Fiduciary & Trust Section #5 Receipts, Payments & Distributions

Question 1

Guidance provided by

Answer 1

1) restatement of trusts - synthesizes legal reasoning from case law and state statutes

2) uniform principal and income act - provides guidance to trustees

Question 2

What determines type and amount of distributions

Answer 2

Dispositive terms of trust

Trustee is bound by this duty

Question 3

Health distributions

Answer 3

Physical & mental

Long and short term

Must consider impact on remainder beneficiaries

Question 4

Education distributions

Answer 4

-tuition, living expenses, fees of college, trade schools, technical training

Question 5

Support distributions

Answer 5

Same as maintenance distributions

Includes housing, food, living expenses

Based on bene’S standard of living at settlers death or when irrevocable trust created

Question 6

Duty to multiple beneficiaries

Answer 6

Trustee may infer beneficiary’s “preferred” or “favored” status

Usually closest in relation status to settler

Question 7

Consider other resources

Answer 7

Income
Other assets

Question 8

Distributions “to” or it for benefit of”

Answer 8

Problematic if beneficiary becomes incapacitated

“To” must wait until guardian or conservator appointed

Question 9

Allocation of principal and income

Answer 9

Income = return in money or property derived from the use of principal

Principal = property held in trust

Question 10

Receipts allocated to income

Answer 10

Rent
Interest
Cash dividends
Net income from business or farm

Question 11

Receipts allocated to principal

Answer 11

Proceeds from sale of asset
Loan repayment
Insurance proceeds
Stock dividends

Question 12

Receipts allocated to principal and income

Answer 12

Oil / mineral

Trademarks / patents

Proceeds from sale of unproductive property

Taxes attributable to receipts allocated to income must be paid from income, same for principal

Question 13

Dividends declared but not paid

Answer 13

Principal

Question 14

Requirements for trustee to exercise power to adjust (reallocate principle and income) must meet 3 requirements

Answer 14

1) trustee invests and manages trust assets as prudent investor
2)trust describes the amount that may or must be distributed in terms of income
3) trustee cannot administer trust fairly and impartially to all beneficiaries

Question 15

Factors to consider before making incomes» principal adjustment

Answer 15

1) nature, purpose ) expected duration of trust
2) intent of settlor
3) identity and circumstances of beneficiary
4) need for liquidity
5) to what extent trust gives trustee power to invade principal
6) tax consequences

MUST BE CAREFULLY DOCUMENTED

NO ADJUSTMENT BY SELF INTERESTED TRUSTEES

Question 16

Duty to keep records

Answer 16

Fiduciaries required to keep adequate records pertaining to fiduciary services

Best practice and also connected with duty to provide information to beneficiaries