Future Interests; Fiduciary Duties

Question 1

Vested Remainder

Answer 1

A remainder is considered vested if the holder of the interest is ascertainable and there is no express condition precedent required for the interest to become possessory.

Question 2

Disclaimer

Answer 2

• In most states, a disclaimer is not effective unless it is in writing within nine months after the future interest would become “indefeasibly vested.”
• If the income beneficiary disclaims her interest, then the trust principal becomes immediately distributable to the remainder beneficiaries if they are vested.
• When the holder of a future interest disclaims that interest, the disclaimant is deemed to predecease the life tenant.

Question 3

Class Gifts

Answer 3

• Class gifts are generally permissible
• A class remains open and can admit new members after the trust is created until at least one class member is entitled to possession or the settlor dies.

Question 4

Class Gifts to “Surviving” Children

Answer 4

Under the common law, if the beneficiary survives the settlor but predeceases distribution, the trust asset goes to the beneficiaries estate. Under the UPC, if the beneficiary survives the settlor but predeceases the distribution, the trust asset goes to the beneficiaries issue.

Question 5

Lapse of a Gift

Answer 5

• In most states, anti-lapse statutes do not apply to trusts.
• Under the UPC, anti-lapse is applied to trusts.

Question 6

Trustee Powers

Answer 6

The trustee has powers granted expressly in the trust, and powers necessary to act as a reasonably prudent person in managing the trust, including the implied power to contract, sell, lease, or transfer trust property.

Question 7

Duty of Loyalty

Answer 7

Duty to administer trust in good faith (subjective) and to act reasonably (objective).

Question 8

Self-Dealing

Answer 8

• When the trustee personally engages in a transaction involving trust property, a true conflict of interest arises between the trustee’s duties and her own personal interest.
• There is an irrebuttable presumption that trustee breached the duty of loyalty when self-dealing is an issue.
• Exceptions: Even when self-dealing is authorized, transaction must be reasonable and fair to avoid liability.
• Remedy: Beneficiaries can set aside the transaction or ratify the transaction and recover profits.

Question 9

Conflict of Interest

Answer 9

There is a presumption of a breach of loyalty that can be rebutted by showing the transaction was fair or would have been made by an independent party.

Question 10

Duty of Prudence

Investments

Answer 10

• Prudent Investor Rule: must exercise reasonable care, caution, and skill
• Duty to Diversify: must adequately diversify to spread risk of loss
• Duty to Make Property Productive: applies to investments and property

Question 11

Duty of Prudence

Duty to be impartial

Answer 11

• Balance interests of the present beneficiaries and treat them equally unless the trust provides otherwise.
• Balance interests of present and future beneficiaries.

Question 12

Allocation of Principal and Income

Answer 12

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 principal.

Question 13

Duty to disclose

Answer 13

Disclose complete and accurate information about nature and extent of the trust property

Question 14

Duty to account

Answer 14

Periodically account for actions taken on behalf of the trust

Question 15

Powers of Appointment

Answer 15

A trustee with the power of appointment gets the power to distribute the trust property.