Trusts

Question 1

Equitable Deviation

Answer 1

Under the common law, a court may order “equitable deviation” from the terms of a trust when an unanticipated change in circumstances would otherwise “defeat or substantial[ly] impair[] the accomplishment of the purposes of the trust. This only applies to administrative provisions, not dispositive ones.

an administrative provision of a trust may be modified if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust.

even if circumstances have not changed in an unanticipated manner, an administrative provision may be modified if “continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.

You also need consent of all the beneficiaries that the deviation would impact

Question 2

Administrative Provision of a trust

Answer 2

An administrative provision of a trust is one relating to the management of trust property instead of the allocation of benefits among trust beneficiaries. An unanticipated change in the character of the community where realty held by a trust is located represents the sort of change to which the equitable-deviation doctrine is applicable.

Question 3

Dispositive Provisions of a Trust

Answer 3

Under the Common Law Courts are not empowered to alter dispositive provisions that determine the allocation of trust assets and income among trust beneficiaries.

Question 4

UTC Modification of the Dispositive Terms of a Trust

Answer 4

a court may modify the “dispositive terms of a trust . . . if, because of circumstances not anticipated by the settlor, modification . . . will further the purposes of the trust. To the extent practicable, the modification must be made in accordance with the settlor’s probable intention.

Question 5

Cy Pres Doctrine (Relating to Charitable Organizations) Under the Common Law

Answer 5

The common law cy pres doctrine requires an initial inquiry into the settlor’s intent: If the court determines that the settlor had a specific charitable intention limited to the charitable purpose stated in the trust instrument, the property reverts to the settlor or the settlor’s estate. If the court determines that the settlor had a general charitable intention, it substitutes for the named charity another one with activities consistent with the settlor’s intentions

Presumption goes TOWARDS Charitable Intent

Question 6

Cy Pres Doctrine (Relating to Charitable Organizations) Under the UTC

Answer 6

The Uniform Trust Code appears to establish a conclusive presumption of general charitable intention. Section 413(a) of the Code provides that “if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful: (1) the trust does not fail, in whole or in part; (2) the trust property does not revert to the settlor or the settlor’s successors in interest; and (3) the court may apply cy pres to modify . . . the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor’s charitable purposes

Question 7

Revocation of an “Irrevocable Trust”

Answer 7

Generally, even an irrevocable trust can be terminated prior to the death of all income beneficiaries if both the income beneficiaries and the remaindermen unanimously consent. However, if there is a material purpose of the trust yet to be performed, the beneficiaries alone may not terminate the trust. (Third restatement allows for termination or modification if the reason for it outweights the material purpose)

a material purpose should not be inferred from “[t]he mere fact that the settlor . . . created a trust for successive beneficiaries. . . . In the absence of additional circumstances indicating a further purpose, the inference is that the trust was intended merely to allow one or more persons to enjoy the benefits of the property during the period of the trust and to allow the . . . other beneficiaries to receive the property thereafter

Question 8

Class Gift

Answer 8

a gift to a group of persons described collectively, typically by their relationship to a common ancestor.

Under the common law, when a class gift is made to a group who are equally related to a common ancestor and the gift is not expressly subject to a condition of survivorship, the gift is not impliedly subject to such a condition. See id. § 15.4 (incorporating the common law rule). If a member of such a class fails to survive until the time of distribution (here, Husband’s death), that member’s share passes to his or her estate, not to his or her issue

Question 9

Class Gift under the UCC

Answer 9

UPC § 2-707 provides that when a beneficiary does not survive to the distribution date, the beneficiary’s interest passes to his or her issue unless the trust instrument specifies an alternate disposition. Here, under the Uniform Probate Code approach, issue of a deceased child would have beneficial interest in the trust and would have to be part of any termination effort unless their interest could be represented by another.

Question 10

Representation of a Minor, incapacitated, or unborn individual

Answer 10

Unless otherwise represented, a minor, incapacitated, or unborn individual, . . . may be represented by and bound by another having a substantially identical interest with respect to the particular question or dispute, but only to the extent there is no conflict of interest between the representative and the person represented.

Question 11

When does a class close

Answer 11

When the named person dies or the gift becomes possessory

Question 12

Deviations after a Termination

Answer 12

f trust beneficiaries properly terminate a trust, trust assets vest in them. After termination, the beneficiaries may themselves distribute trust assets in any manner they choose. They may also direct a trustee to distribute trust assets as their agent. A trustee who complies with such directions does not violate any fiduciary duty.

Question 13

Changing a Revocable Trust

Answer 13

With regard to a revocable trust, a settlor may create such a revocable trust with certain specifications and then may alter terms of this trust later
during her lifetime so long as the alteration is in a writing signed by the settlor and given
to the trustee. The trustee must then honor the alteration as it supersedes any prior
conflicting specifications and honor the prior non-conflicting specifications as they were
originally written by the settlor

Question 14

Original Trust Instrument vs. Settlor’s Later Writings

Answer 14

While the original trust instrument usually controls,
a settlor’s later writings combined with demonstratable intent can supersede conflicting
parts of the trust instrument. In the absence of such later writings during the settlor’s
lifetime, the trust instrument as originally written must control.

Question 15

Trustee’s Duty of Loyalty

Answer 15

A trustee is subject to the duty of loyalty, which is scrupulously observed in trust law to a
higher extent than usual. This duty mandates that the trustee act only in the interests of the
beneficiaries and never for his own benefit; other than in taking reasonable compensation for
services rendered or costs imposed.

Question 16

No Further Inquiry Rule

Answer 16

Under the “no further inquiry” rule, a trustee who engages in self-dealing shall be found in per se breach of trust even if the self-dealing was fair–unless
he can demonstrate that either (i) the settlor agreed to the conflict in the trust’s creation, or (ii) all beneficiaries consent to the self-dealing after full and fair disclosure. Without consent of some sort, the breach is automatic.

Question 17

Trustee’s Duty of Care

Answer 17

A trustee is subject to the duty of care in dealings with the trust property. This duty mandates
that the trustee exercise the care of a reasonable trustee in managing the property. This has
been held to mean that a trustee is required to protect the trust property with the purchase of
insurance, which can be paid from trust res–or else the property’s foreseeable destruction will
be a breach of the duty of care.

A failure to purchase insurance may be held reasonable if the property was only a small portion of the res or was otherwise immaterial; this would be because the “same or similar circumstances” would alleviate the need of a reasonable person to act.

Examples of Duty of Care: Diversify, make the trust property in good shape and be productive.

Question 18

Trustees’ Duty of Impartiality (Distribution of Res)

Answer 18

A trustee to a trust with both present and remainder beneficiaries has a duty to make distributions and concessions in an impartial manner. This does not require the trustee to make perfectly equal distributions, but it does require the trustee to balance the relative trust interests and needs of the beneficiaries. Moreover, under the majority UTIPA (Uniform Trustee Income and Principle Allocation Act), the trustee has discretion in its ability to allocate interest and principal–UNLESS the settlor’s instructions make explicitly clear otherwise

If obligation is related to principal, pay it with principal or vice versa (When expenses are
reasonably related to both the income and principal value of the property, the trustee should
apportion the amount instead of burden only one class of beneficiary)

Question 19

Trust Income

Answer 19

trust income is considered the produce of: rents, leases, dividends (other than in kind), and other
sources of income where there is not a full disposition of the property.

Question 20

Trust Principal (Corpus)

Answer 20

Principal, on the other hand, consists of the general assets of the trust which resulted from the full disposition of such assets and the new assets acquired therewith: such as sales of property, dividends in kind, and receipts of non-income.

Question 21

How a Trustee Pays off Obligations Between Trust Income and Trust Principal

Answer 21

When there is such a deviation between income and principal, the trustee has a duty to separate how the funds are distributed on the basis of kind: for example,
the trustee must generally fix problems with a principal-recipient beneficiary’s property using the disposition of other principal; it is considered prejudicial to the income-beneficiary to use their equitable title to benefit another beneficiary with separate equitable title to other, distinct trust res. There is an exception for necessity and the need to preserve the trust; therefore a trustee may invade principal to fix an issue with income property if it is necessary to maintain
the trust res and protect the income-beneficiary’s interest.

Question 22

Do children have a right to inherit from their parents?

Answer 22

No, except for the pretermitted child exception (child born after will is executed)

Question 23

Common Law Rule for Indefeasibly Vested Remainder Interest and life tenant

Answer 23

Remainderman, because her interest is not subject to any condition precedent or subsequent, will vest to remainderman (or according to their will) regardless of whether or not she survives the life tenant. No right of survivorship is implied.

Question 24

UTC Rule for Indefeasibly Vested Remainder Interest and life tenant

Answer 24

Right of Survivorship may be implied. Thus, if the remainderman does not survive the life tenant, the gift may lapse, and may revert to the grantor’s estate and
distributed either under residuary clause or by intestacy, unless an anti-lapse provision governs.

Question 25

How to begin a Trusts Question

Answer 25

A properly created trust requires a settlor to transfer trust property into trust, appoint a trustee
(although a trust will not fail for want of a trustee), provide instructions regarding the distribution of the trust assets, and select beneficiaries.

Question 26

Discretionary Trust

Answer 26

A discretionary trust is created when the settlor provides instructions to the trustee to disburse funds based on the trustee’s discretion. While the trustee has wide discretion in determining asset distribution, the trustee must act in good faith when making distributions. (Must comply with the trust as close as possible)

A trustee can be held to abuse his or her discretion when the trustee acts on his discretion, but
bases that discretion on personal resentment of the beneficiary or other unreasonable reason.

Question 27

Spendthrift Provision in a Trust (and exception)

Answer 27

A trust with a spendthrift provision makes the trust assets inalienable. Therefore, the beneficiary cannot touch the trust property, and neither can most creditors unless a distribution is made. However, an exception to this rule is where the beneficiary of the trust has obligations such as child or spousal support. In that case, the government creditor can touch the trust property and withdraw directly from the principle without waiting for a distribution. Another exception is where the trust is a discretionary trust and the trustee
abuses his discretion by not making a distribution when one is due.