Trusts Flashcards
What are the duties of a trustee?
(1) Duty to account to and inform beneficiaries with statement of income & expenses on a regular basis
(2) Duty to Not Delegate (traditionally) or delegate with due care (modern)
(3)** Duty of Impartiality** when dealing with income beneficiaries and remainderman beneficiaries
(4) Duty to Use Due Care and act as a reasonable prudent person dealing with trust affairs (includes the duty to investigate and diversify investments)
(5) Duty to Segregate Trust Funds, and not commingle
(6) Duty of Loyalty: may not participate in self-dealing, must avoid conflicts of interest, and must treat all beneficiaries equally
(7) Duty to Prudently Invest the trust property and make it productive
What is a spendthrift trust?
A spendthrift trust expressly restricts the beneficiary’s power to voluntarily or involuntarily transfer his equitable interest. Spendthrift provisions are often inserted into trusts to protect beneficiaries from their own imprudence.
Note: A beneficiary’s creditors usually cannot reach the beneficiary’s trust interest in satisfaction of their claims if the governing instrument contains a spendthrift clause prohibiting a beneficiary’s creditors from attaching the beneficiary’s interest.
What are the ways in which a trust may be terminated?
(1) All beneficiaries consent (provided they are all competent), and termination would not frustrate the purpose of the trust;
(2) Settlor can: (a) unilaterally terminate a revocable trust (presumption in CA); or, if trust is irrevocable, terminate if: (b) he expressly reserved the power to do so in the trust, or (c) all beneficiaries consent;
(3) The Court finds the trust purpose has become frustrated, impossible, or illegal, or if there are changed circumstances; and
(4) A trustee, only if expressly provided for in the trust.
What is the doctrine of cy pres?
In an effort to carry out the testator’s intent, under the cy pres doctrine, a court may modify a charitable trust to seek an alternative charitable purpose if the original charitable purpose becomes illegal, impracticable, or impossible to perform. The court must determine the settlor’s primary purpose and select a new purpose “as near as possible” to the original purpose.
