Lighthouse
Lighthouse on Modern Trust Design

Detailed Contents

This table lists every chapter, section and subsection of Lighthouse on Modern Trust Design with its paragraph (¶) number. Each entry links to its place in the text.

Part I: Foundations

Chapter 1The Modern Trust: From Passive Conduit to Governed Structure

  1. ¶ 101Overview
    1. 101.01Scope of the chapter
    2. 101.02The argument of the chapter
    3. 101.03Three functions of the trust
    4. 101.04Default rules and mandatory rules
    5. 101.05Terminology
    6. 101.06Plan of the chapter
  2. ¶ 110The Use and the Statute of Uses
    1. 110.01The medieval use
    2. 110.02Enforcement in Chancery
    3. 110.03The Statute of Uses
    4. 110.04Uses the statute did not execute
    5. 110.05Active and passive trusts
    6. 110.06The legacy for modern design
  3. ¶ 120The Trust in Nineteenth-Century American Law
    1. 120.01Reception
    2. 120.02The English rule of beneficiary control
    3. 120.03The American rule: material purpose
    4. 120.04Spendthrift trusts
    5. 120.05The significance of the two doctrines
    6. 120.06Merger
    7. 120.07The passive trust in modern practice
  4. ¶ 130The Managerial Trust
    1. 130.01From land to financial assets
    2. 130.02The prudent man rule
    3. 130.03Legal lists and the conservative reaction
    4. 130.04The prudent investor rule
    5. 130.05The default character of the investment rules
    6. 130.06The professionalization of trusteeship
  5. ¶ 140Codification
    1. 140.01Before codification
    2. 140.02The Uniform Trust Code
    3. 140.03The Restatement (Third) of Trusts
    4. 140.04The non-UTC jurisdictions
    5. 140.05Codification and design
  6. ¶ 150Unbundling the Trustee
    1. 150.01The unified office
    2. 150.02Pressures toward division
    3. 150.03The directed trust
    4. 150.04The Uniform Directed Trust Act
    5. 150.05The protector
    6. 150.06The allocation of functions
  7. ¶ 160Duration and Change
    1. 160.01The rule against perpetuities
    2. 160.02Repeal
    3. 160.03Duration as a design problem
    4. 160.04Judicial modification
    5. 160.05Decanting
    6. 160.06Decanting statutes
    7. 160.07Nonjudicial settlement and migration
  8. ¶ 170Governance Institutions
    1. 170.01Institutions around the trust
    2. 170.02Private trust companies
    3. 170.03The family office
    4. 170.04Information and the silent trust
    5. 170.05Purpose trusts
    6. 170.06Tax considerations
  9. ¶ 180Jurisdictional Competition and Its Critics
    1. 180.01The market for trust law
    2. 180.02The offshore jurisdictions
    3. 180.03Taxation of trusts by the states
    4. 180.04The critics
    5. 180.05Consequences for the drafter
  10. ¶ 190A Method for Designing the Modern Trust
    1. 190.01The design questions
    2. 190.02Order of decision
    3. 190.03Table of design questions
    4. 190.04Coordination
    5. 190.05Organization of the treatise

Chapter 2Choice of Governing Law, Situs and Place of Administration

  1. ¶ 201Overview
    1. 201.01Scope of the chapter
    2. 201.02Four terms
    3. 201.03Why location matters more than it did
    4. 201.04Two sets of rules
    5. 201.05The argument of the chapter
    6. 201.06Sources
  2. ¶ 210The Restatement (Second) Framework
    1. 210.01The structure of the rules
    2. 210.02Construction
    3. 210.03Validity of a trust of movables
    4. 210.04The validation principle
    5. 210.05Hutchison v. Ross
    6. 210.06Administration
    7. 210.07Change of the law of administration
    8. 210.08Restraints on alienation
    9. 210.09Trusts of land
  3. ¶ 220The Uniform Trust Code: Sections 107 and 108
    1. 220.01The Code's approach
    2. 220.02Section 107
    3. 220.03What section 107 does not do
    4. 220.04Section 108: designation of the principal place of administration
    5. 220.05The continuing duty
    6. 220.06Transfer of the principal place of administration
    7. 220.07The objection right in practice
    8. 220.08Courts applying section 107
  4. ¶ 230Validity, Construction and Administration Distinguished
    1. 230.01Why the classification matters
    2. 230.02Validity
    3. 230.03Construction
    4. 230.04Administration
    5. 230.05Hard cases of classification
    6. 230.06Split designations
    7. 230.07An example from the cases
  5. ¶ 240The Uniform Conflict of Laws in Trusts and Estates Act
    1. 240.01Origins
    2. 240.02Structure
    3. 240.03Substantive validity
    4. 240.04Construction
    5. 240.05Administration and its change
    6. 240.06Principal place of administration
    7. 240.07Designation language and declining jurisdiction
  6. ¶ 250The Hague Trusts Convention
    1. 250.01The Convention and its parties
    2. 250.02Why an American planner should care
    3. 250.03The trust as defined
    4. 250.04The applicable law
    5. 250.05Recognition
    6. 250.06The mandatory rules of the forum
    7. 250.07The significance of article 15
    8. 250.08Temporal scope and federal states
  7. ¶ 260Firewall and Forced-Heirship Statutes
    1. 260.01The function of a firewall
    2. 260.02Common elements
    3. 260.03The Cook Islands
    4. 260.04Nevis
    5. 260.05Belize
    6. 260.06Domestic firewalls
    7. 260.07In re Daniel Kloiber Dynasty Trust
    8. 260.08Forced heirship
  8. ¶ 270Jurisdiction over Trustees and the Choice of Forum
    1. 270.01Forum and governing law
    2. 270.02Hanson v. Denckla
    3. 270.03Modern long-arm practice
    4. 270.04Acceptance of trusteeship as consent
    5. 270.05Competing courts
    6. 270.06Choice-of-forum provisions
    7. 270.07The Delaware Court of Chancery as a forum
  9. ¶ 280State Income Taxation and the Place of Administration
    1. 280.01Why tax drives situs
    2. 280.02The bases of state taxation
    3. 280.03The constitutional limits
    4. 280.04Kaestner
    5. 280.05Settlor-domicile statutes in the state courts
    6. 280.06States that exempt resident trusts
    7. 280.07Trustee and beneficiary statutes
  10. ¶ 290Choosing a Situs: A Method
    1. 290.01One decision
    2. 290.02Step 1: the trust's purposes
    3. 290.03Step 2: the people and the property
    4. 290.04Step 3: the jurisdiction's law
    5. 290.05Step 4: the instrument
    6. 290.06Step 5: maintenance

Chapter 3Settlor Intent and the Limits of Settlor Control

  1. ¶ 301Overview
    1. 301.01Scope of the chapter
    2. 301.02The argument of the chapter
    3. 301.03Three questions
    4. 301.04Organization of the chapter
    5. 301.05Terminology
  2. ¶ 310Settlor Intent as the Touchstone
    1. 310.01The default character of trust law
    2. 310.02The mandatory core
    3. 310.03Trust purposes
    4. 310.04Intent in construction
    5. 310.05Material purposes
    6. 310.06Consent of the settlor
    7. 310.07Unanticipated circumstances
    8. 310.08Termination by the terms
  3. ¶ 320Powers of Revocation and Amendment
    1. 320.01The presumption
    2. 320.02Revocation and amendment
    3. 320.03Exercise by agents and fiduciaries
    4. 320.04The settlor's control of a revocable trust
    5. 320.05Contests after death
    6. 320.06Revocable trusts and the surviving spouse
    7. 320.07The modern statutory position
  4. ¶ 330Powers of Direction, Veto and Consent
    1. 330.01The range of retained powers
    2. 330.02Powers to direct under the Code
    3. 330.03Fiduciary and personal powers
    4. 330.04The settlor as trustee
    5. 330.05The settlor as trust director or adviser
    6. 330.06The settlor as protector
    7. 330.07Negative and affirmative powers
  5. ¶ 340Retained Powers and the Settlor's Creditors
    1. 340.01The general rule
    2. 340.02Revocable trusts
    3. 340.03Irrevocable trusts with a retained interest
    4. 340.04Powers of withdrawal
    5. 340.05Powers that are not interests
    6. 340.06Powers as property
    7. 340.07Control in United States courts
  6. ¶ 350Tax Consequences of Retained Powers in Outline
    1. 350.01Scope
    2. 350.02Retained enjoyment and control: section 2036
    3. 350.03Powers to alter, amend, revoke or terminate: section 2038
    4. 350.04Removal and replacement of trustees
    5. 350.05The grantor trust rules
    6. 350.06Intentional grantor trust status
    7. 350.07Three questions, one power
  7. ¶ 360The Settlor's Standing to Enforce the Trust
    1. 360.01The problem
    2. 360.02Revocable trusts
    3. 360.03Charitable trusts
    4. 360.04Noncharitable irrevocable trusts
    5. 360.05Enforcement by design
    6. 360.06Standing and the settlor's purposes
  8. ¶ 370Dead-Hand Control and the Limits of Public Policy
    1. 370.01The competing values
    2. 370.02The public policy limit
    3. 370.03Restraints on marriage and religion
    4. 370.04Capricious purposes
    5. 370.05Incentive trusts
  9. ¶ 380Sham, Illusory and Alter-Ego Attacks
    1. 380.01Three doctrines
    2. 380.02Sham: the common intention
    3. 380.03The reckless trustee
    4. 380.04Limits of the doctrine
    5. 380.05Sham in the alternative
    6. 380.06Illusory and ineffective trusts
    7. 380.07Alter ego
    8. 380.08Conduct as evidence
    9. 380.09The three failure modes compared
  10. ¶ 390Letters of Wishes and a Drafting Checklist
    1. 390.01Function
    2. 390.02Status under the Uniform Trust Code
    3. 390.03Disclosure to beneficiaries
    4. 390.04Letters of wishes and protection
    5. 390.05Content
    6. 390.06Drafting checklist

Chapter 4The Uniform Trust Code and the Leading Non-UTC Jurisdictions

  1. ¶ 401Overview
    1. 401.01Scope of the chapter
    2. 401.02Why the governing code matters to design
    3. 401.03Two models of trust legislation
    4. 401.04Relation to other chapters
    5. 401.05Plan of the chapter
  2. ¶ 410Origins and Drafting of the Uniform Trust Code
    1. 410.01The problem the Code addressed
    2. 410.02The earlier uniform acts
    3. 410.03The state models
    4. 410.04Coordination with the Restatement (Third)
    5. 410.05The drafting committee
    6. 410.06Approval and amendment
    7. 410.07The comments as authority
  3. ¶ 420Structure of the Code; Default and Mandatory Rules
    1. 420.01The eleven articles
    2. 420.02A default statute
    3. 420.03The mandatory list
    4. 420.04The directed-trust qualification
    5. 420.05The information provisions
    6. 420.06Supplementation by common law
    7. 420.07Application to existing trusts
  4. ¶ 430The Principal Innovations
    1. 430.01The drafters' list
    2. 430.02Governing law and place of administration
    3. 430.03Nonjudicial settlement agreements
    4. 430.04Representation
    5. 430.05Modification and termination
    6. 430.06The duty to inform
    7. 430.07Creditors' rights
    8. 430.08Revocable trusts
  5. ¶ 440Enactment and Nonuniform Variation; Illinois and Wyoming
    1. 440.01The pattern of enactment
    2. 440.02The states that have not enacted it
    3. 440.03Variation among enacting states
    4. 440.04Consequences for interpretation
    5. 440.05Illinois
    6. 440.06Illinois: the modification rule
    7. 440.07Wyoming: an autonomy state inside the Code
    8. 440.08Wyoming: Article 5
  6. ¶ 450Delaware
    1. 450.01The statutory scheme
    2. 450.02The freedom-of-disposition rule
    3. 450.03The irreducible limit
    4. 450.04Advisers, protectors and directed trustees
    5. 450.05Information and the designated representative
    6. 450.06McNeil v. McNeil
    7. 450.07McNeil: proceedings below
    8. 450.08McNeil: the holding
    9. 450.09McNeil: lessons
    10. 450.10Modification, decanting and nonjudicial settlement
    11. 450.11Governing law and situs
    12. 450.12Other features
  7. ¶ 460South Dakota
    1. 460.01The statutory scheme
    2. 460.02The freedom-of-disposition rule
    3. 460.03Directed trusts and the trust protector
    4. 460.04The rejection of the Restatement (Third) and of Article 5
    5. 460.05Information: the indefinite quiet trust
    6. 460.06Modification by consent
    7. 460.07Decanting
    8. 460.08Other features
  8. ¶ 470Nevada and Alaska
    1. 470.01Nevada: the statutory scheme
    2. 470.02Nevada: freedom of disposition
    3. 470.03Nevada: irrevocability by default
    4. 470.04Nevada: modification and settlement
    5. 470.05Nevada: accounting and choice of law
    6. 470.06Nevada: duration and self-settled trusts
    7. 470.07Alaska: the statutory setting
    8. 470.08Alaska: information
    9. 470.09Alaska: protectors, advisors and modification
  9. ¶ 480New York, California and Texas
    1. 480.01The large resident states
    2. 480.02New York: the statutory setting
    3. 480.03New York: inalienable income
    4. 480.04New York: modification and formalities
    5. 480.05New York: limits on exculpation
    6. 480.06California: the Trust Law
    7. 480.07California: revocability and modification
    8. 480.08California: information and contests
    9. 480.09Estate of Giraldin: facts and proceedings
    10. 480.10Estate of Giraldin: holding and lessons
    11. 480.11Texas: the Texas Trust Code
    12. 480.12Texas: default and mandatory rules
    13. 480.13Texas: exculpation, modification and decanting
    14. 480.14Texas: creditors
  10. ¶ 490Comparing the Codes; Choosing a Governing Law
    1. 490.01The comparison
    2. 490.02Reading the table
    3. 490.03The information spectrum
    4. 490.04Choosing a governing law: the questions
    5. 490.05Choosing a governing law: the mechanics
    6. 490.06Splitting the choice

Chapter 5Mandatory Rules and the Irreducible Core of Trusteeship

  1. ¶ 501Overview
    1. 501.01Scope of the chapter
    2. 501.02Why mandatory rules matter to design
    3. 501.03Two kinds of mandatory rule
    4. 501.04Mandatory rules and default rules that cannot be eliminated
    5. 501.05Relation to other chapters
    6. 501.06Plan of the chapter
  2. ¶ 510Section 105(b) Item by Item
    1. 510.01The structure of § 105
    2. 510.02Item (b)(1): the requirements for creating a trust
    3. 510.03Item (b)(2): the duty of good faith
    4. 510.04Item (b)(3): benefit of the beneficiaries and lawful purpose
    5. 510.05Items (b)(4) to (b)(7): the powers of the court
    6. 510.06Items (b)(8) and (b)(9): the duty to inform
    7. 510.07Items (b)(10) and (b)(11): exculpation and third parties
    8. 510.08Items (b)(12) to (b)(14): limitations, judicial power and jurisdiction
    9. 510.09The Texas and Wyoming lists
  3. ¶ 520The Irreducible Core: Armitage v. Nurse
    1. 520.01The idea of an irreducible core
    2. 520.02Armitage v. Nurse: the settlement
    3. 520.03Armitage: the claim and the question
    4. 520.04Armitage: the holding on the core
    5. 520.05Armitage: the meaning of "actual fraud" and "wilful default."
    6. 520.06Armitage: later treatment
    7. 520.07Armitage: lessons
  4. ¶ 530Good Faith and the Benefit-the-Beneficiaries Rule
    1. 530.01Two linked rules
    2. 530.02Good faith as the standard for discretion
    3. 530.03The benefit-the-beneficiaries rule
    4. 530.04The benefit rule and investment directions
    5. 530.05Default duties that may be narrowed but not eliminated
    6. 530.06Authorization distinguished from elimination
  5. ¶ 540Exculpation in American Law
    1. 540.01The traditional rule
    2. 540.02The minimum standard
    3. 540.03Clauses drafted by the trustee
    4. 540.04Rutanen v. Ballard: facts
    5. 540.05Rutanen: proceedings
    6. 540.06Rutanen: the holding
    7. 540.07Rutanen: lessons
    8. 540.08State variations
    9. 540.09Exculpation and duties outside the standard of care
    10. 540.10Consent, release and ratification
  6. ¶ 550Gross Negligence and the Island Codes
    1. 550.01Statutory floors in the trust jurisdictions
    2. 550.02Spread Trustee Co. v. Hutcheson: the statute and the settlements
    3. 550.03Spread Trustee: proceedings below
    4. 550.04Spread Trustee: the holding
    5. 550.05Spread Trustee: the dissents
    6. 550.06Spread Trustee: lessons
    7. 550.07Belize
    8. 550.08Nevis
  7. ¶ 560Information as a Mandatory Floor
    1. 560.01Why information is part of the core
    2. 560.02The Uniform Trust Code
    3. 560.03The 2004 bracketing
    4. 560.04The non-uniform positions
    5. 560.05The island codes
    6. 560.06The court's supervisory jurisdiction
  8. ¶ 570Standing and Enforcement
    1. 570.01The beneficiary principle
    2. 570.02Standing under the Uniform Trust Code
    3. 570.03Standing in the autonomy jurisdictions
    4. 570.04Representation and its limits
    5. 570.05Protectors and other non-beneficiary enforcers
    6. 570.06No-contest, arbitration and forum clauses
  9. ¶ 580The Contractarian Debate
    1. 580.01Why the theory matters
    2. 580.02Langbein's contractarian account
    3. 580.03Hansmann and Mattei's property account
    4. 580.04Langbein on mandatory rules
    5. 580.05The critique of mandatory limits
    6. 580.06Synthesis
  10. ¶ 590Drafting Within the Mandatory Core
    1. 590.01A method
    2. 590.02Question one: is there still a trust?
    3. 590.03Question two: is every discretion subject to good faith?
    4. 590.04Question three: does the exculpation clause stay above the floor?
    5. 590.05Question four: who receives information, and when?
    6. 590.06Question five: is the court still available?
    7. 590.07Checklist

Part II: Divided Fiduciary Structures

Chapter 6Directed Trusts and the Uniform Directed Trust Act

  1. ¶ 601Overview
    1. 601.01Scope of the chapter
    2. 601.02Relation to the chapters that follow
    3. 601.03The Act in one paragraph
    4. 601.04Sources
    5. 601.05Why the directed trust matters to design
  2. ¶ 610Origins of the Directed Trust
    1. 610.01The unitary trustee
    2. 610.02Powers to control the trustee at common law
    3. 610.03Advisers and protectors in practice
    4. 610.04Uniform Trust Code § 808 as promulgated
    5. 610.05The reception of § 808(b)
    6. 610.06Delaware and the willful-misconduct standard
    7. 610.07The two families of state statutes
    8. 610.08The Uniform Directed Trust Act
  3. ¶ 620Scope and Vocabulary: §§ 1–4
    1. 620.01The structure of the Act
    2. 620.02Power of direction
    3. 620.03The serving-trustee limitation
    4. 620.04Trust director, directed trustee, directed trust
    5. 620.05Terms of a trust
    6. 620.06Breach of trust; settlor; trustee
    7. 620.07Application: the principal place of administration
    8. 620.08Prospective application
    9. 620.09Common law and equity
  4. ¶ 630The Exclusions: § 5
    1. 630.01Why the Act needs exclusions
    2. 630.02Powers of appointment
    3. 630.03The rule of construction in § 5(c)
    4. 630.04Powers to appoint or remove trustees and directors
    5. 630.05The settlor of a revocable trust
    6. 630.06Powers of beneficiaries
    7. 630.07A beneficiary's power that binds others
    8. 630.08Powers held for the settlor's tax objectives
    9. 630.09Why only federal tax objectives
  5. ¶ 640Granting Powers of Direction: §§ 6–7
    1. 640.01Validation
    2. 640.02Enabling and off-the-rack statutes
    3. 640.03The Act's choice of an enabling model
    4. 640.04Further powers
    5. 640.05Joint powers
    6. 640.06Litigation authority and the protector who sued
    7. 640.07Medicaid payback and charitable interests: § 7
  6. ¶ 650The Trust Director's Duty: § 8
    1. 650.01The state of the law before the Act
    2. 650.02An anomaly of the default approach
    3. 650.03Absorption of the law of trusteeship
    4. 650.04Variation by the terms of the trust
    5. 650.05Sensitivity to context
    6. 650.06Health-care professionals
    7. 650.07The majority of beneficiaries as trust directors
    8. 650.08Adapting § 8 to a default regime
  7. ¶ 660The Directed Trustee: § 9
    1. 660.01The rule
    2. 660.02Why willful misconduct
    3. 660.03Willful misconduct left undefined
    4. 660.04The affirmative duty to comply
    5. 660.05Directions outside the power
    6. 660.06Reasonable action: the manner of execution
    7. 660.07Limits on releases
    8. 660.08The petition for instructions
    9. 660.09Conforming the Uniform Trust Code
    10. 660.10When the statute does not relieve the trustee
  8. ¶ 670Information and Monitoring: §§ 10–11
    1. 670.01The information problem
    2. 670.02The mirror-image duties
    3. 670.03Affirmative and responsive duties
    4. 670.04Reliance
    5. 670.05The duty to warn
    6. 670.06No duty to monitor, inform or advise
    7. 670.07No assumption of duty
    8. 670.08What survives
  9. ¶ 680Cotrustees, Office, Limitations, Defenses and Jurisdiction: §§ 12–16
    1. 680.01The traditional law of cotrusteeship
    2. 680.02Section 12: opting out of cotrusteeship law
    3. 680.03A question of construction; title and third parties
    4. 680.04Limitation of actions: § 13
    5. 680.05Defenses: § 14
    6. 680.06Jurisdiction: § 15
    7. 680.07The office of trust director: § 16
  10. ¶ 690Enactment, Variation and Drafting
    1. 690.01Enactment
    2. 690.02Variation among enactments
    3. 690.03The Act as a drafting checklist
    4. 690.04Form of directions
    5. 690.05Coordination with the rest of the instrument

Chapter 7The Directed-Trust Statutes: Delaware, South Dakota, Nevada, Wyoming, Alaska and Tennessee

  1. ¶ 701Overview
    1. 701.01Scope of the chapter
    2. 701.02Why the statutes matter
    3. 701.03The common architecture
    4. 701.04The variables that matter most
    5. 701.05Terminology
    6. 701.06Relation to other chapters
    7. 701.07Plan of the chapter
  2. ¶ 710Delaware: Advisers Under § 3313
    1. 710.01Development
    2. 710.02Who is an adviser
    3. 710.03Fiduciary status of the adviser
    4. 710.04The directed fiduciary's liability: wilful misconduct
    5. 710.05Consent and disapproval
    6. 710.06Investment decisions defined
    7. 710.07No duty to monitor, advise or warn
    8. 710.08Protectors as advisers
    9. 710.09Personal jurisdiction
  3. ¶ 720Delaware: Excluded Cotrustees and the Duty to Keep Cofiduciaries Informed
    1. 720.01Direction and exclusion distinguished
    2. 720.02Two kinds of exclusive authority
    3. 720.03No duty to monitor or notify
    4. 720.04The cotrustee's liability
    5. 720.05Choosing between § 3313 and § 3313A
    6. 720.06Information among fiduciaries: § 3317
    7. 720.07Limits of the information duty
  4. ¶ 730South Dakota: Chapter 55-1B
    1. 730.01Structure of the chapter
    2. 730.02Definitions
    3. 730.03The excluded fiduciary's protection
    4. 730.04No floor for following directions
    5. 730.05Relief from monitoring and warning
    6. 730.06Burden of proof
    7. 730.07Fiduciary status of advisors
    8. 730.08Protector powers
    9. 730.09Family advisors
    10. 730.10Jurisdiction
  5. ¶ 740Nevada: Directing Trust Advisers and Directed Fiduciaries
    1. 740.01Structure
    2. 740.02The directing trust adviser
    3. 740.03The directed fiduciary
    4. 740.04Limitation of liability
    5. 740.05Fiduciary status of advisers and protectors
    6. 740.06Protector powers
    7. 740.07Investment and distribution trust advisers
    8. 740.08Jurisdiction
    9. 740.09Creditors of the settlor
  6. ¶ 750Wyoming: Sections 4-10-710 to 4-10-718
    1. 750.01Place in the Code
    2. 750.02Definitions
    3. 750.03Protector powers
    4. 750.04Advisor powers
    5. 750.05Fiduciary status
    6. 750.06No duty to review; no liability
    7. 750.07The directed-trust section
    8. 750.08Nonfiduciary distribution powers
    9. 750.09Designation of an investment advisor by the beneficiaries
    10. 750.10Jurisdiction
  7. ¶ 760Alaska: Trust Protectors and Trustee Advisors
    1. 760.01Two sections
    2. 760.02The advisory default
    3. 760.03Directed trustees
    4. 760.04The directing advisor's liability
    5. 760.05Trust protectors
    6. 760.06Protector or advisor
  8. ¶ 770Tennessee: Trust Advisors, Trust Protectors and Excluded Fiduciaries
    1. 770.01Structure
    2. 770.02Powers
    3. 770.03Fiduciary status and the beneficiary-advisor
    4. 770.04The excluded fiduciary
    5. 770.05The 2023 amendments
    6. 770.06Jurisdiction
  9. ¶ 780The Statutes Compared
    1. 780.01The comparison
    2. 780.02Two families of statutes
    3. 780.03The uniform act as benchmark
    4. 780.04Will courts read the no-duty statutes literally?
    5. 780.05Fiduciary status as the real variable
  10. ¶ 790Choosing and Drafting Under a Directed-Trust Statute
    1. 790.01The choice of statute
    2. 790.02Matching the statute to the family
    3. 790.03Identifying the powers
    4. 790.04Stating fiduciary status
    5. 790.05The administrative trustee's protections
    6. 790.06Accountability of the director
    7. 790.07A drafting checklist

Chapter 8Trust Advisers: Investment, Distribution and Special-Holdings Advisers

  1. ¶ 801Overview
    1. 801.01Scope of the chapter
    2. 801.02Why instruments appoint advisers
    3. 801.03The cost of separation
    4. 801.04Terminology
    5. 801.05Plan of the chapter
  2. ¶ 810The Adviser Distinguished
    1. 810.01Adviser and trustee
    2. 810.02Adviser and trust director
    3. 810.03Adviser and protector
    4. 810.04Adviser and agent
  3. ¶ 820Investment Advisers and Investment Committees
    1. 820.01The role
    2. 820.02Forms of the power
    3. 820.03The investment committee
    4. 820.04Does the prudent investor rule follow the power?
    5. 820.05Varying the rule: diversification and retention
  4. ¶ 830Distribution Advisers
    1. 830.01The role
    2. 830.02Forms of the power
    3. 830.03Power of direction or power of appointment?
    4. 830.04Nonfiduciary distribution powers
    5. 830.05Distribution advisers and creditors
  5. ¶ 840Special-Holdings Advisers
    1. 840.01The role
    2. 840.02Closely held business interests
    3. 840.03Real estate and tangible assets
    4. 840.04Digital assets
    5. 840.05Valuation
    6. 840.06Conflicts of interest
  6. ¶ 850Fiduciary or Nonfiduciary Status
    1. 850.01Why status matters
    2. 850.02The Directed Trust Act
    3. 850.03Delaware
    4. 850.04South Dakota
    5. 850.05Nevada and Wyoming
    6. 850.06What nonfiduciary status leaves
  7. ¶ 860Appointment, Compensation, Succession and Resignation
    1. 860.01The office of adviser
    2. 860.02Appointment and acceptance
    3. 860.03Beneficiary-designated advisers
    4. 860.04Removal
    5. 860.05Compensation
    6. 860.06Resignation and vacancy
  8. ¶ 870Family Members as Advisers: Tax Consequences
    1. 870.01The issue
    2. 870.02Who is adverse, nonadverse, or related and subordinate
    3. 870.03Distribution advisers and § 674
    4. 870.04Investment advisers and § 675(4)
    5. 870.05The settlor as adviser: estate tax
    6. 870.06Beneficiaries as advisers
  9. ¶ 880Liability, Indemnity and Insurance
    1. 880.01The adviser's liability
    2. 880.02Exculpation and its limits
    3. 880.03The directed trustee's exposure
    4. 880.04Indemnity
    5. 880.05Insurance
  10. ¶ 890Drafting the Adviser Provisions
    1. 890.01Approach
    2. 890.02Investment and special-holdings advisers
    3. 890.03Distribution advisers
    4. 890.04The office
    5. 890.05Liability, indemnity and insurance
    6. 890.06Checklist

Chapter 9Delegation versus Direction

  1. ¶ 901Overview
    1. 901.01Scope of the chapter
    2. 901.02Two ways of dividing trusteeship
    3. 901.03Why the line matters
    4. 901.04Terminology
    5. 901.05Relation to other chapters
  2. ¶ 910The Nondelegation Rule and Its Abandonment
    1. 910.01The traditional rule
    2. 910.02The factors and the line
    3. 910.03The criticism
    4. 910.04Erosion by statute
    5. 910.05The Restatement of 1992
    6. 910.06The uniform acts
  3. ¶ 920Delegation under the Uniform Prudent Investor Act and the Uniform Trust Code
    1. 920.01The text
    2. 920.02Four elements
    3. 920.03What may be delegated
    4. 920.04What may not be delegated
    5. 920.05The terms of the trust
    6. 920.06The agent's submission to jurisdiction
  4. ¶ 930The Delegating Trustee's Continuing Duties
    1. 930.01Delegation without abdication
    2. 930.02Selection
    3. 930.03Relatives and affiliates
    4. 930.04Scope and terms
    5. 930.05Review
    6. 930.06Costs
    7. 930.07The agent's duty
    8. 930.08The trustee's relief
  5. ¶ 940Direction Distinguished
    1. 940.01The source of the power
    2. 940.02The directed trustee's duty
    3. 940.03No duty to monitor
    4. 940.04The director's duty
    5. 940.05The statutory line in Delaware
    6. 940.06Direction, consent and veto
    7. 940.07The comparison
  6. ¶ 950Hybrid and Failed Structures
    1. 950.01The problem
    2. 950.02The trustee-appointed director
    3. 950.03The adviser who serves at the trustee's pleasure
    4. 950.04The director whose instructions the trustee may override
    5. 950.05Statutory advisers
    6. 950.06Conduct that assumes a duty
    7. 950.07Delegation by a trust director
  7. ¶ 960Cotrustees: Allocation of Functions
    1. 960.01A third structure
    2. 960.02The Code's rules
    3. 960.03Why the cotrustee rule differs
    4. 960.04The Directed Trust Act's cotrustee provision
    5. 960.05Excluded cotrustees
    6. 960.06Allocation compared with delegation
    7. 960.07The executor cases
  8. ¶ 970Delegation in English and Offshore Law
    1. 970.01The English starting point
    2. 970.02The Trustee Act 2000
    3. 970.03Terms and asset management
    4. 970.04Review and liability
    5. 970.05Comparison with the Uniform Trust Code
    6. 970.06Belize
    7. 970.07Nevis
    8. 970.08The comparison
  9. ¶ 980Choosing between Delegation and Direction
    1. 980.01The question for the settlor
    2. 980.02Who should choose the specialist
    3. 980.03Where responsibility should rest
    4. 980.04The trustee's willingness to serve
    5. 980.05Cost
    6. 980.06Situs and governing law
    7. 980.07Tax considerations
    8. 980.08Mixed structures
  10. ¶ 990Drafting
    1. 990.01State the structure
    2. 990.02Delegation provisions
    3. 990.03Direction provisions
    4. 990.04Cotrustee allocations
    5. 990.05Offshore trusts
    6. 990.06Checklist

Chapter 10Liability of Directed Trustees and Directing Parties

  1. ¶ 1001Overview
    1. 1001.01The question
    2. 1001.02Three questions
    3. 1001.03The thin record
    4. 1001.04The shape of the answers
    5. 1001.05The record-keeping lesson
    6. 1001.06Plan of the chapter
  2. ¶ 1010The Baseline: The Restatement and Uniform Trust Code § 808
    1. 1010.01The Restatement rule
    2. 1010.02Section 808 as promulgated
    3. 1010.03The two exceptions
    4. 1010.04Veto distinguished from direction
    5. 1010.05The 2018 amendments
  3. ¶ 1020The Statutory Standards Compared
    1. 1020.01The comparison
    2. 1020.02The no-liability model
    3. 1020.03The wilful-misconduct model
    4. 1020.04The consent model
    5. 1020.05The meaning of wilful misconduct
    6. 1020.06Wilful misconduct, bad faith and gross negligence
  4. ¶ 1030The Directed-Trustee Cases
    1. 1030.01The three cases
    2. 1030.02What the cases have in common
    3. 1030.03The record
    4. 1030.04The cases not found
    5. 1030.05The legislative response
  5. ¶ 1040The Duties a Directed Trustee Keeps
    1. 1040.01What remains
    2. 1040.02Executing the direction
    3. 1040.03Refusing
    4. 1040.04Not assuming a monitoring role
    5. 1040.05Information
    6. 1040.06Reports to beneficiaries
    7. 1040.07The petition for instructions
    8. 1040.08Resignation
  6. ¶ 1050Liability of Trust Directors, Advisers and Protectors
    1. 1050.01Fiduciary by default
    2. 1050.02Varying the director's duty
    3. 1050.03Twice tested
    4. 1050.04Records
    5. 1050.05Nonfiduciary directors
    6. 1050.06The cost of a nonfiduciary director
    7. 1050.07Protectors
    8. 1050.08Disputes between director and trustee
  7. ¶ 1060Exculpation, Indemnity, Releases and Insurance
    1. 1060.01Exculpation of the directed trustee
    2. 1060.02Exculpation of the director
    3. 1060.03Indemnity
    4. 1060.04Releases by beneficiaries
    5. 1060.05Releases by directors
    6. 1060.06Reliance on the instrument
    7. 1060.07Insurance
  8. ¶ 1070Limitation, Repose and Laches
    1. 1070.01The director borrows the trustee's period
    2. 1070.02The Uniform Trust Code periods
    3. 1070.03Delaware
    4. 1070.04Laches and virtual representation in Mennen
    5. 1070.05Designing the clock
  9. ¶ 1080Jurisdiction, Joinder and Privilege
    1. 1080.01Why jurisdiction matters
    2. 1080.02The consent-to-jurisdiction provisions
    3. 1080.03Limits
    4. 1080.04Joinder
    5. 1080.05Privilege: the fiduciary exception
    6. 1080.06Privilege: advice of counsel
  10. ¶ 1090Drafting to Allocate Risk
    1. 1090.01The drafter's task
    2. 1090.02Direction or consent
    3. 1090.03Liquidity and the division of powers
    4. 1090.04Fiduciary status by power
    5. 1090.05The trustee's standard
    6. 1090.06Records and reports
    7. 1090.07Representation of minors and unborn beneficiaries
    8. 1090.08Acceptance, jurisdiction, indemnity and insurance
    9. 1090.09Checklist
    10. 1090.10Conclusion

Part III: Trust Protectors

Chapter 11The Trust Protector: Origins and Statutory Recognition

  1. ¶ 1101Overview
    1. 1101.01Scope of the chapter
    2. 1101.02What the question of recognition decides
    3. 1101.03The plan of the chapter
    4. 1101.04Why the history matters to the drafter
  2. ¶ 1110Offshore Origins
    1. 1110.01The problem the protector answered
    2. 1110.02The practitioner's answer
    3. 1110.03The Cook Islands
    4. 1110.04Belize
    5. 1110.05What Belize settled
    6. 1110.06Nevis
    7. 1110.07Jersey and the reserved-powers model
    8. 1110.08The Cayman Islands
    9. 1110.09Two models
  3. ¶ 1120The Protector Comes Onshore
    1. 1120.01Why American practice adopted the office
    2. 1120.02The validity question in American law
    3. 1120.03South Dakota, 1997
    4. 1120.04Idaho, 1999
    5. 1120.05Delaware
    6. 1120.06Alaska
    7. 1120.07Nevada, Wyoming and Arizona
    8. 1120.08Recognition through the Uniform Trust Code
  4. ¶ 1130The Uniform Trust Code: Section 808
    1. 1130.01The text
    2. 1130.02The comment
    3. 1130.03Direction and veto
    4. 1130.04The presumption of fiduciary status
    5. 1130.05The trustee's limited oversight
    6. 1130.06Section 808 as a recognition statute
  5. ¶ 1140The Uniform Directed Trust Act
    1. 1140.01A functional definition
    2. 1140.02The exclusions
    3. 1140.03What governs the excluded powers
    4. 1140.04Powers of appointment and protector powers
    5. 1140.05The trustee's protection under the Act
    6. 1140.06States with both a protector statute and the Act
  6. ¶ 1150The Protector Statutes Compared
    1. 1150.01Enabling and off-the-rack statutes
    2. 1150.02Four ways to define a protector
    3. 1150.03The default on fiduciary status
    4. 1150.04The statutory menus
    5. 1150.05Limits on changing beneficial interests
    6. 1150.06Jurisdiction
    7. 1150.07Protection of the trustee
  7. ¶ 1160Recognition in the Courts
    1. 1160.01A thin body of law
    2. 1160.02First impression in Missouri
    3. 1160.03The second appeal
    4. 1160.04Validity of an amendment power in Florida
    5. 1160.05The protector as drafter
    6. 1160.06Other decisions
  8. ¶ 1170Terminology: Protector, Adviser, Director, Committee and Enforcer
    1. 1170.01Why the words matter
    2. 1170.02Protector
    3. 1170.03Adviser
    4. 1170.04Enforcer
    5. 1170.05Trust director
    6. 1170.06Committees
    7. 1170.07Designated representative
  9. ¶ 1180The Protector in the Design of the Modern Trust
    1. 1180.01What a protector adds
    2. 1180.02When a protector is unnecessary
    3. 1180.03Who should serve
    4. 1180.04Tax consequences in outline
    5. 1180.05The protector and the settlor's creditors
    6. 1180.06Cost and continuity
  10. ¶ 1190Drafting the Protector Clause
    1. 1190.01The clause as the source of the office
    2. 1190.02Choice of law for the office
    3. 1190.03A model provision
    4. 1190.04Drafting checklist

Chapter 12Protector Powers: Amendment, Removal, Veto and Situs

  1. ¶ 1201Overview
    1. 1201.01Scope of the chapter
    2. 1201.02Three questions for every power
    3. 1201.03Powers and labels
    4. 1201.04Positive and negative powers
  2. ¶ 1210The Statutory Catalogues
    1. 1210.01The enabling statutes
    2. 1210.02The common limit
    3. 1210.03Fiduciary character in the statutes
    4. 1210.04The offshore statutes
    5. 1210.05The Uniform Directed Trust Act
  3. ¶ 1220Removal and Replacement of Trustees
    1. 1220.01The core power
    2. 1220.02Cause or no cause
    3. 1220.03Limits on the successor
    4. 1220.04Release of the power
    5. 1220.05The tax framework: Rev. Rul. 95-58
    6. 1220.06Removal power and the settlor's creditors
  4. ¶ 1230Amendment of Administrative and Dispositive Terms
    1. 1230.01The problem the power solves
    2. 1230.02The statutory grants
    3. 1230.03Administrative and dispositive amendments
    4. 1230.04The limits on dispositive amendment
    5. 1230.05The standard for exercise
    6. 1230.06Tax consequences
  5. ¶ 1240Veto and Consent Powers
    1. 1240.01The negative power
    2. 1240.02Veto distinguished from direction
    3. 1240.03Why settlors choose a veto
    4. 1240.04The limits of the veto
    5. 1240.05Consent to additions
  6. ¶ 1250Changing Situs and Governing Law
    1. 1250.01Three things that can move
    2. 1250.02Statutory authority
    3. 1250.03Why the power is granted
    4. 1250.04Flight clauses
    5. 1250.05Tax consequences of moving
    6. 1250.06Drafting the power
  7. ¶ 1260Adding and Removing Beneficiaries; Termination; Powers of Appointment
    1. 1260.01The power to add
    2. 1260.02Uses of the power
    3. 1260.03The power to remove
    4. 1260.04The power to terminate
    5. 1260.05Powers of appointment
  8. ¶ 1270Interpretation, Correction and Dispute Resolution
    1. 1270.01The interpretive power
    2. 1270.02Correction of drafting errors
    3. 1270.03Minassian and the protector as drafter
    4. 1270.04Dispute resolution
  9. ¶ 1280Tax Consequences Across the Catalogue
    1. 1280.01Three holders, three sets of rules
    2. 1280.02Adverse and nonadverse parties
    3. 1280.03Section 674 and the nonadverse protector
    4. 1280.04The power to add beneficiaries
    5. 1280.05The beneficiary-protector: section 678
    6. 1280.06The beneficiary-protector: section 2041
    7. 1280.07The settlor: sections 2036 and 2038
  10. ¶ 1290Creditor Consequences and Drafting
    1. 1290.01Two creditor questions
    2. 1290.02The settlor as protector
    3. 1290.03The independent protector
    4. 1290.04Duress clauses and the protector
    5. 1290.05The beneficiaries' creditors
    6. 1290.06A drafting checklist

Chapter 13Fiduciary or Not? The Duties of Protectors

  1. ¶ 1301Overview
    1. 1301.01The question
    2. 1301.02Why the answer matters
    3. 1301.03The answer in outline
    4. 1301.04The choice belongs to the settlor
    5. 1301.05Terminology
    6. 1301.06Plan of the chapter
  2. ¶ 1310Beneficial, Limited and Fiduciary Powers
    1. 1310.01Powers in the law of trusts
    2. 1310.02The threefold division
    3. 1310.03Personal powers
    4. 1310.04Why the class matters for a protector
    5. 1310.05The label in the instrument is not conclusive
    6. 1310.06American usage
  3. ¶ 1320The United States Defaults
    1. 1320.01Uniform Trust Code § 808(d)
    2. 1320.02What § 808(d) leaves open
    3. 1320.03Uniform Directed Trust Act § 8
    4. 1320.04What the Act excludes
    5. 1320.05Delaware
    6. 1320.06South Dakota
    7. 1320.07Wyoming
    8. 1320.08Nevada
    9. 1320.09Alaska
  4. ¶ 1330The Offshore Defaults
    1. 1330.01Belize
    2. 1330.02Nevis
    3. 1330.03Cook Islands
    4. 1330.04Jersey
    5. 1330.05The pattern
  5. ¶ 1340The Cases on Fiduciary Status
    1. 1340.01The offshore line
    2. 1340.02Bird
    3. 1340.03Indicators of fiduciary status
    4. 1340.04A Trust
    5. 1340.05A nonfiduciary protector is still constrained
    6. 1340.06Minassian: a protector's power to amend
    7. 1340.07Schwartz: no expansion of the protector's own powers
  6. ¶ 1350What a Fiduciary Protector Owes
    1. 1350.01Duties undertaken
    2. 1350.02Loyalty: the no-profit and no-conflict rules
    3. 1350.03Proper purposes
    4. 1350.04Good faith and proper consideration
    5. 1350.05Care and skill
    6. 1350.06Information
    7. 1350.07The duty to consider and the problem of inaction
    8. 1350.08Conflicts
  7. ¶ 1360The Consent Power: Wider Role and Narrow Role
    1. 1360.01The question
    2. 1360.02The American analogue
    3. 1360.03The two roles compared
    4. 1360.04Deadlock
    5. 1360.05Application in American trusts
  8. ¶ 1370Exculpation, Indemnity and the Limits of Relief
    1. 1370.01Two different devices
    2. 1370.02The mandatory floor in the uniform acts
    3. 1370.03Delaware
    4. 1370.04The nonfiduciary and immunity statutes
    5. 1370.05Offshore exoneration clauses
    6. 1370.06Indemnity
    7. 1370.07Insurance
  9. ¶ 1380Compensation, Conflicts and the Choice of Protector
    1. 1380.01Who serves
    2. 1380.02Compensation
    3. 1380.03Relationships with the trustee
    4. 1380.04Conflicts with the trust
    5. 1380.05Tax consequences of the protector's identity
    6. 1380.06Creditor consequences: the settlor as protector
    7. 1380.07The family protector
  10. ¶ 1390Drafting the Protector's Standard
    1. 1390.01Say it, power by power
    2. 1390.02Match the character to the function
    3. 1390.03State the standard of liability
    4. 1390.04For consent powers, choose the role
    5. 1390.05Information rights and duties
    6. 1390.06Conflicts and replacement
    7. 1390.07Compensation, indemnity and insurance
    8. 1390.08Duties on knowledge of misconduct

Chapter 14Protector Succession, Removal and Deadlock

  1. ¶ 1401Overview
    1. 1401.01Scope of the chapter
    2. 1401.02Why the office fails
    3. 1401.03The governing principle
    4. 1401.04Terminology
    5. 1401.05Plan of the chapter
  2. ¶ 1410The Office and Its Succession
    1. 1410.01An office or a person
    2. 1410.02The methods of succession
    3. 1410.03A layered provision
    4. 1410.04Named successors
    5. 1410.05Appointment by the incumbent
    6. 1410.06Appointment by beneficiaries
    7. 1410.07Appointment by the trustee
    8. 1410.08Qualifications and disqualifications
  3. ¶ 1420Incapacity, Resignation and Release
    1. 1420.01When the office becomes vacant
    2. 1420.02Incapacity
    3. 1420.03Resignation
    4. 1420.04Liability after resignation
    5. 1420.05Timing of the successor's acceptance
    6. 1420.06Release and suspension of powers
  4. ¶ 1430Removal under the Instrument
    1. 1430.01Why a removal power is needed
    2. 1430.02Who may remove
    3. 1430.03For cause or without cause
    4. 1430.04The removal clause as an administrative provision
    5. 1430.05Following the procedure
    6. 1430.06Is the removal power fiduciary?
  5. ¶ 1440Removal by the Court
    1. 1440.01The sources of the jurisdiction
    2. 1440.02The inherent jurisdiction
    3. 1440.03Not "exceptional circumstances."
    4. 1440.04The grounds under the Uniform Trust Code
    5. 1440.05Deference to the settlor's choice
    6. 1440.06Nonfiduciary protectors
  6. ¶ 1450Vacancy, Lapse and Court Appointment
    1. 1450.01What happens to the powers
    2. 1450.02Personal and fiduciary powers
    3. 1450.03Statutory filling of a vacancy
    4. 1450.04Should the court appoint?
    5. 1450.05Setting aside an appointment
  7. ¶ 1460Plural Protectors and Committees
    1. 1460.01Why more than one
    2. 1460.02The default rules
    3. 1460.03Majority, unanimity, or both
    4. 1460.04Recording dissent
    5. 1460.05Deadlock
    6. 1460.06Tools for breaking deadlock
  8. ¶ 1470Conflicts between Protector and Trustee
    1. 1470.01A built-in tension
    2. 1470.02The trustee's position when it is removed
    3. 1470.03The protector with a conflict
    4. 1470.04The protector who withholds consent
    5. 1470.05Applications for directions
    6. 1470.06Standing of the protector to sue
  9. ¶ 1480Duress, Flight and Succession under Pressure
    1. 1480.01Succession as protection
    2. 1480.02The duress clause
    3. 1480.03The settlor as protector
    4. 1480.04Flight and the protector's office
    5. 1480.05Insolvency and personal claims against the protector
    6. 1480.06Limits
  10. ¶ 1490Drafting the Succession, Removal and Deadlock Provisions
    1. 1490.01Approach
    2. 1490.02Coordination with other provisions

Chapter 15Protectors in International Trusts: Cook Islands, Nevis and Belize

  1. ¶ 1501Overview
    1. 1501.01Scope of the chapter
    2. 1501.02Why the offshore protector differs
    3. 1501.03Sources
    4. 1501.04A note on terminology
  2. ¶ 1510The Protector in the Offshore Statutes
    1. 1510.01A shared template
    2. 1510.02Three questions the statutes answer differently
    3. 1510.03The protector and the trustee's licence
    4. 1510.04The protector and the settlor's retained powers
  3. ¶ 1520The Cook Islands
    1. 1520.01Legislative history
    2. 1520.02Definition
    3. 1520.03The 1996 text and the 1999 text
    4. 1520.04What the 1999 text omits
    5. 1520.05Nonfiduciary by default
    6. 1520.06Other provisions bearing on the protector
    7. 1520.07Duress under Cook Islands law
  4. ¶ 1530Nevis
    1. 1530.01The Ordinance and its text
    2. 1530.02The 2020 Bill
    3. 1530.03Definition
    4. 1530.04Statutory powers
    5. 1530.05The directed trustee
    6. 1530.06Fiduciary status and delegation
    7. 1530.07Creditors and the protector's distribution powers
    8. 1530.08The court, the purpose trust and the settlor
  5. ¶ 1540Belize
    1. 1540.01The Act
    2. 1540.02Two descriptions of the office
    3. 1540.03Powers, status and duty
    4. 1540.04The protector in the machinery of the Act
    5. 1540.05The protector and section 7
    6. 1540.06No statutory duress rule
  6. ¶ 1550The Three Statutes Compared
    1. 1550.01The comparison
    2. 1550.02Reading the table
  7. ¶ 1560Duress, Flight and the Protector
    1. 1560.01Why the protector is central
    2. 1560.02The Nevis statutory duress rule
    3. 1560.03Automatic removal of the protector
    4. 1560.04Consequences of section 38(2)
    5. 1560.05The instrument in the Cook Islands and Belize
    6. 1560.06The flight clause in operation
  8. ¶ 1570The Offshore Protector in American Courts
    1. 1570.01The pattern
    2. 1570.02Orders aimed at the protector's powers
    3. 1570.03The independent protector inside the United States
    4. 1570.04What the decisions mean for design
  9. ¶ 1580The Protector and Foreign Trust Status
    1. 1580.01The two tests
    2. 1580.02Protector powers as substantial decisions
    3. 1580.03Consequences for the choice of protector
    4. 1580.04The automatic migration rule
    5. 1580.05Changes in the protector
  10. ¶ 1590Selecting the Protector and Drafting the Office
    1. 1590.01Who should serve
    2. 1590.02Powers to confer
    3. 1590.03Succession and vacancy
    4. 1590.04Model provisions
    5. 1590.05A checklist

Part IV: Changing the Trust

Chapter 16Modification and Termination: Judicial and Nonjudicial

  1. ¶ 1601Overview
    1. 1601.01Scope of the chapter
    2. 1601.02Three routes
    3. 1601.03The organizing question
    4. 1601.04Plan of the chapter
    5. 1601.05Why the design of the trust matters
  2. ¶ 1610The Material Purpose Doctrine
    1. 1610.01Origin
    2. 1610.02Material purposes are not readily inferred
    3. 1610.03The traditional categories
    4. 1610.04The spendthrift question
    5. 1610.05Purposes that survive consent
  3. ¶ 1620Modification and Termination by Consent
    1. 1620.01The structure of section 411
    2. 1620.02Settlor and beneficiaries together
    3. 1620.03The 2004 amendment and its alternatives
    4. 1620.04Exercise of the settlor's consent by others
    5. 1620.05Beneficiaries without the settlor
    6. 1620.06The trustee's position
    7. 1620.07Distribution on termination
  4. ¶ 1630Representation and Nonconsenting Beneficiaries
    1. 1630.01The problem of the absent beneficiary
    2. 1630.02Representation under the Uniform Trust Code
    3. 1630.03The conflict in termination cases
    4. 1630.04Nonconsenting beneficiaries
  5. ¶ 1640Unanticipated Circumstances and Equitable Deviation
    1. 1640.01The traditional doctrine
    2. 1640.02Section 412 of the Uniform Trust Code
    3. 1640.03Circumstances existing at creation
    4. 1640.04Administrative terms that have become wasteful
    5. 1640.05Spendthrift clauses and distribution
    6. 1640.06The special needs cases
  6. ¶ 1650Cy Pres and Uneconomic Trusts
    1. 1650.01Charitable trusts and cy pres
    2. 1650.02Gifts over on failure
    3. 1650.03Standing
    4. 1650.04Uneconomic trusts: termination by the trustee
    5. 1650.05Uneconomic trusts: termination by the court
    6. 1650.06Spendthrift provisions
  7. ¶ 1660Reformation, Tax Modification, Combination and Division
    1. 1660.01Their place in the scheme
    2. 1660.02Reformation for mistake
    3. 1660.03Modification to achieve tax objectives
    4. 1660.04Combination and division
    5. 1660.05Choosing among the routes
  8. ¶ 1670Nonjudicial Consent Statutes
    1. 1670.01The trend
    2. 1670.02Delaware: modification by consent while the trustor is living
    3. 1670.03The Delaware requirements in detail
    4. 1670.04Delaware nonjudicial settlement agreements
    5. 1670.05South Dakota
    6. 1670.06Wyoming
    7. 1670.07Reading the table
  9. ¶ 1680Tax Consequences
    1. 1680.01Four questions
    2. 1680.02The settlor's estate
    3. 1680.03Gifts by consenting beneficiaries
    4. 1680.04The effect of state decrees
    5. 1680.05Grandfathered generation-skipping trusts
    6. 1680.06Income tax on termination
  10. ¶ 1690International Trusts and Drafting
    1. 1690.01The English rule
    2. 1690.02Belize
    3. 1690.03Nevis
    4. 1690.04The Cook Islands
    5. 1690.05American settlors and offshore rules
    6. 1690.06Drafting for modification

Chapter 17Decanting: The Uniform Trust Decanting Act and State Statutes

  1. ¶ 1701Overview
    1. 1701.01Scope of the chapter
    2. 1701.02The idea
    3. 1701.03Why decanting matters in modern trust design
    4. 1701.04Three sources of the power
    5. 1701.05Terminology
  2. ¶ 1710Decanting at Common Law
    1. 1710.01Phipps
    2. 1710.02Wiedenmayer and Spencer
    3. 1710.03The analogy to powers of appointment
    4. 1710.04Construction, and no inherent power
    5. 1710.05What breadth of discretion suffices
    6. 1710.06The legislative turn
  3. ¶ 1720The Massachusetts Decisions
    1. 1720.01Why the Massachusetts cases matter
    2. 1720.02Massachusetts after Ferri
  4. ¶ 1730The Uniform Trust Decanting Act: Architecture and Procedure
    1. 1730.01Sources and citation
    2. 1730.02Scope
    3. 1730.03The authorized fiduciary
    4. 1730.04Fiduciary duty and the deemed power
    5. 1730.05Governing law
    6. 1730.06Reliance
    7. 1730.07Notice
    8. 1730.08Representation
    9. 1730.09Court involvement
    10. 1730.10Formalities
  5. ¶ 1740The Two Tiers of Decanting Power
    1. 1740.01The organizing distinction
    2. 1740.02Decanting under expanded discretion
    3. 1740.03Vested interests
    4. 1740.04Powers of appointment in the second trust
    5. 1740.05Decanting under limited discretion
    6. 1740.06Partial discretion
    7. 1740.07Special-needs decanting
    8. 1740.08No need to distribute
  6. ¶ 1750The Act's Protections
    1. 1750.01Charitable interests
    2. 1750.02The instrument's own limits
    3. 1750.03The fiduciary's own position
    4. 1750.04Tax-related limits
    5. 1750.05Duration
    6. 1750.06Saving provision
    7. 1750.07The remaining sections
  7. ¶ 1760The State Statutes Compared
    1. 1760.01Two families of statute
    2. 1760.02New York
    3. 1760.03Alaska
    4. 1760.04Ohio
    5. 1760.05Delaware
    6. 1760.06South Dakota
    7. 1760.07Nevada
    8. 1760.08Reading the comparison
    9. 1760.09Other enactments
  8. ¶ 1770Fiduciary Duties in Decanting
    1. 1770.01The question
    2. 1770.02Which duties apply
    3. 1770.03Decanting at the settlor's request
    4. 1770.04Process
    5. 1770.05Liability and its limits
  9. ¶ 1780Uses and Limits
    1. 1780.01Administrative modernization
    2. 1780.02Adding a directed-trust structure or a protector
    3. 1780.03Changing situs and governing law
    4. 1780.04Extending duration
    5. 1780.05Special needs
    6. 1780.06Creditors and spouses
    7. 1780.07Limits that cannot be decanted away
    8. 1780.08Decanting and the alternatives
  10. ¶ 1790Drafting and Procedure
    1. 1790.01Drafting the first trust
    2. 1790.02Choosing who holds the power
    3. 1790.03Model provisions
    4. 1790.04The decanting instrument
    5. 1790.05Acting as trustee of the second trust
    6. 1790.06Summary

Chapter 18Decanting: Tax Consequences

  1. ¶ 1801Overview
    1. 1801.01Scope of the chapter
    2. 1801.02Why tax decides most decantings
    3. 1801.03The absence of guidance
    4. 1801.04The organizing distinction
    5. 1801.05Parties to the analysis
  2. ¶ 1810The Service's Position: Notice 2011-101 and the No-Rule List
    1. 1810.01The notice
    2. 1810.02The thirteen factors
    3. 1810.03The 2011 ruling moratorium
    4. 1810.04The current no-rule list
    5. 1810.05What the Service still rules on
  3. ¶ 1820Income Tax I: Is a Decanting a Distribution?
    1. 1820.01The question
    2. 1820.02The two characterizations
    3. 1820.03Distributions in kind
    4. 1820.04Who is the grantor of the second trust
    5. 1820.05Carryovers and separate shares
  4. ¶ 1830Income Tax II: Realization, Cottage Savings and Severance
    1. 1830.01The question
    2. 1830.02The material-difference standard
    3. 1830.03Is there an exchange at all?
    4. 1830.04The severance regulation
    5. 1830.05The ruling practice on divisions
    6. 1830.06Liabilities and negative capital accounts
  5. ¶ 1840Grantor-Trust Status
    1. 1840.01Why status changes
    2. 1840.02Decanting into grantor-trust status
    3. 1840.03Decanting out of grantor-trust status
    4. 1840.04Foreign grantors
    5. 1840.05The uniform act's grantor-trust rules
  6. ¶ 1850Gift Tax
    1. 1850.01The trustee is not a donor
    2. 1850.02The beneficiary as donor
    3. 1850.03The no-rule item
    4. 1850.04Consent, objection and the statutes
    5. 1850.05The trustee who is also a beneficiary
    6. 1850.06Powers of appointment
  7. ¶ 1860Estate Tax
    1. 1860.01Three exposures
    2. 1860.02The settlor
    3. 1860.03The beneficiary-fiduciary and § 2041
    4. 1860.04Intended inclusion
    5. 1860.05Marital trusts and other deduction trusts
  8. ¶ 1870Generation-Skipping Transfer Tax
    1. 1870.01Three kinds of trust
    2. 1870.02Grandfathered trusts: the regulation
    3. 1870.03Applying the routes to a decanting
    4. 1870.04PLR practice for grandfathered trusts
    5. 1870.05Trusts exempt by allocation
    6. 1870.06Change of transferor
    7. 1870.07Taxable distributions to a skip-person trust
  9. ¶ 1880State Tax and Foreign-Trust Status
    1. 1880.01State income tax
    2. 1880.02State characterization of the decanting
    3. 1880.03Domestic and foreign trusts
    4. 1880.04The cost of becoming foreign
    5. 1880.05Domestication
  10. ¶ 1890The Uniform Act's Tax Limits, the Issues by Tax and Procedure
    1. 1890.01The tax-related limitations section
    2. 1890.02What the section does not do
    3. 1890.03The issues by tax
    4. 1890.04Procedure
    5. 1890.05Model provision

Chapter 19Nonjudicial Settlement Agreements

  1. ¶ 1901Overview
    1. 1901.01Scope of the chapter
    2. 1901.02Why the device matters
    3. 1901.03The two questions in every case
    4. 1901.04Relation to other devices
    5. 1901.05Terminology
  2. ¶ 1910The Uniform Trust Code: Section 111
    1. 1910.01The text
    2. 1910.02The policy stated in the comment
    3. 1910.03The representation problem the section solves
    4. 1910.04The nonexclusive list
    5. 1910.05Agreement is not required where the Code gives a power
    6. 1910.06Whose consent is "required."
    7. 1910.07Enactment
  3. ¶ 1920Interested Persons and Representation
    1. 1920.01The two-step inquiry
    2. 1920.02Defining the interested persons
    3. 1920.03The settlor and the trustee
    4. 1920.04Representation under Article 3
    5. 1920.05Conflict of interest
    6. 1920.06The settlor as representative
    7. 1920.07Delaware: virtual and designated representation
    8. 1920.08South Dakota: a representation code
    9. 1920.09Alaska and Texas
  4. ¶ 1930The Limits: Material Purpose and Terms a Court Could Approve
    1. 1930.01Two limits in one subsection
    2. 1930.02What counts as a material purpose
    3. 1930.03Modification by agreement
    4. 1930.04The leading case
    5. 1930.05A second illustration
    6. 1930.06Terms a court could not approve
  5. ¶ 1940The State Statutes Compared
    1. 1940.01The pattern of variation
    2. 1940.02The Code states
    3. 1940.03Delaware
    4. 1940.04Nevada
    5. 1940.05Ohio
    6. 1940.06Illinois
    7. 1940.07South Dakota
    8. 1940.08States without a general statute
  6. ¶ 1950Uses of the Agreement
    1. 1950.01The administrative core
    2. 1950.02Compensation
    3. 1950.03Accounts and releases
    4. 1950.04Resignation, removal and appointment
    5. 1950.05Situs and governing law
    6. 1950.06Adding directed-trust and protector features
    7. 1950.07Interpretation and administrative change
    8. 1950.08Distribution standards and investment approvals
    9. 1950.09Termination by settlement
  7. ¶ 1960Binding Effect, Enforcement and Challenge
    1. 1960.01The effect of a valid agreement
    2. 1960.02The represented person's right to object
    3. 1960.03When the agreement becomes effective
    4. 1960.04Grounds of challenge
    5. 1960.05Court approval under subsection (e)
    6. 1960.06Third parties
    7. 1960.07Arbitration and dispute clauses
  8. ¶ 1970Tax Consequences
    1. 1970.01The general principle
    2. 1970.02Gift tax on a beneficiary's consent
    3. 1970.03The settlor as party
    4. 1970.04Federal recognition
    5. 1970.05Grandfathered trusts and the generation-skipping transfer tax
    6. 1970.06Income tax
  9. ¶ 1980International Trusts
    1. 1980.01The common-law position
    2. 1980.02Belize
    3. 1980.03Nevis
    4. 1980.04Practical consequences
  10. ¶ 1990Drafting and Procedure
    1. 1990.01Drafting the trust instrument
    2. 1990.02Model provisions
    3. 1990.03Preparing an agreement

Chapter 20Trust Migration and Change of Situs

  1. ¶ 2001Overview
    1. 2001.01Scope of the chapter
    2. 2001.02Four things that may move
    3. 2001.03Why trusts move
    4. 2001.04The routes
  2. ¶ 2010What Moves When a Trust Moves
    1. 2010.01The conflict-of-laws framework
    2. 2010.02Administration follows the move
    3. 2010.03Validity, construction and duration stay behind
    4. 2010.04Freezing the law of administration
    5. 2010.05Changing the law of validity and construction
    6. 2010.06The consequence for planning
  3. ¶ 2020The Uniform Trust Code Procedure
    1. 2020.01Designating the principal place of administration
    2. 2020.02The continuing duty
    3. 2020.03The trustee's power to transfer
    4. 2020.04Notice
    5. 2020.05Objection
    6. 2020.06The successor trustee
    7. 2020.07Jurisdiction after the move
  4. ¶ 2030Powers in the Instrument
    1. 2030.01Express powers to move the trust
    2. 2030.02Statutory elections by trustees
    3. 2030.03Implied powers
    4. 2030.04Restrictions in the instrument
    5. 2030.05Limits on the power holder
  5. ¶ 2040The Peierls Decisions
    1. 2040.01The trilogy
    2. 2040.02The 2013 statute and its later form
    3. 2040.03A sequence that works
  6. ¶ 2050The Receiving Statutes
    1. 2050.01Purpose
    2. 2050.02Delaware
    3. 2050.03South Dakota
    4. 2050.04Nevada
    5. 2050.05Wyoming
    6. 2050.06Alaska
    7. 2050.07The statutes compared
    8. 2050.08The view from the state of origin
  7. ¶ 2060Nonjudicial, Decanting and Judicial Routes
    1. 2060.01When the instrument is silent or insufficient
    2. 2060.02Nonjudicial settlement agreements
    3. 2060.03Decanting
    4. 2060.04Modification
    5. 2060.05Approval by the court of origin
    6. 2060.06Acceptance by the receiving court
  8. ¶ 2070International Migration
    1. 2070.01Leaving the United States
    2. 2070.02Belize
    3. 2070.03Nevis
    4. 2070.04The Cook Islands
    5. 2070.05Event-triggered migration and federal tax residence
    6. 2070.06Automatic removal of the trustee
    7. 2070.07Arriving in the United States
    8. 2070.08Migration after a claim
  9. ¶ 2080Tax Consequences of a Move
    1. 2080.01Four taxes
    2. 2080.02State income tax
    3. 2080.03Federal residence: the two tests
    4. 2080.04Inadvertent changes
    5. 2080.05Outbound moves: section 684
    6. 2080.06Reporting
    7. 2080.07Gift tax
    8. 2080.08Generation-skipping transfer tax
  10. ¶ 2090The Mechanics of a Move and Drafting
    1. 2090.01Before the move
    2. 2090.02The successor trustee
    3. 2090.03The outgoing trustee
    4. 2090.04Assets and records
    5. 2090.05Notices and filings
    6. 2090.06A checklist
    7. 2090.07Drafting the migration provision
    8. 2090.08Forum provisions

Chapter 21Merger, Division and Reformation

  1. ¶ 2101Overview
    1. 2101.01Scope of the chapter
    2. 2101.02Three tools, two kinds
    3. 2101.03The organizing question
    4. 2101.04Plan of the chapter
    5. 2101.05Why the design of the trust matters
  2. ¶ 2110Combination and Division: The Statutory Framework
    1. 2110.01The Uniform Trust Code rule
    2. 2110.02The Restatement
    3. 2110.03Combination of trusts with different terms
    4. 2110.04Division into dissimilar trusts
    5. 2110.05Notice without consent
    6. 2110.06Wyoming
    7. 2110.07South Dakota
    8. 2110.08Delaware: severance
    9. 2110.09Delaware: merger
    10. 2110.10Nevis
    11. 2110.11Belize and the Cook Islands
  3. ¶ 2120Uses of Division
    1. 2120.01Division as routine administration
    2. 2120.02Separating exempt and nonexempt property
    3. 2120.03Separating family lines
    4. 2120.04Resolving conflicts among beneficiaries
    5. 2120.05Isolating risky assets
    6. 2120.06Division in preparation for another change
  4. ¶ 2130Uses of Combination and the Delaware Merger Statute
    1. 2130.01Administrative economy
    2. 2130.02A duty to combine?
    3. 2130.03The consequences of a Delaware merger
    4. 2130.04Powers of appointment in a Delaware merger
    5. 2130.05Merger and decanting
    6. 2130.06Merger into a trust with modern terms
    7. 2130.07What combination cannot do
  5. ¶ 2140Fiduciary Duties in Combining and Dividing
    1. 2140.01A fiduciary power
    2. 2140.02The duty to consider
    3. 2140.03Impartiality
    4. 2140.04Loyalty and compensation
    5. 2140.05Notice and its contents
    6. 2140.06Consent, ratification and court approval
    7. 2140.07The choice of governing terms on a merger
  6. ¶ 2150Tax Consequences of Combination and Division
    1. 2150.01One transaction, several taxes
    2. 2150.02Income tax: realization
    3. 2150.03What the safe harbor requires
    4. 2150.04Separate shares for income tax purposes
    5. 2150.05Generation-skipping transfer tax: the qualified severance
    6. 2150.06The regulatory requirements
    7. 2150.07The mixed inclusion ratio
    8. 2150.08Timing, reporting and nonqualifying severances
    9. 2150.09Separate shares and severances at death
    10. 2150.10Gift and estate taxes
  7. ¶ 2160Reformation for Mistake
    1. 2160.01The rule
    2. 2160.02The elements
    3. 2160.03Reformation and construction
    4. 2160.04The Restatement text
    5. 2160.05State variations
    6. 2160.06The frontier: wills
    7. 2160.07The Uniform Probate Code and other statutes
    8. 2160.08Evidence
    9. 2160.09Specific intent and the limits of the remedy
  8. ¶ 2170Modification to Achieve the Settlor's Tax Objectives
    1. 2170.01The rule
    2. 2170.02Modification distinguished from reformation
    3. 2170.03Federal recognition
    4. 2170.04State variations
    5. 2170.05Statutory reformations: the charitable deduction
    6. 2170.06The reformable interest and the ninety-day rule
    7. 2170.07The generation-skipping transfer tax: construction and reformation of grandfathered trusts
    8. 2170.08Reformation and the generation-skipping transfer tax at death
    9. 2170.09Practice
  9. ¶ 2180Mistake in English and Offshore Law: Rescission, Hastings-Bass and the Jersey Statute
    1. 2180.01Two remedies
    2. 2180.02Jersey's response
    3. 2180.03The Jersey definition of mistake
    4. 2180.04Nevis and Belize
    5. 2180.05Choosing the governing law with mistake in mind
  10. ¶ 2190Drafting and Practice
    1. 2190.01Do not rely on the default statutes
    2. 2190.02Draft for the income tax safe harbor
    3. 2190.03Draft for the generation-skipping transfer tax
    4. 2190.04Draft for merger
    5. 2190.05Draft for reformation
    6. 2190.06Choosing the governing law

Part V: Duration and Beneficiary Design

Chapter 22Perpetuities Repeal and the Dynasty Trust

  1. ¶ 2201Overview
    1. 2201.01Scope of the chapter
    2. 2201.02Why duration matters
    3. 2201.03Why duration is hard
    4. 2201.04Terminology
  2. ¶ 2210The Common-Law Rule
    1. 2210.01Origins
    2. 2210.02The classic statement
    3. 2210.03What the rule tests
    4. 2210.04The measuring lives
    5. 2210.05The perpetuities savings clause
    6. 2210.06The rule's traps
    7. 2210.07The rule against suspension of the power of alienation
  3. ¶ 2220Reform: Wait-and-See, the Uniform Statutory Rule and Reformation
    1. 2220.01Three reforms
    2. 2220.02The Uniform Statutory Rule Against Perpetuities
    3. 2220.03Reformation under the uniform act
    4. 2220.04Exclusions
    5. 2220.05The uniform act as a platform for longer periods
    6. 2220.06The "later of" clause
  4. ¶ 2230Abolition and Opt-Out States
    1. 2230.01Two models
    2. 2230.02South Dakota
    3. 2230.03Delaware
    4. 2230.04Alaska
    5. 2230.05New Jersey and Rhode Island
    6. 2230.06North Carolina
    7. 2230.07Opt-out states: Illinois and Ohio
  5. ¶ 2240Fixed-Period States
    1. 2240.01The fixed-period model
    2. 2240.02Nevada
    3. 2240.03Florida
    4. 2240.04Wyoming
    5. 2240.05Utah
    6. 2240.06Arizona
    7. 2240.07Texas
    8. 2240.08Tennessee
    9. 2240.09The states compared
  6. ¶ 2250Constitutional Prohibitions of Perpetuities
    1. 2250.01The provisions
    2. 2250.02Two readings
    3. 2250.03North Carolina
    4. 2250.04The limits of Benson
    5. 2250.05Nevada
    6. 2250.06Arizona
  7. ¶ 2260Powers of Appointment, the Delaware Tax Trap and Transfer Tax
    1. 2260.01Powers of appointment in long-term trusts
    2. 2260.02When the period runs
    3. 2260.03The Delaware tax trap
    4. 2260.04Delaware's response and its uses
    5. 2260.05Decanting and perpetuities
    6. 2260.06The generation-skipping transfer tax
  8. ¶ 2270The Policy Debate
    1. 2270.01The competition for trust business
    2. 2270.02The case for abolition
    3. 2270.03The case against
    4. 2270.04Administrative costs over time
  9. ¶ 2280International Trust Jurisdictions
    1. 2280.01Three approaches
    2. 2280.02Nevis
    3. 2280.03Belize
    4. 2280.04Cook Islands
    5. 2280.05Migration and duration
  10. ¶ 2290Designing for Duration
    1. 2290.01The design problem
    2. 2290.02A statement of purposes
    3. 2290.03Choosing the governing law
    4. 2290.04Governance and succession
    5. 2290.05Division and termination
    6. 2290.06Tax flexibility
    7. 2290.07Real property
    8. 2290.08The duration clause and its backstop
    9. 2290.09Drafting checklist

Chapter 23Generation-Skipping Transfer Tax Design in Long-Term Trusts

  1. ¶ 2301Overview
    1. 2301.01Scope of the chapter
    2. 2301.02Relation to other chapters
    3. 2301.03The idea of the tax
    4. 2301.04The planner's three objectives
    5. 2301.05A note on numbers
    6. 2301.06Terminology
  2. ¶ 2310The Architecture of Chapter 13
    1. 2310.01Three taxable events
    2. 2310.02Skip persons and interests
    3. 2310.03The rate
    4. 2310.04The taxable amount and who pays
    5. 2310.05Exclusions
    6. 2310.06Basis
  3. ¶ 2320Generation Assignment and the Transferor
    1. 2320.01Why assignment matters
    2. 2320.02Family members
    3. 2320.03Unrelated persons
    4. 2320.04The predeceased parent rule
    5. 2320.05The transferor
    6. 2320.06Multiple skips
    7. 2320.07The reverse QTIP election
  4. ¶ 2330The Exemption After 2025
    1. 2330.01The statutory link
    2. 2330.02The 2025 legislation
    3. 2330.03No portability
    4. 2330.04Allocation is irrevocable
    5. 2330.05What indexing means for long-term trusts
    6. 2330.06The annual exclusion
  5. ¶ 2340Allocating the Exemption
    1. 2340.01Four ways exemption is allocated
    2. 2340.02Affirmative allocation and its timing
    3. 2340.03Deemed allocation to lifetime direct skips
    4. 2340.04Automatic allocation to GST trusts
    5. 2340.05Electing in and out
    6. 2340.06Retroactive allocation when a younger beneficiary dies first
    7. 2340.07Default allocation after death
    8. 2340.08Relief for late or missed elections
  6. ¶ 2350The Inclusion Ratio and the Estate Tax Inclusion Period
    1. 2350.01The formula
    2. 2350.02The ratio is fixed when computed
    3. 2350.03Additions
    4. 2350.04The estate tax inclusion period
    5. 2350.05Why the ETIP matters for design
    6. 2350.06Nontaxable gifts
    7. 2350.07The trustee's protection
  7. ¶ 2360Designing Exempt and Nonexempt Trusts
    1. 2360.01The rule of zero or one
    2. 2360.02Separate trusts from the start
    3. 2360.03Qualified severance
    4. 2360.04Distribution policy between the two trusts
    5. 2360.05Interests that make a trust a skip person
    6. 2360.06Using the trust's own documents to state the plan
  8. ¶ 2370Funding the Long-Term Trust
    1. 2370.01Leverage
    2. 2370.02Gifts of appreciating or discounted property
    3. 2370.03Sales and retained-interest techniques
    4. 2370.04Annual exclusion gifts and Crummey powers
    5. 2370.05Life insurance
    6. 2370.06Paying the trust's income tax
  9. ¶ 2380Grandfathered Trusts and Powers of Appointment
    1. 2380.01The grandfather rule
    2. 2380.02Additions destroy part of the protection
    3. 2380.03General powers of appointment
    4. 2380.04Modifications of grandfathered trusts
    5. 2380.05Powers of appointment in exempt trusts
    6. 2380.06Causing inclusion on purpose
    7. 2380.07Delaware's own provisions
  10. ¶ 2390State Taxes, the Long-Lived Trust and Drafting
    1. 2390.01State GST taxes
    2. 2390.02The trust that runs for centuries
    3. 2390.03When the exemption is not the best answer
    4. 2390.04Choosing trustees for GST administration
    5. 2390.05The checklist
    6. 2390.06Model provisions

Chapter 24Beneficiary Design: Classes, Incentives, Standards and Disinheritance

  1. ¶ 2401Overview
    1. 2401.01Scope of the chapter
    2. 2401.02Four design questions
    3. 2401.03Construction and design
    4. 2401.04Limits on design
  2. ¶ 2410Defining the Class: Descendants, Issue and the Form of Distribution
    1. 2410.01The words of class gift
    2. 2410.02The default form of distribution
    3. 2410.03Three methods of division
    4. 2410.04How the methods differ
    5. 2410.05The state variations
    6. 2410.06Choosing a method
    7. 2410.07Half blood and relatives by marriage
    8. 2410.08Closing the class
  3. ¶ 2420Adopted and Nonmarital Children
    1. 2420.01From exclusion to inclusion
    2. 2420.02The adoptee and the genetic family
    3. 2420.03The transferor who is not the parent
    4. 2420.04The purpose of the limits
    5. 2420.05The earlier Kentucky cases
    6. 2420.06Nonmarital children
  4. ¶ 2430Children of Assisted Reproduction and Posthumous Conception
    1. 2430.01The problem
    2. 2430.02The Code's rules on parentage
    3. 2430.03Posthumous conception
    4. 2430.04The federal benefits decision
    5. 2430.05Drafting choices
  5. ¶ 2440Spouses
    1. 2440.01Who is a spouse
    2. 2440.02Defining the spouse of a descendant
    3. 2440.03Revocation on divorce
    4. 2440.04The limits of state law: ERISA and the Contracts Clause
    5. 2440.05Provisions for a surviving spouse that end on remarriage
  6. ¶ 2450Distribution Standards
    1. 2450.01The range of standards
    2. 2450.02Good faith as the floor
    3. 2450.03How courts read a standard
    4. 2450.04The beneficiary's other resources
    5. 2450.05The ascertainable standard and the beneficiary-trustee
    6. 2450.06The statutory safety net
    7. 2450.07Sole and absolute discretion
  7. ¶ 2460Incentive Provisions
    1. 2460.01What an incentive provision does
    2. 2460.02Validity
    3. 2460.03Conditions precedent
    4. 2460.04Matching provisions
    5. 2460.05Substance abuse provisions
    6. 2460.06Guided discretion
    7. 2460.07Incentives and tax and creditor design
  8. ¶ 2470Conditions on Marriage and Religion
    1. 2470.01General and partial restraints
    2. 2470.02Drafting conditions on personal choices
  9. ¶ 2480Disinheritance, Special-Needs Beneficiaries and Powers of Appointment
    1. 2480.01Disinheritance
    2. 2480.02Statements of reasons and no-contest clauses
    3. 2480.03Beneficiaries with disabilities
    4. 2480.04Designing for a disabled descendant within a dynasty trust
    5. 2480.05Powers of appointment as a design tool
    6. 2480.06Designing the power
  10. ¶ 2490Drafting the Beneficiary Provisions
    1. 2490.01A definitions article
    2. 2490.02A model definitions provision
    3. 2490.03Coordination with the rest of the instrument
    4. 2490.04Review over time

Part VI: Information, Representation and Control

Chapter 25Silent Trusts and the Duty to Inform

  1. ¶ 2501Overview
    1. 2501.01Scope of the chapter
    2. 2501.02Terminology
    3. 2501.03Why settlors ask for silence
    4. 2501.04The tension
    5. 2501.05Relation to other chapters
  2. ¶ 2510The Duty to Inform at Common Law
    1. 2510.01The Restatement (Second) formulation
    2. 2510.02The floor beneath the terms
    3. 2510.03When the trustee must volunteer
    4. 2510.04The beneficiary's property interest as the source of the right
    5. 2510.05The Restatement (Third)
    6. 2510.06Reports in practice
  3. ¶ 2520The Uniform Trust Code
    1. 2520.01The general duty
    2. 2520.02Qualified beneficiaries
    3. 2520.03The specific duties
    4. 2520.04The complete instrument
    5. 2520.05What the settlor may waive
    6. 2520.06Revocable trusts
    7. 2520.07The brackets
    8. 2520.08Waiver does not excuse the duties
  4. ¶ 2530The Policy Debate
    1. 2530.01The two positions
    2. 2530.02Enforcement requires knowledge
    3. 2530.03Settlor autonomy and privacy
    4. 2530.04The motivation argument
    5. 2530.05The tax-reporting problem
    6. 2530.06The limitation argument
  5. ¶ 2540The State Statutes
    1. 2540.01Three approaches
    2. 2540.02Delaware: the quiet period
    3. 2540.03Delaware: the designated representative
    4. 2540.04South Dakota: indefinite silence
    5. 2540.05South Dakota: age 21 and confidentiality
    6. 2540.06Nevada
    7. 2540.07Alaska: silence during the settlor's life
    8. 2540.08Wyoming
    9. 2540.09Ohio: the beneficiary surrogate
    10. 2540.10Illinois: mandatory notice, permitted representatives
    11. 2540.11New Hampshire
    12. 2540.12Florida, California and Texas: the mandatory states
    13. 2540.13The states compared
  6. ¶ 2550The Cases
    1. 2550.01Few decisions on silent trusts
    2. 2550.02The beneficiary's right to the whole instrument
    3. 2550.03The duty to speak before a major transaction
    4. 2550.04Inspection as a property right
    5. 2550.05McNeil
  7. ¶ 2560Limitations and the Cost of Silence
    1. 2560.01The settlor cannot shorten the period
    2. 2560.02The one-year and five-year periods
    3. 2560.03The report to a representative
    4. 2560.04Waiver by the beneficiary does not start the clock
    5. 2560.05The five-year period in practice
    6. 2560.06Consent and release
    7. 2560.07Illinois's deemed discharge
  8. ¶ 2570When a Silent Trustee Must Speak
    1. 2570.01The trustee remains accountable
    2. 2570.02A request from a beneficiary who has learned of the trust
    3. 2570.03Self-dealing and conflicts
    4. 2570.04Nonroutine transactions
    5. 2570.05A discovered breach
    6. 2570.06Distributions and tax reporting
    7. 2570.07Litigation and privilege
    8. 2570.08Confidentiality agreements
  9. ¶ 2580International Trusts
    1. 2580.01A different starting point
    2. 2580.02Schmidt v. Rosewood
    3. 2580.03Jersey
    4. 2580.04Belize
    5. 2580.05Nevis
    6. 2580.06The Cook Islands
    7. 2580.07What offshore confidentiality does not do
  10. ¶ 2590Drafting the Silent Trust
    1. 2590.01Choose the law first
    2. 2590.02Define the period
    3. 2590.03Provide a representative
    4. 2590.04Say what the trustee must do during the period
    5. 2590.05Partial disclosure
    6. 2590.06Model provisions
    7. 2590.07A drafting checklist

Chapter 26Designated Representatives and Virtual Representation

  1. ¶ 2601Overview
    1. 2601.01Scope of the chapter
    2. 2601.02Relation to other chapters
    3. 2601.03Four forms of representation
    4. 2601.04Why representation matters to design
    5. 2601.05Terminology
  2. ¶ 2610Equity's Doctrine of Representation
    1. 2610.01The problem equity faced
    2. 2610.02The equitable solution
    3. 2610.03The Restatement of Property
    4. 2610.04Hostility and adequacy
    5. 2610.05What the old cases establish
  3. ¶ 2620Due Process Limits
    1. 2620.01Why the Constitution matters
    2. 2620.02Judicial proceedings and nonjudicial matters
    3. 2620.03The competent adult
    4. 2620.04The objection rule
  4. ¶ 2630Article 3 of the Uniform Trust Code and the State Variants
    1. 2630.01The structure of Article 3
    2. 2630.02Section 301: the effect of representation
    3. 2630.03Section 302: holders of powers of appointment
    4. 2630.04Representation within the trust's own class structure
    5. 2630.05Section 303: fiduciaries and parents
    6. 2630.06Section 304: substantially identical interest
    7. 2630.07Variations on section 304
    8. 2630.08Section 305: the court's representative
  5. ¶ 2640Conflict of Interest
    1. 2640.01The condition of every category
    2. 2640.02What counts as a conflict
    3. 2640.03The materiality qualifier
    4. 2640.04Delaware's presumptions
    5. 2640.05South Dakota's consequences rule
    6. 2640.06Recurring conflicts
    7. 2640.07The conflict inquiry in practice
  6. ¶ 2650The Designated Representative Statutes
    1. 2650.01The idea
    2. 2650.02Delaware
    3. 2650.03Delaware: the three purposes
    4. 2650.04South Dakota
    5. 2650.05Florida
    6. 2650.06Illinois
    7. 2650.07New Hampshire, Tennessee and Alaska
    8. 2650.08States without a designated representative provision
    9. 2650.09Three design choices the statutes reveal
  7. ¶ 2660Duties, Liability, Selection and Succession
    1. 2660.01The fiduciary question
    2. 2660.02Why fiduciary status usually fits
    3. 2660.03The content of the duty
    4. 2660.04Exculpation
    5. 2660.05Selection
    6. 2660.06Acceptance, refusal and advance approval
    7. 2660.07Succession and removal
  8. ¶ 2670Uses of Representation
    1. 2670.01The silent trust
    2. 2670.02Reports and limitation periods
    3. 2670.03Consents, releases and ratifications
    4. 2670.04Nonjudicial settlement agreements and modification
    5. 2670.05Notices of administrative action
    6. 2670.06Litigation
    7. 2670.07Arbitration
  9. ¶ 2680Court-Appointed Representatives, Guardians ad Litem and International Trusts
    1. 2680.01The court's role
    2. 2680.02The family-benefit standard
    3. 2680.03Grounds and procedure
    4. 2680.04When to seek a court representative
    5. 2680.05Distinguishing the offices
    6. 2680.06International trusts
    7. 2680.07The benefit test compared
  10. ¶ 2690Drafting: Model Provisions and Checklist
    1. 2690.01Why the instrument should address representation
    2. 2690.02Notes on the model provisions
    3. 2690.03The drafting checklist

Chapter 27Noncharitable Purpose Trusts

  1. ¶ 2701Overview
    1. 2701.01Scope of the chapter
    2. 2701.02Terminology
    3. 2701.03The problem in one sentence
    4. 2701.04Relationship to other chapters
    5. 2701.05Plan of the chapter
  2. ¶ 2710The Beneficiary Principle
    1. 2710.01Statement of the principle
    2. 2710.02The reason for the rule
    3. 2710.03Certainty of objects and administrative workability
    4. 2710.04The resulting trust
    5. 2710.05Charitable construction
  3. ¶ 2720The Anomalous Exceptions and the Honorary Trust
    1. 2720.01The anomalous cases
    2. 2720.02The honorary trust in American law
    3. 2720.03Three limits
  4. ¶ 2730Purposes for Ascertainable Persons
    1. 2730.01The question of characterization
    2. 2730.02The test
    3. 2730.03Consequences of characterization
  5. ¶ 2740The Uniform Trust Code: Sections 408 and 409
    1. 2740.01Purpose of the sections
    2. 2740.02Section 408: animals
    3. 2740.03Section 409: other purposes
    4. 2740.04The bracketed twenty-one years
    5. 2740.05Rights of the enforcer
    6. 2740.06Capricious purposes and termination
  6. ¶ 2750The Long-Duration State Statutes
    1. 2750.01Overview
    2. 2750.02Delaware
    3. 2750.03South Dakota
    4. 2750.04Wyoming
    5. 2750.05Nevada
    6. 2750.06New Hampshire
    7. 2750.07Alaska as a contrast
  7. ¶ 2760The International Regimes
    1. 2760.01Overview
    2. 2760.02The Cayman Islands: the STAR trust
    3. 2760.03Jersey
    4. 2760.04Nevis
    5. 2760.05Belize
    6. 2760.06The Cook Islands
    7. 2760.07The British Virgin Islands VISTA trust
  8. ¶ 2770The Enforcer
    1. 2770.01The office
    2. 2770.02Standing
    3. 2770.03Who may serve
    4. 2770.04Fiduciary status and the standard of conduct
    5. 2770.05What the fiduciary duty requires
    6. 2770.06Vacancy and succession
    7. 2770.07Removal
    8. 2770.08Compensation and jurisdiction
  9. ¶ 2780Uses of Purpose Trusts
    1. 2780.01Holding the shares of a private trust company
    2. 2780.02Keeping a family company together
    3. 2780.03Orphan structures
    4. 2780.04Preserving property: houses, land and collections
    5. 2780.05Philanthropy that is not charity
    6. 2780.06Animals and graves
    7. 2780.07Hybrid trusts
  10. ¶ 2790Federal Income Tax and Drafting
    1. 2790.01Classification
    2. 2790.02Taxation of the trust's income
    3. 2790.03Expenditures as ordinary deductions
    4. 2790.04Grantor-trust status
    5. 2790.05Foreign purpose trusts
    6. 2790.06Transfer taxes
    7. 2790.07Drafting the purpose
    8. 2790.08Conclusion

Chapter 28Private Trust Companies

  1. ¶ 2801Overview
    1. 2801.01Scope of the chapter
    2. 2801.02Terminology
    3. 2801.03The central problem
    4. 2801.04Organization of the chapter
    5. 2801.05Relationship to other chapters
  2. ¶ 2810What a Private Trust Company Is and Why Families Form One
    1. 2810.01The institution
    2. 2810.02Control of decisions
    3. 2810.03Continuity
    4. 2810.04Specialist assets
    5. 2810.05Cost
    6. 2810.06Reasons not to form one
  3. ¶ 2820Regulated and Unregulated Companies
    1. 2820.01Why a family trustee might need no licence
    2. 2820.02The unregulated company
    3. 2820.03The regulated company
    4. 2820.04What regulation buys
    5. 2820.05What the unregulated company saves
    6. 2820.06The boundary that both must respect
  4. ¶ 2830The State Statutes
    1. 2830.01Approach
    2. 2830.02South Dakota
    3. 2830.03South Dakota's excluded entity
    4. 2830.04Nevada
    5. 2830.05Wyoming
    6. 2830.06New Hampshire
    7. 2830.07Delaware and Tennessee
    8. 2830.08Defining the family
  5. ¶ 2840Governance
    1. 2840.01Two layers of fiduciary decision
    2. 2840.02The board
    3. 2840.03The distribution committee
    4. 2840.04The investment committee
    5. 2840.05The amendment committee
    6. 2840.06Personnel and compensation
    7. 2840.07Reciprocal arrangements
    8. 2840.08Policies
    9. 2840.09Minutes and records
  6. ¶ 2850Federal Transfer and Income Tax
    1. 2850.01The question
    2. 2850.02Notice 2008-63
    3. 2850.03The facts of the proposed ruling
    4. 2850.04Estate inclusion of the grantor
    5. 2850.05Beneficiaries, gifts and the generation-skipping transfer tax
    6. 2850.06Grantor trust status
    7. 2850.07Delaware's statutory limit on general powers
    8. 2850.08The status of the notice
    9. 2850.09State income tax
  7. ¶ 2860Securities, Banking and Anti-Money-Laundering Regulation
    1. 2860.01The issue
    2. 2860.02The bank exclusion and the family office exclusion
    3. 2860.03The family office rule
    4. 2860.04Ownership and control under the family office rule
    5. 2860.05Holding out and names
    6. 2860.06Banking
    7. 2860.07Anti-money-laundering and know-your-client obligations
  8. ¶ 2870Offshore Private Trust Companies
    1. 2870.01Why offshore jurisdictions led
    2. 2870.02The Cayman Islands
    3. 2870.03Cayman requirements
    4. 2870.04The British Virgin Islands
    5. 2870.05Nevis
    6. 2870.06Other jurisdictions
    7. 2870.07United States tax consequences of an offshore company
  9. ¶ 2880Ownership of the Company
    1. 2880.01Why ownership matters
    2. 2880.02Direct ownership by family members
    3. 2880.03Ownership by a family trust
    4. 2880.04Ownership by a purpose trust
    5. 2880.05Ownership by a family entity
    6. 2880.06Electing the board
  10. ¶ 2890Liability, Insurance, Conflicts and Drafting
    1. 2890.01The company's standard as trustee
    2. 2890.02Directors and officers
    3. 2890.03Bonds and insurance
    4. 2890.04Conflicts of interest
    5. 2890.05Records and reporting to beneficiaries
    6. 2890.06Litigation and the absence of decided cases
    7. 2890.07Drafting the trust instruments
    8. 2890.08Checklist

Chapter 29Family Governance: Councils, Constitutions and the Family Office

  1. ¶ 2901Overview
    1. 2901.01Scope of the chapter
    2. 2901.02Terminology
    3. 2901.03The two systems
    4. 2901.04Plan of the chapter
  2. ¶ 2910Why Governance Matters for Long-Lived Trusts
    1. 2910.01Duration changes the problem
    2. 2910.02The arithmetic of descent
    3. 2910.03What the law supplies and what it does not
    4. 2910.04The cost of governance failure
    5. 2910.05Governance and trust design are complements
  3. ¶ 2920Family Constitutions and Charters
    1. 2920.01What a constitution contains
    2. 2920.02The legal status of the document
    3. 2920.03Making parts of it binding
    4. 2920.04The constitution and the terms of the trust
    5. 2920.05Referring to the constitution in the instrument
    6. 2920.06The settlor's own statement of purposes
    7. 2920.07Amendment and legitimacy
  4. ¶ 2930Family Councils and Assemblies
    1. 2930.01The assembly
    2. 2930.02The council
    3. 2930.03Composition
    4. 2930.04Decision rules
    5. 2930.05Legal form
    6. 2930.06Relationship to the family business board
    7. 2930.07Confidentiality and information
  5. ¶ 2940Linking Family Governance to Trust Offices
    1. 2940.01The menu of powers
    2. 2940.02Fiduciary status under the directed-trust statutes
    3. 2940.03Powers the Act excludes
    4. 2940.04Transfer-tax consequences for family members
    5. 2940.05Appointment and removal powers
    6. 2940.06Reporting and meeting obligations
    7. 2940.07Distribution committees and family members as office holders
  6. ¶ 2950Education and the Next Generation
    1. 2950.01Why education is a governance function
    2. 2950.02The content of a program
    3. 2950.03Aligning disclosure with education
    4. 2950.04Paying for education
    5. 2950.05Apprenticeship in governance
    6. 2950.06Preparing successors for fiduciary office
  7. ¶ 2960Disputes Within the Family
    1. 2960.01The kinds of dispute
    2. 2960.02A ladder of forums
    3. 2960.03Settlement agreements and representation
    4. 2960.04Arbitration
    5. 2960.05The policy premise of the family office exclusion
    6. 2960.06When governance fails
  8. ¶ 2970The Single-Family Office: Form and the SEC Family Office Rule
    1. 2970.01What a family office does
    2. 2970.02Legal form and ownership
    3. 2970.03The regulatory problem
    4. 2970.04The three conditions
    5. 2970.05Family members
    6. 2970.06Family clients
    7. 2970.07Key employees
    8. 2970.08Trusts as clients and owners
    9. 2970.09Multifamily offices
    10. 2970.10Grandfathering and antifraud
    11. 2970.11State law
  9. ¶ 2980The Family Office: Cost, Tax and Conflicts
    1. 2980.01Allocating the cost
    2. 2980.02The tax problem
    3. 2980.03Structuring after Lender Management
    4. 2980.04Conflicts between the office and the trustees
    5. 2980.05The office as agent or as adviser
    6. 2980.06Records and information security
  10. ¶ 2990Drafting: Model Provisions and Checklist
    1. 2990.01Principles
    2. 2990.02The family council
    3. 2990.03Notes on the council provision
    4. 2990.04The family office
    5. 2990.05Notes on the family office provision
    6. 2990.06Checklist

Part VII: Holding Structures

Chapter 30Trust-Owned Entities: LLCs, Partnerships and Underlying Companies

  1. ¶ 3001Overview
    1. 3001.01Scope of the chapter
    2. 3001.02Terminology
    3. 3001.03The two-level problem
    4. 3001.04Why the problem matters now
    5. 3001.05Plan of the chapter
  2. ¶ 3010Why Trusts Hold Through Entities
    1. 3010.01The question to ask first
    2. 3010.02Segregation of liability
    3. 3010.03Management
    4. 3010.04Consolidation
    5. 3010.05Transferability
    6. 3010.06Valuation
    7. 3010.07Privacy
    8. 3010.08Situs
    9. 3010.09Creditor protection
  3. ¶ 3020Choosing the Entity
    1. 3020.01The available forms
    2. 3020.02The limited liability company
    3. 3020.03The limited partnership
    4. 3020.04The corporation
    5. 3020.05The foreign underlying company
  4. ¶ 3030The Trustee as Owner, Member and Manager: Two Levels of Duty
    1. 3030.01The roles a trustee may hold
    2. 3030.02Trust-level duties applied to the owner's rights
    3. 3030.03The sole-owner rule
    4. 3030.04Entity-level duties
    5. 3030.05Two approaches
    6. 3030.06Reading Rollins with the Uniform Trust Code
    7. 3030.07Family members in entity roles
    8. 3030.08Compensation for dual roles
  5. ¶ 3040Supervising a Company the Trust Controls
    1. 3040.01The problem
    2. 3040.02The information duty in practice
    3. 3040.03Prudent risk and hazard
    4. 3040.04The professional trustee
    5. 3040.05American law
    6. 3040.06Minority holdings
  6. ¶ 3050Retention, Diversification and the Family Company
    1. 3050.01The default duty
    2. 3050.02An entity does not diversify
    3. 3050.03The cost of retention
    4. 3050.04Authority in the instrument
    5. 3050.05Other routes
    6. 3050.06Illiquidity and the beneficiaries' needs
  7. ¶ 3060Underlying Companies Offshore and Anti-Bartlett Provisions
    1. 3060.01The standard offshore structure
    2. 3060.02Statutory support for settlor involvement
    3. 3060.03What an anti-Bartlett provision says
    4. 3060.04The irreducible core
    5. 3060.05The director layer
    6. 3060.06The same structure onshore
    7. 3060.07Risks for the settlor
  8. ¶ 3070Information, Accounting and Distributions Through the Entity
    1. 3070.01Two flows
    2. 3070.02Information from the entity to the trustee
    3. 3070.03Information from the trustee to the beneficiaries
    4. 3070.04Fiduciary accounting income
    5. 3070.05The controlling-trustee exception
    6. 3070.06Federal income tax
    7. 3070.07Distributing entity interests
  9. ¶ 3080Transfer Tax: Valuation Discounts and Section 2036
    1. 3080.01The attraction and the risk
    2. 3080.02What the cases require
    3. 3080.03The trust as participant
    4. 3080.04The trustee as general partner or manager
  10. ¶ 3090Classification, Reporting and Drafting
    1. 3090.01Classification matters at both levels
    2. 3090.02Domestic entities
    3. 3090.03Foreign underlying companies
    4. 3090.04Beneficial ownership reporting
    5. 3090.05Drafting the trust instrument
    6. 3090.06Drafting the entity documents
    7. 3090.07Conclusion

Chapter 31Concentrated Positions and Special-Holdings Direction (Delaware §§ 3304, 3313 and 3313A, BVI VISTA and Analogues)

  1. ¶ 3101Overview
    1. 3101.01Scope of the chapter
    2. 3101.02The problem stated
    3. 3101.03Three techniques
    4. 3101.04Who bears the risk
    5. 3101.05Relation to other chapters
  2. ¶ 3110The Duty to Diversify and the Special-Circumstances Exception
    1. 3110.01The statutory rule
    2. 3110.02The portfolio standard
    3. 3110.03Special circumstances recognized by the comment
    4. 3110.04The duty at inception
    5. 3110.05The default rule and its alteration
    6. 3110.06Janes and the cost of delay
  3. ¶ 3120Retention Clauses and How Courts Read Them
    1. 3120.01Three kinds of clause
    2. 3120.02The Restatement rule
    3. 3120.03Reading the decisions together
    4. 3120.04Practical drafting consequences
  4. ¶ 3130Delaware: Retention, Advisers and the Excluded Cotrustee
    1. 3130.01Why Delaware is the model
    2. 3130.02The prudent investor standard
    3. 3130.03Section 3303(a): freedom to vary
    4. 3130.04Section 3304: the retention direction
    5. 3130.05Section 3305: a bank's own stock
    6. 3130.06Section 3313: the investment adviser
    7. 3130.07Section 3313A: the excluded cotrustee
    8. 3130.08Choosing between section 3313 and section 3313A
  5. ¶ 3140Other American Statutes
    1. 3140.01The general pattern
    2. 3140.02South Dakota
    3. 3140.03Nevada
    4. 3140.04Wyoming
    5. 3140.05New Hampshire
    6. 3140.06Uniform Directed Trust Act states
  6. ¶ 3150The British Virgin Islands VISTA Trust
    1. 3150.01Purpose and history
    2. 3150.02Which shares qualify
    3. 3150.03Conditions for a VISTA direction
    4. 3150.04The duty to retain
    5. 3150.05No intervention in management
    6. 3150.06Office of director rules
    7. 3150.07Intervention calls
    8. 3150.08Disposal
    9. 3150.09Saunders v. Vautier and enforcement
    10. 3150.10The VISTA structure in practice
  7. ¶ 3160Cayman, Jersey, Nevis and Belize
    1. 3160.01Reserved powers in general
    2. 3160.02Cayman Islands
    3. 3160.03Jersey
    4. 3160.04Nevis
    5. 3160.05Belize
    6. 3160.06Comparison
  8. ¶ 3170Hedging and Monetizing a Concentrated Position Held in Trust
    1. 3170.01Why trusts hedge
    2. 3170.02Who pays the tax
    3. 3170.03Constructive sales under section 1259
    4. 3170.04Straddles
    5. 3170.05Prepaid variable forward contracts
    6. 3170.06Exchange funds
    7. 3170.07Charitable remainder trusts
    8. 3170.08Fiduciary standards for hedging
  9. ¶ 3180Governing the Special Holding
    1. 3180.01Four decisions
    2. 3180.02Retention and sale
    3. 3180.03Voting and directors
    4. 3180.04Valuation
    5. 3180.05Information
    6. 3180.06Ending the arrangement
  10. ¶ 3190Drafting
    1. 3190.01Approach
    2. 3190.02Special holdings direction
    3. 3190.03Retention with exoneration
    4. 3190.04Family business clause
    5. 3190.05Checklist

Chapter 32Closely Held Business Succession in Trust

  1. ¶ 3201Overview
    1. 3201.01Scope of the chapter
    2. 3201.02Relation to other chapters
    3. 3201.03Why the problem is hard
    4. 3201.04The trust as the vehicle
    5. 3201.05Terms
    6. 3201.06Limits of the chapter
  2. ¶ 3210Objectives of Succession Planning
    1. 3210.01The questions to be answered
    2. 3210.02Control and economics
    3. 3210.03Equal and fair
    4. 3210.04Impartiality
    5. 3210.05Liquidity
    6. 3210.06Management continuity
    7. 3210.07The next succession
  3. ¶ 3220The Trustee as Owner of an Operating Business
    1. 3220.01The trustee's powers
    2. 3220.02The duty to diversify
    3. 3220.03Factors in the determination
    4. 3220.04Retention clauses
    5. 3220.05Voting the shares
    6. 3220.06The trustee who serves the company
    7. 3220.07Information
  4. ¶ 3230Separating Control from Economics
    1. 3230.01The available devices
    2. 3230.02Voting and nonvoting interests
    3. 3230.03Voting trusts
    4. 3230.04Voting trusts and S corporations
    5. 3230.05The founder's retained vote
    6. 3230.06Directed trusts for the business
    7. 3230.07Holding companies
    8. 3230.08Separate trusts by class of heir
  5. ¶ 3240S Corporation Stock in Trust
    1. 3240.01The eligibility problem
    2. 3240.02Family members as one shareholder
    3. 3240.03Grantor trusts
    4. 3240.04The two-year periods
    5. 3240.05Qualified subchapter S trusts
    6. 3240.06Limits of the qualified subchapter S trust
    7. 3240.07Electing small business trusts
    8. 3240.08Taxation of the electing small business trust
    9. 3240.09Choosing between them
  6. ¶ 3250Buy-Sell Agreements, Section 2703 and Connelly
    1. 3250.01Functions of the agreement
    2. 3250.02Redemption and cross-purchase agreements
    3. 3250.03The trust as party
    4. 3250.04The statutory rule
    5. 3250.05Bona fide business arrangement
    6. 3250.06Insurance proceeds and redemption obligations
    7. 3250.07Funding structures after Connelly
  7. ¶ 3260Estate Tax Liquidity: Sections 6166 and 303
    1. 3260.01The problem
    2. 3260.02Section 6166 eligibility
    3. 3260.03Interest
    4. 3260.04Acceleration
    5. 3260.05The trustee's role
    6. 3260.06Section 303 redemptions
    7. 3260.07Coordinating tax apportionment
  8. ¶ 3270Lifetime Transfers of the Business into Trust
    1. 3270.01Why transfer during life
    2. 3270.02Gifts of nonvoting interests
    3. 3270.03Grantor retained annuity trusts
    4. 3270.04Sales to grantor trusts
    5. 3270.05Allocation of generation-skipping exemption
  9. ¶ 3280Management Continuity, Disputes and Exits
    1. 3280.01Key-person provisions
    2. 3280.02Incapacity
    3. 3280.03Family disputes
    4. 3280.04Removing family managers
    5. 3280.05Sale of the business
    6. 3280.06Sales to employees
    7. 3280.07Offshore holding structures
  10. ¶ 3290Drafting
    1. 3290.01The provisions a business trust needs
    2. 3290.02Coordinating documents
    3. 3290.03Review during the founder's life

Chapter 33Real Estate in Trust: Title, Entity Wrappers, Leasing, Environmental Exposure and Situs

  1. ¶ 3301Overview
    1. 3301.01Scope of the chapter
    2. 3301.02Plan of the chapter
    3. 3301.03Relation to other chapters
    4. 3301.04The two questions
    5. 3301.05Terms
  2. ¶ 3310Titling Real Property in Trust
    1. 3310.01The trustee holds title
    2. 3310.02Funding a revocable trust
    3. 3310.03The certification of trust
    4. 3310.04Recording the certification
    5. 3310.05Statutes protecting persons who deal with a trustee of record
    6. 3310.06Land trusts
    7. 3310.07Naming conventions and errors
  3. ¶ 3320Entity Wrappers
    1. 3320.01Why a wrapper
    2. 3320.02One parcel, one company
    3. 3320.03Series companies
    4. 3320.04The risk of series for land
    5. 3320.05Costs of the conveyance
    6. 3320.06Insurance as the first defense
  4. ¶ 3330Lenders and Title Insurance
    1. 3330.01The due-on-sale clause
    2. 3330.02The federal limit for residential loans
    3. 3330.03What the exemption covers
    4. 3330.04Obtaining consent
    5. 3330.05Title insurance continuation
    6. 3330.06Title on sale
  5. ¶ 3340Property Tax and the Homestead
    1. 3340.01Reassessment on change of ownership
    2. 3340.02When the trust becomes irrevocable
    3. 3340.03Entities and the original co-owner trap
    4. 3340.04Other states
    5. 3340.05The homestead property tax exemption
    6. 3340.06The homestead protection from creditors
    7. 3340.07Homestead restrictions on devise
  6. ¶ 3350Residence Trusts
    1. 3350.01The statutory exception
    2. 3350.02Personal residence trusts and qualified personal residence trusts
    3. 3350.03What counts as a residence
    4. 3350.04Required provisions
    5. 3350.05Correcting a defective instrument
    6. 3350.06The end of the term
    7. 3350.07Interaction with property tax and the mortgage
  7. ¶ 3360Leasing and Management
    1. 3360.01The trustee as landlord
    2. 3360.02Prudence in management
    3. 3360.03Delegation to a property manager
    4. 3360.04Personal liability
    5. 3360.05Residence held for a beneficiary
    6. 3360.06Income and principal
  8. ¶ 3370Environmental Exposure
    1. 3370.01Owner liability under the federal statute
    2. 3370.02The 1996 fiduciary provision
    3. 3370.03Who is a fiduciary
    4. 3370.04The safe harbor
    5. 3370.05The trust code
    6. 3370.06Inspection before acceptance
    7. 3370.07State law
  9. ¶ 3380Situs, Cross-Border Ownership and Tax
    1. 3380.01The law of the place
    2. 3380.02Probate and ancillary administration
    3. 3380.03Foreign trusts holding United States land
    4. 3380.04Domestic trusts with foreign beneficiaries
    5. 3380.05State restrictions on foreign ownership
    6. 3380.06Like-kind exchanges
    7. 3380.07Opportunity zones
    8. 3380.08Reporting of residential transfers
  10. ¶ 3390Drafting
    1. 3390.01Choosing the holding form
    2. 3390.02Powers
    3. 3390.03Coordinating with the rest of the instrument
    4. 3390.04Conclusion

Chapter 34Physical Assets in Trust: Gold, Silver, Art and Collectibles (Custody, Vaulting, Insurance, Valuation and Provenance)

  1. ¶ 3401Overview
    1. 3401.01Scope of the chapter
    2. 3401.02Why families hold tangible property in trust
    3. 3401.03How tangible property differs from securities
    4. 3401.04Terms used in the chapter
    5. 3401.05Relation to other chapters
  2. ¶ 3410Trustee Duties over Tangible Property
    1. 3410.01The prudent investor rule reaches tangible property
    2. 3410.02Special value to the trust or the family
    3. 3410.03Diversification
    4. 3410.04Income, impartiality and total return
    5. 3410.05The duty to take control of and protect the property
    6. 3410.06Records and earmarking
    7. 3410.07Power to insure
    8. 3410.08Delegation of custody
    9. 3410.09Conflicts in sale
  3. ¶ 3420Precious Metals: Forms of Ownership
    1. 3420.01The question is what the trust owns
    2. 3420.02Allocated metal
    3. 3420.03Unallocated metal
    4. 3420.04Pooled and commingled storage
    5. 3420.05Financed and leveraged purchases
    6. 3420.06Exchange-traded products
    7. 3420.07Coins
  4. ¶ 3430Custody, Vaulting and Bailment Law
    1. 3430.01Storage as bailment
    2. 3430.02The warehouse's standard of care
    3. 3430.03Limitation of the warehouse's liability
    4. 3430.04Separation and identification
    5. 3430.05The warehouse's lien
    6. 3430.06Audits, bar lists and inspection
    7. 3430.07Where to store
    8. 3430.08Home storage
    9. 3430.09Withdrawals and instructions
  5. ¶ 3440Income Tax on Metals and Collectibles
    1. 3440.01What a collectible is
    2. 3440.02The 28 percent rate
    3. 3440.03Look-through for entities and trusts
    4. 3440.04The retirement account exception
    5. 3440.05No like-kind exchanges
    6. 3440.06Basis at death
    7. 3440.07Holding costs
    8. 3440.08Cash reporting
  6. ¶ 3450Art and Collectibles: Title and Provenance
    1. 3450.01A buyer takes the seller's title
    2. 3450.02Entrustment to a merchant
    3. 3450.03Choice of law
    4. 3450.04Limitations and demand and refusal
    5. 3450.05Art lost during the Nazi era: the HEAR Act of 2016
    6. 3450.06The HEAR Act of 2025
    7. 3450.07Consequences for trusts holding art
  7. ¶ 3460Valuation for Transfer Tax and Charitable Gifts
    1. 3460.01The willing buyer and willing seller
    2. 3460.02Household and personal effects
    3. 3460.03Art Appraisal Services and the Art Advisory Panel
    4. 3460.04Fractional interests
    5. 3460.05Charitable gifts of tangible property: related use
    6. 3460.06Appraisal requirements
    7. 3460.07Fractional gifts to charity
    8. 3460.08Retained use and section 2036
  8. ¶ 3470Insurance, Care, Loans and Sale
    1. 3470.01Insurance
    2. 3470.02Insuring metal
    3. 3470.03Conservation and care
    4. 3470.04Loans to museums
    5. 3470.05Sale
    6. 3470.06Family use
    7. 3470.07Distribution in kind
  9. ¶ 3480Cross-Border Storage, Freeports and Anti-Money-Laundering Rules
    1. 3480.01Why property is stored abroad
    2. 3480.02Freeports and free zones
    3. 3480.03The European Union's extension of money-laundering rules to art
    4. 3480.04The United States: antiquities, cash and sanctions
    5. 3480.05Reporting by and about foreign trusts
    6. 3480.06Export and import of cultural property
  10. ¶ 3490Drafting
    1. 3490.01Separate provisions for separate kinds of property
    2. 3490.02Retention and the duty to diversify
    3. 3490.03A collection adviser
    4. 3490.04Custody standards
    5. 3490.05Family use and distribution in kind
    6. 3490.06Sale and charitable disposition

Chapter 35Digital Assets in Trust

  1. ¶ 3501Overview
    1. 3501.01Scope of the chapter
    2. 3501.02What is different about digital assets
    3. 3501.03Relation to other chapters
    4. 3501.04Terminology
  2. ¶ 3510The Digital Asset as Trust Property
    1. 3510.01Property capable of being held in trust
    2. 3510.02Article 12 of the Uniform Commercial Code
    3. 3510.03Control under section 12-105
    4. 3510.04Why control matters to a trustee
    5. 3510.05The take-free rule
    6. 3510.06Choice of law
    7. 3510.07Enactment
    8. 3510.08Wyoming's classification statute
  3. ¶ 3520Funding the Trust
    1. 3520.01A transfer is a change of control
    2. 3520.02The funding record
    3. 3520.03Testing the address before the transfer
    4. 3520.04Assets held on exchanges and with custodians
    5. 3520.05The settlor must keep no key
    6. 3520.06Gift tax valuation and basis
  4. ¶ 3530Fiduciary Access to Accounts
    1. 3530.01The access problem
    2. 3530.02The statutory definitions
    3. 3530.03The order of priority
    4. 3530.04Trusts in which the trustee is the original user
    5. 3530.05Trusts in which the trustee is not the original user
    6. 3530.06The trustee's duties and authority
    7. 3530.07Custodian compliance
  5. ¶ 3540Custody Arrangements for a Trust
    1. 3540.01The four models
    2. 3540.02Trustee self-custody
    3. 3540.03Third-party custody
    4. 3540.04The Wyoming custody statute
    5. 3540.05Platform custody
    6. 3540.06Multisignature and shared custody
    7. 3540.07Directed custody
  6. ¶ 3550The Trustee's Investment and Protective Duties
    1. 3550.01The prudent investor rule applies
    2. 3550.02Volatility and the circumstances of the trust
    3. 3550.03Diversification
    4. 3550.04Retention clauses and the Delaware rule
    5. 3550.05The duty to secure
    6. 3550.06Insurance
    7. 3550.07The trustee with special skills
  7. ¶ 3560Platform Failure, Lost Keys and Key Succession
    1. 3560.01Two ways to lose a digital asset
    2. 3560.02Custody terms decide ownership
    3. 3560.03What a trustee should take from Celsius
    4. 3560.04Lost keys
    5. 3560.05Key succession within a trust
    6. 3560.06Time-locked and programmatic recovery
    7. 3560.07Removal and resignation of a trustee holding keys
  8. ¶ 3570Staking, Forks and Airdrops: Income Tax and Trust Accounting
    1. 3570.01New units from old
    2. 3570.02Staking rewards for income tax
    3. 3570.03Forks and airdrops for income tax
    4. 3570.04Trust accounting: principal or income?
    5. 3570.05Whether to stake at all
    6. 3570.06Drafting the allocation
  9. ¶ 3580Reporting, Offshore Trustees, Creditors and Entities
    1. 3580.01The trust as a broker's customer
    2. 3580.02What the trustee must keep
    3. 3580.03The Crypto-Asset Reporting Framework
    4. 3580.04Offshore trustees holding digital assets
    5. 3580.05Creditors and the trustee's keys
    6. 3580.06Entities holding digital assets
    7. 3580.07Decentralized autonomous organization LLCs
    8. 3580.08A trust as member of a DAO LLC
  10. ¶ 3590Drafting the Trust Instrument
    1. 3590.01What the instrument must do
    2. 3590.02The administration clause
    3. 3590.03The custody and key succession clause
    4. 3590.04The fiduciary access consent
    5. 3590.05Coordination with the directed-trust provisions

Part VIII: Spendthrift and Protective Design

Chapter 36Spendthrift Provisions and Exception Creditors

  1. ¶ 3601Overview
    1. 3601.01Scope of the chapter
    2. 3601.02The design question
    3. 3601.03Vocabulary
    4. 3601.04Sources of law
    5. 3601.05Plan of the chapter
    6. 3601.06Relation to other chapters
  2. ¶ 3610Origins and Rationale
    1. 3610.01The English rule
    2. 3610.02The protective trust
    3. 3610.03Nichols v. Eaton
    4. 3610.04The Massachusetts holding
    5. 3610.05The spread of the doctrine
    6. 3610.06The case for and against
    7. 3610.07Why the history matters to the drafter
  3. ¶ 3620Validity and Effect under the Code
    1. 3620.01The two-sided restraint
    2. 3620.02The bare phrase
    3. 3620.03Effect: the interest and distributions before receipt
    4. 3620.04What is not a transfer
    5. 3620.05Honoring a void assignment
    6. 3620.06The settlor-beneficiary
    7. 3620.07The trustee's own creditors
    8. 3620.08A mandatory rule
  4. ¶ 3630Exception Creditors under the Code
    1. 3630.01The list
    2. 3630.02The remedy
    3. 3630.03Mandatory and discretionary distributions
    4. 3630.04Support and maintenance
    5. 3630.05Limits on the support remedy
    6. 3630.06Services for the protection of the interest
    7. 3630.07Governmental claims
    8. 3630.08What the Code declined to adopt
  5. ¶ 3640The Tort Creditor Debate
    1. 3640.01The argument for an exception
    2. 3640.02The statutory answer
    3. 3640.03Statutory tort and restitution exceptions
    4. 3640.04Statutes that close the question
    5. 3640.05The drafter's response
  6. ¶ 3650The States Compared
    1. 3650.01Why the list matters
    2. 3650.02Delaware
    3. 3650.03Nevada
    4. 3650.04South Dakota
    5. 3650.05Uniform Trust Code variants
    6. 3650.06Texas
    7. 3650.07California
    8. 3650.08New York
  7. ¶ 3660Mandatory Interests, Overdue Distributions and Distributions Received
    1. 3660.01The mandatory interest as the weak point
    2. 3660.02The overdue distribution
    3. 3660.03What is mandatory
    4. 3660.04States that protect even overdue payments
    5. 3660.05Direct payment
    6. 3660.06The California trustee's exposure
    7. 3660.07After receipt
    8. 3660.08Use in kind and holdbacks
  8. ¶ 3670Federal Claims: Tax Liens, Restitution and Bankruptcy
    1. 3670.01The federal tax lien
    2. 3670.02Discretionary interests and the lien
    3. 3670.03Other federal claims
    4. 3670.04Disclaimer and the lien
    5. 3670.05Bankruptcy
  9. ¶ 3680Spendthrift Protection Abroad
    1. 3680.01England and the protective trust
    2. 3680.02Belize
    3. 3680.03Nevis
    4. 3680.04The Cook Islands and other centres
    5. 3680.05The American beneficiary of a foreign trust
  10. ¶ 3690Drafting the Spendthrift Provision
    1. 3690.01The provision as part of a design
    2. 3690.02Content of the restraint
    3. 3690.03Discretion and direct payment
    4. 3690.04Forfeiture
    5. 3690.05Holdback
    6. 3690.06Exception creditors and the support clause
    7. 3690.07Governing law and administration
    8. 3690.08Review of existing trusts

Chapter 37Self-Settled Spendthrift Trusts and the Wyoming Qualified Spendthrift Trust

  1. ¶ 3701Overview
    1. 3701.01Scope of the chapter
    2. 3701.02Relation to the companion volume and to other chapters
    3. 3701.03The design problem
    4. 3701.04Three forums
  2. ¶ 3710The Traditional Rule and Its Design Consequences
    1. 3710.01The rule
    2. 3710.02The drafters' rejection of the statutes
    3. 3710.03The rule as the default
    4. 3710.04Identifying the settlor
    5. 3710.05Revocable trusts
  3. ¶ 3720The Statutes as a Design Map
    1. 3720.01The enacting states
    2. 3720.02Common elements
    3. 3720.03The variables that drive the choice
    4. 3720.04Reading the table for design
  4. ¶ 3730Delaware's Qualified Dispositions in Trust Act as a Template
    1. 3730.01Structure of the Act
    2. 3730.02The qualified trustee
    3. 3730.03Advisers and the transferor as investment adviser
    4. 3730.04What the transferor may retain
    5. 3730.05Creditors' remedies and the exceptions
    6. 3730.06The remedy when a disposition is avoided
    7. 3730.07The forum clause and its limits
  5. ¶ 3740The Wyoming Qualified Spendthrift Trust
    1. 3740.01The instrument
    2. 3740.02What the settlor may retain
    3. 3740.03The qualified trustee
    4. 3740.04Qualified transfers and the affidavit
    5. 3740.05The exclusive remedy and the notice periods
    6. 3740.06Exceptions and remedies
    7. 3740.07Relation back, election and resignation
  6. ¶ 3750Designing the Settlor's Interest and Powers
    1. 3750.01The governing principle
    2. 3750.02Discretionary interest or fixed interest
    3. 3750.03Who exercises distribution discretion
    4. 3750.04The veto and the power of appointment
    5. 3750.05Removal and replacement
    6. 3750.06The settlor as investment adviser
    7. 3750.07Protectors and duress
    8. 3750.08The hybrid structure
  7. ¶ 3760Gift, Estate and Income Tax Design
    1. 3760.01The choice
    2. 3760.02When the gift is complete
    3. 3760.03Making the gift incomplete
    4. 3760.04The estate tax and the creditor question
    5. 3760.05Why the creditor analysis matters for estate tax
    6. 3760.06The income tax
  8. ¶ 3770Conflict of Laws and the Nonresident Settlor
    1. 3770.01The problem
    2. 3770.02Validity: Restatement (Second) of Conflict of Laws § 270
    3. 3770.03The voidable transfer claim
    4. 3770.04Exclusive-jurisdiction provisions
    5. 3770.05Design responses
  9. ¶ 3780Bankruptcy, Solvency and Funding
    1. 3780.01Section 548(e)
    2. 3780.02Avoiding the bankruptcy forum
    3. 3780.03Solvency and the affidavit
    4. 3780.04Due diligence
    5. 3780.05Funding in stages and keeping property outside the trust
  10. ¶ 3790Drafting the Domestic Self-Settled Trust and the Qualified Spendthrift Trust
    1. 3790.01Starting points
    2. 3790.02Declaration, governing law and spendthrift provision
    3. 3790.03The settlor's powers
    4. 3790.04Distributions to the settlor
    5. 3790.05Checklist

Chapter 38Discretionary Interests and the Restatement (Third) Debate

  1. ¶ 3801Overview
    1. 3801.01Scope of the chapter
    2. 3801.02Why the classification matters
    3. 3801.03Relation to other chapters
    4. 3801.04Sources of law
  2. ¶ 3810The Traditional Categories
    1. 3810.01A continuum of interests
    2. 3810.02Mandatory interests
    3. 3810.03The support trust
    4. 3810.04The discretionary trust
    5. 3810.05The standard of review
    6. 3810.06The hybrid interest
    7. 3810.07Property and spendthrift analyses
  3. ¶ 3820The Restatement (Third) Approach
    1. 3820.01The collapse of the categories
    2. 3820.02The reasonableness standard
    3. 3820.03Why the standard of review decides the creditor question
    4. 3820.04The beneficiary who is a trustee
    5. 3820.05The consequences for planners
  4. ¶ 3830The Critique and the Uniform Trust Code's Response
    1. 3830.01The critics' case
    2. 3830.02The supplementing role of the Restatement
    3. 3830.03The reply
    4. 3830.04Section 504(b): the general rule
    5. 3830.05Section 504(c): the support exception
    6. 3830.06Section 504(d) and (e)
    7. 3830.07Section 814(a): good faith
    8. 3830.08What remains unsettled
  5. ¶ 3840State Statutes Restoring the Categories
    1. 3840.01The legislative response
    2. 3840.02South Dakota
    3. 3840.03South Dakota's language rules
    4. 3840.04South Dakota's creditor rules
    5. 3840.05Nevada
    6. 3840.06Delaware
    7. 3840.07Wyoming
    8. 3840.08Ohio
    9. 3840.09Florida
  6. ¶ 3850Divorce and the Discretionary Interest
    1. 3850.01The divorcing spouse
    2. 3850.02Separate property and all-property states
    3. 3850.03After Pfannenstiehl
    4. 3850.04Statutory rules
    5. 3850.05Support and imputed income
  7. ¶ 3860Support Claims Against Distributions
    1. 3860.01Compelling a distribution and reaching a distribution
    2. 3860.02Payments to third parties
    3. 3860.03The last-resort requirement
    4. 3860.04The trustee's position
  8. ¶ 3870The Family Bank: Use, Loans and the Beneficiary as Trustee
    1. 3870.01The design concept
    2. 3870.02Use of trust property
    3. 3870.03Loans
    4. 3870.04Investments that serve the family
    5. 3870.05The beneficiary as trustee
    6. 3870.06Limits of beneficiary-trusteeship
    7. 3870.07Powers to remove and replace
    8. 3870.08The beneficiary's other resources
  9. ¶ 3880Third-Party and Self-Settled Interests; Governing Law
    1. 3880.01The protection is for third-party trusts
    2. 3880.02Settlors who become beneficiaries
    3. 3880.03Which law governs a creditor's rights
  10. ¶ 3890Drafting
    1. 3890.01Choosing the standard
    2. 3890.02Language
    3. 3890.03Unequal distributions and an open class
    4. 3890.04Spouses and divorce
    5. 3890.05Independent trustee mechanics

Chapter 39Divorce, Marital Claims and the Trust

  1. ¶ 3901Overview
    1. 3901.01Scope of the chapter
    2. 3901.02Three routes to trust wealth
    3. 3901.03Legitimate and illegitimate objectives
    4. 3901.04How to read the chapter
  2. ¶ 3910The Trust Interest in the Marital Estate
    1. 3910.01Two questions
    2. 3910.02Community property states
    3. 3910.03Income from separate property: California and Texas compared
    4. 3910.04Equitable distribution states
    5. 3910.05Is the interest property?
    6. 3910.06Valuation and deferred division
    7. 3910.07Classification compared
  3. ¶ 3920Growth, Income and Commingling
    1. 3920.01How separate trust wealth becomes marital
    2. 3920.02Active and passive appreciation
    3. 3920.03Distributions and the income question
    4. 3920.04Commingling and transmutation
    5. 3920.05Marital contributions to trust property
    6. 3920.06Administration that preserves the character of trust wealth
  4. ¶ 3930Trust Wealth as a Resource for Alimony and Support
    1. 3930.01A different question
    2. 3930.02Other states
    3. 3930.03Distributions received
    4. 3930.04The marital standard of living
    5. 3930.05Child support
    6. 3930.06Joinder of the trustee
  5. ¶ 3940Self-Settled Trusts Created During the Marriage
    1. 3940.01The spouse as a creditor of the settlor
    2. 3940.02The statutes and the spouse
    3. 3940.03The contributing spouse as settlor
    4. 3940.04Transfers when the marriage is failing
  6. ¶ 3950Third-Party Trusts for Married Children and Grandchildren
    1. 3950.01The design objective
    2. 3950.02The beneficial interest
    3. 3950.03The distribution standard
    4. 3950.04The trustee
    5. 3950.05Use of trust property and loans
    6. 3950.06The beneficiary's spouse as a beneficiary
    7. 3950.07Administration during the beneficiary's divorce
  7. ¶ 3960Premarital and Marital Agreements and the Trust
    1. 3960.01The agreement and the trust as complements
    2. 3960.02Content
    3. 3960.03Enforceability
    4. 3960.04Integrating the agreement with the trust
    5. 3960.05The trustee's role
    6. 3960.06The settlor's influence
  8. ¶ 3970Spousal Lifetime Access Trusts, Grantor-Trust Status and Divorce
    1. 3970.01The divorce problem in a spousal trust
    2. 3970.02The beneficiary-spouse's interest after divorce
    3. 3970.03The repeal of section 682
    4. 3970.04Grantor-trust status after divorce
    5. 3970.05Responses in the instrument
    6. 3970.06Transfers between spouses and incident to divorce
    7. 3970.07Retirement plans and qualified domestic relations orders
  9. ¶ 3980Cross-Border Claims and Offshore Firewall Statutes
    1. 3980.01The English approach
    2. 3980.02Firewall statutes
    3. 3980.03What a firewall does and does not do
    4. 3980.04Designing against the resource inquiry
  10. ¶ 3990Drafting and Administration
    1. 3990.01Purpose of the model provisions
    2. 3990.02Notes on the definition
    3. 3990.03Notes on the distribution provision
    4. 3990.04Drafting and administration checklist

Part IX: Tax Architecture

Chapter 40Grantor-Trust Design and Toggle Powers

  1. ¶ 4001Overview
    1. 4001.01Scope of the chapter
    2. 4001.02A design choice
    3. 4001.03Vocabulary
    4. 4001.04Plan of the chapter
  2. ¶ 4010The Grantor Trust Rules as a Design Kit: Sections 671 and 672
    1. 4010.01Section 671: attribution of income
    2. 4010.02The origin of the rules
    3. 4010.03Adverse parties
    4. 4010.04Nonadverse and related or subordinate parties
    5. 4010.05The spouse
    6. 4010.06Conditions and notice periods
    7. 4010.07Foreign ownership
  3. ¶ 4020The Triggering Powers: Sections 673 Through 677
    1. 4020.01Section 673: reversionary interests
    2. 4020.02Section 674(a): powers of disposition
    3. 4020.03Section 674(b): powers excepted regardless of holder
    4. 4020.04Section 674(b)(3): the testamentary power
    5. 4020.05Section 674(c): the independent trustee
    6. 4020.06Section 674(d): income powers limited by a standard
    7. 4020.07The power to add beneficiaries as a trigger
    8. 4020.08Section 675(1) and (2): dealing and borrowing powers
    9. 4020.09Section 675(3): actual borrowing
    10. 4020.10Section 675(4): administrative powers in a nonfiduciary capacity
    11. 4020.11Section 676: power to revest
    12. 4020.12Section 677(a): income for the grantor or the grantor's spouse
    13. 4020.13Section 677(b): support obligations
  4. ¶ 4030The Power of Substitution
    1. 4030.01The statutory power
    2. 4030.02Fiduciary or nonfiduciary capacity
    3. 4030.03The estate tax question
    4. 4030.04Life insurance: Rev. Rul. 2011-28
    5. 4030.05What the rulings do not address
    6. 4030.06The trustee's duties on an exercise
  5. ¶ 4040Section 678 and Trusts Owned by a Beneficiary
    1. 4040.01The statutory rule
    2. 4040.02Priority of the grantor
    3. 4040.03Support powers and disclaimers
    4. 4040.04The released or lapsed power
    5. 4040.05Design of the beneficiary-owned trust
    6. 4040.06The risks
  6. ¶ 4050The Intentionally Defective Grantor Trust and the Installment Sale
    1. 4050.01The technique
    2. 4050.02The contrary decision
    3. 4050.03Borrowing and the sale
    4. 4050.04The mechanics of the sale
    5. 4050.05What the income tax disregards
    6. 4050.06The transfer tax risks
    7. 4050.07A note outstanding at death
  7. ¶ 4060The Grantor's Payment of Income Tax and Reimbursement Clauses
    1. 4060.01The economic effect
    2. 4060.02Creditors' law and the reimbursement clause
    3. 4060.03Delaware
    4. 4060.04New York
    5. 4060.05Adding a reimbursement clause later
    6. 4060.06Designing the clause
  8. ¶ 4070Turning Grantor-Trust Status Off and On
    1. 4070.01Why status changes
    2. 4070.02Toggle mechanisms
    3. 4070.03Consequences of ending status during life
    4. 4070.04Consequences of turning status on
    5. 4070.05Consequences at death
    6. 4070.06The basis consequence in design
    7. 4070.07Exchanging assets before death
    8. 4070.08The release and the three-year rule
  9. ¶ 4080Proposals for Change and State Income Tax
    1. 4080.01The 2024 proposals
    2. 4080.02Their significance
    3. 4080.03State income tax: conformity
    4. 4080.04Pennsylvania
  10. ¶ 4090Drafting the Grantor-Trust Provisions
    1. 4090.01The decisions
    2. 4090.02Lending power
    3. 4090.03Valuation adjustment clauses
    4. 4090.04Coordination with the rest of the instrument
    5. 4090.05The record

Chapter 41Incomplete-Gift Nongrantor Trusts and the State Response

  1. ¶ 4101Overview
    1. 4101.01Scope of the chapter
    2. 4101.02The purpose of the design
    3. 4101.03Names
    4. 4101.04Why the trust is self-settled
    5. 4101.05Three taxes, three tests
    6. 4101.06Plan of the chapter
    7. 4101.07Relation to other chapters
  2. ¶ 4110The Structure
    1. 4110.01The rulings as a template
    2. 4110.02The parties
    3. 4110.03Distributions during the settlor's life
    4. 4110.04The settlor's testamentary power
    5. 4110.05The committee's life
    6. 4110.06Nonfiduciary capacity
    7. 4110.07Decanting and qualified trusts
    8. 4110.08Community property variations
    9. 4110.09Excluding the spouse
  3. ¶ 4120Nongrantor Status
    1. 4120.01The question
    2. 4120.02The adverse party
    3. 4120.03Section 674(a) and the committee
    4. 4120.04The exceptions for the settlor's own powers
    5. 4120.05Section 677
    6. 4120.06Sections 673, 675 and 676
    7. 4120.07Section 678 and the members
    8. 4120.08When the committee ceases
  4. ¶ 4130The Incomplete Gift
    1. 4130.01The regulation
    2. 4130.02The consent power and the meaning of adverse
    3. 4130.03The asymmetry
    4. 4130.04The sole power
    5. 4130.05The testamentary power
    6. 4130.06The unanimous member power
    7. 4130.07Distributions to the settlor
    8. 4130.08Distributions to others
    9. 4130.09Relinquishment
  5. ¶ 4140The Committee Members
    1. 4140.01The members' exposure
    2. 4140.02The statutory exceptions
    3. 4140.03The 2007 reconsideration
    4. 4140.04The 2013 resolution
    5. 4140.05Estate tax on a member's death
    6. 4140.06Replacement provisions
  6. ¶ 4150The Service's Position
    1. 4150.01From rulings to silence
    2. 4150.02The no-rule items
    3. 4150.03What the listing means
    4. 4150.04Proceeding without a ruling
  7. ¶ 4160State Income Tax: Why the Structure Works
    1. 4160.01The state question
    2. 4160.02Why the settlor's state cannot reach the trust
    3. 4160.03Source income
    4. 4160.04The host states
    5. 4160.05Choosing among them
  8. ¶ 4170The State Response
    1. 4170.01The approach
    2. 4170.02New York
    3. 4170.03The New York effective date
    4. 4170.04Why New York says "resident trust."
    5. 4170.05California
    6. 4170.06The California exceptions
    7. 4170.07Consequences for planning
  9. ¶ 4180Federal Overlays
    1. 4180.01The trust as a separate taxpayer
    2. 4180.02Section 643(f)
    3. 4180.03Application to ING trusts
    4. 4180.04Qualified small business stock
    5. 4180.05The gift question under section 1202(h)
    6. 4180.06The deduction for state and local taxes
    7. 4180.07Estate inclusion
    8. 4180.08Basis
    9. 4180.09The exemption context
  10. ¶ 4190Design and Administration
    1. 4190.01When to use the structure
    2. 4190.02Choice of trustee and situs
    3. 4190.03The committee in practice
    4. 4190.04The settlor's conduct
    5. 4190.05Reporting
    6. 4190.06Exit routes
    7. 4190.07Drafting checklist
    8. 4190.08Statements of intention

Chapter 42Spousal Lifetime Access Trusts and Spousal Planning

  1. ¶ 4201Overview
    1. 4201.01Scope of the chapter
    2. 4201.02What other chapters cover
    3. 4201.03Why the structure is used
    4. 4201.04The exemption environment
    5. 4201.05The design problem
    6. 4201.06Plan of the chapter
  2. ¶ 4210The Structure and Its Tax Profile
    1. 4210.01The parties and their roles
    2. 4210.02The gift is complete and uses exemption
    3. 4210.03Grantor-trust status under section 677(a)
    4. 4210.04When grantor-trust status ends
    5. 4210.05Estate tax exclusion for the donor
    6. 4210.06Estate tax exclusion for the beneficiary spouse
    7. 4210.07The structure compared
  3. ¶ 4220Gift Splitting and the Spouse-Beneficiary
    1. 4220.01The election
    2. 4220.02The bar where the spouse is a beneficiary
    3. 4220.03When the interests are severable
    4. 4220.04Designs that preserve splitting
    5. 4220.05The consequence of an invalid election
  4. ¶ 4230The Exemption After 2025 and the Special Rule for Changes in the Exclusion
    1. 4230.01The basic exclusion amount
    2. 4230.02What changed for spousal trusts
    3. 4230.03The special rule
    4. 4230.04The 2022 proposal on includible gifts
    5. 4230.05The proposal and spousal trusts
    6. 4230.06Using exemption efficiently in a spousal trust
  5. ¶ 4240The Reciprocal Trust Doctrine
    1. 4240.01The problem
    2. 4240.02Origins
    3. 4240.03Estate of Levy
    4. 4240.04Differences that matter
  6. ¶ 4250The Source of the Gift: Indirect Transfers and the Step Transaction
    1. 4250.01Who is the transferor
    2. 4250.02Indirect gifts
    3. 4250.03Applying Smaldino to spousal trusts
    4. 4250.04Seasoning and independence
  7. ¶ 4260Access, Its Limits and the Indirect Benefit to the Donor
    1. 4260.01The source of access
    2. 4260.02Section 2036(a)(1) and the implied understanding
    3. 4260.03Support obligations
    4. 4260.04The residence
    5. 4260.05The trustee
    6. 4260.06The donor's creditors and domestic self-settled trust statutes
    7. 4260.07After the beneficiary spouse's death
  8. ¶ 4270The Beneficiary Spouse's Death, Divorce and the Floating Spouse
    1. 4270.01Two conditions on access
    2. 4270.02The beneficiary spouse's death
    3. 4270.03Divorce
    4. 4270.04The floating spouse
    5. 4270.05The floating spouse and the reciprocal trust doctrine
  9. ¶ 4280Community Property, the Lifetime QTIP Trust, Spousal Powers and Combinations
    1. 4280.01Community property and the transferor
    2. 4280.02Partition and transmutation
    3. 4280.03The cost of partition
    4. 4280.04The lifetime qualified terminable interest property trust
    5. 4280.05Access for the donor after the beneficiary spouse's death
    6. 4280.06Generation-skipping transfer tax in the lifetime QTIP trust
    7. 4280.07The two structures compared
    8. 4280.08Spousal powers of appointment
    9. 4280.09Spousal trusts and incomplete-gift nongrantor trusts
  10. ¶ 4290Drafting the Spousal Trust
    1. 4290.01The instrument's tasks
    2. 4290.02Notes on the spouse access provision
    3. 4290.03Notes on the differentiating terms
    4. 4290.04Notes on the substitution power
    5. 4290.05Drafting checklist

Chapter 43Domestic and Foreign Trust Classification and Cross-Border Trusts

  1. ¶ 4301Overview
    1. 4301.01Scope of the chapter
    2. 4301.02Why the classification matters
    3. 4301.03Relation to other chapters
    4. 4301.04Who files
    5. 4301.05Vocabulary
  2. ¶ 4310The Statutory Definition and the Court Test
    1. 4310.01The statute
    2. 4310.02Both tests, every day
    3. 4310.03The court test safe harbor
    4. 4310.04The defined terms
    5. 4310.05Situations that satisfy the test
    6. 4310.06Administration abroad
    7. 4310.07Governing law and the court test
  3. ¶ 4320The Control Test
    1. 4320.01United States persons
    2. 4320.02Substantial decisions
    3. 4320.03Control and the veto
    4. 4320.04Co-trustees
    5. 4320.05Investment advisers and directed trusts
    6. 4320.06Trustee removal and appointment
    7. 4320.07Powers held by a foreign grantor
    8. 4320.08Employee benefit and investment trusts
  4. ¶ 4330Changes in Residence: Inadvertent Changes, Automatic Migration and Flight
    1. 4330.01The twelve-month rule
    2. 4330.02What is inadvertent
    3. 4330.03Extensions
    4. 4330.04The same rule for section 684
    5. 4330.05Automatic migration under the court test
    6. 4330.06Automatic migration under the control test
    7. 4330.07Discretionary flight powers
    8. 4330.08Consequences of a change
  5. ¶ 4340United States Transferors: Sections 679 and 684
    1. 4340.01Two rules for outbound transfers
    2. 4340.02Section 679: the rule and its exceptions
    3. 4340.03The United States beneficiary
    4. 4340.04Agreements, letters of wishes and loans
    5. 4340.05Acquiring a United States beneficiary
    6. 4340.06Section 684
    7. 4340.07When the owner stops being the owner
    8. 4340.08Pre-immigration trusts
  6. ¶ 4350Foreign Grantors: Section 672(f)
    1. 4350.01The rule
    2. 4350.02The two exceptions for individuals
    3. 4350.03A trust that is not owned
    4. 4350.04The foreign grantor trust in practice
    5. 4350.05Gifts by United States beneficiaries
    6. 4350.06Classification of the foreign grantor's trust
    7. 4350.07The foreign grantor's death
  7. ¶ 4360Foreign Nongrantor Trusts: DNI, UNI, Throwback and Loans
    1. 4360.01The trust as taxpayer
    2. 4360.02Distributable net income of a foreign trust
    3. 4360.03Undistributed net income and the accumulation distribution
    4. 4360.04The throwback tax and the interest charge
    5. 4360.05The default calculation
    6. 4360.06Loans and use of trust property
    7. 4360.07Managing undistributed net income
  8. ¶ 4370Reporting and Penalties: Sections 6048 and 6677
    1. 4370.01Three reporting obligations
    2. 4370.02The United States agent
    3. 4370.03Domestic trusts with substantial foreign activity
    4. 4370.04The penalty
    5. 4370.05Assessable penalties after Farhy
    6. 4370.06Owners who are also beneficiaries
    7. 4370.07The size of the penalties
    8. 4370.08The open statute
  9. ¶ 4380Trusts for Nonresident-Alien Families; FATCA and CRS Classification
    1. 4380.01Three designs
    2. 4380.02The foreign grantor trust
    3. 4380.03The domestic nongrantor trust
    4. 4380.04The foreign trust administered in the United States
    5. 4380.05Estate tax situs
    6. 4380.06Situs and the trust
    7. 4380.07FATCA classification
    8. 4380.08CRS classification
  10. ¶ 4390Moving a Trust Across the Border and Drafting for Classification
    1. 4390.01The outbound move
    2. 4390.02Why trusts move out
    3. 4390.03The inbound move
    4. 4390.04The trust that was once foreign
    5. 4390.05Mechanics of a move
    6. 4390.06Drafting for classification
    7. 4390.07Administering for classification

Part X: Practice

Chapter 44Trustee Selection, Compensation, Resignation and Removal

  1. ¶ 4401Overview
    1. 4401.01Scope of the chapter
    2. 4401.02What other chapters cover
    3. 4401.03Why the office deserves design
  2. ¶ 4410Choosing the Trustee
    1. 4410.01The range of choices
    2. 4410.02The family trustee
    3. 4410.03The professional individual
    4. 4410.04The corporate trustee
    5. 4410.05The private trust company
    6. 4410.06Combinations
  3. ¶ 4420Tax Limits on Who May Serve
    1. 4420.01The settlor as trustee
    2. 4420.02The beneficiary as trustee
    3. 4420.03Related and subordinate trustees
    4. 4420.04A grantor's removal power and section 674
    5. 4420.05The beneficiary's removal power
  4. ¶ 4430Removal and Replacement Powers in the Instrument
    1. 4430.01Why instruments include them
    2. 4430.02The Service's earlier position
    3. 4430.03Rev. Rul. 95-58
    4. 4430.04Drafting rules that follow
  5. ¶ 4440Qualifications and the Situs Trustee
    1. 4440.01Why the trustee's location matters
    2. 4440.02Delaware
    3. 4440.03South Dakota
    4. 4440.04Nevada
    5. 4440.05Wyoming
    6. 4440.06Consequences for design
  6. ¶ 4450Accepting Office, Bond and Cotrustees
    1. 4450.01Acceptance and rejection
    2. 4450.02Bond
    3. 4450.03Cotrustees: majority action and participation
    4. 4450.04Cotrustees: liability and dissent
    5. 4450.05When cotrustees make sense
  7. ¶ 4460Compensation
    1. 4460.01The default rule: reasonable compensation
    2. 4460.02Services performed
    3. 4460.03Cotrustees
    4. 4460.04Fee schedules, termination fees and dual fees
    5. 4460.05Compensation fixed by the instrument
    6. 4460.06Agreements and waivers
    7. 4460.07Directed and administrative trustees
    8. 4460.08Wyoming's notice procedure
    9. 4460.09Statutory commissions
  8. ¶ 4470Resignation, Vacancy and Succession
    1. 4470.01Resignation
    2. 4470.02Vacancy
    3. 4470.03The nonjudicial route
    4. 4470.04The former trustee's duties
    5. 4470.05Final reports, limitation and releases
  9. ¶ 4480Removal by the Court
    1. 4480.01Who may petition
    2. 4480.02Serious breach of trust
    3. 4480.03Lack of cooperation among cotrustees
    4. 4480.04Unfitness, unwillingness and persistent failure
    5. 4480.05Changed circumstances and the request of all qualified beneficiaries
    6. 4480.06State variations
    7. 4480.07Fees in removal proceedings
  10. ¶ 4490Drafting the Trusteeship Provisions
    1. 4490.01The provisions a modern instrument needs
    2. 4490.02Removal and replacement
    3. 4490.03Compensation
    4. 4490.04Resignation and successor appointment
    5. 4490.05Minimum qualifications
    6. 4490.06Coordinating the instrument with the court's power

Chapter 45Trust Disputes: Arbitration, No-Contest and Forum Clauses

  1. ¶ 4501Overview
    1. 4501.01Scope of the chapter
    2. 4501.02Why settlors use them
    3. 4501.03The countervailing policy
    4. 4501.04Relation to other chapters
    5. 4501.05Sources
  2. ¶ 4510Trust Disputes and the Limits of Settlor Control
    1. 4510.01Kinds of trust dispute
    2. 4510.02The source of the settlor's power
    3. 4510.03Statutory limits on dispute clauses
    4. 4510.04The functional test
  3. ¶ 4520Arbitration Clauses Before the Statutes: Schoneberger and Rachal
    1. 4520.01The contract objection
    2. 4520.02Two answers
    3. 4520.03After Rachal
  4. ¶ 4530The Trust Arbitration Statutes
    1. 4530.01The pattern
    2. 4530.02Florida
    3. 4530.03Nevada
    4. 4530.04Arizona
    5. 4530.05South Dakota
    6. 4530.06New Hampshire
    7. 4530.07States without a statute
  5. ¶ 4540Designing an Arbitration Clause
    1. 4540.01Scope
    2. 4540.02Which arbitration act
    3. 4540.03The arbitrators
    4. 4540.04Representation
    5. 4540.05Powers and remedies
    6. 4540.06Cost and confidentiality
  6. ¶ 4550No-Contest Clauses: The Rules
    1. 4550.01Function
    2. 4550.02The probable-cause rule
    3. 4550.03California and South Dakota
    4. 4550.04Texas
    5. 4550.05Delaware
    6. 4550.06Nevada and New Hampshire
    7. 4550.07Florida
  7. ¶ 4560No-Contest Clauses in Practice
    1. 4560.01Two questions
    2. 4560.02Drafting a no-contest clause
    3. 4560.03Clauses aimed at challenges to the trustee
  8. ¶ 4570Forum Selection and Exclusive Jurisdiction
    1. 4570.01The default forum
    2. 4570.02The forum clause
    3. 4570.03Statutory exclusive jurisdiction
    4. 4570.04Offshore firewalls
    5. 4570.05Consistency
  9. ¶ 4580Mediation, Fee-Shifting and Confidentiality
    1. 4580.01A mediation step
    2. 4580.02Fee-shifting
    3. 4580.03Confidentiality in court
  10. ¶ 4590Putting the Clauses Together
    1. 4590.01One article, several tools
    2. 4590.02The mandatory core
    3. 4590.03Offshore and cross-border trusts

Chapter 46Drafting the Modern Trust Instrument: A Clause Guide

  1. ¶ 4601Overview
    1. 4601.01Scope of the chapter
    2. 4601.02The instrument as a system
    3. 4601.03How to use the chapter
    4. 4601.04Assumptions
    5. 4601.05What the chapter does not cover
  2. ¶ 4610The Plan of the Instrument
    1. 4610.01Design before drafting
    2. 4610.02The order of the articles
    3. 4610.03The mandatory core
    4. 4610.04Index of model provisions
    5. 4610.05Reconciling borrowed provisions
  3. ¶ 4620The Opening Articles: Declarations, Irrevocability, Governing Law and Situs
    1. 4620.01The name of the trust
    2. 4620.02Declarations and recitals
    3. 4620.03Irrevocability
    4. 4620.04The letter of wishes
    5. 4620.05Notes on the opening provision
    6. 4620.06Governing law: the choices
    7. 4620.07Delaware's administration rule
    8. 4620.08Principal place of administration
    9. 4620.09Power to change situs
    10. 4620.10Notes on the governing-law provision
  4. ¶ 4630The Fiduciary Articles: Trustees, Directors, Advisers and Protectors
    1. 4630.01Mapping the offices first
    2. 4630.02The trustee article
    3. 4630.03The removal power and its tax consequences
    4. 4630.04Corporate, individual and private trust company trustees
    5. 4630.05The director and adviser article
    6. 4630.06Fiduciary or nonfiduciary status
    7. 4630.07The protector article
    8. 4630.08Coordinating the offices
    9. 4630.09Notes on the coordination provision
    10. 4630.10Liability, exculpation and indemnity
  5. ¶ 4640The Beneficial Articles: Beneficiaries, Distributions, Spendthrift Terms and Spouses
    1. 4640.01Defining the class
    2. 4640.02Single fund or separate shares
    3. 4640.03Distribution standards
    4. 4640.04Use of trust property and loans
    5. 4640.05Incentives, conditions and powers of appointment
    6. 4640.06The spendthrift article
    7. 4640.07A trust for the settlor
    8. 4640.08Spouses
  6. ¶ 4650The Tax Articles
    1. 4650.01Purpose and placement
    2. 4650.02Generation-skipping transfer tax
    3. 4650.03Grantor-trust status
    4. 4650.04Nongrantor design
    5. 4650.05Spousal trusts
    6. 4650.06Domestic status
    7. 4650.07Tax limits on flexibility powers
  7. ¶ 4660The Flexibility Articles: Modification, Decanting, Settlement, Combination and Migration
    1. 4660.01Why the flexibility articles matter
    2. 4660.02Modification and termination
    3. 4660.03Decanting
    4. 4660.04Nonjudicial settlement agreements
    5. 4660.05Combination, division and merger
    6. 4660.06Migration
    7. 4660.07One limit for all flexibility powers
  8. ¶ 4670Information, Representation, Governance and Special Assets
    1. 4670.01The information article
    2. 4670.02Silent periods
    3. 4670.03Representation
    4. 4670.04Governance institutions
    5. 4670.05Trust-owned entities
    6. 4670.06Concentrated positions and closely held businesses
    7. 4670.07Real estate, tangible assets and digital assets
  9. ¶ 4680Duration, Disputes, Definitions and Execution
    1. 4680.01Duration
    2. 4680.02Termination and ultimate takers
    3. 4680.03Dispute resolution
    4. 4680.04Definitions
    5. 4680.05Notes on the definitions
    6. 4680.06Execution
    7. 4680.07Acceptance and funding
    8. 4680.08Notes on execution
  10. ¶ 4690Common Drafting Errors and a Final Checklist
    1. 4690.01Sources of error
    2. 4690.02Errors of language
    3. 4690.03Review before signing
    4. 4690.04Final checklist

Appendices and Tables

Appendix AFifty-State Comparison: Directed Trusts, Protectors, Decanting, Perpetuities, Silent Trusts

  1. ¶ A01Introduction and Method
    1. A01.01Purpose
    2. A01.02Sources
    3. A01.03How to read the tables
    4. A01.04Currency
  2. ¶ A10Directed Trusts and Protectors
    1. A10.01The table
  3. ¶ A20Decanting
    1. A20.01The table
  4. ¶ A30Perpetuities
    1. A30.01The table
  5. ¶ A40Silent Trusts
    1. A40.01The table
  6. ¶ A50Notes on Selected Jurisdictions
    1. A50.01Recent perpetuities changes
    2. A50.02Recent decanting and directed-trust acts
    3. A50.03Massachusetts
    4. A50.04Illinois
    5. A50.05Louisiana
    6. A50.06Oklahoma
    7. A50.07Entries from surveys
    8. A50.08Utah

Appendix BUniform Directed Trust Act, Annotated

  1. ¶ B01Overview
    1. B01.01The Act and this appendix
    2. B01.02Source of the text
    3. B01.03Enactment
    4. B01.04How the annotations are arranged
  2. ¶ B10General Provisions: Sections 1–5
    1. B10.01Section 1. Short Title
    2. B10.02Section 2. Definitions
    3. B10.03Section 3. Application; Principal Place of Administration
    4. B10.04Section 4. Common Law and Principles of Equity
    5. B10.05Section 5. Exclusions
  3. ¶ B20The Trust Director: Sections 6–8
    1. B20.01Section 6. Powers of Trust Director
    2. B20.02Section 7. Limitations on Trust Director
    3. B20.03Section 8. Duty and Liability of Trust Director
  4. ¶ B30The Directed Trustee and the Cotrustee: Sections 9–12
    1. B30.01Section 9. Duty and Liability of Directed Trustee
    2. B30.02Section 10. Duty to Provide Information to Trust Director or Trustee
    3. B30.03Section 11. No Duty to Monitor, Inform, or Advise
    4. B30.04Section 12. Application to Cotrustee
  5. ¶ B40Limitations, Defenses, Jurisdiction and Office: Sections 13–16
    1. B40.01Section 13. Limitation of Action Against Trust Director
    2. B40.02Section 14. Defenses in Action Against Trust Director
    3. B40.03Section 15. Jurisdiction Over Trust Director
    4. B40.04Section 16. Office of Trust Director
  6. ¶ B50Miscellaneous Provisions: Sections 17–20
    1. B50.01Section 17. Uniformity of Application and Construction
    2. B50.02Section 18. Relation to Electronic Signatures in Global and National Commerce Act
    3. B50.03Section 19. Repeals; Conforming Amendments
    4. B50.04Section 20. Effective Date

Appendix CUniform Trust Decanting Act, Annotated

  1. ¶ C01Overview
    1. C01.01The Act and this appendix
    2. C01.02Source of the text
    3. C01.03Enactment
    4. C01.04How the annotations are arranged
  2. ¶ C10Definitions, Scope, Duty and Governing Law: Sections 1–6
    1. C10.01Section 1. Short Title
    2. C10.02Section 2. Definitions
    3. C10.03Section 3. Scope
    4. C10.04Section 4. Fiduciary Duty
    5. C10.05Section 5. Application; Governing Law
    6. C10.06Section 6. Reasonable Reliance
  3. ¶ C20Notice, Representation, Court Involvement and Formalities: Sections 7–10
    1. C20.01Section 7. Notice; Exercise of Decanting Power
    2. C20.02Section 8. Representation
    3. C20.03Section 9. Court Involvement
    4. C20.04Section 10. Formalities
  4. ¶ C30The Decanting Power: Sections 11–14
    1. C30.01Section 11. Decanting Power Under Expanded Distributive Discretion
    2. C30.02Section 12. Decanting Power Under Limited Distributive Discretion
    3. C30.03Section 13. Trust for Beneficiary with Disability
    4. C30.04Section 14. Protection of Charitable Interest
  5. ¶ C40Limits on the Power: Sections 15–19
    1. C40.01Section 15. Trust Limitation on Decanting
    2. C40.02Section 16. Change in Compensation
    3. C40.03Section 17. Relief from Liability and Indemnification
    4. C40.04Section 18. Removal or Replacement of Authorized Fiduciary
    5. C40.05Section 19. Tax-Related Limitations
  6. ¶ C50The Second Trust: Sections 20–27
    1. C50.01Section 20. Duration of Second Trust
    2. C50.02Section 21. Need to Distribute Not Required
    3. C50.03Section 22. Saving Provision
    4. C50.04Section 23. Trust for Care of Animal
    5. C50.05Section 24. Terms of Second Trust
    6. C50.06Section 25. Settlor
    7. C50.07Section 26. Later-Discovered Property
    8. C50.08Section 27. Obligations
  7. ¶ C60Miscellaneous Provisions: Sections 28–32
    1. C60.01Section 28. Uniformity of Application and Construction
    2. C60.02Section 29. Relation to Electronic Signatures in Global and National Commerce Act
    3. C60.03Section 30. Severability
    4. C60.04Section 31. Repeals; Conforming Amendments
    5. C60.05Section 32. Effective Date

Appendix DModel Clauses

  1. ¶ D01Introduction and Use
    1. D01.01The collection
    2. D01.02Conventions
    3. D01.03Using a clause
    4. D01.04Overlapping clauses
    5. D01.05Table of sections
  2. ¶ D10Articles I to III: The Instrument, Governing Law and Trustees
    1. D10.01Contents
    2. D10.02Related clauses
  3. ¶ D20Article IV: Trust Directors and Advisers
    1. D20.01Contents
    2. D20.02Overlaps
  4. ¶ D30Articles V and VI: The Protector and the Coordination of Powers
    1. D30.01Contents
    2. D30.02Overlaps
  5. ¶ D40Articles VII to X: Beneficiaries, Distributions, Spendthrift Provisions and Spouses
    1. D40.01Contents
    2. D40.02Overlaps
  6. ¶ D50Article XI: Tax Provisions
    1. D50.01Contents
    2. D50.02Overlaps
  7. ¶ D60Article XII: Modification, Decanting, Settlement Agreements and Migration
    1. D60.01Contents
    2. D60.02Overlaps
  8. ¶ D70Articles XIII and XIV: Information, Representation and Family Governance
    1. D70.01Contents
    2. D70.02Overlaps
  9. ¶ D80Article XV: Trust-Owned Entities and Special Assets
    1. D80.01Contents
    2. D80.02Overlaps
  10. ¶ D90Articles XVI to XIX: Duration, Disputes, Definitions and Execution
    1. D90.01Contents
    2. D90.02Related clauses

Appendix EForms: Directed Trust Agreement, Protector Appointment, Decanting Instrument, Nonjudicial Settlement Agreement, Change of Situs

  1. ¶ E01Using the Forms
    1. E01.01The forms
    2. E01.02Conventions
    3. E01.03Relation to Appendix D
    4. E01.04Execution
    5. E01.05Table of forms
  2. ¶ E10Form E-1: Directed Trust Agreement
    1. E10.01Purpose
    2. E10.02The governing statute
    3. E10.03The form
  3. ¶ E20Form E-2: Instrument of Appointment and Acceptance of Trust Protector
    1. E20.01Purpose
    2. E20.02Status and jurisdiction
    3. E20.03The form
  4. ¶ E30Form E-3: Decanting Instrument and Notice
    1. E30.01Purpose
    2. E30.02Delaware
    3. E30.03The Uniform Trust Decanting Act
    4. E30.04The form
  5. ¶ E40Form E-4: Nonjudicial Settlement Agreement
    1. E40.01Purpose
    2. E40.02The statutes
    3. E40.03The form
  6. ¶ E50Form E-5: Change of Situs and Governing Law
    1. E50.01Purpose
    2. E50.02The statutes
    3. E50.03The form