Trusts July 2004 Flashcards
(5 cards)
Summary
If Settlor imposed a trust upon Zack to use trust income to send Zack’s children to college, Brian can impress a trust upon the funds distributed to Zack from Settlor Trust. There is a strong, but not conclusive, argument that Settlor did intend to impose a trust upon Zack. Upon Zack’s death, the trust corpus passed to Brian, Spouse, Debbie, and Grandchild. The trust created a vested remainder in a class of persons (Zack’s children) and that class remained opened until Zack’s death. Thus Debbie is included in the class. Class members’ interests were divested only if they failed to survive Zack and had issue who did survive him. Thus, Abel’s share was divested in favor of his issue (Grandchild). Carrie’s share was not divested and passes to her heir, Spouse, except in a state that has adopted § 2-707 of the 1990 Uniform Probate Code (UPC), or a like provision.
The language of Settlor Trust probably creates a trust for the benefit of Zack’s children in the income of the trust. Thus, Brian can impress a trust upon the income distributed to Zack from Settlor Trust. It can be argued, however, that the college expenses condition was precatory.
Settlor Trust provided that trust income be distributed to Settlor’s son Zack, with Zack “to use such income to send Zack’s children to college.” The question is whether this language merely expressed Settlor’s desire or imposed on Zack a binding obligation in trust. The answer depends on Settlor’s intent: a trust is created “only if the settlor properly manifests an intention to create a trust relationship.” RESTATEMENT (THIRD)OF TRUSTS § 13.
In order to determine a settlor’s intent, the courts consider:
(1)the specific terms and overall tenor of the words used; (2) the definiteness orindefiniteness of the property involved; (3) the ease or difficulty of ascertaining possibletrust purposes and terms, and the specificity or vagueness of the possible beneficiariesand their interests; (4) the interests or motives and the nature and degree of concerns thatmay reasonably be supposed to have influenced the transferor; (5) the financial situation,dependencies, and expectations of the parties; (6) the transferor’s prior conduct,statements, and relationships with respect to possible trust beneficiaries; (7) the personaland any fiduciary relationships between the transferor and the transferee; (8) otherdispositions the transferor is making or has made of his or her wealth; and (9) whether theresult of construing the disposition as involving a trust or not would be such as a person inthe situation of the transferor would be likely to desire. Id.
In cases where courts find “precatory language” not evidencing a trust, the settlor has typically used words such as “like,” “request,” “hope,” or “wish” when stating what should be done with the funds. Settlor Trust did not contain such precatory language; instead, it specified that Zack was to use trust income for college expenses. The beneficiaries, purpose, and funds to be used can all be easily identified from the trust instrument. Thus, there is a strong argument that a trust was imposed upon Zack to use trust income for his children’s college expenses. If a trust was imposed on Zack, then Brian can impose a trust on the income distributed to Zack before Zack died. It can also be argued that in light of the language in Settlor Trust, Brian could impose a constructive trust on the income distributed to Zack; otherwise Zack would be unjustly enriched.
The question could be argued the other way. Settlor was vague as to the amount to be spent on college, the period for which college expenses were to be paid, etc. Furthermore, Zack was to receive all of the income for life, including the period after which he had no children in college. This might be evidence that the direction to use the income for the children’s college education was precatory.
Debbie was born before the class gift to Zack’s children closed and thus is a member of the class entitled to share in the trust corpus.
Settlor created a class gift in the corpus of Settlor Trust with such gift to become possessory upon Zack’s death. A class remains open and may admit new members until at least one class member is entitled to obtain possession of the gift. Because Settlor’s class gift did not become possessory until Zack’s death, Debbie is a member of the class and entitled to take a share of the corpus. See generally Cornelius J. Moynihan & Sheldon F. Kurtz, INTRODUCTION TO THE LAWOFREAL PROPERTY 156 (3d ed. 2002). Debbie’s share of the corpus is one-quarter for the reasons described in Points Three and Four.
Abel’s share of the trust corpus passes to Grandchild as provided by the terms of Settlor Trust.
Settlor Trust expressly provided that the “issue of any deceased child . . . take his or her parent’s share.” This language in a trust instrument is typically interpreted to mean that, when the life tenant is predeceased by a child who otherwise would have shared in the remainder and that child has issue who survive the life tenant, the deceased child’s issue are to take the share that the deceased child would have taken had he survived the life tenant. See, e.g., In re Estate of Houston, 201 A.2d 592 (Pa. 1964). This interpretation seems consistent with Settlor’s intent and would result in Grandchild taking Abel’s share.
UPC § 2-707 (1990) and similar statutes achieve the same result by different means. Under the 1990 UPC, all future interests in trust, whether or not the gift explicitly requires survival to take, are treated as if they require survival; Abel’s interest is thus contingent on Abel’s surviving Zack. However, if, as here, the governing instrument creates an alternative gift, then the takers of the alternative gift (the issue of Abel) succeed to that interest despite the implied survival condition. UPC § 2-707(b)(4) (1990).
Under the common law, Carrie’s interest was vested. Her interest was not divested when she died before Zack because she had no issue who survived Zack. Since Carrie died intestate, her share passed to her mother, Spouse, who is her sole heir. Under the 1990 Uniform Probate Code, Carrie’s interest would fail and go to Brian, Debbie, and Grandchild, the surviving members of the class.
Under the common law, a remainder interest to children that was not expressly conditioned on survival was not impliedly conditioned on survival. Here, the remainder to children was subject to a survival contingency, but that contingency applied only when the deceased child had issue who survived the life tenant. (See Point Three.) Thus in contrast to Abel’s interest, Carrie’s interest was not divested because the divesting condition was not applicable as to her.See In re Estate of Houston, 201 A.2d at 599. As Carrie died intestate, her one-quarter interest would pass to Spouse.
UPC § 2-707 (1990) and like statutes produce a different result. Under the 1990 UPC, Carrie’s interest is impliedly conditioned on her being alive when Zack’s estate terminated. Because she was not alive, her interest failed. And since she had no surviving issue, there is no alternative gift. Accordingly, the share to which Carrie would have been entitled had she survived Zack goes to Brian, Debbie, and Grandchild, in equal shares.
