Trusts and Future Interests Flashcards
Who can be a beneficiary of a trust?
Natural persons, corporations, or organizations
A trustee cannot be…
The sole trustee and the sole beneficiary.
What are the valid charitable purposes?
- Combat poverty
- Education or religion
- Public health
- Government/municipal benefit
- Other charitable purposes
What is a resulting trust?
Implied by law if trust fails for lack of beneficiary. All trust property returns to settlor’s estate.
What is a discretionary trust?
Trustee has absolute discretion and power to determine when and how much of trust property is distributed to beneficiaries.
Must be in good faith; court interferes only if abuse of power.
How do trust assets pass?
According to terms of trust.
If testamentary trust/distribution fails, property passes:
- under residuary clause in will; OR
- to settlor’s heirs by intestacy (if no residuary clause).
What is the minority view on modification of a trust?
Settlor free to amend or revoke unless trust states otherwise.
What is the equitable deviation doctrine? What is the UTC version?
Generally: court may modify terms of trust if
- continuing is impractical or wasteful; AND
- mod furthers trust purpose because of unanticipated circumstances.
UTC: dispositive provisions may be modified when circumstances arise that were not anticipated by settlor.
What is an additions clause?
Gives trustee specific power to accept/reject additions to trust property from settlor or anyone else.
How is trust property distributed on termination of the trust?
Trustee must proceed expeditiously to distribute.
May retain reasonable reserve to pay trust debts, expenses, and taxes.
Beneficiaries may decide how distributed if trust terminated by:
- consent of settlor and beneficiaries; OR
- beneficiaries consent and court determines continuance not necessary to achieve trust purpose.
Duty to administer trust: common law
Trustee owes beneficiaries duty to act with care, skill, and prudence.
Duty of Care: Prudent Administration
Must administer as reasonable person would: exercise reasonable care, skill, and caution.
Duty of Care: Take Control and Protect Trust Property
Must take reasonable steps to take control and protect trust property, such as obtain fire/casualty insurance.
Duty of Loyalty: Conflict of Interest
Transaction presumed affected by CoI if entered into by trustee’s
- spouse, descendants, siblings, parents, or their spouses;
- agent or attorney; OR
- entity in which trustee has interest that might affect best judgment.
Duty of Loyalty: Act Impartially
Must act impartially when investing, managing, and distributing trust property, giving due regard to beneficiaries’ respective interests.
Cannot by influenced by personal favoritism or animosity.
Liability for acting in accordance with settlor’s wishes
Revocable trust: duty to settlor only; no liability for acting in accordance with wishes
Irrevocable trust: duty to settlor and beneficiaries; liable for acting in accordance if to exclusion of beneficiaries
Representation of Remainderman
For purposes of future interests, minor, incapacitated, or unborn person may be represented by person with substantially identical interests. unless
- already represented; OR
- CoI exists.
Vested Interests: Condition on Survivorship
Common law: not implied
UPC: implied
Finding Intent within Blanket Exercise Clause
Most states: intent to exercise power is assumed
Some states and UPC: if donor required power of appointment to be exercised by express/specific reference, blanket exercise clause insufficient to show intent.
Ineffective Appointments
Appointments to non-authorized persons/groups deemed ineffective.
If 2+ appointments made, ineffective one will not affect other valid appointments.
Ineffective appointments pass to taker-in-default; if not designated by donor, property passes to donee or donee’s estate.
