TRUSTS Flashcards
CLASS GIFT and PREDECEASING CLASS MEMBER
When a gift is made to class of persons, such as children, it generally closes at the death of the testator/settlor.
The class is closed when any member of the class is entitled to possession of the gift.
Survival of a class is not required but the terms of the trust control.
In a class gift, gift to a predeceased member of the class will fall into the residuary estate or divided among class members.
When class is specifically named, the gift will lapse and fall into the residuary estate unless an anti-lapse statute applies.
When class is named as a group, the predeceased member’s share will be divided among the other members unless will says otherwise or an anti-lapse statute applies.
Generally, anti-lapse statutes do not apply to trusts
DISCLAIMER OF BENEFICIARY’S INTEREST
Beneficiary of a trust has the right to disclaim the beneficial interest within reasonable time after learning of the trust, if not yet have accepted by some act of expressed or implied acceptance.
In some states, disclaimer must be in writing and filed within 9 months of the decedent’s death.
The disclaimed interest will pass through as if the beneficiary has predeceased the settlor.
DUTY OF A TRUSTEE - to invest & towards beneficiaries
Trustee has a duty to preserve and protect the trust corpus (principal). This includes duty to make trust property productive, which includes the duty to invest.
Duty requires that trustee exercise reasonable care with the trust property, which means investing and selling trust funds within reasonable time.
Most states have enacted the UPIA, which regulates the trustee’s investment responsibilities. Under UPIA, trustee must invest and manage trust assets as a prudent investor. To act prudently, trustee must exercise reasonable care, skill and caution.
Prudence is evaluated as to OVERALL portfolio and trustee has duty to DIVERSIFY investments unless there are special circumstances indicating the trust would be better without diversification.
Trustee must act for the benefit of the beneficiary. If there is more than one beneficiary, trustee must act impartially in managing assets taking into account their differing interests.
DUTIES OF A TRUSTEE - fiduciary
The trustee has a fiduciary duty to exercise her powers under the terms of the trust. Failure to do so it a breach of trust.
Trustee also has a duty to act prudently, diligently and in good faith.
DISCRETIONARY TRUST
In a discretionary trust, the beneficiary cannot interfere with the exercise of trustee’s discretion unless the turstee abuses power.
What constitutes as abuse depends on extent of discretion conferred on the trustee.
Even if the discretion is absolute, a court will interfere if trustee acts in bad faith or dishonestly.
DUTY OF LOYALTY OF TRUSTEE
Trustee has an undivided duty of loyalty to the trust and beneficiaries.
Therefore, the trustee cannot enter into any transactions when dealing with the trust in his own individual capacity (self-dealing)
Trustee cannot purchase trust property even if she pays full value.
Beneficiaries need not prove fraud or bad faith.
If prohibited transaction has been carried out, the beneficiaries may (1) set aside transaction (2) recover the profit made by the trustee OR (3) ratify the transaction.
