Creditors, Trustee Duties, and Income/Principal Flashcards
Is a beneficiary’s equitable interest in trust property alienable?
Yes, unless the trust limits it
When can a creditor reach a beneficiary’s equitable interest?
To the extent the beneficiary can reach the interest herself
What is a spendthrift trust?
A trust that expressly restricts the beneficiary’s power to transfer his equitable interest.
Often inserted to protect beneficiaries from themselves
Against whom are spendthrift clauses unenforceable?
When the creditors are:
- Against Children and spouses entitled to support;
- Against People who have provided basic necessities to the beneficiary; and
- Against Holders of federal or state tax liens
When does a trust terminate?
When the purpose has been accomplished or at expiration of an express trust term
When can someone block a premature trust termination?
When it has an unfulfilled material purpose
Are spendthrift clauses material purposes of a trust?
Yes, they are presumed as such under PA law
Can a trust be revoked by will under PA law?
Yes, but only if the trust instrument specifically provides that it is revocable
When can a settlor modify a trust?
Whenever, unless the trust is expressly irrevocable
Are contingent remainders destructible in PA?
Yes. This means that if a contingent remainder fails to vest before or at the moment the preceding estate ended, it is destroyed
What powers does a trustee have under Pennsylvania law by default?
- All powers that an unmarried individual would have over his property;
- All powers reasonably necessary to administer the trust; and
- Other powers, such as the power to invest, operate a business, buy, sell, lease or encumber trust assets, and prosecute and defend actions
Can a third party be held liable for their role in a breach of a trust?
Yes, to the extent they act with knowledge that they are breach of the trust
What is a trustee’s duty of loyalty and good faith?
A trustee must act both reasonably (objective standard) and in good faith (subjective standard)
If a trustee engages in self-dealing, what presumption attaches to his conduct with respect to the duty of loyalty?
An irrebuttable presumption of breach; no further inquiry is needed because it is a per se violation
Are exculpatory clauses for a trustee’s duty of loyalty enforceable?
Only to a limited extent; complete exculpatory clauses violate public policy and limited clauses are only enforceable in the absence of bad faith or unreasonableness
What standard governs a trustee’s conflict of interest
If there is no self-dealing, then a conflict is assessed under a reasonable and good faith standard
When can a co-trustee be liable for the other trustee’s actions?
- Consenting to breach;
- Negligently failing to prevent it;
- Concealing the breach or failing to compel redress; or
- Improperly delegating authority to co-trustee
If a trustee transfers property to a bona fide purchaser, without knowledge and for consideration, can the beneficiary recover it?
No
What duties can a trustee delegate?
No discretionary responsibilities, but ministerial tasks can be delegated.
Any responsibility that would be unreasonable for the settlor to require the trustee to perform
What standard of care applies to trustees?
The duty to act as a man of ordinary prudence in the care of his own estate
Under Pennsylvania’s Prudent Investor Rule statute, what duty of prudence do trustees owe for investments?
Largely any investment a prudent man would make under any reasonable theory of investing.
Guided by factors:
- Size of the trust;
- Nature and duration of fiduciary relationship;
- Liquidity and distribution requirements of the trust;
- Expected task consequences;
- Overall investment strategy;
- Special relationships of assets;
- Needs of beneficiaries, to extent known
Is hindsight relevant to the trustee’s duty of prudence?
No
What is a trustee’s duty to be impartial?
A trustee cannot favor one beneficiary over another
What is a trustee’s duty to disclose?
A trustee must disclose complete and accurate information about the nature and extent of trust property, including allowing access and identifying possible breaches
