Creditor's Rights
Creditor's have an _____ in wills and trusts.
Interest!
opportunity of being able to modify!
*may need benficiaries to sign but depends on trust documents; the purpose here is important.
Examples of Material Purpose are...
Discretionary trusts/support trusts; Trustee's job is to determine what purpose is still being served and if it is age-dependent, Trustee is still doing their job and keeping trust going.
What do you do if you cannot find a general charitable purpose?
The court is going to create a resulting trust/remedial trust and get property back to settlor's estate.
The Trustee is a fiduciary. They owe a duty of...
Loyalty and good faith! NO self-dealing in re. to the trust. It is absolutely barred. No conflicts of interest! Trustee must act as if the property is his own.
When do creditor's get access to trust property?
Rule: If the property is movable, then the creditors CAN reach it.
How do you modify when the settlor is dead?
The person who makes the decision to modify is the beneficiary.
*Beneficiary might want to make a change because the purpose is being frustrated; maybe because of taxes
Cy Pres is an Equitable Doctrine that applies to Charitable Trusts. Cy Pres give the court...
Equitable power to reform a charitable trust.
Trustee has legal title. T or F?
True! This means the trustee can legally manage and have the power to shuffle/sell assets; they act as the true owner even though they are not.
Trustee must be impartial. They must balance...
Fairly between different classes of beneficiaries!
Standard Trust: Beneficiary's interest is ____ _____, and thus...
Freely alienable and thus vulnerable to creditors! The goal is to limit alienability so creditor's cannot reach it.
Keep in mind we do not talk about the _____ , when discussing modification.
The trustee! The Trustee can NEVER terminate unilaterally.
Why reform a charitable trust?
To keep the charity going! It is equitable power because it goes against trust language.
Modern Rule: We give the Trustee more discretion to act as a reasonably prudent investor. T or F?
True!
Portfolio approach is to...
Look at what is best overall!
What is a spendthrift trust?
A way to limit the beneficiary's ability to alienate or make a demand on the property. Explicitly prohibits the beneficiary from alienating.
*this keeps creditors away
The Claflin Doctrine concerns...
Early termination of a trust. For Claflin to apply, the settlor must be dead; it is just the Trustee and the Beneficiary.
*there is a conflict: Trustee wants to keep trust going and Beneficiary wants it to end.
The court will modify a charitable trust by finding a general...
Charitable purpose!
The Trustee has the duty to inform and...
Account to beneficiaries. If Trustee is doing poorly, it is the job of the beneficiaries to assert themselves and resolve the issue.
Trustee must be...
Impartial and look for balance!
Exceptions to Spendthrift Trusts...
Tax liens;
basic necessities;
spousal or child support.
What did the court hold in Claflin v. Claflin?
Early termination is NOT allowed if the trust is still serving some material purpose!
Settlor created a charitable trust to support basketball team at local HS. Now, no one is into basketball and they are into video games. Can video games count as sports?
The court will look for a general charitable purpose and if they can find one, they will adapt the trust to benefit new circumstances.
The Trustee CAN delegate to a 3rd party to take care of the estate. T or F?
True!
Powers of Appointment: NOT a trust; The owner/donor gives...
donee the power to assign a property!
general powers: no restrictions done (can appoint yourself)
special powers: donor specifies who you can give power to (must be a cousin)
*If donee fails, constructive trust is created to return property to donor.