Pg 38

Question 1

What are the different defences that a trustee can assert?

Answer 1

– lack of standing: the person that brought the suit didn’t have an interest in the trust
– good faith: the trustee committed the breach in good faith (some courts will not impose liabilit)
– exculpatory clause
– consent: the beneficiaries consented to the trustee’s behavior

Question 2

In what situations will a trustee be removed?

Answer 2

If there was a substantial breach, but not usually for minor or inconsequential mistakes or just the beneficiaries’ preference.

Question 3

What is the rationale behind allowing the beneficiaries to remove a trustee only in certain circumstances?

Answer 3

The point of a trust is that the settlor didn’t want the beneficiaries to be fully in charge of the assets, so the trustee has discretion to make decisions and that may anger the beneficiaries. You don’t want the beneficiaries to pick their own trustee that will just greenlight everything they want

Question 4

What are examples of serious breaches that would result in the removal of a trustee?

Answer 4

If the trustee failed to review quarterly reports of the investment agent who embezzled $200,000 over three years

Question 5

How is the UTC different with regard to removal of a trustee?

Answer 5

It is easier to remove a trustee because you can do it for serious breaches or lacklustre performance. This allows the removal of ineffective administration with the consent of all of the beneficiaries if it is in the best interest of the beneficiaries and isn’t contrary to the material purpose of the settlor

Question 6

What are things that can bar a beneficiary’s claims against the trustee?

Answer 6

• if they gave CONSENT to the trustee for his actions beforehand
  – if they RATIFIED the trustee’s actions
  – SOL
  – LACHES

Question 7

What is a power of appointment?

Answer 7

When one party is given the ability to decide which other people get property and how much.

Question 8

What are the names of the parties involved in a power of appointment?

Answer 8

• donor: original owner of the property who transfers the property and sets up the power
  – donee: person that has a right to appoint property and decide who to give it to
  – objects/potential appointees: people in the pool that the donee can choose from to receive property
  – appointee: chosen person once the donee actually exercises the power of appointment and identifies that person to get property

Question 9

What is the rationale for powers of appointment?

Answer 9

It allows flexibility because it lets someone that will be around in the future decide how the beneficiaries should get trust property and who will be a beneficiary, plus it has tax advantages and insulation from creditors.

Question 10

What is the main idea behind a power of appointment?

Answer 10

There’s no designated beneficiary, just a pool of people that the donee can choose from to enjoy the property.

Question 11

What is the reason that power of appointments don’t give any fiduciary duties to the donee?

Answer 11

Because there are no ascertainable beneficiaries

Question 12

Does the power of appointment have to be in writing?

Answer 12

Only if it is required by the SOF or if it involves real property

Question 13

What is the name for the pool of takers under powers of appointment?

Answer 13

Permissible appointees because you could select any of them

Question 14

What are the major differences between a trust and the power of appointment?

Answer 14

• trust: the trustee owes a fiduciary duty to the beneficiaries, is subject to court oversight, involves ascertainable beneficiaries, must act in good faith with regard to the discretion
  – power of appointment: purely discretionary and the donee owes no fiduciary duties.

Question 15

What’s an example of a power of appointment?

Answer 15

“Property shall go to A to distribute to such persons as A deems advisable.” Since there are no ascertainable beneficiaries that can enforce the rights against A, he can choose anyone on the planet. This cannot be a trust because it would fail since it has no beneficiaries. A can then choose anyone or no one.

Question 16

If a direction is left that says “property shall go to A to distribute to those of my descendants as A deems advisable“ is that a power of appointment?

Answer 16

Yes, and it gives a narrow class of takers, but A still has the power to choose who, or no one.

Question 17

What is the choice of law for a power of appointment?

Answer 17

• traditionally: it is the law of the donor’s domicile

– modernly: it is the law of the donee’s domicile

Question 18

What are the negatives of a power of appointment?

Answer 18

RAP starts to run at the donor’s death for interests that are created by the donee’s use of a non-presently exercisable general power. If the donee owns the property outright instead, he can use lives in being at his death as measuring lives

Question 19

What is the requirement for intent with regard to powers of appointment?

Answer 19

There must be intent to create this that is manifest either expressly or by implication. You don’t have to use the words “power of appointment“ or “appointment“, there just has to be an intent within the terms to create a power of appointment in the power holder

Question 20

If there is ambiguous language such as “property to A in trust“ because that fails as a trust since there are no ascertainable beneficiaries, what can happen?

Answer 20

The courts can try to carry out the transferor’s intent by calling it a power of appointment. But since the wording “trust“ was used, it is a power coupled with a trust, so it is subject to the requirements of a trust including ascertainable beneficiaries. Modernly: the trend is to permit it as a power. That is why it’s important to carefully draft to avoid issues like this

Question 21

Who can be included in the object of a power of appointment?

Answer 21

Anyone that the donee selects on the entire earth, or from six named people, or any of the donor’s heirs, etc.