What are two ways a court can modify a trust instrument?
- Deviation; or
- The Cy Pres Doctrine
When will a court permit a deviation of a trust instrument?
If the purposes of the trust:
- Have been satisfied;
- Have become unlawful; OR
- Are impossible to carry out.
Define
Cy Pres Doctrine
The Cy Pres Doctrine allows the court to modify the terms of the charitable trust“as near as possible” to the original intention of the settlor in order to prevent the trust from failing.
When is the Cy Pres Doctrine applicable?
If:
- Property is placed in a trust for a charitable purpose that has become unlawful, impossible, or impracticable to carry out;
- The settlor manifested a general charitable intent to devote the property to charitable purposes.
Note: This is all subject to a Reverter Clause.
What does Prince Ben Trashed In Craig’s Van stand for?
- Property
- Beneficiary
- Trustee
- Intent
- Creation
- Valid legal purpose
What is the purpose of a reverter clause?
The court will likely revert the trust property to the parties specified in the reverter clause when it becomes unlawful, impossible, or impracticable to carry out the purpose of the trust.
What will the court do if a reverter clause is not in a charitable trust?
Interpret the absence of a reverter clause as evidence of the settlor’s general charitable intent
When can a party modify a trust?
Generally, a trust is irrevocable and CANNOT be modified unless the settlor expressly retained the right to do so in the terms of the trust instrument.
How is a trust created?
To create a valid trust, there must be a:
- Settlor who,
- Intending to create a trust for valid
- Trust purposes,
- Delivers the
- Trust property to the
- Trustee to hold for the benefit of one or more beneficiaries.
What powers and duties does a trustee owe?
- Fiduciary Duties
- Duty of Care
- Duty of Loyalty
- Duty to Act Impartially
- Allocate the Principal and Income
What are a trustee’s fiduciary duties?
A trustee holding legal title to the trust property MUST:
- Manage the trust property exclusively for the benefit of ALL the trust’s beneficiaries; AND
- Administer the trust in good faith pursuant to the terms and purposes of the trust.
What is the trustee’s duty of care?
- The duty of care requires a trustee to exercise its powers as a reasonably prudent person would with “reasonable care, skill, and caution.”
- Under the majority view, the settlor may limit the potential liability of a trustee by including an exculpatory clause in the trust instrument (but they don’t excuse the trustee for acts done in bad faith).
What does the Uniform Prudent Investor Act provide?
The Uniform Prudent Investor Act requires the trustee to exercise the degree of care and skill as an investor of ordinary prudence would exercise in investing his own property.
What is a trustee’s duty of loyalty?
The trustee owes a duty of loyalty to the beneficiaries where the trustee may NOT obtain any personal gain from administering the trust either via conflicts of interest or self-dealing.
What is a trustee’s duty to impartially?
The trustee possesses a duty to be impartial with respect to ALL the beneficiaries of the trust when investing, managing, and distributing the trust property (i.e., cannot favor one beneficiary over another).
What assets contribute to the trust income?
- Receipt of rental payments from trust property; AND
- Corporate distributions (e.g., cash dividends, return on investments, etc.)
What assets contribute to the trust principal?
- Funds received from the sale of trust property; AND
- Repayments of loan principal.
What is the Power of Appointment?
A power of appointment is usually conveyed by will or trust from the donor (i.e., the decedent) to the donee (usually a trustee) granting the donee the right to appoint or distribute property left the by the donor.
Note: the donee receives legal title to distribute, not equitable title.
What is the general power of appointment?
- A general power of appointment is granted when the donor does NOT leave any restrictions as to the appointment of the property.
- The donee is free to appoint the property to himself, his creditors, or any others he chooses
What is special power of the appointment?
- A special power of appointment is granted when the donor leaves restrictions as to the appointment of the property.
- The donee may NOT exercise a special power of appointment for his own benefit.
Do beneficiaries need to be named at the time the trust is created?
No
But must be susceptible of identification by the time their interests are to come into enjoyment
What are devises to classes?
A testator may devise property to a class of individuals.
A class may increase or decrease until the testator’s death.
What happens if a class member predeceases the testator?
Her share is split evenly among the remaining members of the class (i.e., it does NOT lapse into the residue)
Example
Tom (testator) leaves “$20,000 to be divided evenly among Ann, Beth, Chris and Doug” under his will.
A, B, C, and D are all Tom’s children.
How should this provision be interpreted?
Either:
- A devise to a class (Tom’s children); OR
- Four Separate individual devises of $5,000
If it is a class gift, predeceased shares go to the remaining members.
If it’s individual devises, predeceased shares go to lapse into residue.
