Trusts 4/ trust modification Flashcards
A discretionary trust is not used when assigning claims in a
divorce (when dividing the mental estate)
Under HEMS if needed money for credit cards or a wedding
would prolly give the money
When a trust has best interests and HEMS in the trust
can have a trustee for each
A cotrustee when they are given different powers in the trust is not
liable for the other trustee actions
Material Purpose Doctrine
An active trust may not be terminated, even with the consent of all the beneficaries, if a material purpose of the settlor remains to be accomplished
How courts figure out material purpose
look at the words of the trust
6 Motivations for trust modifications
- modernizing distribution standards
- revising trustee succession
- adding directed trust provisions
- removing investment provisions
- granting powers of appointomwnt
- combining multiple trusts
Judicial modification
- petition to change filed to court requesting changes
- requires notice to all beneficiaries and disclosure of the trust
trust modification
Non-judicial settlemet agreement
- trustee and beneficiaries agree to modify certain provisions of the trust
- generally used to resolve issues of the trust administration
Modification by consent
settlor, trustee, and beneficaries agree to modify the trust
trust modification
Fiduciary restructuring
If the trust allows the grantor to replace trustees, then the grantor can reformat all fiduciary roles to create either a traditional directed trust structure or bifuracuate trustee duties among seperate trustees
The material purpose doctrine prevents a court from
modifying an irrevocable trust unless all the beneficiaries consent and all the settlors material purpose has been satisfied
Over time, courts have determined that certain trust conditions are, in and of themselves, a material purpose. For example, 4 limitations have traditionally prohibited a trusts early termination
- a spendthrift trust
- discretionary distribution terms
- language indicating that the trust is for the beneficiaries continued support, or
- age requirements
trust modification
Equitable or administrative deviation
allows for modification based on changed circumstances
UTC 412 Mod or term bc of unantic cric or inabl to admins trust effectiv
THe court may modify the adminstrative or depositive terms of a trust if,
because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust. To the extent practiable, the modification must be made
UTC 412 Mod or term bc of unantic cric or inabl to admins trust effectiv
The court may modifiy the administrative terms of a trust if continuation of the trust on its existing terms would be
impracticable or wasteful or impair the trusts administration
UTC 412 Mod or term bc of unantic cric or inabl to admins trust effectiv
Upon termination of a trust under this section the trustee shall
distribute the trust property in a manner consistent with the purposes of the trust
UTC 414 Modification or termination of uneconomic trust
After notice to the qualified beneficiaries
the trustee of a trust consisting of trust property having a total value less then (50k) may terminate the trust if the trusteee concludes that the value of the trust property is insufficient to justify the cost of administration
UTC 414 Modification or termination of uneconomic trust
THe court may modify or terminate the trust or remove the trustee and appoint a different trustee if it determines that the
value of the trust property is insufficent to justify the cost of adminstration
UTC 414 Modification or termination of uneconomic trust
Upon termination of a trust under this section, the trustee shall
distribute the trust property in a manner consistant with the purposes of the trust
UTC 415 Reformation to correct a mistake
The court may reform the terms of the trust, even if unambiguous, to conform the terms to the settlors intention if it is proved by cleat and convincing evidence
what the settlors intention was and that the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement
UTC 416 Modification to achieve settlots tax objections
To achieve the settlors tac objectives, the court may modify the terms of the trust in a manner
That is not contrary to the settlors probable intention, the court may provide that the modification has a retroactive effect
Trust decanting involves
a trustee pouring “decanting” assets from one trust into another
When a trustee can take advantage of an exemption in the Generation Skipping Tax
If trustee can extend the suration of trsts created before a certain date
A power of appointment is
the power given by the property owner to another to choose within certain limits prescribed by the property owner who will recieve certain property in the future
General power of apointment
a power exercisable in favor of the power, the power holders creditor, the power holders estate, or the creditors of the power holders estate
A power is presently exercsiable if
the power holder can currently create an interest, present or future, in a object of the power
A power of appointment is not presently exercisable if
exercisable only by the power holders will ot if its exercise is not effective for a specified period of time or until occurance of some event
Powers of appointment can be held in what capacities
fiduciary or nonfiduciary
pwrs of apptment
The defininition of beneficiary excludes the
powers held by a trustee but not powers held by other in a fiduciary capacity
How to exercise a power of appointment
3
- a donee must manifest an intent to exercise the power
- the manner of expression must satisfy any formal requirements imposed by the doner
- the appointment must be a permissible exercise of power
uPC 608 Exercise of power of appointment
In the absense of a requirement that a power of appoitment be exercised by a refrence, or by an express or specific refrence, to the powerm a general residuary clause in a will, or a will making general disposition of all of the testators property, expresses an intention to exercise a power of appointment held by the testator only if:
- the power is a general power and the creating instrument does not contain a gift if the power is not exercised OR
- the testators will manifests an intention to include the property subject to the power
UPC 704 Power of apptment, meaning of specific refrence requirement
If a governing instrument creating a power of appointment expressly req that the power be exercised by a refrence, an express refrence, or a specific refrence, to the power or its source, it is presumed that
the doner’s intention, in requiring that the donee exercise the power by making refrence to the particular power or to the creating instrument, was to prevent an nadvertent exercise of the power
Trust modification can happen in three ways
- material purpose doctrine (claflin)
- deviation
- decanting
The material purpose doctrine (claflin) allows for change as long as
the proposed modification is in line with the material purpose of the trsut
Deviation allows modification based on
changed circumstances
With bothe the material purpose doctrine and deviation, the trustee must
file a petition for modification and recieve judicial approval
Beneficiaries may request trustee removal and replacement for
- Cause
- if the proposed change benefits and trust is not inconsistent with the trusts material purpose
What deviation provides that cy pres does not is the factor of
unanticipated circumstances
Deviation
Trustees can petition for modification if
changes in circumstances render the fulfilment of trust terms difficult or impossible ( the fiduciary duty may demand that a trustee file such a petition)
If a trustee of a private trust mismanages the trust funds or fails ro distribute them property, the beneficiaries can
bring a claim and hold the trustee financially accountable
Red flags, for if trust is illegal
discrimination
restiction on marriage
restriction on religion
illegal activites
