14. Passive and active trusts.—Passive trusts, sometimes called simple, technical, dry or naked trusts, are those in which the trustee is a mere deposi tary of the subject of the has no active duties to perform. Active, special or operative trusts are created in cases where the trustee is com mitted by the creator of the trust to do some act re quiring the exercise of judgment in connection with the administration of the trust. Active trusts be come passive trusts when the trustee has no further duty to perform. Under the law in most jurisdic tions passive trusts are practically non-existent, for as soon as the title to the property gets into the hands of the trustee the trust is said to be executed; and title, both legal and equitable, is vested in the bene ficiary.
15. Who can be a trustee.—Any person may be come a trustee,.. but only persons having legal ca pacity to contract should be made trustees. Corpora tions known as trust companies are frequently chosen to act as trustees. Their duties are in the main the same as those of natural persons. If a valid trust is created and there is no trustee, either because none has been appointed or because the one appointed is incompetent and refuses to act, an equity court will supply the trustee to perform the trust.
16. Powers and duties of trustees.—A trustee has such power as is necessary to carry out the purposes of the trust in the manner prescribed by the creator. He can be relieved of his duties only by consent of all beneficiaries or by turning the property back into the hands of an equity court. Thus, the trustee after he has accepted the trust, is bound to carry out the trust in the manner prescribed, using the property in such a way as any prudent man, giving due diligence to the matter, would handle his own affairs under like circumstances.
Probably the most important prohibition upon the power of a trustee states that he may make no private profit out of the trust estate and he must not mix its property with his own property. Thus, a trustee may deposit money temporarily in a bank, awaiting a reasonable opportunity to invest it, but if he leaves it there unreasonably or if he deposits it to his own personal account, and the bank fails, he personally will have to take the loss.
It will be seen, therefore, that while a trustee does not have to accept the trust, if he does do so either expressly or impliedly, he will be compelled to ad minister it actively and faithfully.
It must be remembered that the legal title to the subject of the trust is vested in the trustee. As a natural incident to this rule, the trustee, not the bene ficiary, is the person charged with the duty to pro tect the trust property. If any legal action is neces sary the trustee must take it; the beneficiary can only request the trustee to initiate proceedings and if the latter fails to take the required precautions, the bene ficiary must proceed through an equity court to have his rights guarded.
17. Investments by trustees.—One of the most diffi cult problems of the trustee is the handling of his in vestments. Unless the deed or instrument creating the trust specifically gives the trustee power to con tinue the investment in the form in which it existed at the creation of the trust, the trustee should im mediately convert all the property into funds for legal investment. Reasonable time is allowed and
sound discretion must be exercised in selling in the most advantageous manner and at the most advan tageous time. Even if the trustee has been given discretion as to investments, he is not justified in in vesting trust funds in personal securities or in em ploying them in trade or speculation. Mortgages on real estate are generally considered proper invest ments for trustees in the United States, but in many states the subject of investments by trustees is ex pressly regulated by statute.' If a trustee invests in unauthorized securities the beneficiary may elect to adopt or reject them. If the investment is rejected, the property belongs ab solutely to the trustee subject to a lien for the pur chase money in favor of the trust estate. If, on the other hand, the trustee invests in authorized securi ties but does not use due care in purchasing them the property belongs to the trust estate, but the trus tee is liable for any loss which may ensue.
A trustee is chargeable with simple interest on bal ance improperly retained in his hands or deposited to his personal account.
If a trustee is directed by a deed of trust to invest in a particular stock and he neglects to make the in vestment, the beneficiary may take the money with legal interest thereon or may claim as many shares with their dividends, as the money would have pro cured if the investment had been made at the proper time. If the trustee uses the trust funds in business. the beneficiary may take either the amount with in terest or the profits of the business, but if he chooses the latter he must also share any possible loss. It is a general rule that where a trustee acts prudently in the handling of an estate, any losses rising out of the administration of any part of it may be made good by the trustee out of the rest of the estate. In brief, this rule means that as long as the trustee acts prudently the trust estate is liable for all losses. Creditors, then, must look to the trust fund and not to the trustee or beneficiary as long as the trustee is properly carrying out the trust.
18. Compensation, of the United States, trustees are compensated for their trouble in administering the trust estate. In some states, the amount of the compensation is left to the discretion of a court, while in others it is regulated by statute.
19. The law of trustees' actions of a trustee are always subject to supervision by an equity court. For that reason a trustee should keep accurate accounts for the trust estate and should be prepared to render an accounting whenever required to do so. It is a cardinal principle of equity that all obscurities and doubtful records in the accounts of trustees are to be taken adversely to the trustee and if, thru failure to keep proper accounts he is un able to specify items, he will be charged with all that he fails to discharge himself of together with such in terest as under the circumstances may be equitable and just. A trustee may incur personal liability; he cannot gain any private advantage.