Trusts - Trust Administration Problems, Modification/Early Termination, Power of Appt. Flashcards
What is the Massachusets standard of care for a trustee making investments?
MA followings the Uniform Prudent Investor Act based on the modern portfolio theory.
Prudence is measured by when the decision is made. Not by hindsight
Trustee must have established a custom-tailored investment strategy for each trust, taking into account such factors as:
- *general economic conditions,
- *Possible effect of inflation/deflation
- *expected tax consequence of investment decisions
- *THE ROLE THAT EACH INVESTMENT PLAYS WITHIN THE OVERALL TRUST PORTFOLIO
- *THE EXPECTED TOTAL RETURN FROM INCOME AND CAP GAIN.
- *needs for liquidity
- *an asset’s special relationship or value to the purposes of the trust or beneficiary;
- *any differing interest of the income beneficiaries and the remainderman
Can a trustee allocate capital gains and principal to income under the UPUA?
Yes, known as adjustment power.
Note: Trustee can delegate investment duties to an investment advisor. Must exercise reasonable care in selecting advisor and periodically review agent’s performance.
How does a trustee determine if some source is income to be distributed or pirncipal?
All money is allocated to income (unless the receipt is characterized as a cap gain for fed income tax purposes).
All receipts other than money (e.g. stock dividends) allocated the principal.
Receipts from mineral leases, patents, copyrights, book royalties, other “liquidating assets” that produce income for some times; receipts from deffrred compensation follow the 10% rule.
10% allocated to income, and balance to principal.
How are expenses allocated?
Trustee is entitled to reasonable compensation.
Ordinary expenses are charged against income [i.e. property taxes, casualty insurance premiums, ordinary repairs, mortgage interest payments]
Capital expenditures are charged against and paid from principal: extraordinary expenses, capital improvements, environmental expenses, mortgage principal.
Is the Trustee personally liable for contracts or torts?
No Unless:
For torts, trustee is personally at fault
For contract, unless contract imposes personal liability or trustee fails to disclose her representative capacity and identify the trust in the contract.
When can the trustee’s beneficiaries modify or terminate a trust?
If (i) all beneficiaries consent and (ii) no material purpose would be adversely affected.
What if a beneficiary refuse to give his consent?
The court may approve if (i) the “no material purpose test is satisfied, and (ii) the interest of non-consenting beneficiary is adequately protected.
When may a court terminate or modify the terms of a trust for changed circumstances?
If the changed circumstances unanticipated by the settlor threaten or adversely affect the purposes of the trust.
What is an uneconomic trust?
If the value of a trust is less than $200,000, upon giving notice to qualfied beneficiaries the trustee may terminate a trust without court approval if the trustee concludes the trust’ s value in insufficient to justify the administration costs.
What is the purpose of a power of appointment?
Permits the life beneficiary to designate the remaindermen.
WHat is a general testamentary power of appointment?
One that does not limit in the class of beneficiaries to whom she can appoint; she can appoint the property anyone, including herself, her creditors, or her estate.
Who are takers in default of appointment?
Descendants who will take the property on donee of general testamentary power of appt. death if the power of appointment is not exercised.
What is a special testamentary power of appointment?
Power of appointment that is limited in the class of person who to whom one can appoint. Cannot appoint herself, creditors or her estate.
