Trusts Flashcards
(3 cards)
Allocation Between Trust Principal and Income
All assets received by a trustee must be allocated to either income or principal. The allocation must be balanced so as to treat present and future trust beneficiaries fairly, unless a different treatment is authorized by the trust instrument. The traditional approach assumed that any money generated by trust property was income and that any money generated in connection with a conveyance of trust property was principal. The traditional approach serves as the starting point for the modern approach. Under the UPAIA, a trustee is empowered to re-characterize items and reallocate investment returns as he deems necessary to fulfill the trust purposes, as long as his allocations are reasonable and are in keeping with the trust instrument. A distribution of stock is treated as a distribution of principal under the UPAIA.
Class Gift - Vested Remainder - Disclaimer
A gift to a group of individuals with an automatic right of survivorship is a class gift. A class remains open and may admit new members until at least one class member is entitled to obtain possession of the gift or the preceding interest terminates. A vested remainder accelerates into possession as soon as the preceding estate ends for any reason, such as the disclaiming of the estate by its holder. If the income beneficiary of a trust disclaims her interest, then the trust principal becomes immediately distributable to the presumptive remainder beneficiaries of the trust, provided no one would be harmed by making a distribution to them earlier than it would have been made had the income beneficiary not disclaimed.
Mandatory Trust
Subject to the trust instrument, it is the beneficiary’s right to receive income or principal from the trust. The trustee of a mandatory trust has no discretion regarding payments; instead, the trust document explains specifically and in detail how and when the trust property is to be distributed.
