Week 14

Question 1

What are the two main types of involuntary creditors?

Answer 1

1. Spousal support (what we call alimony in CA)
2. Child Support

Question 2

What is Scheffel v. Kreuger about?

Facts?

Issue?

Holding?

Rationale?

Answer 2

Spendthrift trusts

A beneficiary of a support trust was found liable for several sexual assault charges and also faced criminal charges. The plaintiff in the civil sexual assault charge case sought to attach the defendant’s interest in the trust to satisfy the judgment of $551,286.25. “No principal or income payable…shall be subject to anticipation or assignment by any beneficiary thereof, or to the interference or control of any creditors of such beneficiary”

provided it’s a spendthrift trust, exception for tort creditors?

No

statute doesn’t provide for the exception

Question 3

What is “Shelley v. Shelly” about?

Facts?

Issue?

Holding?

Rationale?

Answer 3

Spendthrift trusts

Grant’s son and former spouse sought to attach Grant’s interest in a support trust with a spendthrift provision in order to fulfill his alimony and child support obligations. The income of the trust was to be paid to Grant for life. The trustee was to begin distributing the corpus of the trust when Grant reached 30 years of age in amounts that the trustee and other named persons deemed Grant capable of investing properly.

Tap the trust?

Yes

If it’s trust income, will allow child or spousal support; If it’s trust principal, will allow child support (but not spousal) - based on case law

Question 4

Are Hamilton Orders generally allowed on spendthrift trusts?

In CA?

Answer 4

No

Yes, for involuntary creditors and some tort victims (criminal felony behavior conviction by beneficiary)

Question 5

When are spendthrift trusts available in CA?

Answer 5

Only as much as necessary for that beneficiary’s education and support

Question 6

What is the “station in life” test?

Answer 6

Creditors can reach only the amount in excess of what is needed to maintain the beneficiary in his station in life.

Question 7

What is “In re Trust of Stuchell” about?

Facts?

Issue?

Holding?

Rationale?

Do we still do this?

Answer 7

Trusts: Modicaiton and Termination

The Petitioner sought to modify a trust in regards to one of the remainder beneficiaries because he is retarded. Without the amendment, if the disabled beneficiary survived the other two life-income beneficiaries, he would receive the remainder of funds outright. The petitioner, with the consent of all of the other income beneficiaries and remainder men, sought to modify the trust so that it would not be distributed directly to him if he survived the others, but rather continue to exist as a secondary source of funds to supplement the money he receives from pubic assistance.

Whether a trust may be amended where all but one of the beneficiaries approves and the trust as amended, but only makes the trust more advantagous to the beneficiaries?

No

You’re trying to make a buck off the state

No

Question 8

What is “In re Riddell” about?

Facts?

Issue?

Holding?

Rationale?

What’s an argument against the holding? Answer?

Answer 8

Trusts: Modification and Termination

Wants to modify the trust to create a special needs trust

Can trust be modified to provide for continuation as special needs trust for Nancy’s benefit?

Yes

Two conditions were met: (1) If there were circumstances not anticipated by the settlor (evidence of this) (2) Modification proposed has to further primary purposes of the trusts (all good - absence of a negative showing is fine)

circumstances should have been anticipated; just not the generous spirit courts take

Question 9

What is the Claflin doctrine?

Answer 9

when all beneficiaries (potential or not in CA) want to modify the trust, court will modify the trust if the modification or termination does not offend a material purpose of the trust

Question 10

What is “In re Estate of Brown” about?

Facts?

Issue?

Holding?

Rationale?

Answer 10

Trusts: Modification and Termination

Brown created a trust to be used for the education of the children of his nephew, Woolson S. Brown. After the accomplishment of the educational trust purpose, Brown directed the income of the trust to be used for the care, maintenance, and welfare of his nephew Woolson S. Brown and his wife Rosemary Brown, so that they would be able to live in the style and manner to which they were accustomed.

Can beneficiaries just terminate the trust and distribute the principal?

No

Education purpose has been satisfied, but would violate other material purpose

Question 11

What are four common law examples of material purposes?

Answer 11

Spendthrift trusts

Discretionary trusts

Support trusts

Prolonged Enjoyment

Question 12

What is “Davis v. U.S. Bank National Association” about?

Facts?

Issue?

Holding?

Rationale?

What’s the standard in CA?

Answer 12

Trusts: Modification and Termination

Trustee is a little inconveniently located. Davis (a beneficiary) petitions for diffferent trustee.

Does Claflin Doctrine apply?

Yes

Identity of trustee is not material to the trust

Good cause to change the trust

Question 13

What is the equitable deviation doctrine? (3)

Answer 13

Under the equitable deviation doctrine,

1. the court will permit the trustee to deviate from the administrative terms of a trust
2. when compliance would defeat or substantially impair the accomplishment of the purposes of the trust on account of changed circumstances not anticipated by the settlor.
3. It is not enough to show that deviation would be more advantageous or better for the beneficiaries than continuing compliance; deviation must be necessary to accomplish the purpose of the trust.

Question 14

What are the two big duties of trustees?

Answer 14

Loyalty and Prudence

Question 15

What is “Hartman v. Hartle” about?

Facts?

Issue?

Holding?

Rationale?

What is the rule about this?

Answer 15

Duty of loyalty

Glick created a will that expressly directed her executors to sell her real estate and divide the proceeds equally among her children. The executors sold part of the real estate at public auction for $3,900 to one of the testator’s sons, Lewis Geick. Geick bought the property for his sister Josephine Dieker, the wife of one of the executors. Dieker sold the property to the defendant for $5,500. The complainant alleged that the sale was improper because the executors needed permission from the court to sell the property to the executor’s wife, Geick.

Whether a trustee may sell property to his wife without permission by an order of the court?

No

Duty of loyalty

No self-dealing rule or no further inquiry rule

Question 16

What is the no further inquiry rule?

Three exceptions?

Answer 16

good faith and reasonableness of the transaction is irrelevant; as long as the transaction is found to violate the duty of loyalty, then no further inquiry is made by the court

1. Court approves it
2. Unanimous beneficiary consent (not independent - court can still strike it down)
3. Structural problem avoiding self-dealing: when trustee is also a beneficiary, and does not disproportionally serve him/herself

Question 17

What is “In re Gleeson’s Will” about?

Facts?

Issue?

Holding?

Rationale?

Why might this holding have been wrong?

What could the trustee have done?

Answer 17

No further inquiry rule

In 1950, Mary Gleeson leased 160 acres of farm land to the petitioner. In 1951, Gleeson renewed the lease with the petitioner for another year. Gleeson died just two weeks before the lease was to expire in 1952. Gleeson devised the land to the petitioner, as trustee, for the benefit of her three children. After Gleeson’s death, with the expiration of the second lease imminent, the petitioner remained on the land for another year until March 1, 1953. He increased his rent payments from $6 per acre to $10 per acre plus a share of the crops. He leased the land to another tenant after the holdover year. In the preceding fall of 1951, the petitioner sowed part of the 160 acres in wheat to be harvested in 1952. The petitioner held over in an open manner.

Whether the petitioner breached his duty of loyalty by holding over before the date that the lease expired to a year later?

Yes

Breached his duty of loyalty, and the no further inquiry rule says that we don’t care whether it was in good faith or not

Probably should have been dismissed as nuissance case, since there was no real harm to the estate (in fact, there was benefit)

Gotten prior court approval, because trustees can always ask the court for an opinion about anything

Question 18

What is “In re Rothko” about?

Facts?

Issue?

Holding?

Rationale?

What could Levine (one of the trustees) have done?

Who pays what?

Answer 18

Duties of trustees

Rothko was an abstract expressionist painter who had an international reputation of greatness. He died on February 25, 1970. His will was admitted to probate on April 27, 1970. Reis, Stamos, and Morton Levine were the executors. Within a period of three weeks, the executors hastily dealt with Rothko’s 798 paintings. By a contract of sale, the executors agreed to sell to Marlborough A.B. (hereinafter MAG) 100 Rothko paintings and to Marlborough Gallery, (hereinafter MNY) 700 paintings. The petitioner attempted to remove the executors, enjoin MNY and MAG from disposing of the paintings, and to rescind the agreements between the executors and said corporations, for a return of the paintings still in possession of those corporations, and for damages. Reis was the director, treasurer, and secretary of MNY, the consignee gallery. The testator had a 1969 inter vivos contract with MNY to sell Rothko’s work at commission of only 10 percent. Reis’s family had an extensive art collection through the Marlborough interests. Stamos was an unsuccessful artist under contract with Marlborough. Marlborough purchased a Stamos painting from a third party for $4,000 during the week in May 1970 when the estate contract negotiations were pending. Levine was aware of the transactions.

Did Stamos and Levine do anything wrong, trustee duty wise?

Yes

Conflict of interest and self-dealing are the same thing; Stamos sold the paintings to get some art cred in return. Levine breached his duties of loyalty and prudence because he didn’t act to stop things, despite having asked an attorney for advice (who told him things were fine).

Got court approval

Each trustee should pay according to their culpability (Stamos and Reis more than Levine)

Question 19

What is the prudent-man rule?

Is this the current stage? Why or why not? (2)

Answer 19

trustee, invest the trust’s money as if you were investing your own money

No; courts weren’t educated enough to apply it, and incentivized trustees to be very safe

Question 20

What does the prudent investor rule codify?

What are the three parts?

Is this current?

Answer 20

Codifies market portolio theory (must invest high and low risk to optimize return)

1. ?
2. Take portofolio as a whole, high and low risk
3. Let trustee delegate

Yes

Question 21

What is market portfolio theory?

Answer 21

Must diversify low and high risk investments in order to optimize returns

Question 22

What are the three kinds of risk?

Explain each.

What is the goal of the latter two?

Answer 22

1. Market - risk that market as a whole will crash
2. Industry - conditions that affect an entire industry, e.g., breakthrough in solar power would hurt the oil industry; invest in multiple industries
3. Firm - one firm in an industry; invest in multiple firms in one industry

To avoid uncompensated risk

Question 23

What if the trust tells the trustee how they must invest?

How they may invest?

Why?

What are these called?

Answer 23

Ignore the clause

Ignore the clause

Prevent waste

mandatory or permissive retention clause