Future Interests and Fiduciary Duties Flashcards
Vested Remainder
A remainder is considered vested if the holder of the interest is:
1. Ascertainable
AND
2. there is no EXPRESS condition precedent required for the interest to become possessory.
Disclaimer
I don’t want your Trust!!
In most states, a disclaimer is not effective unless it is in writing WITHING 9 MONTHS after the future interest would become “indefeasibly vested”
If the income B of a T DISCLAIMS her interest, then the T principal becomes immediately distributable (accelerates) to the remainder Bs if the remainder is vested
(if the remainder is contingent upon a condition, the remainder will not accelerate)
When holder of a future interest effectively disclaims that interest, the disclaimant is deemed to have predeceased the life tenant.
YOU’RE DEAD TO ME
Class Gifts
Class gifts are generally permissable; to “my children” or “my grandchildren” (includes adopted children or grandchildren)
A class remains open and can admit new members after the T is created until AT LEAST ONE class member is entitled to possession OR the Settlor DIES
Class Gifts to “Surviving” Children
Unless the trust instrument provides otherwise, the general rule is that a class gift from a parent to surviving children is limited to only the children that OUTLIVE the settlor.
If the child predeceases the settlor, the child would take nothing.
UPC takes a different approach on this.
Lapse of a Gift
In most states, anti-lapse statutes do not apply to trusts.
Under the UPC, anti-lapse is applied to trusts
A substitute gift is created in the descendants of the deceased issue.
TIP: If an essay doesn’t specify the approach, talk about what the result would be in a majority of states and under the UPC.
Trustee’s Powers
Tee has powers granted EXPRESSLY in the T, and powers necessary to acta as a RPP in managing the T, including the implied power to contract, sell, lease, or transfer the T property
Trustee’s Duty of Loyalty
Trustee has a duty to administer the T in
- GOOD FAITH (subj. standard) and
- TO ACT REASONABLY (objective standard)
Self-Dealing
Violation of Duty of Loyalty
When the Tee personally engages in a transaction involving T property, a conflict of interest arises between the T’s duties and her own personal interest.
There is an IRREBUTTABLE PRESUMPTION that Trustee breached duty of loyalty when self-dealing is an issue.
No further inquiry into Trustee’s reasonableness or good faith is required because self-dealing is a per se breach!!!
Prohibited Transactions
that violate Duty of Loyalty bc of Self-Dealing
- Buying/selling trust assets
- Selling property between different trusts that trustee manages
- Borrowing from or making loans to the trust
- Using trust assets to secure personal loan
- Engaging in prohibited transactions with friends/ relatives
- Otherwise acting for personal gain through trustee position
Exceptions to self-dealing
Even when self-dealing is authorized (by settlor, court order, or all Bs), transaction must still be REASONABLE and FAIR to avoid liability for breach.
Remedies for Breach of Duty of Loyalty
The Bs can set aside the transactions OR
ratify the transactions and recover the profits from the transaction.
Conflict of Interest
When a Trustee invests assets in a corporation in which the trustee has an interest that might affect the trustee’s judgment (ex. owns stock in the corp.) THEN
a conflict of interest arises
There is presumption of a breach of the duty of loyalty that can be rebutted by showing that the terms of transaction were fair OR that the transaction would have been made by an independent party.
Duty of Prudence
TIP: There may be one set of facts that trigger MULTIPLE duties of prudence. To maximize points, talk about EACH duty that is violated under its own IRAC
Prudent Investor Rule
Part of Duty of Prudence
Requires trustee to act as a PRUDENT INVESTOR would act when investing in his own property;
trustee must exercise reasonable care, caution, and skill when investing and managing trust assets.
TIP: look for facts where the trustee is investing in a way that is not reasonable.
Duty to Diversity
part of the Duty of Prudence
Trustee must adequately diversify the trust to spread the risk of loss.
The trustee should not be investing in only one stock and should invest in multiple
Duty to Make Property Productive
Part of Duty of Prudence
Can apply to investments but can also apply to property that the trust owns.
Ex. if trust has real property, trustee has duty to try and rent the property, a failure to try and rent property would be a breach of the duty to make the property productive.
Duty to be Impartial
Balance interests of the present Bs and treat them equally unless the trust provides otherwise.
Trustee must balance the interests of the present and future beneficiaries.
Allocation of Principal and Income
If ordinary expenses occur involving trust property, those ordinary expenses are charged to the income generated by the trust.
Extraordinary expenses should be charged to the trust’s principal.
Duty to Disclose
Disclose complete and accurate information about nature and extent of the trust property, including allowing access to trust records and accounts.
Duty to Account
Periodically account for actions taken on behalf of the trust.
Powers of Appointment
A trustee with the power of appt. gets the power to distribute trust property.
General Power of appointment
Trustee can give the property to anyone
Special/Limited Power of Appointment
Trustee must give the property to a SPECIFIC PERSON
If person exceeds the bounds of the power of appointment OR
does not exercise it at all,
THEN the property they were supposed to give to someone will either go back to estate OR be distributed in a different way
Remedies for violation of duties
If a trustee violates any duty, they can be sued by the Bs who can seek damages and/or removal of the trustee due to the breaches.
