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42 Cards in this Set

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What is the rule for "precatory expressions" in trusts?
Usually, a settlor clearly directs the trustee to carry out the intended terms of the trust, but difficulties rise when the transferor merely expresses a hope, wish, or suggestion that the property be used for a certain purpose. Most courts today infer from such language that no trust was intended, but only that the transferor wished his desires to be known so that the transferee could comply with them if willing to do so. This inference may be overcome if :
1. the directions re definite and precise, not vague
2. The directions are addressed by a decedent to his executor or administrator, or one in a fiduciary position under the will.
3. The failure to impose a trust results in an "unnatural" disposition by a testator; or
4. Extrinsic evidence shows that the transferor had been supporting the alleged beneficiary prior to executing the instrument, and the beneficiary would not have sufficient means of support absent a finding that a trust was created.
What happens when there is no trustee?
Although a trustee is essential to the operation of a trust, once a trust is established it will not fail merely because of the trustee's death, incapacity, resignation, or removal.
What capacity must a trustee have?
In the absence of a statute, anyone who has capacity to acquire or hold title to property for his own benefit has capacity to take property as a trustee. Unincorporated associations can be trustees only where they can hold title to property for their own benefit.

The trustee must also have administrative (capacity to administer the trust) capacity, that is not be a minor or insane.
For what reasons will a court remove or refuse to confirm a trustee?
1. Commission of a serious breach of trust
2. legal or practical incapacity to administer the trust.
3. unfitness for the position.
4. Refusal to post bond or to account;
5. The existence of a significant conflict of interest.
6. The trustee's insolvency if the court feels that this situation jeopardizes the welfare of the trust.
7. Extreme friction or hostility between the trustee and beneficiaries.
May beneficiaries compel removal of a trustee without grounds to do so?
Absent grounds for removal, the beneficiaries cannot compel the removal of a trustee, unless this power is granted to them by the trust instrument. the power to remove a trustee w/out grounds may also be reserved by the settlor.
When is there "merger of title?"
Where the sole trustee, who holds legal title, and the sole beneficiary, who holds equitable title, are one and the same person, there is a merger of the legal and equitable title that defeats and terminates the trust, creating a fee simple absolute in the trustee-beneficiary. The interests held must be precisely the same interest.
What are the significant differences between a private and charitable trust?
1. Charitable trust must have indefinite beneficiaries if not for a specified charitable agency, and must be in favor of a reasonably large class of indefinite beneficiaries.
2. Cy Pres -- where it is impossible to give the settlor's intention effect, the court may redirect the trust to a purpose 'as near as possible" to the charitable endeavor initially designated by the settlor.
3. Charitable trusts may be perpetual; they are not subject to the RAP.
When is a trust for a charitable purpose?
The purpose of a charitable trust must be one that is considered to benefit the public, including the relief of poverty, the advancement of knowledge, education, or religion, the promotion of health, and the accomplishment of governmental purposes. While a trust for disseminating the views of a particular political movement qualifies as educational and hence charitable, a trust for the benefit of a political party is not charitable. Beneficiary cannot be a profit making entity. (private school.)

It is the effect of the gift to the public, not the motive of the settlor that controls.
What happens when the beneficiaries of a single trust are both charitable and non-charitable?
where the beneficiaries of a single trust are both charitable and noncharitable, the trust is a mixed trust and the special rules for charitable trusts do not apply.

2 separate trusts will be found in such a situation if there is some indication as to 1. amount of corpus the settlor intended to be applied towards charitable purpose or 2. how long the settlor intended the corpus to be applied to a charitable purpose.
who may enforce a charitable trust?
The settlor and potential beneficiaries have no standing to sue the charitable trustee. In most states, the state Attorney General has the duty to enforce charitable trusts.
What classes of creditors are exceptions to spendthrift restrictions?
1. The government,
2. Persons supplying neccessities
3. Dependents.
4. In some states, tort creditors.

Even if spendthrift restrictions are valid, the beneficiary's interest is subject to claims by the above claimants.
What is a support trust?


What is the effect of a support trust?
A support trust is one where the trustee is required to pay or apply only so much of the income or principal (or both) as is necessary for the support of the beneficiary.

Even w/out a spendthrift clause, the character of a beneficiary's interest in a support trust is such that no one but the beneficiary can enjoy it; his interest is not assignable by definition, and his creditors cannot reach it.
When may a settlor revoke or modify a trust?
In many states, w/out an express reservation by the settlor of a right to revoke or modify the trust, he has no such powers. Where the power to revoke exists, it includes the power to amend. If the method of revocation is specified in the trust instrument, it must be followed.
When may a trust be modified or terminated?
Most jurisdictions permit modification or termination of a trust only if:
1. All beneficiaries consent; and
2. The modification or termination will not interfere w/ a material purpose of the trust (Claflin doctrine." -- Joinder of settlor may override this requirement)
Where the beneficiaries to a trust agree to its termination, what is the liability of the trustee for distribution of the corpus in accordance with the beneficiaries' agreement?
Generally, the trustee will not be liable because there is no one to hold the trustee liable for his act, because all beneficiaries are estopped to bring an action against him because of their consent. The trustee may be liable if the trust contained a spendthrift provision.
What is the doctrine of changed circumstances?
A court may authorize or direct a trustee to deviate from the administrative terms of a trust if:
1. Compliance with the terms of the trust would defeat or substantially impair the accomplishment of the trust purposes and 2. The settlor did not know or anticipate the new circumstances.
When may a court terminate a trust prior to the time fixed in the trust instrument?
a court may terminate a trust prior to the time fixed in the trust instrument where: 1. The trust purposes are accomplished early or 2. the trust purposes become illegal or impossible to carry out.
What powers can a trustee exercise?
A trust can properly exercise only such powers as are expressly or impliedly conferred upon her.
What are the sources of a trustee's power?
a. Powers expressly conferred upon her by the terms of the trust.
b. Powers conferred upon her by the terms of a statute or court decree.
c. those powers that are necessary or appropriate to carry out the purposes of the trust and are not forbidden by the terms of the trust.
What are a trustee's implied powers?
1. Power to sell trust property
2. Power to incur expenses -- It is generally implied that a trustee can incur expenses that are appropriate forr carrying out the trust purposes.
3. Power to lease trust property.
What are the Trustee's duty of care?
1. In administering a trust, the trustee must exercise the degree of care, skill, and caution that would be exercised by a reasonably prudent person in managing her own property.

2.Additionally, the trustee owes a duty of loyalty to the trust and its beneficiaries; she may not enter into any transaction in which she is dealing w/ the trust in her individual capacity.

See remainder on page 23
May a trustee delegate her performance?
A trustee cannot delegate the entire administration of a trust. However, she may delegate acts that would be unreasonable to require her to perform personally. If this comes up on the bar exam, discuss what a reasonably prudent person would do, the degree of discretion delegated, and whether someone w/ special skill is needed to act.
What is the remedy where a trustee improperly limits or surrenders her control over trust property?
Where a trustee improperly limits or surrenders her control over trust property, she becomes a guarantor of the fund, and her motives for shift of control will not be considered by the court. The trustee is held liable for the amount of actual loss to the trust.
What is the trustee's Duty to Preserve Trust Property and Make it Productive?
There is a basic duty to preserve and protect the trust corpus. There is normally implied a duty to make the trust property productive, which includes the duty to invest. The duty to preserve and protect the corpus requires that the trustee exercise reasonable care to do the following:
1. Collect all claims due the trust
2. Lease land or manage it so that it is productive (sell if not)
3. Record recordable documents to protect title; Secure ins. on trust properties; pay taxes to prevent liens.
4. Invest trust funds.w/in a reasonable period of time following receipt thereof.
4
What is the UPIA standard of care (Uniform prudent investor act)?
Under the UPIA, a trustee must invest and manage trust assets as a prudent investor would, taking into account the purposes, terms, distribution requirements, and other circumstances of the trust. to satisfy this objective standard of prudence, the trustee must exercise reasonable care, skill and caution. Under this rule, the trustee has a duty to act loyally and impartially, or she is acting imprudently.
How are investment performances measured under the Uniform Prudent Investor Act?
The UPIA is based on the modern portfolio theory of investing. Thus, each investment decision must be evaluated not in isolation, but in the context of the entire trust portfolio and as part of an overal investment strategy. Under the UPIA, investment returns are measure by the "overall return" concept, rather than the production of ordinary income.
What types of investments are permitted under the UPIA
The UPIA permits a trustee to invest in any kind of property or any type of investment "consistent w/ the standards of the UIPA."; therefore, no particular type of investment is inherently imprudent.
What must be considered by the trustee in making investment decisions?
1. General economic conditions;
2. The possible effect of inflation or deflation;
3 The expected tax consequences of investment decisions or strategies
4. The role that each investment plays w/in the overall trust portfolio
5. The expected total return from income and appreciation of capital
6. Needs for liquidity;
7. An asset's special relationship or value to the trust purposes or beneficiaries;
How is compliance with the UIPA determined?
Compliance w/ the UPIA is determined in light of the facts and circumstances existing at the time of the trustee's decision or action and not by hindsight. A trustee who acts in substantial compliance with the act is not liable to the beneficiaries even if the trust declines in value or produces less income than anticipated.
May a trustee delegate investment and management functions under the UPIA?
A trustee may delegate investment and management functions that a prudent trustee of comparable skill could properly delegate under the circumstances. The trustee must exercise reasonable care, skill and caution in:
1. Selecting an agent
2. Establishing the scope and terms of the delegation.
3. periodically reviewing the agent's actions
What are the policy reasons for the harsh fiduciary obligations imposed on a trustee?
The policies behind such stringent standards and remedies for the violation are 1. The deterrence of wrongful conduct and 2. easing the burden of proving a breach of the duty should that become necessary.
Who may seek to enforce a trust?
The beneficiaries may seek to have the trustee surcharged (pay damages suffered by the trust) or removed from office if the trustee breaches her duties. The settlor may sue if he is also a beneficiary, but 3rd parties cannot seek to enforce the trust.
What can beneficiaries do to stop a trustee's wrongdoing?
1. Prior to breach, a court of equity may compel te trustee to perform her duties or will enjoin her from committing the breach

2. After breach, the trustee is liable to the trust estate for losses resulting from the breach and for any profit that clearly would have accrued to the trust but for the breach, as well as any profit made by the trustee as a result of her breach.
What happens where a trustee commits multiple breaches of trust, one resulting in loss and the other resulting in gain?
Where a trustee is liable for losses resulting from one breach of trust, she cannot reduce the amount of this liability by offsetting it against a gain resulting from another breach of trust.
When is a trustee liable for the acts of her agent?
A trustee is not liable for acts of her agent(s) unless the trustee:
1. Directs, permits, or acquiesces in the act of the agent, or conceals the act, or negligently fails to compel the agent to redresss the wrong.
2. Fails to exercise reasonable supervision over the agent.
3. Permits the agent to perform duties that trustee was not entitled to delegate.
4. Fails to use reasonable care in the selection or retention of agents.
When is a trustee liable to the beneficiaries for breach of trust committed by a co trustee?
A trustee is typically not liable for the acts of cotrustees. However, a trustee will be liable to the beneficiaries for breach of trust committed by a co trustee where the trustee:
1. Improperly delegated her authority to the co-trustee
2. Participated, approved, or acquiesced in the breach by her co-trustee, or negligently disregarded her own duties of administration so as to facilitate the breach by her co-trustee; or
3. Concealed the breach or failed to take proper steps to compel redress of it by the co-trustee.
What can a successor trustee do to protect the trust where necessary?
A successor trustee can maintain the same actions as could be maintained by the original trustee. she can sue third personsfor damaging trust property before she became trustee, and she can sue predecessor trustee to redress a breach of trust.
What is the effect of an exculpatory clause limiting a trustee's liability.
An exculpatory clause attempting to relieve the trustee of liability for breach of duty in administering the trust will generally be frowned upon by courts, and courts construe them narrowly. An exculpatory clause absolving a trustee of all liability will be held void as against public policy. Limited clauses are valid except insofar as they attempt to relieve the trustee from liability for bad faith, intentional breach of trust, or recklessness.
What is a trustee's liability to third parties in contract?
Unless the contrary is explicitly provided in the contract, the trustee is personally liable to 3rd parties on contracts entered into with them in the course of trust administration. Trustee is entitled to indemnification if she acted properly in making the contract; she may also be reimbursed for legal fees.
Is a trustee liable to third parties in tort actions?
The trustee is personally liable to third parties for torts to the same extent as would be an ordinary owner. the trustee is entitled to indemnification from the trust if she is not personally at fault or if the tort liability is a risk that is a normal incident of the type of activity in which the trustee was properly engaged.
Who may sue a third party (non-trustee/beneficiary) for damages to trust property or liability to trust in K?
Generally, the beneficiaries of a trust cannot bring an action in law or in equity against a thrid party who damages the trust property or is liable to the trustee on a contract. THe trustee is the proper person to sue the 3rd party. However, the beneficiaries can sue the trustee for breach of trust, and may sue third parties directly where the trustee has participated with the third party in a breach, the trustee fails to sue (can compel trustee to sue; join 3rd party in suit); or where the trustee has abandoned her office and a successor trustee has not been appointed.
What is the Uniform principal and income act?
The act applies to all trust and estates unless the governing instrument provides otherwise, gives the trustee or personal representative an adjustment power to reallocate investment portfolio return. This adjustment power authorizes the trustee to characterize items such as capital against, stock dividends etc, as income if the trustee deems it appropriate or necessary to carry out the purposes of the trust. Keep in mind that the trustee is under a duty to administer the trust impartially .