introduction · web viewnot good for corporate trustees to hold their own stock. norris v. bishop,...

An Elucidation of Trust LawTrusts, Winter 2013, BYU Law, Prof. Nelleman

ContentsI. Introduction..............................................................................................4

A. Classification of Trusts........................................................................4II. Settlor.......................................................................................................4

A. Capacity...............................................................................................4B. Intent...................................................................................................4

1. Stuff that looks like a Trust, But Is Not...............................................5III. Trust Property........................................................................................5

A. Constructive Trust Imposed Where Debt Owed..................................5IV. Trustee—Capacity, Acceptance, Tenure................................................6

A. Capacity...............................................................................................61. Doctrine of Merger..............................................................................6

B. Acceptance..........................................................................................6C. Changes...............................................................................................6

V. Trust Beneficiary.......................................................................................7A. Necessity of Beneficiary or Express Purpose......................................7

1. Beneficiary...........................................................................................72. Purpose Trust......................................................................................7

B. Nature of Beneficiary’s Interest..........................................................81. Transferring.........................................................................................82. Statute of Uses....................................................................................83. Illinois Land Trust................................................................................8

VI. Formation of Inter Vivos Trust...............................................................9A. Declaration..........................................................................................9B. Transfer/Conveyance...........................................................................9

VII. Statute of Frauds....................................................................................9A. Standing.............................................................................................10B. Parol Evidence...................................................................................10

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VIII. Testamentary Formalities..................................................................10A. Incorporation by Reference...............................................................11

IX. Spendthrift and Related Trusts............................................................11A. Getting Past the Spendthrift Provisions............................................11B. Grantor/Self-Settled Trusts...............................................................12C. Support Trusts...................................................................................12D. Discretionary Trust............................................................................12E. Special Needs Trusts.........................................................................12

X. Charitable Trusts....................................................................................12A. Side Note...........................................................................................13B. Charitable Trusts Favored.................................................................13C. Charitable Trust Must Be For Public Benefit....................................13D. Charitable Trust Must be Charitable in Nature................................14E. Charitable Trusts that are Half and Half...........................................14F. Corporations.........................................................................................14G. Charitable Trust Enforcement...........................................................14

XI. Resulting Trusts...................................................................................14A. Excessive Trust Res in an Express Trust...........................................14B. Failure of an Express Trust...............................................................15C. Purchase Money Resulting Trust......................................................15

XII. Constructive Trusts..............................................................................15A. Wills Act.............................................................................................16

1. Secret Trusts.....................................................................................162. Semi-Secret Trust..............................................................................16

B. Statute of Frauds and Constructive Trusts.......................................16C. Constructive Trust Unavailable.........................................................17

XIII. Illegal Trusts......................................................................................17A. Rights of Parties on Creation of an Illegal Trust...............................17B. Discriminatory Trust Provisions........................................................17

XIV. Starting up a Trust............................................................................18A. Acceptance and Qualification............................................................18

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B. Obtaining Trust Property and Setting up the Trust..........................18C. Safekeeping and Preserving Trust Property.....................................18D. Trustee's Duty to Defend Trust.........................................................19E. Standard of Care and Investments....................................................19F. Trustee's Duties as to Investment........................................................19

XV. Administrative Powers of Trustee, Etc.................................................21A. Nature and Extent of Implied Powers...............................................21B. Limitations on Express and Implied Powers.....................................21C. Decanting...........................................................................................22D. Deviation from Express Limitations..................................................22E. Payments and Distributions to Beneficiaries.....................................23

XVI. Trustee Delegation of Duties to Agents and Co-Trustees.................23A. Delegation to Co-Trustee...................................................................23B. Delegation to Third Parties...............................................................24

XVII. Duty of Loyalty...................................................................................24A. Loyalty...............................................................................................24B. Exceptions Based on Policy Considerations......................................25C. Corporate Opportunity......................................................................26

XVIII. Trustee’s Exposure to Liability..........................................................26XIX. Duty of Impartiality...........................................................................27

A. Class Examples & Discussion............................................................27B. Tension Between Income and Remainder Beneficiary......................27

1. Trust Investment Configuration & Trustee's Duty of Impartiality....272. Rights of Successive Beneficiaries to Corporate Distributions.........283. Allocation of Receipts from Wasting Assets......................................294. Trustee's Discretionary Power to Allocate Receipts and Disbursements........................................................................................29

XX. Records, Accounting, Etc.....................................................................30A. Duty to Maintain Adequate Records.................................................30B. Effect of a Provision Relieving Trustee of Duty to Account..............31C. Effect of a Decree Approving Accounts.............................................31

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D. Effect of Beneficiary's Approval or Failure to Object........................31E. Trustee Compensation.......................................................................32

XXI. Modification—Cy Pres.......................................................................32

I. IntroductionSome consider trusts to be supreme achievement of English jurisprudence. Trusts are good for managing or sheltering money and are being increasingly used by businesses. One of the chief advantages is flexibility.

A. Classification of Trusts1. Express trust: based on a manifestation of intent2. Resulting trust is based on inferred or presumed intent of

settlor3. Constructive: made by court4. Testamentary: made by will5. Inter vivos or living trust made by lifetime transfers6. Revoked/irrevocable

1. Settlor/grantor/trustor. Must have sufficient mental capacity, must intend to create a trust at the time the trust is established. Once the trust is created, the settlor is stuck with the terms and law.

2. Trustee3. Beneficiary

II. SettlorA. Capacity

Mental: As per both the Third Restatement and UTC, the settlor must have testamentary capacity (knowledge of assets, knowledge of relatives, and understanding of significance of act) in order to create a testamentary or revocable trust. For irrevocable, inter vivos trusts, the settlor must have capacity to make lifetime transfers, which is the same as testamentary capacity with addition of understanding of how the transfer will affect financial security of himself and dependents. Older law based it on whether the trust went into effect before or after death, with before death being the more stringent standard.

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The standard of review for lifetime transfers is clear and convincing evidence. It is only preponderance for dealing with the testamentary capacity.

Additionally, the settlor must have legal capacity—i.e., age.

B. IntentThe settlor needs to have wanted the trust and intended to do the actions that suffice to show a trust. The bottom line is that the settlor must have intended 1) to effectuate a split in the legal and equitable title of the property and 2) to impose duties upon a trustee.

Hatch v. Lallo: Settlor declared stock certificates in trust with himself as trustee, put the certificates in a box of the trust without changing the registered owner. The court finds this as being sufficient split in legal title because the guy didn’t commingle assets and because he as trustee would still hold legal title over certificates anyway.

Hebrew University v. Nye: Woman declared repeatedly that she was donating materials to HU. However, she never did the conveyance. Quite simply, the court declined to supply the conveyance.

Ponzelino divorce: Husband put things in trust, but he was the trustee and essentially had no duties to which anybody could hold him. No trust.

Merton v. O’Brien: Legal title attached subject to a lien. This was not a trust because it was a complete transfer of legal title.

Colman v. Colman: They tried to back-date a trust. The key is that you have to control the property when you split title and impose duties.

1. Stuff that looks like a Trust, But Is Not Agency—agent might have title, but is following

dictates of owner Bailment—loaning out the lawnmower does not

make the borrower a trustee Custodial relationship—bank doing your investing Property title subject to conditions—still not trustee

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Deposit with bank

III. Trust PropertyEvery property you can transfer can be trust property. It can be real or personal, legal or equitable, tangible or intangible. Disputes are usually about the existence or present ownership of property rather than whether the trust can hold the type of property in question.

Brainard v. IRS: Guy wanted to claim that he had put future profits of his stock trading in trust. This was not legit—you cannot keep the tree and deflect the fruit. Nor can you have ownership in expectancies. (Insurance is okay because of the powerful insurance lobby. As are actual future earnings.)

The life insurance case involved the lady trying to get insurance money, claiming it was a trust, etc. However, the court viewed it as a contractual relationship.

A. Constructive Trust Imposed Where Debt OwedThis is the story of the department store where the rug company wanted to impose a trust as a way of getting their due. Requirements: 1) Breach of an informal relationship of special trust arising prior to and apart from the transaction in question or actual fraud. 2) Unjust enrichment of the wrongdoer. 3)Tracing to an identifiable res. The court also characterized the situation as a debtor/creditor relationship, which is not a trust situation.

IV. Trustee—Capacity, Acceptance, TenureA. Capacity

Any natural person or legal entity capable of taking title to property can be a trustee. Exceptions are as follows: infancy, mental incompetence, sovereign immunity, corporation not authorized, felon. Court can find another trustee if someone declines. Courts will not allow trusts to fail for mere lack of trustee. But, if the trust’s existence is fairly dependent on a certain person being the trustee, the trust might fail. In the absence of the trustee, the personal representative of the estate will probably have responsibility, but such a person is not a trustee in the same way as other people.

Court appointment factors

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1. Objectives and probable intentions of settlor, including guidelines of trust

2. Interests and wishes of beneficiaries3. Promotion of proper administration of trust

1. Doctrine of MergerIf both legal and equitable title completely unite in a single person, the titles merge and the trust no longer exists. The case in question is the one with multiple children being the trustees for each other. This was held to be okay.

B. AcceptanceA trustee cannot be compelled to serve, even if they are competent. If he or she declines, the court of the trust itself will have a way to find another trustee. The big case was Sankel v. Spector, where the lawyer was schmoozed at dinner, but later turned around and said he would accept. We learn that there are no particular requirements accepting or rejecting. The court said that the legislature required the trustee to decline in writing for testamentary trusts. Overall, where the settlor wants a trustee, the court will endeavor to make their chosen person serve. The saving grace in this case was the timely behavior of the lawyer.

C. ChangesSettlor specifies circumstances for trustee resignation, replacement. Multiple trustees work on a right of survivorship system. Vacancies can be okay, unless settlor requires certain number. Discharge comes from trust terms, court, or legislative hoops, which can be thirty days after notice, etc. Court can also add a trustee even without vacancy if needed. At death, the trustee's title goes to executor until successor appointed. If the trust requires a person as being only good trustee, then trust will dissolve at his death. Trust decisions formerly had to be unanimous under common law, but majority now okay.

Court can appoint trustee ex parte.UTC priorities:

1. Person designated2. Unanimous choice of beneficiaries3. Person appointed by court

Forceful removal of a trustee is considered drastic. To remove:

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1. Wasting or mismanaging estate, likely to become insolvent2. Interests of estate likely to be jeopardized by continuation

V. Trust BeneficiaryA. Necessity of Beneficiary or Express Purpose

You can get away with the legal title hovering in no man’s land while you wait for the court to appoint a trustee, but a beneficiary or express purpose is necessary, especially for the purpose of enforcing the trust.

1. BeneficiaryA beneficiary must have capacity to receive and hold title. (Ability to transfer not required.) Present and future interests, income or principal, temporary or permanent, vested or contingent.

A beneficiary must be ascertainable if not named. A trustee must be able to ascertain the members of a class if beneficiary not named. Equity will often find a way to ascertain “relatives,” but “friends” will be troublesome. If the class contains non-existent people, the trust is a resulting trust for the settlor’s benefit, or rather, benefit of settlor’s estate. Unless the settlor is trustee, then you have evaporation or merger.

Trustee can have power that looks like power of appointment and make distributions at will to members of some poorly discernible class. This is dependent on trustee having broad discretion. Interested parties could apply to have it enforced.

A beneficiary can disclaim. Some states require notice before the deadline to disclaim takes effect, others have a deadline that runs even if the beneficiary does not know.

2. Purpose TrustThe main problem would be a lack of beneficiary to enforce. The Attorney General can enforce trusts established for charitable purposes. The question is whether a purpose qualifies as charitable. Religious, poor, healthcare, science, etc.

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If it is a non-charitable trust for fly-fishing or something, common law was not friendly, but now the states will allow an unenforceable honorary trust. States okay with the UTC and Restatement Third will allow trusts to be valid for purposes not contrary to public policy. (Excessive money to a dog will be contrary to public purposes.) Such trusts are limited to twenty-one years, and somebody can be designated to enforce the trustee’s duties.

B. Nature of Beneficiary’s InterestSome people have incidental benefits from a trust, but are not the beneficiary. For example, a town with responsibility to care for poor people, the burden of which is reduced by a charitable trust. Also, a life estate is not a trust, though the life estate person can get whacked for waste.

A beneficiary can dispose of interests through assignment, subject to the provisions of the trust. Spendthrift things could make this difficult, however. This is recognized by Blair, which involved the court telling the IRS to go after the people that had become assignees of the benefits.

The beneficiary’s interest also extends to the property itself. If the trust corpus is real property, the beneficiary has a real interest. Personal property? Personal interest. The former stays with the jurisdiction, the latter follows the domicile of the beneficiary. Real property is also subject to the Statute of Frauds. Thus, as per Coleman, you will need a writing for a beneficiary to dispose of something. (Some states will infer requirement for writing from SoF, some require writing for real property trust transfer, others require writing for any trust transfer, and others require no writing.)

1. TransferringSome sort of written conveyance is sufficient. The beneficiary does not often have the ability to do it the same as if he had legal title. The American rule is that the first transferee has it free and clear, even without giving notice to trustee, unless they are estopped for leading on the second transferee. The English rule requires notice.

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2. Statute of UsesBasically, the trustee must have active duties, i.e. a need to hold legal title to perform duties, else the trust is regarded as passive and is executed. This helps to clear up the garbage that was annoying the Crown. This generally applies only to real estate.

3. Illinois Land TrustIllinois Land Trust basically looks like a passive trust. All the beneficiaries of the trust have a personal property interest. The trustee follows the instructions of the beneficiaries. Illinois courts have found a reason to regard this as an active trust. The trustee's duty to sell property at some date is sufficient enough to keep it Active. Benefits of this baloney?1. Privacy. Owner is not listed on record title. 2. Facility of transfer of property.3. Dodge creditors if it is spendthrift.

VI. Formation of Inter Vivos TrustYou can form a trust through declaration or conveyance. With declaration, you are transferring equitable interest to somebody else. With conveyance, you are moving legal title to somebody else.

A. DeclarationThe trustee declares that he is the trustee of identifiable, ascertainable property for somebody’s benefit. Such declaration is like a gift—you do not need consideration, though the equivalent of delivery is essential. The only times consideration would come into play is if there is a contract to create a trust. Without consideration, nobody can be compelled to declare a trust. Further, consideration would be needed on somebody’s part if the corpus of the trust consists of a promise that is supposed to result in the trust being able to claim something.

B. Transfer/ConveyanceThe settlor absolutely must transfer the property before it is in the trust. If someone still has control, profits, etc., they have not delivered. Symbolic delivery is acceptable. The key is that the settlor divested themselves of it. (Trust will not fail for want of a

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trustee.) If person dies without transferring, even if the will provides for transfer, it will be going via probate.

VII. Statute of FraudsConveyances of land must be in writing. A contract to create a trust of personal property might run afoul of the year requirement, too.

Thus, courts will uphold oral trusts dealing with personal property, but not trust dealing with real property. Chace v. Gardner is an exception where the court said that it was a trust of personal property where an oral trust provided if land was sold, proceeds should go to beneficiaries. This was a stretch for equitable purposes.

Holmes v. Holmes: Sometimes a writing by the trustee can suffice for purposes of the SoF. The key is the trustee making a statement contrary to interest. Settlor cannot declare it a trust after transfer, but trustee can. Trustee provides writing before, during, or after establishment. Settlor only gets to provide before or during. The beneficiary cannot do anything.

But, the beneficiary (or settlor or someone who is both) might perform an act of reliance (based on a relationship of confidence and trust) and thus cause a constructive trust where the court will compel specific performance. Part performance can also help override the SoF. Perhaps partial performance by the trustee. The example is McKinley with the sucker giving property, paying taxes, etc. and nearly getting ripped off.

A. StandingCan a creditor trot out the Statute of Frauds to get their hands on something to which the putative trustee holds legal title? No. Unless they are a bankruptcy trustee using a strong-arm clause.

B. Parol EvidenceErrors can be considered, and the court can modify. It’s good if you have fraud, duress, or mistake. Language saying the conveyance is fee simple or for own benefit will make it very difficult. It helps if you have agreement of beneficiaries, and if you need for whatever it is to not do violence to the trust.

Also can modify trust if something has changed that would affect the settlor’s original decision. That would be decanting.

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UTC allows all involved to modify without consent of court.

VIII. Testamentary FormalitiesNote that capacity to make a trust is a different matter. Wills should be in writing, signed by testator, witnessed by two people who saw it signed, acknowledged, etc. A trust created during settlor's life but that is to take effect after death is testamentary and must follow those rules. However, in a lot of jurisdictions, the witness rules has loosened up quite a bit. (Probably substantial compliance)

Monell involved a guy who had his lawyer take money and pay hospital bills and specified that after his death, the balance of the money was to go to his fiancé. Personalty trusts be created this simply, but that if beneficial interest does not pass immediately, it becomes testamentary and subject to testamentary rules. Here, you have a passive situation where the trustee’s only duty was to take orders. Thus, passive trusts are executed pursuant to the statute of uses and analogy to this being more of an agency relationship. Some courts will validate similar situations—Totten trust where settlor is trustee and has bank account with designated beneficiary.

Some rare jurisdictions require revocable trusts that serve as will substitutes to have the formal witnesses, etc. However, the UPC is tending to relax requirements, etc.

Farkas: Guy made a trust with some stock. He retained powers and made himself trustee. He could sell stock and keep it all, and if beneficiary died, trust was terminated. Ultimately, the other beneficiary did have some sort of contingent, expectancy interest. The settlor/trustee was subject to trust fiduciary regulations, etc. So, the court said it was legit.

One of the big underlying themes is that we are looking at relationships where the settlor is or is not making a disposition that leaves him open to undue influence. So, the courts will sometimes torture the principles but save the vehicles.

A. Incorporation by ReferenceThis can be lists, etc. Or, it can be a trust that will dispose of the property instead of the will. Thus, you have a pour-over will. Common law allows this if the document is in existence when will was made, and it is referred to enough to be identifiable. (If there is any hint of futuristic change, etc. there will be trouble.) (Also, UPC makes such documents disposing of personal property legit even if created after.) Amendments to the

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incorporated document can be troublesome, but the codicil renewal rule saves the day.

Facts of Independent Significance also have redeeming value—also portrayed as a significant lifetime purpose. So, a nominally funded trust can be saved under this, even if it somehow breaks the incorporation by reference rules.

The Uniform Testamentary Additions to Trusts (actual name?) Act makes it easier to do a pour-over into an unfunded trust. This is essentially an incorporation by reference for trusts that did not come into existence because of a lack of funding. Different jurisdictions embrace different versions of this or not at all. Older versions require the trusts to be created at or before time of will. Newer versions allow trust to be executed after the will (or rather, for what was there originally to be fixed).

IX. Spendthrift and Related TrustsPresumably, the holder of equitable interest can assign their interests to other people, or have a creditor attach it and take it away. People will often makes trusts that prevent beneficiaries from assigning or losing to their creditors the funds. The real estate presumption in common law is against alienation restraints, and sometimes that transfers over to equitable interest. However, American courts are much more likely to allow such provisions in trusts. The distinction between someone holding absolute rights (all the property sticks) and holding not all of them is key.

A. Getting Past the Spendthrift ProvisionsGetting past a spendthrift provision or into a trust that lacks one entirely involves a creditor or dependent or somebody stepping into the beneficiary’s shoes and compelling distributions that the beneficiary is able to compel.

Failure to mention both assignability and creditors or spendthrift term of art, unless state allows you to imply one or the other

Minority of states will allow tortfeasors in because they were not able to protect themselves

Taxes Debts for necessaries in some states

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Domestic Support Obligations Occasional statutory limitation or specification of anything

past needs of beneficiary Bankruptcy trustee is equal to a creditor A beneficiary can assign payments anyway by directing

trustee to redirect payments, but that is voidable/revocable at any time.

B. Grantor/Self-Settled TrustsTransfers to defraud creditors are very vulnerable. Policy frowns on wrapping your stuff in a trust to avoid things. Additionally, if settlor transfers property to trust but retains beneficial interest, then creditors can reach that stuff to extent settlor can touch them. If trustee is authorized to give everything to settlor, then settlor’s creditors can win everything. If limited, those limits apply. You could make a contingency spendthrift to make it so that trustee has no right to distribute while creditors exist. (Unless there is a rare state with a statutory okay for spendthrift trusts.) A lot of people will go offshore to get their stuff into these sorts of trusts. But, you’ll have to be very careful with this.

C. Support TrustsTrustee is directed to distribute trust income or principal as necessary only for the education and support (and maintenance) of the beneficiary. Payment to creditor would not support this. States differ as to whether creditor can reach or compel. If there is a spendthrift provision, creditor cannot stand in creditor's place. Only an exception creditor can compel in UTC states. That would be DSO, government, etc.

D. Discretionary TrustNobody can compel this unless there is bad faith and beneficiary brings suit. Even if a creditor is able to attach this, nothing comes of it unless the trustee distributes something. This is best for protection. Not even government could really get at this. Couple this with a spendthrift provisions, and it becomes pretty ironclad.

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E. Special Needs TrustsThis is where you don’t want the beneficiary to become ineligible for public assistance. Also known as supplemental needs trusts. To the extent public assistance is available, the trust will not pay out. This is allowed to even be self-settled under federal law in cases where the money comes for a tort claim. However, the feds get the trust money afterward.

X. Charitable TrustsIt starts the same way any other trust starts—the settlor splits legal and equitable title. There does not have to be a beneficiary—or rather, the beneficiary must be the public for a charitable purpose. The attorney general will have authority to enforce the trust on behalf of the public. Circumstances can imply creation of a charitable trust, but it doesn’t fly if it is clear that no trust was intended, and you end up with an invalid gift. In some instances, charitable pledges to create a trust can be enforced sans consideration.

Charitable trusts can grow into big foundations with paid people, etc.

A. Side NoteThere can still be purpose trusts that are not charitable. The historical problem has been the rule against perpetuities and lack of a beneficiary to enforce. Laws are now allowing the creation of these and specifying a period of time that prevents it from being a perpetuity problem. Also, the settlor can appoint a non-beneficiary person to be the person enforcing it.

B. Charitable Trusts FavoredLaw favors charitable trusts:

Liberal rules of construction to support them Perpetual in duration Immunity from some rules regarding remoteness of

vesting Suspension of the power of alienation and limitations on

accumulations Tax benefits for donor, etc. Immune from tort liability Cy pres rule, which allows court to modify trust to meet

changing conditions State attorney general can enforce

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C. Charitable Trust Must Be For Public BenefitThe trust must benefit a substantial and indefinite segment of society. Note that you are not supposed to review how many people get cash, you look at how much of society is benefited. Less about the directly benefit to a person and more about the overall secondary type benefits. See, for example, the scholarship for a single doctor so long as he stays in town. But, the arts and music scholarship case was tossed. Number of beneficiaries is not the controlling actor.

What a trust benefiting member of their own family? If it is for the benefit of a family for one individual it doesn’t count. The more it spreads, the better. Maybe a “plus” for family members might pass scrutiny. Precatory stuff favoring family might not be binding on the trustee. Trusts for genealogy work can be counted as public benefit trusts. The key is furtherance of somebody’s religious beliefs. The old folks home charity (mutual benefit society) was also allowable because it benefited old folks and helped the system overall, even though there were club membership requirements. A lack of private profit is key if you are trying to claim a donation to a private entity is for public good. Public monuments and overall cemeteries are okay, less good on individual monuments.

D. Charitable Trust Must be Charitable in NatureStatute of Charitable Uses: aged, impotent, poor, sick and maimed soldiers or mariners, schools, free schools, scholars, bridge repair, ports, havens, causeways, churches, seabanks and highways, orphans, prisons, marriage of poor maids, poor tradesman

Modern: Relief of poverty, advancement of education or religion, promotion of health or government purposes, beneficial stuff to the community

Still charitable if you are receiving for education or medical expenses and are not necessarily poor. Beyond that, the charity must be covering basic necessities of people.

Supporting the astrology industry can go either way, maybe if it is sold as a way to get people set up in a career. English hate them, Americans have bought it. Publication of baloney or whimsical or wasteful gifts not considered charitable. Religion

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usually okay---the one case had the judge say that the religion was moronic, but overall was okay with Christianity.

E. Charitable Trusts that are Half and HalfRestatement: If charitable and other purposes are distinctly divided by time or into separate shares, the part devoted to charity will be treated as a charitable trust just as if separate trusts had been created. Where there is no separation, the trust is valid, but subject to the rule against perpetuities and other non-charitable limitations.

F. CorporationsThese can be a better way to run a trust. Basically, they must accept the charitable donations and use them for their purpose.

G. Charitable Trust EnforcementCrappy attorney general + irate situation. Co-trustees have standing. Trustees of subtrusts. Special interest person connected to trust—membership of a beneficiary congregation.

XI. Resulting TrustsExpress trusts have the settlor demonstrate positive intention to separate legal title from beneficial interest. In a resulting trust, the settlor demonstrates an absence of an intention to pass beneficial interest as he passes legal title. When the settlor passes title, the courts infer a presumed intent to retain a beneficial interest unless the presumed intent can be rebutted.

A. Excessive Trust Res in an Express TrustRestatement: When a settlor makes a trust that will be fully performed without exhausting or fully utilizing trust estate, the transferee holds the excess in resulting trust for the transferor or the transferor's estate unless the transferor manifested an intention against a resulting trust or unless the trust fails for illegality and the policy against permitting unjust enrichment of a trustee is outweighed by the policy against giving relief to unclean hands.

B. Failure of an Express TrustPerhaps someone makes a trust for the purpose of having an annual fireworks sale. If the city council bans fireworks, then you have a failed trust on your hands. In that instance, a resulting trust arises unless the settlor did something to suggest that there be a remainderman or something.

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C. Purchase Money Resulting TrustThese are the most common and troubling. A person puts up the money to buy property but has ownership put in somebody else’s name. The law on this is a succession of rebuttable presumptions.

Each requirement is basically a presumption that can somehow be controlling based on the facts. Requirements: 1) One person gets the property, another pays for at least a portion of it directly. A bank loan situation does not qualify as a purchase money resulting trust. 2) Payor has no intention against a resulting trust. The presumption is that there is no intention against a resulting trust. But, it can be rebutted. 3) Transferee is not natural object of payor’s bounty. Parental and spousal relationships usually count for this. If transferee is in this category, there is another rebuttable presumption. 4) Also—illegality will discourage court from enforcing a resulting trust. 5) Must arise at transfer. Somebody cannot just throw money in the right direction. A promise or obligation to make payments later on can count. Also, presence of debt could give rise to presumption that this is payment of a loan.

Example: The three siblings pulled this shenanigan. The court said the intentions were there, the illegality was not quite illegal enough, and the sibling relationship was not close enough (need parents or children). Thus resulting trust.

Chain of Presumption example: Guy pays, another gets title. Presumption is that this is a resulting trust. But if Guy is a parent of the person who gets title, there is a presumption that it was a gift. This is rebuttable.

XII. Constructive TrustsA constructive trust is a fraud-rectifying trust. When property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. Unjust enrichment is heavily involved, here. When the trusts actually comes into existence is debatable--maybe from the fraudulent act, maybe only once the court has declared it.

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Plaintiff need not prove inadequacy of a legal remedy. Plaintiff must prove that a particular property is the res of the trust. A defendant who just happens to have assets is not sufficient. Equity will protect the defendant, and the plaintiff must be willing to do it (i.e., accounting for improvements the defendant made). The Statute of Uses does not whack these trusts. The decree adjudging the existence will usually require conveyance.

Examples: Thief used stolen car to pay attorney. Husband murders wife and claims her half of property. Testator was deceived by wife and daughter to not give property to grandson. Husband somehow got insurance money on wife's wedding ring. Party purchased property, violating fiduciary stuff, under the developer's feet. Partner secretly sold assets without telling other partner the true value.

Some states do not allow constructive trusts as a remedy any longer. They believe that restitution is sufficient. But in general, equity is going to not allow people to retain property from fraud, duress, mistake, misrepresentation, etc.

A. Wills Act

1. Secret TrustsIf the testator relies on a promise made by a divisee to hold property in trust for another, the promisor is bound. Also applies where the heir gets by intestacy by making promises that prevent testator from making the will. What the testator believed is the key. Not what the promisor was thinking. In the book, we see examples of people conning the old man and the court doing a resulting trust. But, we also see the court declining where the testator gave money to a lawyer and said he’s give some sort of instructions later. That was viewed as a cheap, unacceptable way to circumvent the Will Act. However, the Restatement is in favor of such trustees being allowed to act as such.

2. Semi-Secret TrustThis is where somebody says “I’m giving my money to sew in sew, and she will know what to do. This is regarded by courts as being a cheap, silly way to do a trust and lacks a duty for the trustee and basically just fails. American

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courts will generally allow this in some situations, however.

B. Statute of Frauds and Constructive TrustsWhere owner transfers inter vivos to another upon an oral trust in favor of transferor, and the trust is unenforceable because of the SoF, and the transferee is being a bum, it is a constructive trust (meaning parol evidence will work) if:

1) transfer was procured by fraud, misrepresentation, duress, undue influence, mistake, etc.,: some courts will go further than others on viewing failure to perform as an original intent to rip off somebody. If it is awful enough, there you go.

2) the transferee was in a confidential relation (unique degree of trust, expertise, confidentiality, dependency, etc. Blind lady, educated people) to transferor, or

3) transfer was made as security for an indebtedness of the transferor.

C. Constructive Trust UnavailablePeople can prove they were fraudulently induced or orally promised. The principles of restitution and quantum meruit can come into play to get the property back.

XIII. Illegal TrustsA trust may be invalidated for illegal terms, or if the objectives, probable effects, or manner of creation are forbidden by statute or public policy. Also invalid if it violates constitutional rights and principles.

Trust generally illegal if

1. Performance involves the commission of criminal or tortious acts by trustee

2. Settlor's purpose was to defraud creditors or others3. Consideration for the creation of trust was illegal4. Violates the Rule Against Perpetuities—although in some states,

the rule goes for hundreds of years.5. Is contrary to public policy—discourages marriage, deprives

surviving spouse of a statutory share of settlor’s estate. It is possible to have a trust providing for person before their marriage as long as it isn’t clearly trying to penalize for the marriage. Favor for religion will sometimes work out.

6. Tax evasion—even in case of alleged pure trusts

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A. Rights of Parties on Creation of an Illegal TrustIllegal trust provisions are invalid and take the entire trust down if not severable.Court can declare a resulting trust or permit trustee to retain property. Settlors who made honest mistakes will easily get a resulting trust, as will any heirs. Courts will decline purchase-money resulting trusts when the object was to defraud creditors or spouse. Injured creditors can set these aside to extent necessary to get claim. On the other hand, in some courts, if the property was exempt anyway, then the settlor can get property back even though the intent was to defraud.

A spouse has power to dispose of property inter vivos, so the question is whether the spouse is trying to block other spouse while retaining property somehow. Illusory trusts and whatnot.

B. Discriminatory Trust Provisions

State courts cannot appoint trustees in a discriminatory trust because the Constitution prohibits all state action on the matter. In one case, the court eliminated the discriminatory wording. Can probably do a private trust if you can find a way to get rid of state action. The key is private v. public administration. Also, religion has a little more stature than discriminated based on race.

XIV. Starting up a TrustThink of all the following as a list of duties. The chief duty is to further the purposes of the trust. All others must subordinate to it.

Duties of care, caution, diligence, skill, etc.

A. Acceptance and QualificationTrustee may accept or decline. He accepts according to terms of trust. If not terms, he accepts by words or conduct that manifest an intent to accept the trusteeship, including receipt of property or performance of administrative duties. Trustee who fails to accept is deemed to have declined after a long period of time. The trustee will notify beneficiaries and probably start with an accounting. Some statutes require this specifically. Bond not required unless court order, trust requires, or statute. Some states do require registration with the court.

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B. Obtaining Trust Property and Setting up the TrustTrustee takes property and makes initial accounting. Trustee should figure out what he has collected. Court decrees can be valid accountings. He must be diligent and use even compulsory means to get property because he will be liable for losses caused by his slacking off. Trustee cannot recover from executor if the executor’s action was court-approved.

Trustee can decide that pursuing something would not be economical, and can also decide to prudently abandon property. Some states do not allow property abandonment.

Successor trustees get accountings from former trustees and are liable to sue over any irregularities. An executor trustee generally becomes trustee after the court issues him a discharge.

C. Safekeeping and Preserving Trust PropertyTrustee must exercise reasonable care and prudence to safeguard trust property. This includes recording deeds, maintaining insurance, renting safe deposit boxes for securities, etc. Cash with limited exceptions should be maintained in interest-bearing accounts that are insured. Checking accounts are not acceptable for long-term storage. Most laws and courts allow the bank-trustee to keep the money in their own accounts. Some states strictly enforce a duty to earmark funds in trustee’s possession as belonging to the trust. Bobby Scott, trustee of the Scotty Bob Trust. This is to keep creditors or whatever off. Trustee can be liable for not earmarking and subsequent losses. Many statutes forbid comingling. Strict liability attaches. Even comingling between trusts is problematic. Some common investments okay. Same bank account can be okay if the books clearly identify what is what.

D. Trustee's Duty to Defend Trust

Trustee is supposed to defend all attacks upon the validity or integrity of the trust unless it would be clearly futile. The trustee should bring competing claimants to court without endorsing one or the other. Generally, trustee gets reimbursed from trust, especially if he is victorious in court. Beneficiaries

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might be liable to attorney costs if they encourage trustee to battle.

The trustee can make decisions to compromise as necessary for allowing continued existence of the trust. Trustee is also obligated to file appeals as necessary.

E. Standard of Care and Investments

The trustee should invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. This is a higher standard than average person looking to their own finances, and higher than even the executor’s duty. You need

1. Carea. Initiativeb. Diligencec. Effortd. Seek qualified professional assistance

2. Cautiona. Safety of capitalb. Regularity of income

3. Skill and judgmenta. If you have higher skill, must use it

F. Trustee's Duties as to Investment

Early investing theory: Government obligations and first mortgages on realty were originally the only acceptable ones. Statutes often made inflexible rules. Sticking to the list was not necessarily good enough, though.

Prudent person rule: Things moved to acting prudently. States rarely maintain an investment list. Second mortgages remain unpopular. You can get away with demand deposit forms or something, but you can be liable if you leave them unproductive for more than 30 days. Common trust funds usually okay—some trusts too small to be diverse. However, it is different for a mutual fund, managed by a professional, if the court views the trustee as passing the trustee duties. There is trouble if a trustee is paying someone else to be trustee-like. Running a business is not overly kosher.

The trustee needs to be freed to seek maximum return while weighing appropriate degrees of risk. The trustee needs to keep up with inflation all while still producing income for the income

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beneficiary. It is always appropriate for the trustee to consult with beneficiaries about their risk feelings.

Matter of Morgan Guaranty Trust, Co., NY lower court, 1977The bank's performance is questioned. Mere fact of losses is not a basis for surcharging the trustee, nor is mere fact of overall success able to insulate. No principal is safe, despite the trustee's best efforts. You look to conduct, make sure they were not speculating. Prudence is tested at the time of investment, not hindsight. Given the extreme efforts by this company to assess market conditions and make investment decisions, this court isn't making a finding of anything against them.

In re Estate of Collins, 1977, Cal. App.Plaintiff's sued for surcharge on trustees. Trust authorized trustees to purchase just about anything for trust. Trustees had about $50k available for investment. Trustees invested in some land that had bad history, but owned by apparently good people. Everybody went bankrupt. Lower court determined that trustees were acting in good faith.We think that investing 2/3 of principal in one place was dumb, as was doing a second mortgage, as was not investigating. California has no list of appropriate investments, but:

1. Diversify investments required2. Second mortgages are bad3. If you buy a mortgage, you eyeball the property

They're liable for not seeing what was going on at the time. Trustees with absolute discretion may not be reckless or dumb. Mere authorization to do something does not mean it is the right thing to do.

Diversification required in many jurisdictions. Trustee can be liable for portion of investment that was excessive. Courts construe grants of discretion narrowly. Exculpatory clauses are also construed narrowly. You don't get excused for obviously ripping off the trust.

Deviations from settlor's investment directions are possible. If market is different, etc. The idea is to prevent the trust from failing. Deviation okay if because of circumstances not anticipated by settlor, or if will further purposes of trust.Easier for charitable trusts.

Prudent Investor Rule: Prudent can be what other people are doing, which can be constrictive and sometimes unproductive.

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Required to manage trust funds as a prudent investor would in light of purposes, terms, distribution requirements and other circumstances. Ideally, this gives flexibility.

Non-economic considerations: If you can invest "morally" without affecting beneficiaries, fine. Otherwise, you need to be charitable before you can start getting picky and taking losses.

XV. Administrative Powers of Trustee, Etc.Trustee powers are limited by trust language, statutory grant, or court decree. The trust can delineate those powers clearly or through implication of the nature and circumstances surrounding the trust. For instance, a duty to produce income = power to invest. The trend has been to allow whatever that is needed to achieve purposes, but is not expressly prohibited. Other states make up powers that exist only if incorporated by reference. But, the trustee must not exercise an express or implied power in a manner that violates a fiduciary duty—such as acting in accordance with trust and best interests of beneficiaries. For example, trustee usually cannot sell assets to himself. A. Nature and Extent of Implied Powers

Unless limited or expanded by statute or trust terms, Restatement says that a trustee has powers over trust property that a competent unmarried individual would have over his property. Basically, trustee has power to fulfill purposes of the trust. Duties and powers relate to trust purposes.

Ward v. NationsBank of Virginia, Virginia 1998 (power was broad, it was prudent, it was implied, etc.)Beneficiaries are not appreciative of a trustee selling an option, and then selling property via mortgage.Bank was trustee of 30 acre tract. Bank leased property with option to buy. Beneficiaries did not like the sale price, etc.Trial court said that the trust agreement was not ambiguous, did not authorize grant of option, and would not infer the grant of option. Restatement says that if trustee has power to sell, they don't have power to make options.There was a catch all line, though--trustee can do anything necessary or desirable, same extent as an individual might do with their own property.That would include option. Purpose of trust was to provide education for beneficiaries.

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So, we think it was in discretion. But there needs to be good faith and judgment. Trustee must exercise same discretion and prudence he would in his own affairs. Selling the option got more money anyway. There was power to option, it wasn't inconsistent with purpose, it was prudent.

B. Limitations on Express and Implied Powers

Discretionary power is not to frustrate purpose of trust. Discretion must be exercised in good faith and in accordance with the terms and purposes of the trust and interests of the beneficiaries.

There are express powers, but also implied powers which might come from precatory things in the will, or letters from the settlor. How those play out is dependent on circumstances of trust res and beneficiaries.

Watling v. Watling, 6th Cir. 1928Testator leaves 1/3 to daughter in trust. She was in loony bin. Brother is trustee and had discretion to give principal to sister if it would be wise. He refused and eventually a trust company becomes the trustee.There is question as to whether the discretion to give up principal passed to new trustee. Generally, discretion to terminate trust is passed to substitute trustee. But there is also the intention of the settlor. Clearly he contemplated that his daughter might recover, so the power exists. We leave it to the trustee to decide in good faith (and in some jurisdictions, reasonably). Good faith = exercised discretionary power—actually considered the question and tried to discern the settlor’s intent. Generally, we do not mess with a trustee.

Allard v. Pacific Nat'l Bank, Wash 1983Plaintiffs say bank breached fiduciary duty and want a jury trial. This court thinks the bank breached, but says this is equity, so no jury. Trust gave bank power to manage, improve, sell, lease, etc the property and be prudent, no speculation, etc. Property had been leased out before trust. Eventually trustee sold it to a leasee. Issue seems to be a lack of appraisal, lack of notice to beneficiaries. We think there should have been notice and should have been an appraisal. As to notice, it would have allowed beneficiaries to outbid. Trustee also did not obtain best possible price or attempt to get best possible price.

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Non-routine transactions are often required to have notice, now. Some courts require a really bad sale price before stepping in. Russell v. Russell, Connecticut, 1929No power to lease expressly given, but power to hold, manage, collect income, etc. What about making leases that extend beyond existence of trust?Generally, you should stick to length of trust, but it might be reasonably necessary. A court of equity should usually grant permission to make a long lease.

C. Decanting

In some instances, the trustee with broad discretion can create a new trust. This is called decanting. The new trust must be in favor of at least one of the permissible beneficiaries and cannot alter nondiscretionary allocations. It can be somewhat different. It can correct errors, obtain more favorable tax treatment, it can remove a spendthrift provision, or get beneficial outcomes for the beneficiary. Thirteen states have decant statutes that contemplate, authorize, and restrict.

Decanting is basically pouring one trust into another. A trustee who has a lot of power can disburse the entire trust corpus to a beneficiary in trust. Power of appointment to appoint outright includes power to appoint in trust. This is a good way to modify without having to conform to some of the modification things.

D. Deviation from Express Limitations

Young v. Young, Mich. 1931Testator directed that building/property never be sold. Building burned. Not enough money to rebuild; property taxes ruining trust. This exigent circumstance is okay to override. Circumstances not anticipated by settlor, modification or deviation will further the purposes of the trust.

E. Payments and Distributions to Beneficiaries

Also lump this in as a duty from the previous Part.

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Trustee must pay beneficiaries as directed. Failure to pay right beneficiary results in trustee being liable. Formerly, trustees had a great deal of discretion—even for disproportionate stuff.

Question of annuities? What happens if beneficiary wants money now and can assign rights, etc.? Bennett v. Nashville Trust Co., Tenn 1913The settlor did not see the necessary situation here, so we'll allow the beneficiary to get an early payment. But, if he had contemplated the situation, we would probably leave it. The court can deviate before the date if necessary to provide for the beneficiary. Stuff for education will often be accelerated.

XVI. Trustee Delegation of Duties to Agents and Co-TrusteesGenerally, the common law frowned on a trustee delegating powers because the trustee was usually chosen because of expertise, judgment, and integrity. Exceptions include ministerial functions, needed service is outside of trustee's expertise, or situations where delegation otherwise prudent. Trustee may not delegate unreasonably. Much of this based on the settlor or trust’s language.

Standards for permissible delegation differ depending on whether the delegate is a co-trustee or a third party. Co-trustees are required to act jointly. So, there is a violation when

one delegates to another. The settlor's expectations may have been for delegation. Such inference can get over the general expectation against delegation.

Third party: Prudence dictates delegation to a third party. Trustee must exercise reasonable skill, diligence, and caution in assessing the delegate's performance. Trustee must collaborate with advisor based on beneficiary’s financial objectives.

A. Delegation to Co-Trustee

Basically, it is somewhat legit to delegate ministerial duties, but not discretionary duties.

Coxe v. Kriebel, Penn 1936Coxe delegated most duties to his co-trustee, who basically embezzled the funds and then died.So now, Coxe is suing the debtor who "paid off" their debts to the co-trustee.When there are multiple co-trustees, you need the signature of all to do stuff that is not ministerial. It was okay for the

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deceased to collect interest payments, but payments on principal were not authorized or delegated. Debtors should have ascertained who to pay, and made check out appropriately. It’s their responsibility to figure things out.

Two or more trustees? You need to have stuff happening with both their approval. Sometimes, ratification or acquiescence can carry the day. If there is more than two, majority decisions can sometimes work.

Herr v. United States Casualty Co., Penn 1943Liquidation trustees operated under a $5000 bond. One of the trustees absconded with the liquidation money. Generally, a trustee is not liable to beneficiaries for a breach of trust committed by a co-trustee. But, improper delegation or failure to exercise reasonable care might enable the co-trustee. There, the trustee becomes responsible. Distinction between ministerial and discretionary, the latter only being the sort of act that ought not to be delegated. Permitting a co-trustee to collect and deposit money is ministerial and if you have no reason to suspect honest, you are not on the line.

B. Delegation to Third Parties

Meck v. Behrens, Wash 1927Testator's will established trust for granddaughters. The family got in a fight, so they voted (except the plaintiff) to put everything to a company for trust administration.You can't be delegating discretionary powers. Otherwise, you become a guarantor.

In re Will of Axe, 1986, NY lower courtTrustees felt it necessary to retain investment counsel. It was clear that the settlor's expected the trustees to make wise investment decisions--the original trustees were professionals. Now, the new ones are not and need help.

XVII. Duty of LoyaltyThe trustee's conduct is governed by a standard of reasonable care, skill, and caution. In transactions between the trust and the trustee's personal interests, however, the standard is much higher and trouble can ensue even if it is a good deal. The trustee must act solely for the beneficiary’s interest.

Court enforcement depends on the policy goals of the rule.

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No further inquiry beyond knowing that the trustee self-dealt. The beneficiary then has the right to void transaction, reform transaction, seek removal of trustee, and the right to seek damages, which would include actual damages, capture of profit trustee made, compel trustee to put trust to where it would have been had transaction not occurred.

A. LoyaltyMagruder v. Drury U.S. 1914Trustee would buy mortgage notes from his own firm. No money was ever lost as a result.The firm got the accrued interest and the risk then passed to the trust, though. Even though nothing bad happened, this was not a legit thing to do. Rule against self-dealing applies to transactions between co-trustees, also corporate affiliations for corporate trustees. Also family members.

If merely a conflict of interest, court might get involved, but self-dealing is categorically placed as a breach of duty of loyalty. Trustee is in general forbidden to buy trust property--or at least, it is completely voidable. Former trustees can buy trust property if the transaction is fair. Statutes will define the liability. Some allow transactions between trustee and trust if authorized by trust, approved by court, or consented to by the beneficiaries. Matter of Rothko's Estate, NY 1977Painter died. He had lots of paintings. Trustees sold paintings, or put them up for sale with big commissions. Basically, the transactions were not fair, and not in the best interests of the estate. Selling for a bad price is one thing when you have no improper connection, but another when you're self-dealing. Court is alluding to distinction between conflict of interest and self-dealing. No further inquiry would not apply, but trustee would have a high burden of proof that transaction was fair and in beneficiary’s best interest to

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avoid damages. But anyway, from trustees that violate, they pay post-transaction appreciation potentially.

Mosser v. Darrow, U.S. 1951Darrow was basically a reorganization trustee. He employed a couple of office workers who had their own corporation and did a lot of dealing where both their interests and the company's interests were mixed and they often made personal profit.

We don't forbid self-dealing because it is always corrupt, we forbid because it is corrupting. Further, trustee cannot authorize his employees to get away with this.

B. Exceptions Based on Policy Considerations

What about language in trust that allows self-dealing? It merely makes sure that trustee has duty to establish by clear and convincing evidence that the transaction is for the best interest of the beneficiaries. It disengages the no further inquiry rule. In such a situation absent the no further inquiry rule, then the trustee is trying to prove fairness and best interest of beneficiary by clear and convincing evidence. Such situation might also exist where there was not self-dealing per se.

First Nat'l Bank v. Basham, Alabama 1939Basically, the bank had trust funds and the trust would want to invest in mortgages, but it often didn't have the money immediately available, and so would help the bank get the mortgage, and then buy the mortgage off the bank once it had enough money.Here, the bank was aiding the trust. There was no depreciation where the bank handed over crappy properties. Trusts dealing with each other under same trustee is probably okay if it is fair to both accounts. Not good for corporate trustees to hold their own stock. Norris v. Bishop, Kentucky, 1925Professional services provided by trustee should be paid. Better if he has co-trustees, though. Prueter v. Bork, 1981, Illinois

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Beneficiary's permission properly obtained? Full disclosure, consideration adequate (fair transaction), competent and independent advice before transaction for the beneficiary. Presumption of unfairness unless trustee can prove.

C. Corporate OpportunityAnything where the person in the entity gets inside information and somehow benefits on it while it is still confidential? That is sketchy. No profit by using such information that was directed to you as a trustee. It isn’t about harm—it is about improperly profiting.

XVIII. Trustee’s Exposure to LiabilityIs trustee who breaches contract personally liable when he is acting in representative capacity. If the other party does not know he is a representative, then that party can whack the guy. What about signing the contract “Bob, Trustee,” ? Maybe. Generally not enough to dodge liability. Common law said not. UTC says it is enough to put contracting parties on notice that they need to check the language of a trust. Once the person knows they’re dealing with trust and it exonerates, etc. Then the trust is what gets zapped. The beneficiaries are shielded.

Tort liability? Personally liable? Trustee has duty to act prudently—aka, insure the property and employ good help. Trustee can be personally liable if acted imprudently. If so, they cannot recover from trust unless it was strict liability or something, or was not directly liable for negligence or whatever.

XIX. Duty of ImpartialityThis chapter is belaboring impartiality in the accounting context.

A. Class Examples & DiscussionHypothetically, trustee is authorized to distribute to settlor’s children in amounts the trustee deems advisable in sole and absolute discretion. Trustee might have some precatory standards. Trustee needs to investigate the precatory wishes and the beneficiaries’ needs and then make an impartial, practicable distribution—informing self, using reasonable standards, etc. If trustee does not do that, a neglected beneficiary can sue for abuse of discretion. Trustee must make decisions rationally, exercise good faith. Favoring

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own children or someone else he associates with more often would make an inference of abuse that trustee would need to overcome. Equal treatment is not necessary.

Interest, rent, and some dividends generally, are income. Principal receipts are capital gains (realized on sale of trust asset), returns of principal.

Expenditures? Property tax, interest, maintenance costs for tangible property are allocated out of income.

Things are dicey for some assets.

Also a violation of impartiality to inform some beneficiaries of state of trust but not others.

B. Tension Between Income and Remainder BeneficiaryTrustee must deal with multiple and successive beneficiaries impartially. As the trust has costs and income, the trustee must decide between benefiting or charging the income or principal. Or, the trustee might be choosing investment methods that really help the income but stagnate the principle.

The trust instrument might dictate what is to be done between the current and future beneficiaries and might define how incomes and expenses are tied to income and principal. But, if the settlor does not, the law provides rules of allocation that endeavor to achieve the settlor's likely result.

1. Trust Investment Configuration & Trustee's Duty of ImpartialityAll the of the above makes it difficult to invest some things if the investments are going to come back as capital gains and thus belong to principal. There is a rule allowing the trustee to deviate from the rules if the income is too big or too small. One way to dodge is to have the trustee pay a certain amount to the beneficiary. That way, it doesn't really matter what is income or what is principal. Some transactions have tax consequences. Usually, a tax consequence that benefits an income beneficiary screws a remainder beneficiary.

Trustee should basically be trying to keep the value of the principal the same, but trying to find ways to maximize the

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income, especially if the income beneficiary is likely to be around for a long time.

With abandonment of approved lists and movement to portfolio, the investment decisions should seek maximum benefits given the risk tolerance, which factors in the fact that it is a trust.

2. Rights of Successive Beneficiaries to Corporate DistributionsFirst Wyoming Bank v. First National Bank and Trust, Wyoming 1981Lady was co-trustee and beneficiary of a trust. She accepted as income for herself common shares of stock. The remainder beneficiaries then sued her estate after he death.The current law is that distribution of shares of the corporation are principal. But what was it when this all went down.?The Mass. rule is that if the corporation gives the trust its stock, that is principal. But if it gives some other stock, that is income.The Restatement rule is that cash dividends are income. Partial or total liquidation results in principal. A return of capital is principal. Here the stock the was a different corporation. And, it wasn't liquidation, so it was income. Receipts such as interest or rent are income. Profits on the sale or exchange of principal are principal. UPIA says that anything not money is principal. In re Brock's Estate, Penn. 1966Testator established trust to pay at least $18,700 per year to appellant and other friends and relatives for their lives with remainder to Bryn Mawr College, etc. Trustee purchased seven shares of stock, and there was a payout, which could be paid in cash or additional stock at option of receiving stockholders. Trustee went for cash. Bryn Mawr filed objection, saying the part that was realized capital gains should be principal. There are dividends and interest from investment, and there are gains made from advantageous sales of stock. That would be capital gains.

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The capital gains is more like liquidation than income. So, it should go to principal.Dissent: Selling advantageously is an operating profit, not a capital asset. Accordingly, it should be income. The majority rule now seems to be that income on the investment is income, and that anything else, whether in the form of cash or options are principal. Capital gains dividends are principal.

3. Allocation of Receipts from Wasting AssetsTrustee has to get rid of assets that are depreciating and not helping the remainder beneficiary. When the purpose of the trust requires the trustee to hold onto this crap, there are rules to apportion the receipts. All receipts for instance might go to principal, and then are invested. Another approach is to split the receipts of the wasting properties--standard is 10%. Kimbark Exploration v. Von Lintel, Kansas 1964What is the proper distribution of the royalty under a oil and gas lease? The O&G company brought action to determine distribution. One side says it should all be principal, and the income of that principal once invested should go to income beneficiary. Trial court said that it goes to life beneficiary.Previously, mines and whatnot that were put toward production by the settlor were open to exploitation by the life tenant without any aside for the remainder. But what is the UPIA say now? Statute only applies the rule of the mining as principal to instances where the trustee instigates the mining. Here, the mining was instigated by the settlor.So, the sales go to the life tenant. NOW, it is the 90/10 rule. Chapin v. Collard, Wash. 1948Trustees tried to do a depreciation reserve on some property in trust where they were paying rents as income to the beneficiaries. The law clearly says that you don't do a depreciation reserve unless instructed.

Modernly law says that a reserve account can be okay for the remainder beneficiary, now.

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Difference between depreciation and waste. Waste is more like mining.

4. Trustee's Discretionary Power to Allocate Receipts and Disbursements

Worcester County Nat'l Bank v. King, Mass. 1971Everybody has their finger in this case. The settlor declared that the trustee could do whatever with regard to income/principal charges and benefits. The IRS doesn't like this because it screws up the calculation of how much taxes the trust pays based on the charitable remainder interest. Trustee calculates interests the same as if there were no instructions in the trust. The trustee will be able to use best informed judgment. Such a discretionary power can help avoid litigation, simplify administrative problems, permit flexibility to help the beneficiaries, protect the trustee from liability, allows to neutralize unfairness coming from other issues, etc.

XX. Records, Accounting, Etc.Trustee is generally required to advise the beneficiaries of the existence of the trust, maintain accurate records, and keep the beneficiaries of the trust reasonably informed of the trust and its administration. Upon the beneficiary's reasonable request, the trustee must give a statement of the trust accounts. The trustee must permit a requesting beneficiary to examine trust property, documents or title papers, and account books or vouchers if the requested inspection is at a reasonable time and place and not vexatious in nature. Trustee must also authorize third parties with whom she deals to verify her representations concerning the trust's investments. At the termination of a trust, the trustee will be required to account for the care and management of the trust property. Periodic accountings may also be required. Some states require regular accountings to a court, or allow the court to accept accountings. The UTC goes for informal accounting unless a person challenges the accounting in court. Current and potential beneficiaries and current and previous trustees and cotrustees can bring such suit. Courts will appoint a guardian ad

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litem for unascertained, incompetent, or unborn beneficiaries. Or, they may be represented by beneficiaries with a common interest. A. Duty to Maintain Adequate Records

Malcomson v. Goodhue County National Bank, Minnesota, 1936Bank filed for final account and discharge from duties as trustee. Beneficiaries had problems--trial court surcharged the bank for $5k.Bank conveniently did not keep certain investment records. Trial court did not surcharge for those, determining that the investments would have been made anyway. This court doesn't like that. Trustee has the duty to prove things are above board. Any question must be resolved against the trustee.Here, it is very sketchy--the bank religiously kept records of its own investments, but here, there are no records and further suspiciousness. So--trustee has burden to prove legitimacy of what he does, but he does not have the duty to be prepared to defend against charges of dereliction of duty and malfeasance. Beneficiary would have to prove those charges. When a trustee keeps and presents a complete account of her acts, a party objecting has the burden. Once competent evidence is produced which established inaccuracy or illegality of any items, or renders them doubtful or obscure, the trustee then gets the burden.

B. Effect of a Provision Relieving Trustee of Duty to Account

Wood v. Honeyman, Oregon, 1946In 1923, settlor set up trust and then asked for accounting in 1940. Trustee refused. Court compelled disclosure and ultimately surcharged the bum. There is language exempting the trustee from accounting. But, this wasn't a gift—it is a trust. A trust in and of itself is something enforceable in equity. If the settlor intended a trust, accountings are part of that. Settlor cannot oust court. If settlor attempts, that may be a sign that a trust is not actually intended. No trust instrument can relieve a trustee from the power of the court, but might relieve from the duty of keeping formal accounts.In such instance the beneficiary cannot expect regular accountings, but can maintain suit.

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C. Effect of a Decree Approving Accounts

If the court approves and the trustee fully and truthfully disclosed, beneficiaries cannot later raise objections. But, lack of disclosure leaves the trustee potentially liable because the beneficiaries don't have an independent duty to inquiry as to the truthfulness of the trustee. Approving the account has the effect of a judgment and may be vacated only for fraud or other good cause. Pepper v. Zions First National Bank, Utah 1990Zions was the executor and trustee of some guy's revocable trust. Zions continued operation of the guys businesses. The estate had to get some loans to deal with estate taxes. Zions then made an executor accounting showing that the estate was in the red. Zions had done some fishy things. The court approved everything. The beneficiaries sued claiming that Zions did fraud as executor and as trustee failed to object. The trial court ruled res judicata on the issue.The Court ruled that the fraud claim was not res judicata if the plaintiffs could prove they were prevented by fraud or misrepresentation from litigating the allegations of mismanagement or self-dealing.Zions had a duty to challenge itself because as fiduciary it had duties. Simultaneous roles do not diminish duty. This isn't barred by res judicata. The adjudication of actions in the separate roles is not barred because the people are the same person. An approval of the executor's final accounting doesn't shield the same person as trustee.

D. Effect of Beneficiary's Approval or Failure to Object

In re Mershon's Estate, Penn. 1950Transactions happened between 1924 and 1933. A 1941 accounting declared certain stocks worthless. A 1946 final accounting and resignation set forth that stocks were worthless. Court thinks petitioners failed to explain why they didn't question this and think laches applies. Failure to appear and raise an objection that could have been made thus bars that objection in the future once the court has approved. The beneficiary must react to the accounting and get also information from reasonable diligence.

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In re Schoenewerg's Estate, NY 1938The beneficiary signed off on an accounting without objection. That binds. A voluntary statement of trust account is binding if the beneficiary gives express consent with full knowledge and without improper conduct by the trustee.

E. Trustee Compensation

In the United States, the trustee is entitled to pay even if trust instrument does not provide. The rate comes by the trust instrument, contract between settlor and trustee, statute, or court action. Statutes grant court discretion, or statute allows trustee to just take and account, or statute makes a schedule of fees. That can include commissions.

Originally, pay came from principal, but that is up for variance. If the trustee is naughty, the court can deny compensation. Settlor can override statutes. In re Nazro Estate, Cal. App. 1971No specification, so statute says reasonable.We should consider income of the estate, the success/failure of the trustee, unusual skill, fidelity or lack thereof displayed, amount of risk and responsibility assumed by trustee, time consumed, custom in the community of what to pay, character of work--routine or not, estimate of value of own services. We think this guy is too excessive.

XXI. 2nd to Last DayReformation is altering the trust’s payout/dispositive scheme. If the trust becomes impossible to carry out, the court will intervene to fix or terminate. If there are scrivener’s errors, the court will respond. If the settlor had tax objectives, the court will intervene to help achieve those, even if the settlor had signed off in full understanding. Changed circumstances, unanticipated, that jeopardize the settlor’s intents can come in. The settlor’s purposes should not be violated. So . . . example—pay all tuition? Generically support somebody regardless of rising prices. Other remainder beneficiaries?

All beneficiaries agree to change? Either get settlor’s consent or court to make sure there was not a material purpose.

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Charitable trust becomes illegal or purposes become impossible or impractical, or where purposes of trust have become capricious or wasteful. Court determines that there was general charitable intent. The court at the request of an interested party will exercise cy pres authority to as closely as possible give expression to the settlor’s purpose. General charitable intent is getting broader. There is even a presumption of a general charitable intent as per the uniform laws.

Trustee’s Duty Upon Termination of Trust: Duty to preserve and protect trust assets, ensure that assets are productively invested during winding up continues. Termination duties—efficient and timely wrapping up of trust affairs. Cannot drag it on. Records. Nowadays, trustee can distribute assets in kind—but, duty of impartiality could lead to need to liquidate. If some assets appreciated while others did not, that invokes proportional and tax and other problems. Also—when one beneficiary is immune to taxes. The bottom line is ensuring that each beneficiary gets as much as possible.

XXII. Modification & Cy PresDeviation is used to later administrative or distributive terms of a private trust. You need cy pres for deviation in charitable trusts. The court may allow deviation in private trusts for unanticipated circumstances if the end goal is to further the trust’s purposes.

The court can also allow deviation in a private or charitable trust to deviate from methods of administration if it appears to the court that compliance is impossible or illegal, or that there are unanticipated circumstances that would impair accomplishment of the trust. This can change investment directions, trustees, bonds, selling property, accelerating beneficiary’s interest.

Courts have refused modification even when circumstances were unanticipated. Court’s do not want to benefit one beneficiary over the other, regardless of whether the beneficiary is vested or contingent, etc. Even if the beneficiary’s needs change, if the settlor did not make a set income, and if there are remainder beneficiaries, then the court is going to be hesitant.

On the other hand, one court found a paramount intention to support a spouse, but it helped that the beneficiaries agreed.

Judicial cy pres is the court’s power to carry out a charitable donor’s intention as nearly as possible. Originally, this was the royal

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prerogative to screw over trusts, but ultimately, American courts adopted it in some instances. Matter of Estate of Crawshaw, Kansas, 1991Guy left a lot of his estate to a college that went bust. The college's memorial trust fund alleges that the testator manifested general charitable intent, which the Salvation Army denies. Facts, facts, facts. Etc.Trial court found general charitable intent by testator because it is directed to a college, it behaves charitably, etc. District court also found that the trust was the appropriate entity. The court here goes de novo based on the stipulated facts.In Kansas, if there is no alternate disposition in the event of lapse or voidment, the residuary beneficiaries take. The college wants to use general charitable intent to apply the cy pres doctrine. They point to the provision for if the college does not have legal capacity to accept, etc. as evidence that the testator did not want this bequest to fail. This was supposed to be a perpetual fund, etc. Cy Pres Doctrine: Allows court to substitute beneficiaries when the named one cannot take. To apply 1) Must be to charitable organization for charitable purpose. 2) Must be impossible, impractical, or illegal (or according to Restatement, a waste) to carry out donor's purpose. 3) Must appear that there was a general charitable intent.Should not be applied if 1) donor manifested specific charitable intent. 2) anticipated possible failure of trust, 3) made alternate disposition should gift fail.Statute: If charity becomes impossible to fulfill, and if settlor manifested a general intent, any interested party can come in. AG can have some say. But it doesn't work if there was an alternative plan.College claims the legislature tried to expand the cy pres doctrine. We don't think so.Past cases:We declined to give trust to a parent church when the local church failed.Court has declined to presume general charitable intent.So here is what we think.First charitable trusts are favorites in the law and should receive liberal construction.We should consider the entire will and extrinsic evidence.Crawshaw had general charitable intent--no gift over provision, provisions that the will should not fail, was to be named after wife, small bequests to heirs not included in residuary clause, bulk given to charity, clearly wanted scholarship fund, had not connection to the college itself.

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In re Estate of Buck, Cal. Superior Court 1986Lady died and left oil stock. She believed it was valuable. She specifically limited bequest to charitable purposes in a certain county-Marin County.The folks are saying that Marin County is going to be oversaturated and that the trust should be expanded beyond that. The trial court said baloney because the Foundation administering the lady's trust had unnecessarily restricted it to begin with. We're just not buying impossibility or impracticality where the trustees are idiots. It has to be something that is hurting the settlor's intentions. Cannot use cy pres just because you can imagine a better use, either. Even if the trust isn't fair. Convenience of trustee is no good.Trustee is bound by acceptance.If it is the trustee's fault--no cy pres.

What is impossible or impracticable varies in courts, as opposed to what is the trustee or beneficiary being an idiot. The city was allowed to put a trust fund garden elsewhere even though they were the ones who made it impossible to keep it in the original location. The Coast Guard got away with refusing to give scholarships and putting funds in a more general scheme.

It always helps if you’re going for cy pres long after the trust went into effect. Unreasonable accomplishment of the objective can also block—which kind of runs contrary to Buck. The general pattern is to apply cy pres conservatively.

With corporations that refuse to accept or cannot hold property, cy pres will apply if the donor was looking for charitable purposes and not just the organization. Corporations merging can get the new corporation the old donations.

But failure for a Girl Scout donation where a local unit did not exist. Although, if it is just name errors with an idiot settlor, you can do all right.

XXIII. Alteration, Revocation or Termination by the PartiesIf settlor reserved power to amend or revoke, then that is the power. But what if the settlor did not do a good job reserving those powers? If settlor has no power, then the settlor has no power. As to the beneficiaries, if they give or receive a conveyance that united beneficial interests with legal title, you have merger or surrender and

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the trust dies. But, trustees have difficulty proving the legitimacy of surrender, and whatnot.

Settlor’s Power to Revoke and Amend

The court can decree termination if the beneficiaries want it, but not if it is spendthrift. And it might not anyways. AKA—the court holds the trust to be indestructible.

Only for fraud or incapacity is the exercise of a power of revocation voidable. Settlor’s conservator cannot revoke, settlor being unduly influenced cannot, cannot persuade beneficiary without full information.

The capacity to create, amend, revoke, or add property to a revocable trust or to direct the actions of the trustee of a revocable trust is the same as required to make a will.

Settlor of a revocable trust is considered the owner for tax purposes.

Trust not revocable unless the settlor reserved that power or it was imposed by statute. Power to revoke not transferable. Settlor may authorize trustee to terminate trust. Discretion to make best interest payments it not discretion to payout entire principal.

Clear, precise, and convincing evidence can get revocation in by reform of the trust. Mistake of law does not solve. If power to revoke would destroy trust’s purposes, the court will not assume a mistake.

Power to revoke includes power to amend and partially revoke. Power to amend can be used to insert power to revoke. Power to amend quite broad.

If the instrument provides a method of revocation or amendment, that method must be followed. If no formal manner, any manner clearly evidencing the settlor’s intent is sufficient.

Termination by Court

If not all beneficiaries consent because they are unwilling or unable, the court will refuse termination. But, in one instance, an impracticable purpose was enough to make it so that not all beneficiaries were required.

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Small trusts can be killed.

Claflin Doctrine—will not terminate even if beneficiaries want it if continuation is necessary to carry out a material purpose of the settlor. Material purposes would be deprive beneficiary, assure income, shield from improvidence, preserve for remainder beneficiary. Spendthrift will often prevent. Although, it alone is not enough to prove a material purpose. Assignees cannot terminate if beneficiaries could not terminate. Material purpose can also be defeated by changed circumstances.

Modification or Termination by Consent of Beneficiaries

Courts will not find a material purpose in mere fact that there are successive beneficiaries. All or the beneficiary in possession can go for termination.

Trustee/beneficiary was able to terminate where the power of appointment by will was present.

Worthier title remains—where remainder interests cannot be created for beneficiaries whose identity is doubtful and whose consent would be impossible to obtain. On the other hand, guardians ad litem can fulfill the purpose.

Trust Protections

Trust can appoint a trust protector to modify or terminate the trust. Protectors potentially have veto power, ability to approve addition or removal of beneficiaries, power to remove/appoint trustees, power to direct investment decisions, etc. Consent to self-dealing, etc. Micro-manager basically. Limit: action manifestly contrary to the terms of the trust, or attempted exercise would be breach of fiduciary duty.

Settlement of Disputes

A trust may be modified or terminated by a bona fide settlement agreement that resolves a genuine controversy over the validity or construction of the trust. Interested parties can enter binding settlement agreements.

Trustee’s Duties After Trust is Terminated

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Trustee de son tort is the doctrine that the trustee is called to account for stuff he wrongfully held under color of being trustee. At termination, trustee has a reasonable period to wind up the affairs and make distribution. Reasonable is key. Unreasonable behavior can make trustee liable. Trustee has power to do what is necessary to wind up. Generally, should deliver property in kind, but trust instrument or beneficiary consent can result in sale and proceeds.

De facto trust can rise.

XXIV. Remedies Against the TrusteeCourt as an equitable matter may fashion any remedy reasonably necessary to constrain or rectify a trustee’s violation. Court may compel trustee to comply with terms of trust, may enjoin or set aside wrongful acts, may compel the trustee to pay money or restore property, may suspend/remove trustee, may deny trustee compensation, and may appoint a special fiduciary to administer the trust.

For private trusts, beneficiaries, cotrustees, successor trustees, etc. have standing to bring claims. Absent beneficiary status, settlor cannot enforce.

There is one year to bring a claim if the trustee gave enough information. Five years if the trustee did not give enough information.

Decree to Carry Out Trust

Potential beneficiaries can bring suit, but in some instances, the connection is not enough.

Injunction or Setting Aside Wrongful Acts

Beneficiary can show that trustee or third person is contemplating an act that would be a breach of trust or prejudice to beneficiary? Then court may enjoin. Can also bring suit for wrongful acts. Can also get a bond if you’re nervous. Can also appoint a special trustee to administer pending a decision to remove trustee or get other relief.

Damages

If trust loses value because of a breach of trust, court can make trustee liable. Instances: failure to use reasonable care to collect trust property, failure to collect overdue mortgages, purchases or fails to

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dispose of prohibited assets, pays assets to wrong parties, carelessly leaves funds in a dangerous bank. Trustee is also liable for interest on the money damages owed.

Intervening causes do not often help the trustee in trouble. Question is easy when the trustee is held to be a guarantor. Trustee becomes guarantor when he unreasonably delays in handing stuff over or gives too much discretion to an agent or co-trustee.

If trustee improperly profits, that gets turned over.

If trustee fails to purchase something in a timely manner, and it goes up in price, trustee is surcharged. Also the over way, with subsequent appreciation of property.

Larceny is now criminalized.

Co-trustees are jointly liable, though one may prove indemnity.

Trustee may not setoff failures by other gains.

Setoff can happen on same transaction that has a loss and a profit.

Removal of Trustee

Beneficiaries and co-trustees can petition court. Settlor sometimes has this power. Trust protector has this power.

A trustee of multiple trusts can be removed from both for breach in one trust if the beneficiaries are common to the trusts.

Special trustee can be appointed while proceedings commence.

Trustee appointed by settlor is harder to take down. Estate must be endangered and intervention necessary.

Mistake or judgment errors sans bad faith is not sufficient.

Statutes can give grounds for removal.

Advice and Instruction by the Court

Court of equity has inherent jurisdiction to give instruction and advice on the rights, powers, and duties of the parties to a trust. You can go to court for instructions or declare rights. There is also approval of past actions.

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Trustee doesn’t have to make risky decisions alone. And, if all are represented at the proceedings, nobody can complain.

But, not unlimited. This is limited to situations where the advice of competent lawyers cannot come up with a good answer. Cannot present hypotheticals that may not happen.

Supervised trust subjects trustee to getting approval from court for everything.

XXV. Remedies Involving Trust PropertyCourt can do tracing to allow beneficiaries to recover ahead of trustee’s other creditors. If the trustee pays out money, though, that is dissipated. But, the court can do subrogation and get a security interest in whatever was purchased. If a creditor already has claim on that property, court can do marshaling, which requires the creditor to get satisfaction from elsewhere first.

All of this is subject to prior rights of third parties whose dealings were in good faith, for value, and without knowledge that the trustee exceeded authority.

Tracing

Can go for tracing instead of money judgment against trustee. But, for each breach you only get to pick damages or specific property. Single satisfaction.

Specific property must be identified. Or you must prove that money went into a fund and remained there until suit. The minority holds that you presume the money is still in the fund.

Products or profits from the property being traced are also included.

If money went to improvements on someone’s property, most courts put a lien on the property for that much. Minority will only do it to the extent the property increased in value.

Person who is given property with notice of breach can be compelled to restore property with income. Donee who received can be compelled to return property without income if taken without notice. Illegal transacstion but no notice? Same as donee.

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Dumping stuff into unidentifiable mass results in a fractional lien on the mass.

Pro rata or first in first out can control. Also, lowest intermediate balance. Unless, douche bag puts more money in with intent to restore. Presumption is that deposit into personal account doesn’t count for this, but deposit into a trust account does.

Also can claim lien on profits made.

If investment is made and the funds dissipated, the trust property is the investment.

Subrogation

If trustee uses funds to pay off a mortgage or eliminate some sort of secured interest, that interest then transfers to the trust.

Marshalling

Forces creditor to go to other options before interfering with the trust stuff.

Bona Fide Purchaser Defense

A party who obtains legal title to property and pays value without notice of the breach of trust or of the beneficiary’s equitable interest insulates the purchaser from the beneficiary.

Must have acquired legal title, must have paid value, must have been innocent of knowledge of equity against property when title acquired. Burden of proof can go both ways.

Even if X buys the property from Y who was a bona fide purchaser, and X knows of the breach, he still is safe. But, not if he is the trustee.

Must give value. Forgiveness of antecedent debt is good. People who use it to seize on a lien are no good. Purchase at sale sufficient.

IN giving value, the purchaser is safe to the extent that value was given before notice.

To prove knowledge, you have actual or constructive notice. Knowledge of agents, etc. bad. Notice that property is in trust is a sign.

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XXVI. Last ClassViolation of these duties? Who has standing? The AG has standing to bring action for an accounting or surcharge. Private trusts? The beneficiaries or potential beneficiaries. Not the settlor unless the settlor is an interested party or has reserved some power or whatnot. Some jurisdictions statutorily characterize “interested parties” and can expand it pretty broadly.

Location of administration is where you bring the action. Pretty much where the trustee resides and whatnot. Typically, trust agreement provides that a particular state law will apply. Generally, there must be a nexus between trust and that state—need a trustee in the state of the law being invoked.

Remedies are both punitive and compensatory. They are calculated to deter other trustees from screwing up. Can impose damages calculated to restore what was lost—make beneficiary whole. Lost value from ridiculous investments.

Also possible to get whacked for lost profit—like how much money could have been made with an appropriate investment. That is a difficult number to create. Also, the trustee can be forced to give up personal profit from self-dealing stuff. In Rothko, the court valued the pieces as of the decree—in the hands of a strange by then.

Can enjoin trustee’s proposed action. Can compel action—accountings, action, etc. Court can rescind transactions. Can force trustee to restore status quo. Can remove, suspend trustee. Can deprive of compensation.

Tracing. Think of the property itself and the proceeds of the property. If you trace the property itself, you can pop on a constructive trust until there is a bona fide purchaser. Then, you can try putting constructive trusts on the proceeds—balance in the bank account. The constructive trust can get rid of other creditors.

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