QUESTION ANALYSIS
Hank and Wendy married, had two children, Aaron and Beth, and subsequently had their marriage dissolved.
One year after dissolution of the marriage, Hank placed all his assets (res) in a valid revocable trust and appointed Trustee. (trustee) Under the trust, Trustee was to pay all income (trust purpose) from the trust to Hank (income beneficiary) during Hank’s life. Upon Hank’s death, the trust was to terminate and Trustee was to distribute the remaining assets as follows: one-half to Hank’s mother, Mom, (remainder beneficiary) if she was then living, and the remainder to Aaron and Beth, (remainder beneficiary) in equal shares.
Trustee invested all assets of the trust in commercial real estate, which yielded very high income, but suffered rapidly decreasing market value. (Trustee duties violated: duty of care, duty to diversify trust assets, duty not to speculate) Hank, who had never remarried, died three years after establishing the trust. At the time of his death, the trust was valued at $300,000. Subsequently, it was proved by DNA testing that Hank had another child, Carl, who had been conceived during Hank’s marriage to Wendy, but was born following dissolution of the marriage. (Pretermitted heirs) Wendy, Carl’s mother, had never told Hank about Carl.(Omitted child)
Wendy, Mom, Aaron, Beth, and Carl all claim that he or she is entitled to a portion of the trust assets. (Distribution issue)
(TRUST QUESTION)
1. At Hank’s death, what claims, if any, do the trust beneficiaries have against Trustee? Discuss.
(WILL QUESTION)
2. How should the trust assets be distributed? Discuss. Answer this question according to California law.
ANSWER OUTLINE
I. Claim against Trustee
1. General Trustee Duties-Duty of Care
Trustee must use that degree of care, skill and caution that would be exercised by a reasonable prudent person in managing her property.
2. Specific Duties
(1) Duty to diversify
(2) Duty of loyalty to both income and remainder beneficiaries
II. Asset Distributions
1. Pretermitted spouse
2. Pretermitted heirs
3. Intestate share
4. Abatement
5. Distribution