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Legal Education > Wills & Trusts > Flashcards

Wills & Trusts Flashcards

1
Q

Terminology

A

POA (Atty in Fact); Disability (Agent); Death (Psnl Rep); Will (Executor); No Will (Admin); AHCD (Agent/Proxy); Appendix B

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2
Q

Will v. Trust

A

Will is public, trust is private. Reason for will - people forget to fund trust, will puts stuff into trust. Can also name guardian for minor child in will.

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3
Q

Pour-over Will Example

A

I give my entire estate to the then-acting Trustee of the Jones Family Trust. All assets shall be held, managed, distributed as part of the trust according to terms, not as separate testamentary trust.

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4
Q

Funding a Trust

A

Change owner from John Smith to John Smith, Trustee of Trust.

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5
Q

Probate Fees

A

Statutory schedule, graded on gross value of estate; doesn’t take into consideration debts of estate, mortgages; doesn’t matter hours atty spends on case.

Probate Attorney - 4% on $100k, 3% on $100k, 2% on $800k

Probate Referee/ Examiner - 0.5% of value of estate, person set by court.

Creditors - Have 1 year statute of limitations from date of death, and 4 months from date probate opened.

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6
Q

Intent

A

Most important; court tries to figure out what person’s intent was; courts don’t want people to go through intestacy

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7
Q

Freedom of Testation / Testamentary Intent

A

Can do what you want, as long as not illegal (can leave unequal shares, can disown adult children, can do things unpopular)

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8
Q

Action Against Attorney

A

Malpractice - lawyer’s action creates legal cause of injury that damages a person to whom lawyer owes duty of care, and lawyer has no valid defense.

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9
Q

Lis Pendens on Property

A

Something going on w/property; record so that all know not to lend, etc.

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10
Q

Feinberg v. Feinberg

A

Grandparents left estate to grandchildren who marry one in Jewish faith; held it was incentivising growth of Jewish population and not deterring marriage in general

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11
Q

MRCP

A

Model Rules for Professional Conduct; professional responsibility

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12
Q

Counseling

A

Exercise own indep prof judgment and render candid advice; refer to law, moral, econ, social, political factors relevant to client’s situation; not encourage one way or another; pros/cons

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13
Q

Confidentiality w/Joint Representation

A

Either get consent from joint person to share info, or withdraw from representing both; can only say there’s confid info can’t disclose that precludes you from representation

If one says something confidential, determine if trivial or relevant to representation; must share with other and would preclude you from representing both parties (need full disclosure).

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14
Q

Conflict of Interest

A

Must to share info between joint clients; but confidentiality means you can’t share, so conflict of interest; “is there conflict precluding you from giving full representation to the other”

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15
Q

Engagement Letter (joint representation)

A

Disclose any potential conflict you could have by representing multiple-party situation so they can give informed consent to any potential conflicts of interest - then, OK to represent.

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16
Q

Joint Representation when Prenup

A

Joint clients must have separate representation; not waivable.

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17
Q

Updates in Laws

A

Generally obligated to update clients, but draft around to continually inform about changed laws, anything beyond engagement requires separate engagement agreement

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18
Q

Hall v. Kalfayan

A

Strict privity - can only be sued by own client; shifting slightly, may look to see how much of burden and if should have known about something; not future beneficiaries, but current maybe

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19
Q

Family Status (who can inherit)

A

Child - only biological; Descendant/Issue - all generations coming from you. Can’t adjudicate parent-child rel after death of parent. DNA testing not yet in law.

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20
Q

Analysis - Steps for Intestacy

A

First determine who can inherit - who is child, parent, surviving spouse; if not, don’t inherit.

1) eligible to inherit? Establish parent-child at each level, 2) does marital presum apply? 3) did father live with child for 1st 2 yrs and hold out as his? 4) was there adjudication of paternity

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21
Q

Mother-Child / Maternity

A

1) give birth, 2) adjudication of maternity (lawsuit showing), 3) full adoption, 4) ART agreement confirming parent born to gestational mother (carrying woman waives all rights as mother)

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22
Q

Father-Child / Paternity

A

1) unrebutted presumption (marital/non-marital), 2) acknowledgment in gov doc, 3) adoption, 4) adjudication, 5) ART (consented assistance of reproduction or man as parent to gestational mother)

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23
Q

Genetic Testing

A

Cannot be used to prove someone is parent, but only in adjudication to rebut a claim of paternity.

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24
Q

Marital Presumption

A

Presumption of paternity; if born during marriage (w/o otherwise clear/convincing evid) or born within 300 days of divorce, death, etc.

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25
Q

Nonmarital Presumption

A

Historically, out of wedlock no father-child; now, 1) if parents get married AND man voluntarily asserts paternity, AND on record, state agency, birth certificate, promises to support OR
2) not married and first two years of child’s life man resides in same household AND openly holds child out as his own (may be rebutted by adjud); “apparent” or “believed” marriage OK

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26
Q

Adopted Children

A

Child for rules of intestacy. Genetic parent-child relationship is severed (unless married step-parent adopts). Foster/step are not children and cannot inherit in intestacy.

Adult adoptions don’t work for class gifts - must be under 18. Sometimes would be done for same-sex to inherit, or grandparent to bring child up one level. Equitable adopt - still adoption

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27
Q

Step-Parent Adoption

A

Does not sever ties to parent marrying step-parent; severs ties one way to third bio parent - kid can inherit from them, but they cannot inherit from kid.

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28
Q

ART (Assisted Reproductive Technology)

A

Artificial insemination, IVF, surrogacy, posthumous conception (conceived w/in 36 mo or delivered 45 mo); unless agreement between parties, no father-child relationship

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29
Q

Steps for Intestacy

A

1) eligible to inherit? Establish parent-child at each level, 2) does marital presum apply? 3) did father live with child for 1st 2 yrs and hold out as his? 4) was there adjudication of paternity

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30
Q

Parent Inheriting

A

i.e. Parent leaves, child still can inherit but parent cannot from child. Relationship severed if parental rights terminated. Abuse, neglect, abandonment, killing someone (not just being mean).

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31
Q

Spouse

A

The other critical element in establishing the rules for inheriting is determining whether or not the decedent had a spouse.

New Rule: No state can rule that a same-sex marriage is not a legal marriage. Definition of “spouse” is in state law (not federal). No difference, unless civil union / RDP.

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32
Q

RDP / Civil Union

A

All couples are allowed to be married and that marriage will be recognized (civil union RDPs may now be treated differently because choice; different rights).

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33
Q

Spouse / Order of Partnership & Rights

A

1) Legal Spouse / Surviving Spouse (all rights), 2) Common Law Spouse, 3) Putative Spouse, 4) Civil Union / DP, 5) Cohabitant (no rights)

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34
Q

Legally Married Spouses

A

Legally married in sanctioned ceremony under laws of that jurisdiction (recognized in one state, then recognized in other states as following the laws). Separation not divorce.

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35
Q

Common Law Spouses

A

Living together, hold themselves out as married, mutual intention to be married; CA abolished and merely cohabitants; want to leave something, leave in will.

States Recognizing: Only AL, ID (96), MO, OK (98), SC, CO, IO, NH, PN (05), TX, GA, KS, OH, RI, UT

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36
Q

Putative Spouse

A

Treat as though spouse; cohabited, not legally married but good faith belief that was married (until knowledge; if one has knowledge, other can inherit only).

Putative spouse’s rights don’t supersede those of legal spouse, but rights apportioned as fair in circumstances, considering kids, when prop acquired, etc.

Burden: Logical, equitable, but burden on court system to figure out if one is putative spouse and how to separate assets equitably.

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37
Q

Civil Union / Domestic Partnership

A

Confer right “as if” married; only handful of states recognize, if one recognizes, and move to other, won’t get recognized; not a spouse; CA still recognizes DP (if 1 over 62, treated as DP).

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38
Q

Cohabitant

A

Living together (doesn’t matter how long), no intention to be married, refer as “BF/GF” - no intestacy rights / no legal rights as spouse.

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39
Q

Essay Approach

A

First determine relationship, then figure out division; ID when intestacy applies and to what property (not all property is intestate prop)

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40
Q

Intestate Succession

A

Each state has rules based on public policy and what decedent would have wanted - spouse, children, closer relatives favored over distant relatives; some states cut off at certain point and escheats to state, but not in CA (uses step, in-law, etc, or held in CA until someone claims unclaimed prop).

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41
Q

Will Challenged / Invalidated

A

If decedent does not have capacity when created, or some defect to make it invalid, or doesn’t dispose of all of decedent’s property, name bene that predeceases, TIC property, go through rules of intestacy.

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42
Q

Why Write a Will?

A

Leave prop to person / org other than spouse and children, exclude people, leave unequal amounts, place restrictions on inheritance, avoid other problems

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43
Q

Survival

A

120 hrs / 5 days more than decedent; simultaneous death, don’t get anything.

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44
Q

Steps for Inheriting

A

Determine whether children or spouse, then who gets what; 1) marital children, 2) descendants of D only, 3) descendants of SS only, 4) parents of D

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45
Q

Spouse Inheriting v. Others

A

1) D has no desc/parents, or all desc shared by spouse (marital descendants) - 100% to spouse, 2) D has no desc, but a parent - $300k + 3/4 to spouse and 1/4 to parent 3) All D’s desc also shared by S, but S has child outside marriage, $225k + 50% to spouse, (if no marital desc, see 1); 4) If D has any kids outside marriage - $150k + 50%

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46
Q

Order of Consanguinity

A

Kids, GK, GGK, Parents, Sis/Bro, Niece/Neph, GN/GN, Grandparents, Uncles/Aunts, Cousins, Their Kids, Their GK, etc. (under UPC, only go to GP line, then escheat to state)

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47
Q

Representations Methods/Models

A

1) Strict Per Stirpes - equal amount to each “child.” 2) Per Capita w/Rep or Modif Per Stirpes - Eq amt to surv in first gen , 3) Per Capita at Ea Gen (UPC 1990) - Eq amt to ea surviving person in gen; If at least one heir exists, ancestors don’t get to take. If all descendants alive, or predeceased child w/o descendants, don’t need to apply representation models; all take equally.

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48
Q

Strict Per Stirpes (1/3 of states)

A

1) Always start at 1st gen after D, 2) divide estate equally to # of ppl surviving and deceased who left issue, 3) distribute to each in highest generation; those predeceased, repeat for their share

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49
Q

Modified Per Stirpes / Per Capita w/Rep

A

(CA intestacy rule) Instead of auto to first gen and divide, go to first gen w/at least 1 survivor… if no child, divide at GC level; First gen where living issue; divide into # of shares as desc or desc leaving issue; distribute to each living member; for predeceased, repeat 1-3 (never to surviving spouse)
1/2 states follow.

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50
Q

Per Capita at Each Generation (1/4 st)

A

(Current UPC) First gen w/survivor; divide into # of sh as desc or predeceased w/living issue; distribute; for predeceased, pot for all members w/predecessor

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51
Q

Inter Vivos Transfers

A

1) Gift, 2) Loan, 3) Advancement

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52
Q

Gift

A

If property given during life, default is it was by gift. Doesn’t impact inheritance later to be received (in CL, default was advancement).

Intention, delivery, acceptance. Completed gift removed from estate.

Considerations:
Who controls and are they willing to part? Taxes - better to gift some prop over other?

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53
Q

Loan

A

Documentation needed; pay back under specific terms; may have collateral pledged; must pay interest (AFR); must be paid back before can receive inheritance.

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54
Q

Advancement

A

1) Decedent declared “advancement” in contemporaneous writing OR heir acknowledged in writing at any time; OR 2) decedent’s or heir’s writing indicates gift is taken into acct when computing division/distribution of estate; Reduces inheritance; don’t have to pay back excess above inheritance; doesn’t transfer to future descendants

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55
Q

Hotchpot (Gross Up) - Example for Determining Inheritance if Advancement

A

Probate estate = $500k, Advancement = $100k; add together to get $600k, divide by three heirs = $200k; since A already received $100k, only gets another $100k

If advance was $250k; $750k/3 = $250k each; A already received, so gets nothing; the others get $250k each.

If advance was $400k; $900k/3 = $300k each; A already received, so gets nothing; however, remaining is $500k - other 2 only receive $250k; A doesn’t have to pay back

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56
Q

Small Estates

A

Don’t need to go through probate; affidavit to dispose of assets / transfer title after death

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57
Q

Probate - Takes Time

A

Takes 12-18 mo; file, publish filing, hearing to appoint someone, notice to creditors, 4 month waiting;

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58
Q

Probate - Could be Expensive

A

$1mm estate; ~$24k for lawyer, $24k for psnl rep / executor, court fees for filing petition $435 per petition, $30 for court reporter, publication fees in newspaper,
appraiser by court (1/2 of 1% of value of what they appraised) / probate referree; trust admin - hourly rate and could be more cost-effective, but not always

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59
Q

Advantage of Probate

A

If a lot of creditors, cuts statute of limitations for creditors from 12 mo to 4 mo.

Clear prop from creditor claims; “inheritance defense” for superfund prop; easier to involve judge; PR has to make acctg

60
Q

Estate Tax Exemption

A

Currently $5.49mm per person; if new tax act passes, close to $11mm pp set to phase out tax by 2024 (and keep stepup); repealed 3x in the past (2010 - tradeoff no stepup)

61
Q

Requirements for Will

A

Written; signed by testator; attested to by witnesses or in hand of testator (holographic); often notarized; often drafted by atty and signed; subject to probate; easy to invalidate; testamentary doc - can be changed during life and takes effect at death

Lodge Will
Within 30 days of death, supposed to lodge the will (even if no probate), but many people don’t do this bc no penalty; makes will public

62
Q

Requirements for Will Substitute

A

Written or oral; signed by person, esp trust, may be over phone/online; contract; no witness req’d (but common); rarely notarized (but common); often bsns forms, can be by phone/online; not subj to probate

Similar to Will in that:
Transf prop at death; court searches for donor’s intent;

63
Q

Nontestamentary / Nonprobate TOD

A

LI, bond, mrg, promissory note, security, acct agrmt, custodial agrmt, deposit agrmt, comp plan, pension, IRA, employee ben plan, trust, conveyance, deed of gift, written instr transferring property

Don’t follow formalities of testamentary doc, only rules of nontestamentary instrument; take these out of estate going thru probate - not governed by probate process

“Document that transfers assets outside of probate (trust / contractual agrmt) is nontestamentary and not included in probate analysis of distrib of estate.”

64
Q

POD (payable on death)

A

Debtors get paid from intestate estate first, then from probate estate, then from non-probate estate; if only non-probate estate, person inheriting may be liable for debts

65
Q

Probate Process

A

File petition w/probate court; choose executor of will or administrator of estate (psnl rep for both situations); letters of testamentary or administration given to them

Letters give them authority to act (take letters to open bank accts, get TID, etc); when filing petition, give notice to all named in doc and “all heirs at law” - two levels (all desc, and parents’ desc); 15 days to challenge petition - formally / informally, may be oral “did not die intestate” or “another person is better to be administrator” - judge may hold hearing or appoint someone; if there was a will, it is now admitted to probate at that point in time; creditors known or should know about have to be notified.

Creditors have 4 months from date of probate or 60 days from date of notice, whichever later - “creditor’s claim”

Assets inventoried (probate ref values non-cash assets and psnl rep values cash assets), subject to notice/challenge; rejection of creditor claim - creditor may file lawsuit

creditors paid; taxes paid; remainder distributed to beneficiaries; final acctg (started, spent, came in, left), subj to notice/challenge by benes

If selling prop, more filings; inform benes what selling, how much, who broker, etc.; notice in newspaper and chance for object; sale subj to overbid; court holds auction

66
Q

Disadv to Probate / Adv to Will Subst

A

Will can be invalidated (noncompliance with formalities); easier to change bene on will sub; ancillary probate may be required; privacy for nonprobate docs

67
Q

Will Substitutes

A

JTWROS - already designated person who gets asset; insurance policy; trust; co holding asset for you promising to give it to whoever you designated

68
Q

Will Sub: Beneficiary Designations

A

LI, Annuities, Retmt Plans, R/E, POD/TOD; client not giving up control, only ID person to receive upon death; revocable/modifiable; gifts = control relinquished / irrev

69
Q

Will Sub: Terms of Agrmts

A

Trusts, premarital agrmt, interest in bsns if disposition controlled by agrmt (otherwise, probate)

70
Q

Will or Will Sub Controls?

A

Will Sub controls. Look at assets and determine: Did decedent own prop interest? If so, is there a will sub governing disposition? If so, not included in probate; if not, included in probate / intestacy governs.

71
Q

Convenience Acct v. JTWROS

A

Joint transfers to other owner; convenience does not; if name on acct only for ease of use, not joint

72
Q

UTC

A

Uniform Trust Code - default concept (can draft around them, but some mandatory and cannot be overruled by trust agrmt); mostly, court gives deference to trust

73
Q

Settlor

A

Trustor, grantor, donor; creates trust, puts property into it.

74
Q

Beneficiary

A

Grantee, donor; right to benefit from property in trust according to settlor’s instructions; has equitable title.

75
Q

Trustee

A

Manages property in trust; holds legal title to property; has fiduciary duty to manage according to settlor’s instructions and applicable trust law.

76
Q

Principal / Corpus / Res / Estate

A

Property conveyed in trust form. Gain is principal.

77
Q

Income

A

Profits or earnings made by property after conveyed in trust form (interest, rent, etc.)

78
Q

UPIA

A

Uniform Prudent Investor Act

79
Q

Merger

A

When trustee and trust’s beneficiary are same person, and legal/equitable interests merge, trust terminates and merger occurs, even if trust purpose not accomplished, and even though some equitable interest subject to spendthrift restraint; creditor protection also vanishes; no longer bene to whom trustee owes duty

80
Q

Protector

A

Originally used in foreign trusts with unknown trustees, but now common. Someone other than trustee, specific powers to change trust so it conforms back with settlor’s intent; oversee trust to make sure it carries on the way the settlor intended. Protector can be given other powers. (i.e. gain instead of income, can tell trustee to allocate gain to income - teacher’s client example - as settlor intended.)

Separate from trustee, oversees trust admin - power to direct invmt decisions, run fam bsns, remove/replace tees, made discretionary dist, modify/terminate trust; tells tee what to do, and tee is no longer liable if follow this instruction (unless manifestly contrary to terms of trust/serious breach of fiduciary duty)

81
Q

Private Express Trust

A

Most trusts; created intentionally by owner of property for private beneficiaries.

82
Q

Charitable Trusts

A

Sole purpose, or final beneficiary is charity; charity may enforce trust, and attorney general has complete control over everything charitable in your estate.

83
Q

Constructive Trusts

A

NOT A TRUST; equitable remedy; created by court for ltd purpose to get property to rightful owner. Court constructs trust for benefit of rightful owner. Allows court to transfer title to legal owner (ex-spouse payee of life insurance) but direct them to hold prop subject to constructive trust, duty to transfer to rightful owner (secondary/contingent bene). Usually malfeasance involved.

84
Q

Resulting Trusts

A

NOT A TRUST; equitable remedy; used when express trust fails because no longer has valid purpose. Property returns to settlor / estate. Reversionary interest. UTC does not apply.

85
Q

Revocable

A

UTC default (in CA); can modify; no creditor protection

86
Q

Irrevocable

A

Common law default; once made, can’t change; give up incidents of ownership; removed from estate (example QPRT - right to live in it, pay rent, removes home from estate, or ILIT - covers estate tax, or GRAT) cannot ament terms or revoke, even if life’s circumstances or law change. Bene may be stuck with provisions of RLT on settlor’s death. Flexibility can be put in by: building incentives/disincentives giving or denying distributions to benes, giving settlor/bene/protector power to fire trustee and replace with independent trustee, giving trustee power to change admin provisions of trust or broad discretion over distributions and power to transfer property to new trust for benefit of beneficiaries (decanting), giving protector power to modify terms, including bene, situs, mediator, decanting, appoint, oversee, substitute other professionals, giving bene ltd pwr of appt over prop based on future circumstances or modify terms of trust or terminate

87
Q

`Inter-vivos

A

Created and went into effect during lifetime, and have some discretion (terms in separate trust agrmt / declaration)

88
Q

Testamentary

A

Created and went into effect at death goes through probate (terms in will)

89
Q

Self-Trusteed

A

i.e. Self sets up trust for self; execute declaration of trust; taxes, creditors, judgments may pierce through easily, same TID #, same taxes filed.

90
Q

Third-Party-Trusteed

A

i.e. Parent sets up trust for child; execute trust agreement; not trustee, no control, someone else manages, own TID # and different taxes filed; creditors cannot get to it; once distributed, then bene’s creditors can get.

91
Q

Special Needs Trust

A

For person with special needs; shelter assets; can be both self-settled or third-party; if self-settled trust, someone else in charge, doesn’t count as own asset, but gov’t recaptures benefits after death, unless trust depleted for other special needs; if third-party-settled, someone else created for person’s benefit, and cannot be recaptured. If deed property away to start gov’t benefits - 5-year-lookback and penalty

92
Q

Purposes for Trust Creation

A

Flexible; freedom of testation, settlor control until becomes irrev; avoids probate for transferred prop (entirely avoided if other assets are owned in non-probate instruments); avoids ancillary probate for r/e in other states; easier to modify than will; professional mgt for elderly fam members, minors, those w/o money mgt experience, those who shld not have ownership of large sums of prop outright; protects from creditors; ID guardian / conservator of settlor (springing POA) or other dependants if settlor disabled; allows post-creation determination of needs of bene by trustee and one w/pwr of appt, especially after death of settlor; may save income and transfer taxes for irrev trusts; may provide supplemental needs for disabled person and not count as asset or resource to allow them to qualify for gov’t benefits; allows interests to be split between present and future benes.

Plan for incapacity. (Guardianship/conservatorship - if no trust, must go to court, pay fees, assign one); may define incapacity; (also, save time, money, and private)

93
Q

Trust Creation (6 elements)

A

Valid legal purpose, competent settlor, have trustee, settlor intended to create, trust is funded, ascertainable bene

94
Q

Creation of Trust

A

Create fiduciary - comes with duties; breach of duties results in damages; own entity with TID

95
Q

Disadvantages

A

Costs more up front (some want to keep money now - $3500-$5000) but less later

96
Q

Pour-over Will

A

Trust funded at death in certain jurisdictions; Even if trust unfunded, the will puts all assets into it; current rule is the latest trust in existence, not necessarily the one in existence at time (old rule), but best practice to execute new will when trust amended; still need probate - bene of probate is trust; only thing different is it remains private; only avoid probate if funded sufficiently not to open probate proceeding (CA - Less than $150k outside of trust, no need for probate); if trust already in existence that failed, prop reverts to estate, which creates testamentary trust and pours assets into it.

97
Q

Fiduciary

A

Managing assets for another; duties - breach results in civil damages, penalties, fines

98
Q

Trustee

A

If no responsibility or nothing to enforce, no trust, because element missing, and purpose of trust missing. Legal owner, fiduciary duty. Beneficiary has beneficial ownership.

99
Q

Disadvantages to Being Trustee

A

Thankless job; a lot of work, not too much compensation; everyone seems unhappy - not doing job, not paying bills, getting grief; unless you really want to, don’t; worry about making mistakes - what if they invest the funds, and goes down.

100
Q

Valid Purpose

A

.

101
Q

Competent Settlor

A

.

102
Q

Must have Trustee

A

.

103
Q

Protector

A

.

104
Q

Intent to Create Trust

A

.

105
Q

Palozie v Palozie

A

.

106
Q

In Re Estate of Bolinger

A

.

107
Q

Funding Trust - Prop / Res / Corpus

A

.

108
Q

Ascertainable Beneficiary

A

.

109
Q

Cark v Campbell (1926)

A

.

110
Q

Honorary Trust / Trust for a Purpose

A

.

111
Q

Animal Trusts / Pet Trusts

A

.

112
Q

Formalities for Trusts

A

.

113
Q

Gregory v Bowlsby (1902)

A

.

114
Q

Pickelner v Adler (2007)

A

.

115
Q

Exoneration (Exculpatory) Clauses

A

.

116
Q

Duty of Obedience

A

Obedience - comply with terms settlor put into trust; follow direction of the principal and the law

117
Q

Duty to Administer Trust

A

Administer trust in good faith, in accordance with terms and purpose and interest of bene, and in accordance with code (UPC 801)

118
Q

Bene Sued

A

No speculation - cannot sue for potential investment returns from failure of trustee to distribute; however, if actual damages suffered, may sue

119
Q

Duty of Loyalty

A

Distribute solely in interest of bene; higher standard than “best interest” of bene (if any way you’re benefited, don’t do it); if trustee also bene, protect self by getting consent from other benes; full disclosure of whatever you’re doing; if necessary, go to court, ask if OK to take action

120
Q

Breach - conflict of interest

A

1) Self-dealing; or 2) benefit someone else in close personal or bsns relationship to trustee

121
Q

Duties of Trustee

A

Obedience, Loyalty, Avoid Conflict of Interest, Administer in Good Faith, Fiduciary, Invest Prudently, Diversify Inform and Report, Impartiality, Prudence/Care

122
Q

Analysis

A

Was there a conflict of interest in the transaction? What type (self-dealing/indirect)? Is it voidable or presumptively voidable? Can defenses be applied? Was there an exception? If no exception, bene can void transaction, reverse, seek damages (voidable; bene may opt not to void transaction). If bene tries to void - no defenses available to trustee (i.e. benefited the whole, etc.) CA statute of limitations - 3 years from date of discovery to void transcation; in situation where close family member benefited, “presumptively voidable” - not self-dealing, so trustee gets benefit of defense that this was fair transaction (i.e. relative paid fair appraisal price, best offer from 10 offers, even though close family member, still best transaction - valid defense and no breach)

123
Q

Exceptions

A

1) Authorized explicitly by terms of trust (if silent on reasonable compensation, still OK for trustee to receive if working to manage assets, etc), 2) approved by court, 3) known but not objected to by benes (implied consent), 4) give notice and benes expressly consented (within 45 days of notice, either consent, or not object), if trustee and also guardian for minor child, cannot be person who consents for self-dealing transaction - ask other parent; 5) transaction involved pre-trusteeship contract (guardian / parent can consent for unborn children); may take to court and use sentimental value as reason not to sell, and court may agree

124
Q

Hosey v. Burgess (1995)

A

Self-dealing - voidable by bene; no defense of fairness / good faith; Here, husband left for wife for life, then to daughter. Dad leased property to daughter $14k/yr, agreed not to sublet; stepson stopped farming and they leased farm to dixie hill farm for $88k/yr; stepmom’s daughter sued real daughter bc she was trustee and was leasing out farm and making profit on land $31/acre gain, shda gone to stepmom during life; court agreed this was self-dealing; trustee had broad powers to deal with property, but problem was payment of the income; trust said all income was to go to bene, and it wasn’t going; trustee had duty to pay all income to bene, so were in breach, because personally receiving benefit of income - conflict of interest; couldn’t use any defenses. Trustee owed damages for profit for years mom alive. Punitive damages only if can show actual bad faith.

125
Q

Indirect Conflict of Interest

A

Who is involved? Family members of trustee; corp if trustee owns share in it, esp if controlling int; corp if trustee is director (bank); can’t be trustee and be investment manager if benefiting bank at which trustee works; problems can arise if trustee wishes to sell prop to bsns or vice versa, or engage in transaction with it or even vote the stock; defense of fairness / good faith

126
Q

Duty to Inform and Report (UPC 813)

A

Any bene gets info if requested, but qualified bene gets it regardless (acctg, changes in trust, etc); encompassed in duty of loyalty - info about transactions

127
Q

Required Notice

A

To qualified benes - within 60 days if trustee info changed, knowledge of irrev,

128
Q

Qualified Beneficiary

A

Bene currently receiving or eligible to receive distributions (even if trustee has discretion to distribute, and not mandatory); contingent benes if person before them died, step into their shoes; also benes who would receive distribution if trust was to terminate today (remainder bene)

129
Q

Not Qualified (remote; have to wait)

A

If limitation of receiving based on age (i.e. when attain age of 25); not yet eligible to receive

130
Q

Waiver

A

Bene may waive reporting requirements, but may withdraw waiver

131
Q

Trust Acctg

A

Could be expensive to do; sometimes may be reason to waive;

132
Q

Fiduciaries and Parents

A

if person incapacity / incompetent / minor, use roles of representation - conservator, guardian, agent, trustee; psnl rep, parent

133
Q

Substantially Identical Interest

A

You may appoint one person to act on behalf of everyone, so long as they all receive substantially identical interest

134
Q

Duty of Impartiality among Benes

A

Subduty of loyalty; not same as “equal”;

135
Q

Duty of Prudence / Care

A

Protecting trust assets trustee is in charge of; take reasonable steps to take control and protect; enforce claims and defend claims, collect trust property from former trustee and others, keep adequate records of trust admin and separate (duty to not commingle)/ID prop as belonging to trust (duty to earmark)

136
Q

Non-diversification

A

May be prudent if bene can show special circumstances; special value to bene; or trust had special language saying large asset / bsns should stay within the family; UPIA is only default law; terms of trust may override that; may retain non-diversified asset if in best interest of bene; goes back to settlor’s intent; if large asset is bsns, put in lawyer’s language that lawyer absolved from upia responsibilities if they do not diversify because it is in the best interest of benes to keep bsns, and intent of settlor.

137
Q

Duty to Minimize Cost

A

Costs reasonable; if trustee has reasonable skill, and assets were small, may not be reasonable to incur cost of investment management firm, unless complex assets

138
Q

Principal and Income Allocations

A

When assets come into trust - be impartial to bene if alloc is unequal; what is income (dividend)? What is return of principal (cap gain)? May make adjustments (p 481)

139
Q

Remedies

A

Trustee liable to bene for 1) any loss to value of trust due to breach, and 2) any income / profit trustee received

140
Q

Uzyel v. Kadisha

A

Trustee sold Qualcomm stock in 1992, generated cash to trust, loaned self cash - sold stock for own benefit

141
Q

Removal of Trustee

A

Serious breach of trust; lack of cooperation among co-tees substantially impairing administration; agrmt among benes, removal must best serve interest of benes

142
Q

Substantial Compliance

A

General rule - strict compliance to change bene; equitable consideration - if testator demonstrated an intention to change bene and took affirmative acts to accomplish, there’s substantial compliance.

143
Q

Trust

A

Fiduciary relationship under which a trustee holds legal title to specific property and has fiduciary duty to manage, invest, safeguard, and administer trust assets and income for benefit of designated bene, who holds equitable title.

144
Q

Types of Trusts

A

Express, resulting, constructive trusts; how they operate - revocable, irrev, etc (private express trusts); must meet 6 elements to have private or charitable express trust; if legally can’t establish these, equity of court has two resolutions - resulting (legal title, but bene is settlor’s estate) / constructive trust (if fiduciary duty breached, or wrongdoing/malfeasance, hold legal title, but for benefit of benes, not estate, but put effect to what settlor intended; simple mistake will end up with “resulting” trust).

145
Q

Charitable Trust

A

A charitable trust is a trust that has a charitable purpose or a charity as its beneficiary. When the group of potential beneficiaries is so narrowly defined, the trust is essentially a private express trust rather than a charitable trust. (Analyze purpose of trust.)

146
Q

Secret Trust

A

Will gives to someone, and verbal agreement for person to give to someone else secretly. No ambiguity in document - gives outright to one person, and sufficient credible, valid evidence of side agreement to hold in trust for someone else. All info is not in trust, so not valid legal trust, but court can impose constructive trust if credible evidence; if not, person gets outright and no secret trust. Constructive trustee for benefit of Beneficiary. Settlor’s intent prevails as long as proof. (Malfeasance - person trusted to give funds to someone else isn’t giving it up.) No info in doc.

147
Q

Semi-Secret Trust

A

Face of doc IDs trustee - holds in trust; Terms / purpose / beneficiary not written down, must use extrinsic evidence to obtain info; trust fails; holder of funds will hold as resulting trust and funds will go back to estate. Some info in doc, but no bene.

Legal Education (18 decks)

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