Pg 33

Question 1

Is it possible to combine trusts?

Answer 1

Yes, the UTC and many statutes allow a trustee, after giving notice to the beneficiaries can combine trusts into one trust if the result doesn’t impair the rights of any beneficiary or adversely affect the trust purposes

Question 2

Is it possible to divide trusts?

Answer 2

Yes, as long as the trustee gives notice to the beneficiaries, he can divide a trust into two or more separate trusts if the result doesn’t impair the rights of any beneficiary or adversely affect the trust purposes

Question 3

What are some reasons that you would want to consolidate or divide trusts?

Answer 3

It might be necessary for tax advantages, investments, or to reduce trustee fees

Question 4

What are the three situations where termination or modification of a trust is allowed?

Answer 4

– Claflin doctrine: all beneficiaries agree and the material trust purpose is not frustrated
- Unanticipated or changed circumstances: warrant a termination or modification (equitable deviation doctrine)
– Trust decanting

Question 5

What is involved in the Claflin doctrine that is applied to termination or modification of a trust?

Answer 5

In order to terminate or modify, a trustee needs unanimous beneficiary consent and the material trust purpose cannot be defeated or substantially impaired

Question 6

What is a material purpose of a trust for the Claflin doctrine?

Answer 6

For things constitute this:
– minimum age requirement that beneficiary must reach before getting trust property
– discretionary trust that gives discretion to the trustee to decide how much and when the beneficiary should be paid
– support trust: meant to cover living expenses
– spendthrift trust: meant to protect the beneficiary from himself

Question 7

If there is a minimum age requirement for a trust, how can that be considered a material purpose that could be defeated or substantially impaired so that the Claflin doctrine would forbid a termination or modification of the trust?

Answer 7

If the beneficiary must reach a certain age before he gets the trust property, the court will say there’s a reason that the settlor chose to delay payment, so the court will not allow an early payout because that would defeat the point of delaying payment

Question 8

If there is a discretionary trust, how can that be considered a material purpose that could be defeated or substantially impaired so that the Claflin doctrine would forbid a termination or modification of the trust?

Answer 8

If the settlor set up the trust so that a financially responsible trustee would decide how much the beneficiary should get and when, then the court says that the settlor wanted the trustee to decide this, so early termination would defeat the purpose

Question 9

If there is a support trust, how can that be considered a material purpose that could be defeated or substantially impaired so that the Claflin doctrine would forbid a termination or modification of the trust?

Answer 9

If the beneficiary should get $1000 a month to cover living expenses like food, shelter, and clothes, and the beneficiary asked the court to give him a lump sum payout, then he will not be supported over the long run, which would frustrate the material purpose of the trust, so the court will not allow

Question 10

If there is a spendthrift trust, how can that be considered a material purpose that could be defeated or substantially impaired so that the Claflin doctrine would forbid a termination or modification of the trust?

Answer 10

The point of this is to protect the beneficiary from himself by stopping him from selling or giving away his interest and by stopping creditors from invading the trust to satisfy his debts. So if he’s given a lump sum payout, that cannot be stopped and it undermines the point of the spendthrift trust, so the courts will not grant the request.

Question 11

What does the UTC say about the Claflin doctrine requiring all beneficiaries to agree and a material trust purpose not to be frustrated under a termination or modification of a trust?

Answer 11

It softens Claflin by not requiring absolute unanimity among the beneficiaries. So even if not all of the beneficiaries want the termination or modification, it can still be allowed as long as the interests of the non-consenting beneficiaries are protected. I.e.: trust says that the settlor’s three grandkids get annual income from the interest of the trust res, and two of the three grandkids want the cash now, but the other one wants to keep things as they are. As long as it doesn’t harm the one that doesn’t want to terminate by allowing the other two to cash out their shares, the court will allow early termination.

Question 12

What does the restatement say about the Claflin doctrine requiring all beneficiaries to agree and a material trust purpose not to be frustrated under a termination or modification of a trust?

Answer 12

This uses a balancing test. It keeps the requirement of unanimity were all the beneficiaries having to agree to the termination or modification, but allows a termination or modification if there are good reasons for it, even if a material purpose of the settlor would be impaired by the change

Question 13

What is involved in the way that you can terminate or modify a trust if there are unanticipated or changed circumstances?

Answer 13

There must be changed circumstances that weren’t anticipated at the time of trust creation, plus continuing to comply with the present trust terms would defeat or substantially impair the purpose of the trust.

Question 14

What are things that would be considered a material purpose for a trust?

Answer 14

– minimum age requirement
– spendthrift provision
– discretionary provision

Question 15

Under the unanticipated or changed circumstances provision that allows for termination or modification of a trust, is it enough if the change would be more advantageous to the beneficiaries?

Answer 15

No

Question 16

Under what circumstances would a modification to a trust be appropriate under the unanticipated or change circumstances?

Answer 16

If the settlor failed to anticipate economic changes like inflation or the incapacity of the beneficiary

Question 17

How does the CL treat the unanticipated or changed circumstances requirement for a termination or modification of a trust that requires there be changed circumstances that were known at the time of the trust’s creation and continuing to comply with those present trust terms would defeat or substantially impair the purpose of the trust?

Answer 17

Courts don’t like to use this doctrine to modify who gets what, but they will use it for administrative terms. I.e.: if the settlor said to keep the trust invested in MySpace, but that trend is over, so the court would likely allow modification of instructions for the investment. But if the beneficiary instead says the income from the trust was enough for him when the interest rates were high, but now that they are low it isn’t enough, and he wants to take some principal too, this change would be to how and when the property would get distributed instead of just logistical issues, so the court would be hesitant to decide that

Question 18

How does the UTC and the Restatement treat the unanticipated or changed circumstances requirement for a termination or modification of a trust that requires there be changed circumstances that were known at the time of the trust’s creation and continuing to comply with those present trust terms would defeat or substantially impair the purpose of the trust?

Answer 18

Modern trends that soften the requirements. They allow the ability to modify equally to disposed of terms and administrative terms. They also say it isn’t necessary to show that keeping the status quo would ruin things in order to make a change, you just have to show that making the change would further a purpose of the trust. I.e.: if tax laws changed to make it smart for the beneficiaries to change how the trust operates, the court would allow the modification. This allows modification for any administrative term whenever continuation of the trust on its existing terms would be impractical, wasteful, or would impair the trust administration

Question 19

What is trust decanting?

Answer 19

If a trustee under the terms of the original trust has discretionary power over distribution, he can use that power to distribute the trust property to a new trust/second trust with updated provisions and leave behind the first trust’s stale provisions.

Question 20

What is an example of trust decanting?

Answer 20

If a trustee devises money in trust to X to pay to A or B as X determines from time to time in his sole discretion. The terms don’t say anything about trustee succession and are tax inefficient because of changes to the state tax law. X can declare a new trust to benefit A and B with terms that are identical to the first one except there is now a provision for trustee succession and changes for the settlor’s intended tax objectives. X funds the second trust with a distribution or decanting of the entire corpus of the first trust.

Question 21

What is the most important and tested topic in trusts?

Answer 21

Trustee duties and powers. Almost every fact pattern involves a suit because someone didn’t do what they were supposed to do

Question 22

If a beneficiary sued because a trustee sold property that he was supposed to keep, or didn’t diversify assets, or invested in money at a below market interest rate, what is the suit about?

Answer 22

The trustee’s duties and powers

Question 23

When you’re dealing with a trustee duty and power issue on an essay, what are the things you have to talk about?

Answer 23

Treat it like a torts problem.

• P must establish there was a valid trust
• D was the trustee
• P was the beneficiary
• D owed the P a duty
• D breached one or more of his duties
• the breach caused the P damages