Part 1: general trusts & estates policies
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Mandatory Trusts: Creditor steps into Ben’s shoes – can force trustee to distribute income Discretionary Trusts: Creditor steps into Ben’s shoes – but can’t force discretion Support Trusts/Discretionary Support Trusts: Creditor can force trustee to distribute money ONLY IF they are a “support” creditor Pure Discretionary: Step into the shoes of the beneficiary, so if trustee decides to make an distributions either directly to B or payments on behalf of B, then they must go to the creditor first (Wilcox v. Gentry) (unless trust has a forfeiture provision) Smart trustee that knows of creditor’s judgment will just decide to NOT make any distributions Court/creditor CANNOT force trustee to make a distribution RST 2nd and 3rd: In a discretionary trust a beneficiary cannot compel the trustee to pay over part of the trust property to him, but if the trustee pays over part of the trust to the beneficiary with knowledge that he transferred the interest in that property to a creditor – trustee is personally liable to the creditor for the amount paid Revocable Trusts – Settlor can access everything, so the settlor's creditor can too UPC §505: Under a revocable trust, creditors have access to everything in the trust estate After settlor’s death, trust property revocable during settlor’s life is still subject to settlor’s creditor claims, estate administration costs, funeral and statutory allowances to SS Irrevocable Trusts – Settlor/beneficiary can only access what the trustee gives them in the trustee's discretion, so the creditor can only access any payments made by the trustee UPC §505: Under an irrevocable trust, creditors only have access up to the maximum amount that under any circumstances could be distributed to the beneficiary (same position, but no better) Self-Settled Trust Trust where you are settlor and beneficiary, always inter vivos (can be revocable or irrevocable) But can’t be the sole beneficiary and trustee (Merger Doctrine applies) Creditors: Revocable, creditors take all, Irrevocable, stand in your shoes During Life: Look at whether it’s purely discretionary or a mandatory or support Spendthrift Clause – Will NOT be enforced in a self-settled trust Policy: You shouldn’t be able to shield your assets by putting them in a trust At Death: At Common Law: If the settlor had a life estate in the trust, at his death the life estate is terminated and the creditors can’t touch the trust Modern Trend: Creditors can reach the property in the trust to the extent the settler had the power to use them during life (so is it revocable or irrevocable?) Policy: Power to revoke is essentially the same as settlor’s power over $ in a bank account – he can access it at any time – don’t shield assets by putting them in a trust Domestic Asset Protection Trusts An asset protection trust is a statutorily permitted self-settled spendthrift trusts under which creditors are barred from reaching the trust assets (not valid under traditional trust doctrine) This type of trust provides an exception to the general rule that creditors can reach assets of self-settled spendthrift trust up to max amount that settlor-beneficiary could reach (not recognized in most states) Good Practice: Ask if the person requesting an asset protection trust has had any bad days, can identify any known or foreseeable creditors US legislators wanted to bring some of that business back that was drawn abroad Asset protection trust has to be purely discretionary, always inter-vivos Valid if: (1) Trustee must be local and have some administrative duties (2) trust is an irrevocable trust, (3) trust is a pure discretionary trust, (4) not created to defraud creditors, (5) AND some or all of assets must be locally situated (reason states brought them back) Exceptions: Invalid if the assets were transferred in a fraudulent transfer (1) Transfer intending to delay or defraud creditor (ACTUAL FRAUD) (2) If transfer made without receiving equivalent value OR if size of transfer was bigger than amount liable to creditor for (CONSTRUCTIVE FRAUD) Infer fraudulent intent by considering: If transfer was to an insider, debtor retained possession of transferred property, transfer was concealed, whether debtor had been threatened with suit before the transfer MR 1.2: Can’t counsel a client as to a way to defraud creditors, act illegally But creditors are either known actual creditors (already have a judgment for the creditors on a given debt), or foreseeable creditors (victim’s family) Criminal penalties under HIAA for anyone who knowingly counsels or assists a person in disposing of assets so that someone can become eligible for gov’t medical assistance Supplemental Needs Trust Some government programs (like SS) are not means-tested, however, some federal government programs (administered by states) to help pay for incapacity, like Medicaid, require that an individual have an income of $1k/month or less, or assets of $3k or less. Agencies look at the assets of both spouses to decide if either is eligible, but “spending down” to reach this level may leave the “community spouse” in a lower standard There are TWO kinds of trust interests that are NOT counted for Medicaid eligibility purposes. Both are Supplemental Needs Trusts, as other types of trusts will be counted on the resource side to determine a person's Medicaid eligibility. Supplemental needs trusts must explicitly state its purpose to provide beneficiaries with comforts and medical support beyond that given from government assistance. State has no right to reimbursement from a supplemental needs trust at beneficiary’s death but instead assets distributed according to trust doc (1) Non-Self Settled Supplemental Needs Trust: If you have a trust that qualifies as a third-party supplemental needs trust, distributions must be purely discretionary and can only be made to provide for services beyond Medicaid’s coverage (beneficiary cannot have any mandatory support right) (2) Self-Settled Supplemental Needs Trust: Disabled persons over the age of 65 can have funds placed in a trust for their benefit. The funds in trust are “non-countable” for governmental assistance determination, but are to be used to supplement public assistance for them while preserving principal for estate beneficiaries Unlike third party supplemental needs trusts, this self-settled trust does NOT need to be purely discretionary – the beneficiary can have mandatory support Funds set up by a third party with money from tort claims are “self-settled” Payback Trust: Trust created for disabled person, when they die, anything left in trust reimburses the government for costs incurred for their care until death, and remaining funds are distributed according to the patient’s estate Pooled Trust: Created and managed by a non-profit agency Pool assets form other ben’s to invest, but all have separate sub-account, on individual’s death, remaining amount left in sub-account is distributed to other disabled individuals known by agency – can be created by disabled individual How Can a Settlor or Beneficiaries/Trustees Revoke a Trust? SETTLOR ALIVE: Settlor can reserve the power to revoke/modify (but need to craft language right). To Revoke: Trust instrument normally specifies a time for termination, will articulate directions for distribution upon termination Majority of states presume trust is irrevocable Minority of states/UTC: presume revocability, unless trust states otherwise UTC §602: Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor can revoke or amend the trust at any time (presumed to be revocable) No common law that trust can be revoked by physical act like a will, but maybe demonstrates necessary intent under UTC §602, (trend toward this) Property in the trust, legal relationships exists – but a will has no legal effect until a person dies, so tearing up a will doesn’t affect a legal relationship Irrevocable inter vivos trust – Settlor and all ben’s can revoke trust (only interested parties) Revocable inter vivos trust – Beneficiaries have no standing to sue until testator dies RST of Trusts: If the trust doesn’t express the manner of revocation, then any action that gives clear and convincing evidence of settlor’s intent to revoke is sufficient Connecticut General Life Insurance v. First National Bank: Wrote will, trust, but then later made new will “cancelling my previous wills and trusts” Holding: The trust could only be revoked by written instrument as detailed in the trust document itself, which didn’t include revocation by will Reasoning: Settlor can reserve power to revoke a trust by a transaction inter vivos (ex: notice), but can’t revoke it by will if that’s not an option given in the trust doc To Modify: – NEED SETTLOR CONSENT IF THEY’RE ALIVE! But if settlor’s incapacitated – act like they’re dead because they can’t make decisions SETTLOR DECEASED: Calfin Doctrine: Beneficiaries of an irrevocable trust can agree to terminate the trust if the trust has no material purpose yet to be performed unless termination would frustrate the settlor’s wishes If a material purpose still exists, a court can authorize it if it deems that the reason for termination outweighs the material purpose (Bank of Cheyenne) Calfin Doctrine Material Purpose: Discretionary trusts/discretionary support trusts, spendthrift trusts, support trusts, trusts where property isn’t supposed to be disbursed until the beneficiary reaches a certain age – all have material purposes – EASIEST RST Second Material Purpose: Discretionary trusts are a material purpose - EASY UTC Material Purpose: Under UTC §411(3) a spendthrift provision is presumed to constitute a material purpose of the trust - material purposes are easy to find, keep the trust Court supports the most efficient trust termination/distribution - EASY The UTC moves away from the strict limitations on trust modification or termination and thus deemphasizes the dead hand control by the deceased settlor. RST Third Material Purpose: A spendthrift provision by itself isn’t enough to be a “material purpose,” have to look deeper at what settlor intended (intent of settlor of purpose) Discretionary trust not enough – need “because Margret’s discretion is good” - HARD American National Bank of Cheyenne: Kids were over 35, and U. Wyoming consented to termination of trust, and person getting $200/month died, contingent beneficiary renounced Holding: All beneficiaries consented to the early termination and continuation of the trust served no remaining material purpose of the Grantor – so allowed ben’s to revoke How Can A Settlor or Trustee Modify a Trust? Problems from unforeseen circumstances are becoming more common b/c there is a trend to extend the time period that a trust can endure w/o violating the Rule Against Perpetuities RST of Trust §66: Power of Court to Modify- Unanticipated Circumstances Court can allow/instruct trustee to deviate from administrative/distributive trust provision because of a change in circumstances not anticipated by settlor, if modification will further trust purposes Law developing in direction to give trustee an obligation to ask to modify the trust in bad economy Equitable Deviation: Allows changes only if they further the purposes of the trust Type 1: Administrative Deviation: Change in classification of trust If subsequent rules frustrate purpose of trust or if the rules in the trust instrument frustrate the success of the trust – still be the same function, just different way to abide by laws Ex: Pulitzer: Trust with stock assets, trust said never sell newspaper stocks – but primary purpose was to provide for his family, so prioritized the purposes over keeping stocks Type 2: Dispositive/Distributed Deviation: Change in structure/How assets Distributed For an uneconomic trust – trustee’s fees are too high to maintain trust, so dissolve it Ex: Beneficiary in mental hospital – transfer to third party supplemental needs trust Ex: If person sets up a trust for surviving spouse, trust saying that they receive “all income for spouse’s support,” trustee can go and ask for dispositive deviation to dip into the trust principal, not just limited to trust income – but is fundamentally changing trust What Duties does a Trustee Have to the Beneficiaries? If trust document says nothing about trust powers, then rely on statutory standards Legal obligation under fiduciary duties (similar for trustees and executors) (1) Duty Of Loyalty Must manage assets for the exclusive benefit of the beneficiaries of the estate or the trust (can’t deal with property to personally benefit them directly or indirectly) Duty of loyalty prevents fiduciary trustee from accepting employment from a third party entering into a business transaction with the trust (Estate of Rothko) Conflict of Interests: Presume that there is a conflict if transaction is between trust and trustee’s spouse, descendants, agent of trustee, corporation with interest in the trustee UTC §802 UTC finds no prohibition on indirect self-dealing but fiduciary has burden of showing that transaction was fair to beneficiaries despite potential conflict Legal fees trustee for defending trust is self-dealing, but allowed if court approved When someone is defending trust, and they win, paid out of trust funds, but if trust beneficiaries challenge it and lose, they pay out of pocket for fees (f): Authorize trustee banks to invest in proprietary mutual funds, but requires disclosure to beneficiaries, in an annual report of compensation earned by trustee Revocability in a Breach: “No Further Inquiry” Rule: Ben’s can void self-dealing transactions even if a “fair price” UTC §802: Beneficiaries has the power to disaffirm or void transactions between fiduciary and trust property or between fiduciary’s property and the trust unless: It was authorized by trust terms, approved by court, beneficiary didn’t object within SOL, beneficiary consents or transaction of a K made before person became trustee Matter of Kinzler: Executor sold the decedent’s house to the daughter, but the trust had a 1/3 interest in the home, trustee was son in law (daughters always fighting) Holding: A person acting in their fiduciary capacity cannot deal with or purchase the property in reference to which he holds that relation Reasoning: The fiduciary selling the assets of the trust to themselves is a clear case of self-dealing, but here it was indirect (trustee/son in law authorized the sale of the property to his sister in law, when his wife was a co-beneficiary) Rule: Wherever legal services have been rendered for the benefit of the estate as a whole, reasonable compensation should be granted from the funds of the estate Breach of Duty of Care – Sold too Low: Damages in amount that the estate should have charged for the painting at the time of the sale (Matter of Estate of Rothko: Painter died) Policy: Want them to make the sales to keep the trust functioning, don’t want them to not act by deterring them with significant appreciation damages, but just say duty of care damages are difference Breach of Duty of Loyalty- Not Authorized to Sell: Appreciation damages awarded as an extra deterrent against this kind of self-dealing transaction Get the paintings back, or if they’re not there, make these two pay appreciation damages for value of painting at time case decided Sale to Third Party: If buying company still had paintings, beneficiaries can void the transaction and they get the physical paintings back Re-Sale to BFP: If 3rd parties had sold paintings to a bona fide third party, can’t get paintings back –compensated through appreciation damages (2) Duty Of Care US developed Securities Acts after 1930s – wanted trusts to invest in corporate stocks In 1954, Uniform Prudent Investors Act (UPIA) created modern responsible investment theory (flexibility but guidance) – default rules (can contract around) Allows trustee to invest in any asset – Focus on being careful and cautious Have to balance a trusts’ tolerance for volatility and circumstances of the beneficiaries against the prudence of the trustee RST §50: Discretionary power conferred upon trustee to determine benefits of a trust is subject to judicial control only to prevent misinterpretation or abuse of discretion by the trustee – have to give deference to settlor’s intent to give trustee greater than usual latitude in determining discretion Duties: Put the same time and effort necessary to safeguard the interests of the beneficiaries Duty to Inquire: Even if not requested by the beneficiary, trustee has a duty to inquire about beneficiary needs for support (Marsman), and if they do request money, duty to research to determine whether the request falls within the ascertainable support standard (Dunkley) Marsman v. Nasca: Had trustee he inquired, he would have made such payments as were needed to let him stay in the house – will gave him discretion above stated amts Rule: Breach of fiduciary duty to beneficiary if you involve people outside of named beneficiaries in the distribution and not making it known that the trust is theirs for their benefit, whether or not the beneficiary assents Duty to Inform: Tell B’s of rights under trust and inform of changes affecting those rights Duty to Remainderman AND Life Beneficiary: Make sure you grow principal and income Dunkley v. People’s Bank: Trustee breached fiduciary duties to remaindermen by authorizing ben to take out $ when not needed ($ for third home for “medical issue”) Exculpatory Clauses drafted by trustee: MINORITY (Marsman) - Generally upheld, but construed narrowly (indep counsel?) MAJORITY: strike the exculpatory provision written by atty/trustee where no evidence that meaning of clause was discussed and accepted Uniform Prudent Investor Act §2: Standard of Care Policy: Pushes trustees to invest in mostly in corporate equities/ stock and a little in bonds, and away from investing in land, corporate bonds, collectibles, etc. (a) The trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution Directory: outlines outlines -> Chabot College Fall 2010 Course Outline for Computer Application Systems 60 business software applications/general accounting outlines -> Adil Khan Contracts Midterm outline- waldron outlines -> Remedies for breach of promise (1) The Interests Protected outlines -> Basic Process for Assessing Damages: 97 Select interest that deserves vindication 97 a. Restitution 97 outlines -> Chapter Five: Written Documents 1 Unsigned Documents 1 outlines -> Cases and Materials on Contracts outlines -> College of Science and Health outlines -> Evidence outline outlines -> 2. Act, Omission, Status or Circumstances 4 Consequences and Causation 8 Introduction to Mens Rea and Intent 10 Levels of Fault 11 Download 0.55 Mb. Share with your friends:
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