Hansen

-Terminology
-Grantor Capacity and Trust Intent
-Trust Property
-Trustee
-Beneficiaries
-Nature of Beneficiary's Interest
-Formalities/Creation of Inter Vivos Trust
-Statute of Frauds
-Wills Act
-Spendthrift & Related Trusts
-Charitable Trusts
-Resulting Trusts
-Constructive Trusts
-Illegal Trusts
-Duty of Trustees
-Trustee Administrative and Dispositive Powers
-Delegation to Agents and Co-trustees
-Duty of Loyalty
-Alteration of Trusts by Courts
-Alteration, Revocation, and Termination by Parties
-Remedies against the Trustee
-Remedies Involving the Trust Property
-Courses of Action against Third Parties
-Barring of Remedies - Defenses of Trustee

a. Revocable trust requires testamentary capacity
i. Same for a testamentary trust
1. A minority of courts hold that an inter vivos revocable trust requires contractual capacity
b. Irrevocable trust requires contractual capacity (higher since it isn’t revocable)
i. Contractual capacity = an understanding of nature of changes made and obligations associated therewith
c. Creation of trust requires intent – can be conveyed through words or actions
i. Intent must convey an expression to then and there create a trust by giving beneficiaries an interest in property
1. If Grantor doesn’t tell beneficiaries = evidence of revocable trust
2. DOESN’T have to use buzz words; buzz words alone aren’t enough
ii. Courts won’t create a trust if grantor does nothing to express intent to do so
1. Need to find objective expressions of subjective intent.
d. Grantor must impose duties on the trustee
i. Can’t depend on the abolute discretion of the person in control of the prop
e. Equitable interest and legal interest must be divided
f. Presumption is that intention and competence are present
i. Can be overcome by clear and convincing evidence to the contrary
g. An imperfect gift will not be called a trust just b/c it’s imperfect for no delivery
i. Bailment also isn’t enough for a trust
1. Legal title must be transferred for an express trust (and for any trust there has to be intention to transfer title of the property)

a. Any kind of property interest can be the subject of a trust
i. Intangibles, tangibles, choses in action (right to sue), etc.
b. Property must be in existence at time trust is created
i. Can’t be property not in existence, even if future existence is virtually certain
ii. At time property comes into existence, if there’s some new intent to create a trust, a trust also comes into existence
1. Intention must be remanifest though
2. Subseq confirmation is not necessary if consideration has been paid
c. Must be property which is specifically identifiable and alienable
i. Various funds can’t be comingled (exceptions exist for banks)
ii. If no segregation of property – no trust
d. Debt is not property in the hands of the debtor
i. Must be wrongdoing greater than nonpayment of debt to create CT.
ii. If purported trust is a personal obligation to debtor to creditor, no trust

a. A trust doesn’t fail for lack of a named trustee if other manifestations are present
i. Must still be property, beneficiaries, and intent
ii. For testamentary trusts w/o a trustee, the court usually names the executor the trustee
iii. Trustee’s action or inaction cannot affect the trust’s validity
b. Trust document itself can designate how to change trustees
c. Grantor has broad discretion to choose a trustee
d. Trustees can resign, if resignation won’t jeopardize trust
i. But must follow instrument and give a reason. R3.
e. Beneficiaries don’t have power to remove the trustee
i. There must be an imminent threat to the trust before you can fire them
ii. Exception: if grantor names himself trustee and beneficiary, he can remove himself
iii. If grantor is still alive, beneficiaries can ask grantor to change trustee
f. Merger = when legal and equitable title are held by the same person
i. This creates an interest in fee rather than trust
ii. Applies when there’s no other beneficiary but the trustee
g. Doctrine of merger doesn’t apply to trusts when there are two or more trustees
h. Anyone with legal capacity can be a trustee (not minor, not mental deficiency, not unauthorized company)
i. Crimes of moral turpitude disquialify from fiduciary service
i. Personal trustees – if trust explicitly requires a certain trustee, no consent = no trust
j. There are other options for incapacitated adults and minor children (see below)

a. Like trusts, but not actually trusts
b. While minor kids have limited legal capacity, there are some transfers of interests to them; trusts are expensive though
c. Legislatures thus created statutes creating vehicles like trusts
d. Uniform Transfers to Minors Act (UTMA) - NOT TRUST
i. Extended UGMA
ii. Allows transfers of any kind of property
1. Legal title stays in the minor person, doesn’t go to custodian
iii. These are used widely, because the statute is easy to comply with
1. Also has tax benefits (minor’s rate and estate tax avoidance)
iv. All but one state has adopted
e. Uniform Custodial Trust Act (UCTA)
i. This is actually a trust
ii. Created by and for adults to deal with their prop before mental incapacitation
iii. Grantor transfers property into trust, with grantor the trustee
iv. This act hasn’t been widely adopted
f. Durable Power of Attorney (widely used)
i. Strategy used to grant an agency power to another person
1. Governed by agency law
ii. In regard to their property
iii. Holder of power can deal with property after incapacity of principal
1. Even though normally agent can have no more power than principal (this one is “durable). But when the principal dies, it ends
iv. Person who creates (before incapacitation) can draw powers as broadly or narrowly as desired

a. If there’s no beneficiary for a private trust, there’s no trust
i. No severance of title, and no one to enforce the trustee’s fiduciary duties
ii. Must be an identifiable individual or class of people
b. Charitable trust doesn’t require named beneficiary b/c Attorney General enforces trust
i. Must have a charitable purpose, as defined by law, though
ii. AG enforces, but courts also allow standing to people with beneficial interest (see pew owners situation in Howe v. School Dist.)
c. Beneficiaries must be in existence at time of trust’s creation
d. Beneficiaries must be identifiable
i. Either named persons, or a specifically identifiable class
e. Honorary trusts generally aren’t enforced in the US
f. Beneficiaries have a right to disclaim interest
i. Relates back to creation of trust
g. Not everyone who may benefit from a trust is a beneficiary
i. Must hold a property interest to have standing to sue for a private trust
h. If trustee is not grantor, a trust may exist, even though beneficiaries are insufficient (grantor would retain interest)
i. If there are subsequent kids as beneficiaries here, the trust will “spring into existence” when they are born.

a. Beneficiary can assign interest even if just life estate
b. Real property is governed by the Statute of Frauds, which requires a writing to transfer property interests
c. Can’t transfer legal title held by trustee, so delivery is usually effected by transfer of deed
i. This constitutes constructive delivery
d. Notice is not required in the US to make a trust transfer effective
i. First in time prevails

a. A person can create an inter vivos trust without consideration
i. Inter vivos trusts are created during grantor’s life
ii. Requires that donor intend to transfer property and that transfer occur during grantor’s lifetime (once gratuitous transfer is complete, trust is enforceable regardless of whether consideration paid).
b. A promise to create a trust, even if notarized, is a gratuitous promise
i. This requires consideration (which makes it an enforceable contractual promise); if no consideration, promisor can refuse create trust and there is no remedy.
c. Delivery of personal property usually occurs by handing it over
i. Constructive delivery may occur by handing over access to property (a key) or by transfer of a duly executed document (deed)
d. Delivery of real property usually occurs by handing over a deed
i. Transfer subject to Statute of Frauds (see below)
e. But, delivery can occur w/o actually handing over documents or property
i. Must be sufficient indicia, however, of intent to immediately transfer title
1. Pivotal issue isn’t when deed is executed, but whether there was intent sufficient to signify immediate delivery
ii. If it’s set up to transfer at death, it will be a testamentary transfer, subject to will’s act
1. This manifests an intent to transfer “later,” which isn’t valid

a. Inter vivos trusts of real property must be memorialized in writing
i. Written evidence of the trust may come from either grantor or trustee
b. SoF doesn’t make a trust invalid, only unenforceable if related to real property
i. A 3rd party can’t assert a SoF defense; only the one who holds it can
ii. If trustee voluntarily performs, SoF doesn’t prevent enforcement
iii. If severance occurs, then the trust can be enforced despite a lack of a writing (conversion of real property to personal property may “save” trust)
1. Real property in trust is sold, proceeds are personal property not subject to SoF
a. Principle of severance  trust divided into real & personal property
c. SoF won’t render trust unenforceable if there’s been partial performance
d. Parol evidence rule forbids use of oral testimony to contradict, vary, or add a missing term in a writing parties have adopted as a full expression of their intent
i. Declaration of trusts can’t be modified by oral agreements
ii. Doesn’t exclude evidence to show duress, mistake, forgery, etc.

a. Applies to testamentary trusts (those expressed in a will)
b. For testamentary trusts to take effect, they must comply with the wills statute
i. Will must be in writing
ii. Will must be signed by testator
iii. Signing must be witnesses by proper # of people
c. Transfer occurs on death
i. If trust is created this way, and statute of wills isn’t complied with, the will fails, and thus the trust does too
ii. Property will be disposed of under rules of intestacy
d. One challenge with these is determining whether a trust is inter vivos or testamentary
i. There’s almost no combination of powers which are so complete as to invalidate an inter vivos trust if you can establish that grantor intended to create an inter vivos trust and obligated trustee with fiduciary duties
e. Incorporation by reference
i. Permits incorporation of a written document into will
1. Effectively makes it part of the will itself
ii. Ex: written document says “upon death, I want to give A to X”
1. Not an inter vivos gift  only effective upon death
2. Not a testamentary gift  no witnesses
3. But, if a later will references document and incorporates it, it’s valid
iii. If trust is modified after execution of will, courts are divided
1. Some won’t allow incorporation
2. Others allow disposition of trust as it existed when will was executed
f. Facts of independent significance
i. Common law allows disposition of property by reference to acts and events which have significance apart from their effect upon dispositions made in will
ii. Ex: I give $1k to each of my employees at my death
1. Valid gift to each person employed at time of death, regardless of whether they were employed there upon execution of will
2. Gift is sustained b/c people aren’t hired/fired to make them a beneficiary or to disinherit them, but for “lifetime motive” (to run business)
g. What if will says: “I give residue of my estate to trustee of trust which I executed last year for the benefit of that trust’s beneficiaries”?
i. This will fail to get property to beneficiaries of trust via incorporation by reference  there’s no language about incorporating the trust into the will
1. There must be an express indication of the incorporation
2. Also, even if there were incorporation, if trust had been modified in meantime, there may also be problems as to which, if any of the trusts would be incorporated
ii. Is existence of purported trust mentioned in will itself a fact of independent significance?
1. No – trust doesn’t actually exist until funded by the will
a. Only the trust document exists at that time, b/c there’s no property until will transfers funds
b. Trust doesn’t exist without property
2. What if trust had been funded nominally at time of its creation?
a. This would work, and would also allow modifications (since it wouldn’t be executed under the incorporation doctrine)
iii. Solution was to incorporate by reference, to fund trust, and to reiterate the trust itself in the will  triple security measure
h. Pour-Over Wills
i. Legislatively legitimized in the Uniform Testamentary Additions to Trust Act
ii. Essentially permits pour over from will into trust that doesn’t have to be in existence when the will was executed
1. Trust can be written or modified after will
2. Trust doesn’t have to be funded
iii. Does away with reliance on facts of independent significance or incorporation by reference
iv. Trust is treated as an inter vivos rather than testamentary trust (avoiding probate court supervision)

i. Will must be in writing
ii. Will must be signed by testator
iii. Signing must be witnesses by proper # of people

i. Permits incorporation of a written document into will
1. Effectively makes it part of the will itself
ii. Ex: written document says “upon death, I want to give A to X”
1. Not an inter vivos gift  only effective upon death
2. Not a testamentary gift  no witnesses
3. But, if a later will references document and incorporates it, it’s valid
iii. If trust is modified after execution of will, courts are divided
1. Some won’t allow incorporation
2. Others allow disposition of trust as it existed when will was executed

i. Common law allows disposition of property by reference to acts and events which have significance apart from their effect upon dispositions made in will
ii. Ex: I give $1k to each of my employees at my death
1. Valid gift to each person employed at time of death, regardless of whether they were employed there upon execution of will
2. Gift is sustained b/c people aren’t hired/fired to make them a beneficiary or to disinherit them, but for “lifetime motive” (to run business)

i. Legislatively legitimized in the Uniform Testamentary Additions to Trust Act
ii. Essentially permits pour over from will into trust that doesn’t have to be in existence when the will was executed
1. Trust can be written or modified after will
2. Trust doesn’t have to be funded
iii. Does away with reliance on facts of independent significance or incorporation by reference
iv. Trust is treated as an inter vivos rather than testamentary trust (avoiding probate court supervision)

i. Is a life insurance policy with a named beneficiary a testamentary transfer?
1. Yes; transfer only occurs when someone dies
ii. However, Life insurance beneficiary designations have always been held to be outside the law of wills; even though it is a testamentary transfer, we don’t have to execute life insurance policy applications with testamentary formalities.

a. Spendthrift: A person who spends money in an extravagant irresponsible way.
b. Spendthrift trusts = grantor specifically limits interest of beneficiary’s power to alienate interest and also prevents beneficiary’s creditors from reaching it
i. Limits assignability rights of beneficiary
c. Often used b/c beneficiary is a known spendthrift, or is young
d. Once income distribution is made to beneficiary, a creditor can attach judgment to that income
e. Enforced in virtually every jurisdiction
i. They may be enforced in different ways, however; examples:
1. May enforce against corpus, but not income
2. May be limited by $ amount
3. May be limited to familial relations
f. **Grantor spendthrift trusts aren’t enforceable**
i. Public policy prevents transfer by grantor of property into spendthrift trust simply to make it unavailable to creditors
ii. Trust will be enforceable, but not as a spendthrift trust
g. Statutory modification to grantor spendthrift trust rules:
i. Asset protection trust
1. Grantor can transfer asset to trustee, retain substantial powers over assets, and protect them from creditors
2. A few states have passed these to prevent money from being sent to offshore accounts for this same purpose (keeps $ in US institutions)
3. These haven’t been around long enough to know whether these will protect against all creditors
h. Discretionary trust
i. Assets held in trust for beneficiary, but trustee has discretion as to payments
1. Can decide whether to distribute, when to, how much to
a. Can prevent a beneficiary from getting anything if that was in the best interest of the beneficiary
2. Beneficiary doesn’t have much of an interest
a. Not a spendthrift trust, but essentially unassignable b/c no one would buy this (there’s no guarantee) and creditors don’t have anything to claim
i. Assignment not legally barred, just practically barred
i. Support trusts
i. Assets transferred into trust for support and maintenance of a named beneficiary
1. Beneficiary can enforce (“I need $ for food”) and court can order distribution on showing of need for support/maintenance
2. Nature of interest will limit ability of creditors to get to funds
a. If debt is for support/maintenance then creditor can reach funds
b. If not, creditors have no claim to funds

trusts AREN'T enforceable

1. Grantor can transfer asset to trustee, retain substantial powers over assets, and protect them from creditors
2. A few states have passed these to prevent money from being sent to offshore accounts for this same purpose (keeps $ in US institutions)
3. These haven’t been around long enough to know whether these will protect against all creditors

i. Assets held in trust for beneficiary, but trustee has discretion as to payments
1. Can decide whether to distribute, when to, how much to
a. Can prevent a beneficiary from getting anything if that was in the best interest of the beneficiary
2. Beneficiary doesn’t have much of an interest
a. Not a spendthrift trust, but essentially unassignable b/c no one would buy this (there’s no guarantee) and creditors don’t have anything to claim
i. Assignment not legally barred, just practically barred

i. Assets transferred into trust for support and maintenance of a named beneficiary
1. Beneficiary can enforce (“I need $ for food”) and court can order distribution on showing of need for support/maintenance
2. Nature of interest will limit ability of creditors to get to funds
a. If debt is for support/maintenance then creditor can reach funds
b. If not, creditors have no claim to funds

a. Trust must have an identifiable beneficiary (private trust) OR a charitable purpose
i. AG enforces a charitable trust
1. But, they do such a terrible job that more courts are finding standing for other parties seeking to enforce trust
2. UTC gives grantor power to enforce
b. Charitable trusts aren’t subject to the rule against perpetuities
c. Charitable purposes = advancement of religion, education, medical care, etc.
d. Must be for the general public’s benefit (or some indefinite number thereof)
i. Can create a trust whereby your relatives get preferential treatment
e. A gift or trust given to support an institution may still be charitable even if the institution charges fees for its services
f. A trust for perpetual care of a cemetery or a plot therein is usually held charitable, as is a tomb for a famous person worthy of emulation
g. Grantor does not get to decide if the purpose is charitable
i. Courts declare, as a matter of law, whether a trust is charitable or not
h. Major safe harbor for trusts is advancement of religion; if you can tie purpose of your trust to a religious movement or institution, you have a better chance of prevailing

a. These trusts have no express or discoverable intention for grantor to establish trust, but law assumes grantor intended to create a beneficial interest in himself, with grantee as trustee for grantor
i. Resulting trusts won’t produce a result where property is transferred to another party – it will always return to the grantor or his estate
b. Three situations create resulting trusts:
i. Express trust property is excessive
1. What grantor fails to dispose of in trust he presumably intended to retain for himself
a. Ex: G  T  C; C dies with funds left over in trust
i. Remainder goes to G or G’s estate
ii. Not b/c G expressed this, but b/c law presumes it
iii. T has a fiduciary duty to return remaining funds to G
ii. Express trust fails
1. Ex: A  T  A’s friends
a. Express trust fails (no identifiable beneficiary), so $ in trust returns to A
iii. Purchase money resulting trust
1. One person pays consideration for a transfer of property to another person
2. Rebuttable presumption is that a trust, rather than a gift, was intended
a. Burden of proof (clear and convincing) to show gift, not trust, rests with party seeking trust declaration
3. Ex: A’s $  seller  deeds property to B
a. A would not normally do this
4. A gift from A to B is not generally in doubt
a. If A gave prop. directly to B, this wouldn’t be a resulting trust
5. There are some transfers that appear to be purchase money resulting trusts, but are actually gifts based on relationship of parties
a. Where parties are Husband/wife, parent/child, etc., rebuttable presumption is that it was a gift, not a trust.

i. Express trust property is excessive
1. What grantor fails to dispose of in trust he presumably intended to retain for himself
a. Ex: G  T  C; C dies with funds left over in trust
i. Remainder goes to G or G’s estate
ii. Not b/c G expressed this, but b/c law presumes it
iii. T has a fiduciary duty to return remaining funds to G
ii. Express trust fails
1. Ex: A  T  A’s friends
a. Express trust fails (no identifiable beneficiary), so $ in trust returns to A
iii. Purchase money resulting trust

1. One person pays consideration for a transfer of property to another person
2. Rebuttable presumption is that a trust, rather than a gift, was intended
a. Burden of proof (clear and convincing) to show gift, not trust, rests with party seeking trust declaration
3. Ex: A’s $  seller  deeds property to B
a. A would not normally do this
4. A gift from A to B is not generally in doubt
a. If A gave prop. directly to B, this wouldn’t be a resulting trust
5. There are some transfers that appear to be purchase money resulting trusts, but are actually gifts based on relationship of parties
a. Where parties are Husband/wife, parent/child, etc., rebuttable presumption is that it was a gift, not a trust.

i. Resulting trust in A w/ B as trustee; presumption can be overcome by B

i. No resulting trust

i. Resulting trust; A holds as trustee for B

i. Resulting trust; B holds as trustee for A (Fox v. Shanley example)

if same person who holds title also owns money, there’s no trust
i. In the case of resulting trusts, the trust is enforced according to the intentions of the grantor (remainder to nephew as opposed to outright deed). Does not have to be all or nothing.

a. Remedy fashioned by courts to cure ills where holder of property has obtained it in a fraudulent way and will be unjustly enriched if permitted to retain property
b. These don’t focus on intent of grantor at all
c. In order for constructive trust remedy to be available, the essential elements of trust (property, trustee, and beneficiary) must be known during life of testator
d. Sole obligation of a constructive trustee is to convey property to beneficiary
e. Deed cases:
i. Constructive trusts are rarer with real property transfers; must generally meet an exception to the Statute of Frauds:
1. Transfer procured by fraud at time of transfer
a. Mere failure to keep promise isn’t enough
b. If, when grantor made promise he didn’t intend to keep it, though, that’s fraud and SoF won’t apply
2. Confidential relationship between grantor/grantee induced transfer
a. Relationship of dependence or trust
3. Transfer was made as security for an indebtedness of transferor

i. For wills, the statute of wills (which requires a gift in writing) is essentially ignored for a constructive trust b/c otherwise there’d be unjust enrichment
ii. A person who makes an oral promise to hold property for another, inducing the testator to make or leave in effect a will in the promisor’s favor, will be required to hold property for beneficiary
1. Doesn’t matter whether promise is made before or after will is executed if the testator relied on it
2. Secret trusts – promises not evident on face of document (will)
a. Must introduce evidence of promise before a constructive trust can be imposed by the court
b. If beneficiary is known, the remedy = constructive trust
c. If beneficiary is unknown, the remedy = resulting trust
3. Semisecret trusts – known or unknown beneficiaries = resulting trusts (in America)

i. Thief steals money to purchase car, which he transfers to attorney for payment of legal services; attorney didn’t ensure bona fide purchase, so he’s constructive trustee for original owner
ii. H murders W then claims sole ownership of property; court find H owner of ½ of property, and constructive trustee over other half
iii. H gives W a $200k ring, which is later stolen; H receives insurance check b/c he was beneficiary; in divorce decree, H named constructive trustee for W

i. Constructive trusts are rarer with real property transfers; must generally meet an exception to the Statute of Frauds:
1. Transfer procured by fraud at time of transfer
a. Mere failure to keep promise isn’t enough
b. If, when grantor made promise he didn’t intend to keep it, though, that’s fraud and SoF won’t apply
2. Confidential relationship between grantor/grantee induced transfer
a. Relationship of dependence or trust
3. Transfer was made as security for an indebtedness of transferor

a remedy in equity when constructive trust aren’t imposed
a. Orella v. Johnson
i. Not a constructive trust
ii. F  D based on oral promise from D that she’ll re-convey to him
1. Later, she refuses to re-convey
iii. Court says there will be unjust enrichment if it doesn’t do something
iv. Orders re-conveyance b/c promise required it
1. No difference in this case and what would occur under a constructive trust (but doesn’t depend on the exceptions to the SoF)
a. But this remedy generally restores grantor with what grantor originally had
i. On other facts, if grantor intended a different beneficiary than himself, this remedy may not yield same results as a constructive trust

a. Remedies for illegal trusts
i. Return property to settlor under resulting trust
1. Grantor tried to do something he couldn’t do, so he gets property back
ii. Permit trustee to keep property
1. Unjust enrichment for trustee, but there’s a deterrent value to keep grantors from making illegal trusts
iii. Strike offending language and enforce the rest of the trust
1. Administrative deviation (Preferred Remedy)
a. Permits court to modify administrative details of trust (such as who is the trustee) to allow it to be enforced
b. Ex: changing trustee from govt. actor to a private trustee
2. Cy pres rule
a. Available only for charitable trusts and only if administration of trust is impossible and you can change terms in accord with grantor’s intent
b. Court would change dispositive term – like a beneficiary
i. Question is, does change comport w/ grantor’s intent
b. Court will not aid where there are unclean hands; look to intention behind transfer

(Preferred Remedy)
a. Permits court to modify administrative details of trust (such as who is the trustee) to allow it to be enforced
b. Ex: changing trustee from govt. actor to a private trustee

a. Available only for charitable trusts and only if administration of trust is impossible and you can change terms in accord with grantor’s intent
b. Court would change dispositive term – like a beneficiary
i. Question is, does change comport w/ grantor’s intent

i. Trusts providing income to child as long as child doesn’t marry
1. May be illegal if purpose is deemed to be prevention of marriage
2. May be ok if determined to provide support only while child is single
ii. Trust if son will marry a Jewish girl with Jewish parents in Northern AZ
1. May be held illegal as against public policy b/c it’s too constraining
iii. Trusts that provide for income only for marriage in particular marriage are generally upheld on ground that religion is to be perpetuated
1. Subject to extra scrutiny, though
iv. Totten trusts are illegal to the extent they block a surviving spouse or creditors from accessing funds
1. Totten Trusts are tentative trusts because the grantor retains extensive control
v. Trusts made based on intent to defraud and illusory promises
1. Intent test (minority)
a. If transfer was made to defraud out of his statutory share, he would be permitted to reach the funds
b. Difficult to marshal evidence to prove this
2. Illusory test (majority)
a. After the transfer, grantor in substantially the same position
vi. Discriminatory trusts involving state action

a. Rule is that trustees must invest according to the prudent investor rule
i. R: Trustee has a duty to manage funds as a prudent investor would. Requires trustee to diversity unless under the circumstances it is not prudent to do so (Newest Rule).
ii. Permits broader investments than the prudent person rule
iii. Trustee should invest as a prudent investor would – including diversification
iv. Focus is on trustee’s care, skill, and diligence in making particular investment
b. Standard of performance based on conduct of trustees, not performance of investments
c. Trustees were originally limited as to what they could invest in (generally govt. obligations), but courts eventually allowed investment in anything that a prudent investor would invest in – an objective test
d. Many courts require diversification of investments
e. Professional Trustee (Bank, Trust Co.) or Someone who holds themselves out as experts
i. Held to higher standard (standard they represented) even if not actually expert
f. Successor trustee takes over and does not hold prior trustee accountable for prior breaches, successor trustee becomes liable for prior breaches.
g. Absolute discretion isn’t really absolute; doesn’t permit recklessness
i. Opens up the types of investments that can be made
ii. Trustee still required to satisfy prudent investor standard
iii. Always subject to court scrutiny
h. Exculpatory clauses differ from absolute discretion
i. These excuse trustees from liability for breaches of trust
1. But, again, they don’t excuse gross negligence (recklessness) or bad faith
2. Wont protect trustee if trustee acted as a fiduciary to the settlor at the time of the creation of the trust and abused that relationship.
3. Clauses excusing trustee from liability for acts of agents or servants are generally valid; do not exonerate a corporate trustee for breaches committed by its officers or employees.
ii. Interpreted narrowily
i. If grantor transfers into trust property that’s not an authorized trust investment, or if that property later becomes improper through changes in the law or economic conditions, the trustee is under an immediate duty to dispose of the property
j. Courts can grant AD from express terms of trust if circumstances change such that without AD, trustee cannot fulfill purpose of trust
i. Essential purposes of trust protected more than grantors prohibitions and limitations

a. Trustee has, at minimum, powers to perform acts necessary to discharge duties
i. Trust instrument may grant broader powers
b. Generally, trustee has no duty to give notice of sale of trust assets to beneficiaries
i. Trust document, or circumstances, may require notice, however
1. If there’s only one asset in trust
2. If beneficiary expressed interest in buying property
c. Generally, trustee has no authority to sell trust assets absent explicit authority
i. Exceptions:
1. Implied power to sell where trustee has invasion power for beneficiary
a. May not justify sale in termination case
2. Consider how many distributees, are they all competent, can they agree on distribution method nature of asset (Real Estate, Stock).
d. Trustees don’t generally have to get approval from beneficiaries as to whether to distribute in kind or money
i. May vary, however, if:
1. Beneficiary has expressed interest in items
2. Item is a special family heirloom or family property
e. Absent express power conferred by statute or trust instrument, courts generally require trustees to secure court approval before granting a lease extending beyond the probable or certain duration of the trust
i. Are there immediate and substantial benefits to all beneficiaries
f. Two Rules of Payment
i. Absolute obligation to pay proceeds to correct beneficiary
ii. Make payment in manner ordered by the trust
g. Unforeseen contingency that would defeat the purpose of the trust
i. Is there an unforeseen contingency?
ii. If court doesn’t permit waiver of trust limitation, will purposes of trust be defeated?
iii. What would grantor have done if had foreseen contingency?
h. Early distribution to a beneficiary can be granted, but only if:
i. Beneficiary has fallen on unforeseen circumstances
ii. Distribution to beneficiary won’t affect any other beneficiary
1. Changed circumstances alone are not enough
iii. Is proposed change consistent with grantor’s intent
i. Court are generally more willing to invade income of trust rather than principal
j. Trustee may not sell assets to himself w/o informed consent of all beneficiaries

a. Ministerial acts can be delegated – receipt of installment payments, collection of mortgages/proceeds, preparation of release forms, record keeping, etc.
i. They must still adequately supervise
b. Discretionary acts are non-delegable – release of mortgages, conduct of an auction, payment of entire loans, exercise of discretion, and selection of investments, can pay for advice if prudent, etc.
i. Can’t delegate possession of trust’s legal title
ii. Can’t delegate all trust duties
iii. People dealing with co-trustees have the obligation to see that they’re dealing with the authorized persons.
c. Liability of trustee only exists if:
i. There’s improper delegation; or
ii. Co-trustee has committed breach of trust by failure to exercise reasonable care in overseeing administration of trust
d. Law requires co-trustees to act in unison in exercise of discretionary powers
i. If you know that you’re dealing with co-trustees, you have an obligation to deal with them as authorized to carry out transactions.
e. In normal course of events, co-trustee isn’t liable for breaches of other co-trustees
f. Appreciation Damages - Improper delegation of authority results in trustee’s liability for complete value of property plus legal rate of interest from time of improper delegation
i. Trustee becomes guarantor of all losses
ii. Liability isn’t limited to loses due to negligence
g. Trustee lacking in expertise to properly manage trust investments can hire advisors and can charge trust for cost of investment advice if reasonable to do so
i. Doesn’t abrogate payments to trustee; paid from trust res

a. Trustees have duty to avoid any self-interest
i. Fact that there’s been no actual benefit isn’t sufficient
ii. But courts MAY give effect to a provision authorizing self-dealing
b. Objective of remedies in this area is deterrence
i. Move beyond simply making beneficiary whole
c. Trustees claim of acting in good faith isn’t sufficient
d. Self-dealing = trustee is both buyer and seller of trust property
i. Triggers “no further inquiry rule”
1. Fairness of transaction irrelevant – don’t have to prove this
2. Remedy:
a. Benefit to trustee must be surrendered to beneficiaries
b. Transactions can be voided
c. Appreciation damages
i. Value now – value sold for = appreciation damages
e. No further inquiry rule is only applicable to breaches involving self-dealing
f. If trustee isn’t a controlling person of a company, it will not be self-dealing simply because he’s a director of a company
i. But, there may still be a conflict that needs to be analyzed
g. If trustee’s conflict of interest is not of self-dealing type, damages are calculated at time of breach/deal, with interest added on (no appreciation damages)
i. Would have to prove existence of conflict and damages suffered by beneficiary
h. Appreciation damages may be imposed even in absence of self-dealing if other circumstances exist that indicate egregious conduct (Self Interest)
i. Banks can engage in what would otherwise be deemed self-dealing b/c they are so heavily regulated
i. Only the ordinary conflict rules will apply (would have to show damages)
ii. The bank just has to prove that it’s fair to both sides
j. A trustee can operate multiple trusts and engage in transactions between them as long as they’re fair to both trusts
i. Burden of proof in suit on this issues is on trustee
k. Courts generally approve compensation to the fiduciary or his firm for professional services if fair and reasonable (accounting, legal services, etc.)
l. Can trust fund attorney’s fees (Trustee is Attorney)
i. 2 views
1. Compensation to the fiduciary/his firm for professional services is ok if fair and reasonable (value of services only)
2. If trustee is competent to address the issue, that’s part of his duties
m. When trustees are dealing with beneficiaries, beneficiaries have no obligation to question/suspect integrity of trustees
i. Can legally expect trustee to give all disadvantageous info. (full disclosure)
ii. Beneficiaries must have competent and independent advice before acting
n. Factors in determining whether transaction is fair:
i. A showing by the fiduciary that he made a full disclosure of all relevant information to subservient party
ii. That the consideration was adequate
iii. That the principal had competent and independent advice before completing the transaction
o. Laches (like SoL) is not a defense because timeline is different for fiduciary fraud, begins to run after ACTUAL knowledge of the breach

a. Grantor has right to determine how to dispose of property, but circumstances may sometimes make that impractical or impossible
b. Administrative deviation = power of court to change trust where administrative term (not dispositive term) becomes impractical, illegal, or impossible
i. Examples: identity of trustees, authorized trust investments, sale etc.
ii. If court can cure problem this way, it will do so before deviation or cy pres
iii. Push (in R3 and UTC) to allow AD of dispositive terms, not allowed yet
c. Unforseen Contingency/Early Distribution = equitable power permitting courts to alter dispositive term of trust
i. Must show:
1. Dispositive term has become impossible due to changed circumstances unforeseeable to grantor
a. Belief is that had grantor foreseen this issue, he would have permitted allocation
2. Deviation won’t have adverse effect on any beneficiaries
a. Court may grant exception, if support for one beneficiary was clearly the main purpose of the trust (rare)
ii. Applies to private trusts
d. Cy pres = equitable modification made to a charitable trust when purpose becomes impossible, impractical, or illegal and court can find that grantor had general charitable purpose that modification can satisfy
i. Inefficiency or temporary impossibility is not enough (Marin county)
ii. A trust’s purposes will not be deemed impossible simply because of trustee’s own restrictive rules of distribution
1. Impossibility created by trustee’s own rules (restrictions beyond those imposed by the grantor) is not impossibility
iii. Is it an outright Gift? “To X Church”
1. If X Church is non-existent, outright gift fails
iv. How to determine General Charitable Intent
1. First look to language of trust (stop there if finding enough)
a. Look to whether it is: perpetual trust, named after him, clear that heirs not entitled to residuary (not in residuary clause), terms provided that funds could support other college students if no nursing students available.
2. Then look to extrinsic evidence

equitable power permitting courts to alter dispositive term of trust
i. Must show:
1. Dispositive term has become impossible due to changed circumstances unforeseeable to grantor
a. Belief is that had grantor foreseen this issue, he would have permitted allocation
2. Deviation won’t have adverse effect on any beneficiaries
a. Court may grant exception, if support for one beneficiary was clearly the main purpose of the trust (rare)
ii. Applies to private trusts

power of court to change trust where administrative term (not dispositive term) becomes impractical, illegal, or impossible
i. Examples: identity of trustees, authorized trust investments, sale etc.
ii. If court can cure problem this way, it will do so before deviation or cy pres
iii. Push (in R3 and UTC) to allow AD of dispositive terms, not allowed yet

equitable modification made to a charitable trust when purpose becomes impossible, impractical, or illegal and court can find that grantor had general charitable purpose that modification can satisfy
i. Inefficiency or temporary impossibility is not enough (Marin county)
ii. A trust’s purposes will not be deemed impossible simply because of trustee’s own restrictive rules of distribution
1. Impossibility created by trustee’s own rules (restrictions beyond those imposed by the grantor) is not impossibility
iii. Is it an outright Gift? “To X Church”
1. If X Church is non-existent, outright gift fails
iv. How to determine General Charitable Intent
1. First look to language of trust (stop there if finding enough)
a. Look to whether it is: perpetual trust, named after him, clear that heirs not entitled to residuary (not in residuary clause), terms provided that funds could support other college students if no nursing students available.
2. Then look to extrinsic evidence

a. If grantor retains power to revoke, but not to amend, he can still amend
i. Unless the trust specifically says that power to revoke doesn’t include power to amend
b. If grantor retains power to amend, but not to revoke, he can’t directly revoke
i. Must amend trust to make it revocable (unless trust specifically says that the power to amend shall not include the power to make it revocable)
c. If grantor does not retain power to amend or revoke, even if grantor and trustees agree, they can’t destroy the trust unless the beneficiaries permit it
i. If you can prove that irrevocability was a product of error, can be revoked
ii. Some states hold the trust is revocable unless stated that it is not
d. Undue influence not operational in determining whether a competent settlor can revoke
i. Competency the only exception to prohibit a revocation
e. A revocation of the entire trust terminates it and returns property to grantor – any other change is an amendment
f. Just b/c trust has become disadvantageous isn’t cause to revoke an irrevocable trust
g. Two Ways to Terminate Trust
i. Claflin doctrine  if grantor and all beneficiaries agree, they can terminate a trust even though it’s irrevocable and a material purpose may remain unfulfilled
1. Consent must be affirmative – failure to object not enough
2. If grantor’s personal representative has authority to grant consent for termination, and agreed to do so after grantor’s death, trust can be terminated
ii. Court will terminate if all beneficiaries agree and there’s no material purpose left for trust to fulfill
1. Courts will not terminate a trust, even if all beneficiaries agree to it, if there’s an unfulfilled material purpose (and grantor cannot consent)
2. Generally, spendthrift provision IS a material purpose (notinUTC&R)
h. Because courts favor family harmony, family settlements are often ok as long as:
i. There’s a genuine dispute that the settlement is seeking to resolve
ii. All beneficiaries agree to settlement
iii. Terms are not drastically different from what trust called for
i. Both the Rule in Shelley’s Case and the doctrine of worthier title operate to eliminate any interest heirs may have
i. Rule in Shelley’s Case: the heirs’ interest folds into the parent’s life interest (Fee Simple Aboslute to Parent; no consent needed from heirs)
ii. Doctrine of worthier title: when grantor’s heirs are named as the remainder beneficiary, heirs’ interest is eliminated (reverts to grantor)
1. Anytime grantor’s heirs are remainder beneficiaries, must call Doctrine of Worthier Title (Not Rule in Shelley’s Case).

i. Rule in Shelley’s Case: the heirs’ interest folds into the parent’s life interest (Fee Simple Aboslute to Parent; no consent needed from heirs)

ii. Doctrine of worthier title: when grantor’s heirs are named as the remainder beneficiary, heirs’ interest is eliminated (reverts to grantor)
1. Anytime grantor’s heirs are remainder beneficiaries, must call Doctrine of Worthier Title (Not Rule in Shelley’s Case).

if grantor and all beneficiaries agree, they can terminate a trust even though it’s irrevocable and a material purpose may remain unfulfilled
1. Consent must be affirmative – failure to object not enough
2. If grantor’s personal representative has authority to grant consent for termination, and agreed to do so after grantor’s death, trust can be terminated

h. Because courts favor family harmony, family settlements are often ok as long as:
i. There’s a genuine dispute that the settlement is seeking to resolve
ii. All beneficiaries agree to settlement
iii. Terms are not drastically different from what trust called for

a. Where there’s a person with a beneficial interest in a charitable trust, they can sue trustee for breach of trust
i. Any remedy reasonably necessary including
1. Compelling the trustee to comply with the terms of the trust
2. Enjoining or setting aside the trustee’s wrongful act
3. Suspending or removing trustee from office
4. Money damages
b. Damages for negligence (not bad faith) = value of trust property on date it should’ve been sold minus proceeds from sale of property or value of property at time of accounting
i. Can add interest and trustee’s commission
c. Appreciation damages are only imposed if there’s self-dealing or other bad faith
i. Not for just negligence or stupidity (but yes for selling when duty to hold)
ii. Value at breach plus lost profits minus value at time of accounting plus interest and commission
d. Standard for determining whether to remove trustee:
i. Removal must be clearly in best interest of trust
ii. If trustee’s behavior is jeopardizing trust, court will remove if that’s in the best interest of the trust
iii. Failure to account, hostility, or discord are NOT enough to remove a trustee
1. Even COI is not enough, must be COI and bad faith
2. Also, co-trustee appointment only in exceptional need or circumstance

i. Removal must be clearly in best interest of trust
ii. If trustee’s behavior is jeopardizing trust, court will remove if that’s in the best interest of the trust
iii. Failure to account, hostility, or discord are NOT enough to remove a trustee
1. Even COI is not enough, must be COI and bad faith
2. Also, co-trustee appointment only in exceptional need or circumstance

value of trust property on date it should’ve been sold minus proceeds from sale of property or value of property at time of accounting
i. Can add interest and trustee’s commission

are only imposed if there’s self-dealing or other bad faith
i. Not for just negligence or stupidity (but yes for selling when duty to hold)
ii. Value at breach plus lost profits minus value at time of accounting plus interest and commission
-also imposed in improper delegation situations

1. Compelling the trustee to comply with the terms of the trust
2. Enjoining or setting aside the trustee’s wrongful act
3. Suspending or removing trustee from office
4. Money damages

-if separate, gains and losses don't cancel each other out (but they do if related)
FACTORS:
1. Whether breaches relate to same or different parts of trust property
2. Whether breaches arise out of successive dealings
3. Amount of time elapsing between breaches
4. Whether there has been an intervening accounting between breaches
5. How the trustee has dealt with property between breaches
6. Whether there was intent to breach the trust
7. Whether breaches are result of single policy on the part of the trustee

d. Tracing, subrogation, and marshaling are subject to third parties prior rights from good faith, etc. READ ABOUT THIS ON PAGES 543-545.
e. Bona Fide Purchaser Rule – cuts off equitable interest of (prohibits tracing by) beneficiaries when sale is made to a BFP
i. To be a BFP, purchaser has to:
1. Get legal title
2. Pay consideration, and
3. Have NO knowledge (or constructive notice) of the issue
f. With co-mingled accounts, disposition of losses/recovery attempts depend on what type of account the funds are mingled in
i. If account is personal, withdrawals are deemed to come first from personal funds of trustee while deposits are seen as personal funds
ii. If account is a trust account, withdrawals come first from personal money and deposits are seen a restoring trust assets
g. In determining how to share the loss among trust claimants, amount to which earlier claimants were entitled before the subsequent deposits is further reduced by the subsequent withdrawals
i. Determine loss at each step of the wrongdoing, sharing loss among those who were invested at the time of the wrongdoing

is available where there’s been a breach of trust wherein trustee has taken trust assets and purchased property with it that he’s placed in his own name
i. Will put beneficiary’s right to property above trustee’s creditors
ii. Must be able to trace funds to an asset
iii. Used when remedy of damages wouldn’t be available (b/c trustee is insolvent)
iv. Takes property back from trustee and places it in the name of the trust
v. Can trace to insurance policies
1. Majority allows proceeds as well as premiums paid in
a. Minority allows only premiums paid in

allows court to impose a lien on collateral in favor of beneficiaries when trustee uses trust funds to discharge a debt
i. Beneficiary gets to step in the shoes of the creditor to recover the property

requires a third party seeking satisfaction of claim against trustee to satisfy claim with property against which the trust has no claim.

cuts off equitable interest of (prohibits tracing by) beneficiaries when sale is made to a BFP
i. To be a BFP, purchaser has to:
1. Get legal title
2. Pay consideration, and
3. Have NO knowledge (or constructive notice) of the issue

a. When buyer is dealing with a trustee as seller of trust property, you must make sure the trustee is authorized to make the transaction at issue
i. If they aren’t, and you have reason to be on notice, you may bear the loss
1. Because buyer is taking subject to trust, may pay twice (to trustee & later to beneficiaries (if beneficiaries cant recover from trustee))
b. Third parties who enter into conspiracy to receive money when they should know it is in breach of trust are liable for their facilitation in the same manner as if they themselves had breached the trust.

requirements:
i. If any beneficiary objects (or aren’t capable to agree), no acquiescence
ii. Also no ratification if the beneficiaries don’t have all the facts or don’t know their rights
iii. Must act freely and deliberately intending to confirm the transaction
iv. Acquiescence before trustees action can bar claims of a breach of trust

after the action of the trustee can bar claims of a breach of trust
i. Ratification cannot occur if trustees withhold information/accountings

c. Equitable Estoppel:
i. Estoppel arises in favor of creditors when you misrepresent your ownership

-acquiescence,
-ratification, and
-equitable estoppel

Not usually (but yes in case of improper delegation, for example)

-2 views
1) not if trustee is competent to do it himself
2) yes if fair and reasonable

-payment comes from trust (not out of trustees fees)

-words or actions to create a trust
-THEN and THERE
-find OBJ expression of SUBJ intent

BANKS because they are so highly regulated

Yes. Must be fair. BOP on the trustee to prove fairness.

-consideration was adequate
-principal had competent and indep advice
-fiduciary made full disclosure

-Must be imminent threat to trust or ACTUAL harm must have occured
-Or, they can ask the grantor and have him fire the trustee
-NOTE: hostility or stupid ideas are NOT enough to get the trustee fired

-Legal title held by grantor and grantor is beneficiary
-(Legal and equitable title in the same person)
-"Applies when no other beneficiary but the trustee"
-Doesn't apply when there are multiple trustees

Only the one who HOLDS the property.

Conversion of real property to personal property can take it outside of the SoF and "save" it.

-Can remove property from SoF restrictions
-Partial performance is anything that the court determines would NOT have happened w/o an agreement

-UTC gives GRANTOR power to
-Attorney General (but he/she does a foul job)
-So, courts are finding that others have standing (especially those with property interests, like the pew owners)

-First look to the instrument
-Then look to external evidence (like lack of relationship with the particular school)

-Resulting trust for the grantor
-But then the beneficiary part of the trust can spring into existence (if the beneficiary was supposed to be an unborn child... and the child was subsequently born...)

-Diff from absolute discretion
-Interpreted NARROWLY
-Tries to excuse trustees from liability for breach of trust
-Won't protect trustee if trustee was a fiduciary at the teim of trust creation (and induced the clause)
-Clauses excusing trustee from liability for acts of agents or servants are generally valid

Grantor or the trustee (not beneficiaries)

-Trust may be unenforceable (but not invalid)

-Valid against corpus but not income
-limited by a $ amount
-limited to familial relations

-Trust is okay, just the ST part is not enforceable

-AD
-Cy pres
-Strike part & enforce the rest
-Resulting trust
-Allow trustee to keep the property (for deterrent effect... punishing grantor)

-Yes, if the trustee is lacking
-No, if the trustee can do it him/herself
-If allowed, it comes from the TRUST (not from the trustee's compensation)

No. Look to nature of property when trust was formed. Chace v. Gardner

look to see if there's just an agency or debtor/creditor relationship...
-was title transfered?
-immediate interest (for inter vivos)

-Not charitable because not for general public (for family, not public)
-Not valid private trust b/c of the RAP!