Lecture 23

Question 1

What kind of language does a mandatory distribution contain?

Answer 1

Contains language such as: Trustee SHALL distribute . . .”

This is a mandatory distribution by the trustee.

Question 2

What kind of language does a discretionary distribution contain?

Answer 2

“Trustee may distribute . . .” is a discretionary distribution by the trustee

Language of may means the trustee is not mandated to distribute

Question 3

Is this mandatory or discretionary –

“and after having considered the various available sources of support for him, my trustees shall, if they deem it necessary or desirable from time to time, in their sole and uncontrolled discretion, pay over to him, or use, apply and/or expend for his direct or indirect benefit such amount or amounts of the principal thereof as they shall deem advisable for his comfortable support and maintenance.”

Answer 3

Discretionary distribution -because language sole and uncontrolled discretion

Question 4

CPC section 16081(a) provides that –Absolute, sole, or uncontrolled” discretionary power subject to fiduciary principles

Answer 4

CPC section 16081(a) provides that, even if a trust instrument grants to the trustee an “absolute,” “sole,” or “uncontrolled” discretionary power, the trustee shall act in accordance with fiduciary principles and shall not act in bad faith or in disregard of the purposes of the trust.

Question 5

Discretionary power subject to reasonable exercise

Answer 5

CPC section 16080 provides that, except as provided in section 16081, a discretionary power granted to a trustee is not left to the trustee’s arbitrary discretion but shall be exercised reasonably.

Question 6

Before a trust is revoked and while the trust is still valid, who holds title to the trust property?

Answer 6

The trustee of the trust.

Question 7

What does a trustor have to do to revoke the trust? (review notes on trust revocation)—

Answer 7

usually, the trustor has to inform the trustee that the trust is revoked

Question 8

Modification or termination of an irrevocable trust after trustor’s death

Answer 8

After a trust’s purpose has been fulfilled, CPC section 15403(a) provides that, after the trustor’s death, if all beneficiaries of an irrevocable trust consent, they may compel modification or termination of the trust upon petition to the court.

EX: Trust for college education of 4 children. All children are done with college and there is 80K left. Here, grandchildren may compel termination of the trust (upon petition to the court), in which case the trustee will distribute the remaining trust property in equal shares to the 4 grandchildren.

Question 9

Example of termination of trust in part (partial termination of the trust) (section 15404(b)

RULE: if any beneficiary does not consent to the modification or termination of an irrevocable trust during trustor’s lifetime):

Answer 9

1. Mom (a widow) creates an irrevocable trust holding $300 in equal shares for her 3 children.
2. Child #1 and Child #2 disagree with Child #3 about how the trust property ($300) should be invested.
3. Child #1 and Child #2 want a partial termination as to their trust property because they want to pursue a different investment strategy and Mom as trustor consents to the partial termination.

Question 10

Example of termination of trust in whole (section 15404(a)

RULE: trustor and all beneficiaries of an irrevocable trust consent during trustor’s lifetime):

Answer 10

1. Mom (a widow) creates an irrevocable trust for her 3 children.
2. Mom, Child1, Child2, and Child3 consent to the termination of the trust Mom created for the 3 children.
3. Because the requirements of section 15404(a) are met, then the beneficiaries may compel the court to terminate the trust.