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53 Cards in this Set
- Front
- Back
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Are trustee powers listed in PC 16200 et seq automatically bestowed on trustee even if not mentioned in trust?
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Yes, but it is sometimes easier to administer trust if powers are specifically listed.
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Does the grant or authorization of a given trustee power require its exercise?
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No, not if it would interfere with trustee's fiduciary duty.
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If there is a conflict between trust powers and statutory powers, which controls?
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Trust powers.
Trust powers must not be exceeded. |
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What is the concept of "implied powers?"
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that even if trust doesn't list specific powers, they may be "implied" in order to fulfill purpose of trust.
Trustee must be careful... |
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What is an "omnibus clause?"
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a trust clause that gives the trustee the power to do anything necessary and proper to carry out the trust's purpose
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what are the two types of omnibus clauses?
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1. Inserted following list of standard powers -- affords maximum flexibility from having to petition court for extra powers.
2. grants trustee all powers that a regular property owner could exercise without breaching trustee's fiduciary duty. |
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How can a trustee obtain additional powers not given under the trust?
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Petition the court under PC 17200.
Petition can be filed any time during trust's administration; powers must not be inconsistent with trust's purpose. |
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What is the purpose of limiting the trustee's power to invade trust principal to HEMS?
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Prevent general power of appointment (prevent creditor access, estate inclusion)
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What is the trustee's duty with respect to the trust?
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reasonable care, skill and caution regarding investments, as well as administrative actions, to accomplish the trust purposes
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Are professional trustees held to a higher standard?
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Yes, but they are not required to guarantee results.
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Does a trustee have a duty to account to beneficiaries?
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Yes, duty to account annually
UNLESS revocable trust or trust waives accounting |
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What is the duty to furnish information?
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Duty to keep beneficiaries reasonably informed about status of trust.
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What is the trustee's duty of confidentiality?
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Keep all matters that could negatively impact beneficiaries confidential -- unless exception for litigation or governmental inquiry.
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May the trustee delegate acts that are to be personally performed?
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Generally no.
Exceptions -- hiring financial advisors, accountants or attorneys. |
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What is the trustee's primary duty?
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to administer the trust in the interest of the beneficiaries.
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May the trustee act so that his personal interest conflict with beneficiaries? Any exceptions?
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No.
Exception if trustee is a beneficiary. |
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Are trustees allowed to engage in transactions with the trust?
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yes, but there will be a presumption of breach of fiduciary duty for self-dealing (same for transaction between trustee's immediate family and trust)
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What are some acts that the trustee may not engage in?
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embezzlement
secret profits sales or leases of trustee’s property to trust sales or leases of trust property to trustee trustee’s operation of business competing w/trust loans from trustee to trust or third person dealing w/trust |
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May a trustee self-deal?
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Yes, under PC 16000
if authorized under the document and if within limits. |
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Must a trustee treat all beneficiaries in a given class equally?
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Generally, yes.
But trust may modify general rule. |
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What is the trustee's challenge in balancing interests of principal and remainder beneficiaries?
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to income beneficiaries:
preserve trust property and make it productive to remainder beneficiaries: preserve trust property, including purchasing power. |
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What is the difference between the "prudent person" and "prudent investor" rules?
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Prudent person refers to general trust administration.
Prudent investor refers to investment management of trust assets. |
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What are trustee's duties under the Uniform Prudent Investor Act?
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PC 16045
Duty to diversity duty to keep costs reasonable Power to delegate (and reasonably exercise that power, supervise, etc.) |
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What is the Uniform Principal and Income Act?
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PC 16320
Designed to allow for investments to achieve principal of total return (balancing interests of principal and income) |
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If trust conflicts with UPIA, what controls?
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The trust controls over Uniform Principal and Income Act.
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When may a trustee make adjustments between principal and income?
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PC 16336 - when:
1. trustee manages assets under prudent investor rule 2. trust describes amount to be distributed to beneficiary by referring to trust income 3. trustee determines that adjustment is necessary to treat beneficiaries fairly. |
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When is a trustee not permitted to make adjustments between principal and income?
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PC 16336
adjustment would reduce income interest in a trust that requires all income to spouse adjustment would reduce actuarial value of income interest adjustment would change amount payable to beneficiary |
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May a trustee release the power to make adjustments between principal and income?
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Yes, PC 16336.
IF it is uncertain that exercise will cause negative consequences. |
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Are waivers of accounting enforceable?
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Yes, absent evidence of mismanagement.
But, not enforceable after both grantors have died. |
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What is the effect of a surviving spouse failing to take mandatory net income from a QTIP trust?
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total amount of income not withdrawn is treated as a gift to the QTIP and and also includible in her estate.
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How is a QDOT funded?
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With the portion of the decedent's half of the estate that exceeds the estate tax exclusion amount.
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If an individual owns a $2M whole life policy with a $200K cash value, what amount is includable in the estate during their life?
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$200K
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What assets can non-citizen spouse receive from the QDOT?
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Income doesn't trigger transfer tax
Principal does trigger transfer tax |
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When should you not use pecuniary funding formulas?
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When large retirement accounts are at issue (because it might trigger income tax upon distribution).
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Does the three year rule apply to purchase of a new insurance policy in an ILIT?
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No, only on transfer of existing policy to ILIT.
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what type of assets are best-suited for CRTs?
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debt-free, low-basis, highly-appreciated assets
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How does a CRT work?
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place low-basis assets in CRT
Sell assets in CRT; no tax is generated due to charitable beneficiary receive annual annuity from charity (of 5-50% annually) at death, remainder interest to charity get immediate tax deduction based on present value of remainder interest to go to charity |
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What does GRAT stand for?
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Grantor-Retained Annuity Trust
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what types of assets are well-suited for GRATs
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highly-appreciating assets
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How does a GRAT work?
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Grantor puts $1M of assets into GRAT.
Grantor retains an annuity interest. Value of annuity interest over future years is reduced to present value. If annuity interest is high enough, value of gift reduced to zero. grantor must outlive term. if assets grow faster than AFR, can be tax-free gift. |
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What is the difference between a CRUT and a CRAT?
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A CRAT = charitable remainder annuity trust -- fixed specific amount based on percentage of initial value - paid out each year.
CRUT = charitable remainder unitrust -- fixed percentage (variable amount) paid out each year. |
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For a CRT, what is the 10% test?
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NPV of remainder interest must be at least 10% of the initial FMV of contributed property
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For a CRT, what is the 5% test
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applies to CRATs only:
there must be less than a 5% chance that the assets in the trust are exhausted based on payment amount and life expectancy of annuity recipient -- or no deduction for contributions |
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How frequently must payments under a CRT be made?
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at least annually.
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For a CRT, can there be more than one remainder beneficiary?
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yes, one or more qualified charitable entities.
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What are the charitable deduction limits?
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Public charities:
50% of Adjusted gross income 30% on long-term appreciated property lower for foundations |
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What processes ensure that legitimate property is used for CRT?
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Requirements for valid appraisal/appraiser;
"tattle-tale" form if sale within two years of donation to CRT |
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CRT - what is the estate tax deduction?
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Donor’s estate receives an estate tax deduction equal to the present value of the charitable remainder interest at donor’s death
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In a CRAT or CRUT, the non-chartiable annuity beneficiaries' interest must be for a life estate, or a term of years not exceeding ____________.
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20 years
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In order to use the life expectancy tables as provided by the IRC, ____
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The measured life must be an individual who has at least a 50% chance of surviving 1 year, as supported by a physician's statement. The 50% test is presumptively satisfied if the individual lives at least 18 months.
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when is income tax owed on life insurance benefits?
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when insurance has been transferred/purchased by beneficiaries.
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What should be done when you don't trust the trustee? (mneumonic?)
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SAAB
S - suspend (petition to suspend) A - appoint (request appointment of new trustee or co-trustee) A - account - request inventory and accounting B - bond - request new/higher bond |
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What is the effect of showing a confidential relationship in the context of alleging undue influence?
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shifts burden of proof to the accused to show no undue influence.
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