b) If the principal place of administration of the trust cannot be determined under subsection (a), it must be determined as follows:

(1) If the trust has one trustee, the principal place of administration of the trust is the trustee's residence or usual place of business.

(2) If the trust has more than one trustee, the principal place of administration of the trust is the residence or usual place of business of any of the cotrustees as agreed upon by them or, if not, the residence or usual place of business of any of the cotrustees.

Part 3 (Section 5-301 et seq.) governs transfers of trusts to another jurisdiction, while Part 4 (Section 5-401 et seq.) covers transfers of trusts into this State.

SECTION 5-103. JURISDICTION OVER TRUSTEES AND BENEFICIARIES. (a) By accepting the trusteeship of a trust having its principal place of administration in this State, the trustee submits personally to the jurisdiction of the court under this [Act].

(b) To the extent of their interests in the trust, all beneficiaries of a trust having its principal place of administration in this State are subject to the jurisdiction of the court under this [Act].

This section is intended to facilitate the exercise of the court's power under this Part. This section is drawn from Section 7-103 of the Uniform Probate Code (1977). As recognized by the introductory clause, constitutional limitations on assertion of jurisdiction apply to the exercise of jurisdiction under this section. Consequently, appropriate notice must be given to a trustee or beneficiary as a condition of jurisdiction under this section. See, e.g., Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950). This section does not limit the jurisdiction of the court over the trust, trust property, or parties to the trust. See also Sections 4-101 (methods of trustee acceptance), 3-103 (limits on rights of beneficiary of revocable trust).

A state continues to have jurisdiction over a trustee who moves to another state. See Restatement (Second) of Trusts Section 199, comment f.

SECTION 5-104. VENUE.

(a) The proper county for commencement of a proceeding under this [Act] is:

(1) in the case of a living trust, the county in which the principal place of administration of the trust is located; or

(2) in the case of a testamentary trust, either the county in which the decedent's estate is administered or the principal place of administration of the trust is located.

(b) If a living trust has no trustee, the proper county for commencement of a proceeding for appointing a trustee is the county in which the trust property, or some portion of the trust property, is located.

(c) Except as otherwise provided in subsections (a) and (b), the proper county for commencement of a proceeding under this [Act] is determined by the rules applicable to civil actions generally.

See Section 5-102 (principal place of administration of trust).

Subsection (b) applies only to appointment of a trustee for a living trust that has no trustee. Proceedings to appoint a trustee for a testamentary trust that has no trustee are commenced in the county where the decedent's estate is administered. See subsection (a)(2).

Subsection (c) provides venue rules applicable in cases not covered by subsections (a) and (b), such as where jurisdiction over a trust, trust property, or parties to a trust is based on a factor other than the presence of the principal place of administration in this state. Thus, for example, when the principal place of administration of a trust is in another state, but jurisdiction is proper in this State, the general rules governing venue apply. This subsection is drawn from Section 7-204 of the Uniform Probate Code (1977).

PART 2. PROCEEDINGS CONCERNING TRUSTS

Section

5-201. Petitions; Purposes of Proceedings.

5-202. Beneficiaries; Request for Special Notice.

5-203. When Parties Bound by Others; Notice and Pleadings.

5-204. Nonjudicial Settlement.

5-205. Administration of Trusts; Judicial Intervention

Intermittent.

SECTION 5-201. PETITIONS; PURPOSES OF PROCEEDINGS.

(a) Except as otherwise provided in Section 3-103, a trustee or beneficiary of a trust may petition the court under this [Part] concerning the internal affairs of the trust or to determine the existence of the trust.

(b) Proceedings concerning the internal affairs of a trust include proceedings to:

(1) construe and determine the terms of a trust; (2) determine the existence or nonexistence of any immunity, power, privilege, duty or right;

(3) determine the validity of a trust provision;

(4) ascertain beneficiaries and determine to whom property shall pass or be delivered upon final or partial termination of the trust;

(5) settle accounts and pass upon the acts of the trustee, including the exercise of discretionary powers;

(6) instruct the trustee;

(7) compel the trustee to report information about the trust or account to the beneficiary;

(8) grant powers to the trustee;

(9) fix or allow payment of the trustee's compensation or review the reasonableness of the compensation;

(10) appoint or remove a trustee;

(11) accept the resignation of a trustee;

(12) compel redress of a breach of trust by any available remedy;

(13) approve or direct the modification or termination of the trust;

(14) approve or direct the combination or division of trusts;

(15) authorize or direct transfer of a trust or trust property to or from another jurisdiction;

(16) determine liability of a trust for debts or the expenses of administration of the estate of a deceases settlor.

The introductory clause of Section 5-201 has the effect of giving the right to petition concerning the internal affairs of a revocable living trust to the settlor (or other person holding the power to revoke) instead of the beneficiaries during the time that the settlor (or other person holding the power to revoke) is competent. See Section 3-103 and the comment thereto.

The procedure provided in this part is available to determine matters concerning the administration of trusts notwithstanding a purported limitation or exclusion in the terms of the trust. See also Sections 1-102(2) ("beneficiary" defined), 1-102(18) ("trust" defined), 5-104 (venue).

SECTION 5-202. BENEFICIARIES; REQUEST FOR SPECIAL NOTICE.

(a) If proceedings involving a trust are pending, a beneficiary of the trust may file with the clerk of the court in which the proceeding is pending a written request stating that the beneficiary desires special notice of the filing of petitions in the proceeding and giving an address for receiving notice by mail. A copy of the request must be personally delivered or mailed to the trustee or the trustee's attorney. If personally delivered, the request is effective when it is delivered. If mailed, the request is effective when it is received. The original of the request must be filed with the court clerk, and be accompanied by a written admission or proof of service. A request for special notice may be modified or withdrawn in the same manner as provided for the making of the initial request.

(b) A request for special notice made by a beneficiary whose right to notice is restricted by Section 3-103(4) is not effective.

Subsection (b) makes clear that the restrictions on rights of beneficiaries of revocable trusts apply to the right to request special notice. Sections 5-203 and 5-204 limit the need to give notice to certain beneficiaries with future interests but do not restrict the right of such beneficiaries to request special notice.

SECTION 5-203. WHEN PARTIES BOUND BY OTHERS; NOTICE AND PLEADINGS. In proceedings involving trusts, and in judicially supervised settlements, the following apply:

(1) Interests to be affected shall be described in pleadings which give reasonable information to owners by name or class, by reference to the instrument creating the interests, or in other appropriate manner.

(2) Persons are bound by orders binding others in the following cases:

(i) Orders binding the sole holder or all coholders of a power of revocation or a presently exercisable general power of appointment, including one in the form of a power of amendment, bind other persons to the extent their interests (as objects, takers in default, or otherwise) are subject to the power.

(ii) To the extent there is no conflict of interest between the representor and those represented: (A) orders binding a conservator bind the person whose estate the conservator controls; (B) orders binding a guardian bind the ward if no conservator of the ward's estate has been appointed; (C) orders binding a trustee bind beneficiaries of the trust; (D) orders binding a personal representative bind other persons interested in the undistributed assets of the decedent's estate; and (E) orders binding a sole holder or all co-holders of a general testamentary power of appointment bind other persons to the extent their interests (as objects, takers in default, or otherwise) are subject to the power. If there is no conflict of interest and no conservator or guardian has been appointed, a parent may represent a minor child.

(iii) Unless otherwise represented, a minor or an incapacitated, unborn, or unascertained person is bound by an order to the extent the person's interest is adequately represented by another party having a substantially identical interest in the proceeding.

(3) Notice is required as follows:

(i) Notice shall be given to every interested person or to one who can bind an interested person as described in paragraph (2)(i) or (ii). Notice may be given to a person and to another who may bind the person.

(ii) Notice is given to unborn or unascertained persons, who are not represented under paragraph (2)(i) or (ii), by giving notice to all known persons whose interests in the proceedings are substantially identical to those of the unborn or unascertained persons.

(4) At any point in a proceeding, a court may appoint a guardian ad litem to represent the interest of a minor, an incapacitated, unborn, or unascertained person, or a person whose identity or address is unknown, if the court determines that representation of the interest otherwise would be inadequate. If not precluded by conflict of interest, a guardian ad litem may be appointed to represent several persons or interests. The court shall set out its reasons for appointing a guardian ad litem as a part of the record of the proceeding. In approving a settlement under this section, a guardian ad litem may consider general family benefit.

Source: Unif. Probate Code Sec. 1-403.

This section reflects revisions proposed by the Joint Editorial Board for Uniform Probate Code which have not yet been considered by the Commissioners.

SECTION 5-204. NONJUDICIAL SETTLEMENT.

(a) Subsections (b)-(c) shall be deemed incorporated into each instrument creating a trust unless the terms of the trust indicate a contrary intent.

(b) For purposes of this section, a "fiduciary matter" includes any item listed in Section 5-201(b).

(c) Without approval of court, persons interested in a fiduciary matter may agree to a nonjudicial settlement with respect to the fiduciary matter, and may represent and bind other persons interested in the fiduciary matter as follows:

(1) The sole holder or all coholders of a power of revocation or presently exercisable power of appointment, including one in the form of a power of amendment, may bind other persons to the extent their interests (as objects, takers in default, or otherwise) are subject to the power;

(2) To the extent there is no conflict of interest between the representor and those represented with respect to the particular fiduciary matter:

(i) a conservator may represent and bind the estate the conservator controls;

(ii) a guardian may represent and bind the ward if no conservator of the ward's estate has been appointed;

(iii) a trustee may represent and bind the beneficiaries of the trust;

(iv) a personal representative may represent and bind the persons interested in the estate;

(v) a sole holder or all coholders of a testamentary general power of appointment may represent and bind other persons to the extent their interests (as objects, takers in default, or otherwise) are subject to the power;

(vi) if no conservator or guardian has been appointed, a parent may represent and bind a minor child.

(3) Unless otherwise represented under paragraphs (1)-(2), and to the extent there is no conflict of interest between them and the persons represented with respect to the particular fiduciary matter;

(i) a beneficiary currently entitled or eligible to receive income or principal of the trust may represent and bind the person or persons who may succeed to the trust property in whole or in part upon termination of that beneficiary's interest;

(ii) an adult, competent, and ascertained beneficiary may represent and bind a minor, incapacitated, unborn or unascertained person who is a beneficiary of the same class gift;

(iii) if an interest is in a class none of whose members are yet ascertained, the person or class of persons who would be entitled to the interest if the event making the interest future in enjoyment had occurred immediately before the nonjudicial settlement may represent and bind those class members and potential class members who are not so entitled; and

(iv) a beneficiary of an interest which is conditioned on the occurrence of a future event or combination of future event may represent and bind the person or persons who would succeed to that interest, in whole or in part, upon the occurrence of an additional event or combination of events.

(d) In connection with a nonjudicial settlement, the court may appoint a special representative to represent the interests of designated parties. If not precluded by conflict of interest, a special representative may be appointed to represent several persons or interests. In approving a settlement, a special representative may consider general family benefit.

(e) This section applies only to instruments executed on or after its effective date.

SECTION 5-205. ADMINISTRATION OF TRUSTS; JUDICIAL INTERVENTION INTERMITTENT. The administration of trusts must proceed expeditiously and free of judicial intervention, subject to the jurisdiction of the court as invoked by interested parties or as otherwise exercised as provided by law.

Uniform Probate Code Section 7-201(b) contains similar language. See also Section 4-401.

PART 3. TRANSFER OF TRUST TO ANOTHER JURISDICTION

Section

5-301. Application of Part.

5-302. Transfer to Jurisdiction Outside State.

5-303. Order Granting Transfer.

5-304. Manner of Transfer; Discharge of Trustee.

SECTION 5-301. APPLICATION OF PART.

(a) This [Part] applies to:

(1) a trust that is subject to this [Act]; and

(2) any other trust to which this [Part] is made applicable by statute or the terms of the trust.

(b) This [Part] does not preclude a transfer of the place of administration of a trust or of trust property to another jurisdiction by any other available means.

Source: CPC Section 17400.

Subsection (a)(1) permits the transfer of oral trusts. See 2-104 (oral trusts of personal property). Under the definition of "trust" in Section 1-102(18), this Part also applies to charitable trusts. See also Section 5-104 (venue).

SECTION 5-302. TRANSFER OF JURISDICTION OUTSIDE STATE. The court by an order may transfer the place of administration of a trust or transfer of some or all of the trust property to a jurisdiction outside this State as provided in this [Part].

Source: CPC Section 17401.

See also Section 1-102(13) ("property" defined), 5-101 (subject matter jurisdiction of court).

SECTION 5-303. ORDER GRANTING TRANSFER. The court may grant a petition for transfer and order the trustee to transfer the trust property or to transfer the place of administration of the trust to the other jurisdiction if, after hearing, it appears to the court that:

(1) the transfer of the trust property to a trustee in another jurisdiction, or the transfer of the place of administration of the trust to the other jurisdiction, will promote the best interest of the trust and those interested in it, taking into account the interest in the economical and convenient administration of the trust;

(2) the transfer does not violate the terms of the trust; and

(3) any new trustee to whom the trust property is to be transferred is qualified, willing, and able to administer the trust or trust property under the terms of the trust.

Source: CPC Section 17404.

The requirement in paragraph (3) that the trustee be willing is included for consistency with Section 5-404(a)(3).

SECTION 5-304. MANNER OF TRANSFER; DISCHARGE OF TRUSTEE. If a transfer is ordered under this [Part], the court may direct the manner of transfer and impose terms and conditions as may be just, including a requirement for the substitution of a successor trustee in any pending litigation in this State. A delivery of property in accordance with the order of the court is a full discharge of the trustee with respect to all property embraced in the order.

SECTION 5-401. APPLICATION OF PART.

(a) This [Part] applies to a trust, or portion thereof, administered in a jurisdiction outside this State.

(b) This [Part] does not preclude the transfer of the place of administration of a trust or of trust property to this State by any other available means.

Subsection (a) permits the transfer of oral trusts. See

Section 2-104 (oral trusts of personal property). See Section 1-102(18) ("trust" defined). Section 5-401 makes this Part applicable to the transfer to this state of the place of administration of trusts or trust property administered in another jurisdiction. Hence, this Part applies to trusts administered in foreign countries as well as those administered in other states.

SECTION 5-402. ORDER ACCEPTING TRANSFER. The court may order acceptance of a transfer of the place of administration of a trust from another jurisdiction to this State or the transfer of some or all of the trust property in another jurisdiction to a trustee in this State as provided in this [Part].

This section is comparable to Section 5-302. See also Section 1-102(13) ("property" defined), 5-101 (subject matter jurisdiction in court).

SECTION 5-403. VENUE.

(a) If a petition requests that a resident of this State be appointed trustee, the petition must be filed in the court of the county in which the proposed principal place of administration of the trust is located.

(b) If a petition requests that only a nonresident of this State be appointed trustee, the petition must be filed in the court of the county in which either a beneficiary resides or a substantial portion of the trust property to be transferred is or will be located.

See also Section 5-101 (subject matter jurisdiction of court).

SECTION 5-404. ORDER ACCEPTING TRANSFER AND APPOINTING TRUSTEE.

(a) The court may grant the petition and issue an order accepting transfer of trust property or the place of administration of the trust to this State and appoint a trustee to administer the trust in this State, if, after hearing, it appears to the court that:

(1) the transfer of the trust property to a trustee in this State, or the transfer of the place of administration of the trust to this State, will promote the best interest of the trust and those interested in it, taking into account the interest in the economical and convenient administration of the trust;

(2) the transfer does not violate the terms of the trust;

(3) the trustee appointed by the court to administer the trust in this State, and to whom the trust property is to be transferred, is qualified, willing, and able to administer the trust or trust property under the terms of the trust; and

(4) the proper court in the other jurisdiction has approved the transfer if approval is necessary under the law of the other jurisdiction.

(b) If the court grants a petition under subsection (a), the court shall require the trustee to give a bond, if necessary under the law of the other jurisdiction or of this State, and may require bond as provided in Section 4-102.

SECTION 5-405. CONDITIONAL ORDER ACCEPTING TRANSFER. If appropriate to facilitate transfer of the trust property or the place of administration of a trust to this State, the court may issue a conditional order appointing a trustee to administer the trust in this State and indicating that transfer to this State will be accepted if transfer is approved by the proper court of the other jurisdiction.

This section provides a method whereby the court can indicate its willingness to accept jurisdiction over a trust administered in another jurisdiction where the law of the other jurisdiction requires appointment of a trustee in the proposed new place of administration before approving transfer. See, e.g., Mass. Gen. Laws Ann. ch. 206, Sec. 29 (West 1969).

SECTION 5-406. ADMINISTRATION; VALIDITY; CONSTRUCTION. A trust transferred to this State pursuant to this [Part] must be administered in the same manner as a trust of that type created in this State. The validity of a trust and the construction of the beneficial provisions of a trust transferred to this State are not affected by this section.

Under this section a transferred trust is treated the same as a trust that was created in this State, and so is governed by this Act. The second sentence distinguishes the rules governing the validity of a trust and the construction of its beneficial provisions from the procedural and administrative provisions covered by the first sentence of this section. This section is not intended to provide choice of law rules. A trust that was subject to judicial supervision in another state will not be subject to continuing court jurisdiction unless the terms of the trust so provide and the court so determines in the order accepting transfer to this state.

(a) This [Act] takes effect on ______________.

(b) On and after the effective date, this [Act] applies to all trusts regardless of whether they were created before, on, or after its effective date.

(c) This [Act] applies to all proceedings concerning trusts commenced on or after its effective date.

(d) This [Act] applies to all proceedings concerning trusts commenced before its effective date unless, in the opinion of the court, application of a particular provision of this [Act] would substantially interfere with the effective conduct of the proceedings or the rights of the parties or other interested persons, in which case the particular provision of this [Act] does not apply and prior law applies.

This section provides the general rule governing the application of this Act to administration of existing trusts and pending proceedings involving trusts. For a comparable provision, see Section 8-101 of the Uniform Probate Code.

For effective dates applicable to particular matters under California law but not reproduced in this draft, see California Probate Code Sections 15401(e) (rules governing method of revocation by settlor), 16042 (interpretation of the trust terms concerning legal investments), 16062 (application of duty to account annually to beneficiaries), 16203 (application of rules governing trustees' powers), 16401(c) (application of rules governing trustees' liability to beneficiary for acts of cotrustee), 16403(c) (application of rules governing trustees liability to beneficiary for acts of predecessor trustee), 18000(b) (application of rule governing personal liability of trustee to third persons on contracts).