Wills & Trusts Part 4 (Trusts and Trust Duties)

UTC Default vs. Mandatory Rules

1. Apply only when trust is silent on an issue 2. Terms of trust can override default rules 3. Settlor can change them in trust document 4. Mandatory rules cannot be changed (only one is court's power, everything else can be changed) If trust says nothing about duty of loyalty: Then UTC 802 Applies, but settlor can waive duty of loyalty in trust document

All Fiduciary Trust Law rests on two core principles

1. Duty of Prudent Administration 2. Duty of Loyalty

UTC 802(a) - Defenses to No Further Inquiry Rule

1. Settlor authorized the particular conflict 2. The beneficiary(ies) consented after full disclosure 3. The court approved the transaction after reviewing and determine its fair or before the transaction

Presumed Conflict of Interest with Duty of Loyalty

1. Trustee's Spouse 2. Trustee's Descendants, siblings, parents, or their spouses 3. Agent or attorney of trustee 4. Corporation/enterprise where trustee has significant interest

UPC Rule on Preprinted Will Forms for Holographs

Allows pre-printed forms to count as long as: 1. The handwritten parts cover the key dispositive provisions 2. The overall document shows testamentary intent

UTC 815: Trustee's Powers

By default trustee has powers conferred by terms of trust + any other powers appropriate to achieve the proper investment, management, and distribution of trust property

Harmless Error

Even if formalities are missing, the will can still be probated with clear & convincing proof of intent

UTC 105 Default and Mandatory Rules

General Rule: Trust terms override the UTC except for mandatory provisions Cant be overriden: 1. Duty of good faith 2. Lawful beneficiary focused purpose 3. (In brackets) Minimum disclosure 4. Courts power to act in interest of justice

No Further Inquiry Rule

If a trustee undertakes a transaction that involves a conflict between their fiduciary capacity and further interests, no further inquiry is made, trustee's good faith and fairness of the transaction are irrelevant

Duty of Impartiality

If trust has two or more beneficiaries, trustee has to act impartially in investing for both of them

UTC 813 - Duty to Inform and Report

Inform beneficiaries + respond (60 days) Notify (acceptance, irrevocability, comp changes) Report (annually and give them annual reports) Waiver (allowed but retractable)

Substantial Compliance

Near perfect ceremony that satisfies the purposes of the Wills Act

Why UTC 105(8) and (9) are in brackets

Originally 105(b)(8)(9) made notice to qualified beneficiaries age 25+ of existence of the trust MANDATORY But a lot of states hated this because high net worth clients often want confidentiality, delayed disclosure, or disclosure to a designated representative instead of young beneficiaries

Exculpatory Clauses

Relieves trustee from liability for ordinary mistakes, can waive for ordinary negligence CANNOT WAIVE FOR: 1. Willful recklessness 2. Bad faith 3. Reckless indifference 4. Intentional misconduct

Creation of a Trust

Requires 1. Intent by the settlor 2. Ascertainable beneficiaries 3. Specific property to be held 4. Writing to satisfy wills act or statute of frauds

Delegation by Trustee

Trustee can delegate tasks a prudent trustee could delegate, but must 1) Select a qualified agent 2) Set proper terms and scope, and 3) Supervise the agent's performance CANNOT DELEGATE 1. Deciding whether to terminate trust 2. how much to distribute 3. Interpretation of trust terms

Corporate Opportunity Doctrine

Trustee cannot take opportunities that belong to the trust

Prudent Investor Rule

Trustee msut invest and manage trust assets like a prudent investor, using reasonable care, skill and caution, considering purposes of trust 1. If has special skills has to use them 2. Has duty to diversify (unless circumstances of trust make it better not to)

Duty of Prudence

Trustee shall administer the trust as a prudent person would, by considering the purposes, term, etc. of trust Objective standard - What would a reasonable careful person do?

UTC 802 - Duty of Loyalty

Trustee shall administer trust solely in the interests of the beneficiaries