Tennessee § 35-15-703 - Cotrustees.

§ 35-15-703. Cotrustees.

Cotrustees who are unable to reach a unanimous decision may act by majority decision. If a vacancy occurs in a cotrusteeship, the remaining cotrustees may act for the trust. A cotrustee must participate in the performance of a trustee's function unless the cotrustee is unavailable to perform the function because of absence, illness, disqualification under other law, or other temporary incapacity or the cotrustee has properly delegated the performance of the function to another trustee. If a cotrustee is unavailable to perform duties because of absence, illness, disqualification under other law, or other temporary incapacity, and prompt action is necessary to achieve the purposes of the trust or to avoid injury to the trust property, the remaining cotrustee or a majority of the remaining cotrustees may act for the trust. A trustee may not delegate to a cotrustee the performance of a function the settlor reasonably expected the trustees to perform jointly. Unless a delegation was irrevocable, a trustee may revoke a delegation previously made. Except as otherwise provided in subsection (g), a trustee who does not join in an action of another trustee is not liable for the action. Each trustee shall exercise reasonable care to: Prevent a cotrustee from committing a serious breach of trust; and Compel a cotrustee to redress a serious breach of trust. A dissenting trustee who joins in an action at the direction of the majority of the trustees and who notified any cotrustee of the dissent at or before the time of the action is not liable for the action unless the action is a serious breach of trust. A trustee shall keep each cotrustee and any other fiduciary reasonably informed about the administration of the trust, to the extent the trustee has knowledge that each such cotrustee or other fiduciary does not have such knowledge of the trustee's actions, or regarding other material information or the availability of such information, related to the administration of the trust that would be reasonably necessary for each such cotrustee or other fiduciary to perform such person's duties as a trustee or other fiduciary of the trust. Acts 2004, ch. 537, § 53; 2013, ch. 390, § 26. Compiler's Notes. Acts 2013, ch. 390, § 55 provided that: (b) Except as otherwise provided in the act, on July 1, 2013: The act applies to all trusts created before, on, or after July 1, 2013; The act applies to all judicial proceedings concerning trusts commenced on or after July 1, 2013; The act applies to judicial proceedings concerning trusts commenced before July 1, 2013, unless the court finds that application of a particular provision of the act would substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties, in which case the particular provision of the act does not apply and the superseded law applies; Any rule of construction or presumption provided in the act applies to trust instruments executed before July 1, 2013, unless there is a clear and express indication of a contrary intent in the terms of the trust; and An act done before July 1, 2013, is not affected by the act. Section Comment. This section contains most but not all of the Code's provisions on cotrustees. Other provisions relevant to cotrustees include sections T.C.A. § 35-15-704 (vacancy in trusteeship need not be filled if cotrustee remains in office), T.C.A. § 35-15-705 (notice of resignation must be given to cotrustee), T.C.A. § 35-15-706 (lack of cooperation among cotrustees as ground for removal), T.C.A. § 35-15-707 (obligations of resigning or removed trustee), , and T.C.A. § 35-15-1013 (whether all or less than all trustees are required to exercise signature authority to exercise various powers). Cotrustees are appointed for a variety of reasons. Having multiple decision makers can serve as a safeguard against eccentricity or misconduct. Cotrustees are often appointed to gain the advantage of differing skills, perhaps a financial institution for its permanence and professional skills, and a family member to maintain a personal connection with the beneficiaries. On other occasions, cotrustees are appointed to make certain that all family lines are represented in the trust's management. Cotrusteeship should not be called for without careful reflection. Division of responsibility among cotrustees is of-ten confused, the accountability of any individual trustee is uncertain, obtaining consent of all trustees can be burden-some, and unless an odd number of trustees is named deadlocks requiring court resolution can occur. Potential problems can be reduced by addressing division of responsibilities in the terms of the trust. Like the other sections of this chapter, this section is freely subject to modification in the terms of the trust. See T.C.A. § 35-15-105 . Much of this section is based on comparable provisions of the Restatement of Trusts, although with extensive modifications. Reference should also be made to ERISA section 405 ( 29 U.S.C. § 1105 ), which in recent years has been the statutory base for the most significant case law on the powers and duties of cotrustees. Unless provided otherwise hereinafter, any reference to “section,” “subsection” or “subdivision” means all, or such portion of, T.C.A. § 35-15-703 . Subsection (a) is in accord with Restatement (Third) of Trusts § 39 (Tentative Draft No. 2, approved 1999), which rejects the common law rule, followed in earlier Restatements, requiring unanimity among the trustees of a private trust. See Restatement (Second) of Trusts § 194 (1959). This section is consistent with the prior Restatement rule applicable to charitable trusts, which allowed for action by a majority of trustees. See Restatement (Second) of Trusts § 383 (1959). Under subsection (b), a majority of the remaining trustees may act for the trust when a vacancy occurs in a cotrusteeship. T.C.A. § 35-15-704 provides that a vacancy in a cotrusteeship need be filled only if there is no trustee remaining in office. Pursuant to subsection (c), a cotrustee must participate in the performance of a trustee function unless the cotrustee has properly delegated performance to another cotrustee, or the cotrustee is unable to participate due to temporary incapacity or disqualification under other law. Other laws under which a cotrustee might be disqualified include federal securities law and the ERISA prohibited transactions rules. Subsection (d) authorizes a cotrustee to assume some or all of the functions of another trustee who is unavailable to perform duties as provided in subsection (c). Subsection (e) addresses the extent to which a trustee may delegate the performance of functions to a cotrustee. The standard differs from the standard for delegation to an agent as provided in T.C.A. § 35-15-807 because the two situations are different. T.C.A. § 35-15-807 , which is substantially similar to T.C.A. § 35-14-111 of the Tennessee Uniform Prudent Investor Act of 2002, recognizes that many trustees are not professionals. Consequently, trustees should be encouraged to delegate functions they are not competent to perform. Subsection (e) is premised on the assumption that the settlor selected cotrustees for a specific reason and that this reason ought to control the scope of a permitted delegation to a cotrustee. Subsection (e) prohibits a trustee from delegating to another trustee functions the settlor reasonably expected the trustees to perform jointly. The exact extent to which a trustee may delegate functions to another trustee in a particular case will vary depending on the reasons the settlor decided to appoint cotrustees. The better practice is to address the division of functions in the terms of the trust, as allowed by T.C.A. § 35-15-105 . Subsection (e) is based on language derived from Restatement (Second) of Trusts § 171 (1959). This section of the Restatement Second, which applied to delegations to both agents and cotrustees, was superseded, as to delegation to agents, by Restatement (Third) of Trusts: Prudent Investor Rule § 171 (1992). By permitting the trustees to act by a majority, this section contemplates that there may be a trustee or trustees who might dissent. Trustees who dissent from the acts of a cotrustee are in general protected from liability. Subsection (f) protects trustees who refused to join in the action. Subsection (h) protects a dissenting trustee who joined the action at the direction of the majority, such as to satisfy a demand of the other side to a transaction, if the trustee expressed the dissent to a cotrustee at or before the time of the action in question. However, the protections provided by subsections (f) and (h) no longer apply if the action constitutes a serious breach of trust. In that event, subsection (g) may impose liability against a dissenting trustee for failing to take reasonable steps to rectify the improper conduct. The responsibility to take action against a breaching cotrustee codifies the substance of sections 184 and 224 of the Restatement (Second) of Trusts (1959). A cotrustee can always seek declaratory relief under T.C.A. § 29-14-105 when a deadlock exists among trustees or when a dissenting cotrustee fears that an action or omission of the majority could result in potential liability to the co-trustee. A provision similar to T.C.A. § 35-15-703(i) is not contained in the Uniform Trust Code. Subsection (i) requires all trustees to keep all other fiduciaries reasonably informed about the administration of the trust to the extent such other fiduciaries do not have such knowledge. This requirement assures that all such fiduciaries have the material information necessary to perform their respective duties. If a right is acquired, extinguished, or barred upon the expiration of a prescribed period that has commenced to run under any other statute before July 1, 2013, that statute continues to apply to the right even if it has been repealed or superseded.