Part 1: general trusts & estates policies
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- Navigate this page:
- Harvard College v. Amory
- (c) Things to Consider
- Wood v. US Bank ) Ex : UPIA: Allows socially responsible investment if
- Wood v. US Bank
- Duty of Impartiality – Subset Of Duty of Loyalty
- Uniform Principal and Income Act §104 : Trustee’s Power to Adjust
- Uniform Principal and Income Act §401 : Character of Receipts
- Uniform Principal and Income Act §404 : Principal Receipts
- How Should You Plan for Incapacity
- Uniform Probate Code §5-401: Protective Proceeding
- (2) Establish a Power of Appointment
- Donor
- Objects of Power/Class of Permissible Appointees
- Presently Exercisable
- (2) Establish a Power of Attorney In giving a PoA to someone, the principal
- (3) Establish your Durable Healthcare Power of Attorney or Advanced Directive
Skill – manage the trust as would a person of ordinary intelligence A trustee who has special skills has a duty to use those special skills Care – Have to gather all necessary facts and understand all options Caution – Necessary for trustee/executor to reach conclusions not on decisions about how they would invest their own money, but on the purposes of the trust or estate and the needs of the beneficiaries Harvard College v. Amory: Prudent person – prohibition against risky stocks How do prudent men manage their affairs, considering probable income as well as probable safety of the capital to be invested Allard v. Pacific National Bank: Bank was trustee, one building as asset, 99 year lease, no rent jump, sold for $200k worth about $2.5M, didn’t tell ben’s Even though held to prudent standard, not higher (skill), trustee should have gathered more information about value, put on market (care), and given notice to beneficiaries (caution) they could have outbid the buyer, in everyone’s best interest (b) Portfolio Concept: Look at decisions from the context of the portfolio as a whole, look at resources of beneficiaries, economic conditions at the time, tax and inflation consequences, asset’s special intrinsic value to beneficiaries Courts normally believe that trust settlor wanted: (1) to preserve corpus of the trust intact for the ultimate remainder beneficiary and (2) to generate as much income as possible consistent with the safety of the corpus Rejects notion that risky investments are imprudent investments – all assets can be wise investments if they’re managed correctly (need to diversify) Then look at UPIA to decide how to match risk and expected return within the limits of the investments (how much risk can beneficiaries withstand, what is the economy like, etc.?) Option 1: Mutual Funds – Uniform Trust Code and Uniform Prudent Investor Act Both approve of use of mutual funds as “safe,” but depends what kind it is Option 2: Index Funds: Boat floats with general economic tide, don’t pick anything (c) Things to Consider: Needs for liquidity, regularity of income, expected tax consequences, expected total return from income, general economic conditions Uniform Prudent Investor Act §3: Diversification A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying (same as under RST of Trusts §227(b)) A “retention” clause appears to allow the successor trustee to retain assets that are part of the trust estate at the time the successor takes office. Ex: “Stock of X or their successor can be held in a larger portfolio percentage than would otherwise be permitted by law” Good Practice: Ask client what discretion they wanted trustee to have Settlor’s ultimate decision about how much flexibility to give on diversification – need more guidance than given in Onassis will Ex: Trustee authorized to retain assets but sells them is not liable merely because the securities later rise in value, or vice versa. Trustees should not be judged on hindsight Special Circumstances: Duty to diversify unless trust instrument, or unusual circumstances restricts this duty. “Special circumstances" generally means holdings important to a family, or if the administration costs of diversifying outweigh benefits (Wood v. US Bank) Ex: UPIA: Allows socially responsible investment if it’s authorized by the settlor, especially if it’s aligned with the specific purposes of the trust (like charitable cancer trusts avoiding Phillip Morris) Need connection between purpose, might be allowed as long as it doesn’t interfere with the financial viability of the trust Wood v. US Bank: $8M trust, 80% of the trust’s stock was in Firstar Bank Stock Holding: Yes. Even if the trust document allows the trustee to "retain" assets that would not normally be suitable, the trustee's duty to diversify remains, unless there are special circumstances Rule: To abrogate the duty to diversify, the trust must contain specific language authorizing or directing the trustee to retain in a specific investment a larger percentage of the trust assets than would normally be prudent. Court/Beneficiary Consent: Not dispositive, but might be able to give effect to a beneficiary’s consent to not diversify (can’t complain later) Not held to be legal consent unless beneficiary gives informed consent Uniform Prudent Investor Act §4: Duties at Inception of Trusteeship Trustee shall review trust assets and implement decisions concerning retention and disposition of assets, to bring the trust portfolio into compliance with the purposes of the Act Duty of Impartiality – Subset Of Duty of Loyalty Frequently the interests of the beneficiaries conflict, and trustee has duties to all, as an investment that looks attractive overall might not be for all beneficiaries as it doesn’t benefit proportionally Disclosure about reasons for more or less disbursement (don’t need to give same amount to each, but that each are judged on same criteria of determinations) Maintain them both in the same standard of living they had before the trust Impartiality frequently comes up in stress between principal and income Unitrust: Avoids distinctions between “income” and “principal” Trustee makes payments from the unitrust – don’t worry about whether the “income” is cash or stock dividends Uniform Principal and Income Act §104: Trustee’s Power to Adjust An alternative to trustee power of adjustment where an otherwise prudent fiduciary investment portfolio would not fairly benefit income and remainder Ben’s Allows trustee to treat income and principal beneficiaries with impartiality Have to diversify between level of risks as well as different forms of capital appreciation and income stream investments Step 1: Classify interest as income Step 2: Then adjust interest from income to principal (equitable adjustment) (a) A trustee can adjust between principal and income to the extent necessary if the trustee invests and manages the trust assets as a prudent investor (b) In deciding whether and to what extent to exercise the power conferred, consider nature, purpose and duration of the trust, intent of the settlor, identity and circumstances of the beneficiaries, needs for liquidity, regular income and preservation of capital To what extent the terms of the trust give the trustee power to invade principal or accumulate income, extent to which the trustee has exercised this power if it exists in the trust instrument Actual and anticipated effect of economic conditions on principal Uniform Principal and Income Act §401: Character of Receipts (b) A trustee shall allocate to income money received from an entity (c) A trustee shall allocate the following receipts from an entity to principal: (1) Property other than money; (2) Money received in one distribution or a series of related distributions in exchange for part or all of a trust's interest in the entity; (3) Money received in total or partial liquidation of the entity Uniform Principal and Income Act §404: Principal Receipts A trustee shall allocate to principal: (1) Assets received from a transferor during the transferor’s lifetime, a decedent’s estate, a trust with a terminating income interest, or a payer under a contract naming the trust or its trustee as beneficiary; (2) Anything (money/property) received from the sale, exchange, liquidation, or change in the form of a principal asset, including realized profit How Should You Plan for Incapacity? (1) Establish a Conservatorship Concerned relative can bring a conservatorship proceeding, serve person who you think is incapacitated with the proceeding, try to appoint a committee or guardian of the person’s property Appoints a conservator to take on the role of managing that person’s affairs If appointed, conservator becomes similar to a trustee – manages finances of conservatee and must make annual accountings to the court Cumbersome and expensive, person doesn’t want to be deemed incapacitated Alternatives: Revocable living trust, joint tenancy or agency bank accounts Uniform Probate Code §5-401: Protective Proceeding Court may appoint a conservator or make a protective order to manage affairs of (1) a minor who owns property requiring management or (2) any individual that is shown, by clear and convincing evidence, to be unable to manage their property and affairs because of an impairment in the ability to make decisions (preponderance of the evidence the individual has property that will be wasted unless management is provided) (2) Establish a Power of Appointment: A power of Appointment is not subject to a fiduciary duty, so failure to use the power does not expose the person appointed to legal liability (set up takers in default if donee fails to exercise) Common Law: Creditors could NOT access the property UNLESS donee exercised the right (even if exercised in someone else’s favor) Structure: Similar to a trust, but instead of dictating how the trust principal will be distributed when the trust is terminated, leave that decision to someone else Donor (Person who creates the power), Donee (Person who exercises the power) Estate of Hamilton: Power of appointment exercisable only by specific reference to the wife’s final will, and if she didn’t specify in her will Issue: Was the donee’s exercise of power valid even though it did not specifically reference the correct will in its exercise of the power? Holding: No. Her power of appointment was valid under his first will, but she referred to the wrong will of her husband in her will, and so the power she was referring to had been retracted in a secondary will Notes: Still have incentives to discourage inadvertent exercise of the power Creditors of donee of a general power may reach the appointive property if and only if the donee exercises the power Permissible Appointees: People to whom the donee appoints the property Normally donor restricts the people to whom donee may appoint Objects of Power/Class of Permissible Appointees: Class eligible to receive property Takers in Default: People who would take without exercise of power of appointment Scope of Power: Determines if there is unlimited or limited power to choose ben’s General Power: A general power grants to donee the right to appoint the property to: (1) the donee himself, (2) to donee’s estate, or to the creditors of (3) either the donee or (4) the donee’s estate (if any one of those 4 are present, then it’s a general power) General if trust gives a beneficiary an unqualified power to invade principal, then that beneficiary has a general power of appointment over the principal Creditors can reach property even if Donee doesn’t exercise the right b/c holding the power is essentially the same as owning the assets Marital Deduction Trust: To be a gift and to qualify for tax deduction purposes, have to at least give them the general power of appointment to direct where the property goes at death (legal tax evasion) Special/non-general power: Donee can choose among a restricted class of potential appointees (“among my relatives” or “among my children”) If you say “you can give it to anyone, except the donee” then special Done doesn’t have to distribute to all people within the class of permissible appointees – free to exclude objects of the power (so has exclusive power) But if donor requires donee to appoint some assets to each member of the class, then the power is non-exclusive, or non-exclusionary Can’t appoint the property to themselves – so creditors CANNOT reach property Test: how much is the minimum amount that must be distributed to each member of the class for the appointment to be valid? Timing of Power: Some instruments limit the timing when donee can exercise power Presently Exercisable: Donee can exercise power of appointment immediately Postponed Power: Power exercisable by donee allowed only after expiration of a stated time or after occurrence of a specified event Testamentary Power: When the donor requires that the power be exercised by will Benefits: Can add flexibility into any estate plan, generate tax advantages Blind Exercise: Exercising a power of appointment without specifying where it is or you came from (“I hereby leave all my property, including property over which I have a power of appointment to x”) (2) Establish a Power of Attorney In giving a PoA to someone, the principal authorizes an agent, signed, in writing, to perform specified acts on behalf of the principal (agent stands in principal’s shoes) At CL, the powers of attorney terminate at death or when principal becomes incapacitated Today, all states have statutes allowing PoA to be durable (survive principal’s incapacity) UPAA – Power of attorney is presumed to be durable unless explicitly says its not, and also allows multiple people to have power of attorney Powers of attorney subject to same attacks as wills (undue influence, formalities, capacity) To create a valid power of attorney, there must be a WRITTEN doc, SIGNED by the principal. Duties: Agent has to act with care, caution and diligence (similar to Prudent Investor Act), keep records and accounting, preserve principal’s estate plan Power of Attorney shall not be construed to grant authority to an attorney in fact to make a gift or revoke a gift of the principal’s property in trust or otherwise Majority/UPAA: An agent operating under a power of attorney is prohibited from making gifts to themselves BUT within the power of attorney document, principal can allow for an agent to give another agent a gift (or give a gift to themselves) if they expressly authorize it Under UPAA, complicated with §217 of IRS code (for $14k/ year annual gift exclusion), and then additionally need to include special instructions the right to make a gift to himself, and need special instructions to allow for a gift above §217 allowance Any act has to be ratified in writing to be valid (Estate of Houston) Benefits: Can be used in place of an inter vivos trust Drawbacks: How to enforce the duties of the principal ($3B stolen under color of title) Good Practice: Good to have both an irrevocable inter vivos trust AND PoA – PoA can make decisions while property is being transferred to trust AND transfer property that later comes into the estate into the trust – need a trust that’s broad, but with Power of Attorney, can act quickly Need to integrate– have person trustee of revocable living trust be the agent under the POA (3) Establish your Durable Healthcare Power of Attorney or Advanced Directive Individual appoints an agent to make health care decisions that the individual would make if he had the capacity – intended to use “substituted judgment Durable Power of Attorney for Healthcare/Proxy Form: Creates agency relationship where someone appoints an agent to make healthcare decisions on their behalf if the individual is incapacitated and can’t make decisions on their own Can give agent “substituted judgment” substitute the perspective of the patient into your own mind, make decisions based on their judgment If you can’t show substituted judgment (what the patient wanted or would have wanted), then look at what’s in the best interest of the patient Weiland v. Weiland: Require conservator to show that withdrawing the artificial support is commensurate with the person’s best interests – worse when they’re not in a coma but no brain function Advance Directive or “Living Will” For End of Life Decisions Legally enforceable document about when a physician should authorize life-extending treatment, how to treat when they become incapacitated Good Practice: Best form is a combination of both 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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