Trusts July 2007 Flashcards
(5 cards)
Because Settlor wants to retain full control of trust assets, he should retain a power of revocation. To give Settlor more control, he might be also given a right of withdrawal and be named sole trustee.
In some states an inter vivos trust is revocable unless the instrument expressly provides otherwise (see UNIF.TRUST CODE § 602(a)), but in most jurisdictions it is irrevocable unless the instrument expressly provides otherwise. Thus a well-drafted trust instrument should always expressly state whether it is revocable or irrevocable.
Here Settlor told Attorney: “I want to fully control trust assets . . . until I die.” An irrevocable trust is incompatible with this aim. To ensure that Settlor has the power to revoke as part of a testamentary plan as well as during his lifetime, the revocation clause should expressly provide that it can be exercised by deed or will.
Additional control could be conferred upon Settlor through a retained right of withdrawal. This power would enable Settlor to withdraw assets from the trust without revoking it.
Finally, Settlor could be named sole trustee with Bank the successor trustee. This step would give Settlor complete control of the management and administration of the trust.
Because Settlor contemplated the possibility of adding assets to the trust, the trust should have an additions clause.
As a general proposition, a trustee’s duties cannot be unilaterally enlarged by the settlor after the trustee has accepted the office. See UNIF. TRUST CODE § 801 (providing that “[u]pon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes . . . .”). Thus a well-drafted trust instrument should contain an additions clause if the settlor contemplates enlarging the trustee’s responsibilities by augmenting the trust with additional assets. (Even then, however, a trustee may be able to reject additions. See, e.g., UNIF. TRUST CODE § 816.)
Because Settlor wanted to ensure that Wife would be comfortably provided for the trust instrument should require distribution in accordance with an ascertainable standard relating to Wife’s maintenance and support, and Wife should be granted a withdrawal power.
Settlor specified that he wanted Wife “to be comfortably provided for.” Granting the trustee discretionary power to distribute income and principal to Wife cannot ensure this result because a beneficiary cannot compel a trustee to distribute trust propertynot otherwise subject to a standard unless he or she can show an abuse of discretion. See UNIF. TRUST CODE § 504(d). An ascertainable standard, such as “comfortable maintenance and support,” sets bounds on the trustee’s discretion and would empower Wife to compel distributions from the trust if necessary.
To further ensure that Wife is comfortably provided for, she could be given a right to withdraw trust principal. Such a power could be unconditional or, as in the revised instrument, might be limited towithdrawals necessary to ensure her comfortable support.
[NOTE: Unconditional withdrawal powers are often limited to $5,000 or 5 percent of trust principal in order to obtain tax advantages.]
Because Settlor wanted to leave trust principal to his children and to enable Wife “to use trust assets as a way of rewarding, in her will, whichever children have been most helpful,” and also expressed a desire that the descendants of a deceased child should take by substitution, Wife should have been given a special testamentary power of appointment. This power should extend to issue, not just children, to enable Wife to appoint to more remote descendants.
Settlor expressed the desire that his children take remaining trust principal and that Wife have the right to reward their children in her will. He also expressed a desire to have a deceased child’s descendants take the deceased child’s share. To accomplish these goals, Wife should have been given a special testamentary power of appointment. Such a power would enable Wife to favor some children over others, as Settlor wants. But because the exercise of a special power is limited to the group selected by the donor of the power (here, Settlor), Wife could not appoint trust assets to individuals other than Settlor’s issue. The special power would both ensure that trust assets ultimately go to Settlor’s children or more remote descendants and give Wife control. Exercise of a power can also be restricted, as Settlor has specified, to testamentary bequests. No other drafting tool can fully meet all of Settlor’s goals. As drafted, Wife could appoint to a grandchild even if the grandchild’s parent was alive. This could be avoided, if Settlor desired, by providing: “After Wife’s death, Bank shall distribute all remaining trust assets to such one or more of the Settlor’s children and issue of deceased children as Wife . . . .” [NOTE: The word “issue” gives Wife the power to appoint to children as well as more remote descendants. This allows Wife the power, consistent with Settlor’s intent, to give the property to the descendants of the deceased child. (See Point Five.)]
Because Settlor wanted the issue of any deceased child to take his parent’s share of trust assets, the trust instrument should have so specified.
Settlor stated that, “if Son dies before Wife, I’d want his share to go to Grandchild.” Although Settlor did not specify that he would want surviving issue to take the shares of his other children, it’s likely that he focused on Son because Son was the only child to have a child.
In many jurisdictions, the instrument drafted by Attorney will not accomplish the aim of ensuring that surviving issue take their deceased parents’ shares. Many state anti-lapse statutes apply only to testamentary bequests, and the Settlor Trust was established during Settlor’s lifetime. Thus the trust instrument should expressly state that issue take a deceased parent’s share.
