Trusts Flashcards
What are a trustee’s duties in managing/investing the trust funds?
UPIA (Uniform Prudent Investor Act)
- a trustee must invest and manage the trust assets as a prudent investor would, taking into account the purposes, terms, distribution requirements, and other circumstances of the trust.
- this is an OBJECTIVE standard of prudence
- req’s the trustee to exercise R care, skill, and caution
- must act EXCLUSIVELY for the beneficiary when managing and investing trust assets
- if not then trustee is acting imprudently
- duty to DIVERSIFY
- unless there are special circumstances
- evaluate trustee’s investment decisions as a whole
- if an investment is no longer prudent, then the trustee should sell it and reinvest the proceeds
What should the trustee do if an investment starts to take a downturn
Trustee should sell it and reinvest the proceeds
UPIA - trustee has a duty to invest and manage trust assets as a R prudent investor would
What are a beneficiary’s remedies if the trustee engages in self-dealing
- Set aside the transaction
- Ratify the transaction
- Damages (ex: profits, how much a discount trustee bought it for vs. FMV)
Note: when trustee engages in self-dealing, he also probably breached his duty of care (because he purchased [asset] without testing the market for potential buyers)
A trustee breaches what duty when he self-deals?
the duty of undivided loyalty to the trust and its beneficiaries
Effect if a trust provision that is against public policy
(ex: trust income until “death or marriage”)
They are void
ex: there is a public policy favoring marriage
Condition will be invalidated, but trust remains valid
I.e., son’s interest in the trust would not terminate upon his marriage
Ability of Settlor to amend/revoke trust
UTC - settlor can revoke/amend UNLESS trust instrument expressly states it is irrevocable
Power to revoke = includes power to amend
Define special power of appointment
a power to dispose of property
that is exercisable in favor of a limited class of appointees
Effect - going beyond the scope of special power of appointment
invalid
the impermissibly appointed property passes to takers in default of appointment (I.e., as if the power of appointment hadn’t been exercised)
but generally, if just part of an appointment is impermissible but part would be allowed if standing alone → the permissible part is generally given effect
How can a surviving spouse reach trust assets as part of an elective share?
- Jurisdiction has statute under which lifetime transfers by the decedent are subject to the elective share if the decedent (the grantor-spouse) retained the power to revoke or to invade, consume, or dispose of the principal
- Illusory transfer doctrine
- Fraudulent transfer doctrine
Last 2 doctrines require trust to be revocable
Illusory-transfer doctrine
Theory that allows surviving spouse to claim an elective share of revocable trust assets
applies if:
- the deceased spouse created a revocable trust
- in which she retained so much control during her lifetime
- that it appears that there was no real intention to relinquish trust property
Effect: SS’s elective share may include property in the probate estate
Rationale: “her transfer of property to the trust was illusory”
Fraudulent-transfer doctrine
Theory that allows surviving spouse to claim an elective share of revocable trust assets
applies if:
- trust was a revocable trust
- deceased spouse transferred assets into the trust WITH THE INTENT TO DEFRAUD HER SPOUSE of his elective share
Effect: SS’s elective share may include property in the probate estate
Rationale: “her transfer of property to the trust was fraudulent”
Statutory doctrine that allows surviving spouse to claim an elective share of revocable trust assets
Most states have theses statutes
Rationale: revocable trusts may not be used to defeat a spouse’s right of election
lifetime transfers by decedent will be subject to the elective share IF:
grantor-spouse retained power to:
revoke
invade
consume; or
dispose of
the trust principal
Does the power to appoint trust assets allow it to be exercised by creating further trusts?
Yes
RAP - Wait and See Doctrine
Wait the perpetuities period (21 years after a life in being) before declaring the interest void
Can a trustee delegate their trust duties?
Ex: You are appointed as trustee for Elizabeth’s trust. You don’t know how to manage $, so you pick a replacement trustee.
- Trustee has a duty to perform her trust duties personally
- You CANNOT delegate certain discretionary functions
Trust investment/management functions:
- Traditional Rule: you can’t delegate
-
Modern: you can delegate investment and management functions to a trustee of similar skill
- must exercise R care, skill, and caution in:
- selecting the agent
- establishing the scope of the delegation
- review performance and compliance
- if you improperly delegate your duties → you become a GUARANTOR of the fund
- L for actual losses
- must exercise R care, skill, and caution in:
