Trusts

Question 1

Rule statement: Resulting Trust

Answer 1

When a trust fails, a resulting trust will be implied by law and all trust property returns to the settlor or the settlor’s estate.

Question 2

Explain the fiduciary duty of impartiality

Answer 2

If a trust has two or more beneficiaries, the trustee must act impartially in investing, managing, and distributing the trust property. Impartiality means that the trustee cannot be influenced by his personal favoritism or animosity toward individual beneficiaries when administering the trust.

Question 3

When is a remainder beneficiary entitled to receive the trust property?

Answer 3

A remainder beneficiary is entitled to receive the trust property at the termination of the trust.

Question 4

Define a trustee.

Answer 4

A trustee is a person appointed to hold legal title and trust property for the benefit of others. A trustee owes a number of fiduciary duties.

Question 5

Trust provisions that terminate a beneficiary’s interest upon a first marriage are generally considered:

Answer 5

Trust provisions that terminate a beneficiary’s interest upon a first marriage are generally considered void as against public policy, except when the beneficiary is the trust creator’s spouse. A restraint on marriage may be upheld only if the trustee’s motive was merely to provide support for the beneficiary while the beneficiary was single.

Question 6

Constructive Trust

Answer 6

A constructive trust is an equitable remedy imposed on specific property to redress wrongdoing or prevent unjust enrichment.

Question 7

Define beneficiary

Answer 7

A beneficiary is the equitable owner of the trust property. Beneficiaries can be natural persons, corporations or other organizations.

Question 8

Trustee’s duty of loyalty rule statement:

Answer 8

The trustee owes a duty of loyalty to the beneficiaries which includes not engaging in self-dealing or acting in a personal capacity for the benefit of the trustee.

Question 9

If there is not a spendthrift provision, may a creditor reach a beneficiary’s interest in a trust? What about if there IS a spendthrift provision?

Answer 9

Yes. The court may authorize a creditor to reach present or future distributions to a beneficiary.

When there IS a spendthrift provision, creditors are prevented from reaching the beneficiaries interest unless it is for alimony or child support, a creditor who provided necessaries, or for government claims against the beneficiary.

Question 10

When is a future remainder interest accelerated?

Answer 10

A future interest may be accelerated if the present holder loses his legal right to the property or disclaims his interest in the property.

Question 11

What is the “no further inquiry” rule?

Answer 11

Under the “no further inquiry rule,” there is no need to examine the trustee’s motivation for engaging in a self-dealing transaction or even its fairness.

Question 12

After terminating a trust, the trustee must:

Answer 12

distribute the trust property to the entitled beneficiaries.

Question 13

Define charitable trust

Answer 13

A charitable trust is a trust that has a charitable purpose benefiting an indefinite beneficiaries, i.e., a large group of beneficiaries or the public at large.

Question 14

What is a vested remainder?

Answer 14

A vested remainder is an interest where there are no conditions on survivorship.

Question 15

Does formation of a trust require the same execution requirements as a will?

Answer 15

No.

Question 16

If the trustee breaches the duty of loyalty by entering into a transaction for his own benefit, what recourse does a beneficiary have?

Answer 16

Any trust beneficiary can cause a self-dealing transaction to be set aside or obtain a damage award. If the court authorizes the transaction to be set aside, then the trust property purchased by the trustee is returned to the trust and the amount the trustee paid for the property is refunded by the trust to the trustee. A beneficiary can also seek damages which are based on the difference in fair market value of the trust assets at the time of the self-dealing transaction and the amount paid by the trustee.

Question 17

What is the effect of a trust beneficiary predeceasing?

Answer 17

In most jurisdictions, any beneficiary that predeceases will lose his share, unless the Uniform Probate Code has been adopted whereby a predeceasing member’s descendants may take by representation.

Question 18

When does a class close?

Answer 18

When a gift is made to a class of persons, such as to someone’s children, the class closes (i.e., additional persons may no longer join the class) when the settlor dies, or the gift becomes possessory. When the gift follows a life estate, the class closes at the death of a life tenant.

Question 19

What is an additions clause?

Answer 19

A well-drafted trust instrument should contain an additions clause if the settlor contemplates enlarging the trustee’s responsibilities by augmenting the trust with additional assets. This is because the general presumption is that a trustee’s duties cannot be expanded after the trustee has accepted the role.

Question 20

When is the doctrine of Cy Pres applied to a charitable trust?

Answer 20

This Cy Pres doctrine applies when the specific charitable purpose indicated by the settlor becomes impractical, unlawful, or impossible to achieve; and the settlor had a general charitable intent. The court may then direct the trust property to another organization with a similar charitable purpose close to the original one.

Question 21

Under the doctrine of Cy Pres, is it necessary to demonstrate a settlor’s charitable intent?

Answer 21

Until recently it was necessary to demonstrate that the settlor had a charitable intent, but now there is an assumption in the Restatement of Trusts that the settlor had a general charitable intention.

Question 22

What is the effect if the power of appointment is ineffectively appointed?

Answer 22

Appointments to impermissible appointees are invalid. If a power is ineffectively appointed, then the property passes to the so-called “taker in default of appointment” designated by the donor of the power typically the settlor.

Question 23

How should trust receipts earned during the administration of the trust be allocated: to income or principal?

Answer 23

The Uniform Principal and Income Act (UPAIA) specifies how receipts earned during the administration of the trust must be allocated either to income or principal. Rents and cash dividends are considered income and are distributable to the income beneficiary of the trust. Sale proceeds and stock dividends are considered principal and are added to the principal of the trust.

Question 24

Are ordinary expenses and repairs allocated to the trust income or principal?

Answer 24

Ordinary expenses and ordinary repairs required by day-to-day wear are allocated to the trust income; whereas extraordinary repairs, those required by an unusual or unforeseen occurrence, are allocated to the principal.

Question 25

What is the power of appointment?

Answer 25

A trust may give the settlor or another beneficiary the power of appointment which enables them to direct where the trust principal goes at the settlor’s death. Most general powers of appointment are exercisable under a will.

Question 26

Who are considered objects of power?

Answer 26

Objects of a power are the class of persons the power of appointment holder selects among, and permissible appointees include only those to whom an appointment has been authorized.

Question 27

May a trustee be the beneficiary of a trust?

Answer 27

Yes. The trustee may be a beneficiary as long as the trustee is not the sole beneficiary of the trust.

Question 28

If a trust does not have a trustee, will the trust fail?

Answer 28

Not necessarily. The court will generally appoint a trustee.

Question 29

How is a valid express trust created?

Answer 29

A valid express trust requires (1) a definite beneficiary; (2) a settlor with capacity; (3) intent to create a trust; (4) a trustee; (5) a valid trust purpose; (6) trust property (res); (7) compliance with any state formalities.

Question 30

Does the Rule Against Perpetuties apply to charitable trusts?

Answer 30

No. Charitable trusts can be perpetual.

Question 31

What is the trust res?

Answer 31

The trust res is the property that is the subject of the trust. The trust res must place legal title to the trust property in the trustee.

Question 32

Can a class member be born after the creation of the trust, but before the settlor’s death?

Answer 32

Yes, this class member would be entitled to a share.

Question 33

What is the Equitable Deviation Doctrine?

Answer 33

A court may order “equitable deviation” from the terms of a trust when an unanticipated change in circumstances would impair or defeat the purpose of the trust, as based on the testator’s intent.

Question 34

What is an inter vivos trust?

Answer 34

An inter vivos trust is created during a settlor’s lifetime.

Question 35

The trustee owes the beneficiaries a number of fiduciary duties, including the duty to administer the trust. What does this duty require?

Answer 35

The trustee must administer the trust in good faith and in a prudent manner in accordance with the trust terms and the beneficiaries interest.

Question 36

What is a discretionary trust?

Answer 36

A discretionary trust appoints that a trustee has absolute power and discretion to make decisions regarding distribution of the trust property to the beneficiaries. The trustee’s exercise of discretion must be in good faith.

Question 37

What is the effect of a disclaimer on the interest of a remainder beneficiary?

Answer 37

A beneficiary can make a disclaimer of trust assets. If the disclaimer is valid, the remainder interest accelerates and becomes immediately distributable to the remaindermen of the trust only if vested, but not if the remainder is contingent.

Question 38

Is a writing required for the formation of an inter vivos trust?

Answer 38

No, but an oral trust must be established by clear and convincing evidence.

Question 39

When may a trust be modified by the settlor?

Answer 39

The majority view is that the trust may only be modified by a settlor who expressly reserves that power to reserve the trust, or who has the power to revoke. Under the minority view, the settlor is free to amend or revoke the trust without express authority.

Question 40

Where a trust does not designate whether it is revocable or irrevocable, what is the default stance?

Answer 40

The majority view is that trusts are irrevocable by default unless expressly stated otherwise. The minority view and the UTC provides that the trust is revocable by default unless stated otherwise.

Question 41

Can a creditor of a beneficiary to a discretionary trust compel the trustee to make a distribution?

Answer 41

No, since a beneficiary cannot compel a trustee to make a distribution, neither can a creditor of a beneficiary. Most modern authorities hold that the creditor cannot assert the beneficiary’s right to complain of abuse of discretion.

Question 42

What is the trustee’s duty of care?

Answer 42

The trustee’s duty of care includes acting with reasonable care, skill, and caution as a reasonably prudent investor would by making sure that the trust is productive and in addition avoiding loss.

Question 43

What is a spendthrift provision in a trust?

Answer 43

A spendthrift provision prohibits a beneficiary from voluntarily transferring their interest in the trust. Creditors are prevented from reaching the beneficiaries interest unless it is for alimony or child support, a creditor who provided necessaries, or for government claims against the beneficiary.

Question 44

Beneficiaries to a trust must be ascertainable. What does this mean?

Answer 44

Ascertainable means either specifically named or capable of being determined without undue difficulty or ascertainable in the future when the interest vests.

Question 45

What is the illusory-transfer doctrine?

Answer 45

The illusory-transfer doctrine allows trust assets to be considered part of a probate estate if the decedent created a trust over which she exercised too much control during her lifetime, and the transfer is economically illusory through the power of revocation.

Question 46

Under the majority view, a revocable trust is amendable or modifiable even if the trust instrument does not expressly grant this power. What is the premise behind this stance?

Answer 46

If an instrument is revocable, an amendment or modification can be made at any time prior to the settlor’s death. The premise behind this is that the change could be easily achieved by revoking and then creating a new trust with the same contemplated change.

Question 47

What is the Uniform Prudent Investor Act?

Answer 47

The Uniform Prudent Investor Act (UPIA) provides that the trustee has an obligation to preserve the trust property and to diversify the trust assets. This is the case unless the trustee reasonably determines that because of special circumstances the purpose of the trust is better served without diversifying, although diversification is a hallmark of prudent investing. The UPIA applies to both investment and management decisions. However, a trustee is not liable for declines in value due to a downturn resulting from general economic conditions.

Question 48

May a beneficiary compel a distribution from a discretionary trust?

Answer 48

The trustee holds the power to make the distribution, and a beneficiary cannot compel the trustee to make a distribution, unless the trustee abuses his or her power by acting dishonestly or against the wishes of the testator.

Question 49

What is the fraudulent transfer doctrine?

Answer 49

The fraudulent transfer doctrine which allows the surviving spouse to access assets in a revocable trust instrument on the legitimate expectation that the assets would have been included in the probate estate but for the transfer of assets to a revocable trust.

Question 50

What is a support trust?

Answer 50

A support trust directs the trustee to pay only so much income or principal of the trust as is necessary for the beneficiary’s support. If the support trust provides an ascertainable standard, then a beneficiary may compel a trustee to make payments in accordance with that standard.

Question 51

Does a trust amendment need to be executed in accordance with the same formalities as a will?

Answer 51

No.

Question 52

What is a valid trust purpose?

Answer 52

Trusts may be created for many purposes so long as it is not deemed illegal, contrary to public policy, or impossible to achieve. A trust condition that violates public policy is void.

Question 53

What is an illusory trust?

Answer 53

A trust will be considered illusory when the settlor retains significant control over the trust property indicating a lack of intent to create a trust.

Question 54

What is a testamentary trust?

Answer 54

A testamentary trust is created in a settlor’s will, and does not take effect until the settlor’s death.

Question 55

Can a settlor terminate an irrevocable trust?

Answer 55

Yes, a settlor may terminate an irrevocable trust with the consent of all of the beneficiaries.

Question 56

Is a condition of survivorship of future interest in a trust implied?

Answer 56

At common law, a condition of survivorship is not implied. Under the UPC, such a condition is implied.

Question 57

Is a trustee liable for acts consented to or directed by the settlor of a revocable trust?

Answer 57

Generally, the trustee has an obligation to preserve the trust property and to diversify the trust assets unless the trustee reasonably determines that because of special circumstances the purpose of the trust is better served without diversifying. One such special circumstances is when there is a revocable trust, and the settlor is the owner of the trust assets. In this instance, trustees are not generally liable for acts consented to or directed by the settlor.

Question 58

What is a trust?

Answer 58

A trust is a fiduciary relationship where one party (a trustee) holds legal title to property for the benefit of designate beneficiaries.

Question 59

What is a pour-over provision in a will?

Answer 59

A pour-over provision in a will devises property to a preexisitng inter vivos trust.

Question 60

A trust may be terminated if:

Answer 60

(1) it is revoked or expires; (2) the material purpose of the trust has been achieved; (3) the trust has become unlawful, contrary to public policy, or impossible to achieve; (4) the settlor and beneficiaries consent; (5) the beneficiaries consent and continuance is not necessary to achieve the trust purpose; (6) termination will further the purpose of the trust because of circumstances not anticipated by the settlor; (7) the court applies the doctrine of cy pres.

Question 61

Does the Rule Against Perpuities apply to trusts?

Answer 61

Yes, violations of the Rule Against Perpetuities can arise in creating interests in trust, except for charitable trusts which can be perpetual. Under the Rule Against Perpetuities, a non-vested property interest is invalid unless it is certain to vest or fail within 21 years of a life in being. The perpetuities period is calculated from the date that the settlor no longer has a power of revocation, not the date on which the trust was created. For a revocable trust, the period begins to run at the settlor’s death.

Question 62

Who is the settlor?

Answer 62

A settlor is a person who created a trust, giving the trustee legal title to hold and manage, and administer the trust for the beneficiaries.

Question 63

When is a remainder beneficiary of a trust entitled to receive trust property?

Answer 63

A remainder beneficiary of a trust is a beneficiary whose benefit vests at a later time.

Not entitled to receive trust property until termination of the trust.

Question 64

When there are no conditions on survivorship for a beneficiary to take interest to the trust, this is called

Answer 64

a vested remainder. If no heirs, interest passes to remainder’s estate

Question 65

Under common law, if a class member does not survive until time of distribution, his share passes to–

Answer 65

his estate. NOT to his issue (unless explicitly provided)

Question 66

Under the UPC, what happens to a beneficiary’s interest if he is a member of a class and does not survive until time of distribution,

Answer 66

Under the UPC, the beneficiary’s interest may pass to his issue, unless the trust specifies an alternative way.

Question 67

Acceleration of Future Interests

Answer 67

A remainder man may take possession of future interest in a trust immediately if the present holder if unable to claim right to asset (for example if he loses the legal right to the asset or disclaims interest in the asset). However, this is not possible if

• distribution would harm a beneficiary
• trust terms limit acceleration of remainderman’s future interest.

Question 68

Can the court look at extrinsic evidence to determine settlor’s intent with a charitable trust?

Answer 68

Yes, under cy pres, EE can be admitted. However, cy pres itself is only applicable if the settlor had a general charitable intent, not a purely specific charitable intent (like naming one particular charity).

Question 69

If a living settlor wants to modify a trust in a way that is inconsistent with the trust’s purpose, what should he do?

Answer 69

Get consent of settlor and beneficiaries

Question 70

A trust cannot be modified or terminated, EVEN IF all the beneficiaries agree, if doing so would be CONTRARY TO a —-

Answer 70

material purpose of the settlor. “Material purpose” will include whether the settlor created a spendthrift trust, a support trust, or a discretionary trust. This is called the “Claflin” doctrine.

Question 71

Spendthrift trust scenario:

A settlor created a trust for the benefit of her adult son. The trust provided that the son had the right to transfer his interest in the trust but that his interest could not be attached by creditors. Two individuals brought separate lawsuits against the son, seeking to reach the trust corpus to satisfy debts that the son owed. The first suit was brought by the son’s ex-wife, seeking unpaid alimony. The second suit was brought by a friend who had loaned the son money that he had never repaid.
Which party, if either, is likely to be able to reach the trust corpus if successful in his or her lawsuit against the son?

Answer 71

Both.

A spendthrift trust is a trust that contains a provision that prevents creditors from reaching trust property before it is distributed to the beneficiary. Spendthrift provisions are generally valid, but only if they restrain both voluntary and involuntary transfer of the beneficiary’s interest in the trust property. If the terms of the trust allow the beneficiary to voluntarily transfer his interest, but not for those interests to be reached by creditors, the trust is not a spendthrift trust and the intended protection from creditors is invalid.

So here, this is not a proper spendthrift trust and the intended protection against creditors is invalid.

Question 72

An aunt named her nephew as the beneficiary of a trust she established. The trust contained a spendthrift provision that prevented the nephew from voluntarily or involuntarily assigning his trust interest. The nephew had failed to pay income taxes that he owed for the past five years. The Internal Revenue Service (IRS) sought to recover the back taxes owed.
May the IRS recover the back taxes owed from the nephew’s trust interest?

Answer 72

However, there are several circumstances under which a spendthrift provision is unenforceable. For example, a spendthrift provision is unenforceable against: (1) a claim by the government; (2) a claim for child support, spousal support, or alimony; and (3) a claim by anyone who provided services essential to protecting the beneficiary’s interest in the trust. Unif. Trust Code § 503(b).
Here, the spendthrift provision in the trust is not enforceable against the IRS in its claim for back taxes, because it is a claim by the government. See Unif. Trust Code § 503(b). Therefore, the IRS may recover back taxes owed from the nephew’s interest in the trust, despite the spendthrift provision.

Question 73

A spendthrift provisions puts a restraint on both ___ and ___ transfers of the beneficiary’s interest in the trust.

Answer 73

voluntary and involuntary.

Question 74

A trust instructed the trustee to immediately begin paying a beneficiary $15,000 per year for the duration of the beneficiary’s life. Upon the beneficiary’s death, the trust instructed the trustee to divide the $15,000 equally among any of the beneficiary’s surviving children. At the time the trust was created, the beneficiary was 40 years old and had no children. The trust did not specify an end date.
Does the children’s trust interest comply with the common-law Rule Against Perpetuities?

A

Answer 74

Yes, because all trust interests will vest at the beneficiary’s death. Under RAP, a trust interest must vest within 21 years of a life of being at the time the trust is created.

The trust interests of any of the beneficiary’s children are valid because the interests will vest, if at all, when the beneficiary dies. Because the children’s interests will vest within 21 years of the beneficiary’s death, they are valid under the common-law Rule Against Perpetuities.

Question 75

A settlor created a trust that paid money to the settlor’s sister for the rest of the sister’s life, and then upon the sister’s death to the sister’s children who were alive and had reached the age of 25. At the time of the trust’s creation, the settlor’s sister was 45 years old and had three children, ages 27, 11, and 2.
Do the terms of the trust violate the common-law rule against perpetuities?

Answer 75

Here, the trust violates the rule against perpetuities because the sister could have another child and then die shortly thereafter. The child would not be a life in being at the time of the trust’s creation, but the child would have the right to trust distributions upon reaching the age of 25, which would not occur until more than 21 years after the sister’s death.

Question 76

A woman created a trust to pay for her daughter’s college education, including any graduate school that the daughter might attend. The terms of the trust did not specify whether it was revocable. The woman appointed a family friend as trustee. The daughter attended college for four years, during which the trust made distributions to pay for her college tuition. After the daughter graduated, she received a full scholarship to a graduate school program. The woman wished to terminate the trust, as it was no longer necessary to pay for her daughter’s education. The jurisdiction has adopted the Uniform Trust Code.
Which of the following best states the test for whether the woman may terminate the trust?

Answer 76

The woman may revoke the trust without either court approval or agreement from the trustee because the trust is presumptively revocable.

Under the common law, trusts were presumptively irrevocable unless the terms of the trust stated otherwise. However, the Uniform Trust Code reverses this presumption, holding that all trusts are presumptively revocable unless the terms expressly provide for an irrevocable trust.

Here, the terms of the trust did not specify whether it was revocable, so it is presumed to be revocable. Therefore, the woman may terminate or modify the trust at any time, for any reason, without the need for court approval or the agreement of the trustee.

Question 77

An aunt established an irrevocable living trust to provide $200 monthly to each of her nieces and nephews, for as long as each was enrolled in college. The trust expressly stated that its main goal was to support the nieces and nephews in obtaining a college education. One of the nephews dropped out of college to start his own business, and the trustee halted annual payments to him. The nephew asked for support payments from the trust to continue in order to help him get his business off the ground; however, the aunt and trustee refused. All of the nieces and nephews agreed that the entrepreneurial nephew should continue to receive support payments. The nephew sued his aunt in court, seeking continued financial support from the trust.
May the court modify the trust to continue support payments to the entrepreneurial nephew?

Answer 77

No, because supporting the nephew when he is not enrolled in college would be inconsistent with a material purpose of the trust.

A court may approve a modification of an irrevocable trust if all of the beneficiaries, and either the settlor or the trustee also consent to the change. Unif. Trust Code § 411(a). If all of the beneficiaries, but neither the settlor nor the trustee consent to the change, then under the Claflin doctrine, a court may approve the modification only if it is consistent with a material purpose of the trust.

A court may only approve this modification without the consent of the trustee and settlor if the modification is not inconsistent with a material purpose of the trust. The trust states that its main goal is to support the aunt’s nieces and nephews in obtaining a college education, and the trust limits the duration of the support provided to as long as each is enrolled in college. Supporting the aunt’s nieces’ and nephews’ efforts to gain an education is a material purpose of the trust.

Question 78

A settlor created an irrevocable trust to provide support for his disabled brother. The terms of the trust paid the brother $3,000 per month for his living expenses. The brother wished to renovate his house to make it more wheelchair accessible. The brother asked the settlor for a larger distribution of $15,000 for the next month only, to pay for the renovation. The settlor agreed to the increased distribution, but the trustee did not. The jurisdiction has adopted the Uniform Trust Code.
Which of the following best states whether a court will modify the terms of the trust?

Answer 78

The court will modify the trust without any further finding because the settlor and the beneficiary agree to the modification.

Under the Uniform Trust Code, even an irrevocable trust may be modified upon consent of the settlor and all beneficiaries, even if such modification is inconsistent with a material purpose of the trust. Unif. Trust Code § 411. If the settlor and all beneficiaries do not agree to modify the trust, then the court must find that any such modification is consistent with the material purpose of the trust.

Question 79

Three trustees managed a trust fund. The first two trustees sought to use a portion of the trust corpus to purchase a gold mine, which they reasonably and sincerely believed would provide a good return on investment. The third trustee did not think that purchasing the gold mine was a good investment. The terms of the trust provided that a majority of trustees needed to approve any transaction involving trust property. The first two trustees voted to purchase the gold mine over the dissent of the third trustee. The gold mine proved to be a poor investment, losing a significant amount of money over the next several years. The jurisdiction has adopted the Uniform Trust Code.
Is the third trustee liable to the trust for losses from the purchase of the gold mine?

Answer 79

the trustee has a duty to invest and manage the trust funds as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the trust. Unif. Trust Code § 802; Restatement (Third) of Trusts at § 77. Under this rule, a trustee’s compliance with these standards is to be judged at the time the investment decision was made, not in hindsight. Therefore, a trustee who makes a reasonable investment decision will not be found to have breached the duty of care just because the trust ultimately suffered a loss due to the trustee’s investment decision. Id., General cmt.
Here, the fact pattern states that the first two trustees reasonably and sincerely believed that the purchase of the gold mine was a prudent use of trust funds. Therefore, they have breached no duty, even though the third trustee dissented, and even though the investment turned out to be a poor one. Because no trustee violated any duty, none of the trustees will be liable to the trust for losses incurred by the purchase of the gold mine.

Question 80

A trustee sought to invest some of the funds of a trust that she managed in a small business that she owned. The trustee had a reasonable and good-faith belief that the investment would constitute a prudent use of trust funds. The trustee explained the proposed use of trust funds to the beneficiaries, who consented to the investment. The terms of the trust did not explicitly authorize self-dealing, nor did the trustee receive court approval for the investment. The jurisdiction has adopted the Uniform Trust Code.
Has the trustee violated the duty to avoid self-dealing by investing in her own business?

Answer 80

A trustee generally has a duty to avoid self-dealing, which occurs when the trustee uses trust property for her own personal account or in a way that creates a conflict of interest by benefitting herself or relatives. However, several exceptions exist to the duty to avoid self-dealing, which is permitted if (1) the terms of the trust authorize self-dealing, (2) a court approves the transaction, or (3) all beneficiaries consented or otherwise waived their objection to the trustee’s self-dealing.

Question 81

A trustee managed a large tract of land held in trust. The tract had a variety of drainage problems. To get the tract in sellable condition, the trustee was tasked with hiring a contractor to install a drainage system and regrade a portion of the tract. The trustee’s brother bid to do the work. The trustee did not personally own any stake in the brother’s landscaping business. The governing jurisdiction had adopted the Uniform Trust Code (UTC).
Under which of the following circumstances, if any, may the trustee hire the brother’s landscaping business to work on the trust’s behalf?

Answer 81

If all of the beneficiaries consent, because the UTC exempts self-dealing if consented to by beneficiaries.

the UTC defines four exceptions to the general rule that self-dealing transactions are voidable. A transaction, even though self-dealing, is not voidable if (1) the trust’s terms authorize self-dealing, (2) a court approves the self-dealing, (3) the beneficiary failed to bring an action against the trustee within the statute of limitations, or (4) the beneficiary consented to or otherwise waived the right to protest the self-dealing.