Express Trusts
Living
Revocable
Testamentary
Irrevocable
CREATION OF TRUSTS
OVERVIEW
 Merger
 Elements of an Express Trust
 Oral Trusts
 Secret and Semi-Secret Trusts
 Function of a Trustee
 Trustee Liability
PRESENT ESTATES & FUTURE INTERESTS REVISITED
Legal life estate
Equitable life estate
O to A for life, remainder
to B’s descendants
O to X in trust for A for life,
remainder to B’s
descendants
PRESENT ESTATES & FUTURE INTERESTS REVISITED
The rise in the use of trusts avoids many of the
problems,
pitfalls,
and complexities
that are present in the common law of estates & future
interests
CREATION
A trust is created when one person transfer property to another on
condition that the latter will use and manage the property for the
benefit of the beneficiary
 The trustee has either explicitly or implicitly promised to comply with the
conditions in exchange for the transfer
In return, the trustee may collect a fee for her services
But a breach of the promise/ condition can result in either
imposition of penalties on the trustee or the transfer being deemed
void
CREATION
The settlor trusts the trustee to honor the
condition
The settlor is entitled to rescind the transfer if
a breach occurs
Because of this promise element, this form
of holding property was named a trust
The settlor trusts the
trustee to use the
property NOT for
her own benefit,
which would be
permissible in an
outright gift or
transfer to the
trustee, but for the
benefit of the
beneficiaries
MERGER
MERGER RULE
To have a valid trust, the trustee must owe fiduciary
duties to someone other than himself
If the sole trustee of a declaration of trust is also the
sole beneficiary, the legal title and equitable title
“merge” and the trust fails
MERGER RULE
If SOLE trustee = SOLE beneficiary,
then
Legal and equitable titles MERGE and
trust is extinguished!
The rationale is that there is no one to
whom fiduciary duties owed
Drafting Tip:
To avoid
merger
problems, have
a contingent
beneficiary at
a minimum
MERGER HYPO 1
O executes a written declaration of trust declaring herself
trustee of Blackacre, with income for life to herself, and
then Blackacre passes to A on O’s death. Does this
situation result in merger?
No. Even though O is the sole settlor, trustee, and a
present beneficiary, this does not result in merger because
A is a future beneficiary.
MERGER HYPO 2
A and B are trustees for X? Does this situation result in
merger?
No. Here there is no merger because there is more than
one trustee.
REVIEW: TRUST TYPES & CLASSIFICATIONS
Inter vivos
• Created during
the settlor’s life
• By declaration
of trust or deed
of trust
Express
Resulting
Testamentary
• Created by
will
Constructive
• By method of creation
(testamentary or inter vivos)
• By beneficiary (charitable or
private)
• Arises from the
presumed intention of
the owner of property
• Equitable remedy in
cases involving wrongful
conduct and unjust
enrichment
ELEMENTS OF AN EXPRESS TRUST
COMMON LAW ELEMENTS TO CREATE TRUST
1. Capacity of the settlor to create the trust
2. Intent by the settlor to create the trust for a lawful purpose
3. Specific property (the “res” or “corpus” or “trust property”) to be held in
trust
4. One or more ascertainable beneficiaries
5. Trustee who manages the trust property and has duties to perform
6. Writing that satisfies:
 The Wills Act – only for testamentary trusts
 The Statute of Frauds – only if the corpus includes real property
UTC §402 - REQUIREMENTS FOR CREATION
(a) A trust is created only if:
 (1) the settlor has capacity to create a trust;
 (2) the settlor indicates an intention to create the trust;
 (3) the trust has a definite beneficiary or is:
 (A) a charitable trust;
 (B) a trust for the care of an animal, as provided in Section 408; or
 (C) a trust for a noncharitable purpose, as provided in Section 409;
 (4) the trustee has duties to perform; and
 (5) the same person is not the sole trustee and sole beneficiary.
(b) A beneficiary is definite if the beneficiary can be ascertained now or in the
future, subject to any applicable rule against perpetuities.
(c) A power in a trustee to select a beneficiary from an indefinite class is valid. If the
power is not exercised within a reasonable time, the power fails and the property
subject to the power passes to the persons who would have taken the property had
the power not been conferred.
TRUST REQUIREMENT: VALID PURPOSE
Rarely a problem so long as it is not
Think of our earlier
discussion of Feinberg
1. Funding an illegal activity, or
2. Otherwise against public policy, like encouraging divorce or obtaining
unwarranted public benefits
Greatest concern with trusts is whether the settlor intended to defraud existing
creditors by transferring property into a trust or whether doing so had the
effect of making the settlor incapable of meeting his/her present obligations
 Uniform Fraudulent Conveyances (or Transfer) Act.
If so, trust is normally deemed to still
exist, but creditors may attach assets
TRUST REQUIREMENT: SETTLOR CAPACITY
Testamentary trust AND
revocable inter vivos trust
Per UTC §601, capacity is the same
as for will drafting
Settlor must:
 P – Know the nature and extent of her
property
 O – Understand the natural objects of
her bounty
 P – Must develop a plan and
 I – Understand how these all interrelate
Irrevocable Inter Vivos trust
Competent to enter into a contract,
and
Understand the effect that creating
trust will have on future financial
security
Higher standard
TRUST REQUIREMENT: INTENT TO CREATE A TRUST
Intent must be to presently and unequivocally
(i) divide title between legal and beneficial interest, and
(ii) create an enforceable fiduciary relationship
In other words, settlor transferred property to the trustee with
intent that that person or company hold the property for the
benefit of the beneficiaries and with the knowledge that the
beneficiaries may enforce their rights against trustee for breaching
the fiduciary duty
INTENT TO CREATE A TRUST
No particular form of words is necessary to manifest an
intent to create a trust
Not even the word trust or trustee is required
Settlor need only manifest an intent to create the fiduciary
relationship known by the law as a trust
The focus is on function rather than form
A person who is ignorant
of trust law may
therefore create a trust
WHAT ARE THE ALTERNATIVE INTENTS?
•Settlor intended to retain property until death and then effect a
testamentary transfer
•Settlor intended an outright fee simple absolute gift with or without
explanatory or precatory language
•Settlor intended only a promise to make a gift in the future
•Settlor intended the creation of a power of appointment over the
property
PALOZIE VS. PALOZIE
Declaration of trust:
‘‘being of sound mind
to wit I make this my
last private verbal act’’
Quitclaim deed
conveying Crane
Road real estate
to settlor as
trustee for benefit
of plaintiff
o Neither recorded on the land records. Beneficiaries were not notified.
o No one, other than settlor, aware of documents.
o Settlor dies. After 10 years of slow estate administration, successor P.R.
appointed. New P.R. sought to sell estate’s property.
o Plaintiff for 1st time objects claiming there was a trust and he was
beneficiary.
PALOZIE VS. PALOZIE
•Issue: Did she intend a lifetime transfer – to herself
as trustee – or a testamentary transfer?
•What facts suggest that she had not “arrived at a
final and definitive intention to create a trust” and
that she intended a testamentary transfer of the
property?
WHAT IS IT: TRANSFER IN TRUST OR PROMISE TO
MAKE A GIFT IN THE FUTURE?
If a property owner intends to create a trust, the
person can declare that she holds property as trustee
and no longer in her individual capacity
If the property is in fact held in
trust, then the intended
beneficiary will take the property
But
If no transfer into trust occurred, then the intent may
be
In which case the element of
delivery is missing
1. to make a gift in the future
or
2. to make a testamentary gift
If no trust is created, the property will be distributed
through the property owner’s estate when she dies
In which case the testamentary
formalities must be met in order
for the intended beneficiaries to
receive the property
HYPO
Dana writes a letter to Stan saying: “The piano is yours, I’ll keep it
for you.” Dana dies, leaving a will that devises her property to
Justin. Does Stan get the piano when Dana dies? What arguments
could be made for or against Stan getting the piano?
The letter could be construed as a declaration of trust – I am now
holding the piano for you, as trustee.
It could also be construed as a promise to make a gift in the
future.
WHAT IS IT?
“It is my wish, but I
do not direct or
require that ….”
“I give the property
to Anna. It is my wish,
but I do not direct or
require, that she
distribute the
property among my
nieces and nephews
as she sees fit.”
“I give the property to
Anna, as trustee, to
distribute among my
nieces and nephews in
shares that she shall
determine to be in
their best interests.”
WHAT IS IT?
Gift in Trust
or
Outright Gift with
Explanatory Language
or
Precatory Language
I request …
I hope …
I direct …
I wish …
I require …
HYPO 1: TRUST INTENT
Alan devises Blackacre to Jennifer “hoping she will continue it in the
family.”
She sells it and keeps the proceeds.
Do Alan’s heirs (the family) have any rights?
No. The language is precatory.
Jennifer owned Blackacre outright and can keep the proceeds.
HYPO 2: TRUST INTENT
Steve transferred $10,000 to Thomas, stating, “Invest this money for my
Son, Brad. Give Brad the income every year on his birthday until he
reaches age thirty. Then give him the $10,000.” If asked, Steve would
define “trust” as having confidence in someone who is honest, “legal
title” as the official name of a book in the Library of Congress records,
“equitable title” as the formal name of horses used at professional
racing tracks, and “trustee” as a special type of tea served at upscale
restaurants. Did Steve have the intent necessary to create a trust?
 Yes, Steve demonstrated trust intent.
CHOOSING A TRUSTEE
TRUST INTENT & CHOOSING A TRUSTEE
Nicole has an estate valued at $5.0 million. She has no spouse, no partner and no
children. She wants to create a trust under her will to provide for her mother for the
rest of her mother’s life and then to be distributed to her nieces and nephews. While
her mother is alive, the trustee can distribute trust principal to her mother and to her
nieces and nephews for their health, education, maintenance and support. Nicole is
considering three possible trustees: her sister (Kate), her brother (Edward) and the
local bank.
Kate is a full-time homemaker who cares for her three young children. Kate’s husband
is a high school teacher.
Edward is an investment banker. His wife is a banking lawyer, and they have two
children.
Nicole lives in a small town, and Coastal Bank is the one she uses for her personal
banking business.
How would you advise Nicole on choosing a trustee? What are the possible
advantages and disadvantages of each of the three options she is considering?
TRUST INTENT & CHOOSING A TRUSTEE
Kate:
 Does she have the ability and skill to handle the job? Will she manage the property well? If she knows about
investments and can manage the trust, will she have time?
Edward:
 Same questions. Edward may be more likely to know about investments for the trust, but he may be used to
big amounts and may not have particular skills with investing smaller amounts. Either Kate or Edward could
appropriately hire an investment advisor.
Coastal Bank:
 A corporate trustee will charge for its work. Is the trust large enough for a bank to be willing to be the
trustee? Does the bank have a good trust department that Nicole thinks will make good decisions? Much will
depend on Nicole’s view of how each of the three possible trustees would handle the position.
Conflicts of interest:
 Kate and Edward both will have potential conflicts of interest with respect to the trust. The trustee can make
distributions for nieces and nephews – their children. Does Nicole think that they can be fair? Would making
one of them trustee make sibling relations difficult? The answers will depend on family dynamics, and a
lawyer can raise the questions and help Nicole think about these issues.
RESIGNING AS TRUSTEE
Jeffrey has acted as trustee of his cousin’s testamentary trust for five years. His
cousin died leaving a wife and two adult children from a previous marriage.
Jeffrey is tired of the squabbling and wants to resign as trustee. The trust
document (the cousin’s will) did not provide for a successor trustee. What would
you advise Jeffrey to do?
 In order to resign as trustee, Jeffrey may either get court approval to resign
or follow any statutory rules.
UTC §705 permits him to resign after giving 30 days’ notice to the qualified beneficiaries –
the cousin’s two children and second wife.
If either of the children are minors, notice can be given to a parent or guardian under the
UTC representation provisions.
The beneficiaries can then appoint a successor trustee. UTC §704(c).
MATTER OF ESTATE OF BOLINGER
I intentionally give property to
father (or stepmother) and nothing
to children. ...I make this provision
because I feel confident that any
property which [they] receive from
my estate will be used in the best
interests of my said children as my
said beneficiaries may determine in
their exclusive discretion.
Issue: Was the language in
¶5 of will intending to
create a trust with fiduciary
obligations or did it convey
a fee simple interest along
with precatory words
expressing his desire that
recipients use the property
in a certain way?
HYPO
When Husband and Wife divorce, as part
of the settlement agreement Husband gives
Wife $40,000 for the college education of
their two children. When the first child
reaches college age, the former wife asks
the former husband for help paying tuition.
He reminds her that he had given her the
$40,000 to set aside for this purpose, and
she says she had to use it for living expenses.
Did the transfer = trust?
Who can enforce and sue?
Yes, the transfer to Wife likely
created a trust (review the
elements), so she breached her
fiduciary duty as trustee when she
used the trust assets for something
other than the specified purpose
(college expenses)
The beneficiaries can sue
her for breach
This example illustrates that even if you will
not be an estate planning lawyer, you need
to understand the concepts in this course!
TRUST REQUIREMENT: TRUST RES
To create a trust, there must
be identifiable trust property
(or corpus, or res)
Any transferable property
interest
No Res  No Trust
Can be any kind of property
Need not be a substantial
amount of money
Where there is no trust
property, the trust fails
because the trustee has no
property to manage
HYPO: TRUST PROPERTY
After a long and productive night of working very closely with his
assistant, Lulu, Professor Writer writes her a note that provides in
pertinent part, “I want to show my appreciation for your services
in helping me finish my contractual obligations to Alta Press. I
hereby declare myself to be the trustee of the profits of my novel,
if I ever finish writing it, with 25 percent of the profits being held
in trust for your benefit, Lulu.”
Professor Writer finally finishes the novel, but dies before it is
published. Is Lulu entitled to any of the profits, if there are any?
 No. Under traditional trust law, the trust fails for want of
funding.
Classic trust law
holds that future
profits are not an
adequate
property interest
to constitute
funding. Without
funding, the trust
fails, and the
future profits are
not subject to the
terms of the trust.
TRUST RES
The property may be:
•real or personal
•tangible or intangible
•legal or equitable
•a present interest or a future
interest, whether vested or
contingent
Example: T devises Blackacre to
A for life, then to such of A’s
children as survive him. B, A’s
child, transfers his contingent
interest to X in trust for the
benefit of B’s wife.
 This is a valid trust.
TRUST RES
Cannot be a mere expectancy
E.g., possibility of inheritance or
being a devisee in a living
person’s will
Cannot be an unenforceable
gratuitous promise
E.g., A promises to pay B
$5,000 and declares that he
holds this amount in trust for B.
Unless A actually sets aside
$5,000, which becomes the trust
res, there is no trust res.
HYPO 1: TRUST RES
Gary the grantor declare that he holds Blackacre as trustee for Angus, and no
longer in his individual capacity.
What if there was no transfer of Blackacre into the trust?
The intent may be to make a gift in the future
Problem?
 The element of delivery is missing
The intent may be to make a testamentary gift
Problem?
 The testamentary formalities must be met for the intended beneficiaries to
receive the property
What happens if no trust is created?
 The property will be distributed through the
property owner’s estate when he dies
HYPO 2: TRUST RES
Was a trust was created under UTC §401?
1. At a time when her father is alive but terminally ill, Elena writes and signs a
document that says “I hereby transfer all my rights and interests in the estate
of my father to Terry as trustee for Liam for life, remainder to Liam's issue.”
She gives the document to Terry.
No trust is created because Elena’s interest is an expectancy.
2. The same facts as in (1) except that Elena’s father died shortly before she
signed the document and gave it to Terry.
Yes, a trust is created. Although the estate has not been distributed, Elena has
a property right in the proceeds of the estate (assuming that she is her father’s
heir or beneficiary).
TRUST REQUIREMENT: BENEFICIARIES
Trust must have one or more ascertainable
beneficiaries:
Without someone
with the legal
authority to force
the trustee to
comply with the
terms of the trust,
a trust fails
Person/people who benefit from the trust
Person/people to whom the trustee owes fiduciary duties
Person/people to whom the trustee must account for the
trust property
WHAT IS “ASCERTAINABLE?”
Beneficiaries must be ascertainable
Identifiable, determined with certainty, definitely known
Do not need to be identified at the time the trust is created
Example: Sally the Settlor, who has no children, may create a
valid trust for the benefit of her (not yet existent) children
CLARK V. CAMPBELL
I therefore give and bequeath to
my trustees all my property
embraced within the classification
aforesaid in trust to make disposal
by the way of a memento from
myself, of such articles to such of
my friends as they, my trustees,
shall select.
Must “the bequest for
the benefit of the
testator’s ‘friends’ …
fail for the want of
certainty of the
beneficiaries”?
ARE THE BENEFICIARIES ASCERTAINABLE?
Class gifts are permitted – a trust will not fail if the
Beneficiaries are members of a class (e.g., children,
siblings, etc.)
The class members must be definable, determinable,
certain
If the beneficiaries cannot be determined, the trust fails
DETERMINING THE BENEFICIARIES
There must be sufficient criteria for determining the
beneficiaries
The class must be definable:
By intestacy statutes (e.g., descendants, spouse, heirs, etc.)
By other statutory or case law
In Clark v. Campbell, since the trust for “friends” fails, the
property passes as part of the residuary estate by way of
a resulting trust
WHAT IS IT?
“I give my tangible personal
property to Larry, Curly, and Moe.
It is my request, but I do not direct
or require, that Larry, Curly, and
Moe give the property to my
friends, as remembrances of me. I
do not intend to create a binding
obligation in
connection with this gift.”
This would make the
gift an absolute gift
to the persons
named, so they
could give the
property to
testator’s friend
HYPO
Mom sets up a trust that provides as follows: “Income to Cody for life, upon Cody's
death, all the income is to be distributed to his children, and upon the death of the last
surviving child, the principal is to be distributed equally to his grandchildren then living.”
Cody dies survived by eight children. Assume that one of them, Ruth, dies survived by
two children, Stephan and Tom. Who takes Ruth's share of the income?
At common law, where income was gifted to a class, with distribution of the principal
delayed until the death of the last member of the income class, upon the death of
one member of the income class, his or her share was redistributed among the other
members of the income class. Cody's seven surviving children would share Ruth's share
of the income. Stephan and Tom would not take any of the income.
Under the modern trend, the preference is to apply anti-lapse to the share of the
income and give it to the issue of the deceased income class member. Stephan and
Tom would take Ruth's share of the income.
ORAL TRUSTS
HYPO
“Joseph and Yvette,
hold some money
for me”
•Testator asked his friends to hold
the money until his death
•Testator instructed his friends to
deliver the money upon his death
•Later, Testator would not take the
money back
George
Was an oral inter vivos trust
created?
RULES TO REMEMBER
A court will enforce an oral inter vivos trust of personal
property so long as:
The creation of the trust, and the terms of the trust
Are proven by clear and convincing evidence
 This is the rule in a majority of jurisdictions
GREGORY V. BOWLSBY
Facts
•After Mom died, Dad asked the adult
children to deed their interests in her
property to him, so that he could farm
the land more effectively.
•He verbally agreed that he would hold
the land and on his death the land
would go to the children.
•Surprise, surprise – he reneged and he
transferred an interest to 2nd wife!
Issue
Arguments of kids?
Legal hurdle for kids?
Because the
trust was an
oral trust of
land, it cannot
be given
effect as an
express trust
Relief sought?
What relief did court grant?
Holding?
Lesson?
CONSTRUCTIVE TRUST: HOW DOES IT WORK?
If the court imposes a constructive trust in Gregory v.
Bowlsby, how would a constructive trust work?
 The father will hold the property conveyed by the
children to him as trustee, with a duty to convey the
property back to the children
The facts say that he had deeded a 1/3 interest in the property
to the step-mother, so she will hold that interest as trustee with a
duty to convey the property to the children
SECRET AND SEMI-SECRET TRUSTS
HYPO
Testator devised her residuary
estate to a friend:
“[T]o distribute the same in
such manner as in his
discretion shall . . . carry
out wishes which I have
expressed to him or may
express to him.”
Has a valid testamentary trust
been created by this will?
 No. Testator attempted to
create a trust by the language
of her will, with the terms of the
trust being oral instructions she
gave to the “trustee”
This is a semi-secret trust
SECRET AND SEMISECRET TESTAMENTARY TRUSTS
What are secret and semisecret testamentary trusts?
Think of them as attempted oral testamentary trusts
An attempt by Testator to create a trust under Testator’s
will without complying with the Wills Act formalities
In a semisecret trust, the desire to create a trust appears
on the face of the will, but the terms of the trust are
undisclosed
PICKELNER V. ADLER
Shirley Alpha created a semisecret trust in her will, naming
her lawyer Pickelner (who
drafted the will) as trustee:
“[T]o be distributed in
accordance with the
specific instructions I
have provided him.”
Has a valid testamentary trust
been created by this will?
No.
•The court held the trust failed for
lack of identifiable beneficiaries;
they were the subject of the
secret instructions
ENFORCEABILITY OF SEMISECRET TRUSTS
A semisecret trust is unenforceable
The devise fails
The property goes to the heirs of Testator by intestate
succession
Courts will not admit extrinsic evidence as to the
intended beneficiary
ENFORCEABILITY OF SECRET TRUSTS
A secret trust is unenforceable, but, the result is
substantively the same as if the trust had been enforced
An absolute devise cannot stand if the devisee promised Testator
that devisee would convey the property pursuant to the terms of a
secret trust
To avoid unjust enrichment, the court will impose a constructive
trust for the benefit of the intended beneficiary
Courts will admit extrinsic evidence as to the intended beneficiary
to avoid unjust enrichment of the “trustee”
SEMISECRET TRUST VS. SECRET TRUST
Semisecret Trust
Secret Trust
Intent to create a trust appears on
the face of the will
Devise is absolute on the face of the
will
Terms are unstated
Extrinsic evidence is necessary to
prevent unjust enrichment of the
“trustee”
Extrinsic evidence is not needed to
prevent unjust enrichment of the
“trustee”
Trust is invalid and unenforceable;
courts will impose a resulting trust
Court will impose a constructive trust
on the “trustee”
RESULTING V. CONSTRUCTIVE
Constructive Trust
In Gregory, court chooses
constructive trust as an
equitable remedy
Alleged
Beneficiaries
Who benefits from
each type of
equitable trust?
Resulting Trust
In Pickelner, court chooses
resulting trust as an equitable
remedy
These might more descriptively
be called reversionary trusts
Heirs
FUNCTION OF A TRUSTEE
WHO MANAGES THE TRUST PROPERTY?
Trustee (not the beneficiary) is responsible for managing the trust
property
Trustee has all of the powers over the trust property . . .
. . . But the beneficiaries bear the consequences of the trustee’s
actions
NAMING THE TRUSTEE
May be one trustee or several trustees
May be one or more individuals and/or a corporate trustee
May be the settlor (if an inter vivos trust), a beneficiary, or a third
party
Usually named in the will or trust document (if applicable)
WHAT IF NO TRUSTEE IS NAMED?
“A trust will not fail for want of a trustee”
If the settlor intends to create a trust but fails to name a
trustee, the court will appoint a trustee
For testamentary trusts, the court typically appoints the executor
of the estate
TRUSTEE AS FIDUCIARY
To protect the beneficiaries from the mismanagement or
misappropriation of the trust property, the law imposes fiduciary
duties upon the trustee
Fiduciary duties include:
 Duty of loyalty – must act in the interest of the beneficiaries
 Duty of prudence – objective standard of care
 Duty of impartiality between beneficiaries
 Duty to inform and account to the beneficiaries
TRUSTEE LIABILITY
REMEDIES FOR BREACH OF TRUST
If the trustee commits, or is about to commit, a breach of his trust
duties, the court can enforce several remedies, including:
i.
Specific performance of the trustee’s duties
ii. An injunction against the trustee from committing a breach of
trust
iii. Compelling the trustee to pay money or restore property and
iv. Suspending the trustee
 See UTC §1001
DAMAGES FOR BREACH OF TRUST
If a trustee commits a breach of trust, he is liable to the
beneficiaries for the greater of:
1. The amount necessary to restore the trust property and
distributions to what they would have been absent the breach
or
2. The trustee’s profit from the breach
•See UTC §1002(a)
IS THE TRUSTEE PERSONALLY LIABLE?
In general, if a trustee breaches his fiduciary duty, is the
trustee personally liable?
It depends on whether the trust instrument contains an
exculpatory clause and whether such clause is enforceable
based on the specific language and circumstances
EXCULPATORY CLAUSES
The concept: the trustee is excused from liability if trustee
breaches a duty
Typical exculpatory clause purports to relieve the trustee
of personal liability (except in cases of bad faith, reckless
indifference, intentional or willful neglect, or the like)
EXCULPATORY CLAUSES UNDER UTC §1008(B)
Exculpatory clauses drafted or caused to be drafted by
the trustee are:
Invalid as an abuse of a fiduciary or confidential
relationship unless:
1. The trustee proves the clause is fair under the circumstances, and
2. The trustee proves the existence and contents of the clause were
adequately communicated to Settlor
EXCULPATORY CLAUSES AND BAD ACTS
Even if the trustee proves Settlor was fully informed, an
exculpatory clause will not relieve the trustee from
personal liability in the event of:
1. Bad faith
2. Reckless indifference
3. Intentional or willful neglect
CAN THE BENEFICIARIES WAIVE A TRUSTEE’S
LIABILITY?
Under UTC §1009, trustee is not liable to Beneficiary
for a breach if:
1. Beneficiary consented to the conduct constituting
the breach, or
2. Beneficiary released the trustee from liability for
the breach, or
3. Beneficiary ratified the transaction constituting the
breach
 In each case, only if Beneficiary knew Beneficiary’s
rights and of the material facts relating to the breach
A Bene may also
be barred from
obtaining relief by
the statute of
limitations;
The statute begins
to run when Bs
learn of breach
HYPO
You represent First Coast Bank. What language
would you include in an exculpatory clause to
eliminate or reduce the Bank’s liability for
breach of fiduciary duties as a testamentary
trustee?
“The trustee shall not be liable for mistakes unless
those mistakes rise to the level of gross
negligence or willful misconduct.”
Of course, totally
absolving the trustee
from any obligation
should mean that no
trust relationship
arises. Without duty
— the center of the
trust relationship —
there would be no
trust.
THE END