The Law of Trusts

🧭 Overview

🧠 One-sentence thesis

A trust arrangement typically involves three parties—settlor, trustee, and beneficiary—whose distinct roles enable property management for someone unable to manage resources themselves while preventing direct ownership problems.

📌 Key points (3–5)

• Why trusts exist: to provide income or resources for someone incapable of managing property, avoiding problems like gambling away assets or creditor seizure.
• Three core roles: settlor (creates the trust), trustee (manages with legal title), and beneficiary (receives benefits with equitable title).
• Role overlap allowed: one person can serve multiple roles (e.g., settlor and trustee), but the trustee must owe duties to someone other than herself.
• Common confusion: legal vs. equitable title—trustee holds legal title (management authority), beneficiary holds equitable title (receives benefits and can sue for breach).
• Active duties required: a trustee must have managerial responsibilities; a "dry trust" with no duties is invalid, and the beneficiary receives full legal title instead.

🎯 Why trusts solve ownership problems

🎯 The problem with direct ownership

• Direct transfer of property can fail when the recipient is irresponsible (e.g., gambling problem).
• A direct restraint on alienation (forbidding transfer) is invalid—courts ignore such conditions.
• Example: Barbara wants her son John to have a house, but if she gives it outright, he might lose it gambling; if she forbids transfer, the court will ignore the restriction.

🏠 Why life estates don't work well

• A life estate gives someone the right to live in property until death, but creates problems:
  • Life tenant must pay taxes and maintain property only if income from the property covers expenses.
  • A house typically produces no income, so no obligation to pay taxes or maintain it.
  • Creditors can seize and sell the life estate, defeating the purpose of providing housing.
• Example: If John has a life estate and accrues debt, creditors can seize and sell it, leaving him without a place to live.

✅ How trusts solve these issues

• The settlor gives legal title to a third party (trustee) who manages the property.
• The beneficiary receives equitable title—the right to benefit from the property.
• Since the beneficiary lacks legal title, they cannot sell or gamble away the property.
• Example: Barbara puts the house in trust for John; the trustee maintains it, John lives there, but John cannot transfer ownership.

👥 The three parties in a trust

🧑‍⚖️ Settlor/trustor (or testator)

The settlor/trustor is the person who creates the trust.

• In testamentary trusts (created by will), the settlor is called the testator.
• The settlor establishes the trust and determines its terms.
• Example: Barbara is the settlor because she created the trust for John.

🛠️ Trustee

The trustee is the third party who manages the trust.

• Can be an individual or a corporation.
• May be one trustee or several co-trustees.
• Appointed by the trust instrument or by the court.
• Must affirmatively accept the role; once accepted, can only be released with beneficiary consent or court order.
• Entitled to reasonable compensation.

🔄 Trustee succession and dissolution

• A trust will not fail for lack of a trustee—courts appoint successors if the trustee dies and no successor is named.
• Exception: If the settlor chose the trustee based on their personal relationship, the court may dissolve the trust when that trustee dies or resigns.
• If the trust is part of a will, the executor can also serve as trustee.

⚠️ Active duties requirement (avoiding dry trusts)

• The trust instrument must give the trustee active managerial duties.
• Dry trust: a trust with no managerial responsibilities for the trustee.
• Courts will not recognize dry trusts; the beneficiary receives legal title instead.
• Example: Sophia placed $1 million in trust for Roberto and Marianna, with $100,000 automatically deposited monthly into their accounts. Vincent was named trustee but never informed and had no duties. This is a dry trust—invalid because funds dispensed automatically without Vincent's involvement. Roberto and Marianna would receive the million dollars outright without restrictions.

🎁 Beneficiary

The beneficiary is the person who receives the benefit of the trust.

• Holds equitable title to the trust property.
• Suffers the consequences of the trustee's good or bad decisions.
• Example: John is the beneficiary because the trust was created to provide him a place to live; he has equitable title to the house.

⚖️ Legal vs. equitable title

📜 What each title means

Title type	Who holds it	What it means
Legal title	Trustee	Managerial authority over the property
Equitable title	Beneficiary	Right to benefit from the property; can sue trustee for breach

🛡️ Creditor protections and liabilities

🚫 Trustee's personal creditors

• A personal creditor of the trustee has no recourse against trust property.
• Example 1: Keisha devises Purpleacre in trust to Robert to pay income to Gary for life, remainder to LaNitra. Robert accidentally hits April with his car; April gets a $300,000 judgment. April cannot place a lien on Purpleacre, even though Robert has legal title.

✅ Trust-related creditors

• If the trustee acquires an obligation on behalf of the trust, the creditor has recourse against trust property but not the trustee's personal property.
• Example 2: Gloria devises Blackacre in trust to Tamera to pay income to Ali for life, remainder to Patrick. Tamera contracts with Jason for $40,000 in repairs to Blackacre. Tamera refuses to pay. Jason can get a mechanic's lien on Blackacre but cannot sue Tamera personally.

🔍 Beneficiary's equitable rights

• The beneficiary can sue the trustee personally for breach of trust.
• The beneficiary has the right to use the property (e.g., John's right to live in the house).
• If the trustee wrongfully disposes of trust property, the beneficiary can recover it unless it has come into the hands of a bona fide purchaser for value (BFP).
• If the trustee sells trust property and buys new property with the proceeds, the beneficiary can enforce the trust on the newly obtained property.

📌 Tracing trust property

• Example: Ivana devises Brownacre in trust to Jessica for George for life, remainder to Katherine. Jessica sells Brownacre to Robin (a BFP) and buys Blueacre. George cannot maintain equitable interest in Brownacre (because Robin is a BFP), but George can sue to get equitable title to Blueacre or the proceeds from the sale.
• Don't confuse: the beneficiary's remedy depends on whether the new owner is a BFP—if yes, the beneficiary must trace to proceeds or replacement property; if no, the beneficiary can recover the original property.

🔀 Role overlap possibilities

🔀 When one person can serve multiple roles

• Three different individuals are not required for a valid trust.
• One person can serve as both settlor and trustee.
• In a self-settled trust, one person can serve in all three capacities (settlor, trustee, beneficiary).

⚠️ The critical limitation

• For the trust to be valid, the trustee must owe equitable duties to someone other than herself.
• If the settlor is also the trustee, she cannot be the only trust beneficiary.
• This ensures the trust serves a genuine purpose beyond self-management.

🧭 Overview

🧠 One-sentence thesis

Testamentary capacity requires that the testator be an adult of sound mind who understands their property, their natural beneficiaries, and the disposition they are making, but the bar is set quite low—even persons with dementia or under conservatorship may have capacity if they meet the basic requirements.

📌 Key points (3–5)

• Low threshold for mental capacity: A testator needs only a general understanding of their property, beneficiaries, and the disposition; they do not need to recall every asset or name every relative.
• Lucid moments count: Even a person with dementia or Alzheimer's may have testamentary capacity during lucid intervals.
• Conservatorship ≠ incapacity: Appointment of a conservator does not automatically mean the person lacks testamentary capacity; the two are legally distinct.
• Common confusion—insane delusion vs. mistake: An insane delusion is a false belief that cannot be corrected by evidence and must actually influence the disposition; a mistake is correctable and usually does not invalidate a trust.
• Undue influence shifts the burden: When a confidential relationship exists and the dominant party is involved in preparing the will/trust, a presumption of undue influence arises, and the beneficiary must prove by clear and convincing evidence that the disposition was not the product of undue influence.

🧠 Mental Capacity Requirements

🧠 What "sound mind" means

To have testamentary capacity, the testator must know: (1) the nature and extent of their property; (2) the persons who are the natural objects of their bounty; (3) the disposition they are making; and (4) how those facts relate to form an orderly plan for disposition.

• The level of mental ability required is really low.
• The testator does not need actual knowledge of every piece of property or the ability to name every relative.
• Example: A testator with a general sense of "I own a house, some stocks, and savings" and "my children are my natural heirs" meets the threshold, even if they cannot list every account number.

🕰️ Lucid moments and dementia

• A person suffering from dementia or Alzheimer's may be competent to establish a testamentary trust as long as the person has lucid moments.
• The key question: Was the testator of sound mind at the time of execution?
• Example: If a testator with dementia has a clear, coherent conversation with their attorney and understands the will during signing, that lucid moment is sufficient.

⚖️ Conservatorship does not equal incapacity

• Don't confuse: Conservatorship (managing property) vs. testamentary capacity (making a will).
• Statutes explicitly state that appointment of a conservator is not a determination of incapacity for testamentary purposes.
• A conservator is appointed when someone cannot manage property effectively, but that does not mean they lack the mental capacity to make a will.
• Example (Gallavan): Decedent was under conservatorship but still had testamentary capacity because the two legal standards are different.

🧩 Insane Delusion Doctrine

🧩 What is an insane delusion?

An insane delusion is a false belief based on incidents that exist solely in the imagination of the person, which a rational person in the testator's position could not have drawn, and which cannot be corrected by presenting evidence.

• The word "insane" does not refer to a medical condition; psychiatric testimony is not required.
• It is a belief that is not susceptible to correction by showing the testator evidence.
• Example: A testator believes their daughter is the devil incarnate and no amount of evidence (visits, DNA tests, priest's reassurance) can change that belief.

🔍 Two-part test for invalidation

To invalidate a trust based on insane delusion, the contestant must prove:

1. The testator was suffering from a delusion that was insane.
2. The trust was a consequence of the insane delusion.

• If the delusion did not affect the disposition, the trust stands.
• Example: Maxwell believes his daughter Amanda is evil (delusion), but if he excludes her because he already provided for her during life (unrelated reason), the trust is valid.

🆚 Insane delusion vs. mistake

Concept	Definition	Effect on trust	Can it be corrected?
Insane delusion	False belief not based in reality; cannot be corrected by evidence	Trust is invalid if the delusion caused the disposition	No—testator cannot be dissuaded
Mistake	False belief that could be corrected if testator knew the truth	Trust is usually valid	Yes—if testator had known the truth, they would change their mind

• Example (insane delusion): Nicholas believes his daughter Taylor is dead; she visits him, but he thinks it's an imposter. He excludes her. → Trust invalid.
• Example (mistake): Nicholas believes Taylor is dead because he was misinformed; he never learns she is alive. He excludes her. → Trust valid.
• Don't confuse: The key is whether the belief is correctable. Courts do not usually reform trusts for mistakes, but they do invalidate provisions resulting from insane delusions.

🧪 Applying the doctrine (Squire case)

• Decedent believed people were stealing from her and that her cousins were after her money.
• Court found no insane delusion because:
  • Her psychiatrist noted family rifts occur and did not diagnose insane delusions.
  • No doctor noted hallucinations or delusions in her charts.
  • The belief arose from a real misunderstanding (a funds transfer incident), not pure imagination.
• Even if a delusion existed, it must have existed at the time of execution and must have caused the disposition.

⚠️ Undue Influence

⚠️ What is undue influence?

Undue influence is when someone exercises so much control over the testator's mind that they overpower the testator's free will and cause the testator to do what they would not have otherwise done.

• Not every influence is "undue"—people may request or entreat, but unless the entreaties subvert the will of the testator, they are not undue.
• Influence may take the form of force, intimidation, duress, excessive importunity, or deception.
• Example: A caregiver repeatedly tells an elderly testator "your children abandoned you; I'm the only one who cares" until the testator changes their will to favor the caregiver.

🔑 Three-part test (Rothermel test)

The contestant must prove:

1. Existence and exertion of an influence.
2. Effective operation of the influence to subvert or overpower the testator's mind at the time of execution.
3. But-for causation: The testator would not have executed the trust but for the influence.

• Burden of proof is on the contestant.
• Undue influence is usually proven by circumstantial evidence (an extended course of dealings).
• All circumstances considered together may produce a reasonable belief of undue influence, even if no single circumstance is sufficient alone.

🔄 Shifting the burden of proof

In some cases, the burden shifts to the proponent of the trust to prove lack of undue influence by clear and convincing evidence.

Factors that shift the burden:

1. Existence of a confidential relationship (attorney-client, caretaker-patient, etc.).
2. Testator with a weakened intellect (age, illness, alcoholism, etc.).
3. Trust gives the person with the confidential relationship the bulk of the estate.
4. The beneficiary was actively involved in preparing or executing the will/trust.

• Example (Johnson case): B's widow Laura had a confidential relationship with B, was involved in estate planning meetings, and received the bulk of the estate. Burden shifted to her to prove no undue influence.

🧷 What the proponent must prove (once burden shifts)

The beneficiary must prove by clear and convincing evidence:

1. Good faith on the part of the beneficiary.
2. Testator's full knowledge and deliberation of their actions and consequences.
3. Independent consent and action by the testator (often shown by independent legal advice).

• Example (Wright case): Roberts failed to prove all three elements. She selected the attorney (no independence), Emma Jane was confused and ill (no full knowledge), and Roberts coaxed her to sign (no good faith).

🧑‍⚖️ Confidential relationships

A confidential relationship arises when one person is in a position to exercise dominant influence over another because of dependency (weakness of mind/body or trust).

Factors to consider (Dabney factors):

• Does one person need to be taken care of by others?

• Close relationship, transportation, medical care provided?

• Joint accounts or power of attorney?

• Physical or mental weakness, advanced age, poor health?

• Example (Wright): Emma Jane relied on Roberts for transportation, medical care, bill-paying, and was elderly and ill. A confidential relationship existed.

• Don't confuse: A confidential relationship does not have to be a legal one (like attorney-client); it can be moral, domestic, or personal (like caregiver-patient).

📊 Evidence of undue influence (Johnson case)

Type of evidence	Examples from Johnson
Susceptibility	B was an alcoholic with cognitive defects and memory dysfunction; feared abandonment by Laura
Opportunity	Laura attended estate planning meetings, reviewed documents, influenced B's decisions (hunting, family contact, King Ranch royalties)
Motive	Laura refused prenuptial agreement; Mad Dogs loan; wanted control over estate
Unnatural disposition	B wanted King Ranch royalties and Hyatt interest to go to children/grandchildren, but they went to Laura's life estate and then a foundation Laura could influence
Relationship poisoning	Laura made negative remarks about B's daughters, reinterpreted historical events negatively, excluded daughters from family scrapbooks and book interviews

• Court found all three elements of undue influence proven.
• Don't confuse: Evidence of a "reasonable explanation" for the disposition does not prevent a finding of undue influence; the jury weighs competing explanations and decides credibility.

🏛️ Independent legal advice

• If the beneficiary is the testator's attorney or selected the attorney, courts are especially suspicious.
• Many courts hold that if an attorney (not related to testator) benefits from a trust, a presumption of undue influence arises.
• The attorney must present clear and convincing evidence to rebut.
• Example (Wright): Roberts selected attorney Armon Lee (her own attorney), who prepared documents benefiting Roberts. No evidence Emma Jane had independent advice. Presumption not rebutted.

🚨 Fraud and Duress

🚨 Fraud in the inducement

Fraud in the inducement occurs when a person's misrepresentation causes the testator to make a disposition they would not have made if not deceived.

• The misrepresentation must be intentional (intent to deceive).
• Example: Diane tells her father Cory that his son Benjamin took a vow of poverty (false), so Cory omits Benjamin from the trust. If Diane knew it was false and intended to deceive, it is fraud in the inducement.
• Don't confuse: If Diane mistakenly believed Benjamin took a vow of poverty, there is no fraud (no intent to deceive).

🚨 Fraud in the execution

Fraud in the execution occurs when a person deliberately causes the testator to sign a document that does not achieve the testator's intent.

• Example: Juan inserts a clause giving himself half the trust proceeds without his mother Whitney's knowledge. Whitney signs, believing the document reflects her intent. This is fraud in the execution.

🚨 Duress

Duress is severe physical or emotional pressure (equivalent to aggressive undue influence) that coerces the testator into making a disposition they would not otherwise have made.

• Test: Did the wrongdoer threaten to perform (or perform) a wrongful act that coerced the testator?
• Example: Barbara tells her mother Elvira that if she does not give Barbara 50% of the trust, Barbara will put her in a nursing home. Elvira is terrified and complies. The 50% provision is invalid due to duress.

🔍 Remedies for fraud and duress

• Courts will invalidate the provision obtained by fraud or duress.
• Other terms of the trust are enforced unless:
  • The fraud pervades the entire instrument, or
  • The invalid provisions are indivisible from the valid parts.

---

Note: The excerpt also includes case discussions (Gallavan, Squire, Johnson, Wright) and hypothetical problems, which illustrate the application of these doctrines. The cases show that courts carefully weigh evidence of capacity, delusion, and influence, and that the burden of proof can shift depending on the presence of confidential relationships and suspicious circumstances.

🧭 Overview

🧠 One-sentence thesis

A trust is established when a settlor manifests the intent to impose legally enforceable duties on a trustee to hold property for the benefit of ascertainable beneficiaries, regardless of whether the word "trust" is used.

📌 Key points (3–5)

• Three essential elements: (1) manifest intent to create a trust relationship, (2) ascertainable beneficiaries, and (3) identifiable trust property (res or corpus).
• Intent is key: using the word "trust" is not enough—courts look at whether the settlor intended to impose legally enforceable duties, not merely moral obligations.
• Common confusion: distinguishing a trust from an equitable charge (security interest), a debt (obligation to repay money), or a precatory wish (unenforceable hope/desire).
• Precatory language pitfall: words like "hope," "wish," or "desire" create a presumption of no trust, but can be overcome by clear and convincing evidence of intent to impose legal duties.
• Writing requirements: testamentary trusts must be in writing (Wills Act); inter vivos trusts of land must be in writing (Statute of Frauds); only trusts of personal property can be oral (though hard to prove).

🎯 What makes a valid trust

🎯 The three mandatory elements

A trust requires all three of the following:

1. Manifest intent to create a trust by vesting beneficial ownership in a third party or in the settlor for another's benefit.
2. Ascertainable beneficiaries: the class must be described so that some person can reasonably answer the description.
3. Trust property (res/corpus): an identifiable asset—stocks, real property, mortgage securities, easements, causes of action—as long as the settlor has an interest in it.

"If it looks like a trust and functions like a trust, it is a trust regardless of what the testator calls it."

📝 Writing vs. oral trusts

Type of trust	Writing required?	Authority
Testamentary trust	Yes	Wills Act
Inter vivos trust of land	Yes	Statute of Frauds
Trust of personal property	No (can be oral)	General rule

• Practical problem: proving an oral trust is difficult because the parol evidence rule limits extrinsic evidence that can be admitted to prove the trust terms.

🔍 Intent: the core test

🔍 What "intent" means

• It is not enough for the settlor to use the word "trust."
• The test: did the settlor indicate she intended to establish a trust relationship—i.e., impose legally enforceable duties on the holder of the property?
• Courts examine the plain language first; if ambiguous, they admit extrinsic evidence (testimony of disinterested parties, circumstances surrounding the testator).

⚖️ Imperative vs. precatory language

• Imperative language: commands or mandates that create legal obligations.
• Precatory language: words like "hope," "wish," "desire"—these create a presumption that the settlor intended only an unenforceable moral obligation.
• The presumption can be overcome by clear and convincing evidence that the settlor intended a legal obligation.

Example: "I leave my house to LaNitra with the hope that she will provide her sister, Kaylan, with a place to live during her lifetime."

• Result: no trust—"with the hope" is precatory; LaNitra receives an outright gift with no legal duty to Kaylan.

🚫 What a trust is NOT

🚫 Equitable charge (not a trust)

Equitable charge: when a testator grants property to a person subject to the payment of a specific sum of money to a third party.

• How it differs from a trust:
  • The third party has only a security interest, not equitable ownership.
  • The holder owes no fiduciary duty to the third party.
  • The relationship is like debtor and secured creditor.

Example: "I leave my lake cabin to Tresmal in trust provided that he pays his brother, Alonzo, $50,000."

• Result: equitable charge, not a trust.
• Tresmal is not holding the cabin or money for Alonzo; Alonzo has a $50,000 security interest in the cabin.
• If Tresmal fails to pay, Alonzo can force a sale of the cabin to recover the $50,000 (not sue for breach of fiduciary duty).

🚫 Debt (not a trust)

• A debt involves a personal obligation to pay a sum of money; the recipient can use the property as her own and commingle it with her own assets.
• A trustee must hold specifically defined property for a third party's benefit and keep it separate from her own funds.

Crucial factor: is the recipient entitled to use the property as her own and commingle it?

Example: "I leave $400,000 to Emma in trust provided that she repays me in two years."

• Result: debt, not a trust.
• Emma has no obligation to use the money for a third party's benefit—only to repay the testator.
• Emma owes a repayment duty, not a fiduciary duty.

🚫 Outright gift with precatory language (not a trust)

• If the language imposes only a moral hope or wish, the recipient receives the property outright with no legal obligation.

Don't confuse: precatory language can create a trust if other evidence shows the settlor intended a legal obligation, but the default presumption is no trust.

📋 Factors courts consider

📋 The Restatement factors

When language is ambiguous, courts consider these circumstances (from Restatement (Second) of Trusts § 25, comment b):

1. Imperative or precatory character of the words used.
2. Definiteness of the property.
3. Definiteness of the beneficiaries or the extent of their interests.
4. Relations between the parties.
5. Financial situation of the parties.
6. Motives reasonably supposed to have influenced the settlor.
7. Whether the result (trust vs. no trust) would be what a person in the settlor's situation would naturally desire.

📋 Applying the factors: Estate of Brooks

Facts: Will stated, "I give all the rest of my estate to my sister, Sharon Morton, for her to use in her own discretion and in whatever manner she deems appropriate for the benefit of my children."

• Language: "for the benefit of my children" is more imperative than precatory.
• Property and beneficiaries: definite (the residue; the two minor children).
• Motive: testator was providing for her children's welfare, not her sister's.
• Discretion: even though Morton had "uncontrolled discretion," this does not defeat the trust—it is inconceivable the testator intended Morton to have discretion not to benefit the children.

Result: trust created. The court adopted the construction most favorable to the children (the natural heirs).

📋 Applying the factors: Marzahl v. Colonia Bank

Facts: Will stated, "My Trustees shall pay income to my wife, Margaret, during her lifetime... together with such sums out of principal as my Trustees in their sole discretion shall deem proper from time to time for her suitable maintenance, health and comfort and for the suitable maintenance, health and comfort of my daughter, Anne."

• Plaintiff (daughter) argued the mother was a trustee of a portion of the income for the daughter's benefit.
• Plain language: the daughter is mentioned only with respect to principal, not income.
• No indication the testator intended the wife to share income with the daughter.
• Precatory principle: "when property is given absolutely and without restriction, a trust is not lightly to be imposed, upon mere words of recommendation or confidence."

Result: no trust of income for the daughter. The wife received income absolutely; the trustees had discretion to pay principal to the daughter.

✅ When a trust IS created

✅ Clear example

"I leave $300,000 in trust to Bernie to pay the income to Jeremy for life and upon Jeremy's death to divide the principal between Jeremy's surviving children."

• Bernie is not permitted to use the money and repay it (so not a debt or equitable charge).
• Bernie has a mandated duty to abide by the terms for Jeremy and Jeremy's children.
• Clear intent to have Bernie manage the funds for the benefit of those persons.

Result: valid trust.

✅ Discretion does not defeat a trust

• Even if the trustee is given "uncontrolled discretion" or "sole discretion" in how to use the property, a trust can still exist.
• The key is whether the discretion includes the discretion not to benefit the beneficiaries.
• If the settlor's motive was to benefit the beneficiaries, not the holder, the court will find a trust.

Example: In Estate of Brooks, the sister had discretion "in whatever manner she deems appropriate," but the court held this did not give her discretion to ignore the children's benefit.

🏠 Trust property (res) requirement

🏠 What can be trust property

Trust res (or corpus): any form of property—stocks, real property, mortgage securities, easements, causes of action—as long as the settlor has an interest in the object.

• Any interest in property can serve as the res.
• Delivery: if the trust is created using a deed of trust, the property must be delivered to the trustee.

🏠 What cannot be trust property

• Expectancies: property the settlor hopes to inherit or acquire in the future, but does not yet own.

Example: Stephanie creates a trust for her minor child. The trust includes:

• A house she will inherit under her father's will → not valid trust property (only an expectancy; her father can change his will).
• Profits she anticipates earning next month from selling her antique bedroom set → valid trust property (she owns the bedroom set now, so she has an interest in the anticipated profits).

🏠 Examples of valid trust property

• Pension plan benefits: "To Rodney Gates, in trust, for my children, Peter, Paul, and Mary" on a beneficiary designation → valid trust (any right to receive pension benefits can be trust property).

Don't confuse: the settlor must have a present interest in the property, not merely a hope or expectation of future ownership.

🧭 Overview

🧠 One-sentence thesis

A valid trust requires identifiable trust property (res) that the settlor actually owns or has a present interest in, not merely an expectancy or anticipated future right.

📌 Key points (3–5)

• What res means: trust property must exist and be delivered to the trustee (if using a deed of trust).
• Any property interest qualifies: pension benefits, physical assets, or future profits from owned property can all serve as trust property.
• Common confusion: present interest vs. expectancy—an anticipated inheritance is not valid trust property because the testator can change their will at any time; profits from property you already own are valid because you own the underlying asset now.
• Timing matters: the property must be something the settlor has a current legal interest in, even if the benefit is deferred.

🏛️ The res requirement

🏛️ What constitutes valid trust property

Trust property (res): the property interest that forms the subject matter of a trust; without it, no valid trust can be created.

• The excerpt states clearly: "A valid trust cannot be created without trust property."
• If the trust uses a deed of trust, the property must be delivered to the trustee.
• The key is that the settlor must have a present interest in the property, even if enjoyment is postponed.

🔑 Any interest in property can serve as res

The excerpt emphasizes flexibility:

• Pension plan benefits (right to receive future payments)
• Physical assets (houses, antique furniture)
• Profits from property already owned

Example: Carmen designated her pension plan benefits "to Rodney Gates, in trust, for my children." This creates a valid trust because the right to receive pension benefits is itself a property interest.

✅ Present interest vs. ❌ Expectancy

✅ What counts as a present interest

Future profits from owned property: valid trust property.

• Stephanie created a trust including "the profits she anticipates earning next month when she sells her antique bedroom set."
• This is valid because she already owns the bedroom set; the profits are tied to a present asset.
• The interest exists now, even though the money will arrive later.

❌ What is only an expectancy

Anticipated inheritance: not valid trust property.

• Stephanie also tried to include "a house Stephanie will inherit under her father, Clinton's will."
• This is not valid trust property because she "does not yet have an interest in it."
• The excerpt explains: "She only has an expectancy because Clinton can change his will at any time."
• Don't confuse: an expectancy is a hope or anticipation, not a current legal right.

Type	Example from excerpt	Valid as res?	Why
Present interest in future benefit	Pension plan benefits	✅ Yes	Right to receive exists now
Future profits from owned asset	Profits from selling owned antique set	✅ Yes	Underlying asset is owned now
Anticipated inheritance	House under father's will (still living)	❌ No	Father can change will; only an expectancy

⚖️ Case illustration: Edwards v. Edwards

⚖️ The dispute

• Lonnie Leota Edwards died, leaving a will with trust provisions.
• Her will gave her husband Leon a life estate, with remainder to Puget Sound National Bank in trust for her grandchildren and son.
• Plaintiff (her son Marion) challenged the trust, claiming it was invalid.

🧩 Plaintiff's argument

Plaintiff claimed "no valid trust was created" because:

• The trust would not come into existence until the life tenant (Leon) died or became unable to manage the estate.
• He argued "a trust is not and cannot be created without the actual transfer of legal title to the trustee as of the date of death of the trustor."
• He wanted the trust invalidated so the remainder would pass by intestacy (without a will).

🏛️ The legal question

The excerpt frames the issue:

"Where A devises her estate to B for life, with power to consume and at his death the remainder to C in trust for D, is a valid trust of that remainder established?"

• Plaintiff contended it was invalid because title to the remainder does not reach the trustee at the testator's death but is postponed until the life estate ends.
• The trial court upheld the trust and dismissed the action.

📌 Why this matters for the res requirement

The case illustrates a timing question: does trust property (res) exist if the trustee's possession is deferred until a life estate terminates? The excerpt does not provide the court's full reasoning, but the trial court's decision to uphold the trust suggests that a present interest in a future remainder can satisfy the res requirement, even if actual possession is postponed.

🧭 Overview

🧠 One-sentence thesis

A testamentary trust with a remainder interest following a life estate is valid even when the life tenant has the power to consume the principal and the exact amount of the trust res is uncertain at the testator's death.

📌 Key points (3–5)

• Valid trust requirements: A testamentary trust needs (1) intent to create a trust, (2) designated trust property (res), and (3) ascertainable beneficiaries.
• Remainder interests can be trust property: A vested remainder (even one subject to being defeated by a life tenant's power to consume) is valid trust property.
• Timing distinction: Legal title to a remainder interest vests at the testator's death, even though the trustee does not take possession until the intermediate life estate ends.
• Common confusion: Don't confuse "when title vests" with "when the trustee takes possession"—a remainder can vest immediately at death while possession is postponed.
• Uncertainty is tolerable: A trust does not fail merely because the amount of the res is uncertain due to the life tenant's power to consume; the law presumes against intestacy.

⚖️ The case facts and procedural history

⚖️ What happened

• Lonnie Leota Edwards died in 1963; her will gave her husband Leon a life estate in her entire estate with power to consume.
• Upon Leon's death, the remainder was to go to Puget Sound National Bank in trust for her son Marion and her grandchildren.
• Marion (plaintiff) sued to invalidate the trust, arguing it was not valid because:
  • Legal title did not pass to the trustee at Lonnie's death, and
  • The trust res was too uncertain (Leon could consume everything).
• The trial court upheld the trust; Marion appealed.

⚖️ The court's ruling

• The appellate court affirmed the trial court's decision.
• The trust was valid; the remainder interest vested at Lonnie's death even though the trustee would not take possession until Leon's death.
• Uncertainty about the amount remaining after Leon's consumption did not invalidate the trust.

🏛️ Trust property (res) requirements

🏛️ What qualifies as trust property

Trust property (res): Any interest in property that can serve as the subject of a trust.

• Any property interest works: pension benefits, future interests (remainders, reversions), contingent interests, or interests subject to being divested.
• Must exist or be ascertainable: The settlor must have a present interest in the property when creating the trust (not a mere expectancy).

🔍 Expectancy vs. present interest

Type	Definition	Can it be trust property?
Present interest	The settlor currently owns the property or has a legally recognized right to it	✅ Yes
Expectancy	The settlor hopes to receive property in the future (e.g., under someone else's will who is still alive)	❌ No—the person can change their will anytime

Example from the excerpt: Stephanie creates a trust funded by (a) a house she will inherit under her father Clinton's will, and (b) profits from selling her antique bedroom set. The profits are valid trust property (she owns the set now), but the house is not (Clinton can change his will).

🧩 Testamentary vs. inter vivos trusts

• Testamentary trust: Created by will; takes effect at death; does not divest the testator of property during life.
• Inter vivos trust: Created during life; must involve actual transfer of property to the trustee at the time of creation.
• Why it matters: The rule that a settlor must "presently and unequivocally" divest themselves of legal and equitable ownership applies to inter vivos trusts, not testamentary trusts (which by definition look to the future).

🔑 The core legal issue: remainder interests as trust property

🔑 What is a vested remainder?

Vested remainder: A future interest that comes into being at the testator's death, even though possession and enjoyment are postponed until an intermediate estate (like a life estate) ends.

• Key principle: "If the postponement of payment or enjoyment is for the purpose of letting in intermediate estates only, then the remainder shall be deemed vested at the death of the testator."
• The remainder is not contingent on anything except the passage of time (the life tenant's death).

🔑 Plaintiff's argument (rejected)

• Marion argued: "To B for life, then to C in trust for D" is invalid because legal title does not reach the trustee (C) until B dies.
• He claimed this violated the rule that a trust must "presently and unequivocally" transfer legal and equitable ownership at the testator's death.

🔑 Court's response

• The court distinguished testamentary trusts from inter vivos trusts: the "present transfer" rule applies only to inter vivos trusts.
• At Lonnie's death, two interests were created simultaneously:
  • Leon received a life estate.
  • The bank received a vested remainder in trust.
• Both interests came into being at death; the bank's possession was merely postponed.
• Don't confuse: "When an interest vests" ≠ "when the holder takes possession."

Example from Restatement: "A transfers Blackacre to B for life, remainder to C in trust for D. C holds a vested remainder in trust for D." The trust is valid even though C does not take possession until B dies.

🧮 Uncertainty of the trust res

🧮 The power-to-consume problem

• Leon had a life estate with "power to consume" the principal and "without liability for impeachment for waste."
• Marion argued: Because Leon could consume everything, the trust res is too uncertain—there might be nothing left for the trust.

🧮 Court's holding: uncertainty does not invalidate the trust

• General rule: "A trust does not fail for uncertainty of the subject matter even though the life beneficiary is entitled to receive so much of the principal as he may demand and it is therefore uncertain how much will be left for the remainderman."
• The remainder is vested but subject to being defeated by Leon's exercise of his power to consume.
• This uncertainty is about the amount, not the existence of the interest.

🧮 Why the law tolerates this uncertainty

• Every property interest the law recognizes as valuable may be transferred in trust, including remainders subject to divestment.
• The testator's intent is clear: she wanted the remainder (if any) to go to her son and grandchildren in trust.
• Strong presumption against intestacy: Courts will uphold a trust if possible, especially when the subject is the residuary estate.
• If no assets remain, the trust simply has nothing to operate on—but that does not make the trust instrument itself invalid.

Example from the excerpt: A wife is given a life estate with power to sell any property to supply her "comforts and necessities"; remainder over is placed in trust. The trust is valid even though the amount remaining is uncertain.

🧮 Distinguishing invalid trusts

• The excerpt mentions Wilce v. Van Anden, where a trust failed—but later Illinois cases clarified that the problem was not the power to consume, but rather a separate provision giving trustees unbounded discretion to choose beneficiaries and amounts.
• Don't confuse: Uncertainty about how much property remains (tolerable) vs. uncertainty about who the beneficiaries are or whether the trustee has any duties (fatal).

👥 Beneficiary requirements

👥 Why beneficiaries are necessary

Ascertainable beneficiaries: Persons or a defined class of persons who can be identified and who have standing to enforce the trust by suing the trustee.

• Core reason: There must be someone to whom the trustee owes fiduciary duties and who can hold the trustee accountable.
• If no one can sue the trustee for breach, the trust is unenforceable.

👥 What makes beneficiaries ascertainable?

• Beneficiaries do not need to be named individually, but the class must be readily identifiable.
• Valid: "My nieces and nephews" (finite blood relationship).
• Invalid: "My friends" (too vague; no clear way to determine who qualifies).
• Invalid: "Members of my church choir" (indefinite class; membership changes over time).

👥 Special cases

🐍 Animals as beneficiaries

• Invalid: "I leave $35,000 in trust to Ronnie for the benefit of my snake, Jake."
• Jake is ascertainable, but he cannot sue the trustee.
• Since this is a testamentary trust, the settlor is dead; no one can enforce the trust.
• (The excerpt notes that Chapter Three will discuss alternatives, such as honorary trusts or pet trusts.)

🎰 Unborn beneficiaries

• Beneficiaries do not need to exist yet, as long as they will be identifiable when they come into existence.
• Example: A trust for "my grandchildren" is valid even if the testator has no grandchildren at death, as long as the class will close at some point.

👥 Excessive trustee discretion

• Invalid: "I leave $150,000 in trust to Carlos for the benefit of any of my friends who Carlos thinks is worthy."
• Even if "friends" were clear, giving Carlos unbounded discretion to choose beneficiaries makes the trust unenforceable—no one has a definite right to sue.

📋 Additional trust validity requirements

📋 Intent to create a trust

• The testator must intend to impose a legal obligation on the trustee, not merely express a wish or hope.
• Precatory language (e.g., "I hope," "I wish") may not create a trust unless the context shows a mandatory intent.

📋 Workable terms

• The trust instrument must provide terms for administration and distribution.
• If terms are vague, the trustee can apply to the court for guidance—this does not invalidate the trust.
• In Edwards, Marion complained that several administrative provisions were ambiguous, but the court held the terms were workable and the trustee could seek court assistance if needed.

📋 Summary of the three elements

Element	What it requires	Why it matters
Intent	Testator must intend to create a trust (not just a wish)	Without intent, no legal obligation arises
Trust property (res)	Identifiable property or interest in property	The trust must have something to operate on
Beneficiaries	Ascertainable persons who can enforce the trust	Without enforceable beneficiaries, the trustee has no accountability

🔄 Practical implications and policy

🔄 Presumption against intestacy

• Courts strongly prefer to uphold testamentary trusts rather than declare intestacy (distribution under state law when there is no valid will or trust).
• This is especially true for residuary estates (everything left after specific bequests).
• Rationale: The testator took the trouble to express their intent; the law should honor it if legally possible.

🔄 Life estates with power to consume

• A common estate-planning structure: give a surviving spouse a life estate with power to consume, remainder to children or grandchildren in trust.
• This allows the spouse flexibility while preserving (if possible) assets for the next generation.
• The Edwards case confirms that this structure is valid even though the remainder amount is uncertain.

🔄 When might a trust fail for lack of res?

• If the life tenant consumes everything, the trust has no property to operate on—but the trust instrument itself remains valid.
• The trust simply becomes inoperative for lack of assets, rather than being declared invalid from the start.
• Don't confuse: "The trust is invalid" (the instrument is legally defective) vs. "the trust has no assets" (the instrument is valid but there is nothing to distribute).

🔄 Attorney's fees

• The court awarded attorney's fees to the bank under a statute allowing fees against a will contestant who loses and did not act with probable cause and good faith.
• The bank was not yet serving as trustee (and would not until Leon died), so it was not a necessary party—Marion's suit against the bank lacked probable cause.

🧭 Overview

🧠 One-sentence thesis

A trust cannot be valid unless it has ascertainable beneficiaries who can enforce the trust by holding the trustee accountable in court.

📌 Key points (3–5)

• Why beneficiaries are required: someone must have the authority to sue the trustee if fiduciary duties are violated; without enforceable accountability, the trust fails.
• What "ascertainable" means: beneficiaries do not need to be named individually, but they must be readily identifiable from a defined class or description.
• Common confusion—"friends" vs "nieces and nephews": indefinite classes (e.g., "friends," "members of my church choir") fail because membership cannot be determined with certainty; finite classes with clear criteria (e.g., blood relationship) succeed.
• Non-human beneficiaries fail: animals or entities that cannot file lawsuits cannot enforce the trust, so the trust is invalid.
• Extrinsic evidence generally not allowed: oral testimony or unsigned instructions cannot cure a failure to identify beneficiaries in the trust instrument itself.

⚖️ The core requirement: enforceability

⚖️ Why trusts need beneficiaries

The main reason the law requires a trust to have beneficiaries is to ensure that there is someone to whom the trustee owes fiduciary duties.

• Practical purpose: a private trust exists to benefit a particular person or class of persons; without beneficiaries, the trustee has no role to play.
• Accountability mechanism: once the settlor (testator) is dead, only the beneficiary can hold the trustee accountable for violations of fiduciary duties.
• Legal consequence: if no one can enforce the trust, the trustee faces no consequence for misappropriating funds.

🔍 What "ascertainable" means

• Beneficiaries do not have to be specifically enumerated (named one by one) in the trust instrument.
• They must be readily identifiable—the trustee must have a way of determining who qualifies.
• In some cases, beneficiaries may be persons not yet born, as long as the class is clear.

Example: "I leave $50,000 in trust to Anne for the benefit of my nieces and nephews."

• Valid: the class is readily identifiable through blood relationship to the testator, regardless of how many people fit the description.

🚫 When trusts fail for lack of beneficiaries

🚫 Too much discretion to the trustee

Example: "I leave $150,000 in trust to Carlos for the benefit of any of my friends who Carlos thinks is worthy to have the money."

• Why it fails: Carlos is given too much discretion to choose the beneficiaries.
• Even if the trust had obligated Carlos to hold the money for the testator's friends, it would still fail because "friends" is too broad—Carlos is not given enough guidance to identify the testator's friends.
• Result: the trust does not have ascertainable beneficiaries.

🐍 Non-human beneficiaries

Example: "I leave $35,000 in trust to Ronnie for the benefit of my snake, Jake."

• Why it fails: Jake is an ascertainable beneficiary, but he does not have the ability to hold the trustee accountable.
• If Ronnie misappropriates the money, he has no consequence.
• Since this is a testamentary trust, the settlor will be dead when the trust takes effect; the only one who could hold Ronnie accountable is Jake, and he is unable to file a lawsuit.
• Note: the excerpt mentions that Chapter Three will discuss options for protecting animals.

🎭 Indefinite classes

Example: "I leave $375,000 in trust to Paul for the benefit of the members of my church choir."

• Why it fails: whenever there is a transfer in trust for members of an indefinite class of persons, no enforceable trust is created.
• "Members of my church choir" is too indefinite because membership in the choir changes.
• Don't confuse: this is different from leaving money in trust for a class that consists of "sisters," because that title refers to a finite class of people.

Class description	Valid?	Reason
"My friends"	❌	Too broad; no clear criteria to identify who qualifies
"Members of my church choir"	❌	Membership changes; class is indefinite
"My nieces and nephews"	✅	Finite class; blood relationship is a clear criterion
"My sisters"	✅	Finite class; family relationship is clear

📜 The Boyer case: failure to identify beneficiaries

📜 Facts and will provisions

• A. James Boyer died in 1991; his will was executed sixteen days before his death.
• Morrison (an attorney and personal friend) was named as trustee and personal representative.
• Second Article: "I give, devise and bequeath all of my estate... to my Trustee, George A. Morrison, in Trust."
• Third Article: "I direct my Trustee to distribute all of my estate according to my instructions which I may give to him from time to time in my own handwriting or otherwise, but nonetheless signed or initialed by me. In the event... I fail to leave such instructions... then I direct my Trustee to distribute my estate according to his discretion, bearing in mind the many conversations we have had together in which I have named those who are the objects of my generosity."
• Key admission: apart from the will itself, there were no written instructions from the decedent to Morrison; Morrison stated he had notes regarding the decedent's wishes.

⚖️ Court's reasoning

The elements of a valid trust include a competent settlor and trustee, intent by the settlor to create a trust, ascertainable trust res, a sufficiently ascertainable beneficiary or beneficiaries, a legal purpose, and a legal term.

• Central problem: the identity of the persons intended to be "the objects of [the decedent's] generosity" are not capable of reasonably being ascertained.
• The provisions of the will are devoid of any language that would permit the court to ascertain with any degree of reasonable certainty the prospective beneficiaries.
• The beneficiaries were to be selected by Morrison, but the identity of the individuals eligible to be selected were not capable of being drawn from any specifically identifiable class or category specified by the decedent.
• Result: the attempted trust was unenforceable.

🚫 Extrinsic evidence not allowed

• Appellants argued that the court should permit extrinsic evidence (Morrison's notes, oral testimony about conversations) to clarify the decedent's intended beneficiaries.
• Court's holding: since it is undisputed that the decedent failed to leave written, signed instructions identifying his intended beneficiaries, extrinsic oral testimony was not admissible to rectify defects in the will itself or to overcome the decedent's failure to leave proper written instructions.
• Don't confuse: extrinsic evidence may be admissible to clarify an ambiguity in a will, but not to supplement or cure a complete failure to identify beneficiaries.

📋 Restatement of Trusts guidance

The court cited Restatement (Second) of Trusts § 122 comment a:

A class of persons is indefinite... if the identity of all the individuals comprising its membership is not ascertainable... Thus, the "friends" of the settlor or of another person constitute an indefinite class. So also, the class is indefinite where it includes any natural person other than the transferee himself or his estate.

🧩 Practice problems: identifying valid vs invalid trusts

🧩 Problem scenarios from the excerpt

Scenario	Likely outcome	Reason
"I leave my house to Alexander in trust for my favorite nephew."	❌ Fails	"Favorite nephew" is too subjective; no clear criterion to identify which nephew qualifies
"I leave the residuary of my estate to Shannon in trust for the man I have been dating for the last ten years."	❌ Fails	Identity depends on extrinsic facts; not ascertainable from the will itself
"I leave my apartment complex to Keisha in trust for the benefit of the nonprofit corporation she plans to establish."	❌ Fails	The corporation does not yet exist; beneficiary is not ascertainable at the time the trust takes effect
"I leave my entire estate in trust to Feed The Children for the benefit of the two little girls I started sponsoring on March 7, 2011."	✅ Likely valid	Specific date and organization provide a clear way to identify the two girls

🎓 Gloria's "foster children" hypothetical

Facts:

• Gloria, a third-grade teacher, executed a will: "I leave the profits I will make on my 401k in 1999 to my sister, Delores in trust for my foster children that are enrolled in my class during the 2000-2000 academic year. After I die, it is my hope that Delores will do the right thing and take care of the kids."
• Gloria referred to her students as "foster kids" but they were not legally her foster children.

Analysis:

• Potential problem: "foster children" may be ambiguous—does it mean legal foster children (none exist) or students in her class?
• Potential solution: the phrase "enrolled in my class during the 2000-2000 academic year" provides a clear, ascertainable class (school enrollment records can identify them).
• Weakness: the phrase "it is my hope that Delores will do the right thing" suggests precatory (wishful) language rather than mandatory trust language, which may undermine the intent to create an enforceable trust.

How to fix: "I leave the profits from my 401k in 1999 to my sister, Delores, in trust for the benefit of all students enrolled in my third-grade class at [School Name] during the 1999-2000 academic year, to be distributed equally among them."

🧭 Overview

🧠 One-sentence thesis

Private expressed trusts divide into inter vivos trusts (created during the settlor's lifetime) and testamentary trusts (created by will), and the critical distinction determines whether beneficiaries have present or merely contingent interests and whether the trust must comply with the Wills Act.

📌 Key points (3–5)

• Two main types: inter vivos trusts are established during the settlor's lifetime and are part of the nonprobate system; testamentary trusts are created by will and only come into existence after probate.
• When interests vest: beneficiaries of inter vivos trusts become equitable owners immediately upon creation; testamentary trust beneficiaries receive no interest until the settlor's death.
• Formality requirements: inter vivos trusts (not involving real property) may be created orally; testamentary trusts must satisfy the Wills Act in writing.
• Common confusion: a trust labeled "irrevocable" or reserving income for life is not automatically testamentary—courts look to whether the trust takes effect during the settlor's lifetime or only at death.
• Revocable trust beneficiaries' rights: beneficiaries of a revocable inter vivos trust have only contingent interests while the settlor is alive and generally lack standing to challenge the trust until the settlor's death.

📋 Inter Vivos vs. Testamentary Trusts

📋 Core distinction

Feature	Inter Vivos Trust	Testamentary Trust
When created	During settlor's lifetime	By will; effective only after probate
Formality	Oral (if no real property) or written	Must satisfy Wills Act (written)
When beneficiaries get interest	Immediately upon creation (equitable ownership)	Only after settlor's death
Revocability	Can be revocable or irrevocable	Revocable until testator dies
Probate system	Nonprobate (will substitute)	Part of probate system

🔍 Why the distinction matters

• The excerpt emphasizes that "the property in both the inter vivos and the testamentary trusts is not distributed to the third party beneficiary until after the settlor's death," but the nature of the beneficiary's interest differs fundamentally.
• Inter vivos trust beneficiaries hold a vested equitable interest (subject to revocation if the trust is revocable).
• Testamentary trust beneficiaries hold nothing until the settlor dies and the will is probated.

🏗️ Creating an Inter Vivos Trust

🏗️ Two methods: declaration vs. deed of trust

Declaration of trust:

The settlor declares that he holds certain property in trust and manifests an intent to hold the property as such.

• The settlor is both settlor and trustee.
• Example: "I declare myself trustee of my family's farm for the benefit of myself during my lifetime. Upon my death, the farm will pass to my sister to be held in trust for my grandchildren."
• While alive, the settlor has the power to revoke the trust and the right to trust income and management.
• The beneficiary receives a vested interest (unless revoked).
• Don't confuse: This is not a testamentary trust even though property passes at death—the trust itself is created and operative during the settlor's lifetime.

Deed of trust:

The settlor transfers the property to be held in trust to a third party who is to act as the trustee.

• Involves three parties: settlor, trustee, and beneficiary.
• The settlor transfers property to the trustee, who holds it and distributes it (or holds it in further trust) when the settlor dies.
• While the settlor is alive, she is the only person reaping the benefits.
• Critical requirement: the trust property must be delivered to the trustee.

📦 Delivery requirement for deed of trust

The excerpt emphasizes three types of delivery:

1. Actual delivery: physical transfer of the property itself (required unless impossible or impracticable).
2. Constructive delivery: giving the trustee something that permits obtaining possession (e.g., keys to a safe deposit box where the trust property is located).
3. Symbolic delivery: giving the trustee something that symbolizes the trust property (e.g., a list of expensive paintings when it is not convenient to deliver the paintings in a timely manner).

Example from case law: In Schweyen v. Cate, Jerry Cate drafted a handwritten trust document purporting to "sell, assign and convey" mineral interests to a trust for his daughters, but he never transferred or conveyed the interests to the trust or delivered them to the named trustee. The court held the trust failed for lack of delivery.

⚖️ Testamentary vs. Inter Vivos: How Courts Decide

⚖️ The intent test

Courts look to the settlor's intent, focusing on:

• Language of transfer: "I give, devise, and bequeath" suggests testamentary; "I hereby sell, assign and convey" suggests inter vivos.
• When the trust takes effect: does it operate during the settlor's lifetime, or only at death?
• Revocability: testamentary dispositions are generally revocable and the settlor retains control until death.
• Present vs. future interest: does the document pass a present interest or only a future one?

🧪 Case example: Schweyen v. Cate

Jerry Cate executed a handwritten document titled "Irrevocable Trust Reserving Income For Life" that purported to convey mineral interests to a trust for his daughters, with Shannon as trustee. He reserved a life interest for himself, then a 20-year term for his daughters, then outright distribution.

Shannon's argument: The document was testamentary because it reserved income for life and was meant to take effect at death.

Court's holding: The document was inter vivos, not testamentary, because:

• The transfer language was present tense: "I ... do hereby sell, assign and convey ..."
• There was no qualifying language like "upon my death" or "when I die."
• The "twenty years subsequent to the date of my death" language was a termination date, not a commencement date.
• The document named Shannon as trustee (not Jerry), indicating intent to divest legal title during his lifetime.
• The document was labeled "irrevocable," indicating intent to remove property from his estate.
• The "income from this trust for my lifetime" language indicated the trust would exist during Jerry's lifetime.

Result: Because the trust was inter vivos but Jerry never delivered the property, the trust failed and the property remained in his estate.

Don't confuse: A trust that reserves income for the settlor's life is not automatically testamentary—the key is whether the trust itself takes effect during the settlor's lifetime.

🔒 Revocable Inter Vivos Trusts and Beneficiary Rights

🔒 The contingent interest problem

A beneficiary's interest in a revocable inter vivos trust is contingent at most and does not vest until the settlor's death.

Why beneficiaries' interests are contingent:

• The settlor retains the power to revoke the trust at any time.
• The beneficiary's interest "could evaporate in a moment at the whim of the trustor."
• The beneficiary only hopes to take from the trust if: (1) the trust has not been revoked, and (2) the beneficiary outlives the trustor.

🚫 No standing to challenge during settlor's lifetime

General rule from case law:

• Beneficiaries of a revocable inter vivos trust lack standing to challenge the trust or its amendments while the settlor is alive.
• Example from Linthicum v. Rudi: Ernette and Myrna were named primary beneficiaries of Cobb's revocable inter vivos trust. Cobb later amended the trust to replace them with Rudi. They sued to challenge the amendment, alleging incapacity and undue influence. The court held they lacked standing because their interest was only contingent and would not vest unless they survived Cobb.

Reasoning:

• A revocable trust "has no legal significance until the [settlor]'s death."
• Named beneficiaries are only "potential devisees."
• The settlor has an absolute right to terminate the trust and distribute property as he or she sees fit.

Don't confuse: This is different from testamentary trusts, where interested persons can challenge the will after the testator's death.

🛡️ Exception: conservatorship situations

When a settlor becomes incapacitated and a conservator is appointed:

• The conservator (working with the court) becomes "the conservatee's decisionmaking surrogate."
• The conservator may petition the court to revoke the trust on behalf of the conservatee (unless the trust instrument expressly prevents this).
• The trust remains revocable through the conservator, so beneficiaries still have only contingent interests.

Example from Johnson v. Kotyck: Johnson, a beneficiary of her mother's revocable inter vivos trust, sought trust accountings after her mother became a conservatee. The court held Johnson had no right to accountings because the trust remained revocable—the conservator retained authority to revoke the trust, so Johnson's interest was still contingent.

Remedy for beneficiaries concerned about mismanagement:

• Follow procedures in guardianship statutes (e.g., NRS Chapter 159 in Nevada).
• The conservator is accountable and must file accountings with the court.
• Interested persons (including those with only "expectancy or prospective interest") may petition under guardianship statutes to investigate wrongdoing.

📜 Statutory provisions on beneficiary rights

The excerpt references statutes (specific to certain jurisdictions) that postpone beneficiaries' rights:

"During the time that a trust is revocable and the person holding the power to revoke the trust is competent," beneficiaries' rights are postponed.

• This means beneficiaries' enjoyment of rights is postponed "until the death or incompetence of the settlor or other person holding the power to revoke the trust."
• A conservator working with the court is a "person holding the power to revoke the trust."
• Therefore, the trust does not automatically become irrevocable when the settlor becomes incompetent.

Don't confuse: Incompetence of the settlor does not automatically vest beneficiaries' interests—the conservator steps into the settlor's shoes.

🧩 Resulting Trusts and Equitable Remedies

🧩 What is a resulting trust?

An involuntary trust created by a court to fulfill the manifest intent of the trustor if the trust fails to fulfill this intent.

• A resulting trust is "a creature of equity."
• It creates an equitable reversionary interest: the property "springs back or results to the person who made the disposition or to his estate."

🔄 When a resulting trust applies

Example from Schweyen v. Cate: Shannon argued that even if the express trust failed, the court should impose a resulting trust to carry out Jerry's intent to benefit his daughters.

Court's response: A resulting trust would cause the property to revert to Jerry's estate, not to the daughters. This is no different than concluding no trust exists.

Why: Resulting trusts are designed to return property to the settlor (or his estate) when the trust fails, not to give property to intended beneficiaries.

Don't confuse: A resulting trust is not the same as a constructive trust. A constructive trust is based on unjust enrichment and is used to recover specific property from someone who would be unjustly enriched by retaining it.

🧭 Overview

🧠 One-sentence thesis

Courts create trusts by operation of law—resulting trusts, constructive trusts, and honorary trusts—to prevent unjust enrichment, carry out inferred intent, or remedy situations where no formal trust was intended but equity demands intervention.

📌 Key points (3–5)

• Resulting trusts arise when legal title is held by someone not intended to have the beneficial interest; courts infer a trust from the transaction's character to reverse the equitable interest.
• Constructive trusts are imposed as a remedy to prevent unjust enrichment or punish fraud, not to carry out any original trust intent; the wrongdoer is deemed trustee and loses all interest immediately.
• Honorary trusts address bequests to pets or non-charitable purposes (e.g., care of animals, maintenance of graves); they are not enforceable by a beneficiary but bind the trustee's conscience.
• Common confusion: resulting vs. constructive trusts—resulting trusts focus on the trustee's intent to create a trust (even if informal), while constructive trusts focus on wrongful conduct by the property holder, regardless of intent.
• Why it matters: these remedial trusts fill gaps where formal trust requirements fail, prevent windfalls, and ensure property reaches its rightful or equitable owner.

🔄 Resulting Trusts

🔍 What a resulting trust is

A resulting trust is an implied trust that equity requires the law to establish when it can be inferred from the character of the transaction that the person who holds the legal title to the property was not intended to have the beneficial interest.

• It is really an equitable reversionary interest in property.
• The trust is created by operation of law, not by the parties' express agreement.
• The court looks at the transaction's nature to infer that legal title and beneficial interest were meant to be separated.

🧩 When resulting trusts arise

The excerpt identifies three main contexts:

Context	What happens	Example from excerpt
Failed or incomplete express trust	A private trust fails or doesn't dispose of all property	Betty Jo devises property to Billy Bob in trust for Denver for life, then to "Betty Jo's friends"—trust fails for lack of ascertainable beneficiaries; court imposes resulting trust for Betty Jo's heirs
Excess trust property	Trust property exceeds what is needed for the trust purpose	(Not detailed in excerpt, but mentioned as a category)
Purchase-money resulting trust	One person pays consideration for real property, but title is taken in another's name	Beyoncé purchases Blueacre with Kelly's money; unless Beyoncé shows Kelly intended a gift, Beyoncé holds title on resulting trust for Kelly

📝 Purchase-money resulting trust requirements

From Sahagun v. Ibarra:

• Payment must be made at the time of purchase and in the character of a purchaser.
• Not a loan: if A loans money to B and B buys property in B's name, no resulting trust arises in favor of A.
• But if A pays the purchase price and causes the deed to be placed in B's name, a resulting trust arises in favor of A.

Example from the case: Ibarra contributed $10,000 earnest money; Sahagun paid $15,000 down payment. Ibarra testified he and Sahagun agreed to buy the house together but put it in Sahagun's name to hide it from his wife. The court found legally sufficient evidence that a resulting trust was created at inception of title, awarding Ibarra an undivided 43/100 interest.

⚖️ Fiduciary relationship in resulting trusts

• Common confusion: the excerpt clarifies that a fiduciary relationship is not required before the resulting trust is created.
• Once the resulting trust is created, the trustee (the person holding legal title) then stands in a fiduciary relationship with the beneficiary (the payor) regarding the trust property.
• The Tricentrol case language: "When title to property is taken in the name of someone other than the person who advances the purchase price, a resulting trust is created in favor of the payor. The trustee of a resulting trust stands in a fiduciary relationship with the beneficiary insofar as the trust property is concerned."

🔑 Key takeaway: trustee must surrender property

Once a resulting trust is found, the trustee must surrender the property to the beneficial owner upon demand.

🛡️ Constructive Trusts

🔍 What a constructive trust is

A constructive trust is an equitable remedy designed to prevent unjust enrichment or to punish fraud.

• The court places a trust over the property to prevent the wrongdoer from benefiting from its use.
• The moment the constructive trust is created, the wrongdoer loses all interest in the trust property.
• The wrongdoer is deemed the trustee; the person to whom the property rightfully belongs is the beneficiary.
• Once the property is converted into a constructive trust, the holder must transfer it to the constructive beneficiary.

🆚 How constructive trusts differ from resulting trusts

Feature	Resulting Trust	Constructive Trust
Focus	Trustee's actions suggest intent to create a trust	Wrongdoer's conduct (fraud, unjust enrichment)
Original intent	Some trust intent was present, even if informal	No trust was ever anticipated
When trustee loses interest	Upon demand by beneficial owner	Immediately upon creation of constructive trust
Purpose	Carry out inferred intent	Prevent unjust enrichment or punish wrongdoing

Don't confuse: Resulting trusts look at whether the trustee acted as if intending a trust; constructive trusts look at whether the person holding property wrongfully acquired it, regardless of any trust intent.

🧪 Example: the slayer statute scenario

• If a person named in a will causes the testator's death, the slayer statute prevents inheritance.
• The probate court (limited jurisdiction) must honor the will's terms and give the slayer the bequest.
• To prevent the slayer from benefiting from the crime, the court imposes a constructive trust on the property.
• The slayer never takes an interest; he holds the property in trust for the testator's next of kin.

📚 The Rawlings case: unjust enrichment and constructive trusts

🧑‍🤝‍🧑 Background

• Arnold Rawlings transferred farm land to his oldest son, Donald, via warranty deed in 1967.
• Donald claimed the transfer was compensation for paying Arnold's debts.
• The siblings claimed Arnold transferred the land to Donald to act as trustee for the family (to qualify Arnold for welfare assistance).
• For decades, all siblings worked the farm, believing it was held for the family's benefit; Donald represented it as "Mother's farm."
• After 1993, Donald repudiated any trust obligation and claimed sole ownership.

⚖️ Two theories for imposing a constructive trust

The court identified two independent causes of action:

1. Oral express trust (Restatement of Trusts § 45):

   • Requires proof that the transferor intended to create a trust.
   • Also requires one of three circumstances: fraud/duress/undue influence, confidential relationship, or transfer in anticipation of death.
   • If proven, the constructive trust gives effect to the settlor's intent.

2. Unjust enrichment (Restatement of Restitution § 160):

   • Three elements: (1) benefit conferred by one person on another; (2) appreciation/knowledge by the conferee of the benefit; (3) acceptance/retention under circumstances making it inequitable to retain without payment.
   • If proven, the constructive trust is a remedy to prevent unjust enrichment.

Key point: These are separate and independent causes of action. A plaintiff may pursue both; failure to prove one does not preclude the other.

🏆 The court's holding on unjust enrichment

• The trial court found Donald was unjustly enriched by:
  • Dwayne's $1,000 payment of property taxes (believing it was for Arnold's benefit).
  • All siblings' labor maintaining the farm (believing it was held in trust).
  • Quitclaim deeds and other property transfers by siblings (believing they were helping clear title for the family).
  • Donald keeping the bulk of a $52,000 boundary-dispute settlement.
• Donald accepted these benefits while representing the land as "Mother's farm," leading siblings to believe they were contributing to a family trust.
• The court held: even if Donald legitimately owned the property, he was not entitled to retain the fruits of his siblings' labor and contributions obtained through these representations.
• The trial court imposed a constructive trust; the appellate court reversed; the state supreme court reversed the appellate court and affirmed the trial court.

🧠 Why trial courts have broad discretion

From Jeffs v. Stubbs:

• Determining whether circumstances are inequitable is fact-intensive; trial courts are uniquely suited to this balancing.
• Trial judges observe witness demeanor and credibility, which cannot be fully reflected in the appellate record.
• "Unjust enrichment must remain a flexible and workable doctrine" to remedy injustice when other areas of law cannot.

🚫 Common error: conflating the two theories

• The court of appeals erred by concluding that if the siblings failed to prove an oral express trust, they could not prevail on unjust enrichment.
• The court of appeals reasoned: either Arnold intended a trust (making a legal constructive trust the only remedy), or the property belonged to Donald (making his retention not unjust).
• The supreme court rejected this binary view: unjust enrichment is independent of whether an oral express trust existed.
• Even if Donald owned the land, his acceptance of benefits under false representations made retention inequitable.

📌 Practical implication: ownership ≠ immunity from unjust enrichment

• The excerpt cites the Restatement of Restitution: an owner "cannot retain a benefit which knowingly he has permitted another to confer upon him by mistake."
• In Jeffs, the UEP held title to land but was found unjustly enriched when occupants made improvements believing they could occupy for life.
• Here, even if Donald owned the farm, he could not retain benefits conferred by siblings who believed the land was held in trust.

🐾 Honorary Trusts

🔍 What an honorary trust is

An honorary trust arises when a testator attempts to leave a large sum of money to a pet (or for care of a pet, tomb, monument, grave, saying of masses, or erecting a statue).

• The pet (or object) is incapable of inheriting, so the bequest is invalid.
• To carry out the testator's intent, the court creates an honorary trust over the property.
• It is called "honorary" because it is binding on the conscience of the trustee, not legally enforceable by a beneficiary.
• The beneficiary (pet or purpose) cannot demand an accounting; the trustee must act on honor.

🆚 How honorary trusts differ from other trusts

Feature	Charitable trust for animals	Bequest to SPCA	Honorary trust
Beneficiary	Group of animals (indefinite)	Organization	Specific animal or object
Enforceability	Enforceable (charitable purpose)	Enforceable (valid bequest)	Not enforceable by beneficiary
Trustee's obligation	Legal duty	Legal duty	Moral/conscience-based

⚖️ Validity and termination

• The trust is valid so long as the trustee chooses to carry out the trust purpose.
• When the trustee no longer wishes to do so (or the purpose becomes impossible), the trust terminates.
• Upon termination, the court creates a resulting trust: the property reverts to the testator's estate or residual beneficiaries.

📝 The Phillips case: trust for two dogs

🐕 Facts

• Testator left $25,000 to appellant "for the care and shelter of [her] two dogs, Riley and Shaun."
• Shortly after the testator's death, Riley and Shaun were put to sleep for health reasons.
• The testator's parents petitioned to return the $25,000 to the estate.

⚖️ Court's analysis

• The testator unambiguously directed the money was for the benefit of her dogs, not the appellant.
• This created an honorary trust.
• An honorary trust "is not a true trust" because it lacks a beneficiary capable of enforcing its terms.
• The American Law Institute position (Restatement (Second) of Trusts § 124):
  • The transferee has the power to apply the property to the designated purpose.
  • But the transferee cannot be compelled to do so.
  • If the transferee does not (or cannot) apply the property to its purpose, she holds it on a resulting trust for the settlor or the settlor's estate.

🏆 Holding

• Because the dogs were put to sleep, the appellant could not apply the $25,000 to the designated purpose.
• A resulting trust was created; the trial court properly ordered the appellant to return the property to the estate.

📜 Statutory honorary trusts (modern approach)

Many states have codified honorary trusts. Example from McKinney's EPTL § 7-8.1:

• Valid: A trust for the care of a designated domestic or pet animal is valid.
• Enforcement: Intended use may be enforced by an individual designated in the trust instrument or appointed by a court.
• Termination: Trust terminates when the living animal beneficiary is no longer alive.
• No conversion: No portion of principal or income may be converted to the trustee's use or any use other than for the covered animals (unless expressly provided in the trust instrument).
• Unexpended property: Upon termination, unexpended trust property passes as directed in the trust instrument or, if no directions, to the grantor's estate.
• Court may reduce amount: If the amount substantially exceeds what is required for the intended use, a court may reduce it; the reduction passes as unexpended trust property.
• Court appointment of trustee: If no trustee is designated or willing to serve, a court appoints one.

Key difference from common law: The statutory version makes the trust enforceable by a designated individual or court-appointed person, removing the purely "honorary" (conscience-based) nature.

🔐 Secret and Semisecret Trusts

🤫 Secret trust

• What it is: The will makes an outright gift to a third party with no indication of a trust, but prior to execution the third party agreed to hold the property in trust for another person.
• Court's response: The court will admit outside (oral) information to enforce the trust and prevent unjust enrichment.
• Why: The third party would be unjustly enriched if allowed to keep the gift when they had agreed to hold it in trust.

Example from excerpt: Ruth's will says "I leave $100,000 to Peter." Ruth told her friend Bonnie that she was leaving $100,000 to Peter to keep in trust for Bonnie. The court will allow oral testimony to prove the trust, so Peter will not be unjustly enriched.

🤐 Semisecret trust

• What it is: The will makes a gift to a third party and indicates in the will that the third party is to keep the gift in trust, but does not name the beneficiaries in the will.
• Court's response: The trust fails for lack of beneficiaries. The third party has no interest in the gift. A constructive trust is unnecessary because there is no danger of unjust enrichment (the will itself shows the third party was not to benefit).
• Result: The property reverts to the testator's estate to be distributed accordingly (resulting trust for the estate).

Example from excerpt: Ruth's will says "I leave $100,000 to Peter in trust for people I told Bonnie about." The court will not allow Bonnie's oral testimony because the trust has been proven by the will (so no unjust enrichment issue). The trust fails for lack of beneficiaries; money reverts to Ruth's estate.

🔑 Key distinction

Type	Trust shown in will?	Beneficiaries named in will?	Oral evidence admitted?	Reason
Secret	No	No	Yes	Prevent unjust enrichment of third party
Semisecret	Yes	No	No	No unjust enrichment (will shows third party not to benefit); trust fails for lack of beneficiaries

📚 The Olliffe case: semisecret trust analysis

📄 Facts

• The will's residuary bequest to the defendant gave him no beneficial interest.
• It required him to distribute all property "according to [the testatrix's] intentions," giving him discretion only as to the manner of distribution, not whether to distribute.
• The will declared a trust "too indefinite to be carried out."
• The defendant's answer (admitted as true) stated: the testatrix, before and at the time of execution, orally made known her wish that the residue be distributed for charitable uses according to his discretion.

⚖️ Court's reasoning

• Intentions formed after the will's execution have no effect against next of kin.
• Even assuming all directions were communicated and assented to before execution:
  • Where a bequest is outright on its face and a trust is established against the devisee, it is by reason of the obligation on the devisee's conscience (fraud, confidence reposed), not as a valid testamentary disposition.
  • Where the bequest is declared on its face to be upon trusts signified to the devisee, the devisee takes no beneficial interest.
  • But: as between the devisee and the heirs/next of kin, the case is different.
  • The heirs/next of kin are not excluded by the will itself.
  • The will shows the devisee takes legal title only, not beneficial interest.
  • The trust not being sufficiently defined, the equitable interest goes by resulting trust to the heirs/next of kin as property not disposed of by the will.
  • They cannot be deprived of that equitable interest by any conduct of the devisee or any intention of the deceased unless signified in the forms the law makes essential to every testamentary disposition.

🏆 Holding

• A trust not sufficiently declared on the face of the will cannot be set up by extrinsic evidence to defeat the rights of heirs at law or next of kin.
• The statute requires wills to be signed by the testator and attested by three witnesses.
• The oral directions, even if communicated before execution, do not meet this requirement.
• Decree for the plaintiffs (next of kin).

Key principle: The semisecret trust fails because the will itself shows no beneficial interest in the devisee, but the trust terms are too indefinite. Oral evidence cannot cure this defect and defeat the heirs' rights. The property passes by resulting trust to the estate.

🧭 Overview

🧠 One-sentence thesis

Discretionary trusts give trustees control over whether and how much to pay beneficiaries, which protects trust funds from beneficiary creditors except at the moment the trustee exercises discretion to make a payment.

📌 Key points (3–5)

• What makes a trust discretionary: the trustee has discretion over whether to pay, how much to pay, or which beneficiaries to pay from a designated group.
• Beneficiary rights: unlike mandatory trust beneficiaries, discretionary trust beneficiaries cannot force the trustee to pay out any funds.
• Creditor protection: because beneficiaries have no enforceable right to payment, their creditors also cannot compel the trustee to pay them.
• Common confusion: discretion over timing or method of payment alone does not create a true discretionary trust—the trustee must have discretion over whether to pay at all.
• The cutting off income rule: creditors can still reach funds at the precise moment between when the trustee decides to pay and when the beneficiary receives the money.

🔍 Mandatory vs. discretionary trusts

🔍 Mandatory trust characteristics

A mandatory trust is one that mandates the trustee to distribute all the income and does not give the trustee the discretion to choose either the beneficiaries or the amount to be distributed.

• The trustee's sole job is to manage and disperse the trust funds.
• Beneficiaries can go to court to force the trustee to give them the promised amount.
• Example: T leaves $500,000 in trust to X to distribute $20,000 of the income to A and B annually—A and B can compel payment.

🔍 What makes a trust truly discretionary

A discretionary trust is a trust wherein the trustee is given the discretion to determine whether and to what extent to pay or apply trust income or principal to or for the benefit of a beneficiary.

• Under a true discretionary trust, the trustee may withhold the trust income and principal altogether from the beneficiary.
• The beneficiary, as well as the creditors and assignees of the beneficiary, cannot compel the trustee to pay over any part of the trust funds.
• Don't confuse: A trust wherein the trustee has discretion only as to the time or method of making payments is not a true discretionary trust.

📝 How to identify discretionary powers

📝 Language that signals discretion

The intent of the settlor is determined by:

• The language chosen to convey thoughts
• The purposes sought to accomplish
• The situation of the parties benefitted by the trust

Words indicating discretionary power:

• Words of permission or option
• Reference to the "discretion" of the trustee
• Adjectives like "absolute" and "uncontrolled"

Words indicating mandatory power:

• Directive or commanding language
• Requirements or commands to perform acts

📝 The Lineback v. Stout analysis

In the case excerpt, the court found a discretionary trust because:

• The testator referred to the trustee's "sole judgment" or "discretion" six times
• The testator authorized the trustee to pay but did not command or require her to do so
• The testator used adjectives "absolute" and "uncontrolable" [sic] to describe the discretion
• The trust was intended to supplement (not supplant) other financial assistance
• The trust was created for the beneficiary's lifetime with provisions for remaining corpus after death—showing the testator anticipated funds might not be completely exhausted

🛡️ Creditor rights and protections

🛡️ Why creditors cannot reach discretionary trust funds

Trust type	Beneficiary's right	Creditor's right
Mandatory	Can compel payment	Can file action against trust for debt amount
Discretionary	Cannot compel payment	Cannot compel trustee to pay them

• The money in a mandatory trust is similar to earned income, so creditors can reach it.
• In a discretionary trust, if the beneficiary has no right to payment, neither does the beneficiary's creditor.
• A creditor cannot by judicial order compel the trustee to pay him.

⚖️ The cutting off income rule

According to that rule, if the trustee exercises his discretion and pays the beneficiary, the trustee must pay the creditor who stands in the beneficiary's shoes.

How it works:

• The lien attaches at the moment in time between when the trustee exercises discretion to pay the beneficiary and the time the property is transferred to the beneficiary.
• This creates a narrow window where creditors can intercept the payment.
• This rule also applies when the trustee pays money on the beneficiary's behalf (not just directly to the beneficiary).

Why this matters:

• Creditors are not without a remedy entirely.
• Distributions from the trust may be the beneficiary's only source of income, making access to trust funds the sole way for the creditor to get paid.
• The rule balances the settlor's intent to protect the beneficiary with creditors' legitimate claims.

🧑‍⚖️ Trustee duties and court oversight

🧑‍⚖️ Mandatory vs. discretionary powers

The powers of a trustee are either mandatory or discretionary. A power is mandatory when it authorizes and commands the trustee to perform some positive act. A power is discretionary when the trustee may either exercise it or refrain from exercising it, or when the time, or manner, or extent of its exercise is left to his discretion.

🧑‍⚖️ Court's role in enforcement

With mandatory powers:

• The court will always compel the trustee to exercise a mandatory power.

With discretionary powers:

• The court will not undertake to control the trustee with respect to the exercise of a discretionary power.
• Exception: the court will intervene to prevent an abuse of discretion.

What constitutes abuse of discretion:

• Acting dishonestly
• Acting with an improper (even if not dishonest) motive
• Failing to use judgment
• Acting beyond the bounds of reasonable judgment

🧑‍⚖️ Trustee's duty to exercise judgment

• Even with "absolute" and "uncontrolled" discretion, the trustee has a duty to exercise judgment reasonably to carry out the intent of the settlor.
• The trustee cannot simply ignore the trust or refuse to consider the beneficiary's needs.
• The discretion must be exercised, not abandoned.

🧭 Overview

🧠 One-sentence thesis

Support trusts ensure a beneficiary's financial needs are met while protecting trust assets from most creditors, but creditors who supply necessaries and (in many jurisdictions) family support claims can reach the trust funds.

📌 Key points (3–5)

• Two types of support trusts: pure support trusts (trustee must pay specific bills, limited discretion) vs. discretionary support trusts (trustee decides how much is needed, may be guided by a support standard).
• Trustee's duty to inquire: when exercising discretion, the trustee must investigate how much support the beneficiary actually needs.
• Creditor protection with exceptions: the beneficiary cannot alienate his interest and most creditors cannot attach trust funds, but creditors who supply necessaries (like medicine) may recover, and many jurisdictions allow child support and alimony claims.
• Common confusion—pure vs. discretionary support trust: both serve support purposes, but in a pure support trust the trustee's hands are tied to specific bills, whereas in a discretionary support trust the trustee has discretion to determine the amount needed (though still bound by a support standard).
• Medicaid recovery: a discretionary support trust creates an enforceable interest for the beneficiary, so upon death the state may recover Medicaid benefits from the remaining corpus if the beneficiary had the legal ability to compel distributions for support.

🏛️ What is a support trust

🎯 Purpose and definition

The purpose of a support trust is to ensure that the beneficiary's financial needs are met.

• The trust funds are earmarked for the beneficiary's support.
• The beneficiary cannot alienate (transfer or sell) his interest in the trust.
• This structure protects the beneficiary from squandering the funds and shields the trust from most creditors.

🔀 Two forms: pure vs. discretionary

Type	Trustee's role	Discretion level
Pure support trust	Must use trust funds to pay specific bills for the beneficiary's support	Limited; the trustee must pay for support, no choice about whether to distribute
Discretionary support trust	Decides how much of the trust funds are needed to support the beneficiary	Broader; the trustee exercises discretion about the amount, often guided by a support standard (e.g., "reasonable standard of living" or "maintain the lifestyle to which he has become accustomed")

• Both types restrict the use of funds to support purposes only.
• The key difference is whether the trustee has discretion over the amount or is bound to pay specific bills.

🔍 Trustee's duties and standards

🕵️ Duty to inquire

• When exercising discretion about distributions, the trustee has a duty to inquire to determine the amount of support the beneficiary needs.
• The trustee cannot simply guess or ignore the beneficiary's actual circumstances.
• Example: if the trust instrument says "maintain the lifestyle to which he has become accustomed," the trustee must investigate what that lifestyle costs.

📏 Support standards

• The trust instrument may limit the trustee's discretion by specifying a support standard.
• Common standards include:
  • "Reasonable standard of living"
  • "Enable the beneficiary to maintain the lifestyle to which he has become accustomed"
• These standards give the trustee guidance but still require judgment about what counts as "reasonable" or "accustomed."

🛡️ Creditor protection and exceptions

🚫 General rule: creditors cannot attach

• Because the purpose of the trust is to provide support for the beneficiary, he cannot alienate his interest.
• As a result, the beneficiary's creditors cannot attach the funds in the trust.
• This protects the trust corpus from being seized to pay the beneficiary's debts.

⚕️ Exception: necessaries

• Creditors who supply the beneficiary with necessaries (like medicine) may recover from the trust.
• Rationale: the trust exists to support the beneficiary, so creditors who actually provide support should be able to reach the funds.
• Example: a pharmacy that supplies prescription medicine to the beneficiary may have a claim against the trust.

👨‍👩‍👧 Exception: family support claims

• In a growing number of jurisdictions, the children and spouses of the beneficiary may enforce claims for child support and alimony.
• This exception recognizes that family support obligations are a form of necessary support.
• Don't confuse: general creditors (e.g., credit card companies) still cannot reach the trust; only creditors who provide necessaries or family support claimants have this right.

📋 The Barkema case: discretionary support trusts and Medicaid recovery

🏥 Background and issue

• George Barkema's will created a trust for his daughter Lois, directing that "only the income from said share shall be used for Lois, however, if necessary for her proper support and maintenance, then the corpus of said trust may be invaded to the extent said trustees deem necessary."
• Lois lived in a nursing home and received Medicaid benefits (approximately $55,000).
• After Lois died, the state sought to recover the Medicaid costs from the remaining trust corpus (approximately $18,000).
• The question: did Lois have an "interest in [a] trust" at the time of her death that the state could reach under Iowa's Medicaid recovery statute?

🔍 Classifying the trust

The court classified the trust as a discretionary support trust because:

• The trust contained a support provision ("proper support and maintenance").
• The trustees had discretion ("to the extent said trustees deem necessary").

Pure support trust: the trustee is directed to pay or apply trust income or principal for the benefit of a named person, but only to the extent necessary to support him, and only when the disbursements will accomplish support.

Discretionary support trust: the stated purpose of the trust is to furnish the beneficiary with support, and the trustee is directed to pay to the beneficiary whatever amount of trust income [or principal] the trustee deems necessary for his support.

• The court explained that in a discretionary support trust, "the beneficiary has a right that the trustee pay him the amount which in the exercise of reasonable discretion is needed for his support."
• This right is enforceable: the beneficiary (or someone standing in her place) can compel the trustee to make distributions for support.

⚖️ Legal ability to compel distributions

• The court held that Lois had an "interest" in the trust corpus because she had the legal ability to compel the trustee to invade the corpus for her support.
• The trustee conceded that the Medicaid benefits were necessary for Lois's support.
• Therefore, Lois had the right to demand distributions, and the state (as a creditor who provided support) stepped into her shoes.

🕰️ "At the time of death"

• The statute allowed recovery from assets the beneficiary had an interest in "at the time of [her] death."
• The court interpreted "at the time of death" to mean immediately before death, not the precise moment of death.
• Rationale: if "at the time of death" meant the exact moment, property would already have passed to beneficiaries by operation of law, rendering the recovery statute meaningless.
• Example: jointly held property passes to the surviving joint tenant at death; if the statute meant "at the moment of death," jointly held property could never be recovered, even though the statute explicitly includes it.

📊 Outcome and reasoning

• The court affirmed that the state could recover its $55,000 debt from the remaining $18,000 corpus.
• Key reasoning:
  • Lois had an enforceable interest in the trust (the right to compel distributions for support).
  • The Medicaid benefits were necessary for her support.
  • The state, as a creditor who provided support, could stand in Lois's place and enforce her right to distributions.
• Don't confuse: this is not about whether Lois owned the trust corpus outright; it is about whether she had a legally enforceable claim to distributions, which the state could then pursue.

🏛️ Medicaid eligibility and trust assets (note)

🧩 Two-step analysis

The excerpt notes that determining Medicaid eligibility involves two steps:

1. Classify the trust: is it self-settled (funded with the beneficiary's own money) or created by a third party?
2. Determine if the trust funds are a resource: are the funds deemed to be the beneficiary's resource for Medicaid purposes?

🏦 Self-settled trusts

For Medicaid purposes, the trust is considered to be self-settled if the person's money was used to fund all or part of the corpus of the trust and the trust is established by him, his spouse, or a person or court with the legal authority to act on his behalf or at his request or his spouse's request.

• Self-settled trusts are treated differently because the beneficiary used his own money to create the trust.
• The excerpt does not elaborate on the consequences, but the implication is that self-settled trusts may be counted as available resources, affecting Medicaid eligibility.

🧭 Overview

🧠 One-sentence thesis

Spendthrift trusts protect trust assets from most creditors, but the law carves out exceptions for certain necessary providers and family support obligations while denying protection to self-settled trusts.

📌 Key points (3–5)

• Core protection: spendthrift trusts shield assets from third-party creditors, who cannot attach trust property even when the beneficiary owes them money.
• Self-settled trusts get no protection: a person cannot create a spendthrift trust for their own benefit to hide assets from creditors; only inherited wealth receives protection.
• Voluntary vs. involuntary creditors: voluntary creditors (e.g., credit card companies) are blocked, but certain involuntary creditors (spouses, children for support) can reach trust funds.
• Common confusion: not all involuntary creditors are treated equally—tort victims are blocked, but family support claimants are not.
• Trustee remedies vs. creditor access: beneficiaries have remedies against trustees for breach, but creditors cannot use trustee misconduct as a route to attach trust assets.

🛡️ What spendthrift trusts protect against

🛡️ General creditor protection

A spendthrift trust is designed so that "the assets contained within it are not available to persons outside the trust relationship."

• Third-party creditors cannot obtain an attachment to the trust property.
• The excerpt emphasizes that creditors are blocked "precisely because" the trust structure keeps assets away from outside claims.
• Even if the trustee abuses discretion in distributing funds, creditors cannot use that misconduct to gain access to the trust.

⚖️ Beneficiary remedies vs. creditor access

The excerpt lists remedies available to beneficiaries (from Restatement (Second) of Trusts § 199):

• Compel the trustee to perform duties.
• Enjoin the trustee from breaching trust.
• Compel redress for a breach.
• Appoint a receiver to administer the trust.
• Remove the trustee.

Key distinction: these remedies are "generally available only to other beneficiaries, and not to third-party creditors."

• Don't confuse: a trustee's breach does not open the door for creditors; the trust structure remains intact.

🚫 The self-settled trust exception

🚫 No protection for self-created trusts

"A person cannot shield his assets from creditors by placing them in a trust for his own benefit."

• If the settlor (creator) is also the beneficiary, creditors can reach the entire interest in the trust.
• The law distinguishes between:
  • Inherited wealth: receives spendthrift protection.
  • Earned money placed in a self-settled trust: no protection.

📜 Statutory codification

The excerpt cites California Probate Code §15304:

• If the settlor is a beneficiary and the trust has a spendthrift provision, "the restraint is invalid against transferees or creditors of the settlor."
• The trust itself remains valid; only the creditor protection is stripped away.
• This rule has been codified in the majority of jurisdictions.

Example: A person earns money, creates a trust naming himself as beneficiary with spendthrift language → creditors can still reach those assets.

💳 Voluntary creditors are blocked

💳 Credit card and commercial creditors

The excerpt gives a concrete scenario:

• Brian is a spendthrift trust beneficiary.
• He charges $80,000 on his American Express card.
• If Brian does not pay, American Express cannot reach the trust funds.

"American Express is considered to be a voluntary creditor because the company gave Brian a credit card."

• Voluntary creditors are those who choose to extend credit or do business with the beneficiary.
• The spendthrift protection holds even for large debts.

👨‍⚕️ Exceptions: necessary services and family support

👨‍⚕️ Providers of necessities

"A person who furnishes necessary services or support to the beneficiary can reach the beneficiary's interest in a spendthrift trust."

• This exception applies to providers like doctors and grocers.
• The rationale is that these creditors provide essential needs, not optional purchases.

👨‍👩‍👧‍👦 Family support obligations

"In the majority of jurisdictions, involuntary creditors like spouses and children are permitted to attach spendthrift trust funds to satisfy the beneficiary's alimony and child support obligations."

• Spouses and children seeking alimony or child support can reach trust assets.
• These are classified as involuntary creditors because the beneficiary did not choose to incur the obligation.

⚠️ Tort victims are excluded

"Tort victims who are involuntary creditors are precluded from receiving money from a spendthrift trust."

Common confusion: not all involuntary creditors have access.

Creditor type	Can reach trust?	Reason
Voluntary (credit cards, loans)	❌ No	Chose to extend credit
Involuntary (tort victims)	❌ No	Policy: trust protection prevails
Involuntary (family support)	✅ Yes	Public policy favors support obligations
Necessary services (doctors, grocers)	✅ Yes	Essential needs exception

📋 Case illustration: child support enforcement

📋 Drevenik v. Nardone facts

The excerpt includes a case where:

• A mother (Appellee Nicole Drevenik) filed for child support against Mr. Nardone for two children.
• A support order was entered: $200/month, later reduced to $140/month plus $20/month on arrears.
• Mr. Nardone did not pay for over a year.
• A petition was filed to reach assets of a spendthrift trust established for Mr. Nardone's benefit by his mother's will.

⚖️ Court's holding

• The trial court directed the trustee (Mr. Nardone's brother) to pay child support arrears from the trust principal and income.
• The appellate court affirmed on April 12, 2004.

Why this matters: even though the trust was created by the mother (not self-settled) and had spendthrift language, the family support exception allowed the children's support claims to pierce the trust protection.

• Don't confuse: the trust was valid and would block most creditors, but child support is a recognized exception in the majority of jurisdictions.

🧭 Overview

🧠 One-sentence thesis

An implied spendthrift trust protects trust assets from the beneficiary's creditors because the settlor's intent to shield the assets from outside claims is recognized even without explicit spendthrift language, but this protection is unavailable when the settlor creates a trust for their own benefit.

📌 Key points (3–5)

• Core protection: assets in a spendthrift trust are not available to third-party creditors, only to beneficiaries through specific trust-law remedies.
• Implied vs explicit: a trust can be deemed a spendthrift trust based on the settlor's intent, even if not expressly labeled as such.
• Self-settled trust exception: a person cannot shield their own assets by creating a trust for themselves—creditors can reach the entire interest in a self-settled trust.
• Common confusion: spendthrift protection applies only to inherited wealth (trusts created by others), not to earned money placed in a self-settled trust.
• Creditor exceptions: certain creditors (those providing necessary services, spouses, children for support) can reach spendthrift trust funds, but voluntary creditors and tort victims generally cannot.

🛡️ What a spendthrift trust protects

🛡️ Assets unavailable to third-party creditors

• The excerpt states: "the assets contained within [a spendthrift trust] are not available to persons outside the trust relationship."
• Creditors cannot attach trust property simply because the trustee may have abused discretion in distributions.
• Example: if a beneficiary owes a judgment debt, the creditor cannot seize trust assets to satisfy that debt.

⚖️ Remedies limited to beneficiaries

The excerpt lists remedies available under trust law:

• Compel the trustee to perform duties
• Enjoin the trustee from breaching trust
• Compel redress for a breach
• Appoint a receiver to administer the trust
• Remove the trustee

These remedies are "generally available only to other beneficiaries, and not to third-party creditors."

• This limitation is "precisely the point" of a spendthrift trust: keeping assets within the trust relationship.

🔍 Implied spendthrift trust concept

🔍 Settlor's intent controls

• The excerpt concludes that "Lois Doyle, the settlor of the trust at issue, intended to create a spendthrift trust."
• Even without explicit spendthrift language, the court recognized the trust as an "implied spendthrift trust."
• Result: creditors (the Morrisons) "cannot obtain an attachment to the trust."

🚫 Abuse of discretion does not override protection

• The excerpt rejects the argument that creditors should gain attachment "simply because Doyle, as trustee, may have abused his discretion in distributing trust funds."
• The spendthrift character of the trust remains intact regardless of trustee misconduct.

🚨 Self-settled trust exception

🚨 Cannot shield your own assets

"A person cannot shield his assets from creditors by placing them in a trust for his own benefit."

• The law gives creditors "recourse against the entire interest in a self-settled trust."
• Key distinction: protection is available only to "a recipient of inherited wealth," not to "a person who creates a self-settled trust using earned money."

📜 Statutory codification

The excerpt provides a California example:

Element	Rule
Settlor as beneficiary	If the settlor is also a beneficiary
Restraint on transfer	Any provision restraining voluntary or involuntary transfer of the settlor's interest
Effect	The restraint is invalid against transferees or creditors of the settlor
Trust validity	The invalidity of the restraint does not affect the validity of the trust itself

• This rule has been "codified in the majority of jurisdictions."
• Don't confuse: the trust remains valid; only the spendthrift protection fails when the settlor is the beneficiary.

💳 Creditor exceptions and limitations

💳 Voluntary creditors generally barred

Example from the excerpt:

• Brian is a spendthrift trust beneficiary.
• Brian charges $80,000 on his American Express card.
• American Express "cannot reach any of the money in the trust fund."
• Reason: American Express is a "voluntary creditor because the company gave Brian a credit card."

🏥 Necessary services exception

"A person who furnishes necessary services or support to the beneficiary can reach the beneficiary's interest in a spendthrift trust."

• This exception applies to "people like doctors and grocers."
• Rationale: protecting those who provide essential goods and services.

👨‍👩‍👧 Involuntary creditors: family support

• Spouses and children: "In the majority of jurisdictions, involuntary creditors like spouses and children are permitted to attach spendthrift trust funds to satisfy the beneficiary's alimony and child support obligations."
• Tort victims: "tort victims who are involuntary creditors are precluded from receiving money from a spendthrift trust."

Creditor type	Can reach trust?	Reason
Voluntary (e.g., credit card)	❌ No	Chose to extend credit
Necessary services (doctors, grocers)	✅ Yes	Provide essential support
Spouse/children (support)	✅ Yes (majority rule)	Public policy favoring family support
Tort victims	❌ No	Involuntary but not within exception

⚖️ Child support case illustration

The excerpt includes a case (Drevenik v. Nardone) where:

• A mother filed for child support against Mr. Nardone.
• Support orders were entered and modified over time.
• Mr. Nardone did not pay support for more than a year.
• A petition was filed to reach "the assets of a trust held for [Mr. Nardone]."
• The trial court directed the trustee (Mr. Nardone's brother) "to pay Mr. Nardone's child support arrears from the principal and income of the spendthrift trust."
• The appellate court affirmed, applying the exception for child support obligations.

Don't confuse: even though the trust was a spendthrift trust established by the beneficiary's mother (not self-settled), the child support exception allowed creditors to reach it.

🧭 Overview

🧠 One-sentence thesis

Spendthrift trusts generally shield trust assets from creditors, but the law carves out exceptions for certain obligations—such as child support, alimony, and taxes—that are considered duties rather than debts, while most jurisdictions still bar tort creditors from reaching trust funds.

📌 Key points (3–5)

• What a spendthrift trust does: prevents both voluntary and involuntary transfer of a beneficiary's interest, shielding assets from creditors until paid to the beneficiary.
• Voluntary vs. involuntary creditors: voluntary creditors (e.g., credit card companies) generally cannot reach trust funds; involuntary creditors (e.g., spouses, children) may attach funds for support obligations; tort victims are usually barred.
• Duty vs. debt distinction: the law permits invasion of spendthrift trusts for obligations classified as "duties" (alimony, child support, taxes) but not for ordinary "debts" (contract claims, most tort judgments).
• Common confusion: not all involuntary creditors can reach trust funds—tort victims are involuntary but are still precluded in most jurisdictions, unlike support claimants.
• Why notice matters: contract creditors can investigate a debtor's assets before extending credit; tort victims cannot, yet this alone does not override the spendthrift bar in most states.

🛡️ How spendthrift trusts work

🛡️ Basic protection mechanism

Spendthrift trust: a trust that restrains the voluntary or involuntary transfer of a beneficiary's interest, making the assets unavailable to persons outside the trust relationship.

• The beneficiary cannot voluntarily assign or sell his interest.
• Creditors cannot attach or garnish the trust assets while they remain in the trustee's hands.
• Protection ends once funds are distributed to the beneficiary—at that point, creditors may reach the money.
• Example: Brian is beneficiary of a spendthrift trust; he racks up $80,000 on his credit card; American Express cannot reach any money still held in the trust fund.

🔒 Why the law allows them

• The settlor (trust creator) is the absolute owner of the property and has the right to prescribe terms for its enjoyment, unless those terms violate public policy.
• Creditors have constructive notice: trust instruments are recorded in public offices, so creditors can investigate a debtor's resources before extending credit.
• The excerpt emphasizes: "creditors have notice of the terms and conditions on which the beneficiary is entitled to the income of the property... they do so with their eyes open."
• Don't confuse: the beneficiary does not hold the estate "in his own right"; he has only an equitable and qualified right, with legal title in the trustee.

🚪 Exceptions: who can reach spendthrift trust funds

👨‍👩‍👧 Alimony and child support

• The rule: In the majority of jurisdictions, spouses and children are permitted to attach spendthrift trust funds to satisfy alimony and child support obligations.
• Why: These obligations are classified as "duties," not "debts."
  • They arise from the marital or parental relationship and rest on sound public policy.
  • The obligation to support dependents is imposed by law and cannot be bargained away or waived (especially for children).
  • Public policy forbids a beneficiary to enjoy trust income while refusing to support dependents whom he has a duty to support.
• Example: In Drevenik v. Nardone, a father owed child support arrears; the court ordered the trustee to pay from both principal and income of the spendthrift trust established for the father's "support, education, and welfare," reasoning that supporting his children is part of his own support needs.
• The excerpt states: "alimony represents a duty and not a debt"; "the obligation of the father to support... is a duty not a debt."

💰 Taxes

• The rule: Federal and state tax claims can invade a spendthrift trust.
• Why: The public policy involved is "quite different" when the claim is by the government for taxes.
  • The imposition of the tax burden is not voluntary by the beneficiary.
  • The public interest in collecting taxes for the support of government outweighs the donor's intent to protect the beneficiary.
• Example: In Mercantile Trust Co. v. Hofferbert, the court allowed attachment for United States income taxes, distinguishing tax obligations from ordinary creditor claims.

🏥 Necessaries (limited exception)

• The rule: A person who furnishes necessary services or support to the beneficiary can reach the beneficiary's interest.
• Who qualifies: The excerpt mentions "people like doctors and grocers" who provide necessities.
• This exception is narrower and less frequently discussed than support and tax exceptions.

⚖️ What the exceptions have in common

Obligation type	Classification	Rationale
Alimony	Duty, not debt	Marital obligation; public policy against abandoning spouse
Child support	Duty, not debt	Parental obligation imposed by law; cannot be waived
Taxes	Duty, not debt	Government's interest in revenue; non-voluntary burden
Contract debts	Debt	Voluntary extension of credit; creditor had notice

• The excerpt emphasizes: these dependents "are not 'creditors' of the beneficiary, and the liability of the beneficiary to support them is not a debt."
• Don't confuse: the basis for these exceptions is not lack of notice, but the fundamental nature of the obligation as a duty imposed by law or public policy.

🚫 Who cannot reach spendthrift trust funds

💳 Voluntary creditors

• The rule: Voluntary creditors—those who extend credit by choice—cannot reach spendthrift trust assets.
• Example from the excerpt: Brian uses his American Express card for an $80,000 shopping spree; American Express is considered a voluntary creditor and cannot reach the trust fund.
• Why: The company gave Brian a credit card knowing (or having the ability to know) the terms of his trust interest.

🚗 Tort victims (majority rule)

• The rule: In most jurisdictions, tort victims who are involuntary creditors are precluded from receiving money from a spendthrift trust.
• The key case: Duvall v. McGee
  • McGee was convicted of felony-murder; the victim's estate obtained a $600,000 judgment against him.
  • McGee was beneficiary of an $877,000 spendthrift trust established by his mother.
  • The court held the trust could not be invaded to satisfy the tort judgment.
  • Reasoning: "Ms. Ryon's estate is a mere judgment creditor of McGee... The Trust simply has no legal duty to Ms. Ryon's estate and certainly no obligation to provide support."
• Why tort victims are barred:
  • The obligation is still classified as a "debt," not a "duty."
  • The rationale for support/alimony/tax exceptions (legal duty imposed by law or relationship) does not apply.
  • Although tort victims lack notice and cannot choose their tortfeasor, "that fact alone does not make the claim... anything other than a debt or make its exemption from the bar of a spendthrift trust, a matter of public policy."
• Minority view: The excerpt notes that Mississippi briefly allowed tort creditors to invade spendthrift trusts in Sligh v. First National Bank (1997), but the state legislature reversed this rule five months later by statute.
• Scholarly opinion: Treatise writers (Scott, Bogert, Restatement) argue that tort creditors should be able to reach spendthrift trusts because:
  • "A man who is about to be knocked down by an automobile has no opportunity to investigate the credit of the driver."
  • "There seems to be something rather shocking in the notion that a man should be allowed to continue in the enjoyment of property without satisfying the claims of persons whom he has injured."
  • However, the excerpt makes clear this is not the law in most jurisdictions.

🔍 Common confusion: involuntary ≠ automatic exception

• Not all involuntary creditors can reach spendthrift trusts.
• Spouses and children seeking support = involuntary creditors who can reach the trust (duty exception).
• Tort victims = involuntary creditors who cannot reach the trust in most jurisdictions (still classified as debt).
• The distinction turns on whether the obligation is a legal duty arising from a relationship or status, not merely on whether the creditor had a choice.

🧩 Special scenarios and limitations

🏦 Self-settled trusts

• The rule: "A person cannot shield his assets from creditors by placing them in a trust for his own benefit."
• If the settlor is also a beneficiary and tries to use a spendthrift provision, "the restraint is invalid against transferees or creditors of the settlor."
• Why: Protection from creditors is available only to a recipient of inherited wealth, not a person who creates a self-settled trust using earned money.
• Example statute (California): If the settlor is a beneficiary and the trust has a spendthrift provision, "the restraint is invalid against transferees or creditors of the settlor."
• Don't confuse: this rule applies only when the person who created the trust is also the beneficiary; trusts created by others (e.g., a parent for a child) are valid spendthrift trusts.

💵 After distribution to the beneficiary

• Spendthrift protection applies only while assets are in the trustee's hands.
• Once the trustee distributes funds to the beneficiary, creditors may attach those funds.
• Example from the class discussion tool: Oscar (trustee) gives Marvin (beneficiary) $10,000 in cash, which Marvin deposits in his checking account; American Express can now attempt to attach the money in Marvin's checking account because it is no longer in the trust.

📋 Trust language and settlor intent

• The Drevenik court examined the trust language: the trust was established for the "support, welfare, and education" of the beneficiary.
• The court reasoned: "the idea of providing support... includes all reasonable living expenses that one would incur in the course of daily living, such as those involved in rearing children."
• If the children lived with the beneficiary, trust assets would be used to meet their daily needs; therefore, the trust can be invaded for child support even if the children live elsewhere.
• Don't confuse: the court is not rewriting the trust terms; it is interpreting "support" broadly to include the beneficiary's legal obligation to support his children.

⚖️ Public policy limits

• Even if a settlor's intent is clear, public policy may override it.
• The excerpt states: "even if it was the decedent's intent to deprive her grandchildren of the assets within the trust, the public policy of this Commonwealth would forbid such a result."
• Example: In Moorehead's Estate, the court held that a spendthrift trust could not shield assets from a wife's support claim, even if the testatrix intended to protect the beneficiary from all creditors, because "such a result was forbidden by the public policy of this Commonwealth."

🔬 The duty vs. debt distinction

🔬 Why the distinction matters

• This is the core legal test courts use to decide whether a spendthrift trust can be invaded.
• Duty: an obligation imposed by law or arising from a legal relationship (marriage, parenthood, citizenship); these can pierce the spendthrift shield.
• Debt: an obligation founded on a contract or other voluntary arrangement; these cannot pierce the shield.
• The excerpt repeatedly emphasizes: "the liability of the beneficiary to support them is not a debt"; "alimony represents a duty and not a debt"; "the obligation to pay alimony... is regarded not as a debt, but as a duty."

🔬 How courts apply it

• Alimony: "an award made by the court for food, clothing, habitation and other necessaries for the maintenance of the wife... a duty, not a debt."
• Child support: "based, in essence, upon the statutory obligation of the father, declaratory of the common law, to support his child"; "a duty not a debt."
• Taxes: "the public interest is directly affected with respect to collection of taxes for the support of the government"; the imposition is not voluntary.
• Tort judgments: classified as debts because they do not arise from a legal relationship or status; they are "mere judgment[s]" even if the creditor is involuntary.
• Contract debts: clearly debts; the creditor voluntarily extended credit.

🔬 Arguments that failed

• In Duvall v. McGee, the appellant argued that the court had previously said "the creditor's interests are not great enough to permit an invasion of this trust," implying that some creditors' interests are great enough.
• The court rejected this: "This is a very slender reed on which to base such an important concept."
• The appellant also argued that McGee (a convicted murderer) should not benefit from the trust, invoking public policy against criminals profiting from crimes.
• The court rejected this too: McGee's benefit from the trust "vested prior to the commission of his criminal acts and is completely independent of, and separate from, his criminal conviction"; he is not benefiting from the crime, but from his status as a life beneficiary under his mother's trust.

🔬 Dissenting view

• In Duvall, Judge Battaglia dissented, arguing that tort victims should be treated like support claimants.
• Her reasoning: "to equate victims of tortious conduct with contract creditors and distinguish them from recipients of alimony, child support, and tax claims, is without merit."
• She emphasized: "The obligation to restitute a wrong is commensurate with the obligations to pay alimony, child support, and taxes."
• However, this remains the minority view; the majority held that the "duty-debt" distinction is controlling and tort obligations are debts.

---

Summary table: Can this creditor reach a spendthrift trust?

Creditor type	Can reach trust?	Reason
Credit card company	❌ No	Voluntary creditor; had notice
Ex-spouse (alimony)	✅ Yes	Duty, not debt; public policy
Child (support)	✅ Yes	Duty, not debt; cannot be waived
Government (taxes)	✅ Yes	Duty; public interest in revenue
Doctor/grocer (necessaries)	✅ Yes (limited)	Furnished necessary services
Tort victim	❌ No (majority rule)	Classified as debt, not duty
Self (settlor = beneficiary)	✅ Yes	Cannot shield own assets this way

🧭 Overview

🧠 One-sentence thesis

Courts will not remove a trustee simply for disputes with beneficiaries or bad behavior unless the trustee's actions negatively impact the beneficiary, and the party seeking removal must factually demonstrate errors necessitating removal.

📌 Key points (3–5)

• Standard for removal: Courts require factual demonstration of errors that harm beneficiaries, not merely disputes or general bad behavior.
• Discretion not abuse: A court does not abuse its discretion by denying removal when claims of breach are not clearly erroneous.
• Attorney fees from trust: When beneficiaries sue trustees, the trustee's attorney fees are paid from trust funds, which can deplete the trust if disputes are constant.
• Common confusion: Bad blood or irreconcilable differences alone do not justify removal—there must be demonstrated harm to the beneficiary.
• Specific grounds: Failure to preserve or make trust property productive may justify removal only if factually proven.

⚖️ Legal standard for trustee removal

⚖️ What the court requires

The court will not remove a trustee simply because he has a dispute with the beneficiary or because he is a bad actor unless his behavior negatively impacts the beneficiary.

• The burden is on the party seeking removal to factually demonstrate an error necessitating removal.
• In the Baird case, the District Court considered all claims but found they were not clearly erroneous.
• Example: Baird asserted Goulet failed to preserve trust property by being unaware of mineral interests, but could not factually demonstrate the error.

🚫 What does not justify removal

• Mere disputes between trustee and beneficiary are insufficient.
• General bad behavior or character flaws do not warrant removal.
• The key distinction: Does the conduct negatively impact the beneficiary?
• Don't confuse: A trustee being difficult or disagreeable is different from a trustee causing actual harm to trust assets or beneficiaries.

💰 Attorney fees and trust depletion

💰 How fees are paid

• When a beneficiary sues the trustee claiming breach of trust, the trustee's attorney fees are paid out of the trust funds.
• This creates a risk: constant challenges by beneficiaries can deplete trust assets.
• Example: If there is bad blood and a beneficiary constantly challenges the trustee's actions, most of the trust funds could end up in the hands of attorneys.

🤔 Policy question raised

• The excerpt poses a question: Would it make sense to permit the court to remove a trustee for having irreconcilable differences with the beneficiary?
• This suggests a tension between the current standard (requiring demonstrated harm) and practical concerns about trust preservation.
• The excerpt does not answer this question but highlights the problem of fee depletion.

📋 Hypothetical removal scenarios

The excerpt presents four problems asking when a court might remove a trustee:

📋 Scenario A: Bank acquisition and ethical concerns

• Jackson established a trust for his children; Main Bank became trustee.
• Main Bank was acquired by New Bank, which is suspected of financing genocide in Darfur.
• Question: Does the new bank's suspected unethical conduct justify removal?

📋 Scenario B: Trustee bankruptcy

• Albert established a trust for grandchildren; Zelda became trustee.
• Zelda later had financial problems and filed bankruptcy.
• Question: Does the trustee's personal financial instability warrant removal?

📋 Scenario C: Trustee affair with beneficiary

• Yolanda established a discretionary support trust for sisters Kelly and Tiffany; Peyton became trustee.
• Peyton later started having an affair with Kelly (one of the beneficiaries).
• Question: Does a personal relationship creating potential bias justify removal?

📋 Scenario D: Tax protester trustee

• Velma established a trust for nieces and nephew; Otis became trustee.
• Otis later became a tax protester and refused to pay state and federal taxes.
• Question: Does the trustee's refusal to comply with tax laws warrant removal?

🔍 Analysis framework

For each scenario, apply the standard:

• Is there a factual demonstration of error?
• Does the conduct negatively impact the beneficiary?
• Is there harm to trust property or administration?

The excerpt does not provide answers but sets up these scenarios to test the removal standard.

🧭 Overview

🧠 One-sentence thesis

The excerpt does not contain substantive content related to "Claflin and Material Purpose"; instead, it presents case law on trustee removal standards and introduces the creation and modification of charitable trusts.

📌 Key points (3–5)

• Trustee removal standard: courts will not remove a trustee simply for disputes with beneficiaries or bad behavior unless it negatively impacts the beneficiary.
• Attorney fees issue: when beneficiaries sue trustees, attorney fees come from trust funds, potentially depleting the trust through constant litigation.
• Charitable trust requirements: must satisfy all private trust requirements (intent, beneficiaries, res, writing) plus have a charitable purpose benefiting an indefinite class.
• Charitable purposes: include relief of poverty, advancement of education/religion, promotion of health, government purposes, and other community benefits.
• Common confusion: not every socially beneficial purpose qualifies as charitable—the trust must benefit an indefinite class, not specific named individuals.

⚖️ Trustee removal standards

🚫 When courts will not remove trustees

The excerpt establishes a high bar for trustee removal:

• Courts will not remove a trustee merely because of disputes with beneficiaries.
• Bad behavior alone is insufficient grounds for removal.
• The trustee's conduct must negatively impact the beneficiary to justify removal.

Example: In the Baird case, the court affirmed the district court's refusal to remove Goulet as trustee because Baird did not factually demonstrate errors necessitating removal, even though he claimed she failed to preserve trust property and make it productive.

💰 The attorney fees problem

A practical concern arises when beneficiaries challenge trustees:

• Trustee's attorney fees are paid from trust funds.
• If bad blood exists, constant challenges can drain the trust.
• Most trust funds could end up in attorneys' hands rather than benefiting beneficiaries.

The excerpt poses a question: Should courts be permitted to remove trustees for "irreconcilable differences" with beneficiaries to prevent this outcome?

🔍 Removal scenarios to consider

The excerpt presents four hypothetical situations for analysis:

Scenario	Issue	Potential removal ground
New Bank financing genocide	Trustee's parent company suspected of financing genocide in Darfur	Ethical conflict with settlor's values (former slave's trust)
Zelda's bankruptcy	Trustee filed bankruptcy due to financial problems	Financial instability affecting trust management
Peyton's affair with beneficiary	Trustee having affair with one beneficiary (Kelly) in discretionary support trust	Conflict of interest; favoritism risk
Otis the tax protester	Trustee refuses to pay state and federal taxes	Legal violations; potential trust liability

🎯 Charitable trust creation requirements

📋 Basic requirements

To create a charitable trust, the settlor must satisfy all requirements for a private trust (intent, beneficiaries, res, and writing) and intend for the trust to be used for a charitable purpose.

The charitable trust builds on private trust foundations but adds an additional layer:

• All standard trust elements must be present.
• The purpose must be charitable.
• The beneficiaries must be an indefinite class of persons, not specific named individuals.

🏛️ Valid charitable purposes

The excerpt lists six recognized categories:

1. Relief of poverty
2. Advancement of education
3. Advancement of religion
4. Promotion of health
5. Government or municipal purposes
6. Other purposes beneficial to the community

Don't confuse: "beneficial to the community" is not unlimited—the trust must still benefit an indefinite class, not just be socially useful.

🧪 Distinguishing charitable from non-charitable purposes

🔬 Analyzing purpose examples

The excerpt presents eight hypothetical trusts for classification:

Likely non-charitable (benefiting specific/definite persons):

• Museum for settlor's personal love letters → personal vanity, not community benefit
• House for a specific church minister → benefits one named individual
• Sending Tina to college if she teaches in settlor's hometown → benefits one named person (Tina)

Potentially charitable (indefinite class + recognized purpose):

• Stem cell research → advancement of health/science
• Gym memberships for residents at least 50 pounds overweight → promotion of health for indefinite class
• Community garden → community benefit
• Church choir annual vacation → possibly advancement of religion, but may be too recreational
• Law professor's salary → possibly advancement of education, but context matters

⚖️ The cy pres doctrine

The excerpt mentions that courts have more flexibility with charitable trusts:

• Courts can modify terms of charitable trusts.
• In some cases, courts can repurpose the funds in the trust.
• The Marsh v. Frost National Bank case involves application of the cy pres doctrine to reform a will provision.

Cy pres doctrine: (implied from context) a legal principle allowing courts to modify charitable trust terms when circumstances change.

The excerpt does not provide details on how cy pres works, only that it was applied in the Marsh case to modify a provision in Charles Vartan Walker's will.

🧭 Overview

🧠 One-sentence thesis

Trustees must collect, protect, and properly segregate trust property by earmarking it as trust property and avoiding commingling, though they are liable only for losses directly caused by their failure to follow these duties.

📌 Key points (3–5)

• Duty to collect and protect: trustees must obtain trust assets, verify they match the trust instrument, and take steps to preserve the property based on its nature.
• Duty to earmark: trustees must clearly label property as belonging to the trust (e.g., putting the trust's name on a deed) to prevent the trustee's personal creditors from attaching it.
• Duty not to comingle: trustees must keep trust property separate from their own property (e.g., maintaining separate bank accounts).
• Common confusion: earmarking vs. comingling—earmarking violations occur when the trustee treats trust property as their own; comingling violations occur when trust and personal property are mixed together, making it hard to tell which is which.
• Limited liability: trustees are only liable for losses that directly result from failing to earmark or from comingling, not for unrelated economic losses.

🛡️ Collecting and protecting trust property

📥 Initial collection duty

• When the settlor (testator) dies, the trustee must obtain possession of trust assets from the estate executor as soon as feasible.
• The trustee must examine the property received to ensure it matches what is listed in the trust instrument.
• If there is a discrepancy, the trustee has a duty to challenge the executor, including filing a lawsuit if necessary.

Example: O leaves $400,000 to A in trust for B. The executor delivers only $300,000 to A. A must resolve this $100,000 discrepancy with O's executor.

🔒 Ongoing protection duty

• Once the trustee receives the property, they must take steps to preserve it based on the property's nature.
• For real property (houses): keep in good repair, pay necessary taxes.
• For money: invest the principal prudently to generate sufficient income for beneficiaries.
• The trustee holds legal title and owes a fiduciary duty to preserve the property for the beneficiary.

🏷️ The duty to earmark trust property

🏷️ What earmarking means

Earmarking: the trustee's duty to clearly label property as belonging to the trust rather than to the trustee personally.

• The trustee must make it clear they own the property "as trustee," not as an individual.
• Example: if A receives a house to hold in trust for B, A must put the trust's name on the deed instead of their own name.

🎯 Purpose of earmarking

• Prevents the trust property from being attached by the trustee's personal creditors.
• Makes it legally clear that the property belongs to the trust, not to the trustee individually.

📜 Exception for certain securities

• The trustee is not obligated to earmark certain types of securities.
• Bearer bonds (bonds payable to bearer) are a proper investment and need not be registered in the trustee's name as trustee, according to long-established practice.
• The Restatement and Scott on Trusts both confirm that trustees may hold bearer bonds without registering them.

⚖️ Liability for failing to earmark

• The trustee is only liable for losses that directly result from the failure to earmark.
• Not liable for unrelated losses (e.g., general economic conditions).

Example: O gives A an apartment building in trust to pay rental income to B for life. A records the deed in A's own name (fails to earmark). The main employer in the area closes, vacancy rates rise to 90%, and the trust loses substantial revenue. A is not liable because the loss resulted from general economic conditions, not from the failure to earmark. However, if A's creditor attaches a lien to the property because it wasn't earmarked, A would be responsible for any resulting loss.

🚫 The duty not to comingle trust funds

🚫 What comingling means

Comingling: mixing trust property with the trustee's own property, making it difficult to distinguish which property belongs to the trust and which belongs to the trustee.

• The trustee must keep trust property separate from personal property.
• Example: if O leaves $400,000 in trust to A for B, A cannot place that money in A's personal bank account; A must place it in a separate trust account.

⚖️ Liability for comingling

• The trustee is only liable for losses the trust suffers as a direct result of the comingling.
• If the trustee's creditors are able to reach the comingled funds, the trustee is liable.
• If the loss occurs for unrelated reasons (e.g., bank failure, theft), the trustee is not responsible.

🏢 Exception for corporate trustees

• Some jurisdictions permit corporate trustees to comingle trust funds by statute or common law.
• Rationale: encourages corporate entities to manage small trusts by allowing them to pool trust resources for efficiency.

🔍 Distinguishing earmarking from comingling

🔍 How to tell them apart

The excerpt emphasizes focusing on the trustee's actions:

Violation	What the trustee does	Legal status	Key issue
Failing to earmark	Treats trust property as if it is their own property	Property is registered/titled in the trustee's personal name	Legally the property appears to belong to the trustee individually
Comingling	Mixes trust property with personal property	Trustee acknowledges property belongs to the trust	Difficulty determining which property belongs to the trustee and which belongs to the trust

🧩 Practice problems analysis

The excerpt provides five scenarios to distinguish the two violations:

1. Jewels in trustee's safe deposit box and on trustee's insurance policy: Failing to earmark (trustee treats jewels as their own property).

2. Horses placed in stable with trustee's own horses: Comingling (trust horses mixed with personal horses, hard to tell which is which).

3. Art collection registered in trustee's name: Failing to earmark (trustee treats art as their own property by registering it personally).

4. Million dollars deposited in trustee's personal bank account: Comingling (trust money mixed with personal money).

5. Antique car titles recorded in trustee's name: Failing to earmark (trustee treats cars as their own property by titling them personally).

Don't confuse: In both violations, the trustee is only liable for losses directly caused by the violation, not for unrelated losses like general economic downturns, bank failures, or theft.

🧭 Overview

🧠 One-sentence thesis

Trustees may hold bearer bonds without registering them in the trustee's name, provided the bonds are earmarked and segregated as trust property, and trustees must not delegate discretionary duties but may delegate ministerial tasks and investment decisions if they exercise reasonable care in selecting and monitoring delegates.

📌 Key points (3–5)

• Bearer bonds are permissible: Trustees may invest in and hold bonds payable to bearer without registration, as long as they are earmarked and kept separate from personal property.
• Delegation boundaries: Trustees cannot delegate discretionary duties (e.g., deciding when to distribute funds) but may and sometimes must delegate ministerial duties and investment decisions.
• Common confusion: The duty not to delegate does not prohibit all delegation—trustees must delegate investment tasks when they lack expertise, but they retain a duty to monitor the delegate.
• Prudent investor standard: Trustees must invest as a reasonable prudent investor would, including diversifying unless special circumstances justify otherwise, and monitoring delegated investment responsibilities.

📜 Bearer bonds and earmarking requirements

📜 What bearer bonds are and why they're allowed

Bearer bonds: bonds payable to whoever holds them, not registered in any specific person's name.

• Long-established practice permits trustees to invest in bearer bonds without registering them in the trustee's name.
• The excerpt cites Scott on Trusts and the Restatement of the Law on Trusts: "If a bond is otherwise a proper trust investment, the mere fact that it is payable to bearer does not render it an improper trust investment."
• Example: A trustee purchases municipal bonds in bearer form; this is acceptable even though registered bonds of the same issue are available.

🏷️ Earmarking and segregation obligations

• Trustees must keep bearer bonds separate and distinct from their own personal property.
• The bonds must be kept in a safe deposit box or other earmarked custody in the name of the fiduciary of the specific estate.
• All transactions (purchases, sales) must be conducted in the trustee's name as fiduciary, not in the individual name.
• Don't confuse: The prohibition is against mingling trust property with personal property, not against holding bearer bonds themselves.

⚖️ Legal authority and historical practice

Source	Rule
Section 231, Surrogate's Court Act	Fiduciaries must keep trust funds separate but are not compelled to register bonds; may retain and invest in bearer bonds
Matter of Halstead	Not negligent for trustee to permit securities to remain negotiable or to purchase others in such form
Cooper v. Illinois Central R.R.	Trustees have the right to restore bonds to bearer form; no rule requires registration of bearer bonds

• The 1939 amendment to Section 231 confirmed that the law does not "compel the fiduciary or the depository to register bearer bonds or to prohibit their retention without registration so long as such bearer bonds are identified, earmarked and segregated."

🚫 The duty not to delegate

🚫 Core principle: no delegation of discretionary duties

• The settlor selected the trustee based on confidence in that person's judgment and ability.
• The settlor did not want someone else to manage the trust property.
• Trustees are obligated not to delegate discretionary duties to a third party.
• Example: The trustee of a discretionary support trust cannot let a third party decide if and when to distribute money to the beneficiary—this is a discretionary duty that must not be delegated.

✅ What may be delegated: ministerial duties

• It would be too burdensome to force a trustee to personally perform all acts necessary to administer a trust.
• Trustees may delegate ministerial duties (routine, non-discretionary tasks).
• Don't confuse ministerial with discretionary: ministerial tasks are mechanical or administrative; discretionary tasks involve judgment about trust purposes or beneficiary needs.

💼 Investment delegation: a special case

• The main duty of a trustee is usually to invest the trust property to ensure enough income for the beneficiary.
• The law recognizes that the trustee may not have enough expertise to make investment decisions.
• A trustee who delegates investment duties to a stockbroker does not breach the duty not to delegate.
• In fact, the duty of prudence requires the trustee to delegate such tasks when the trustee lacks expertise.

👁️ Monitoring obligation after delegation

• The trustee cannot simply turn over the management of the trust funds to another person.
• The trustee has a duty to exercise reasonable care in:
  • Selecting the person to whom duties are delegated
  • Monitoring the activities of that person
• Example: A trustee delegates investment decisions to a stockbroker but must regularly review the stockbroker's performance and decisions.

🎯 Duty of prudence and the prudent investor standard

🎯 Evolution from common law to modern standard

Standard	Description
Common law	Trustee must exercise such care and skill as a prudent man would exercise when dealing with his own property (similar to tort "reasonable man" standard)
Current standard	Trustee must invest in a manner consistent with that of a reasonable prudent investor

• The trustee's actions were evaluated based upon the totality of the facts.
• The prudent investor standard is based upon the Uniform Prudent Investor Act and the Restatement (Second) of Trusts.
• The standard has been codified in the majority of American jurisdictions.

🧩 Components of the prudent investor duty

The duty of prudence includes:

• Sensitivity to risks and return: Trustees must consider both the potential gains and the risks of investments.
• Diversification: Trustees must spread investments across different assets.
• Delegation when appropriate: Trustees must delegate investment tasks when they lack expertise.

🌳 Diversification requirement and exceptions

• A trustee has a duty to diversify unless special circumstances warrant otherwise.
• The trustee must decide that "because of special circumstances the purposes of the trust would be better served without diversifying."
• Cases in which courts find special circumstances justifying failure to diversify are few in number.
• Special circumstances usually occur when the trust consists of family property.
• Example: A trust holds a family business or family land; the trustee may justify not diversifying to preserve the family property intact.

🔍 Monitoring delegated investment responsibility

• Even when investment decisions are properly delegated, the trustee retains a duty to monitor the actions of the person to whom investment responsibility is delegated.
• This monitoring obligation is part of the prudent investor standard.
• Don't confuse: Delegation does not eliminate the trustee's responsibility—it shifts from making investment decisions to overseeing the delegate's performance.

🧭 Overview

🧠 One-sentence thesis

A trustee must act as a prudent investor by balancing the interests of income beneficiaries and remaindermen, diversifying assets unless special circumstances justify concentration, and delegating investment decisions when appropriate while maintaining oversight—with performance judged by conduct at the time of decision, not by hindsight or results alone.

📌 Key points (3–5)

• Prudent investor standard: Trustees must exercise the care and skill of a reasonable prudent investor, considering risk, return, diversification, and the needs of all beneficiaries (both income and remainder).
• Balancing duty: Trustees must maintain balance between income beneficiaries (who receive current payments) and remaindermen (who receive the corpus later); favoring one over the other breaches fiduciary duty.
• Diversification requirement: Trustees have a duty to diversify trust assets unless special circumstances (e.g., family property) justify concentration in a single asset or asset class.
• Common confusion—results vs. conduct: The prudent investor rule focuses on the trustee's decision-making process and conduct at the time of the decision, not on whether the trust ultimately gained or lost money.
• Delegation and monitoring: Trustees may (and sometimes must) delegate investment decisions to experts like stockbrokers, but they retain a duty to select agents carefully and monitor their performance.

📊 The prudent investor standard

📊 What the standard requires

The prudent investor rule: A trustee must "exercise the judgment and care under the circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs."

• This standard originated in the Harvard College case (1830), which recognized that trust assets face market uncertainties and that the standard must be flexible.
• The trustee must consider:
  • General economic conditions
  • Inflation or deflation effects
  • Expected total return (income plus capital appreciation)
  • Beneficiaries' other resources
  • Needs for liquidity, regular income, and preservation or appreciation of capital
• The rule has been codified in most American jurisdictions through the Uniform Prudent Investor Act and the Restatement (Second) of Trusts.

⚖️ Conduct, not results

• Key principle: Courts evaluate the trustee's performance (decision-making process), not the trust's performance (net gain or loss).
• The Estate of Cooper court stated: "The court's focus in applying the Prudent Investor standard is conduct, not the end result."
• Whether an investment is prudent is a question of fact, evaluated based on the totality of circumstances at the time of the decision.
• Example: A trustee who makes a well-researched, balanced decision that later loses money due to unforeseeable market collapse has not breached the duty; a trustee who makes a careless decision that happens to profit has still breached the duty.

🚫 Don't confuse: Hindsight vs. contemporaneous evaluation

• The Indiana Uniform Prudent Investor Act explicitly states: "Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight."
• In Stuart Cochran Trust, the court emphasized that even though the beneficiaries received less money due to the trustee's decision, the decision was prudent given the facts known at the time (declining markets, risk of policy lapse, grantor's limited resources).
• Don't judge a 2003 decision based on what happened in 2004; judge it based on what was known and reasonable in 2003.

⚖️ Balancing income and remainder beneficiaries

⚖️ The duty to balance

• A trustee must "maintain a balance between the rights of income beneficiaries with those of the remainderman."
• Income beneficiaries receive regular payments from trust income; remaindermen receive the trust corpus (principal) when the trust terminates.
• The trustee must consider both "the probable income, as well as the probable safety of the capital to be invested."

🚨 What happens when a trustee favors one class

• In Estate of Cooper, the trustee (who was himself the income beneficiary) invested 87% of marketable securities in bonds, heavily favoring current income over capital growth.
• During the relevant period, inflation averaged 6% per year, but the trust's securities appreciated only 2.15% per year—meaning the purchasing power of the corpus decreased nearly 4% annually.
• The court found this breached the duty to balance: the trustee had "maintained a policy of investment which maximized the income of the estate to the detriment of the growth of the corpus."
• The court surcharged the trustee (required him to pay the trust) for the loss to the remainder interest.

📉 Example scenario

• A trust has $1 million in assets. The income beneficiary is the grantor's spouse; the remaindermen are the grantor's children.
• If the trustee invests 100% in high-yield bonds that pay 8% annually but do not appreciate, the spouse receives $80,000/year, but after 10 years of 3% inflation, the $1 million corpus has lost significant purchasing power—the children receive less in real terms.
• A balanced approach might invest partly in growth stocks (for capital appreciation benefiting remaindermen) and partly in income-producing bonds (for current income benefiting the spouse).

🧩 Diversification duty

🧩 The general rule

• The prudent investor standard includes a duty to diversify trust assets.
• Diversification reduces risk by spreading investments across different asset types, sectors, and securities.
• A trustee must diversify "unless he decides that because of special circumstances the purposes of the trust would be better served without diversifying."

🏠 Special circumstances exception

• Courts rarely find special circumstances justifying failure to diversify.
• The most common exception: the trust consists of family property (e.g., a family business or real estate with sentimental or strategic value).
• In the Class Discussion Tool hypothetical, Glover Washington placed 60% of the trust in Washington Computer stock, representing 58% ownership of the family company, and explicitly stated he wanted descendants to maintain controlling interest—this might constitute special circumstances.
• However, even with special circumstances, the trustee must still act prudently and may need to diversify other portions of the portfolio.

⚠️ Consequences of failing to diversify

• In Baker Boyer National Bank, the trustee invested primarily in fixed-income securities and failed to weigh those investments against the trust's farmland holdings for diversification purposes.
• The court held this breached the duty to diversify.
• In Estate of Cooper, the trustee's 87% concentration in bonds (versus 13% in common stocks) was found imprudent given the lack of other assets to balance against this investment.

🔍 Portfolio approach

• The prudent investor rule requires evaluating "individual assets not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy."
• A single risky investment might be prudent if it is part of a diversified portfolio; the same investment might be imprudent if it represents the entire trust corpus.

🤝 Delegation and monitoring

🤝 When delegation is appropriate

• The law recognizes that trustees may lack investment expertise.
• A trustee who delegates investment duties to a stockbroker or other expert does not breach the duty not to delegate.
• In fact, the duty of prudence requires the trustee to delegate tasks beyond the trustee's competence.
• The Uniform Prudent Investor Act provides: "A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances."

👁️ The duty to monitor

• Delegation does not eliminate the trustee's responsibility.
• The trustee "cannot simply turn over the management of the trust funds to that person."
• The trustee has a duty to:
  1. Exercise reasonable care in selecting the agent
  2. Establish appropriate scope and terms of the delegation
  3. Periodically review the agent's actions to monitor performance and compliance

📋 Example: Using outside consultants

• In Stuart Cochran Trust, KeyBank (the trustee) retained Oswald & Company, an independent insurance consultant, to audit the trust's variable universal life insurance policies.
• KeyBank asked Oswald to review alternative policies and provide recommendations.
• KeyBank then made its own decision based on Oswald's analysis—this was proper delegation with appropriate oversight.
• The court found no improper delegation even though an insurance advisor (Roberson) also submitted proposals, because KeyBank used an independent expert (Oswald) to evaluate those proposals.

🚫 Don't confuse: Delegation vs. abdication

• Proper delegation: Trustee hires a stockbroker, provides investment guidelines consistent with the trust's needs, and reviews quarterly performance reports.
• Improper abdication: Trustee tells stockbroker "do whatever you think is best" and never checks on the account.
• The beneficiaries in Stuart Cochran argued KeyBank improperly delegated to Roberson, but the court found KeyBank made its own decisions after obtaining independent expert analysis—this was delegation with monitoring, not abdication.

🔬 Evaluating specific investments vs. overall portfolio

🔬 The portfolio-wide approach

• The prudent investor rule states that "investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole."
• Overall trust performance is a factor in evaluating the trustee's performance, but it is not controlling by itself.
• In Estate of Cooper, the trust's overall performance was boosted by a large gain from selling Western Frontiers stock, but this did not excuse the trustee's imprudent management of the remaining securities.

🔍 When courts examine individual assets

• Courts may properly consider individual assets or groups of assets when evaluating whether the trustee acted prudently.
• In Estate of Cooper, the court examined the trustee's management of marketable securities separately from the Western Frontiers stock sale.
• The court found the trustee could not have anticipated the Western Frontiers gain when making other investment decisions, and the gain did not justify the imprudent concentration in bonds afterward.

⚖️ Weighing different asset classes

• In Baker Boyer, the court noted the trustee "had not weighed the investment in securities against the investment in the farmland for purposes of diversification."
• Similarly, in Estate of Cooper, the trustee "did not weigh his investment in income-producing securities against his investment in Western Frontiers."
• A trustee must consider how different assets in the portfolio interact and balance each other—not just whether each asset individually performs well.

🛡️ Protecting trust corpus vs. maximizing returns

🛡️ The preservation duty

• Trustees have a duty to "preserve the trust property" and "make the trust property productive for both the income and remainder beneficiary."
• "Productive" includes both producing income and investing for potential appreciation.
• This creates tension: aggressive investments may maximize returns but risk losing principal; conservative investments preserve capital but may not keep pace with inflation.

📉 The Stuart Cochran scenario

• In 2003, KeyBank faced a trust holding two variable universal life insurance policies that had lost money for two consecutive years due to stock market declines.
• An independent expert estimated the policies would likely lapse (terminate with no payout) before the grantor reached age 60 unless additional premiums were paid—but the grantor had no money to invest.
• KeyBank exchanged the policies for a guaranteed policy with a lower death benefit ($2.5 million vs. potentially $8 million) but no risk of lapse.
• When the grantor died unexpectedly at age 53, the beneficiaries received $2.5 million instead of $8 million and sued.

⚖️ The court's analysis

• The court found KeyBank acted prudently by protecting the trust from "the vagaries of the stock market and from predicted lapse of the existing policies."
• "Had the insurance policies lapsed, the Beneficiaries would have received no distribution from the Trust"—this outcome would have violated the grantor's intent.
• The court acknowledged that a "wait and see" approach might also have been prudent, but "the prudent investor standard gives broad latitude to the Trustee in making these types of decisions."
• The trustee chose between two viable options and made a reasonable decision given the circumstances.

🎯 Key principle: Reasonable choices

• When multiple investment strategies are reasonable under the circumstances, the trustee does not breach the duty by choosing one over another.
• The prudent investor standard does not require the trustee to make the best decision in hindsight, only a reasonable decision at the time.

📋 Procedural and reporting duties

📋 Duty to account

• A trustee has a duty to provide beneficiaries with "complete and accurate information concerning any matter related to the administration of the trust."
• The trustee must deliver an annual written statement of accounts to each income beneficiary or her representative.
• Beneficiaries have the right to inspect trust property, accounts, and documents.

🚨 Consequences of failing to report

• In Stuart Cochran, KeyBank sent annual reports to the grantor (the beneficiaries' father) rather than to their custodial parent (their mother) while the beneficiaries were minors.
• When one beneficiary turned 18, KeyBank inadvertently failed to send her the annual report, though it provided documents when she requested them.
• The court found these shortcomings did not rise to the level of willful withholding and, critically, were not the proximate cause of any damages to the beneficiaries.

🔗 Causation requirement

• Even if a trustee breaches a reporting duty, the beneficiaries must show the breach caused damages.
• The Stuart Cochran court found that "the receipt of timely financial reports by the Beneficiaries would not have changed the negative financial condition of the trust."
• The real causes of the reduced death benefit were "financial trends outside of the control of the Trustee or the Beneficiaries" and the grantor's unexpected death.

📄 Trust terms may limit notice requirements

• In Stuart Cochran, the trust document gave the trustee power to "sell, assign or hypothecate such policies and may exercise any option or privilege granted by such policies... without the consent or approval of the Grantor or any other person."
• Because the trust terms did not require beneficiary consent or approval for the policy exchange, the trustee had no duty to notify beneficiaries in advance.

🧪 Special considerations for life insurance trusts

🧪 Unique characteristics

• Life insurance trusts hold policies on the grantor's life, with death benefits payable to beneficiaries.
• Variable universal life (VUL) policies invest premiums in mutual funds or similar investments, so their value fluctuates with market performance.
• Guaranteed policies offer fixed death benefits regardless of market performance but typically provide lower maximum benefits.

📊 Evaluating policy performance

• In Stuart Cochran, the independent consultant (Oswald) rated policies on a scale from one (best) to five (worst).
• The existing VUL policies were rated Category Three, with warnings that "additional future premiums may be required" and the policies "should be audited every two to three years."
• The proposed guaranteed policy was rated Category One, with no further premiums required and no need for future audits.

⚖️ Balancing death benefit amount vs. certainty

• Higher potential death benefits come with higher risk (policies may lapse if markets decline or premiums aren't paid).
• Lower guaranteed death benefits provide certainty but sacrifice upside potential.
• The trustee must weigh these factors in light of the grantor's age, health, financial resources, and the trust's purposes.

🎯 The grantor's intent

• In Stuart Cochran, the court concluded that the grantor's intent "at the time he established the Trust" was for beneficiaries to receive a distribution—not for the policies to lapse with no payout.
• Even though the grantor may have preferred a larger death benefit, the trustee's decision to ensure some benefit was consistent with that fundamental intent.
• Don't confuse: The trustee should consider the grantor's intent as expressed in the trust document and circumstances of formation, not necessarily the grantor's post-creation preferences.

🏛️ Remedies and standards of review

🏛️ Surcharge remedy

• When a trustee breaches fiduciary duties, the court may surcharge the trustee—require the trustee to pay money to compensate the trust for losses.
• In Estate of Cooper, the court valued the loss to the remainder interest at $342,493 as of July 1987, plus $115,840 of expected appreciation, for a total surcharge of $458,333.
• The court offset this by $123,292 that the trustee had overfunded the trust, resulting in a net surcharge of $335,041.

📏 Standard of review on appeal

• Appellate courts review trial court findings of fact for clear error—they do not reweigh evidence.
• Findings are clearly erroneous "only when the record contains no facts to support them either directly or by inference."
• Courts give "due regard to the trial court's ability to assess the credibility of witnesses."
• Conclusions of law receive less deference; a judgment is clearly erroneous if it relies on an incorrect legal standard.

⚖️ Burden of proof

• The beneficiary challenging the trustee's actions bears the burden of proving a breach of duty.
• However, once a breach is shown, the burden may shift to the trustee to prove the transaction was fair and reasonable (especially in conflict-of-interest cases).
• In self-dealing cases (discussed in Chapter 10), the trustee's good faith and reasonableness are irrelevant—the transaction is voidable regardless.

🎯 Scope of appellate review

• In Stuart Cochran, the beneficiaries argued on appeal that KeyBank violated the prudent investor rule and breached various duties.
• The appellate court found the trial court's factual findings were supported by substantial evidence and its legal conclusions were correct.
• The court emphasized it would not "reweigh the evidence" or second-guess the trial court's credibility determinations.

---

Note: The excerpt transitions at the end to Chapter 10 (Duty of Loyalty) and includes problems/hypotheticals. The duty of loyalty material (self-dealing, conflicts of interest, etc.) is distinct from the prudent investor/duty of prudence material that forms the core of section 7.1 and has been covered above.

🧭 Overview

🧠 One-sentence thesis

A trustee's duty of loyalty requires administering the trust solely for the beneficiaries' interest, prohibiting self-dealing and conflicts of interest, and any breach of this duty—regardless of good faith or fairness—entitles beneficiaries to remedies including removal, damages, and rescission.

📌 Key points (3–5)

• Core duty of loyalty: The trustee must act solely in the beneficiaries' interest, excluding the trustee's own advantages and third-party welfare.
• Self-dealing vs. conflict of interest: Self-dealing occurs when the trustee directly buys or benefits from trust property; conflict of interest arises when the trustee facilitates transactions with someone to whom the trustee owes another fiduciary duty.
• No-further-inquiry rule for self-dealing: Courts do not examine good faith or fairness when self-dealing is proven; liability is automatic unless the settlor authorized it or beneficiaries gave informed consent.
• Common confusion: Good faith and reasonable terms do not excuse self-dealing or conflicts of interest—the law aims to deter trustees from entering positions of conflicting loyalties, not merely to prevent actual harm.
• Beneficiary remedies: Beneficiaries can recover profits, compel restoration of property, or seek removal of the trustee; the trust pursuit rule allows tracing wrongfully disposed property into newly acquired assets.

⚖️ The duty of loyalty framework

⚖️ What the duty requires

The trustee must administer the trust solely in the interest of the beneficiaries.

• This duty is similar to ERISA's exclusive benefit rule for retirement funds.
• The trustee must exclude from consideration:
  • The trustee's own advantages
  • The welfare of third persons
• The law primarily aims to deter trustees from entering positions of conflict, not just to prevent actual loss or unjust enrichment.

🚫 Two main indicators of disloyalty

The excerpt identifies two primary violations:

Type	Definition	Court's approach
Self-dealing	Trustee buys or benefits from the sale or purchase of trust property, directly or indirectly	No further inquiry; good faith and fairness irrelevant
Conflict of interest	Trustee facilitates transactions with a person/entity to whom trustee owes another fiduciary duty	Court evaluates whether transaction was fair and reasonable

Example: If an attorney serving as trustee sells trust property to one of his clients, a conflict of interest arises because the attorney owes fiduciary duties to both the trust and the client.

🛑 Self-dealing: the no-inquiry rule

🛑 Automatic liability

• When self-dealing is proven, the court makes no further inquiry.
• The trustee's good faith and the reasonableness of the transaction are irrelevant.
• Liability attaches even if the transaction was fair or beneficial to the trust.

🔍 What counts as self-dealing

The excerpt provides examples from the Boyce case:

• Snyder, as trustee, sold his own grocery store (the Eureka store) to the family trust.
• He signed documents both as seller (in his individual capacity) and as buyer (as trustee).
• Even though he sold the store for more than he originally paid, the court found this was self-dealing.

Don't confuse: Self-dealing is not about whether the trustee made a profit or whether the price was fair—it's about the trustee being on both sides of the transaction.

🛡️ Defenses to self-dealing

The trustee can avoid liability only by proving:

1. Settlor authorization: The trust instrument explicitly authorized the self-dealing, OR
2. Informed beneficiary consent: The beneficiaries consented after the trustee made full disclosure.

Even with authorization or consent, the transaction must still be fair and reasonable.

🔄 Conflict of interest: the fairness test

🔄 When it arises

A conflict of interest occurs when the trustee facilitates the sale or purchase of trust property to a person or entity to which the trustee also owes a fiduciary duty.

Example from the Boyce problems: Lionel serves as trustee for both the Isabella trust and the Carlton trust. He purchases an apartment complex from the Isabella trust for the Carlton trust. This creates a conflict because Lionel owes duties to both trusts.

⚖️ Court evaluation

Unlike self-dealing, the court will evaluate whether the transaction was fair and reasonable to the trust.

• The trustee's dual role creates a position of potentially conflicting loyalties.
• Even if the trustee acted in good faith, the conflict itself violates the duty of loyalty.

📜 The Uniform Trustees' Powers Act approach

From Edwards v. Edwards:

• If the fiduciary duty and the trustee's individual interest conflict, the trustee may exercise the power only by court authorization.
• Frank (the trustee) contracted to develop trust property at a profit to himself without court authorization.
• The court held this violated his duty of loyalty, making the agreement voidable.

Don't confuse: A conflict of interest is not excused by the trustee's good intentions or by the fact that the transaction might benefit the trust—the law prohibits the trustee from placing himself in a position where personal interest might tempt him to disregard the beneficiaries' interest.

🛠️ Beneficiary remedies

💰 Remedies for self-dealing

Beneficiaries have several options:

1. Recover profits: Hold the trustee accountable for any profit made on the transaction.
2. Compel restoration: If the trustee purchased property from the trust, sue to restore the property to the trust.
3. Return purchase price: If the trustee sold his own property to the trust, sue to make the trustee return the purchase price and take back his property.

🔍 The trust pursuit rule

If the trustee wrongfully disposes of trust property and acquires other property, the beneficiary is entitled to enforce a constructive trust on the newly acquired property.

• The new property becomes part of the trust assets.
• Beneficiaries can recover any profit or increase in value that has accrued.
• The beneficiary must prove the wrongful taking and any tracing by clear, cogent, and convincing evidence.

👤 Third-party purchasers

When trust property ends up in third-party hands:

Purchaser type	Result
Not a bona fide purchaser (BFP)	Does not hold property free of the trust; liable to beneficiary
Bona fide purchaser (BFP)	Holds property free of the trust; no liability to beneficiary

A BFP is one who pays value and takes without notice of the breach of trust.

🚪 Removal and damages

From Boyce Family Trust:

• Beneficiaries can sue for removal of the trustee.
• Beneficiaries can recover damages for breach of fiduciary duty.
• The court awarded $185,000 (difference between purchase price and actual value) plus $100,000 for loans made in conjunction with the transaction.

🧩 Key distinctions and applications

🧩 Self-dealing vs. conflict of interest examples

From the Boyce problems:

Situation	Classification	Why
Elaine's brother Chris buys property from a trust over which she is trustee	Self-dealing	Trustee's family member directly benefits
Joseph gives property to his mistress from a trust he manages	Self-dealing	Trustee directly transfers trust property for personal reasons
Galvin sells land from his medical practice to a trust he manages	Self-dealing	Trustee is on both sides (seller and buyer)
Melvin sells trust property to his patient	Conflict of interest	Trustee owes fiduciary duty to patient as psychologist
Zach sells trust property to City College where he's on the board	Conflict of interest	Trustee owes fiduciary duty to the college

⏰ Timing matters: when does the duty attach?

From Boyce:

• Snyder argued the transaction was completed before he became trustee.
• The court rejected this: "Snyder was acting in his capacity as trustee at the time of closing."
• He signed documents on May 30, 1995 accepting the trustee position; closing occurred May 31, 1995.
• At closing, he had the duty to disclose relevant information and avoid transactions beneficial to himself and detrimental to the trust.

Don't confuse: The duty of loyalty attaches as soon as the trustee assumes the role, even if negotiations began earlier.

🔒 Consent and ratification defenses

From Boyce:

• Snyder argued the beneficiaries consented and later ratified the transaction by operating the store for five years.
• The court rejected both arguments:
  • No informed consent: Boyce did not have full knowledge of material facts; Snyder had superior knowledge from 40 years in the grocery business.
  • No ratification: Continuing to operate the store was necessary to protect the investment, not an affirmation of the sale.

Consent must be informed with all parties holding equal knowledge of material facts and rights and otherwise free of influence.

🎯 The deterrence principle

From Edwards v. Edwards:

"In enforcing the duty of loyalty the court is primarily interested in improving trust administration by deterring trustees from getting into positions of conflict of interests, and only secondarily in preventing loss to particular beneficiaries or unjust enrichment of the trustee."

This explains why:

• Good faith is irrelevant in self-dealing cases
• Fair terms don't excuse conflicts of interest
• The law focuses on the trustee's position, not the transaction's outcome

Example: Frank in Edwards may have acted in good faith and the 1977 Agreement may have had fair terms, but because he placed himself in a position of conflicting loyalties (trustee and developer), the agreement was voidable.

📊 Constructive trusts: limitations and requirements

📊 When constructive trusts apply

A constructive trust is a device employed by a court of equity to provide a remedy in cases of actual or constructive fraud or unjust enrichment.

The beneficiary may:

• Impose a constructive trust on specific property after it leaves the wrongdoer's hands, until it reaches a bona fide purchaser.
• Impose a constructive trust on the proceeds of the property in the wrongdoer's hands.
• Recover any profit or increase in value that has accrued.

⚠️ Limitation: identifiable property required

From Boyce:

• The trial court imposed a constructive trust on the proceeds of the Eureka store sale.
• The appellate court reversed this part of the judgment.
• Why: Plaintiffs did not allege or establish that any identifiable property or fund existed to which the proceeds could be traced.
• The essence of a constructive trust is the identification of specific property or fund as the res upon which the trust may be attached.

💵 Alternative remedy: money judgment

• The appropriate action to enforce a constructive trust is an action for money had and received.
• Without identifiable property, the beneficiaries are entitled to a money judgment, not a constructive trust.
• In Boyce, the court affirmed the money damages award but reversed the constructive trust imposition.

Don't confuse: A constructive trust is not just another name for damages—it requires tracing to specific, identifiable property.

🧭 Overview

🧠 One-sentence thesis

The excerpt provided contains no substantive content related to "Donor Standing"; instead, it presents unrelated trust administration materials covering trustee duties to account and inform, trustee liability, and powers of appointment.

📌 Key points (3–5)

• The excerpt does not address the topic of "Donor Standing" indicated by the title.
• The material covers trustee duties to account (§12.1), trustee duties to inform (§12.2), trustee liability (§12.3), and powers of appointment (Chapter 13).
• No meaningful analysis of "Donor Standing" can be extracted from the provided text.
• The excerpt appears to be a mismatch between the stated title and the actual source content.

📋 Content mismatch

📋 What the excerpt actually contains

The source material is drawn from a trust law textbook covering:

• Chapter 12: Trustee duties to account and inform beneficiaries, with case law (Raak v. Raak, Jacob v. Davis, Cook v. Brateng)
• Section 12.3: Trustee liability for breach of duty (In re Wilson)
• Chapter 13: Introduction to powers of appointment (definitions and basic concepts)

❌ Absence of "Donor Standing" content

• The title "8.1 Donor Standing" suggests a discussion of who has legal standing to challenge charitable gifts, trust provisions, or donor intent.
• No such discussion appears anywhere in the 369-page excerpt.
• The excerpt does not define "donor standing," discuss standing requirements, or analyze when donors or their representatives may bring legal actions.

🔍 What the excerpt does cover

🔍 Trustee accounting duties (§12.1)

Duty to account: A trustee's strict obligation to keep and render full and accurate records of the trust administration to beneficiaries.

• Trustees must provide accountings showing receipts, disbursements, and how trust property is managed.
• Trust provisions purporting to eliminate accounting duties are generally unenforceable as against public policy.
• Even remainder beneficiaries (those with future interests) can compel accountings during the life of income beneficiaries.
• Key cases: Raak (trust clause cannot eliminate court accounting duty); Jacob (remainderman entitled to accounting despite trust language).

🔍 Trustee duty to inform (§12.2)

Duty to inform: A trustee's responsibility to provide beneficiaries with complete and accurate information about trust property and administration.

• Trustees must inform beneficiaries of material facts that significantly affect their interests.
• Routine trust administration does not always trigger disclosure obligations to remainder beneficiaries.
• Key case: Cook v. Brateng (trustee caring for incompetent settlor need not inform remainder beneficiary of routine care expenses or decision to defer compensation claims).

🔍 Trustee liability (§12.3)

Trustees who breach fiduciary duties face:

• Liability for losses to trust property
• Obligation to pay beneficiaries' attorney fees
• Reduction in trustee compensation
• Personal payment of portion of their own attorney fees

Example from In re Wilson: Trustee who delayed selling trust real estate for over a year after valid reasons ceased was found to have breached duties, even though no financial harm to trust was proven; trustee still ordered to pay beneficiaries' legal fees.

🔍 Powers of appointment (Chapter 13 intro)

Power of appointment: The right given to a person (donee) to designate who will receive property originally owned by another (donor).

Key terminology:

• Donor: Original property owner who creates the power
• Donee: Person given authority to appoint new owners
• Objects: Pool of potential appointees
• Appointees: Persons actually selected by donee
• Default takers: Recipients if power not exercised

Types:

• General power: Donee can appoint to anyone, including themselves, without restrictions
• Special power: (Definition incomplete in excerpt)

⚠️ Conclusion

⚠️ No usable content for stated topic

The excerpt contains no information about "Donor Standing" as a legal concept. It is impossible to create meaningful review notes on donor standing from this material, as the content addresses entirely different trust law topics—specifically, trustee duties and powers of appointment. The title and content are mismatched.

🧭 Overview

🧠 One-sentence thesis

Beneficiaries—including remaindermen with only future interests—have an enforceable right to demand accountings and information from trustees, and trust provisions cannot eliminate the court's equitable jurisdiction to require such accountings.

📌 Key points (3–5)

• Who can demand an accounting: Any beneficiary, including those with only future/remainder interests, can compel a trustee to account at reasonable times.
• Trust provisions cannot eliminate accountability: Language in a trust instrument purporting to excuse the trustee from accounting does not remove a court of equity's jurisdiction to order one.
• What a proper accounting must include: Clear allocation of receipts and expenses between income and principal; explanation of all distributions; valuation methods for in-kind transfers.
• Common confusion: A trust provision saying the trustee need not file accounts with "any court" or need only account to current income beneficiaries does not bar a remainderman from seeking a court-ordered accounting.
• Burden of proof shifts: Once a beneficiary alleges dereliction and offers supporting evidence, the trustee must rebut the allegation and explain apparent failures.

🔑 Who has standing to request an accounting

🔑 Remaindermen have full standing

Any beneficiary—including one with only a future or contingent interest—can compel a trustee to account.

• Not limited to current income beneficiaries: The fact that a beneficiary has no immediate possessory interest does not preclude them from demanding an accounting.
• Rationale: If the beneficiary has any interest at all, they are entitled to invoke the court's protection.
• Example: In Raak, the court held that a remainderman could demand an accounting even though the trust provision said trustees "need keep no accounts" during the settlor's lifetime.
• Example: In Clarke's Will, a contingent remainderman had standing to seek an accounting when the trustee planned to sell trust property.

🔑 Any one beneficiary can act

• Where there are several beneficiaries, any single one can compel an accounting.
• The beneficiary does not need consent or participation from other beneficiaries.

🚫 Trust provisions cannot eliminate the duty to account

🚫 Why exculpatory clauses fail

A settlor who attempts to create a trust without any accountability in the trustee is contradicting himself.

• The core problem: A trust necessarily grants enforceable rights to beneficiaries. If the trustee cannot be called to account, the beneficiary cannot force the trustee to any particular conduct or sue for breach.
• Without an account, the beneficiary is "in the dark" as to whether there has been a breach and is prevented as a practical matter from holding the trustee liable.
• Public policy: Provisions eliminating accountability are against public policy and void; they attempt to oust the court of its inherent equitable jurisdiction.

🚫 What trust provisions can do

• A trust instrument may relieve a trustee from keeping formal accounts or filing periodic reports.
• But even with such a provision, the trustee must still account in a court of equity when called upon.
• Example: In Wood v. Honeyman, the court held that a provision relieving the trustee from "all obligation to account to the beneficiaries" meant the trustee need not maintain formal records or supply routine information, but the trustee still had to account when the court ordered it.

🚫 Narrow construction of exculpatory clauses

• Courts construe clauses relieving trustees from the duty to account very narrowly.
• Don't confuse: "The trustee need not file accounts with any court" does not mean a court cannot order an accounting; it means the trustee is excused from routine filings.

📋 What a proper accounting must contain

📋 Core requirements

An accounting must show:

• What the trustee received
• What the trustee expended
• Gains and losses on investment changes
• Allocation between principal and income (when there are successive beneficiaries)

📋 Allocation between income and principal

If the trust is created for beneficiaries in succession, the accounts should show what receipts and expenditures are allocated to principal and what are allocated to income.

• Why it matters: Income beneficiaries and remaindermen have different interests; expenses must be fairly allocated.
• The Principal and Income Act (or similar statutes) provides detailed rules for allocation.
• Example: In Jacob v. Davis, the trustee provided brokerage statements and tax returns but made no allocations. The court held this was insufficient because the beneficiary could not determine whether expenses were charged to income or principal.
• Don't confuse: Federal income tax returns do not suffice for this purpose, because tax law differs from trust principal-and-income law.

📋 Explanation of distributions and valuations

• The accounting must explain:
  • Whether distributions were from principal or income
  • How in-kind distributions (e.g., stock transfers) were valued (inventory value vs. fair market value)
  • How trust expenses (trustees' commissions, accountant fees) were allocated
• Example: In Jacob, the trustee provided a "recap of transactions" showing transfers to the income beneficiary but often did not designate whether they were principal or income. This was inadequate.

📋 Reconciliation of all assets

• The accounting must reconcile what happened to all trust assets.
• Example: In Jacob, the estate's administration account showed $80,223 distributed to the Marital Trust, but no Marital Trust was ever funded. The trustee's explanation that "total assets did not exceed $600,000" was insufficient without a full accounting showing how the funding formula was applied.

⚖️ Burden of proof and trustee's duty to explain

⚖️ How the burden shifts

Stage	Who bears burden	What must be shown
Initial	Beneficiary	Allege trustee has a duty and has been derelict; offer supporting evidence
After prima facie case	Trustee	Rebut the allegation; explain apparent failures
If trustee fails to keep proper accounts	Trustee	All doubts resolved against the trustee

⚖️ What triggers the shift

• The beneficiary must introduce a "certain quantum of proof" showing an apparent breach.
• Example: In Jacob, the beneficiary showed (1) no allocations between income and principal were made, and (2) the Marital Trust was not funded despite the estate account showing a distribution to it. This was sufficient to shift the burden to the trustee.
• Once shifted, the trustee must come forward and explain; without such explanation, judgment should not be granted in the trustee's favor.

⚖️ Trustee cannot demand the beneficiary prove a negative

• In the absence of a prima facie case, there is no duty on the trustee to prove a negative (i.e., that he has not been derelict).
• But once the beneficiary meets the initial burden, the trustee must affirmatively explain.

📞 Duty to inform beneficiaries

📞 Scope of the duty

The beneficiary is entitled to demand of the trustee all information about the trust and its execution for which he has any reasonable use.

• If the beneficiary asks for relevant information about:
  • The terms of the trust
  • Its present status
  • Past acts of management
  • The trustee's intent as to future administration
  • Other incidents of administration
• And the requests are made at a reasonable time and place, not vexatiously, the trustee must provide the information.

📞 Timing of the duty

• The duty exists during the lifetime of other beneficiaries, not just after their death.
• Example: In Jacob, the court held the remainderman was entitled to an accounting during the life of the income beneficiary and at her death.
• A trustee cannot refuse to inform a remainderman simply because a current income beneficiary has not consented.

📞 When a beneficiary-trustee must inform co-beneficiaries

• In Cook v. Brateng, Diane was both trustee and beneficiary. The court examined whether she breached her duty by not informing her brother John (also a beneficiary) that she decided to claim and defer charges for providing their father's care.
• The trust required the trustee to "report, at least semiannually, to the beneficiaries then eligible to receive mandatory or discretionary distributions."
• The excerpt does not provide the court's conclusion on this specific issue, but the duty to inform is triggered by the trust terms and the beneficiary's reasonable need for information.

🛡️ Limits and exceptions

🛡️ When disclosure may be limited

• In Shipley v. Crouse, the court held that a trustee's duty to account did not require disclosure of the specifics of delicate negotiations with a potential buyer for a trust business, especially when remaindermen had previously agreed the business should be sold.
• The duty to provide "complete and accurate information" is not absolute if:
  • The trustee renders periodic reports showing collection of income and disbursements
  • The trustee is acting in good faith
  • The trustee is not abusing discretionary powers

🛡️ Informed consent and capacity

• A beneficiary's consent to an accounting must be informed.
• A beneficiary who lacks capacity to understand the information presented will not be prevented from later challenging the court's approval of the accounting.
• Example: In the introductory excerpt, a beneficiary who fails to object to an accounting may relieve the trustee of liability, but only if the consent was informed.

🛡️ Misrepresentation voids protection

• An accounting will not protect a trustee who misrepresents vital facts.
• Even if a beneficiary approves an accounting and the court approves it, misrepresentation of material facts can allow later challenge.

🔧 Procedural considerations

🔧 No need to petition for assumption of jurisdiction first

• In Jacob, the trustee argued the beneficiary could only obtain an accounting if the court first assumed jurisdiction over the trust under Maryland Rule 10-501.
• The court rejected this: seeking and obtaining an accounting may precede a request for the court to assume jurisdiction.
• The results of the accounting may themselves be the "reason for seeking the assumption of jurisdiction."

🔧 Accounting as a remedy

• When a beneficiary requests an accounting, she is usually seeking some type of damages.
• The accounting is often the first step in determining whether the trustee breached duties and what remedies are appropriate.

🔧 Court approval of accounting

• Some trust instruments provide that if the trustee renders an account and it is approved in writing by certain beneficiaries, the trustee is discharged as to matters covered by the account.
• But such provisions cannot bind beneficiaries who were excluded from participating in decisions (e.g., an income beneficiary cannot approve distributions of principal to herself that harm the remainderman).
• Example: In Jacob, the will said the trustee could render an account to "current income beneficiaries" and their written approval would bind all persons. But another provision said the income beneficiary could not participate in decisions to distribute principal to herself. The court held the approval provision could not bar the remainderman's suit regarding improper principal distributions.

🧭 Overview

🧠 One-sentence thesis

The trustee must actively collect the correct trust assets, protect them according to their nature, and keep them clearly separated from personal property to fulfill the fiduciary duty owed to beneficiaries.

📌 Key points (3–5)

• Collection duty: the trustee must obtain possession of trust assets from the executor, verify they match the trust instrument, and challenge any discrepancies (including filing suit if necessary).
• Protection duty: once received, the trustee must take steps appropriate to the property type—maintaining real estate, paying taxes, or investing money to generate income for beneficiaries.
• Earmarking duty: the trustee must title or register property in the trust's name (not the trustee's personal name) to prevent creditors from attaching it.
• Non-commingling duty: the trustee must keep trust property separate from personal property (e.g., separate bank accounts); liability arises only for losses caused by the failure to separate.
• Common confusion: earmarking vs. commingling—earmarking violations occur when the trustee titles property as if it were personal; commingling violations occur when the trustee mixes trust property with personal property even though acknowledging it belongs to the trust.

📥 Collecting and verifying trust assets

📥 Obtaining possession from the executor

• When the testator dies, the trustee is legally obligated to obtain possession of the trust assets from the executor as soon as feasible.
• The trustee must examine the property received to ensure it matches what is listed in the trust instrument.
• Example: O leaves $400,000 to A in trust for B; the executor delivers the money to A, who must verify the amount.

⚖️ Duty to challenge discrepancies

• If there is a problem with the trust property, the trustee has a duty to challenge the executor.
• This duty includes filing a lawsuit if necessary to restore the trust property.
• Example: If A receives only $300,000 instead of the $400,000 mentioned in the trust instrument, A must resolve the discrepancy with O's executor.
• Why it matters: the trust cannot serve its purpose if assets are missing or depleted from the start.

🛡️ Protecting trust property

🛡️ Nature-dependent protection steps

The steps the trustee must take to preserve the trust property depend on the nature of the property.

• Real estate: the trustee must keep the house in good repair and pay necessary taxes.
• Money: the trustee must invest the principal to generate sufficient income for the beneficiary's needs.
• The excerpt emphasizes that protection is not one-size-fits-all; it adapts to what kind of asset is held.

🎯 Purpose of protection

• The primary purpose of creating a trust is to provide for the needs of beneficiaries.
• That goal cannot be accomplished if the trust property is destroyed or depleted.
• The trustee holds legal title and owes a fiduciary duty to preserve the property.

🏷️ Earmarking trust property

🏷️ What earmarking means

The trustee has a duty to earmark the property as belonging to the trust.

• The trustee must title or register property in the trust's name, not in the trustee's personal name.
• Example: If A receives a house to hold in trust for B, A must put the trust's name on the deed instead of his own name.
• Purpose: to prevent the trust property from being attached by the trustee's personal creditors.

🏷️ Liability for failure to earmark

• The trustee is liable only for losses that result from the failure to earmark.
• Example: O gives A an apartment building in trust for B. A records the deed in his own name. Later, the main employer leaves the area, vacancy rises to 90%, and the trust loses revenue. A is not liable because the loss resulted from general economic conditions, not from the failure to earmark.
• However, if one of A's creditors attaches a lien to the property because it was in A's name, A would be responsible for any resulting loss.

🏷️ Exception for certain securities

• The trustee is not obligated to earmark certain types of securities.
• The excerpt cites authority that bonds payable to bearer are a proper investment and need not be registered, based on long-established practice.
• The In re Dommerich's Will case confirms that a trustee does not commit a breach by investing in bearer bonds instead of registering them, as long as they are kept separate from personal property.

🚫 Not commingling trust funds

🚫 What non-commingling means

The duty to not comingle is similar to the duty to earmark. The trustee must keep the trust property separate from his own property.

• The trustee cannot place trust money in the trustee's personal bank account.
• Example: If O leaves $400,000 in trust to A for B, A must place the money in a separate trust account, not in A's personal account.

🚫 Liability for commingling

• The trustee is liable only for the loss the trust suffers as a result of the comingling.
• Example: If A places the money in his personal bank account and his creditors seize it, A is liable to the trust for the amount of the loss.
• However, if the trust loses money because the bank fails or someone steals the funds, the trustee is not responsible for the loss (because the loss did not result from the commingling itself).

🏦 Exception for corporate trustees

• Some jurisdictions permit corporate trustees to comingle trust funds by statute or common law.
• Rationale: to encourage corporate entities to manage small trusts by pooling trust resources for efficiency.
• Litigation over breaches of the non-commingling duty usually involves individual trustees, not corporate ones.

🔀 Distinguishing earmarking from commingling

🔀 Focus on the trustee's actions

Violation	What the trustee does	Legal status	Key issue
Failure to earmark	Treats trust property like it is personal property	Property is registered/titled in the trustee's personal name; legally it appears to belong to the trustee	The trustee acts as if the property is personal
Commingling	Acknowledges the property belongs to the trust but mixes it with personal property	The trustee recognizes the trust's ownership but fails to keep it separate	Difficulty determining which property belongs to the trustee vs. the trust

🔀 Practice scenarios

The excerpt provides five problems to illustrate the distinction:

1. Jewels on personal insurance, in personal safe deposit box: likely commingling (trustee acknowledges trust ownership but mixes storage).
2. Horses in stable with personal horses: likely commingling (trust horses mixed with personal horses).
3. Art collection registered in trustee's name: likely failure to earmark (trustee titles it personally).
4. Million dollars in personal bank account: likely commingling (trust money mixed with personal funds).
5. Car titles in trustee's name: likely failure to earmark (trustee titles them personally).

🔀 Don't confuse

• Earmarking violation: "This is mine" (wrong title/registration).
• Commingling violation: "This is the trust's, but it's mixed with mine" (correct acknowledgment, wrong separation).
• Both duties aim to protect trust property from the trustee's creditors, but they address different risks.

🧭 Overview

🧠 One-sentence thesis

Trustees must keep trust property separate and identifiable as trust property, but long-established practice permits holding bearer bonds without registration as long as they are earmarked and segregated from the trustee's personal assets.

📌 Key points (3–5)

• Core duty: Trustees must earmark trust property—title to land, stock certificates, and registered bonds should be recorded in the trustee's name "as trustee."
• Bearer bond exception: Although bearer bonds lack ownership stamps, they are a proper trust investment and need not be registered, provided they are kept separate and identified as trust assets.
• No commingling: Trustees must never mix trust funds or property with their own personal property; violation is a misdemeanor under statute.
• Common confusion: Earmarking does not always mean registration—bearer bonds can be earmarked through segregated custody (e.g., a safe deposit box labeled for the trust) rather than formal registration.
• Practical construction: Courts and legislatures have consistently interpreted fiduciary statutes to permit bearer bonds, reflecting decades of uniform practice by trustees and surrogates' courts.

🏷️ The general earmarking requirement

🏷️ What earmarking means

Duty to earmark trust property: Ordinarily it is the duty of the trustee to earmark trust property as trust property.

• The trustee must make it clear that assets belong to the trust, not to the trustee personally.
• This protects beneficiaries by preventing confusion and ensuring trust assets are identifiable.

📝 How to earmark different assets

Asset type	Earmarking requirement
Land	Title taken and recorded in the name of the trustee "as trustee"
Stock certificates	Issued in the name of the trustee "as trustee"
Registered bonds	Registered in the name of the trustee "as trustee"
Bearer bonds	Kept in segregated, identified custody (e.g., safe deposit box labeled for the trust)

• Example: A trustee acquires land for the trust—the deed must show "Jane Doe, as trustee of the Smith Family Trust," not simply "Jane Doe."

🚫 The prohibition on commingling

• Section 231 of the Surrogate's Court Act states:

  "Every executor, administrator, guardian or testamentary trustee shall keep the funds and property received from the estate of any deceased person separate and distinct from his own personal fund and property."

• The trustee cannot deposit trust funds in his personal bank account or mix trust securities with his own.
• Violation is a misdemeanor.
• Example: A trustee receives one million dollars in trust and deposits it in his personal bank account—this is commingling and violates the statute.

🎫 The bearer bond exception

🎫 Why bearer bonds are different

• Bearer bonds are payable to whoever holds them; they have no registered owner.
• By their nature, they lack "any stamp of ownership."
• The excerpt explains this is a "peculiarity of the investment"—the bond itself cannot show who owns it.

✅ Bearer bonds are permitted

• Leading authorities (Scott on Trusts, Restatement of the Law on Trusts) state that trustees do not breach their duty by investing in bearer bonds instead of registered bonds.
• The Restatement says:

  "If a bond is otherwise a proper trust investment, however, the mere fact that it is payable to bearer does not render it an improper trust investment, unless the terms of the trust prohibit holding securities payable to bearer."

• Long-established practice (dating back decades) permits trustees to hold bearer bonds.

🔒 How to hold bearer bonds properly

• Even though bearer bonds need not be registered, they must still be earmarked and segregated.
• The surrogate in Matter of Erlanger's Estate explained:
  • Bearer bonds must be kept in a safe deposit box or other form of earmarked custody in the name of the fiduciary of the specific estate.
  • The fiduciary must purchase such bonds in his name as fiduciary, not in his individual name.
  • Sales must be made in the name of the fiduciary as such.
• Don't confuse: "Earmarking" for bearer bonds means segregated custody and proper labeling, not formal registration (which is impossible for bearer instruments).

📜 Judicial and legislative confirmation

• Courts have consistently upheld this rule:
  • Cooper v. Illinois Central R.R. (1899): "There is no rule that I am aware of that requires a trustee, if trust funds are invested in such securities, (bearer bonds) to have the securities registered."
  • Matter of Halstead (affirmed by Court of Appeals): It was not negligent for a trustee to permit bonds to remain negotiable or to purchase others in bearer form.
• The Legislature confirmed this construction in 1939 when amending Section 231:
  • The explanatory note stated: "It is not intended to compel the fiduciary or the depository to register bearer bonds or to prohibit their retention without registration so long as such bearer bonds are identified, earmarked and segregated as assets of the estate."

🧩 Practical implications and rationale

🧩 Why the exception exists

• Requiring registration of bearer bonds would be "expensive and unusually cumbersome."
• The Halstead court noted that when trustees live in different locations, requiring joint action for every detail would be impractical.
• Bearer bonds are a distinct type of investment with their own handling requirements.

⚖️ Balancing protection and practicality

• The rule protects beneficiaries by requiring separation and identification of trust assets.
• At the same time, it accommodates the realities of certain investment types.
• The trustee must still act prudently: keeping bearer bonds in a clearly labeled, secure location ensures they are not lost or confused with personal property.

🔍 Distinguishing bearer bonds from other investments

• The Court of Appeals in Matter of Union Trust Company (Hoffman Estate) addressed mortgage participations, which "by their very nature, must be registered in someone's name."
• The court distinguished bearer bonds as investments that "lack any stamp of ownership" due to "the peculiarity of the investment."
• This does not affect the rule for investments that can properly be made distinctive and bear evidence of ownership—those must be registered in the trustee's name.
• Don't confuse: The bearer bond exception applies only to securities that are inherently payable to bearer; other securities capable of registration must be registered as trustee property.

📋 Summary of the rule in In re Dommerich's Will

📋 The case facts

• Trustees held certain municipal and United States Treasury bonds in bearer form when registered bonds of the same issue were available.
• The guardian ad litem (appointed to protect infant beneficiaries) objected, arguing the trustees should have registered the bonds.

⚖️ The court's holding

• The court overruled the objection.
• The judge cited Scott on Trusts, the Restatement, and prior New York cases to conclude that "the weight of authority permits retention of bearer bonds by trustees."
• The practical construction of Section 231 for twenty-eight years had been that fiduciaries were permitted to invest in and retain bearer bonds.

🎯 Key takeaway

• A trustee does not commit a breach of trust by holding bonds in bearer form, even when registered bonds are available, as long as the bearer bonds are kept separate, identified, and earmarked as trust property.

🧭 Overview

🧠 One-sentence thesis

A trustee must personally exercise discretionary judgment but may—and sometimes must—delegate ministerial tasks and investment decisions to qualified third parties, provided the trustee monitors those delegates with reasonable care.

📌 Key points (3–5)

• Core rule: trustees cannot delegate discretionary duties but may delegate ministerial duties.
• Settlor's expectation: the settlor chose the trustee for that person's judgment and ability, not to hand control to someone else.
• Investment exception: a trustee may (and often should) delegate investment decisions to experts like stockbrokers when lacking expertise, but must monitor them.
• Common confusion: delegation is not abandonment—the trustee retains a duty to exercise reasonable care in selecting and monitoring the delegate.
• Why it matters: the duty not to delegate protects the settlor's intent while recognizing practical limits on what one person can do alone.

🎯 The traditional rule and its rationale

🎯 Why trustees cannot delegate discretionary duties

• The settlor selected the trustee because of confidence in that person's judgment and ability to carry out instructions.
• The settlor did not want someone else to manage the trust property.
• Discretionary duties involve judgment calls that reflect the trustee's personal assessment (e.g., deciding if and when to distribute money to a beneficiary in a discretionary support trust).
• Example: A trustee of a discretionary support trust cannot let a third party make the decision about whether to distribute funds to the beneficiary—that decision embodies the trustee's judgment.

⚙️ Ministerial duties may be delegated

• It would be too burdensome to force a trustee to personally perform all acts necessary to administer a trust.
• Ministerial duties are routine, non-discretionary tasks that do not require judgment.
• The trustee may delegate these without breaching the duty not to delegate.
• Don't confuse: ministerial delegation (allowed) vs. discretionary delegation (prohibited).

💼 The investment exception

💼 Why investment delegation is permitted

• The main duty of a trustee is usually to invest the trust property to ensure enough income for the beneficiary.
• The law recognizes that the trustee may not have enough expertise to make investment decisions.
• A trustee who delegates investment duties to a stockbroker does not breach the duty not to delegate.
• In fact, the duty of prudence requires the trustee to delegate such tasks when the trustee lacks the necessary expertise.

👁️ The trustee's ongoing monitoring duty

• The trustee cannot simply turn over the management of the trust funds to the stockbroker and walk away.
• The trustee has a duty to exercise reasonable care in:
  • Selecting the person to whom he delegates trust duties.
  • Monitoring the activities of that person.
• Example: A trustee hires a stockbroker to manage investments but must regularly review the broker's performance, ensure the broker follows the trust's investment policy, and replace the broker if performance is inadequate.
• Don't confuse: delegation with abandonment—the trustee remains responsible for overseeing the delegate's work.

🔍 Distinguishing delegation types

Type of duty	Can delegate?	Reason	Trustee's remaining duty
Discretionary (e.g., distribution decisions)	❌ No	Settlor chose trustee for personal judgment	Must decide personally
Ministerial (e.g., routine paperwork)	✅ Yes	Too burdensome to do everything alone	May delegate freely
Investment (when trustee lacks expertise)	✅ Yes	Duty of prudence requires expert help	Must select and monitor delegate with reasonable care

🧭 Overview

🧠 One-sentence thesis

The prudent investor rule requires trustees to manage trust assets with reasonable care, focusing on the trustee's conduct and balancing the interests of both income beneficiaries and remaindermen, rather than judging solely by investment outcomes.

📌 Key points (3–5)

• Core standard: Trustees must invest as a prudent investor would, exercising reasonable care, skill, and caution in light of the trust's purposes and circumstances.
• Portfolio approach: Individual investments are evaluated in the context of the entire portfolio and overall strategy, not in isolation.
• Balancing duty: Trustees must balance the needs of income beneficiaries (current payments) with remaindermen (preserving/growing capital).
• Common confusion: The rule focuses on the trustee's conduct at the time of decision, not the results judged by hindsight—good outcomes don't excuse imprudent process, and bad outcomes don't prove imprudence.
• Delegation and diversification: Trustees have a duty to diversify (unless special circumstances justify concentration) and to delegate when they lack expertise, but must monitor delegates.

📐 The Prudent Investor Standard

📐 What the standard requires

At common law: "exercise such care and skill as a prudent man would exercise when dealing with his own property." Modern standard: "invest trust property in a manner consistent to that of a reasonable prudent investor."

• The modern standard is based on the Uniform Prudent Investor Act and Restatement (Second) of Trusts, codified in most U.S. jurisdictions.
• The trustee must consider:
  • Risk and return of investments
  • The trust's purposes, terms, and distribution requirements
  • General economic conditions and inflation/deflation
  • Expected total return (income plus capital appreciation)
  • Beneficiaries' other resources and needs
  • Liquidity, regularity of income, and preservation/appreciation of capital
• Whether an investment is prudent is a question of fact evaluated on the totality of circumstances.

🎯 Conduct vs. results

• Key principle: "The court's focus in applying the Prudent Investor standard is conduct, not the end result."
• The trustee's actions are judged based on facts and circumstances at the time of the decision, not by hindsight.
• Example from Estate of Cooper: The trustee's overall trust performance was strong due to one stock sale, but the court still found a breach because the trustee's investment strategy (87% bonds) improperly favored the income beneficiary over the remaindermen.
• Don't confuse: A profitable outcome doesn't prove prudence, and a loss doesn't prove imprudence—the question is whether the process was reasonable given what was known at the time.

⚖️ Balancing income and remainder interests

• The trustee must "maintain a balance between the rights of income beneficiaries with those of the remainderman."
• The statute requires considering "income as well as the safety of the capital and the requirements of the beneficiaries."
• Example from Estate of Cooper: The trustee (who was also the income beneficiary) invested heavily in bonds that generated current income but failed to protect against inflation (purchasing power decreased ~4% annually). This favored himself at the expense of the remaindermen (his children).
• The court found the trustee breached his duty by "maintaining a policy of investment which maximized the income of the estate to the detriment of the growth of the corpus."

🧩 Portfolio Approach and Diversification

🧩 Evaluating investments in context

• Statutory language: "A trustee's investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy."
• The court may examine specific assets or groups of assets to determine if the trustee properly weighed them as part of an overall strategy.
• Example from Estate of Cooper: The court looked at individual asset classes (bonds vs. stocks) to determine whether the trustee had balanced them appropriately. The trustee had not "weighed his investment in income-producing securities against his investment in Western Frontiers."

🌐 Duty to diversify

• The prudent investor standard includes a duty to diversify trust assets.
• A trustee may maintain an undiversified portfolio only when "special circumstances" warrant it—these cases are "few in number."
• Special circumstances usually involve family property (e.g., a family business the settlor wanted descendants to control).
• Example from Baker Boyer: The court found the trustee breached the duty to diversify by investing primarily in fixed-income securities without weighing them against other asset types.
• Don't confuse: Diversification between two similar asset types (e.g., different bonds) may not satisfy the duty if the overall portfolio remains concentrated in one category.

🤝 Delegation and Monitoring

🤝 When and how to delegate

• Duty to delegate: When a trustee lacks expertise (e.g., in investment decisions), the duty of prudence requires delegation to qualified professionals like stockbrokers.
• Permitted delegation: "A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances."
• The trustee must exercise reasonable care in:
  1. Selecting the agent
  2. Establishing the scope and terms of delegation
  3. Periodically reviewing the agent's actions to monitor performance and compliance

👁️ Duty to monitor

• The trustee "cannot simply turn over the management of the trust funds" to the delegate.
• The trustee "is obligated to monitor the activities" of the person to whom duties are delegated.
• Example from Cochran Trust: KeyBank hired an independent insurance consultant (Oswald) to review policies. The court found this was proper delegation because Oswald was independent with no financial stake, and KeyBank reviewed Oswald's recommendations before making decisions.
• Don't confuse delegation with abdication: The trustee remains responsible for oversight even after delegating technical tasks.

📊 Application in Case Law

📊 Estate of Cooper: Favoring income over growth

Facts: Trustee (income beneficiary) managed his deceased wife's estate for years, investing 87% in bonds and 13% in stocks. One stock sale produced large gains, but other securities barely kept pace with inflation (2.15% annual return vs. 6% inflation).

Court's analysis:

• Overall trust performance (boosted by the stock sale) was not controlling.
• The trustee's investment strategy could not have anticipated the stock sale gain.
• After the sale, the trustee reinvested almost exclusively in bonds, again favoring income.
• There was "no other asset or group of assets which Mr. Cooper could have balanced against this investment."

Holding: The trustee breached the prudent investor rule by maintaining a strategy that maximized income at the expense of corpus growth. The court surcharged him $342,493 plus expected appreciation.

Key lesson: A trustee who is also an income beneficiary must be especially careful not to favor current income over capital preservation/growth.

📊 Cochran Trust: Hindsight not permitted

Facts: KeyBank, as trustee, held variable universal life (VUL) insurance policies that lost value after the 2001 market decline. In 2003, an independent consultant (Oswald) warned the policies would likely lapse before the settlor reached life expectancy. KeyBank exchanged the VUL policies (with $8 million death benefit) for a guaranteed policy ($2.5 million death benefit, guaranteed to age 100). The settlor died unexpectedly at age 53, less than a year later.

Court's analysis:

• At the time of the 2003 decision, KeyBank faced:
  • Rapidly declining stock market
  • Two consecutive years of trust losses
  • A settlor with 35+ years of life expectancy
  • A settlor with no funds to supplement the trust
  • Policies likely to lapse within ~5 years
• Oswald rated the guaranteed policy as Category One (best) and recommended it "if the client is comfortable with the reduction in death benefit."
• The statute requires evaluation "in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight."

Holding: KeyBank's decision was prudent given the circumstances at the time, even though hindsight shows a "wait and see" approach would have been better. The reduction in death benefit was reasonable to avoid the risk of total lapse.

Key lesson: Courts cannot use hindsight to judge prudence. A trustee who makes a reasonable decision based on available information is not liable merely because unforeseen events (market recovery, early death) make a different choice look better in retrospect.

📊 Cochran Trust: Investigating alternatives

Beneficiaries' argument: KeyBank should have investigated more alternatives beyond keeping the VUL policies or buying the John Hancock policy.

Court's response:

• "It is very likely that, no matter what the circumstances, a trustee could always do more."
• KeyBank examined the existing policies' viability and investigated at least one other option with independent expert review.
• While the process was "certainly less than perfect," it was adequate.
• The PIA gives "broad latitude to the Trustee in making these types of decisions."

Key lesson: Trustees are not required to pursue exhaustive investigations of every possible alternative. A reasonable investigation that considers the trust's circumstances and consults independent experts satisfies the duty of prudence.

🔍 Special Circumstances and Exceptions

🔍 When non-diversification is permitted

• A trustee has a duty to diversify "unless he decides that because of special circumstances the purposes of the trust would be better served without diversifying."
• Special circumstances are rare and usually involve family property.
• Example from the Class Discussion Tool: Glover Washington's trust held 60% Washington Computer stock (58% ownership of a family company). Glover "made it clear that he wanted his descendants to always have the controlling interest in the company."
• This express intent to maintain family control would likely constitute a special circumstance justifying the concentrated position.
• Don't confuse: The trustee still must monitor the investment and consider whether circumstances have changed enough to require diversification despite the settlor's original intent.

🔍 Trustee with special skills

• "A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use the special skills or expertise."
• A professional trustee (e.g., a bank trust department) is held to a higher standard than an individual trustee without financial expertise.
• The trustee must "make a reasonable effort to verify facts relevant to the investment and management of trust assets."

⚠️ Common Pitfalls and Defenses

⚠️ What does NOT excuse imprudence

Argument	Why it fails
"The trust made money overall"	Overall performance is a factor but not controlling; the court examines whether the trustee's conduct was prudent
"I acted in good faith"	Good faith alone is insufficient; the trustee must also exercise reasonable care, skill, and caution
"I didn't know the market would crash/recover"	Hindsight is not permitted, but the trustee must make reasonable decisions based on foreseeable risks at the time
"I consulted an expert"	Consulting experts is important, but the trustee must still exercise independent judgment and monitor the expert

⚠️ What CAN support a finding of prudence

• The trustee considered the relevant statutory factors (economic conditions, inflation, total return, beneficiaries' needs, etc.).
• The trustee consulted independent experts and reviewed their recommendations.
• The trustee documented the decision-making process and rationale.
• The trustee balanced the interests of income beneficiaries and remaindermen.
• The trustee diversified unless special circumstances justified concentration.
• The trustee acted based on facts and circumstances known at the time, not speculation.

⚠️ Causation requirement for damages

• Even if the trustee breached a duty (e.g., failing to provide annual reports), damages require proof of causation.
• Example from Cochran Trust: The court found that even if KeyBank's communication with beneficiaries was inadequate, "the receipt of timely financial reports by the Beneficiaries would not have changed the negative financial condition of the trust."
• "Financial trends outside of the control of the Trustee or the Beneficiaries were the direct and proximate cause of the problem facing the Trust."
• Don't confuse a technical breach with a compensable breach: The beneficiary must show the breach caused actual harm.

🧭 Overview

🧠 One-sentence thesis

The duty of loyalty requires trustees to act solely in the beneficiaries' interest, and any self-dealing or conflict of interest—regardless of good faith or fairness—triggers strict liability and remedies unless properly authorized or consented to with full disclosure.

📌 Key points (3–5)

• Core obligation: The trustee must administer the trust solely for the beneficiaries' benefit, excluding the trustee's own advantages and third-party welfare.
• Two main violations: Self-dealing (trustee directly or indirectly benefits from trust property transactions) and conflicts of interest (trustee owes fiduciary duties to multiple parties in the same transaction).
• Strict liability for self-dealing: Courts make no inquiry into good faith or fairness; the transaction is voidable and the trustee is liable for profits or must restore property.
• Common confusion: Self-dealing vs. conflict of interest—self-dealing involves the trustee personally benefiting from trust property; conflict of interest involves the trustee owing duties to another party (e.g., another trust or client) in the same transaction.
• Defenses and remedies: Trustees can avoid liability only through settlor authorization or full-disclosure consent from competent beneficiaries; beneficiaries can recover profits, compel property restoration, or impose constructive trusts on traceable proceeds.

⚖️ The duty of loyalty framework

⚖️ What the duty requires

The duty of loyalty: The trustee must administer the trust solely in the interest of the beneficiaries, excluding consideration of the trustee's own advantages and the welfare of third persons.

• This is the trustee's "most fundamental" duty and applies the "highest standard of conduct."
• Similar to ERISA's exclusive benefit rule for retirement funds.
• The law aims primarily to deter trustees from entering positions of conflict, and only secondarily to prevent actual loss or unjust enrichment.
• Why it matters: Fidelity is the goal—the law prevents agents from being tempted by private interest to disregard the principal's interest.

⚖️ When loyalty is breached

The two main indicators of disloyalty:

Violation Type	Definition	Court's Approach
Self-dealing	Trustee buys, sells, or benefits from trust property directly or indirectly	No further inquiry; good faith and fairness irrelevant
Conflict of interest	Trustee facilitates transactions with a person/entity to whom trustee also owes fiduciary duty	Court evaluates whether transaction was fair and reasonable

• Example of self-dealing: Trustee purchases antique cars from the trust for personal ownership, even at above-market price.
• Example of conflict of interest: Attorney-trustee sells trust property to one of the attorney's own clients, or trustee of Trust A sells property to Trust B (where trustee also serves Trust B).

🚫 Self-dealing rules and consequences

🚫 The no-inquiry rule

• If self-dealing occurs, the court makes no further inquiry.
• The trustee's good faith is irrelevant.
• The reasonableness of the transaction is irrelevant.
• The transaction is voidable at the beneficiary's election.

Example from Boyce: Trustee Snyder sold his own grocery store (Eureka store) to the family trust while serving as trustee. Even though he sold it for $403,000 (above the $150,000 actual value at closing), the court found breach of fiduciary duty because Snyder:

• Misrepresented the store's readiness and Daniel's training
• Withheld information about competition from Wal-Mart
• Had superior knowledge about grocery business that beneficiaries lacked
• Later violated non-compete agreement, revealing his true motives

🛡️ Trustee defenses to self-dealing

The trustee can avoid liability only by proving:

1. Settlor authorization: The trust instrument explicitly authorized the self-dealing transaction, OR
2. Beneficiary consent: The beneficiaries consented to the transaction after the trustee made full disclosure

Critical requirements for valid consent:

• Beneficiary must be competent
• Beneficiary must have full knowledge of all material facts
• Beneficiary must know his/her legal rights
• Knowledge must be equal to the trustee's (no information asymmetry)
• Consent must be free from improper influence
• Even with consent, the transaction must still be fair and reasonable

Don't confuse: Consent given without full knowledge of material facts is invalid—the trustee cannot hide behind partial disclosure or the beneficiary's general approval.

💰 Beneficiary remedies for self-dealing

Beneficiaries have several options:

1. Profit recovery: Hold the trustee accountable for any profit made on the transaction
2. Property restoration: If trustee purchased property from the trust, sue to compel the trustee to restore the property to the trust
3. Purchase price return: If trustee sold his own property to the trust, sue to make the trustee return the purchase price and take back his property
4. Constructive trust: Under the "trust pursuit rule," if the trustee wrongfully disposes of trust property and acquires other property, the beneficiary can enforce a constructive trust on the newly acquired property

Limitation on constructive trust: The beneficiary must prove by clear, cogent, and convincing evidence both the wrongful taking and the tracing to specific, identifiable property or proceeds. Without identifiable res, the remedy is a money judgment, not a constructive trust.

🔀 Conflict of interest rules

🔀 What constitutes a conflict

Conflict of interest: When the trustee facilitates the sale or purchase of trust property to a person or entity to which the trustee also owes a fiduciary duty.

• Example: Attorney-trustee sells trust property to one of his clients.
• Example from Edwards: Trustee Frank contracted to develop trust property at a profit to himself (50% of net profits), creating dual roles as trustee and developer.

🔀 How conflicts are evaluated

Unlike self-dealing, the court does evaluate the transaction:

• Was it fair and reasonable to the trust?
• Did the trustee act in good faith?
• However, the conflict itself is still a breach if not properly authorized.

From Edwards case: Even if the trustee acted in good faith and the terms were fair, the dual role as trustee and developer created an impermissible conflict of interest. The trustee was prohibited from entering the contract without court authorization under the Uniform Trustees' Powers Act.

🔀 Authorization requirement

When the trustee's fiduciary duty and individual interest conflict, the power may be exercised only by court authorization.

• The trustee cannot create the conflict unilaterally, even if it seems beneficial to the trust.
• Don't confuse: A conflict inherent in the trust scheme (created by the settlor) may be different from a conflict the trustee creates through self-dealing arrangements.

🕰️ Timing and knowledge issues

🕰️ When the duty attaches

• The duty of loyalty applies when the trustee is acting in the capacity of trustee.
• From Boyce: The court rejected the argument that conduct before formally assuming the trustee role was exempt—Snyder was acting as trustee at closing when he signed documents in that capacity.
• Pre-existing negotiations do not excuse self-dealing completed while serving as trustee.

🕰️ Superior knowledge and disclosure

The trustee has an affirmative duty to disclose all material facts:

• The trustee must inform beneficiaries of all facts known to the trustee so they can make informed decisions.
• Information "particularly within the trustee's province" (special expertise or experience) must be shared.
• Mere opinions or predictions are not a defense if the trustee has superior knowledge.

Example from Boyce: Snyder's 40+ years in the grocery business gave him superior knowledge about:

• The true impact of Wal-Mart competition
• The training required for store management
• The actual value of the store facing new competition

His assurances were not mere opinions but misrepresentations given his expertise and the beneficiaries' lack of grocery business experience.

🕰️ Ratification vs. mitigation

• Continuing to operate a business after discovering a breach is not ratification if the beneficiaries had no choice but to protect their investment.
• Consent given before full disclosure is invalid.
• Consent must be given by competent beneficiaries with full knowledge—minors or incompetent beneficiaries cannot bind themselves.

👥 Third-party purchasers and trust pursuit

👥 When trust property reaches third parties

Two possible outcomes when wrongfully disposed trust property ends up with a third party:

Third Party Status	Result
Not a bona fide purchaser (BFP)	Does not hold property free of the trust; liable to beneficiary
Bona fide purchaser (BFP)	Holds property free of the trust; no liability to beneficiary

Bona fide purchaser (BFP): One who pays value and takes without notice of the breach of trust.

👥 The trust pursuit rule

• If the trustee wrongfully disposes of trust property and acquires other property with the proceeds, the beneficiary can enforce a constructive trust on the newly acquired property.
• The new property becomes part of the trust assets.
• The beneficiary may recover any profit or increase in value that has accrued.

Limitation: If the wrongfully taken property was commingled with the trustee's separate property to produce the new asset, the beneficiary is limited to a proportionate interest in the proceeds.

🧑‍⚖️ Standing and procedural issues

🧑‍⚖️ Who can bring claims

General rule with exceptions:

• Beneficiaries have standing for equitable actions: removal of trustee, disqualification of successor, and accounting.
• Trustee (or successor trustee) should bring claims for money damages.

Exception factors (from Deutsch and Boyce cases):

1. The wrongdoing trustee was actively administering the trust during litigation
2. The trustee denied conduct justified removal, requiring beneficiaries to prove breach and damages
3. Fact issues on legal and equitable claims were identical
4. The trustee defended on the merits without objecting to standing
5. The trust itself was a party-plaintiff alongside beneficiaries
6. Equity retains jurisdiction to afford complete justice once acquired

🧑‍⚖️ Burden of proof

• For breach of loyalty: Beneficiaries must prove the breach and resulting damages.
• For constructive trust: Beneficiaries must prove both wrongful taking and tracing by clear, cogent, and convincing evidence.
• For defenses: Trustee bears the burden of proving settlor authorization or valid beneficiary consent with full disclosure.

📊 Damages and remedies

📊 Measuring damages

For misrepresentation in self-dealing:

Measure of damages: The difference between the actual value of the thing sold and the value as represented.

• Awards within the range of evidence will not be disturbed on appeal.
• The award need not correspond precisely to the amount claimed if it is responsive to the evidence.

Example from Boyce:

• Purchase price: $403,000
• Actual value at sale: $150,000
• Potential damages: $253,000
• Court awarded: $185,000 (within the range of evidence)
• Court also awarded $100,000 for trust loans that became a total loss

📊 Dissolution of joint ventures

When a trustee is also a joint venturer:

• Joint ventures are analogous to partnerships; partnership dissolution law applies.
• A court will decree dissolution when a partner willfully or persistently breaches the agreement or conducts himself so that it is not reasonably practicable to carry on the business.
• The effective date of dissolution is the date of the first effective act of dissolution; subsequent acts are irrelevant.

Example from Edwards: Frank's 15-year failure to promote or sell remaining lots (1974-1989) while actively developing other properties constituted willful and persistent breach, justifying dissolution of the 1964 joint venture agreement.

🧭 Overview

🧠 One-sentence thesis

A trustee managing a trust for successive beneficiaries (income beneficiaries and remaindermen) must balance both groups' interests fairly, neither sacrificing income for the life tenant to inflate principal for remaindermen nor endangering principal to maximize current income.

📌 Key points (3–5)

• Core duty: The trustee must deal impartially with income beneficiaries (who receive trust income during their lives) and remaindermen (who receive the principal later), acting with due regard for both groups' interests.
• Dual obligation: The trustee must make trust property productive enough to generate reasonable income for the life tenant while also preserving the principal for the remaindermen.
• Common tension: Income-producing investments often do not appreciate in value; growth investments often produce little income—trustees must balance these competing needs.
• Common confusion: Impartiality does not mean equal treatment in all cases; the testator's intent (if clearly expressed in the trust instrument) can authorize unequal treatment without violating the duty.
• Why trustees may favor remaindermen: Trustees often tilt toward remaindermen due to fear of personal liability (money paid out cannot be recouped), anticipation of the life tenant's future needs, or assumptions about the testator's intent.

---

⚖️ The impartiality standard

⚖️ What impartiality requires

Duty of impartiality: A trustee must deal impartially with successive beneficiaries, acting with due regard to their respective interests.

• This does not mean treating both groups identically; it means fairly considering both.
• The trustee cannot favor one class at the expense of the other without justification.
• Example: A trustee cannot sacrifice the life tenant's income solely to increase the corpus for remaindermen, nor endanger the principal to maximize current income.

⚖️ Two-part obligation

The Restatement of Trusts (cited in Pennsylvania Company) defines the trustee's dual duty:

Duty to income beneficiary	Duty to remaindermen
Make trust property productive so reasonable income is available	Preserve the trust property for future distribution
Not merely hold assets, but generate income	Not endanger principal to produce large income
Not sacrifice income to increase principal value	Not deplete or waste the corpus

• The trustee must find investments that balance income generation and capital preservation.
• Don't confuse: "reasonable income" does not mean "maximum possible income"—it means income appropriate to the asset's value and risk profile.

---

🏦 The tax-exempt securities dilemma (Pennsylvania Company)

🏦 The trustee's proposal

• The trustee held municipal tax-exempt bonds that had appreciated significantly (over $240,000 premium over par).
• The trustee proposed selling these bonds and reinvesting in 2% U.S. Government bonds.
• Effect on corpus: Remaindermen would gain ~$240,000 added to principal.
• Effect on income: Life tenants would lose 58–64% of their after-tax income (because the new bonds were taxable and yielded less).

🏦 The court's analysis

The court applied the impartiality standard:

• Selling the tax-exempts would benefit only the contingent remaindermen (who might never take).
• The life tenants and vested remaindermen would suffer "great loss" of income with no benefit to them.
• The court emphasized: "If the sale is made of the tax exempts the benefit is an increase of corpus for the contingent remaindermen and not for the benefit of the life tenants. The sale would be to the sole detriment of the life tenants and vested remaindermen, with no benefit to them at all."
• The trustee's duty is to return the highest income consistent with corpus safety, not merely "sufficient" income as the trustee deems adequate.

Holding: The trustee was instructed not to sell the tax-exempt securities. Augmenting the corpus at the life tenants' expense violated the duty of impartiality.

🏦 Testator's intent consideration

• The court noted the testator's will showed his "first consideration was for his widow and daughter"—he wanted them to have income "befitting the manner and style of living to which they were accustomed."
• However, the court refused to speculate about what the testator would have done in 1944 conditions (high income taxes, World Wars) that did not exist when he wrote his will in 1905–1914.
• The legal duty of impartiality controlled, not speculation about intent.

---

🌾 The unproductive farm problem (Sturgis v. Stinson)

🌾 The asset and the conflict

• Bush Hill Farm constituted 75% of the trust corpus, valued at $1.5 million.
• The farm generated only $1,265.99 annual net income—0.084% return on its value.
• The income beneficiary (widow) argued this was "unproductive" and the executor had a duty to sell it and reinvest for higher income.
• The remaindermen (testator's children) opposed the sale, claiming the testator intended to preserve the farm as family property.

🌾 The productivity standard

The court adopted Restatement principles:

Duty to make property productive: The trustee must use reasonable care and skill to make trust property productive.

Duty regarding unproductive assets: If property produces no income or income substantially less than the current rate of return on trust investments, and is likely to continue unproductive, the trustee has a duty to the income beneficiary to sell it within a reasonable time—unless otherwise provided by the terms of the trust.

• The court held the farm's return (less than one-tenth of one percent) was so disproportionate to its value that it was "unproductive."
• The executor had a duty to sell and reinvest unless the will directed otherwise.

🌾 Interpreting the will

The court examined the will's provisions:

• Paragraph Four, Section 1: The widow was to receive "all of the income of my estate, of every nature and wheresoever situate."
• Paragraph Four, Section 2: If income was insufficient for her "comfortable maintenance and welfare," the executor could invade the corpus.
• Paragraph Six: The executor had power to "sell, pledge, or hypothecate real estate and other property."

Court's interpretation:

• The widow was entitled to all net income unconditionally, not just income sufficient for her needs.
• The power to invade corpus (Section 2) was a separate benefit triggered only by unusual expenses or insufficiency; it did not limit the income entitlement in Section 1.
• The will imposed no restriction on the executor's duty to manage assets productively.
• Nothing in the will suggested the farm should be treated differently from other assets.

Holding: The executor was required to sell the unproductive farm and reinvest the proceeds to generate reasonable income. The widow was also entitled to "delayed income" under the Uniform Principal and Income Act (the difference between actual income received and what 5% simple interest would have produced during the period the asset remained unproductive).

🌾 The dissent's view

Justice Lacy (dissenting) argued:

• The testator knew his estate included both income-producing and non-income-producing assets when he wrote "the income of my estate."
• If he had wanted all assets converted to high-income investments, he could have said so.
• The power to sell (Paragraph Six) was permissive, not mandatory, and should be exercised only as necessary to maintain the widow comfortably (per Paragraph Four, Section 2).
• The farm was intended to pass to the children (from a prior marriage); the widow had her own income-producing assets.
• Don't confuse: The dissent's position was that the testator's intent (to preserve the farm for his children) overrode the general duty of productivity.

---

🧩 Factors affecting impartiality in practice

🧩 Why trustees favor remaindermen

The excerpt identifies three reasons trustees often tilt toward remaindermen:

1. Anticipating future needs: The trustee may withhold income now, fearing the life tenant will need more later (e.g., medical expenses in old age).

   • Risk: If the life tenant dies sooner than expected, remaindermen benefit at the life tenant's expense.

2. Liability concerns:

   • If the trustee under-distributes to the life tenant and is sued, the trustee can pay from the trust.
   • If the trustee depletes the corpus and remaindermen sue, the trustee may be personally liable—money already paid to the life tenant cannot be recouped.
   • This asymmetry incentivizes caution that favors remaindermen.

3. Assumptions about testator's intent: Trustees may assume the testator favored remaindermen (often minors or financially vulnerable persons) over the life tenant.

   • However, absent clear expression in the trust instrument, the trustee must act impartially.

🧩 When unequal treatment is permitted

"If the trust instrument clearly expresses the testator's intent that the trustee not deal equally with the two different types of beneficiaries, the trustee can act [unequally] and not violate his trust duty."

• Impartiality is the default rule, but the settlor's intent controls.
• Example: A trust instrument might state, "The trustee shall prioritize preserving the principal for my grandchildren, even if income to my spouse is reduced."
• Don't confuse: The trustee's belief about the testator's intent is not enough; the intent must be clearly expressed in the trust document.

---

📋 Restatement (Third) standard

📋 Modern formulation

Restatement (Third) of Trusts § 79 provides:

(1) A trustee has a duty to administer the trust in a manner that is impartial with respect to the various beneficiaries of the trust, requiring that:

(a) in investing, protecting, and distributing the trust estate, and in other administrative functions, the trustee must act impartially and with due regard for the diverse beneficial interests created by the terms of the trust; and

(b) in consulting and otherwise communicating with beneficiaries, the trustee must proceed in a manner that fairly reflects the diversity of their concerns and beneficial interests.

• Subsection (a) addresses substantive impartiality: investment and distribution decisions.
• Subsection (b) addresses procedural impartiality: communication and consultation must be fair to all beneficiaries.
• Example: A trustee cannot meet only with remaindermen to discuss investment strategy while ignoring the income beneficiary's concerns.

---

🧪 Problem scenarios

🧪 Problem (a): Tree farm liquidation

Facts: Bonita's will left a tree farm in trust for her son Gordon (life tenant), then to grandson Adam (remainderman). Trustee Jacob contracted to cut down all trees and sell them to generate income for Gordon.

Analysis:

• Cutting down all trees may generate immediate income but destroys the principal asset (the standing timber).
• This sacrifices the remainderman's interest (Adam will inherit a barren farm) to maximize the life tenant's income.
• The trustee has a duty not to endanger the principal to produce large income.
• Likely violation of the duty of impartiality unless the trust instrument authorized liquidation.

🧪 Problem (b): Deferred apartment maintenance

Facts: Leonard's apartment complex held in trust for Edna (life tenant), then to Isaac (remainderman). Trustee Rachel used rents to pay Edna but did not do major repairs to save money.

Analysis:

• Failing to maintain the property may preserve short-term income but allows the principal to deteriorate.
• Isaac (remainderman) will inherit a dilapidated, less valuable property.
• The trustee has a duty to preserve the trust property for remaindermen.
• Likely violation of the duty of impartiality—the trustee must balance current income with long-term preservation.

🧪 Problem (c): Savings account instead of investment

Facts: Jillian's residuary estate in trust for Antonio (life tenant), then his children (remaindermen). Trustee Stefano placed funds in a savings account instead of the stock market, generating only $600/month for Antonio.

Analysis:

• The trustee has a duty to make trust property productive and generate reasonable income.
• A savings account may be overly conservative if it produces income "substantially less than the current rate of return on trust investments."
• However, the stock market involves risk to principal; the trustee must balance productivity with safety.
• Possible violation if $600/month is unreasonably low relative to the trust's value and if safer income-producing alternatives (e.g., bonds) were available.

🧪 Problem (d): Discretionary reduction for children

Facts: Curtis's estate in discretionary support trust for Selma (life tenant), then her children (remaindermen). Trustee Brooklyn reduced income distributions to Selma to preserve principal for the young children.

Analysis:

• A discretionary trust gives the trustee some latitude, but the duty of impartiality still applies.
• Brooklyn's reasoning ("the children need the money more") reflects a preference for remaindermen based on the trustee's judgment, not the trust terms.
• Unless the trust instrument clearly authorized prioritizing the children, this violates impartiality.
• Likely violation—the trustee cannot unilaterally decide one class "needs" the money more without express authorization.

---

🔍 Key distinctions and common confusions

🔍 Impartiality vs. equality

• Impartiality does not mean 50/50 treatment; it means fair consideration of both groups' interests.
• The trustee may appropriately favor one group if the trust instrument directs it or if circumstances (e.g., asset type) require it.
• Don't confuse: Equal treatment with fair treatment—fairness depends on context and the settlor's intent.

🔍 Testator's intent vs. trustee's assumptions

• The testator's expressed intent (in the trust document) controls and can override the default impartiality rule.
• The trustee's belief about what the testator would have wanted is not sufficient.
• Example (Pennsylvania Company): The court refused to speculate about what the 1905 testator would have done about 1944 tax rates.

🔍 Productivity vs. safety

• The trustee must make property productive (generate reasonable income) and preserve it (maintain principal value).
• These goals can conflict: high-yield investments may be riskier; safe investments may yield little income.
• The standard is reasonable income consistent with safety, not maximum income at any risk.

🔍 Short-run vs. long-run needs

• Trustees may withhold income now to meet the life tenant's anticipated future needs (e.g., medical expenses).
• However, if the life tenant dies sooner than expected, this strategy unjustly enriches remaindermen.
• The duty of impartiality requires balancing present and future needs, not automatically prioritizing future contingencies.

🔍 Delayed income concept

• Under the Uniform Principal and Income Act (cited in Sturgis), when an unproductive asset is finally sold, the income beneficiary is entitled to "delayed income."
• Delayed income = the difference between the net proceeds and what 5% simple interest would have produced during the period the asset was unproductive (starting one year after the trustee received it or one year after it became unproductive).
• This compensates the income beneficiary for the trustee's failure to make the asset productive sooner.
• Example: If a $1 million asset produced only $10,000 over 5 years when it should have produced $50,000 annually at 5%, the income beneficiary is entitled to a share of the sale proceeds representing the $240,000 shortfall.

Griswold: Spendthrift Trusts § 156 (2d ed. 1947)

🧭 Overview

🧠 One-sentence thesis

A trustee's duty to account to beneficiaries—including remaindermen—cannot be eliminated by trust language, because accountability in equity is an inherent incident of any valid trust.

📌 Key points (3–5)

• Core duty: Every trustee must keep clear, accurate accounts and render them to beneficiaries upon reasonable request, regardless of whether the beneficiary has a present or future interest.
• Remaindermen's rights: Remainder beneficiaries may compel an accounting during the life of the income beneficiary and after their death; future interest does not bar this right.
• Trust language cannot eliminate the duty: A provision purporting to excuse the trustee from accounting may relieve them from filing formal accounts with a court, but cannot remove a court of equity's jurisdiction to order an accounting.
• Common confusion: "No formal accounting required" ≠ "no duty to account in equity"—the former excuses routine reports; the latter would contradict the nature of a trust.
• Burden of proof: Once a beneficiary alleges dereliction and offers supporting evidence, the burden shifts to the trustee to rebut; if the trustee fails to keep proper accounts, all doubts are resolved against the trustee.

📜 The trustee's duty to account

📜 What the duty entails

A trustee is under a duty to the beneficiaries to keep clear and accurate accounts showing what was received, what was expended, gains and losses on investments, and—if there are successive beneficiaries—what receipts and expenditures are allocated to principal versus income.

• This is not merely a duty to file reports with a court; it is a duty to provide information to beneficiaries.
• The duty is "strictly enforced by the courts."
• Example: If a trustee receives rental income and pays property taxes, the accounts must show both the receipt and the expense, and allocate each to income or principal as appropriate.

📜 Who may demand an accounting

• Any beneficiary may compel an accounting, including:
  • Present income beneficiaries
  • Remaindermen (those with future interests)
  • Contingent beneficiaries
• The fact that a beneficiary has "only a future interest" does not preclude them from compelling the trustee to account.
• Example: In Raak, the widow was the income beneficiary, but her children (remaindermen) were entitled to request an accounting during her lifetime.

🚫 Trust language purporting to waive accounting

🚫 Why such clauses are invalid or narrowly construed

A settlor who attempts to create a trust without any accountability in the trustee is contradicting himself: a trust necessarily grants rights to the beneficiary that are enforceable in equity.

• If the trustee cannot be called to account, the beneficiary cannot force the trustee to any particular line of conduct or sue for breach of trust.
• "Without an account the beneficiary must be in the dark as to whether there has been a breach of trust and so is prevented as a practical matter from holding the trustee liable."
• Courts hold that accountability in a court of equity must inevitably follow as an incident of a valid trust.

🚫 What such clauses may accomplish

• A clause stating "the trustee need not keep formal accounts" or "need not file accounts with any court" may relieve the trustee from:
  • Filing periodic reports with a probate court
  • Maintaining formal bookkeeping during routine administration
• It does not relieve the trustee from the duty to account in equity when a beneficiary brings suit.
• Example: In Wood v. Honeyman, the Oregon court held that a provision relieving the trustee from "all obligation to account to the beneficiaries" meant the trustee did not have to maintain formal records or supply routine information, but the trustee was still required to account in a suit brought by beneficiaries.

🚫 Don't confuse: waiver of formal accounts vs. waiver of equitable accountability

Concept	What it means	Effect
Waiver of formal accounts	Trustee need not file periodic reports with court or beneficiaries	Beneficiaries cannot expect routine reports
Waiver of equitable accountability	Trustee cannot be called to account in any court	Invalid—contradicts the nature of a trust

• Courts construe such clauses narrowly and against the trustee.
• The settlor cannot "oust the court of its inherent equitable, constitutional or statutory jurisdiction."

⚖️ Burden of proof and what constitutes sufficient accounting

⚖️ Shifting burden

• Initial burden on beneficiary: The beneficiary must allege that the trustee has a duty and has been derelict, and offer evidence in support.
• Burden then shifts to trustee: Once the beneficiary introduces a certain quantum of proof, the trustee must rebut the allegation.
• If trustee fails to keep proper accounts: "All doubts will be resolved against him and not in his favor."
• Example: In Jacob v. Davis, the beneficiary showed that the trustee provided documents with no allocation of receipts and expenses between income and principal; the burden then shifted to the trustee to explain this apparent failure.

⚖️ What documents are insufficient

The excerpts illustrate that the following do not constitute a sufficient accounting:

• Brokerage statements showing transactions and taxable income (without allocation to trust income vs. principal)
• Income tax returns (federal tax law differs from trust principal-and-income law)
• A "recap of transactions" that does not designate whether distributions were from principal or income
• Check registers and balance sheets without explanation of how expenses were allocated

⚖️ What a proper accounting must show

• Receipts and expenditures: what was received and what was spent
• Allocation between income and principal: if there are successive beneficiaries (e.g., income beneficiary and remainderman), the accounts must show which receipts and expenses are allocated to income and which to principal
• Gains and losses on investments: changes in value of trust assets
• Explanation of discretionary distributions: if the trustee made discretionary distributions of principal, the accounting should explain the basis for those decisions
• Example: If the trustee paid the income beneficiary's rent from the trust, the accounting must show whether this was paid from trust income or from principal, and if from principal, under what authority.

🏛️ Case illustrations

🏛️ Raak v. Raak: trust language cannot bar accounting

• Facts: After the settlor's death, his children (trustees) held assets in trust for their mother (income beneficiary). The trust stated "Trustees need keep no accounts" during the settlor's lifetime. After the mother's death, the children refused to account, citing this clause.
• Holding: The clause relieved the trustees from keeping formal accounts during the settlor's lifetime, but did not relieve them from the duty to account in probate court after a petition was filed.
• Reasoning: "Fiduciaries commonly have a duty to account to the persons they are responsible to. ... There is a duty to account by all fiduciaries."
• Don't confuse: The clause excused routine bookkeeping during the settlor's life, but did not eliminate the equitable duty to account when the beneficiaries alleged breach of trust.

🏛️ Jacob v. Davis: remainderman entitled to accounting during and after income beneficiary's life

• Facts: The settlor's will created two trusts; his wife was income beneficiary, his son was remainderman. The trustee provided some documents after the wife's death but argued the son had no right to an accounting during the wife's lifetime or after.
• Holding: The remainderman was entitled to an accounting both during the income beneficiary's lifetime and after her death.
• Reasoning: Leading authorities are "unequivocal" that a remainder beneficiary may compel an accounting; the fact that the beneficiary has only a future interest does not preclude this right.
• What the trustee provided was insufficient: The documents did not allocate receipts and expenses between income and principal, and did not explain a discrepancy regarding funding of one of the trusts.

🏛️ Allocation between income and principal

• Statutory requirement: The Maryland Principal and Income Act (and similar statutes in other states) requires that a trust be administered "with due regard to the respective interests of income beneficiaries and remaindermen."
• Common law duty: Even absent statute, the trustee must allocate receipts and expenses between income and principal.
• Example from Jacob: The trustee appeared to distribute gross income to the income beneficiary without charging any expenses to income; this meant the remainderman bore the entire burden of expenses, which was improper.
• Don't confuse: Federal income tax returns do not suffice for this purpose, because federal tax law regarding taxable income and deductible expenses differs from trust principal-and-income law.

🔍 Practical implications

🔍 When a beneficiary may seek an accounting

• At any reasonable time, upon reasonable request
• Not merely vexatiously
• The beneficiary need not wait until the trust terminates
• The beneficiary need not first petition the court to assume jurisdiction over the trust (under Maryland law)

🔍 What happens if the trustee refuses

• The beneficiary may file suit in equity
• The court will order the trustee to account
• If the trustee has failed to keep proper accounts, doubts will be resolved against the trustee
• The trustee may be liable for breach of fiduciary duty and subject to surcharge (damages)

🔍 Protecting the trustee

• An accounting approved by the beneficiaries may discharge the trustee as to matters covered by the account
• But: The beneficiary's consent must be informed; a beneficiary who lacks capacity to understand the information will not be bound
• And: An accounting will not protect a trustee who misrepresents vital facts
• And: If the beneficiary is prohibited from participating in a decision (e.g., an income beneficiary cannot approve distributions of principal to herself), then her consent to such distributions cannot bind the remainderman

🔍 Remedies when trustee breaches the duty

• The court may order the trustee to provide a full accounting
• The court may surcharge the trustee (order the trustee to pay damages to the trust)
• The court may remove the trustee
• The court may impose a constructive trust on property improperly distributed

🧭 Overview

🧠 One-sentence thesis

A trustee's duty to inform beneficiaries extends to significant matters that affect their beneficial interests, but does not require disclosure of routine management decisions that cause no prejudice to the beneficiaries.

📌 Key points (3–5)

• When accounting is required: Trustees must provide accounting to income beneficiaries, but remainder beneficiaries are not automatically entitled to periodic accounting during the income beneficiary's lifetime.
• Duty to inform vs. duty to account: Even without mandatory accounting, trustees have a broader duty to inform beneficiaries of material facts that significantly affect their interests.
• Common confusion: Routine trust administration (like paying for care expenses within trustee discretion) vs. significant transactions (like selling the only trust asset)—only the latter triggers a duty to inform.
• Prejudice test: A trustee breaches the duty to inform only when withholding information actually prejudices the beneficiaries' interests.
• Reasonable expectations matter: Beneficiaries cannot claim harm from decisions they could reasonably have anticipated under the trust terms.

📋 Accounting requirements

📋 Trust language controls

The trust required the trustee to "report, at least semiannually, to the beneficiaries then eligible to receive mandatory or discretionary distributions of the net income."

• The key phrase is "then eligible to receive" distributions.
• In Cook v. Brateng, Diane had sole discretion to use all trust assets for Elmer's care while he was alive.
• Neither Diane nor John (the remainder beneficiaries) was eligible to receive distributions during Elmer's lifetime.
• Implication: The mandatory accounting was primarily intended to benefit Elmer as the sole income beneficiary, not the remainder beneficiaries.

⚖️ Statutory requirements

Washington law distinguishes between income and remainder beneficiaries:

Beneficiary type	Accounting requirement	Authority
Adult income beneficiary	Annual accounting of receipts and disbursements	RCW 11.106.020 (mandatory)
Remainder beneficiary	May petition court for accounting	RCW 11.106.040 (on request)
Any beneficiary (on request)	Complete and accurate information	Common law (Tucker case)

• Because John was not an income beneficiary, no statute compelled Diane to provide him with periodic accounting.
• John never petitioned the court or requested information, so no duty was triggered.

📊 What accounting shows

• Accounting reveals only "receipts and disbursements actually made"—transactions already paid from the trust.
• Future contemplated transactions (like deferred claims for reimbursement) would not appear on an accounting.
• Don't confuse: A complete accounting ≠ disclosure of all management decisions; accounting is backward-looking, not forward-looking.

🔔 Broader duty to inform

🔔 General fiduciary duty

A trustee's duty "includes the responsibility to inform the beneficiaries fully of all facts which would aid them in protecting their interests." (Allard v. Pacific National Bank)

• The settlor's creation of a trust does not mean beneficiaries should be "kept in ignorance of the trust, the nature of the trust property, and the details of its administration."
• A trustee must inform beneficiaries periodically of the status of the trust, its property, and how the property is being managed.
• Rationale: Beneficiaries can hold the trustee accountable only if they know what the trust property consists of and how it is being managed.

⚠️ When the duty is breached

The Allard case establishes the test:

• A trustee breaches the duty to inform when it withholds information that would prejudice the beneficiaries.
• The duty applies to management decisions that significantly affect the beneficiaries' interests.
• Example from Allard: Pacific Bank sold downtown Seattle property (the sole trust asset) without informing beneficiaries beforehand—this was a nonroutine transaction that significantly affected the trust estate, triggering a duty to inform.

🔍 Significant vs. routine matters

The court distinguished between types of trustee actions:

Significant (duty to inform triggered):

• Selling the only trust asset (Allard)
• Nonroutine transactions that fundamentally change the trust estate

Routine (no duty to inform):

• Providing care for the income beneficiary within the trustee's discretion
• Managing ordinary expenses contemplated by the trust terms
• Example: In Cook v. Brateng, caring for Elmer was routine practice to fulfill the trust's primary purpose and did not significantly affect John's remainder interest.

🏥 Application: Care expenses and property decisions

🏥 Deferring care-giving charges

Diane kept meticulous records of her time and expenses caring for Elmer (totaling $142,171.10) but did not disclose her intention to claim reimbursement until John filed suit.

Why no breach occurred:

• The trust gave Diane authority to "provide as much of the principal and net income ... as is necessary or advisable, in [her] sole and absolute discretion, for [Elmer's] health, support, maintenance, and general welfare."
• John could reasonably expect that his 95-year-old incompetent father would require full-time care consuming substantial trust assets.
• No prejudice: Whether Diane paid herself during Elmer's lifetime or deferred the claim made no difference to John's remainder interest—either way, the liquid funds would be depleted for Elmer's care.

🏠 Not encumbering the house

Diane decided not to encumber Elmer's Ilwaco house to pay for his care during his lifetime.

Why no breach occurred:

• The trust divided remaining assets equally (9/20ths to Diane, 9/20ths to John), with the house going to Diane "as part of, and not in addition to" her share.
• If the house value exceeded Diane's 9/20ths share, she had the option to purchase it by paying John cash for his interest.
• Economically equivalent: Depleting liquid funds during Elmer's lifetime vs. delaying payment until after his death did not change the fact that Diane would have only the option to purchase the house.
• John suffered no prejudice because the outcome was the same either way.

👁️ Inquiry notice

John had reason to know about Diane's decisions but never objected:

• John lived on property adjoining Elmer's Ilwaco home and saw Elmer visit.
• Diane maintained and repaired the Ilwaco home (including water damage repairs).
• The trust had previously paid a nurse to care for Elmer; when Diane took over, it was foreseeable she would charge for her services.
• John never cared for his father and never inquired whether Diane would charge the estate.
• Implication: John's failure to object, even with reason to know, undermines his claim of harm.

💼 Trustee vs. employee roles

💼 Dual capacity

The trust stated: "My trustee shall pay itself reasonable compensation for its services as a fiduciary ... and shall reasonably compensate those persons employed by my Trustee."

Diane's confusion:

• She conflated being compensated "as trustee" (fiduciary services) with being compensated as Elmer's care giver (employee services).
• Managing trust funds and Elmer's affairs = fiduciary duties as trustee.
• Providing Elmer's personal care = services as an employee.

Resolution:

• The trust required Diane to "reasonably compensate those persons [she] employ[s]."
• The trust does not prohibit Diane from compensating herself as an employee in addition to her role as trustee.
• The only requirement is that compensation be "reasonable."
• Holding: Diane, as trustee, could compensate herself as an employee who provided Elmer's personal needs.

🔧 Property preservation

Diane spent roughly $20,000 to repair water damage and remodel the Ilwaco house kitchen; the trial court deducted $10,000.

Trust authority:

• Diane could "hold property which is non-income producing ... if ... in the best interests of the beneficiaries."
• She had authority to take action "reasonably necessary for the preservation of real estate and fixtures."

"Preservation" means "to keep safe from injury, harm, or destruction ... to keep alive, intact, in existence, or from decay."

• In the real estate context, preservation includes keeping the house as an appreciating asset.
• The property's value increased from $90,000 (2001) to $217,000 (2007), reflecting the reasonableness of maintenance expenditures.
• Holding: Diane had authority to repair water damage and remodel the kitchen; the trial court erred in reducing her interest by $10,000.

⚖️ Remedies and outcomes

⚖️ Court's decision

The appellate court held:

1. No breach of duty to inform: Diane did not breach any duty because John's lack of knowledge did not cause him prejudice.
2. Entitled to compensation: Diane is entitled to reasonable compensation for both fiduciary actions and personal care.
3. Liquid funds approved: The $59,176.67 Diane used during Elmer's life was affirmed.
4. Remand for reasonableness: The court remanded to determine whether Diane's remaining claimed expenses ($142,171.10 total) were "reasonable."
5. Property repairs: Diane is entitled to the full amount spent on repairs and remodeling.
6. Property valuation: The 2007 appraised value of $217,000 for the house was proper.

🎯 Key takeaway

The case establishes that a trustee's duty to inform is context-dependent:

• Mandatory accounting requirements are narrow and depend on beneficiary status.
• The broader duty to inform applies only to significant, nonroutine matters that prejudice beneficiaries.
• Routine administration within the trustee's discretion—especially when beneficiaries could reasonably anticipate the expenses—does not trigger a duty to inform.
• Beneficiaries bear some responsibility to inquire when they have reason to know about trust management decisions.

🧭 Overview

🧠 One-sentence thesis

A trustee who breaches fiduciary duties—such as delaying asset sales, failing to communicate, or commingling funds—can be held liable for beneficiaries' attorney fees and reduced compensation even when the trust corpus suffers no measurable financial harm, because the breach itself forces beneficiaries into costly litigation.

📌 Key points (3–5)

• What constitutes breach: violation of any duty owed to the settlor or beneficiary, including duties to preserve trust property, make it productive, avoid self-dealing, and communicate with beneficiaries.
• Burden of proof shifts: when a trustee files proper accounts showing prima facie correctness, beneficiaries must prove specific instances of impropriety.
• Liability even without corpus harm: a trustee can be ordered to pay beneficiaries' attorney fees and receive reduced compensation if the breach forces litigation, even if the trust property itself did not lose value.
• Common confusion: the trustee's duty to act prudently does not end once valid reasons for delay disappear—continuing inaction after those reasons are resolved is a separate breach.
• Attorney fee allocation: courts can reduce trustee fees and shift beneficiaries' attorney fees to the trustee, but cannot order the trustee to personally pay his own attorney fees (that relationship is outside court jurisdiction).

⚖️ What is a breach of trust

⚖️ Definition and burden of proof

Breach of trust: "a violation by the trustee of any duty that is owed to the settlor or beneficiary."

• Generally, the trustee bears the burden of justifying the propriety of items in a trust account.
• Shift in burden: when the trustee files specific accounts and makes a prima facie showing that the accounts are proper, the burden of persuasion shifts to the beneficiaries to show specific instances of impropriety.
• This means beneficiaries must point to concrete problems, not just general dissatisfaction.

🔍 Types of breaches in the excerpt

The excerpt identifies several breaches:

Breach type	What happened	Why it's a breach
Commingling assets	Trustee used trust funds to pay expenses of separately owned property (TIC Property)	Mixed trust assets with non-trust obligations
Undocumented loans	Trustee loaned over $100,000 from trust without promissory notes	Violated Statute of Frauds; lacked proper documentation
Self-dealing	Trustee loaned trust assets to LLC and TIC Property (where he had personal interests) without beneficiary or court approval	Conflict of interest
Delay in selling property	Trustee waited over a year after clearance letters and insurance settlement to begin marketing real estate	Failed to preserve trust property and make it productive; ignored settlor's intent for quick distribution
Failure to communicate	Trustee showed "general reticence or refusal to communicate" with beneficiaries	Forced beneficiaries to resort to litigation to get information

Don't confuse: the trustee's initial delay (waiting for tax clearance and insurance settlement) was prudent and not a breach; the breach was the continued delay and failure to prepare for sale during and after that waiting period.

🕐 The real estate delay breach

🕐 Prudent delay vs. breach

What the trustee did right:

• Waited for IRS clearance letter (received January 2007) to avoid 47% additional federal estate tax.
• Waited for Indiana Department of Revenue clearance (received May 2007).
• Waited for insurance claim settlement (August 2007) to ensure full payment to beneficiaries.
• These actions were "prudently taken, well considered, and taken upon the advice of counsel."

What the trustee did wrong:

• Did not begin preparing the property for sale during the waiting period (e.g., finding buyers, assembling marketing materials).
• After all clearance letters and insurance settlement were complete (August 2007), waited more than a full year until July 2008 to begin marketing.
• Could point to no significant steps taken during those intervening months.
• Only began marketing shortly before a scheduled court hearing.

📜 Settlor's intent and trustee's duty

• The trust structure showed that Elizabeth (the settlor) "intended that the Trust assets be relatively quickly distributed and/or sold."
• Beneficiaries made it "abundantly clear" starting in August 2005 that they wanted a quick wrap-up and timely sale.
• Trustee's duties breached: duty to comply with settlor's intent, duty to preserve the value of trust property, duty to make trust property productive.

Example: A trustee waiting for tax clearance is acting prudently; a trustee who then sits idle for over a year after receiving clearance, taking no steps to market the property, breaches the duty to act.

🏢 The "we don't own it" argument

• Trustee argued the trust did not actually own the real estate—it owned a majority interest in an LLC that owned the real estate.
• Court rejected this as "a distinction without a difference."
• The trustee was both Trustee of the Trust and Manager of the LLC.
• Regardless of which role, it was his responsibility to sell the real estate or the trust's interest in it.

💰 Liability and damages

💰 Four types of trustee liability

When a trustee commits a breach of trust, the trustee is liable for:

1. Loss or depreciation in the value of trust property as a result of the breach.
2. Any profit made by the trustee through the breach.
3. Any reasonable profit which would have accrued on the trust property in the absence of a breach.
4. Reasonable attorney's fees incurred by the beneficiary in bringing an action on the breach.

Important principle: "If the trust is not harmed by any breach of trust committed by the trustee, the beneficiaries may not complain of the breach of trust."

💰 No measurable harm to corpus—but still liable

What the trial court found:

• The objecting beneficiaries failed to offer evidence that the real estate depreciated in value during the delay.
• The only evidence was one beneficiary's personal (non-expert) opinion that the Indiana real estate market was not as good as three years earlier.
• This testimony was insufficient to establish damages.
• Conclusion: the trust corpus itself suffered no financial harm.

Yet the trustee was still held liable because:

• The trustee's actions, including "a general reticence or refusal to communicate," compelled beneficiaries to solve problems in court.
• The trustee's behavior forced beneficiaries to enlist attorneys and a trial court to determine that they had not sustained financial harm.
• Put another way: the breach itself created the need for litigation.

Don't confuse: liability for attorney fees does not require proof of financial harm to the trust corpus; it requires proof that the breach caused the litigation.

💵 Consequences: fees and compensation

💵 Beneficiaries' attorney fees

• Trial court ordered the trustee to pay the objecting beneficiaries' attorney fees, totaling $50,375.
• Appellate court affirmed: the trustee's breach forced beneficiaries into litigation, so he must pay their fees.

💵 Reduction of trustee's fees

• Trustee requested $140,000 in trustee fees.
• Trial court reduced this to $75,000.
• Reasons for reduction:
  • Multiple breaches of duty.
  • Much of the time for which he requested payment was spent defending against objections.
  • Those objections "he precipitated and which would not otherwise have been necessary to administer the trust."
• Appellate court affirmed the reduction.

💵 Trustee's attorney fees

• Trustee's attorney fees totaled $280,000.
• Trial court found the fees reasonable but determined the estate should not bear the entire burden.
• Trial court's order:
  • Estate pays $175,000.
  • Trustee personally pays the remaining $105,000.
• Appellate court's ruling:
  • Affirmed that the estate pays only $175,000.
  • Reversed the order that the trustee personally pay the remainder.
  • Reason: "Neither the trial court nor we have jurisdiction over the relationship between the Trustee individually and his attorneys."
  • How the trustee's attorneys collect the remainder "is not at issue in this proceeding."

Key distinction: courts can reduce what the trust pays for trustee's attorney fees, but cannot order the trustee to personally pay his own attorneys—that is a private contractual matter outside the court's jurisdiction.

📋 Review scenarios (from the excerpt)

📋 Scenario 1: Max and Dena

Facts:

• Max was trustee; trust directed him to pay Dena income "as long as she remains unmarried."
• Dena remarried but did not tell Max.
• Max continued payments for nine years after remarriage.
• Director of Animal Rights Society (beneficiary) discovered the remarriage and sued Max.
• Max's defense: he fulfilled his duty to account and inform; director did not object to accountings in reasonable time.

Issue: Is Max liable for breach even though he provided accountings?

Principle: Providing accountings does not absolve a trustee of liability for breaching the trust terms (paying someone who was no longer entitled). The duty to account is separate from the duty to follow trust instructions.

📋 Scenario 2: Theresa and Main Bank

Facts:

• Byron established trust for Theresa (suffering mild memory loss) to provide support.
• Main Bank became trustee after Byron died.
• Main Bank gave yearly accountings; Theresa signed off on all of them.
• Theresa's friend suspected Main Bank was not paying enough and hired a lawyer to sue.

Issue: Does Theresa's approval of accountings prevent her from later claiming breach?

Principle: A beneficiary with diminished capacity (mild memory loss) may not have been competent to approve accountings. Approval under such circumstances may not bar a later claim. Also, the duty to support is an ongoing obligation that must be assessed on its merits, not just by whether accountings were signed.

Don't confuse: signing off on accountings is not the same as waiving claims for breach, especially when the beneficiary may lack full capacity to understand the accountings.