Rest 3d Trusts S 26-50

REST 3d TRUSTS s 26
Restatement (Third) of Trusts § 26 (2003)
Restatement of the Law -- Trusts

Restatement (Third) of Trusts FNa
Current through April 2005
© 2003-2005 by the American Law Institute
Part 2. Creation Of Trusts

Chapter 5. Formalities: Creation Of Inter Vivos Trusts
§ 26. Tentative ("Totten" Or Bank-Account) Trusts
Where a person makes a deposit in an account with a bank or similar

financial institution in the depositor's own name "as trustee" or "in trust"
for another, the presumption is that the depositor intends to establish a
"tentative trust." The depositor may modify or revoke a tentative trust and
may, from time to time, withdraw any or all of the funds on deposit. On the
death of the depositor, the trust is enforceable by the beneficiary as to any
funds then remaining on deposit, unless the depositor has revoked the
trust.
Comment:
a. The depositor's intention. A person may make a savings deposit in a bank,

savings and loan association, credit union, or other similar financial institution in the
depositor's own name "in trust" or "as trustee" for another named person. The
depositor's intention may be to create a trust or not to create a trust. If the former,
the deposit constitutes a declaration of trust, in which the depositor is the trustee
and the claim against the financial institution is the trust property. Even in such a
case of intended trust, however, the intention may be to create a form of revocable
trust or to make a gift by means of an immediate, irrevocable trust. And even this
last interpretation leaves uncertain the duration and terms of the trust and the
extent of the interest given to the person named as beneficiary.
Evidence may be admitted to show which of the various above results was
intended by the depositor. In the absence of sufficient evidence of a depositor's
different intention, the mere fact that the deposit was made in the name of the
depositor "as trustee" or "in trust" for another person, or for other persons,
manifests an intention to create the special type of revocable trust to which the
rules stated in this Section apply. Such a trust is called a "tentative trust" in this
Restatement, and in cases and literature is often called a "savings account" or "bank
account" trust, or a "Totten trust," for the leading case establishing its validity,
Matter of Totten, 179 N.Y. 112, 71 N.E. 748 (1904).
Unlike the usual rule concerning trusts, however, including trusts created by
taking title to corporate stocks or bonds as "trustee" or "in trust" for another (on the
circumstances of presumed revocability or irrevocability more generally, see § 63,
Comment e), mention of a trust or trustee in a savings-account form carries no
inference of irrevocability, but rather the opposite. See Comment c. Furthermore,
the casual, uncertain nature of the tentative trust also justifies the occasional
differences in treatment prescribed for it in cases and in this Section (see Comment
c), as compared to the treatment of revocable living trusts generally, as stated in §
25 and Reporter's Notes thereto.
Although notice to the beneficiary is not essential to the creation of a trust (see
§ 14), the fact that the depositor notified the beneficiary of the deposit is some
evidence of an intention that the trust is to be irrevocable. This is so whether the
notification is given at or before the time of the deposit or subsequently. Delivery of
the account book to the beneficiary is also some evidence that the trust is intended
to be irrevocable, as are statements by the depositor to third persons of an
intention to create an irrevocable trust. Strong evidence of intended irrevocability is
the depositor's filing of a gift-tax return reporting the transfer establishing the
account as a gift. On the other hand, failure to file a gift-tax return is no evidence of
the depositor's intent when the amount deposited is less than the amount of the
gift-tax annual exclusion, and is only slight evidence supporting the inference of
revocability when the deposit exceeds the annual exclusion amount.
Evidence may also be admitted to show that the depositor did not intend to
create a trust at all, either revocable or irrevocable, despite the use of the word
"trust" or "trustee." See § 13, Comment b. Thus, evidence may be admitted to show
a reason why the depositor wished not to have the account reveal his or her
individual ownership.
Evidence that the funds in the account were treated as the depositor's own
property after making the deposit serves to counter evidence or allegation of
irrevocability, but is not evidence at all that would tend to rebut the presumption of
a tentative-trust intention.
Illustrations:
1. D deposits her own funds in a savings account in her name "as trustee" for
her niece, N. Absent other evidence of her intent, D has created a tentative (i.e.,
revocable) trust for herself and N in accordance with the rules of Comments b
through d of this Section.
2. Same facts as in Illustration 1, except that D turns the passbook over to N's
father and tells friends that she has set up a "college fund" for N (referring to the
savings account). This establishes an irrevocable trust for N, not a tentative trust as
defined and described in this Section.
3. GM and GF deposit funds in a savings account in the name of their son, S, "as
trustee" for his daughter, GD. The presumption and rules of this Section are not
applicable.
4. GM and GF write a substantial check payable to S, telling him of their
intention that he place the funds in a savings account to create "a college or
whatever" fund for GD. He does so, opening an account in his own name "as
trustee" for GD. The presumption and rules of this Section do not apply. Thereafter,
on GD's birthdays and at other times, S uses his own funds to make additions to the
trust account. Under the circumstances, these funds are presumed to be held upon
the same irrevocable trust for GD, not as a tentative trust. (As to the terms of the
trust, see § 6, Comment d.)
5. X uses her funds to purchase shares in a stock mutual fund, "as trustee" for
her child, C, checking the form option calling for the dividends to be reinvested--
that is, to be used to purchase additional shares in that fund. Absent other evidence
of X's intent, this type of "trust" arrangement is not of a type that is subject to the
tentative-trust presumption and rules of this Section.
Unlike the stock fund in Illustration 5, deposits in money-market mutual funds
and similar accounts with investment companies, banks, and other financial
institutions are potentially subject to the rule and principles of this Section, although
typical forms used and information supplied in establishing such accounts are likely
to overcome (or prevent) the tentative-trust presumption.
b. Validity of tentative trust. Even though a settlor who creates a tentative trust
reserves complete control over the deposit during life, the disposition is not invalid
as an "illusory" or "testamentary" disposition. To the contrary, it is upheld as a
convenient and permissible method of disposing of money at death. The tentative
trust is an accepted form of will substitute that need not comply with the
requirements of the Statute of Wills and, ordinarily at least (compare Comment d),
will be implemented without involvement in estate administration.
c. Revocation and termination of tentative trust. A tentative trust can properly
be revoked by the depositor at any time during life by a manifestation of intention
to do so. No particular formalities are necessary to manifest that intention.
Thus, the trust is terminated by withdrawal of all the funds or by transferring
them to a different account. If any part of the deposit is withdrawn during the
depositor's lifetime, this operates as a revocation of the trust to the extent of the
withdrawal; and the beneficiary will be entitled only to the amount remaining on
deposit at the death of the depositor. The nature or terms of the account may be
changed by the depositor's direction to the savings institution. In addition, the right
to funds remaining in the account at the depositor's death may be changed by
agreement between the beneficiary and the depositor. (On the validity of an oral
agreement, see § 20, Illustration 3.)
Where there are multiple depositors, or if there are multiple persons designated
as trustees, one of whom is the depositor, it is presumed that there is a right of
survivorship between or among the "trustees" of the trust, which remains a
tentative trust as long as a trustee and a beneficiary survive. The death of the
beneficiary (or of the last survivor of multiple beneficiaries) of a tentative trust prior
to the death of the depositor (or last trustee) terminates the trust, even though the
depositor (or last trustee) later dies without having manifested an intention to
revoke the trust and without having withdrawn the amount on deposit. In such a
case, the personal representative of the depositor (or last trustee), not the personal
representative of the beneficiary, will be entitled to the amount on deposit; and
even an anti-lapse statute that ordinarily applies to other revocable trusts (§ 25,
Comment e(1)) does not apply to tentative trusts. See Reporter's Notes.
In the absence of a statute to the contrary, a tentative trust may be revoked in
whole or in part by the depositor's will, either by express provision or by necessary
implication. The conservator of a depositor who becomes incompetent may, with
such court permission as may be required by law, withdraw some or all of the
tentative-trust funds as necessary for the welfare of the depositor and appropriate
members of his or her family. A successor "trustee" will not be appointed (contrast
§§ 31, 34).
Illustrations:
6. D sets up a tentative-trust account, the filled-in bank form showing B as

beneficiary. Later, a few months before his death, D executes a will expressly
bequeathing one half of the funds on deposit in that account to X. At D's death
(assuming no statute to the contrary), B and X are entitled to share equally in the
account, by reason of D's partial revocation.
7. Same facts (and assumption) as in Illustration 6, except that D's will simply
leaves his entire estate to X. This does not revoke the tentative trust; B is entitled
to the funds in the account at D's death.
8. The same facts (and assumption) as in Illustration 6, except that D has little
property other than his home and the funds on deposit in the tentative-trust
account, and his will leaves the home to X, $50,000 to Y, $50,000 to Z, and the rest
of his estate, "if any," to C Church. D was aware when he made his will that his
"other" property was worth about $20,000, which was also its value when he died.
The trust account had about $75,000 in it when he executed his will and about the
same at his death. Absent any evidence showing a contrary intention of D, the
tentative trust is revoked by implication by D's will.
d. Creditors' rights, family protection, and rules of will construction. The
creditors of a person who establishes a tentative trust can reach the funds on
deposit, as may the personal representative of a deceased depositor if assets
otherwise available in the estate administration are insufficient to pay debts and
funeral, last-illness, and administration expenses.
The tentative trust, like other revocable inter vivos trusts, is subject to
restrictions on testamentary disposition and also to pretermitted-heir and omitted-
spouse protections. On these latter, see § 25, Comment e(1); and on the elective
share of a depositor's surviving spouse and restrictions on dispositions for charitable
purposes, see § 25, Comment d. Statutes revoking will provisions for former
spouses following divorce (§ 25, Comment e(1)) also apply to tentative-trust
beneficiaries, but anti-lapse statutes (§ 25, Comment e(1)) do not. See Comment c.
e. Statutory provisions. Statutes in most states provide protections for financial
institutions that make payments in reliance on the forms in which deposits are
made, such as deposits "as trustee" or "in trust." Also increasingly common are
statutes (many based on the original or amended version of Uniform Probate Code,
Article 6) that make detailed provisions concerning the interpretation of savings
deposits "in trust" or "as trustee" (as a form of "POD account" under the UPC) or
supply details concerning the nature and treatment of tentative trusts and the rights
of depositors and beneficiaries. See Reporter's Notes.
REPORTER'S NOTES ON § 26
This Section and its commentary are generally consistent in coverage and
content with Restatement Second, Trusts § 58.
See generally IA William F. Fratcher, Scott on Trusts §§ 58-58.6 (4th ed. 1987);
and George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 47
(rev. 2d ed. 1984).
Comment a:
This Comment essentially continues and restates the substance of the Second
Restatement's discussion of inferences and evidence concerning the intention of one
who deposits his or her own funds in his or her own name as "trustee" (or "in trust")
for another. It also reflects developments of recent years in "Totten trust"
jurisdictions--that is, in most states--because those developments have generally
been consistent with and often guided by the prior Restatement's description of the
law.
In any event, the continuing difficulties reflected in recent cases in the various
states generally involve questions of fact and interpretation in individual cases
rather than doctrinal issues. See generally discussion in Fratcher, Scott on Trusts,
supra, §§ 58.1 and 58.2; and Cohan, "Pennsylvania Tentative Trusts: Problems and
Problem Areas," U. of Pennsylvania L. Rev. 972 (1962); Note, "Totten Trusts in
Kansas," 9 Kansas L. Rev. 46 (1960); Note, "Savings Account Trusts: A Critical
Examination," 49 Notre Dame Law. 686 (1974); Comment, "Missouri's Totten Trust
Doctrine," 48 Missouri L. Rev. 495 (1983); and Marcus, "Totten Trusts: Pragmatic
Pre-Death Planning or Post- Mortem Plunder?," 69 Temple L. Rev. 861 (1996). See
also statutes and decisions in the Statutory and Reporter's Notes to § 32.4 of
Restatement Second, Property (Donative Transfers). Also, see Rein article excerpts,
infra.
Illustrative of the modest line of cases inferring that an "A as Trustee for B"
savings account creates an irrevocable trust is Underwood v. Bank of Huntsville,
494 So.2d 619 (Ala.1986). Illustrative of cases inferring that the depositor intended
not to create a trust at all is Estate of Hoffman, 175 Ohio St. 363, 195 N.E.2d 106
(1963), noted in 25 Ohio St. L.J. 283.
On the usual presumption that deposits of these types create a freely revocable,
"tentative" trust, as provided in this Section and Comment, see, e.g., in addition to
Matter of Totten (below), Wilder v. Howard, 188 Ga. 426, 4 S.E.2d 199 (1939);
Shatley v. Southwestern Technical College, 75 N.C.App. 343, 330 S.E.2d 827
(1985); Estate of Stokes, 747 P.2d 300 (Okla.1987); Estate of Scanlon, 313 Pa.
424, 169 A. 106 (1933), noted in 82 U. of Pennsylvania L. Rev. 413; Green v.
Green, 559 A.2d 1047 (R.I.1989); Citizens National Bank v. Allen, 575 S.W.2d 654
(Tex.Civ.App.1978); and Tyree v. Ortiz, 127 Vt. 177, 243 A.2d 774 (1968). Also see
Moynihan, "Trusts of Savings Deposits in Massachusetts," 22 Boston U. L. Rev. 271
(1942), and Estate of Stamper, 607 So.2d 1141 (Miss.1992), Mississippi's first
decision specifically recognizing the validity of tentative trusts, as earlier authorized
by Miss. Code Ann. § 81-5-4.
The classic case is Matter of Totten, 179 N.Y. 112, 71 N.E. 748 (1904), 70 L.R.A.
711, stating (Vann, J.):
... [W]hen it became a common practice for persons to make deposits in that
form in order to evade restrictions upon the amount one could deposit in his own
name and for other reasons, the courts ... sought to avoid unjust results by
adapting the law to the customs of the people. A brief review of the cases will show
how the subject has been gradually developed so as to accord with the methods of
the multitude of persons who make deposits in these banks....
It is necessary for us to settle the conflict [in opinions from different appellate
divisions] by laying down such a rule as will best promote the interests of all the
people in the state.... A deposit by one person of his own money in his own name as
trustee for another, standing alone, does not establish an irrevocable trust during
the lifetime of the depositor. It is a tentative trust merely, revocable at will, until
the depositor dies or completes the gift in his lifetime by some unequivocal act or
declaration, such as delivery of the passbook or notice to the beneficiary. In case
the depositor dies before the beneficiary without revocation, or some decisive act or
declaration of disaffirmance, the presumption arises that an absolute trust was
created as to the balance on hand at the death of the depositor. Id. at 120, 125-
126, 71 N.E. at 750, 752.
See history and subsequent development of New York law in Fratcher, Scott on
Trusts, supra, § 58.2.
As stated in the text of this Comment, evidence is admissible to show the actual
intent of the depositor and, if that intention is discovered, it will be given effect.
"The evidence bearing upon the intent of the depositor, aside from the deposit itself,
may be divided into three classes, namely: a) express statements of intent; b) acts
or omissions of the depositor with respect to the deposit or the supposed
beneficiary, aside from express statements; c) the circumstances of the depositor."
George G. Bogert, Trusts § 20 (Hornbook 3rd ed. 1952). See also discussion in
George T. Bogert, Trusts § 20 (Hornbook 6th ed. 1987).
In Rein, "An Ounce of Prevention: Grounds for Upsetting Wills and Will
Substitutes," 20 Gonzaga L. Rev. 1 (1984/85), it is stated (at 8):
Bank accounts provide the most fertile ground for intent litigation.... [T]he rule
of the Uniform Probate Code [§ 6-104(c)(2)] provides that the fund on deposit at
A's death goes to the named surviving beneficiary "unless there is clear evidence of
contrary intent" ... [¶ ] No such proviso regarding intent appears in Uniform Probate
Code Section 6-104(b) which governs payable-on-death (POD) accounts. The official
comment to Section 6-104 gives no explanation for this distinction ... [On current
UPC provisions, see below.] ...
... [C]ourts are generally less cautious about considering extrinsic evidence of
actual intent when will substitute transfers of personalty are involved than they are
when wills are involved. Recognition of the fact that commercial institutions
sometimes impose their own forms which do not always reflect the customer's
actual wishes may partly account for this difference in treatment. Also, the very
cryptic nature of some such forms--which may consist of nothing more than a
notation on a passbook or bank record--may force the courts to consider extrinsic
evidence for want of a better guide to intent. The traditional explanation--that will
substitutes are inter vivos transfers for which less stringent adherence to formality
is needed to protect against abuse--is not persuasive. It is true that the statute of
wills does not govern such cases. However, as with wills, questions concerning the
property owner's intent in will substitute cases almost invariably arise after the lips
of the property owner have been sealed by death. Thus, the necessity of resorting
to testimony (possibly perjured) of a witness who may be interested is just as great
as in the case of wills, and this is precisely the evil the Wills Act formalities were
designed to avoid. Another unsatisfactory explanation sometimes given is that the
courts are more lenient with will substitutes out of sympathy for the poor man who
presumably cannot afford a lawyer to draft a will. This theory ignores the fact that
rich people use will substitutes with at least as much frequency as poor people.
But compare the unusual rule of Manulik v. Devitt, 176 Conn. 663, 410 A.2d 469
(1979), based on a statute specifying that a deposit as trustee for a named
beneficiary creates a conclusive presumption that the funds on deposit at the
depositor's death shall belong to the named beneficiary unless the depositor's
"signed statement" accompanying the deposit "specifies to the contrary."
That the depositor's delivery of the bank book to the beneficiary is an indication
of intention to make the trust irrevocable, see pre-Manulik (supra) case of Fasano v.
Meliso, 146 Conn. 496, 152 A.2d 512 (1959), and, e.g., Estate of Tippins, 487 Pa.
107, 408 A.2d 1377 (1979); and Estate of Sulovich, 66 T.C. 250, 1976 WL 3727
(1976). Also see Totten dictum, above.
That delivery of the book may have other purposes and is not conclusive, see,
e.g., Greeley v. Flynn, 310 Mass. 23, 36 N.E.2d 394 (1941), noted in 30
Georgetown L.J. 104.
On the suggestion of irrevocability from the depositor's act of informing the
beneficiary of the deposit, see, e.g., Kuck v. Raftery, 117 Cal.App. 755, 4 P.2d 552
(1931), noted in 1 U. of Detroit L.J. 93. But that this, too, is not conclusive, see,
e.g., Estate of Ingels, 372 Pa. 171, 92 A.2d 881 (1952), noted in 26 Temple L.Q.
468 and 14 U. of Pittsburgh L. Rev. 627.
On statements to third parties and other evidence of intention, see, e.g., Gross
v. Douglass State Bank, 261 F.Supp. 1002 (D.C.Kan.1965); and Miller v. Miller, 217
Cal.App.2d 538, 31 Cal.Rptr. 618 (1963). See also Estate of Sayre, 443 Pa. 548,
279 A.2d 51 (1971) (where attempt to prove trust irrevocable for tax purposes
failed for insufficiency of evidence).
That evidence may show other intentions and more complicated terms, see,
e.g., Estate of Gorgas, 147 Pa.Super. 319, 24 A.2d 171 (1942).
In Bland v. Branch Banking & Trust Co., 143 N.C.App. 282, 547 S.E.2d 62
(2001), decedent opened a savings account in her own name and about
simultaneously executed a revocable trust agreement with herself as trustee and
her three sons as beneficiaries, only one of whom survived her. For failure to meet
statutory requirements, the arrangement did not create a valid tentative-trust
account (with survivorship rules described in Comment c) but did create a
traditional trust, under which the shares of the two deceased beneficiaries passed to
their estates.
That the tentative-trust inference is not appropriate when the deposited funds
did not belong to the depositor or where the funds had been received by him or her
as trustee, see, e.g., Estate of Brose, 416 Pa. 386, 206 A.2d 301 (1965), and
Downey v. Duquesne City Bank, 146 Pa.Super. 289, 22 A.2d 124 (1941). But
compare First National Bank v. Munns, 602 S.W.2d 910 (Mo.App.1980).
With Illustration 5, compare Berg v. D.D.M., 603 N.W.2d 361 (Minn.App.1999).
Comment b:
That the tentative trust is not "testamentary" or "illusory" and thus is a valid
means of making a disposition taking effect after the depositor's death, see, e.g.,
Matter of Berson, 170 App. Div. 2d 504, 566 N.Y.S.2d 74 (1991); Matter of Halpern,
303 N.Y. 33, 100 N.E.2d 120 (1951) (of particular importance for matters discussed
hereafter in Comment d), noted in 15 Albany L. Rev. 254, 18 Brooklyn L. Rev. 328,
1 Buffalo L. Rev. 40, 2 Columbia L. Rev. 284, 37 Cornell L.Q. 258, 20 Fordham L.
Rev. 105, 25 N.Y.U. L. Rev. 920, 26 St. John's L. Rev. 155, 2 Syracuse L. Rev. 378
and, beyond New York, in 64 Harvard L. Rev. 1367, 50 Michigan L. Rev. 783, and
100 U. of Pennsylvania L. Rev. 608; Estate of Morton, 241 Kan. 698, 769 P.2d 616
(1987) (first-impression decision, reversing court of appeals' decision invalidating as
"testamentary"; Supreme Court points out that Totten trust is comparable to POD
account, which is authorized by Kansas statute); Blanchette v. Blanchette, 362
Mass. 518, 287 N.E.2d 459 (1972) (dictum seeking to remove doubt resulting from
earlier hazy decisions); Estate of Stamper v. Edwards, 607 So.2d 1141 (Miss.1992);
Byrd v. Lanahan, 105 Nev. 707, 783 P.2d 426 (1989); Estate of Adams, 155 Vt.
517, 587 A.2d 958 (1990); and Estate of Madsen, 48 Wash. 2d 675, 296 P.2d 518
(1956), noted in 32 Washington L. Rev. 141. But see Estate of Hoffman, 175 Ohio
St. 363, 195 N.E.2d 106 (1963), noted in 25 Ohio St. L.J. 283 (although may be
based more on finding re intention of depositor); and Fleck v. Baldwin, 141 Tex.
340, 172 S.W.2d 975 (1943), noted in 22 Texas L. Rev. 245.
Among the many supportive statutes, see, e.g., California Probate Code §§ 5302
and 5406; and North Dakota Century Code, §§ 30.1-01-06 and 30.1-31-02 to 30.1-
31-20.
The matter may be only slightly overstated in Bogert & Bogert, supra, § 103,
stating: "While in the earlier development of the subject there was some tendency
to declare that the trust was testamentary, and so void for lack of formality, there is
now universal agreement that the deposit is not a disguised will, since the
beneficiary acquires a present, though defeasible, interest."
Comment c:
Although tentative trusts under the "Totten trust" doctrine are a form of
revocable trust, the rules (see also Comment d) are not necessarily the same as for
other revocable-trust situations. Differences in treatment are often said to be the
result of the special relationships involved, the absence of a fiduciary relationship,
and the special types of needs or purposes that tend to be served by savings-
account trusts. Consequently, for example, revocation of a tentative trust may be
much more informal or casual (infra).
Means of revocation other than by withdrawal are considered in the following
cases: Evinger v. MacDougall, 28 Cal.App.2d 175, 82 P.2d 194 (1938), and First
National Bank v. Munns, 602 S.W.2d 910 (Mo. App. 1980), both finding revocation
by the depositor's pledge of the account; Estate of Chandler, 90 Ill.App.3d 674, 46
Ill.Dec. 46, 413 N.E.2d 486 (1980), and Korton v. Fie, 128 Misc.2d 333, 489
N.Y.S.2d 813 (1985), both recognizing a termination of the original relationship by
change of account beneficiaries; and Terner v. Rand, 417 So.2d 303
(Fla.App.1982), which recognized an instrument of revocation delivered to the
depositor's lawyer, although another Florida case, Beck v. Gross, 499 So.2d 886
(Fla.App.1986), rev. dismissed, 503 So.2d 327 (Fla.1987), found letter to judge
insufficient for revocation. A later Florida case, Vargas v. Vargas, 659 So.2d 1164
(Fla.App.1995), found a Totten trust for depositor's granddaughter revoked by a
letter instructing the bank to transfer "any and all accounts that I have in your
institution" to depositor's son and turning her passbook over to him.
That the tentative trust may be revoked by the depositor's will, see, e.g., Jones
v. First National Bank, 142 Ga.App. 18, 234 S.E.2d 794 (1977); Estate of Scanlon,
313 Pa. 424, 169 A. 106 (1933), noted in 82 U. of Pennsylvania L. Rev. 413; even
by clear implication (as where a testamentary plan would be ineffective without use
of the funds on deposit) in Delaware Trust Co. v. Fitzmaurice, 27 Del.Ch. 101, 31
A.2d 383 (1943); Matter of Murray, 143 Misc. 499, 256 N.Y.S. 815 (1932) (before
current statute), noted in 42 Yale L.J. 141.
But that residuary bequests are, normally at least, insufficient, see, e.g., in
Serpa v. North Ridge Bank, 547 So.2d 199 (Fla.App.1989); Estate of Morton, 241
Kan. 698, 769 P.2d 616 (1987); Estate of Pozzuto, 124 Pa.Super. 93, 188 A. 209
(1936), noted in 85 U. of Pennsylvania L. Rev. 646; Jameson v. Bain, 693 S.W.2d
676 (Tex. App. 1985).
See generally Note, "Revocation of Tentative (Totten) Trust of Savings Bank
Account by Intervivos Declaration or Will," 46 A.L.R.3d 487 (1972).
See also Estate of Krycun, 24 N.Y.2d 710, 713, 301 N.Y.S.2d 970, 972, 249
N.E.2d 753, 754-755 (1969): "In the case at bar, the testatrix had six separate
bank accounts, four of which were in the Totten Trust form and two in her name
alone. [Her] will ... states: 'I give and bequeath any and all funds on deposit to my
credit, in any bank or trust company or similar financial institution'. The majority of
the Appellate Division held that this language, in itself, was 'clear and absolute to
show the intention of the testatrix to revoke any prior trust bank accounts and to
have such proceeds become part of the assets of the estate'. We do not agree.
"... The money on deposit in the trust accounts only comprised a little more than
one third of the total estate, and as indicated earlier the testatrix had two bank
accounts in her name alone. We conclude, therefore, that the language [in the
will] ... is insufficient to overcome the presumption of nonrevocation. In such a case
it is necessary to scrutinize the surrounding circumstances and the will as a whole,
very carefully, in determining the true intention of the testatrix."
Compare Litsey v. First Federal Savings & Loan, 243 So.2d 239, 46 A.L.R.3d 477
(Fla.App.1971).
Among the recent statutes abolishing or limiting the power of a depositor to
revoke by will, see New York Estates, Powers & Trusts Law, § 7-5.2(2); and
California Probate Code, § 5302(e) (derived from UPC § 6-213, infra). Of course, it
is standard doctrine that the survivor's rights in joint bank accounts with right of
survivorship are not defeated by contrary provision in the will of the deceased joint
tenant. E.g., Estate of Kokjohn v. Harrington, 531 N.W.2d 99 (Iowa 1995).
That the depositor's loss of legal capacity does not revoke the tentative trust,
and that his or her conservator may act to do so only if and as necessary for the
personal and family needs of the depositor, see Katz v. Greeninger, 96 Cal.App.2d
245, 215 P.2d 121 (1950); Estate of Peterson, 103 Ill.App.3d 481, 59 Ill.Dec. 247,
431 N.E.2d 748 (1982) (income account usable without exhausting other property);
Estate of Kroyer, 385 N.W.2d 31 (Minn.App.1986) (court order required); Matter of
Reich, 94 Misc.2d 319, 404 N.Y.S.2d 781 (1978); Gorfinkel v. First National Bank,
19 App. Div. 2d 903, 244 N.Y.S.2d 877 (1963) (beneficiary entitled to
reimbursement when account funds used by depositor's committee without court
order); and In re Derr, 83 Pa. D. & C. 603 (1953). See also Note, "Revocation of a
Tentative or Revocable Trust Created by One Who Has Since Become Incompetent,"
138 A.L.R. 1383 (1942).
On termination by death of the beneficiary during depositor's lifetime, so that
the beneficiary's personal representative is not entitled to the funds remaining in
the account on the depositor's death, see Matter of Vaughan, 145 Misc. 332, 260
N.Y.S. 197 (1932), noted in 7 St. John's L. Rev. 348; Estate of Bonness, 13 Wash.
App. 299, 535 P.2d 823 (1975); Fratcher, Scott on Trusts, supra, § 584. Also see
U.P.C., below. But cf. Estate of Capocy, 102 Ill.App.3d 609, 58 Ill.Dec. 880, 430
N.E.2d 1131 (1981) (written terms of trust on back of bank card).
On tentative trusts with multiple beneficiaries, compare statement in text of
Comment c (second paragraph) that the tentative trust terminates on the death of
the last survivor of the beneficiaries, with Matter of Estate of Wozniak, 244 App.
Div. 2d 148, 672 N.Y.S.2d 428 (1998) (Totten trust with two beneficiaries, one of
whom predeceased the depositor; on death of depositor her estate was held entitled
to half of the funds on deposit, with the remaining half belonging to the surviving
beneficiary, because the "statutory presumption" of "a tenancy in common," rather
than a right of survivorship, applied to the beneficiaries of Totten trusts as well as
other co-owners). New York's comprehensive 1975 Totten Trust legislation
"appeared to contemplate the possibility of joint depositors" but not "joint
beneficiaries," according to Welsh, "Estates and Trusts" (Annual Survey of N.Y.
Developments), 50 Syracuse L. Rev. 625, 625-626 (2000), which goes on to note
that, following Wozniak, due to "prompt legislative action [N.Y. EPTL § 7-5.7(a) and
(b)], the entire balance of such accounts will now pass to [the surviving beneficiary
or beneficiaries] through survivorship unless the trust account provides otherwise."
On tentative trusts with two trustees, compare Estate of Fisher, 198 Cal.App.3d
418, 244 Cal.Rptr. 5 (1988) (one depositor), with Bumbaugh v. Burns, 635 S.W.2d
518 (Tenn.App.1982) (co-depositors as co-trustees). Compare Byrd v. Lanahan,
105 Nev. 707, 783 P.2d 426 (Nev. 1989) (giving will-disposition effect to one
spouse's use of community property to create Totten trust with his daughter as
beneficiary). And see Roth, "Successor Trustees of Tentative Trusts: Trust Law
Phantoms," 38 St. Louis U. L.J. 407 (1993/94). Also see U.P.C., below.
Uniform Probate Code (1989 revised version), Article 6, Part 2, begins with § 6-
201, which in Subsection 8 defines "POD designation" to include "the designation
of ... (ii) a beneficiary in an account in the name of one or more parties as trustee
for one or more beneficiaries if the relationship is established by the terms of the
account and there is no subject of the trust other than the sums on deposit in the
account, whether or not payment to the beneficiary is mentioned." Subsection (b) of
§ 6-211 provides that during the lifetime of all "parties" (defined as relevant, for
present purposes, to mean the trustees, not the beneficiaries), an account "belongs
to the parties in proportion to the net contribution of each ... unless there is clear
and convincing evidence of a different intent. As between parties married to each
other, in the absence of proof otherwise, the net contribution of each is presumed to
be an equal amount."
The relevant provisions of Uniform Probate Code § 6-212 are as follows:
(a) Except as otherwise provided in this part, on death of a party, sums on
deposit in a multiple-party account belong to the surviving party or parties. If two
or more parties survive and one is the surviving spouse of the decedent, the
amount to which the decedent, immediately before death, was beneficially entitled
under Section 6-211 belongs to the surviving spouse. If two or more parties survive
and none is the surviving spouse of the decedent, the amount to which the
decedent, immediately before death, was beneficially entitled under Section 6-211
belongs to the surviving parties in equal shares, and augments the portion to which
each survivor, immediately before the decedent's death, was beneficially entitled
under Section 6-211, and the right of survivorship continues between the surviving
parties.
(b) In an account with a POD designation [which includes Totten trusts]:
(1) On death of one of two or more parties, the rights in sums on deposit are
governed by subsection (a).
(2) On death of the sole party or the last survivor of two or more parties, sums
on deposit belong to the surviving beneficiary or beneficiaries. If two or more
beneficiaries survive, sums on deposit belong to them in equal and undivided
shares, and there is no right of survivorship in the event of death of a beneficiary
thereafter. If no beneficiary survives, the sums on deposit belong to the estate of
the last surviving party [i.e., not the estate of a beneficiary].
(c) ...
(d) ...
Under U.P.C. § 6-213, the character of an account "may be altered by written
notice given by a party to the financial institution" and "a right of survivorship
arising from the express terms of the account, ... or a POD designation [thus a
tentative trust] may not be altered by will."
According to § 6-214, a POD account "is not testamentary or subject to" estate
administration, except as provided with respect to the elective share of a surviving
spouse (on which see generally Comment d, below).
On the rights of creditors (also see generally Reporter's Note to Comment d
below), U.P.C. § 6-215 provides that, if "other assets of the estate are insufficient,"
the tentative-trust account can be reached by the personal representative "of a
deceased party to the extent needed to pay claims against the estate and statutory
allowances to the surviving spouse and children," adding that a "surviving party or
beneficiary who receives payment from an account after the death of a party is
liable to account to the personal representative of the decedent for a proportionate
share of the amount received to which the decedent, immediately before death, was
beneficially entitled under Section 6-211, to the extent necessary to discharge the
claims and allowances" just described.
Under § 6-216, a "deposit of community property in an account does not alter
the community character of the property or community rights in the property, but a
right of survivorship between the parties married to each other arising from the
express terms of the account or Section 6-212 may not be altered by will."
On conservatorship situations, compare (under UPC) In re Conservatorship of
Gobernatz, 603 N.W.2d 357 (Minn.App.1999) (certificate of deposit in joint names
of conservatee and another).
Comments d and e:
The introductory observations and the Uniform Probate Code material in the
preceding Reporter's Note to Comment c are relevant to these Comments.
On potentially relevant matters of construction, see U.P.C. § 2-706. Compare
California Probate Code §§ 21101-21118.
The rules stated here concerning the elective share of a surviving spouse of a
depositor and the rights of the depositor's creditors, are consistent with the rules
stated for revocable living trusts generally in § 25, Comments d and e. Those
Comments in § 25, however, differed from their counterparts in the Second
Restatement; but the prior Restatement treated the tentative trust differently than
revocable trusts generally and provided the same treatment for surviving spouses
and creditors in tentative-trust situations as are provided in this Restatement.
Accordingly, these aspects of this § 26 are consistent with the rules stated in
Comments d and e of Restatement Second, Trusts § 58.
For situations of multiple trustees of tentative trusts, see Uniform Probate Code
§ 6-215, quoted in part near the end of the Reporter's Note to Comment c above.
The positions stated here on the elective-share rights of a depositor's surviving
spouse and on the rights of creditors of a depositor or his or her estate, including
funeral and administration expenses, are generally consistent with the existing
weight of case and statutory law. See generally Bogert & Bogert, supra, § 47 (pages
10-16) and Fratcher, Scott on Trusts, supra, § 58.5. But see the much noted
opinion in Matter of Halpern, 303 N.Y. 33, 100 N.E.2d 120 (1951) (noted in many
law reviews, which are cited above in the Reporter's Note to Comment b), in which
studied dictum (because the adversely affected beneficiary did not appeal) asserted
that the tentative trust could be used to place funds beyond the reach of the
surviving spouse who asserts an elective share. In any event, Halpern no longer
represents the state of the law in New York because of New York Estates, Powers &
Trust Law § 5-1.1 (the predecessor of which was enacted in 1965), applicable if the
trust was established during the marriage. But note De Werthein v. Gotlib, 188 App.
Div. 2d 108, 594 N.Y.S.2d 230, appeal denied, 81 N.Y.2d 711, 600 N.Y.S.2d 442,
616 N.E.2d 1104 (1993) (elective share not applicable to Totten trusts established
before marriage). Halpern, however, was not unique in the case law--nor is
statutory change following such decisions.
On creditors' rights, see Soto v. First Gibraltar Bank, 868 S.W.2d 400
(Tex.App.1993), finding a bank account showing depositor's daughter as beneficiary
was a tentative (Totten) trust, and allowing the bank as a creditor of the
depositor/settlor/trustee to reach account funds in satisfaction of its claim, despite
general Texas authorities limiting offsets by banks in other than tentative-trust
contexts.
On other matters mentioned in Comment d, case law involving tentative trusts is
virtually nonexistent. See, however, the Reporter's Notes on analogous § 25.
Research References
1. Digest System Key Numbers
West's Key No. Digests, Trusts 34, 59(1).
2. A.L.R. Annotations
Revocation of tentative ("Totten") trust by pledging or otherwise employing account as
collateral or security. 10 A.L.R.4th 1229.
Inclusion of funds in savings bank trust (Totten Trust) in determining surviving spouse's
interest in decedent's estate. 64 A.L.R.3d 187.
Death of beneficiary as terminating or revoking trust of savings bank account over
which settlor retains right of withdrawal or revocation. 64 A.L.R.3d 221.
Revocation of tentative ("Totten") trust of savings bank account by inter vivos
declaration or will. 46 A.L.R.3d 487.
Manner and sufficiency of revocation of tentative ("Totten") trust of savings bank
account. 38 A.L.R.2d 1243.
Revocation of a tentative or revocable trust by one who has since become incompetent.
138 A.L.R. 1383.
FNa References to sections beyond § 69 (or beyond chapter 13) are to sections that
are not yet adopted but can be found beginning with Tentative Draft No. 4 of
Restatement of Trusts 3d.
(2003)
REST 3d TRUSTS § 26
(C)
REST 3d TRUSTS s 27

Part 3. Elements Of Trusts

Chapter 6. Trust Purposes
§ 27. Purposes For Which A Trust Can Be Created
(1) Subject to the rules of § 29, a trust may be created for charitable
purposes (see § 28) or for private purposes, or for a combination of
charitable and private purposes.
(2) Subject to the special rules of §§ 46(2) and 47, a private trust, its
terms, and its administration must be for the benefit of its beneficiaries,
who must be identified or ascertainable as provided in § 44. (On charitable
trusts, see § 28.)
Comment on Subsection (1):
a. Charitable and private purposes. Except as provided in §§ 46(2) and 47 (on

certain trust provisions for "indefinite beneficiaries" and "noncharitable purposes,"
respectively), permissible purposes of trusts that are the subject of this
Restatement are confined to those that are charitable ("charitable trusts") and those
that are for the benefit of persons who are definite or will be ascertainable in
compliance with rules regulating perpetuities ("private trusts"). Furthermore, trust
purposes and provisions must not be unlawful or contrary to public policy (§ 29).
Trusts may have mixed charitable and private purposes. Thus, for example, a
trust may be created to provide concurrent benefits for both charitable and private
purposes, either by fixed portions or discretionary distributions. More frequently, so-
called "split-interest" trusts are created to benefit the settlor or family members for
term or life periods and thereafter to benefit charity, or vice versa. See further § 28,
Comment e. The use and details of these mixed arrangements are likely to be
dominated by tax objectives and requirements, which are not within the scope of
this Restatement.
The subject of charitable trusts and purposes is specifically addressed in the
next Section (§ 28), and the principles for determining whether a purpose qualifies
as a charitable purpose are discussed in that Section. (Trust-law definitions of
charity may differ from those used in federal, state, and local tax law.) Some
purposes that a reasonable individual might believe worthwhile may fall short of the
standard of charity for which a charitable trust may be established. On such cases,
see § 47.
Often the purposes of private trusts are not specified but must be inferred from
the interests conferred on the various beneficiaries, whose identities and interests
are subject to the requirements of definiteness discussed in Chapter 9 (especially §§
44 through 47).
On the possibility of treating intended trusts that are not capricious (see § 29,
Comment h, and § 47, Comment e), but are neither charitable nor entirely private,
as powers under adapted trusts (sometimes called "honorary trusts"), see § 47,
Comments c and d.
b. Private trusts. The general purpose of a private trust is to benefit identified or

identifiable beneficiaries (see §§ 44-46) in accordance with their respective interests
in the trust. Within this general private purpose, a given trust may and most likely
will serve multiple objectives or purposes (see b(1) below).
The settlor of a particular trust has considerable latitude in specifying the
manner in which a trust purpose is to be pursued. In order to be valid, however,
administrative and other provisions must reasonably relate to a trust purpose and
must not have the effect of diverting the trust's funds or administration from that
purpose in support of a purpose that does not meet the private- or charitable-
purpose requirement of Subsection (1), as qualified by § 47 (on general and specific
noncharitable "purpose" trusts).
Also, on the trustee's duty of loyalty, and to administer in a manner consistent
with the trust purposes, see § 78 and also § 87.
b(1). Uses of private trusts. It is not possible to enumerate all of the diverse
reasons that motivate settlors to create private trusts for themselves or for others.
See Reporter's Note to Comment a. Common motivations, however, range from the
avoidance of probate, to providing property management for those who cannot,
ought not, or wish not to manage for themselves, to providing for limited and
successive enjoyment of property over several generations, and including as well
such objectives as the saving of taxes and the insulation of trust property from the
claims of beneficiaries' creditors.
This Section replaces Restatement Second, Trusts § 59 (Purposes for Which a

Trust Can Be Created), the black letter of which, somewhat less precisely, stated:
"A trust can be created for any purpose which is not illegal." (Cf. opening sentence
of Introductory Note to this Chapter 6.)
Statutory restrictions on trust purposes are discussed in IA William F. Fratcher,
Scott on Trusts (4th ed. 1987) § 59.1.
Under Uniform Trust Code § 404, a trust must have "purposes [that] are lawful,
not contrary to public policy, and possible to achieve"; and a "trust and its terms
must be for the benefit of its beneficiaries."
Comment a:
"... Trusts are used today not only in the transmission of family wealth, where
trustees are often individuals or local banks or branches of large banks, but also in
the management of charitable institutions, pension funds, mutual funds, and asset
securitization, where trustees are normally large banks or financial institutions."
Merrill & Smith, "The Property/Contract Interface," 101 Columbia L. Rev. 773, 844
(2001). For a comprehensive discussion of some of the other purposes and uses of
the trust device, see J. Langbein, "The Secret Life of the Trust: The Trust as an
Instrument of Commerce," 107 Yale L. J. 165 (1997).
George T. Bogert, Trusts (Hornbook, 6th ed. 1987) § 45 states: "With respect to
the purposes for which trusts may be created there are two large classes. A trust
may be private in its purpose, having as its beneficiaries certain identified or
identifiable persons who are to receive financial advantages from it.... Or a trust
may have as its purpose the accomplishment of advantages to society. Such a trust
is called a public or charitable trust."
IA William F. Fratcher, Scott on Trusts (4th ed. 1987) § 59 observes that the
trust "can, within limits, be employed for such purposes and subject to such
provisions as the settlor may choose. It is sometimes said ... that the intention of
the settlor is the law of the trust. This is not, of course, literally true, since the
purposes of the trust or some of its provisions may be illegal." The term "illegal" is
used in the Scott treatise, as in the Restatement Second of Trusts (§ 59), to include
purposes that are "against public policy."
Compare A. Sykas, "Waste Not, Want Not: Can the Public Policy Doctrine
Prohibit the Destruction of Property by Testamentary Direction?," 25 Vermont L.
Rev. 911 (2001).
Comment b of § 59 of the Restatement Second of Trusts stated that the
"reasons which the settlor may have" for creating a trust "are, of course, incapable
of exact classification. The most usual reason is his desire to separate the
management and control of property from its beneficial enjoyment, and his desire to
create successive interests in the same subject matter." The Comment then added:
"A trust may be created for the purpose of carrying on business, or as a security
device, but such trusts involve special considerations which are not within the scope
of the Restatement of this Subject."
Comment b:
The Bogert, Trusts hornbook, supra, § 45 observes, rather like the language of
Subsection (2) of this § 27, that a "private trust is for the financial benefit of
identified or identifiable persons." Id. § 47, in addressing the purposes of private
trusts, recognizes that the settlor may provide for the beneficiaries in any manner
"which does not contravene the common law or some federal or state statute or
public policy."
In Estate of Coleman, 456 Pa. 163, 317 A.2d 631 (1974), the court disregarded,
as not reasonably related to a trust purpose, a requirement that spouses of trustees
must be Protestants. Cf. Will of Pace, 93 Misc.2d 969, 400 N.Y.S.2d 488 (Sur. Ct.
1977).
Principles such as those in this Comment also have been applied, albeit under
the guise of equitable deviation (see § 66), in In re Pinkerton, 165 Misc.2d 866, 630
N.Y.S.2d 481 (Sur. Ct. 1995) (with no showing that trust purposes were
jeopardized, as would normally be required for equitable deviation, the court
nevertheless--as suggested here--rejected a trusteeship requirement that was no
longer reasonably related to a trust purpose or to the beneficiaries' interests).
Critics of Matter of Pulitzer, 139 Misc. 575, 249 N.Y.S. 87 (Sur. Ct. 1931), aff'd
mem., 237 App. Div. 808, 260 N.Y.S. 975 (1932) (involving The World newspaper
and the stock of the Press Publishing Co. of St. Louis), have suggested that the
holding could more candidly have been explained by recognizing that the settlor's
direction in question was clearly not beneficial to the beneficiaries and served no
proper trust purpose, private or charitable. (But, on the possibility of an allowable
purpose, compare § 47(2), infra.) In this classic case the court, under the doctrine
of equitable deviation (see § 66, infra), authorized the trustees to dispose of the
assets of the Press Publishing Co. despite an express contrary direction from the
settlor, based on the court's dubious finding that a "man of his sagacity and
business ability could not have intended that, from mere vanity, the publication of
the newspaper ... should be persisted in until the entire [newspaper] trust asset
was destroyed or wrecked by bankruptcy or dissolution."
Still another case of relevance here, although often cited as a classic "equitable
deviation" case (again, dubious in rationale for equitable deviation, there being no
showing that trust purposes were at risk of failure, but appropriate--and better
explained--as an application of the principles of the present Comment), is Colonial
Trust Co. v. Brown, 105 Conn. 261, 135 A. 555 (1926). In this case, the will
restricted the height of buildings on two parcels of trust land to three stories and
limited all leases to periods of one year. The court observed that "directions and
restrictions which a testator may impose upon the management of [trust]
property ... are obligatory upon the trustee unless they are uncertain, unlawful or
opposed to public policy" but noted that in this case the only "purpose which can
reasonably be attributed to [the testator] is to compel the trustee to follow his own
peculiar ideas as to the proper and advantageous way to manage such properties"
and that the restrictions were "opposed to the interests of the beneficiaries" and
"imprudent and unwise." Id. at 285, 135 A. at 564. After noting that the conditions
also threatened adverse effects on "the proper growth and development of the parts
of the city in which the lands in question are situated," the court concluded that the
"restrictions militate too strongly against the interests of the beneficiaries and the
public welfare to be sustained, ... and we hold them invalid as against public policy."
Id. at 286, 135 A. at 564.
See also Thompson's Trustees v. Davidson, [1947] S.C. (Scotland) 654, 657-
658 (unanimous decision by Lord President Cooper): "Even if the [investment]
direction were conceived in the most imperative terms, I do not think that such a
direction in relation to Stock Exchange securities could ever absolutely relieve a
body of trustees from their basic duty to preserve the trust estate for the benefit of
the beneficiaries.... I do not think that it is legitimate for any [settlor] to invoke our
law of trusts and to confide an estate to the custody and control of a body of
trustees and at the same time attempt to prohibit these trustees from exercising the
most characteristic function which falls to be discharged by every trustee,--the
preservation of the trust estate."
Further, on the possible invalidity of investment or management provisions that
conflict with the interests of the beneficiaries, see J. Langbein, "The Uniform
Prudent Investor Act and the Future of Trust Investing," 81 Iowa L. Rev. 641, 663-
665 (1996) (discussing a variation on the facts of the Pulitzer case, supra, and also
discussing a hypothetical situation involving an "objectively" imprudent direction to
retain an undiversified portfolio with no trust purpose or special beneficiary interest
to justify it). Compare Uniform Trust Code § 412(b) (allowing, even without
changed circumstances, modification of administrative provisions that are "wasteful
or impair the trust's administration") and George T. Bogert, Trusts § 146 (hornbook,
6th ed. 1987) (modification " ... due to the unwisdom of the settlor's directions ...
which he thought would be helpful but [proved] an obstacle" to sound
administration of the trust). Further, on provisions that tend to undermine sound
administration of a trust, cf. California Probate Code § 21305(b) (reading, as
amended 2000, "Notwithstanding anything to the contrary in any instrument, the
following proceedings shall not violate a no contest clause as a matter of public
policy: ... (6) A petition challenging the exercise of a fiduciary power. (7) A petition
objecting to the appointment of a fiduciary or seeking the removal of a fiduciary. (8)
Objections or other responsive pleading to an accounting of a fiduciary.").
On the possibility, however, that administrative provisions that are nonoptimal
from the beneficiaries' perspective may be upheld on the ground that they reflect a
settlor's reasonable and widely (even if not generally) held view of business ethics,
social responsibility, or morality, compare § 29, Comment m, and also Principles of
Corporate Governance: Analysis and Recommendations § 2.01, Comment h
(paragraphing disregarded):
Certainly, a long-run profit motive may often explain conduct that appears to be
based on ethical grounds.... Nevertheless, ... corporate decisions are not
infrequently made on the basis of ethical considerations even when doing so would
not enhance corporate profit or shareholder gain.... This does not mean ... any
ethical consideration, no matter how idiosyncratic.... [T]hey will act properly ... only
where those considerations are reasonably regarded as appropriate to the
responsible conduct of business ... [even] emerging ethical principles ... that have
significant support although less-than-universal acceptance.
Compare Booth, "Stockholders, Stakeholders, and Bagholders (or How Investor
Diversification Affects Fiduciary Duty)," 52 The Business Lawyer 429 (1998), on the
"most basic question in corporation law"--i.e., "To whom does management owe its
fiduciary duty and what does that duty entail?"
Also compare B. Longstreth, "Warren E. Buffett on Corporate Constituency Laws
and Other Newfangled Ideas: An Imaginary Conversation," 19 Cardozo L. Rev. 363,
367-373 (1997), exploring the scope of fiduciary duty under corporate-constituency
laws then adopted in over half of the states.
Anti-contest and exculpatory clauses. On policy preferences and limits on the
use of anti-contest clauses and exculpatory clauses (curtailing the risks that such
clauses may jeopardize sound administration or undermine proper purposes of
trusts), see § 29, Comment m, and particularly the Reporter's Note thereto. See
also § 96.
Research References
West's Key No. Digests, Charities 9; Trusts 1, 11.
What constitutes contest or attempt to defeat will within provision thereof forfeiting
share of contesting beneficiary. 3 A.L.R.5th 590.
Validity and enforceability of provision of will or trust instrument for forfeiture or
reduction of share of contesting beneficiary. 23 A.L.R.4th 369.
Power of bank or trust company to create trust out of its securities and sell participation
certificates therein. 97 A.L.R. 1182
(2003)
(C)
REST 3d TRUSTS s 28


§ 28. Charitable Purposes
Link to Case Citations
Charitable trust purposes include:

(a) the relief of poverty;
(b) the advancement of knowledge or education;
(c) the advancement of religion;
(d) the promotion of health;
(e) governmental or municipal purposes; and
(f) other purposes that are beneficial to the community.
General Comment:
a. The general nature of charitable trusts and purposes. The general scope of
charitable purposes in England was indicated over four centuries ago in the
preamble to the Statute of Charitable Uses, 43 Eliz. I, c. 4 (1601). The listing there
was similar in substance to that set forth above in this Section, although differing in
style, language, and detail.
The validity of charitable trusts in the United States is not dependent upon the
adoption of a statute to that effect or upon the reception of the English Statute of
Charitable Uses as part of the law of the particular state.
The discussion in this Section of dispositions that are charitable does not
necessarily provide a complete enumeration of charitable purposes. Other purposes
of the same general character are likewise charitable. The common element of
charitable purposes is that they are designed to accomplish objects that are
beneficial to the community--i.e., to the public or indefinite members thereof--
without also serving what amount to private trust purposes (see a(1) of this
Comment). As long as the purposes to which the property of the trust is to be
devoted are charitable, however, the motives of the settlor in creating the trust are
immaterial.
A trust purpose is charitable if its accomplishment is of such social interest or
benefit to the community as to justify permitting the property to be devoted to the
purpose in perpetuity and to justify the various other special privileges that are
typically allowed to charitable trusts.
There is no fixed standard to determine what purposes are of such interest to
the community, for the interests of the community vary with time and place. Trust-
law definitions of charity are not limited by those used in federal, state, and local
tax law; nor are tax-law definitions necessarily limited to charitable purposes
recognized by the trust law. Of the generally agreed purposes stated in this Section,
it is Clause (f) (Comment l) that provides the greatest flexibility and also presents
the most definitional issues at the margin.
A charitable trust can be created for one or more charitable purposes and thus
may fit within more than one of the purposes as stated in this Section. For example,
a trust to establish a scholarship for poor children is a trust for the relief of poverty
as well as for the advancement of education.
Charitable trusts are favored not only in regard to the rules to which they are
subject (see, e.g., Comments c and d, as well as the Reporter's Note to this
Comment) but also in matters of interpretation. Thus, courts prefer to find that a
purpose is limited to charity and qualifies as a charitable purpose when uncertain
language is susceptible of a broader, not strictly charitable interpretation.
Accordingly, a trust for "charitable and benevolent purposes," or even for
"charitable or benevolent purposes," would likely be interpreted as intended to
include only charitable purposes; if the term "benevolent" is given its broader
meaning, however, the trust is not charitable. In the latter case, however, see § 47.
A trust need not designate a specific charitable purpose or a method of
accomplishing such a purpose in order to be charitable. Thus, a trust "for such
charitable purpose or purposes as my trustee shall select," or "as T or her successor
trustee may from time to time select," is charitable. So also is a trust simply "for
charitable purposes" or even a devise simply to "Charity," for which the intention to
create a charitable trust will be implied, with the trustee to have power and a duty
to select one or more charitable purposes. In either of the latter cases, when a
trustee is not named one will be appointed by the court, for a trust created in such
terms will not fail for want of a trustee (see § 31).
An outright devisee or donation to a nonproprietary hospital or university or
other charitable institution, expressly or impliedly to be used for its general
purposes, is charitable but does not create a trust as that term is used in this
Restatement. A disposition to such an institution for a specific purpose, however,
such as to support medical research, perhaps on a particular disease, or to establish
a scholarship fund in a certain field of study, creates a charitable trust of which the
institution is the trustee for purposes of the terminology and rules of this
Restatement.
a(1). Public not private benefit. It does not matter in the latter case that, for
example, only one student or two may receive a scholarship from the fund as long
as the potential class of recipients will be drawn from an indefinite group (see
Reporter's Notes) rather than from a group so narrowly defined (e.g., the settlor's
descendants or relatives) as to make the trust a private trust (see further Comment
f, last paragraph).
The fact that a medical facility, school, home for the poor, or similar institution,
whether public or private, charges a fee for its services or for the use of its facilities
does not prevent the institution from being charitable, or a trust to support its
programs from being a charitable trust, as long as the institution is not proprietary--
i.e., does not seek to make a profit to benefit its shareholders or otherwise to serve
a noncharitable purpose. (But, on the possibility of a charitable trust with a
proprietary institution as trustee, see Reporter's Notes).
a(2). Controversial ideas and unpopular causes. If the general purposes for
which a trust is created are such that they may be reasonably thought to promote
the social interest of the community, the mere fact that a majority of the people or
of the members of a court believe that the particular purpose of the settlor is
unwise or not well adapted to its social objective does not prevent the trust from
being charitable. Thus, a trust to promote a particular religious doctrine or a
particular system of taxation is charitable even though the view to be promoted has
but a modest number of adherents. The role of the court in deciding whether a
purpose is charitable is not to attempt to decide which of conflicting views of the
social or community interest is more beneficial or appropriate but to decide whether
the trust purpose or the view to be promoted is sufficiently useful or reasonable to
be of such benefit or interest to the community, including through a marketplace of
ideas, as to justify the perpetual existence and other privileges of a charitable trust.
Thus, a trust to establish a museum to exhibit what a testator regarded as objects
of art but which testimony establishes to be of no artistic value, or a trust to publish
and distribute a testator's views that are irrational or other writings that are of no
literary or educational value, is not charitable. The line between what is charitable
and what is not is sometimes a difficult one to draw, for the difference may be one
of degree and the line may be drawn differently at different times and in different
places. For trusts that do not qualify as either private or charitable trusts, see the
limited duration and acceptance of "trusts for noncharitable purposes" in § 47.
On trust purposes that were initially charitable but cease to be of interest to the
public or otherwise to have the social utility necessary to be charitable, see § 67 on
the doctrine of cy pres, especially id., Comment c.
b. Restrictions on creation of charitable trusts. Except as otherwise provided by
statute, there are no restrictions on the right of property owners to create charitable
trusts that are not equally applicable to the creation of private trusts. See
Reporter's Notes.
Statutes restricting, by amount or timing, the creation of charitable trusts apply
to secret or semi-secret trusts (§ 18) for charitable purposes and to attempted
testamentary additions (see § 19) to existing charitable trusts. If reasonably
possible, a statute of this type should be construed as applicable, or its policy
applied by analogy, to revocable living trusts (see § 25(2)).
c. Indefinite beneficiaries. A charitable trust can be created although it has no
definite or definitely ascertainable beneficiary. (Contrast §§ 44-46 on the
beneficiary requirement of private trusts.)
Charitable trusts are ordinarily enforceable upon suit by the Attorney General, as
representative of the community, although there may also be beneficiaries with a
special interest in the trust who can maintain a suit to enforce it. See Chapter 17.
d. Duration of charitable trusts. A charitable trust is not invalid although by its
terms it is to continue for an indefinite or unlimited period of time. This is unlike the
rules for private trusts, in which the interests of the beneficiaries must vest within
the period of the applicable rule against perpetuities, and under which a provision
that a private trust shall be indestructible (i. e., is not to be terminated even upon
the consent of all beneficiaries) beyond the period of the rule is invalid. See § 29(b)
and § 29, Comments g and h.
Charitable trusts may be of unlimited duration, although dispositions over to
charitable purposes following private trusts are subject to the rule against
perpetuities, as are dispositions over to private purposes upon termination of
charitable trusts. On the other hand, even after the perpetuities period would have
expired, a shift over from one charitable purpose or trust to another is permissible
because, it is often said, the property is "vested in charity." See § 29, Comment g.
Also see id., Comment h and (on accumulations) Comment h(2).
e. Trusts with mixed charitable and other purposes. A trust is not invalid,
although it might not be a charitable trust, merely because it includes private trust
interests (§ 27(2)) or a "noncharitable purpose" (§ 47) as well as the designated
charitable purpose.
If the charitable and other purposes are distinctly divided either by time or into
separate and independent shares, the period or share devoted to charity will be
treated as a charitable trust just as if separate trusts had been created for the
different purposes. Where there is no such separation by time or by independent
shares, the trust is valid, but such a mixed charitable and private trust is subject to
the rule against perpetuities as a private trust; and if the trust similarly combines
charitable purposes with a noncharitable purpose, the trust is subject to the rules
and limitations of noncharitable-purpose trusts under § 47.
Illustrations:
1. S created an irrevocable trust under which the trustee is to pay $2000 a

month to S's husband H for as long as he lives, and upon H's death is to hold and
administer the trust estate and to distribute its income in perpetuity one-half to C
Charity and the other half to such educational institutions or for such educational
purposes as the trustee may from time to time select. This is not only a valid trust
but the provisions for the charitable purposes constitute a valid charitable trust; as
such, the trust not only is allowed unlimited duration but is also allowed to have its
benefits shift from one charitable beneficiary or purpose to another beyond lives in
being and 21 years.
2. S devised property to T in trust to pay one-half of the income forever to C
Charity, with the other one-half to be applied as reasonably appropriate to the
support and care of my dog D and my cat K and the rest of that income share "to
my brother B or his issue living from time to time; upon the death of the survivor of
B, K, and D, but in no event later than 21 years after the death of B, the one-half
principal share from which the pets and B (or his issue) had been receiving the
income shall be distributed to B's then living issue." Again, not only is the trust valid
(see, in addition to § 29(b) on perpetuities, §§ 45 and 46(2) on the private-trust
beneficiary requirement and § 47 on honorary trusts), but the independent share
that is dedicated to charity will be treated as, and eventually will become, a
separate charitable trust.
3. S created a trust by which T is authorized to distribute "such amounts of
income or principal or both to or among any one or more of C Church, U University,
H Hospital, and S's daughter D and her issue and in such shares as T shall
determine in its sole discretion." Upon D's death, T is to distribute the trust property
20 percent to C Church, 20 percent to U University, 20 percent to H Hospital, and
the rest by right of representation among D's then living issue. This is not a
charitable trust (even though it has some charitable beneficiaries and ingredients,
so that, for example, § 67 on cy pres could be applied if necessity requires). It is,
however, valid as a private trust because all of the interests, both private and
charitable, will vest comfortably within the period allowed by the rule against
perpetuities-- that is, all interests will vest upon D's death.
f. Consistency with law and public policy. Like other trusts, charitable trusts are
subject to the rule of § 29 that trust purposes and provisions must not be unlawful
or contrary to public policy.
It is particularly common, however, for provisions to be included in various types
of charitable trusts, especially those created for educational or health purposes or
for the relief of poverty, limiting the direct benefits or eligibility to persons of a
particular national origin, religion, gender, sexual orientation, age group, political
affiliation, or other characteristics or background. Of course, federal and state
constitutions, legislation, and other binding expressions of applicable law and policy
are to be respected in the administration of trusts and in determining the
enforceability of the terms of trusts. These matters, and such implicit issues as what
may constitute state action, are beyond the scope of this Restatement. The issue for
present purposes, however, remains what provisions of this general type may, as a
matter of trust law and policy, be inconsistent with the nature of charitable
purposes.
Provisions of these types in charitable trusts are not valid if they involve
invidious discrimination (see below). Where a restriction or preference is invalid, or
the particular charitable disposition cannot be carried out because the intended
recipient refuses to accept it due to a restrictive provision or preference the
intended recipient deems objectionable, an issue arises concerning the application
of the doctrine of cy pres. See § 67. Unless the terms of the trust manifest a valid
contrary intention, the doctrine will be applied to remove a provision that is unlawful
or contrary to public policy. Where an intended recipient objects to a provision that
is not invalid, the doctrine would ordinarily be applied either by removing that
provision or by substituting a different recipient, in accordance with principles
described in § 67, Comment d, for closely approximating probable settlor intention.
It is not always possible to state with certainty what constitutes an "invidious"
form of discrimination for these purposes. What the law of charitable trusts does or
does not allow inevitably varies from time to time and place to place, as well as
from context to context. For example, trust-law policies regarding restrictions on
gender, sexual orientation, or age are especially sensitive to context, as the scope
of more general statutory and constitutional protections evolve in these matters.
(Cf. Reporter's Notes; and on the variability of public-policy concepts more
generally, cf. § 29, Reporter's "General Notes on Clause (c) and Comments i
through i(2)" and § 29, Reporter's Notes to Comments j-m.) Some generalizations
are nevertheless possible.
When a scholarship or other form of assistance or opportunity is to be awarded
on a basis that, for example, explicitly excludes potential beneficiaries on the basis
of membership in a particular racial, ethnic, or religious group, the restriction is
ordinarily invidious and therefore unenforceable. Thus, a trust to provide land and
maintenance for a playground from which Black children are excluded, or a trust to
support a scholarship program for which no Roman Catholic may apply, is not
enforceable under those terms as a charitable trust. Similarly, although the
exclusions are not explicit, a trust to provide research grants for which only "white,
Anglo-Saxon Protestants" may apply is invidious and noncharitable.
This does not mean that a criterion such as gender, religion, or national origin
may not be used in a charitable trust when it is a reasonable element of a settlor's
charitable purpose and charitable motivation. Thus, the requirement that the
purpose be of charitable character does not prevent alumnae or friends of a
women's college from endowing a professorial chair or library fund for that college,
or a Jewish man from leaving money to a university to establish a scholarship
program, in the betterment of his religion as he sees it, to enable a rabbi or two
each year to study in that university's philosophy department. Nor does it mean
that a Norwegian immigrant who became wealthy in this country cannot establish a
program of an otherwise charitable nature to aid, solely or by preference, other
Norwegian immigrants or the children of Norwegian immigrants. Similarly, the law
of charitable trusts as such does not object to what is sometimes called "affirmative
action," attempting to respond to a social problem in its own terms, at least as
reasonably perceived by a substantial (even if not majority) segment of society or
of the affected community.
A trust may be charitable if its purpose is, for example, to relieve poverty or
health problems among: persons over or under a certain age; members of a
particular labor union, fraternal organization, or church parish to which the settlor
belonged; or persons who are or have been engaged in, or the surviving spouses
and orphaned children of persons who had engaged in, a particular profession or
trade, such as writers, actors, teachers, or employees of a particular business.
Thus, a trust with one or more of the purposes stated in Clauses (a) through (f)
of this Section may be a charitable trust despite limitations of types described in the
two preceding paragraphs. The class of potential beneficiaries, however, may not be
so narrowly defined as to benefit only named individuals or a class of friends,
descendants, or other relatives of the settlor. The private character of a trust with
potential beneficiaries so narrowly defined prevents it from being a charitable trust,
even though it is concerned, for example, with education or health care. See more
generally Comment a. Such a trust may nevertheless be upheld as a private trust
(see §§ 43-46) and may be enforced within the rules and limitations (e.g., § 29(b))
applicable to private trusts.
Comment on Clause (a):
g. Relief of poverty. A trust for the relief of poverty is charitable. To assist the
poor is a charitable purpose whether the method of assistance provided by the
terms of the trust is by the distribution of money or goods among the needy, by
leasing the land or making loans to them at a low rent or at low or no interest, by
assisting them to secure employment, by providing soup kitchens, or by
establishing a home or other facility to meet their needs, or if the settlor provides
that the means of assistance is within the discretion of the trustee.
A trust for the relief of poverty generally, with no specification of the means to
be employed, is valid as a charitable trust. Thus, a trust "for the benefit of the poor"
or simply "for the poor" is charitable.
A trust may be valid as a trust for the relief of poverty even though the terms of
the trust do not state specifically that the beneficiaries must be poor. Thus, a trust
for the benefit of "widows, widowers, and orphans" is ordinarily to be interpreted as
meaning "needy widows, widowers, and orphans." Similarly, a trust for the benefit
of the "elderly inhabitants" of a particular community may be construed as including
only such of them as are poor or otherwise in need of special assistance (compare,
e.g., promotion of health, Comment j).
A trust to help persons who are in some need of financial aid is a charitable trust
under Clause (a) although the persons to be assisted are not destitute. For
example, a trust is charitable if its purpose is to provide financial assistance to
persons who have an income that does not afford the reasonable comforts of life
that most others enjoy. Thus, a trust to provide rent or rental subsidies for secure,
sanitary housing for such persons is charitable.
A trust to establish or maintain a home for the poor which is not conducted for
private profit is charitable, although it is provided that the residents shall pay an
admission fee or otherwise contribute to the expense of maintaining the home. The
relief of poverty is charitable even though an incidental effect of assisting those in
need is to help those better off, or even the wealthy, by diminishing the amount of
taxes they might otherwise be compelled to pay. And a trust is no less charitable
because one of its effects may be to relieve relatives of the assisted persons from a
legal duty or sense of moral obligation to provide for their support.
A trust for the relief of poverty is charitable although the beneficiaries are
limited to inhabitants of a specific place, whether a particular country, state, city,
town, or parish. The relief need not extend to all persons in need but may be limited
to those of a particular cause or type of need, provided the class is not so limited or
defined as to be invidiously discriminatory or more consistent with the nature of a
private trust (see Comment a).
Comment on Clause (b):
h. Advancement of knowledge or education. A trust for the advancement of

knowledge or education is charitable. Trusts for the promotion of education include
trusts: to establish, maintain, or help to maintain schools, colleges, or other
educational institutions or associated facilities; to establish professorships,
lectureships, or fellowships; to pay or increase salaries or pensions of teachers or
staff; to establish scholarships, academic prizes, or otherwise to assist students in
acquiring an education, regardless of whether financial need is a criterion; or to
establish or maintain public libraries, museums, or other facilities. Also supportive of
education or enhancement of knowledge are trusts to promote or support research,
or to promote the dissemination of knowledge or beliefs by the publication of books
and pamphlets or through conferences or the delivery of lectures or media
presentations.
A trust to promote knowledge or education generally, without specifying the
method to be employed, is valid as a charitable trust. Thus, a trust simply "for
educational purposes" or "for the promotion of research" is charitable.
A trust for the purpose of providing training in citizenship, character, and
leadership is charitable. Thus, a trust to support an organization such as the Girl
Scouts is charitable, as is a trust for the instruction of immigrants or others in duties
and responsibilities of citizenship.
A trust for the dissemination of beliefs or doctrines may be charitable although
the views are out of harmony with those of a majority of the public. Thus, a trust to
publish and distribute books and pamphlets or to deliver lectures or hold
conferences on the nature and advantages of a phonetic alphabet is charitable. A
trust, however, for the dissemination of beliefs or doctrines that are irrational or
apparently so foolish as to be of no significant interest to members of the
community is not a charitable trust, even though the dissemination is not illegal. A
trust to provide instruction in the performance of a criminal act or to induce the
commission of such acts is not charitable, although a trust to support the
dissemination of literature advocating or explaining the nature and societal benefits
of conduct or procedures that are illegal in the state (e.g., assisted suicide) would
ordinarily be an educational and thus charitable purpose.
A trust that gives funds to or expends funds for the benefit of an educational or
research institution is charitable, whether that institution is public or private,
provided the institution is not proprietary. An institution is charitable even if it seeks
to make a profit, so long as those profits are to be used for a charitable purpose.
Nor is a trust to establish or maintain an educational institution noncharitable
because it is provided that the pupils shall pay fees or otherwise contribute to the
expense of maintaining the institution, unless it is a proprietary institution--that is,
one the profits of which go to shareholders or noncharitable purposes. Similarly, a
trust to establish a loan fund to assist students in acquiring an education is
charitable, although the borrowers are required to pay interest on the loans
provided the interest is to be used for the same or other charitable purposes.
Comment on Clause (c):
i. Advancement of religion. A trust for the advancement of religion is charitable.

Included are trusts: to build or maintain a church building; to erect or maintain a
monument, memorial window, or other part of the church building; to maintain a
burial ground in connection with the church; to supply music for the church; to pay
the salary of a clergyman; to disseminate religious beliefs or doctrines; to establish
or maintain domestic or foreign missions; or to distribute Bibles and other religious
literature.
A trust for the saying of masses for the soul of the settlor or of others is
charitable, because the funds support religious activity and the intended benefits
are not confined to the particular souls but extend to others. Similarly, a trust to
promote the doctrines of a particular religious sect is charitable, although the
doctrine is adhered to by only a small portion of the community. So also is a trust
charitable if it seeks to promote independent religious beliefs unless those beliefs
are not of community interest. On the other hand, a trust to promote actual
participation in activities or practices that are unlawful, such as polygamy, is
noncharitable even though the belief is one of the tenets of a religion.
A trust for the promotion of religion generally, without reference to any
particular sect or method, is charitable. Thus, a trust for such religious purposes as
the trustee might select, or a trust "for the worship of God" or "for the spread of the
gospel" is charitable. A trust may be charitable as one for the advancement of
religion although the terms of the trust do not state in specific terms that its
purpose is religious. Thus, the fact that a devisee is a religious organization or a
person holding a religious office may indicate that it is to be applied solely for
religious purposes, although the terms of the trust do not specifically so limit its
purposes. The question is one of interpretation of the language involved in light of
all the circumstances, for a devise to a particular person currently holding a
religious office is not charitable if it is for his or her personal use and benefit.
Comment on Clause (d):
j. Promotion of health. A trust for the promotion of health is charitable. A trust

for the prevention or cure or treatment of diseases (or of a particular disease) is
charitable. Thus, a trust to establish or maintain a hospital, or to maintain a ward or
a bed in a hospital, is charitable, as is a trust for the study of the causes or
treatment of diseases. Similarly, a trust to maintain conditions conducive to health,
as by draining swamps, disposing of sewage, establishing pest houses, or otherwise
preventing the spread of disease, is charitable, and so is a trust simply for the
promotion of health with no provision as to the means of doing so.
A trust for the promotion of mental health is charitable. Thus, a trust to provide
a home of comfort and care for persons who suffer from a particular mental
disorder, or a home of rest for persons who suffer from the stress of overwork or
who are otherwise in need of mental relaxation is charitable. So, too, is a trust for
the prevention of mental as well as physical cruelty to children.
A trust for the promotion for health need not extend to all persons but may be
limited to those residing in a particular district, or to persons who are members of a
particular class or fit a particular description that is not invidious (Comment f),
provided the eligible group is not in the nature of a private trust or so small that
relief to the class is not of benefit to the community. Thus, a trust to establish or
maintain a hospital for members of a particular trade or for the employees of a
particular company would ordinarily be charitable.
A trust is charitable if it provides funds for the support of a hospital or health
facility, whether public or private, provided it is not a proprietary institution (but, on
nonprofit programs operated by such an institution, see Reporter's Note to
Comment c(1)). Similarly, a trust to establish or maintain a health facility is
charitable although patients are required to pay fees, if profits from its operation
are to be used to maintain or improve the institution or are to be applied to some
other charitable purpose.
Comment on Clause (e):
k. Governmental or municipal purposes. A trust for the construction or

maintenance of public buildings, bridges, streets, highways or other public facilities,
or for other governmental or municipal purposes, is charitable under Clause (e) of
this Section.
A trust for the purpose of supplying a community with facilities ordinarily
supplied at the expense of taxpayers is charitable. Charitable trusts therefore
include: trusts to erect or maintain a town hall; trusts to provide land for public
parks or for developing or maintaining such parks; trusts for the planting of trees
along public roadways; trusts to supply or improve the quality of water for the
inhabitants of a town or area; trusts to protect the inhabitants from loss by fire or
flood, or to provide relief or financial assistance to those who have suffered
damage; and trusts to erect monuments to commemorate the contributions of
noteworthy individuals.
Clearly, different types of charitable purposes overlap, as can be seen
particularly in the case of governmental purposes. For example, a trust to establish
or maintain or to assist in the establishment or maintenance of a public school or
library or a municipal hospital is charitable not merely on the ground that such a
trust is for the advancement of education or the promotion of health but also on the
ground that it is to provide the community with facilities or services ordinarily
provided at public expense.
A trust may have governmental or municipal purposes, and thus be charitable,
although it is not created to provide the community with any specified facilities or
services. Thus, a devise to or in trust for the benefit of a certain village or city,
without specifying the purposes of the devise or the method of applying the funds of
the trust, is charitable. So also, is a trust to defray the general expenses of a town,
county, state, or country, or one to contribute toward the reduction of public debt.
Comment on Clause (f):
l. Promotion of other purposes beneficial to the community. A trust is charitable

if it is established for the promotion of purposes that are of a character sufficiently
of interest or beneficial to the community to justify permitting the property to be
devoted forever to their accomplishment and to justify whatever other special
privileges may be accorded to charitable trusts.
Thus, for example, a trust is charitable if its purpose is to promote the arts and
culture (as may be implicit in Comments h and k) or environmental quality (also see
Comments j and k).
The trusts encompassed by this Comment may involve any of a large, indefinite
array of purposes in addition to (or overlapping) those that are dealt with in the
preceding Comments but that are nevertheless held to promote the social interests
of the community, and are therefore upheld as falling within the scope of charity. It
is not possible adequately and accurately to enumerate all purposes of this type, for
in deciding whether a particular purpose falls within the present clause, much
depends on the time and the place at which the question arises. In each such case,
as under some other clauses of this Section, particularly some cases involving
purposes that are arguably educational, the question for potential judicial
determination is whether at the time when the question arises and in the state in
which it arises the purpose is one that might reasonably be held to be of community
or social interest. The mere fact that a trust is created for the benefit of members of
a community outside the state, however, does not prevent the trust from being
charitable. Thus, a trust for the benefit of impoverished residents of another state,
or to establish a school or hospital in a foreign country, is charitable.
A trust to prevent or alleviate the suffering of animals is charitable. Thus, a trust
for the prevention of cruelty to animals, or for the prevention, cure, or treatment of
injuries or diseases of animals, is charitable. So also is a trust to establish or
support a home or to provide care for stray animals, although a trust to provide for
the settlor's own pets is not charitable (see, however, § 47).
A trust for the promotion of national security is charitable. This is so even if it is
not clear that a particular trust of this type serves a governmental purpose as
described in Comment k. Such a trust is charitable whether the means to be
employed are the promotion of peace through disarmament or the promotion of
preparedness for national defense. So also is a trust that tends to promote
efficiency, health, quality of life, or morale among members of the military services.
Similarly, a trust to promote patriotism or patriotic purposes is charitable, such as a
trust to aid in the celebration or commemoration of important historical dates or
events by appropriate ceremonies.
A trust to promote expanded social or economic opportunities for members of
the community is charitable although those to be aided are not poverty stricken but
merely have less than ordinary opportunities for recreation, enjoyment, or economic
advancement. Thus, a trust to assist in providing low-cost housing is charitable, as
is a trust to lend money at low rates of interest to persons desirous of entering a
trade, profession, or business venture. Similarly charitable is a trust to establish or
maintain an institution to improve the moral, intellectual, and physical standards of
a community's youth, such as the local Young Men's or Young Women's Christian
Association, or other facilities for social meetings, health activities, reading, or the
offering of board or lodging to community members or visitors at reasonable rates.
A trust to promote the contentment or well being of members of the community
is charitable. Thus, a trust to beautify a city or to preserve the beauties of nature,
or otherwise to add to the aesthetic enjoyment of the community, is charitable.
Similarly of benefit to the community, and charitable, is a trust to support public
concerts or to provide sports or other recreational facilities for the inhabitants of a
town. Although some of these examples may be trusts that also promote health or
involve a form of education or municipal services, it is sufficient for charitable status
under Clause (f) that a trust contribute to the general happiness or the quality of
life within the community.
Illustrations:
4. S has devised and her family has donated funds to T, in trust, to construct
and support a small museum to collect works of regional artists and to exhibit the
collection and also to exhibit and otherwise promote the work of regional artists.
The trust is charitable as a trust of interest and benefit to the community.
5. A wealthy citizen of Townville left his estate to T, in trust, to construct and
maintain a small museum solely to exhibit his own paintings and his personal
collection of paintings by others. The testimony of experts establishes that the
paintings are without artistic merit, and no other evidence is presented proving that
there is public interest in the contemplated museum. The intended trust is not
charitable.
A trust for the promotion of temperance in the use of intoxicating liquors or
other addictive substances is charitable, whether or not the manufacture, sale, or
use of such substances is forbidden by law. Such a charitable trust may promote
temperance through education or through legislation, and may seek to induce total
abstinence or moderation.
A transfer of property with a direction to apply it to the erection or maintenance
of a grave, tomb, or monument may not in some circumstances create a charitable
trust (but compare "noncharitable purpose" trusts under § 47). If, however, the
grave or monument is to be included in, and the funds are to help maintain, even a
limited part of, a churchyard or a cemetery that is open to the public, or a not-too-
narrow segment thereof, the trust is charitable and thus may provide for
maintenance over an unlimited period of time. (By statute in many states
dispositions of property for the perpetual care of graves, tombs, and monuments
are permitted, and some such expenditures are proper as costs of administering a
decedent's estate.)
A trust may be charitable although the accomplishment of the purpose for which
the trust is created involves a change in the existing law. If the purpose of the trust
is to bring about a change in the law by illegal means, however, such as by
revolution, bribery, or illegal lobbying, or bringing improper pressure to bear upon
members of the legislature, the purpose is not charitable. Cf. § 29. Certainly a trust
to promote general improvement in the law, whether by financial support of the
work of a law-revision commission or through the support of research projects so
directed, is charitable. The mere fact, however, that the purpose of a trust is to
advocate and bring about a particular change of law does not prevent the purpose
from being charitable. This is so whether the change is pursued indirectly through
the education and persuasion of the electorate, so as to bring about a public
sentiment favorable to the change, or through more direct but lawful influences,
such as by proper lobbying and other persuasion brought to bear upon legislators.
And a trust to improve the structure and methods of government is charitable,
whether by promoting the development of initiative or referendum processes on the
one hand or by the promotion of representative government on the other.
Although a trust to promote the success of a particular political party is not
charitable, the development and dissemination of information advocating or seeking
to improve understanding of a particular set of social, economic, or political views is
charitable, whether because it is educational (Comment h) or because it contributes
to a marketplace of ideas that is beneficial to the community. Thus, on the one
hand, a trust the income of which is to be used in the discretion of the chairperson
of a political party to assist in the election of members of that party or otherwise to
promote its interests is not charitable. On the other hand, if the promotion of a
particular cause or socio-economic perspective is charitable, the mere fact that one
or another of the political parties advocates that cause or viewpoint does not make
the promotion of that cause or set of views noncharitable. Accordingly, a trust to
promote a policy either of free trade or of protective tariffs is charitable although
different political parties may take different stands on these policies or their current
applications.
The counterparts of this § 28 were Restatement Second, Trusts §§ 362, 364,

365, and 368-376.
See also IVA William F. Fratcher, Scott on Trusts §§ 632, 364, 365, and 367-
376 (4th ed. 1989); George G. Bogert & George T. Bogert, The Law of Trusts and
Trustees §§ 361-379 (Rev. 2d ed. 1991). On the English law and experience, see
Jean Warburton, Tudor on Charities (8th ed. 1995).
Compare generally Jerry McCoy & Kathryn Myree, Family Foundation Handbook
(2001).
Comment a:
The black letter of Restatement Second, Trusts, is worth recalling. Section 375
states: "A trust is not a charitable trust if the persons who are to benefit are not of
a sufficiently large or indefinite class so that the community is interested in the
enforcement of the trust." Section 376 adds: "A trust is not a charitable trust if the
property or the income therefrom is to be devoted to a private use."
George T. Bogert, Trusts (Hornbook, 6th ed. 1987), defines a trust as charitable
if it provides "a substantial amount of social benefit to the public or some
reasonably large class thereof." Id. § 54 (emphasis added). That section adds that
"the purpose must not include profit-making by the settlor, trustees, or others."
The classic opinion (Gray, J.) in Jackson v. Phillips, 96 Mass. (14 Allen) 539, 556
(1867), stated that a charitable gift was one that would "benefit ... an indefinite
number of persons."
Fratcher, Scott on Trusts, supra, § 375 explains: "A trust may fail because the
class of persons who are to benefit is so narrow that the community has no interest
in the performance of the trust. It is a question of degree whether the class is large
enough to make the performance of the trust sufficient to benefit the community so
that it will be upheld as a charitable trust. If the purpose of the trust is to relieve
poverty, promote education, advance religion, or protect health, the class need not
be as broad as it must be where the benefits to be conferred have no relation to any
of these purposes [i.e., particularly purposes under Clause (f) and Comment l of this
§ 28]. On the other hand, the class of persons to be benefitted may be so limited
that the trust is not charitable even though the purpose of the trust is to relieve
their poverty, to educate them, to save their souls, or to promote their health." And
in id. § 375.2 it is observed that even though "the purposes of the trust are
charitable in character, the trust is not a valid charitable trust if the benefits are
limited to too small a class of persons." It is noted, however, in id. § 375.1 that as
long as "the class of persons from whom the recipients of benefits are to be selected
is sufficiently large, the fact that the number of persons who are to receive the
benefits is small does not prevent the trust from being charitable." The treatise also
discusses the noncharitable character of trusts for a settlor's relatives and for
private profit in § 375.3 and § 376, respectively.
Compare the perspective of Professor Lewis M. Simes in his Public Policy and the
Dead Hand (1955). Although the subject there being discussed is the doctrine of cy
pres, he suggests that in the case of a long-term trust (one that has endured for at
least 30 years) the test for inadequacy of charitable purpose and thus for cy pres
modification should be whether "the amount to be expended is all out of proportion
to its value to society." Id. page 135.
In re Freshour's Estate, 185 Kan. 434, 345 P.2d 689 (1959), stated: "The law
must find in the trust, if it is to achieve the status of being 'charitable,' some social
advantages which more than offset the detriments which arise out of the special
privileges accorded to that trust. (2A Bogert, The Law of Trusts and Trustees, §
361, p. 3.) While the human beings who are to obtain advantages from charitable
trusts may be referred to as beneficiaries, the real beneficiary is the public and the
human beings involved are merely the instrumentalities from whom the benefits
flow. Whether a gift is or may be operative for the public benefit is a question to be
answered by the court." 185 Kan. at 441, 345 P.2d at 695. The opinion adds:
"Courts look with favor upon trusts for charitable purposes and construe language
creating such trusts most favorable to their validity." Id. at 444, 345 P.2d at 697.
If the requirement of substantial benefit or interest to society follows from the
special privileges accorded charitable trusts, what are these privileges? "If it is a
charitable trust it is valid although the trust is to continue for an indefinite period,
whereas if it is not a charitable trust it may fail because of the rule against
perpetuities. If it is a charitable trust it is valid although there is no definite
beneficiary to enforce it because it is enforceable at the suit of the Attorney
General, whereas if it is not a charitable trust it cannot be enforced unless there are
beneficiaries to enforce it.... So also if it is a charitable trust it may be exempt from
taxation ... [and] a charitable institution may be exempt from liability in tort, where
a noncharitable institution would not be exempt." Fratcher, Scott on Trusts, supra, §
375. Also, the advantages of charitable trusts under typical state legislation
allocating the burdens of federal estate taxes and the preference in interpretation
for preserving that relief are illustrated in Estate of Beebe, 268 App. Div. 2d 943,
702 N.Y.S.2d 683 (2000); and the advantage of exemption from employee claims
for wrongful termination for religious entities under the Fair Employment and
Housing Act was applied to a religiously affiliated hospital, even though its articles
of incorporation did not define its purpose as religious in nature and no test of
religious faith was applied to its employees and patients, in Kelly v. Methodist
Hospital of Southern California, 22 Cal.4th 1108, 95 Cal.Rptr.2d 514, 997 P.2d
1169, cert. denied, 531 U.S. 1012, 121 S.Ct. 569, 148 L.Ed.2d 487 (2000).
Relation to tax law generally. Charles E. Rounds, Jr. & Eric P. Hayes, Loring: A
Trustee's Handbook (1997 Edition) § 9.4.1 admonishes: "Above all the trustee
should not confuse Internal Revenue Code § 501(c) criteria for tax exemption with
the criteria that have evolved over the years in [the trust law of] a particular
state.... A trust may not be exempt for income tax purposes, but may still be a
common law charitable trust, and a trust may be exempt from income tax but not
qualify as a charitable trust."
Probably the most important tax-law provision for comparison with the trust law,
and also for contrast (see particularly the italicized language), is IRC § 501(c)(3)
(under the "General Rule" set out in "SEC. 501. EXEMPTION FROM TAX ON
CORPORATIONS, CERTAIN TRUSTS, ETC."). Section 501(c)(3) exempts entities
"operated exclusively for religious, charitable, scientific, testing for public safety,
literary, or educational purposes, or to foster national or international amateur sport
competition ..., or for the prevention of cruelty to children or animals, no part of the
earnings of which inures to the benefit of any private shareholder or individual, no
substantial part of the activities of which is carrying on propaganda, or otherwise
attempting, to influence legislation, except as otherwise provided in subsection (h),
and which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in opposition to)
any candidate for public office." (Emphasis added.) See also IRC §§ 170, 2055,
2522, and 2106. And see C. Hodges II & E. Manigault, "Political Activity and
Lobbying by Charities," 93 J. Taxation 177 (2000).
Also compare Crisp Area YMCA v. Nationsbank, 272 Ga. 182, 184, 526 S.E.2d
63, 65 (2000): "Whether [its prolonged] inactivity disqualifies the Cordele YMCA as
a charity under the federal tax code is irrelevant, as Mr. Branan did not make his
bequest dependent upon the organization so qualifying.... If the tax status of his
beneficiary was not important to Mr. Branan himself, it should not be considered by
the courts charged with giving effect to his testamentary intent." This case is further
discussed (in regard to the doctrine of cy pres) in § 67, Reporter's Note to Comment
e.
Profit motive in tax cases. KJ's Fund Raisers, Inc. v. Comm'r, 82 A.F.T.R.2d 98-
7092, 98-2 U.S.T.C. 50869 (2d Cir. 1998), affirmed a decision of the Tax Court
under IRC § 501(c)(3) and held unqualified an organization formed by certain
lounge owners to raise funds for charity by selling lottery tickets, finding it was
operated primarily to provide those owners a substantial private benefit (attracting
patrons). (This also appears to be more than the "incidental" benefit allowed by
charitable-trust law.) See also Technical Advice Memorandum 9815061 ruling that a
subsidiary of a § 501(c)(19) veterans' organization was not operated exclusively for
social-welfare purposes and thus was not exempt under § 501(c)(4); it operated a
bar with gambling activities, a swimming pool, and a golf course, and offered
"social" as well as veteran memberships, did not restrict use to members, and
leased facilities for less than market worth to an unrelated commercial restaurant.
But contrast Revenue Ruling 98-15, 1998-12 I.R.B. 6, for an example of an
organization that qualified under § 501(c) because of its governing document's
commitment to provide health-care services for the benefit of the community as a
whole and to give that purpose priority over owners' profits; but the ruling offered a
second example of a joint venture that does not qualify for exemption, the
governing document failing to commit to pursuing charitable purposes over profit
making.
Gifts to institutions. The leading case of St. Joseph's Hospital v. Bennett, 281
N.Y. 115, 22 N.E.2d 305 (1939), held that certain restricted gifts to charitable
corporations should be treated like charitable trusts for purposes of perpetuities
rules.
For an example of a gift to an institution for a particular purpose, which is
treated as a gift upon charitable trust usually and at least for purposes of this
Restatement and its rules, see the devise to "Northwestern University Dental School
of Chicago" in In re Estate of Lind, 314 Ill.App.3d 1055, 248 Ill.Dec. 339, 734
N.E.2d 47 (2000). It was treated as a devise to the University (the dental school
having no legal status independent of the University) for the benefit of the dental
school. Because the University Board of Trustees, shortly before the testator's death
in 1998, called for the dental school to cease operations by December 31, 2001, this
was considered important so that the devise in trust did not lapse (and thereby pass
to the testator's residuary devisee) and thus could become subject to the doctrine
of cy pres (§ 67).
Unspecified charitable purpose. Uniform Trust Code § 405(b) provides: "If the
terms of a particular charitable trust do not indicate a particular purpose or
beneficiary, the trustee may select one or more charitable purposes or beneficiaries.
The selection must be consistent with the settlor's intention to the extent it can be
ascertained."
On "such charitable purposes as my trustee may select," see Boyd v. Frost
National Bank, 145 Tex. 206, 196 S.W.2d 497, 168 A.L.R. 1326 (1946); Rabinowitz
v. Wollman, 174 Md. 6, 197 A. 566 (1938). See also Newick v. Mason, 581 A.2d
1269 (Me.1990). Also compare Estate of Jordan, 329 Pa. 427, 197 A. 150 (1938)
(simply "to charity"), and Estate of Vanderhoofven, 18 Cal.App.3d 940, 96 Cal.Rptr.
260 (1971) ("to some Protestant school ... of engineering").
Construction: charity vs. benevolence, etc. "In the law of trusts there is a real
and fundamental distinction between a charitable trust and one that is devoted to
mere benevolence. The former is public in nature and valid...." Shenandoah Valley
National Bank v. Taylor, 192 Va. 135, 141-142, 63 S.E.2d 786, 789 (1951), which
had earlier in the opinion (id. at 139, 63 S.E.2d at 789) stated that, "if the testator's
intent as expressed is merely benevolent, though the disposition of his property be
meritorious and evince traits of generosity, the trust must nevertheless be declared
invalid because it violates the rule against perpetuities."
In Hight v. United States, 256 F.2d 795 (2d Cir.1958), the devise was to "such
charitable, benevolent, religious or educational institutions as my executors
hereinafter named may determine." Id. at 797. The court noted that the original
Restatement of Trusts (§ 398, Comment d) "singles out the phrase 'charitable or
benevolent' as an example of the application of the principle of ejusdem generis to
uphold a charitable trust. Where by the terms of the trust a word is used which
standing alone would be broader than charity, it may in view of the other terms of
the trust be interpreted as limited to charity. Thus, where a testator devises or
bequeaths property to be applied to 'charitable or benevolent' purposes, the
'benevolent' may be interpreted as a synonym for 'charitable,' and not as including
purposes that are not charitable, even though the word 'benevolent' standing alone
might be interpreted as including purposes which are not charitable.... From [facts
reviewed] there can be no doubt that Mrs. Cochran during her lifetime gave ample
proof of the type of institution which she selected for her benefactions. Her wishes
were conveyed to her executors both orally and in writing. The executors
understood these wishes and explicitly carried them out [by having designated
charitable beneficiaries]...." Id. at 797-800 (paragraphing disregarded).
Contrast the English classic, Morice v. Bishop of Durham, 10 Ves. 521 (Ch.
1805), holding noncharitable and thus invalid an intended trust under which the
Bishop was directed (and was willing) to select objects of "benevolence and
liberality." Also, in Hegeman's Executor v. Roome, 70 N.J.Eq. 562, 62 A. 392
(1905), an intended trust for "such religious, benevolent or charitable objects as my
husband may select" was held invalid as having a broader-than-charitable purpose.
(On cases of this type now, see the adapted (or "honorary") trusts under § 47.) The
trend of judicial decisions in this country, however, is exemplified by the later New
Jersey decision in Wilson v. Flowers, 58 N.J. 250, 277 A.2d 199 (1971) ("such
philanthropic causes as my trustees may select"), holding that the testator intended
"philanthropic" to be limited to charitable rather than to have its broader dictionary
meaning, concluding (58 N.J. at 264, 277 A.2d at 207) that "if there were any
doubt, well established rules of construction would lead us to lean in favor of a
construction which upheld the gift as charitable."
In McDonald & Co. Securities v. Alzheimer's Ass'n, 140 Ohio App.3d 358, 747
N.E.2d 843 (2000), involving contested funds passing under a disposition for
Alzheimer's research, the appellate court affirmed the probate court's decision to
divide the funds among three claimants, each of which would promote the settlor's
general charitable intent of benefiting Alzheimer's patients, having noted that "the
law favors charitable bequests," and that "they are liberally construed to accomplish
the testator's or grantor's purpose." Id. at 365, 747 N.E.2d at 849.
See also Estate of Starkey, 223 F.3d 694 (7th Cir.2000), on remand 2001 WL
175939 (S.D.Ind. 2001), a tax case giving effect to state-law preference for a
charitable interpretation of an arguably ambiguous provision.
This Section (see especially Comments h and l) is not in agreement with the
English view in In re Shaw, [1957] 1 All E.R. 745 (Ch.), which invalidated as
noncharitable, and as not within the limited purposes for which honorary trusts are
there allowed (contrast § 47), George Bernard Shaw's devise of his residuary estate
to trustees to use the income for 21 years to support the study of the advantages of
a phonetic alphabet (44 letters, one for each sound), to finance publication and free
distribution to libraries of his play Androcles and the Lion in that alphabet, and to
fund a campaign to promote the adoption of the proposed alphabet. A major asset
of the estate turned out to be the right to royalties from the musical, "My Fair
Lady," based on Shaw's "Pygmalion," portraying a professor of phonetics.
(Eventually, other charitable residuary beneficiaries, whose rights accelerated
because of the Chancery decision, allowed Shaw's purposes to be pursued.)
See generally N. K. Lundwall, "Inconsistency and Uncertainty in the Charitable
Purposes Doctrine," 41 Wayne L. Rev. 1341 (1955).
Accumulations. For an example of a permitted accumulation that would appear
reasonably justified by its charitable purpose, see Fulton v. Trustees of Boston
College, 372 Mass. 350, 361 N.E.2d 1297 (1977) (funds to be accumulated until
year 2000, with distribution then to erect a college building). See generally § 29,
Comment h(2).
Comment b:
With the first paragraph of this Comment, compare Restatement Third, Property
(Wills and Other Donative Transfers) § 9.7: "Any rule that a charitable devise is
invalid if it exceeds a certain proportion of the testator's estate or if it is contained
in a will that was executed within a certain time before the testator's death is
abolished." The commentary and Reporter's Note report that, at the time of the
draft, all previously existing statutes specially restricting charitable devises (there
called "Mortmain statutes") have been abolished. An Ohio statute of this type was
held invalid under both federal and state constitutions in Shriners' Hospital v.
Hester, 23 Ohio St.3d 198, 492 N.E.2d 153 (1986).
Statutes in a few states have imposed, and some may again impose, restrictions
on the amount or timing (or both in combination) of devises for charitable purposes
if certain near relatives survive a testator. Thus, perhaps as protection for the
family against the possibility of a testator's imminent fear of the hereafter, a statute
might provide that the amount of a charitable devise in excess of one-third of an
estate in a will executed within 60 days of the testator's death may be set aside by
a surviving spouse or descendant.
Statutory restrictions of this type, however, do not properly apply to charitable
dispositions in wills executed before the proscribed period merely because a codicil
to the will was executed within that period. Nor should a statute of this type apply
to charitable devises in a will executed within the proscribed period to the extent
they do not exceed charitable devises contained in a prior will to which the statute
would not have applied. (The rationale of the latter is analogous to, but is not an
application of or limited by, the doctrine of dependent relative revocation, on which
see Restatement Third, Property (Wills and Other Donative Transfers) § 4.3.)
Comments c and d:
On the well-accepted statements in these two Comments, see observations in

early paragraphs of the Reporter's Note to Comment a, above.
Also see the cross-references in the text of Comments c and d to subsequent §§
44-46 (on the private-trust requirement of definite beneficiaries) and § 29(b) and
its Comments g and h (on the rule against perpetuities and on associated duration
and accumulation issues).
Comment c(1): If a proprietary institution operates a particular program on a
nonprofit (i.e., charitable) basis, a trust to support that particular program is
charitable. Similarly, a trust may be charitable though some of those aided by it
may attend or obtain services from proprietary institutions (which, at most,
incidentally benefit thereby). See Morgan v. National Trust Bank, 331 Ill. 182, 162
N.E. 888 (1928), noted 3 Temple Univ. L.Q. 226.
Comment e:
This Comment is intended to clarify an area of increasing practical importance

that, although not controversial as a matter of policy, has resulted in some
confusion and uncertainty concerning the validity and effects of so-called "mixed
trusts." Compare Restatement Second, Trusts § 398 and §§ 420-421. See also the
discussion in Bogert & Bogert, The Law of Trusts and Trustees, supra, at § 372.
Compare also noncharitable "purpose" trusts considered in § 47, including, for
example, situations in which a term such as "benevolent" is given a literal meaning
broader than charitable, despite the usual constructional preference discussed supra
in Comment a and its Reporter's Note.
See generally Conrad Teitell, Charitable Lead Trusts (2001) and Deferred Giving
(2001), both treatises supplemented and revised annually.
Illustration 1 is an example (somewhat complicated in order to illustrate other
points) of a currently popular form of what is called split-interest giving, structured
to qualify for federal income and transfer tax deductions. Private Letter Ruling
200027015 offers an interesting recent example of such a mixed charitable and
private trust and approves a reformation to resolve both perpetuities and
deductibility problems, the latter involving qualification for the federal estate tax
charitable deduction under IRC § 2055. See also R. Silk, "Charitable Remainder
Trusts v. Selling Assets and Funding a Private Foundation," 139 Trusts & Estates 36
(Oct. 2000).
Comment f:
The will of Jack Robbins left property to named trustees, the income "to be used
for the support, education, and welfare of such minor Negro child or children as they
may select whose father or mother or both have been convicted of a crime of a
political nature. Wishing to preserve the right of dissent and being aware of the
changing attempts to restrict free expression and to circumscribe activity in
unorthodox causes, I authorize my Trustees to decide what Negro child or children
to receive the benefits under this trust." The trust was upheld in Estate of Robbins,
57 Cal.2d 718, 21 Cal.Rptr. 797, 371 P.2d 573 (1962), despite the at least arguable
possibility that the performance of the trust might indirectly undermine the law's
efforts to deter criminal activity. (No issue was raised, apparently quite deliberately,
either by the parties or the court with respect to the racial restriction. See below.)
In addition to the charitable-trust applications of the rules of § 29(a) (unlawful
purposes and provisions) and § 29(c) (purposes or provisions contrary to public
policy), controversies have frequently arisen in litigation or in the administration of
charitable institutions or trusts concerning the possible invalidity or transferee
rejection (and in either case often leading to issues about application of the cy pres
doctrine, § 67) of restrictions involving race, ethnicity, gender, and religion, and to
a lesser degree, restrictions involving sexual orientation and age. As indicated in the
commentary, this Section and Comment f are concerned with these matters in the
context of the common law of trusts, rather than in the context of various federal
and state constitutional and statutory provisions and the "state action" questions
usually associated with their application. Nevertheless, in these Notes it is useful
(both for understanding and for consideration in planning) to mention a few of the
decisions and to cite some of the literature on these latter matters, and at least to
note at this point that there has been little suggestion so far of the possibility that
"state action" is inherently present in charitable trusts because of their dependence
on enforcement by a state official and the array of special privileges bestowed by
state and federal law (see Reporter's Note to Comment a).
Evans v. Newton, 382 U.S. 296, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966), involved
the will (executed in 1911) of United States Senator Augustus O. Bacon, which
devised to the Mayor and Council of the City of Macon, Georgia, a tract of land
which was to be used after the death of the Senator's wife and daughter as "a park
and pleasure ground for white people only," to be under the control of a Board of
Managers consisting of seven persons, all of whom were to be white. Id. at 297.
After some years of segregated operation, the city ceased to enforce the racial
restriction on the ground that the park ("Baconsfield") was a public facility that
could not constitutionally be managed and maintained on a segregated basis.
Individual members of the Board of Managers brought suit in state court, asking
that the city be removed as trustee and that the title to the park be transferred to a
court-appointed board of trustees. "Several Negro citizens of Macon intervened,
alleging that the racial limitation was contrary to the laws and public policy of the
United States," according to Justice Douglas (id. at 298), who delivered the opinion
of the Court, further observing that the city tendered its resignation as trustee and
that certain heirs of Senator Bacon intervened to assert a right to "reversion of the
trust property [if] the petition [for enforcement and appointment of new trustees]
were denied." Id. The Georgia court accepted the city's resignation, appointed three
individual trustees, and found it unnecessary to pass on the other claims of the
heirs. "On appeal ... the Supreme Court of Georgia affirmed, holding that Senator
Bacon had the right to give and bequeath his property to a limited class, that
charitable trusts are subject to supervision of a court of equity, and that the power
to appoint new trustees so that the purpose of the trust would not fail was clear."
Id. The U.S. Supreme Court's opinion continued (id. at 298-302):
There are two complementary principles to be reconciled in this case. One is the
right of the individual to pick his own associates so as to express his preferences
and dislikes, and to fashion his private life by joining such clubs and groups as he
chooses. The other is the constitutional ban in the Equal Protection Clause of the
Fourteenth Amendment against state-sponsored racial inequality, which, of course,
bars a city from acting as a trustee under a private will that serves the racial
segregation cause. Pennsylvania v. Board of Trusts, 353 U.S. 230, 77 S.Ct. 806, 1
L.Ed.2d 792. A private golf club ... restricted to either Negro or white membership is
one expression of freedom of association. But a municipal golf course that serves
only one race is state activity ... as to which the State must be neutral.... [W]hen
private individuals or groups are endowed by the State with powers or functions
governmental in nature, they become agencies or instrumentalities of the State and
subject to its constitutional limitations.
Yet generalizations do not decide concrete cases.... [T]he fact that government
has engaged in a particular activity does not necessarily mean that an individual
entrepreneur or manager of the same kind of undertaking suffers the same
constitutional inhibitions....
If a testator wanted to leave a school or center for the use of one race only and
in no way implicated the State in the supervision, control or management of that
facility, we assume arguendo that no constitutional difficulty would be encountered.
This park, however, is in a different posture. For years it was an integral part of
the City of Macon's activities. From the pleadings we assume that it was swept,
manicured, watered, patrolled, and maintained by the city as a public facility for
whites only, as well as granted tax exemption under Ga. Code Ann. § 92-201. The
momentum it acquired as a public facility is certainly not dissipated ipso facto by the
appointment of "private" trustees.... We only hold that where the traditions of
municipal control had become firmly established, we cannot take judicial notice that
the mere substitution of trustees instantly transferred this park from the public to
the private sector.
This conclusion is buttressed by the nature of the service rendered the
community by a park. The service rendered even by a private park of this character
is municipal in nature.... like a fire department or police department that
traditionally serves the community.... and state courts that aid private parties to
perform that public function on a segregated basis implicate the State in conduct
proscribed by the Fourteenth Amendment....
Justice Harlan (joined by Justice Stewart) dissented, stating in part: "On the
merits, which I reach only because the Court has done so, I do not think that the
Fourteenth Amendment permits this Court in effect to frustrate the terms of Senator
Bacon's will, now that the City of Macon is no longer connected, so far as the record
shows, with the administration of Baconsfield. If the majority is in doubt that such is
the case, it should remand for findings on that issue and not reverse." 382 U.S. at
316. The opinion continued: "Quite evidently uneasy with its first ground of
decision, the majority advances another which ultimately emerges as the real
holding. This ground derives from what is asserted to be the 'public character' of
Baconsfield." Id. at 319. This opinion finds more serious than a lack of "any firm
doctrinal support for this theory of state action" its "potentialities for the future" and
that it "jeopardizes the existence of denominationally restricted schools while
making every college entrance rejection letter a potential Fourteenth Amendment
question," adding that "this process of analogy might be spun out to reach privately
owned orphanages, libraries, garbage collection companies, detective agencies, and
a host of other functions commonly regarded as nongovernmental though
paralleling fields of governmental activity...." Id. at 321-322.
The aftermath of this case culminated in the decision of Evans v. Abney, 396
U.S. 435, 90 S.Ct. 628, 24 L.Ed.2d 634 (1970), rejecting a cy pres striking of the
racial restriction and causing the trust property to revert to Senator Bacon's heirs.
The decision is discussed further in § 67, Reporter's Note to Comment b (on the cy
pres doctrine). See also other authorities cited and reviewed in § 67, Reporter's
Note to Comment c, especially the interesting Girard College litigation culminating in
the decision (Pennsylvania v. Board of Directors of City Trusts, 353 U.S. 230, 77
S.Ct. 806, 1 L.Ed.2d 792 (1957)) cited in the above excerpt from Evans v. Newton.
Compare Bob Jones University v. United States, 461 U.S. 574, 103 S.Ct. 2017,
76 L.Ed.2d 157 (1983), holding that an educational institution that practiced racial
discrimination did not qualify for tax-exempt status under the Internal Revenue
Code, illustrating, by analogy, that (in trust context) even if a possibly
discriminatory provision (or one significantly involving lobbying) is valid as a matter
of trust law, it may nevertheless be denied exempt status by the IRS.
D. Brennen, "The Power of the Treasury: Racial Discrimination, Public Policy and
'Charity' in Contemporary Society," 33 U. of Calif. Davis L. Rev. 389 (2000),
discusses the Treasury's power to enforce "established public policy" by revoking §
501(c)(3) tax-exempt status of charities that violate such policy. The article notes
lack of clarity about the point at which public policy is sufficiently established for
these purposes. The thesis of the article is that the United States Supreme Court
reached the correct result in the Bob Jones University case (approving revocation of
exempt status for invidious discrimination against Blacks), but the article questions
the breadth of Treasury authority thus recognized because of the lack of clear legal
standards for the exercise of that authority.
See generally K. Kennedy, "Race-Exclusive Scholarships: Constitutional Vel
Non," 30 Wake Forest L. Rev. 759 (1995); Note, "Minority Scholarships: A New
Battle in the War on Affirmative Action," 77 Iowa L. Rev. 307 (1991). Cf. D. Luria,
"Prying Loose the Dead Hand of the Past: How Courts Apply Cy Pres to Race,
Gender, and Religiously Restricted Trusts," 71 U.S.F. L. Rev. 43 (1986).
In a case involving a bank trustee and "unmistakable language that the
beneficiaries be 'worthy' college students 'who are of the caucassian [sic] race
and ... none other,' " (502 So. 2d at 661) the opinion (Robertson, J.) in Tinnin v.
First United Bank, 502 So.2d 659, 664 (Miss.1987), appeal after remand 570 So.2d
1193 (Miss.1990), stated: "As important and central as we regard our duty to
implement the testator's intent, ... the coin has another side.... We have often said
the testator's intention is to be given effect only so long as that intent 'does not
violate the law or public policy. '... Whatever may once have been the attitudes of
many, it is much too late to doubt that a major social policy of our society is that
[an] entitlement one is eligible to enjoy on one's merits shall not be denied by
reason of one's race, color or creed." (The Court found more difficult on the record
before it, and remanded, the question whether the trust should "continue on a non-
discriminatory basis" (see § 67 on cy pres) or whether the trust property should go
to the testator's heirs.)
Similarly strong on trust law and public policy but less uncertain about the
remedy (on which cf. § 29(c)) is the recent, unanimous decision in Home For
Incurables of Baltimore v. University of Maryland Medical System Corp., 369 Md. 67,
797 A.2d 746 (2002) (devise to the Home ["Keswick"] for a building to "house white
patients" only, with an express gift over (with no racial restriction) to the University
Hospital if the devise is not accepted by Keswick). After reviewing the parties'
arguments, the court stated: "[W]e shall assume, arguendo, that ... Keswick's
inability to comply with the illegal condition means that Keswick has not 'accepted'
the gift within the meaning of the will, and that judicial enforcement of the racially
discriminatory condition, by awarding the proceeds to University Hospital, will not
violate the United States Constitution, federal statutes, or the Maryland
Constitution. Nonetheless, ... under our cases dealing with illegal conditions in wills
as well as the cy pres doctrine, the bequest should be awarded to Keswick. This
court has long held that ... [such a] condition is invalid on the ground of public
policy. Under these circumstances, the condition will not be enforced by awarding
the bequest to an alternate beneficiary; instead, the illegal condition will be
excised." (797 A.2d at 750-751.) Then, after an extensive review of Maryland case
law, the court continued (id. at 756, citations omitted): "Today in Maryland, there
are few if any public policies stronger than the policy against discrimination based
on race or color. [¶ ] ... [W]here a condition attached to a bequest is clearly illegal
and violates a strong public policy, the illegal portion of the condition should be
excised and the bequest enforced without regard for the illegal condition." The court
concluded by stating (at 756) that the "racially discriminatory condition in Dr.
Coggins's will violates Maryland public policy.... Consequently the provisions of the
will should be administered as if the word 'white' was not contained in the bequest
to the Keswick Home."
Grant Home v. Medlock, 292 S.C. 466, 349 S.E.2d 655 (Ct. App. 1986), is an
interesting case that, in effect, applied both the doctrine of equitable deviation (see
§ 66) and the cy pres doctrine (§ 67) in a situation in which the trustees were
directed to operate a home for needy, white Presbyterians; the trustees obtained
court authorization to sell the home (because of deterioration in its neighborhood)
and to use the proceeds to subsidize housing in the same city, with the racial but
not the religious restriction removed, permitting subsidies to go to Presbyterians
without regard to their race.
For interesting arguments based on the federal Civil Rights Act of 1866, 42
U.S.C. §§ 1981 and 1982, see Florence Roisman, "The Impact of the Civil Rights Act
of 1866 on Racially Discriminatory Donative Transfers," 53 Alabama L. Rev. 463
(2002). In her conclusion (id. at 553) Professor Roisman states: "In Jones [v. Alfred
H. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968)], the Supreme
Court resuscitated the [Act], by which Congress had prohibited the imposition of
racial distinctions by 'custom, or prejudice', as well as by state or local law. While
most of the cases since 1968 have focused on the Act's protection of the rights to
buy or rent property, the Act broadly protects the rights to 'inherit,' 'purchase,' and
'hold,' real and personal property. [¶ ] Analysis of the 1866 Act indicates that it is
violated when intentional racial discrimination in a donative transfer is the basis for
attempting to deny to citizens the right to acquire or hold property, regardless
whether state action has been implicated in those transfers. The consequence of
this analysis should be to invalidate some discriminatory donative transfers that had
been considered free of state action, and to remedy other discriminatory donative
transfers by excising the discriminatory restraint rather than eliminating the
underlying gift."
Gender-specific restrictions. On whatever grounds may be asserted, the case
law is unsettled on the validity of gender-specific scholarship restrictions in
charitable trusts. In Ebitz v. Pioneer National Bank, 372 Mass. 207, 361 N.E.2d 225
(1977), the testator established a charitable trust "to aid and assist worthy and
ambitious young men to acquire a legal education," but the will also suggested that
the trustee use as a guide for implementing the trust "the educational program of
the Knights Templar," an organization of which he had for many years been a
member and a program that provided financial assistance to graduate students
without regard to gender. The court (at 211, 361 N.E.2d at 227) stated that "[i]f
some ambiguity should remain, we think the declared policy of the commonwealth
(art. 106 of the Amendments to the Massachusetts Constitution) regarding equal
treatment of the sexes should lead us to resolve it in favor of the plaintiffs" and
concluded that the testator "used the term 'men' in its generic sense, which includes
women."
Estate of Wilson, 59 N.Y.2d 461, 465 N.Y.S.2d 900, 452 N.E.2d 1228 (1983), on
the other hand, involved appeals from two cases each of which involved gender-
restrictive charitable trusts offering scholarships to males only. Finding no state
action to subject the cases to "the Fourteenth Amendment's strictures," the court
upheld the trusts. The opinion stated that "the trusts' particular limitation of
beneficiaries by gender" was not invalid "as violative of public policy." Although
these restrictions "run contrary to this [New York statutory] policy favoring equal
opportunity and treatment of men and women" in many "walks of life," the opinion
noted that a provision in a charitable trust "that is central to the testator's or
settlor's charitable purpose, and is not illegal, should not be invalidated on public
policy grounds unless that provision, if given effect, would substantially mitigate the
general charitable effect of the gift (see 4 Scott, Trusts (3d ed.), § 399.4)." Id. at
472-473, 452 N.E.2d at 1233. The opinion further notes, after discussing affirmative
action and programs of major charitable foundations, that "the focusing of private
philanthropy on certain classes within society may be consistent with public policy.
Consequently, that the restrictions in the trusts before this court may run contrary
to public efforts promoting equality of opportunity for women does not justify
imposing a per se rule that gender restrictions in private charitable trusts violate
public policy." Id. at 474, 452 N.E.2d at 1234. The court distinguished cases in
which settlors intended to benefit particular educational institutions that had
declined to accept restricted scholarships, and in which religious or other restrictions
were removed cy pres, stating: "In contrast, the trusts subject to [the present
appeals] were not intended to directly benefit the school districts. Although the
testators sought the school districts' participation, this was incidental to their
primary intent of financing part of the college education of boys who attended the
schools. Consequently, severance of the school districts' role in the trusts'
administration will not frustrate any part of the testators' charitable purposes." Id.
Thus, "a deviation [see § 66] from the Wilson Trust's administrative terms by
eliminating the [school] certification requirement would be the appropriate method
of continuing that trust's administration." Id. at 475, 452 N.E.2d at 1234-1235. The
opinion continues further (citations omitted): "The State generally may not be held
responsible for private discrimination solely on the basis that it permits the
discrimination to occur. Nor is the state under an affirmative obligation to prevent
purely private discrimination.... [unless] enforcement of its regulation has the effect
of compelling the private discrimination." Id. at 477, 452 N.E.2d at 1236. The court
concludes: "The courts' power to replace a trustee who is unwilling to act as in
Johnson or to permit a deviation from an incidental administrative term in the trust
as in Wilson is a part of the law permitting this private conduct and extends to all
trusts regardless of their purposes," and therefore the state need not exercise its
power "to eradicate private discrimination." Id. at 480, 452 N.E.2d at 1237.
Somewhat similar is Shapiro v. Columbia Union National Bank & Trust Co., 576
S.W.2d 310 (Mo.1978), in which again there was no finding of state action. A bank
trustee was to administer a trust to provide scholarship funds for "deserving Kansas
City boys" to attend the University of Kansas City (then a private university that
later became a part of the University of Missouri); the court upheld the trust as
written so that no application of cy pres was required. The opinion noted (id. at
317), however, that even the female plaintiff-appellant "concedes that a private
individual may dispose or use his or her money or property to benefit any particular
person or group even though there is discrimination on the basis of sex, but argues
that the 'process and procedures' here involve an agency of the state in such a
degree" as to violate her rights under federal constitutional and statutory (Civil
Rights Act, 42 U.S.C.A. § 1983(a)) law, adding (id. at 320-321):
In the area of the establishment of scholarship funds to attend a college or
university, the law is now developing. There are many legitimate varieties and
purposes for such scholarship funds. Funds come from a great variety of sources,
and trusts designate many types of eligible recipients. Sororities establish
scholarships for "any woman with a master's degree"; scholarships have been
established to aid "young women of the Greater New Bedford Area"; scholarships
aid persons of "Scottish descent" and "Black veterans"....
We, of course, approve equal access to educational opportunity. Such
opportunity is important to our society. But this must be balanced by the right of a
private person to dispose of his money or property as the testator wishes....
Also, compare Trustees of the University of Delaware v. Gebelein, 420 A.2d
1191 (Del.Ch.1980), in which the trust restricted scholarship assistance to women.
Noting that the restriction did not involve the high degree of sensitivity that would
be involved in trusts with racially restrictive provisions, the Chancery Court upheld
the gender-specific provision but did so, at least in large measure, based on policy
considerations of affirmative action. The opinion (at 1195-1196) stated:
On occasion, the Supreme Court of the United States has sustained gender
discrimination in situations in which the court has viewed such discrimination as
benign. Thus, challenged statutes which favor women have been upheld as
compensatory where it has been demonstrated that their purpose was to
counterbalance past discrimination....
The primary purpose of the Higgins' gift in trust to the University of Delaware is
clearly to assist financially poor women who would be otherwise denied an equal
educational opportunity at the college level, and the scholarship fund in question is
but a small part of the University of Delaware's financial aid program which is based
on equal opportunity.... I conclude ... that the benign discrimination set forth in the
Higgins' scholarship fund does not obstruct equal opportunity, but rather promotes
it by compensating past acts of discrimination.
Until such time ... as the ... policy of sexual equality in opportunities for higher
education are achieved, the University ... should ... be free to distribute the
scholarship funds here in issue in such a manner as to compensate for past and
present inequalities in educational opportunities....
At about the same time, the Chancery Division of the Superior Court of New
Jersey decided Matter of Crichfield Trust, 177 N.J.Super. 258, 426 A.2d 88 (1980),
in which a scholarship fund of which a state agency was trustee was modified cy
pres [see § 67] to permit eligible female as well as male high-school students to be
awarded college scholarships that had been restricted by the settlor to "worthy
boys." (The court also (cf. equitable deviation, § 66) authorized awards in excess of
the annual amount allowed by the terms of the trust in order to reflect the
significantly higher level of income generated annually by the fund.) The court
noted that "no party has defended the discrimination as compensatory for past
discrimination," citing by way of contrast the Gebelein case (above) in a footnote.
The court in In re Certain Scholarship Funds, 133 N.H. 227, 575 A.2d 1325, 90
A.L.R. 4th 811 (1990), used the cy pres power (§ 67) to remove gender restrictions
rather than substituting private fiduciaries for state agencies as trustees.
For interesting litigation involving a charitable trust, administered by private
individuals, to award college scholarships to "needy, deserving boys" from Hartford
County high schools, "who are members of the Caucasian race and who have ...
professed themselves to be of the Protestant Congregational Faith" (emphasis
added), see Lockwood v. Killian, 172 Conn. 496, 375 A.2d 998 (1977). Members of
the trust's special selection committee instituted an action for instructions, alleging
their inability to choose sufficient beneficiaries to expend all of the trust's annual
income and, partly to avoid imposition of federal taxes under IRC § 4942, seeking
removal of the racial and gender restrictions, asking the court to decide whether
such restrictions either were illegal or rendered administration of the trust
impracticable (§ 66). The Attorney General (Gillian) sought to have the religious
restriction removed as well. The plaintiffs relied on churches, colleges, and
universities to publicize the availability of the scholarships, but many of those
institutions refused to do so because of the various restrictions, although all parties
agreed that plaintiffs would be able to choose a sufficient number of beneficiaries if
the restrictions were removed. The trial court "applied the doctrine of cy pres or
approximation to remove [only] the racial and sexual restrictions" (finding this
sufficient to attract the necessary number of awardees) but preserved the religious
restriction because "state action" was not involved and thus there was no violation
of the United States and Connecticut constitutions. 172 Conn. at 499, 375 A.2d at
1000. Although vacating the judgment and ordering a new trial (but with a
particularly interesting dissent that urged that the "attorney general's role in this
case is sufficient alone to constitute state action," with the "involvement of the
judiciary" of "equal significance," and that "the administration of a charitable trust is
always ... state action" (id. at 511-514, 375 A.2d at 1005-1007)), the opinion of the
Supreme Court of Connecticut stated (id. at 500-501, 504-505, 509, 375 A.2d at
1001, 1003, 1005):
A trust for the advancement of education is charitable, and the beneficiaries of a
charitable trust to provide scholarships generally may be limited to persons of a
particular religion. Restatement (Second) Trusts § 370, Comment j; IV Scott Trusts
(3rd ed.) § 370.6.... As a charitable trust the Fuller Scholarship Fund must be
construed so as to uphold it, if it is reasonably possible to do so....
It has long been established that private conduct abridging individual rights does
not violate the equal protection clause of the fourteenth amendment to the
constitution of the United States....
The testator's restriction of beneficiaries ... to members of his own
Congregational faith could work to assure the legitimate purpose that there would
be well-educated and financially secure young followers to support the
Congregational faith.... [Compare what would seem to be an easier case for a
suitable religious purpose in the text example in this Comment involving
scholarships for rabbis.]
Under the facts of this case, the defendant's claim that state action is involved in
the private discrimination of the testator is not persuasive, particularly in light of the
testator's substantial interests deserving protection....
Because the judgment of the trial court was predicated solely upon such a
limited stipulation of facts, with no evidence whatsoever to establish ... what
alternate scheme might be a sufficient deviation to carry out the proper purposes of
the trust, we are constrained to hold that the court [below] erred in proceeding ...
without further evidence or investigation.
The ultimate disposition of this litigation (remanding with direction) in Lockwood
v. Killian, 179 Conn. 62, 425 A.2d 909 (1979), is consistent with the earlier opinion
(above) so far as relevant here. A portion of Justice Bogdanski's dissent (179 Conn.
at 73-74, 425 A.2d at 914), however, is relevant and interesting: "It is beyond
dispute that the furtherance of religion has always been regarded as a public good
and as a proper purpose for a charitable trust. I concede that if the purpose of the
instant trust were primarily religious there would be no constitutional difficulty with
the maintenance of the restriction in question. The difficulty is that the purpose of
the present trust is not the furtherance of religion but is rather the providing of
educational assistance to deserving and needy young persons. In a charitable trust,
the purpose of which is the furtherance of education, discriminatory criteria for
eligibility, such as involved here, are clearly violative of the fourteenth amendment
and no distinction can be made between the racial and sexual restrictions on the
one hand, and the equally discriminatory religious restriction on the other...."
Cf., on evolution of the relevant law and policy: "Title VII outlaws sex
discrimination in employment, directing that an employee's compensation, terms,
conditions, or privileges of employment must not be provided in a sexually
discriminatory manner [42 U.S.C. § 2000e-2(a)].... While Title VII does not
distinguish disparate treatment and sexual harassment, courts historically have.
[Citing R. White, "There's Nothing Special About Sex: The Supreme Court
Mainstreams Sexual Harassment," 7 William & Mary Bill of Rights J. 725, 726
(1999), that "federal judges confronting sexual harassment cases have treated
these claims as something special or different from run of the mill discrimination
claims"].... By [recently] expanding the range of conduct that may support a sexual
harassment claim ..., the court ... makes sexual harassment claims practically
indistinguishable from disparate treatment claims.... This vision of Title VII ... also
suggests quite sensibly that nearly any gender-related conduct in the workplace
that substantially negatively affects an employee's work is potentially actionable."
H. Chambers, Jr., "A Unifying Theory of Sex Discrimination," 34 Georgia L. Rev.
1591 (2000) (at 1591, 1593, 1643, paragraphing disregarded).
See generally S. Mayeri, " 'A Common Fate of Discrimination': Race- Gender
Analogies in Legal and Historical Perspective," 110 Yale L.J. 1045 (2001); an
interesting aspect of the author's discussion begins with Reed v. Reed, 404 U.S. 71,
92 S.Ct. 251, 30 L.Ed.2d 225 (1971) (suit challenging Idaho's statutory preference
for male estate administrators), noting (id. at 1074): "The Court's decision in Reed
was a victory for the WRP [ACLU's Women's Rights Project] and its allies, though
the opinion contained only a cryptic declaration that administrative convenience
would not suffice as a rationale for discriminating on the basis of sex. The WRP
continued to urge the Court to declare sex a suspect classification, and less than
two years later, in Frontiero v. Richardson, [411 U.S. 677, 93 S.Ct. 1764, 36
L.Ed.2d 583 (1973) (invalidating a military benefit program)], these efforts came
tantalizingly close to fruition. A four-Justice plurality, led by Brennan, accepted strict
scrutiny as the appropriate standard for evaluating laws that draw distinctions on
the basis of sex.... The fate of race-sex analogies in Reed and Frontiero reveals the
profound context-dependency of their social meaning and legal consequences."
Sexual orientation. For a careful review of cases (applying equal protection or
other constitutional safeguards) and legislation protecting various rights of same-
sex couple, in some American states and in other countries, see Principles of the
Law of Family Dissolution: Analysis and Recommendations § 6.03, Reporter's Notes.
Significant recent cases include Tanner v. Oregon Health Sciences University, 157
Or.App. 502, 971 P.2d 435 (1998) (that state constitution requires university to
extend life- and health-insurance benefits to employee's same-sex partners); and
Baker v. State, 170 Vt. 194, 744 A.2d 864 (1999) (as a result of which the Vermont
legislature (2000 Vt. Laws 91) extended to same-sex couples comprehensive
protections and benefits paralleling those available to married couple). See also
1999 Cal. Stat. ch. 588, as well as the legislative aftermath of Baehr v. Lewin, 852
P.2d 44 (Hawaii 1993), in 1997 Hawaii Laws, Act. 383. Compare news report,
"Same-Sex Partners Win Legal Status in Germany," The New York Times,
International (Reuters, Aug. 2, 2001).
See also D. Hutchinson, "Closet Case: Boy Scouts of America v. Dale [530 U.S.
640, 120 S.Ct. 2446, 147 L.Ed.2d 554 (2000)] and the Reenforcement of Gay,
Lesbian, Bisexual, and Transgender Invisibility," 76 Tulane L. Rev. 81 (2001); E.
Stringer, "Has the Supreme Court Created a Constitutional Shield for Private
Discrimination Against Homosexuals? A Look at the Future Ramifications of Boy
Scouts of American v. Dale," 104 W. Virginia L. Rev. 181 (2001); and S.
Buchannan, "A Constitutional Cross-Roads for Gay Rights," 38 Houston L. Rev. 1269
(2001).
For an interesting discussion that is potentially relevant here, see E. Brody,
"Entrance, Voice and Exit: The Constitutional Bowels of the Right of Association," 35
U.C. Davis L. Rev. 821 (2002).
Affirmative action. On affirmative-action efforts and arguably "compensatory
discrimination" in favor of minorities, compare the restrictive views of two cases
involving obvious "state action": Podberesky v. Kirwan, 38 F.3d 147 (4th Cir.1994)
(involving a University of Maryland held and administered scholarship fund open
only to African American students and applying a rigorous standard for a
justification of past discrimination); and Hopwood v. State of Texas, 78 F.3d 932
(5th Cir.1996) (applying an even more rigorous test for a past-discrimination
justification in a state university's minority admissions program, which was held to
violate equal protection). Contrast, however, the quite different, more receptive
views reflected in Smith v. University of Washington Law School, 233 F.3d 1188
(9th Cir.2000); and the majority opinion in Grutter v. Bollinger (Univ. of Michigan
Law School), 288 F.3d 732 (6th Cir. 2002), cert. granted, ___ U.S. ___, 123 S.Ct.
617, 154 L.Ed.2d 514 (2002).
See generally W. Van Alstyne, "Affirmative Actions," 45 Wayne L. Rev. 1517
(2000); R. Berdahl, "Policies of Opportunity: Fairness and Affirmative Action in the
Twenty-First Century," 51 Case Western Reserve L. Rev. 15 (2000); and R.B.
Ginsburg, "Affirmative Action as an International Human Rights Dialog," 18
Brookings Review 3 (Winter 2000).
Also, on what may not be "invidious," cf. Re McConnell (Deceased), 3 ITELR 24
(2000), in which the Supreme Court of British Columbia held that the University of
Victoria was not prevented either by the B.C. Human Rights Code or by public policy
from carrying out a bequest to provide scholarships for students who were
practicing Roman Catholics.
Numerous other cases at least tacitly accepting racial, ethnic, gender, or
religious restrictions or definitions of charitable purpose are cited throughout the
Reporter's Notes to various of the Comments hereafter.
Comment g:
Many of the "poverty" cases have involved, often with no specified requirement
of need, homes or other forms of aid or benefits for orphans, the elderly, and the
like. See, e.g., In re Wood, 108 Cal.App. 694, 292 P. 144 (1930) (gifts for inmates
of orphans' home); Samarkand of Santa Barbara v. County of Santa Barbara, 216
Cal.App.2d 341, 31 Cal.Rptr. 151 (1963) (aid to elderly persons); John Tennant
Memorial Homes v. City of Pacific Grove, 27 Cal.App.3d 372, 103 Cal.Rptr. 215
(1972) (retirement home); First National Bank v. Elliott, 406 Ill. 44, 92 N.E.2d 66
(1950) (orphans' home); Towle v. Nesmith, 69 N.H. 212, 42 A. 900 (1898) (widows
and children); Matter of Hare, 1 Misc.2d 114, 149 N.Y.S.2d 428 (Sur. Ct. 1955)
(vacations for underprivileged children); Belle Harbor Home v. Tishelman, 100
Misc.2d 911, 420 N.Y.S.2d 343 (1979) (home for the aged), aff'd, 81 App. Div. 2d
886, 441 N.Y.S.2d 413 (1981); Lewis v. Board of County Comm'rs, 98 Ohio App.
192, 128 N.E.2d 818 (1952) (home for elderly women); Estate of Myers, 351 Pa.
472, 41 A.2d 570 (1945) (home for friendless persons); Wooten v. Fitz-Gerald, 440
S.W.2d 719 (Tex.Civ.App.1969) (home for aged men); McClure v. Carter, 202 Va.
191, 116 S.E.2d 260 (1960) (home for widows and maiden ladies).
Among the numerous cases (in addition to several gender-restricted trust cases
parenthetically noted above) with restrictions to particular groups of needy persons,
including ethnic, age, and gender restrictions, see Olivas v. Board of Missions, 1
Az.App. 543, 405 P.2d 481 (1965) (homes for Indians); Edgeter v. Kemper, 73 Ohio
Law Abs. 297, 136 N.E.2d 630 (1955) (indigent American Indians); Strother v.
Kennedy, 218 Ga. 180, 127 S.E.2d 19 (1962) (home for indigent colored people of
Augusta); Treadwell v. Beebe, 107 Kan. 31, 190 P. 768 (1920) (needy residents of
a city), 10 A.L.R. 1359; Danner v. Shanafelt, 159 Ohio St. 5, 110 N.E.2d 772
(1953) (poor of a particular town); Clark v. Mayor of Gloucester, 336 Mass. 631,
147 N.E.2d 191 (1958) (indigent of a particular city and over age 60); Burns v.
Kabboul, 407 Pa.Super. 289, 595 A.2d 1153 (1991), appeal denied, 529 Pa. 655,
604 A.2d 247 (1992) (60 poorest families in designated townships); Hilliard v.
Parker, 76 N.J.Eq. 447, 74 A. 447 (1909) (needy women of a particular town);
Estate of Creighton, 91 Neb. 654, 136 N.W. 1001 (1912) (poor working girls);
Bennett v. Attorney General, 245 N.C. 312, 96 S.E.2d 46 (1957) (aged and
homeless ladies); Guaranty Trust Co. v. New York Community Trust, 139 N.J.Eq.
144, 50 A.2d 161 (1946), 141 N.J.Eq. 238, 56 A.2d 907 (1948), aff'd, 142 N.J.Eq.
726, 61 A.2d 239 (1948) (shoes for needy actors); Matter of Murray, 198 Misc. 45,
99 N.Y.S.2d 32 (1948) (needy Salvation Army officers); Morse v. First National
Bank, 194 S.W.2d 578 (Tex. App. 1946) (poor of the Isle of Jersey). See also
Armenian General Benevolent Union v. The Union Trust Co., 87 C.L.R. 597
(Australia, 1952) (orphans of Russian soldiers of World War II).
That the beneficiaries need not be severely impoverished, see Delmo Housing
Corp. v. Finnegan, 85 F.Supp. 220 (E.D.Mo.1949) (assistance in purchasing
homes); Bakos v. Kryder, 260 Ark. 621, 543 S.W.2d 216 (1976) (payment of each
child upon leaving a particular children's home, most occupants of which were
poor); Camp Isabella v. Town of Canaan, 147 Conn. 510, 162 A.2d 700 (1960) (to
assist with social adjustment of underprivileged young people); Bills v. Pease, 116
Me. 98, 100 A. 146 (1917) (worthy individuals lacking means of comfortable
support); Thornton v. Franklin Square House, 200 Mass. 465, 86 N.E. 909 (1909)
(home for working girls at moderate cost); Bowditch v. Attorney General, 241 Mass.
168, 134 N.E. 796 (1922) (to promote best interests of sewing girls in Boston), 28
A.L.R. 713; Mirinda v. King, 11 N.J.Super. 165, 78 A.2d 98 (1951) (aged and blind);
Matter of MacDowell, 217 N.Y. 454, 112 N.E. 177 (1916) (home for women of
modest means living unhappily with relatives); Pape v. Title & Trust Co., 187 Or.
175, 210 P.2d 490 (1949) (home for self-supporting women), noted 1 Hastings L.J.
158, 29 Oregon L. Rev. 153; Estate of Daly, 208 Pa. 58, 57 A. 180 (1904) (to assist
industrious girls and women); Clevenger v. Rio Farms, 204 S.W.2d 40
(Tex.Civ.App.1947) (homes for low-income farmers); Spokane Methodist Homes v.
Dep't of Labor, 81 Wash. 2d 283, 501 P.2d 589 (1972) (for elderly). See also In re
Lewis, [1955] Ch. 104, noted 18 Modern L. Rev. 76, 71 Law Quarterly Rev. 16
(stated sum to 10 blind girls and 10 blind boys, resident in Tottenham if possible).
On charging for services to help support the charitable purpose, see, e.g.,
Matter of Nevins, 16 Misc.2d 425, 184 N.Y.S.2d 405 (Sur. Ct. 1959) (home for
persons in need allowed by court to charge what residents could afford).
A trust to maintain a home for indigent women contained a provision requesting
that preference be given to the settlor's nieces but was nevertheless held charitable
because the provision for the nieces was precatory in McClure v. Carter, 202 Va.
191, 116 S.E.2d 260 (1960).
Comment h:
The cases upholding charitable trusts on grounds that they promote education
are numerous throughout the country and encompass broad and diverse purposes.
See, e.g., Transamerica Corp. v. United States, 15 Cl. Ct. 420 (1988), aff'd, 902
F.2d 1540 (Fed.Cir.1990) (old movies for university); President & Fellows of
Harvard College v. Jewett, 11 F.2d 119 (6th Cir.1925) (for preservation of land
containing Indian relicts); Coast Guard v. Cerio, 831 F.Supp. 530 (E.D.Va.1993)
(trust for annual science award for Coast Guard Academy graduate); Estate of Peck,
168 Cal.App.2d 25, 335 P.2d 185 (1959) (foundation to support foreign-affairs
training for journalists); Hardman v. Feinstein, 195 Cal.App.3d 157, 240 Cal.Rptr.
483 (1987) (art museum); Hoyt v. Bliss, 93 Conn. 344, 105 A. 699 (1919) (trust to
fund college scholarships on a competitive basis without regard to need); Summers
v. Chicago Title & Trust Co., 335 Ill. 564, 167 N.E. 777 (1929) (student loan fund),
noted 24 Illinois L. Rev. 687, 39 Yale L.J. 437; People ex rel. Hellyer v. Morton, 373
Ill. 72, 25 N.E.2d 504 (1940) (foundation for practical horticultural and
arboricultural research); Quinn v. Peoples Trust & Savings Co., 223 Ind. 317, 60
N.E.2d 281 (1945) (for college education of children of a railroad's employees);
Eckles v. Lounsberry, 253 Iowa 172, 111 N.W.2d 638 (1961) (instruction in vocal
music and lung development for young school children); Commercial National Bank
v. Martin, 185 Kan. 116, 340 P.2d 899 (1959) (payments to schoolmistress);
Worcester County Trust Co. v. Grand Knight, 325 Mass. 748, 92 N.E.2d 579 (1950)
(annual prize for students at Catholic Colleges in New England); Junior Achievement
of Greater Mpls. v. State, 271 Minn. 385, 135 N.W.2d 881 (1965) (for training
youth in free-enterprise system); Bogdanovich v. Bogdanovich, 360 Mo. 753, 230
S.W.2d 695 (1950) (to establish school in Yugoslavia); Flynn v. Danforth, 547
S.W.2d 132 (Mo.App.1976) (city library); Princeton Township v. Institute for
Advanced Study, 59 N.J.Super. 46, 157 A.2d 136 (1960) (for research); Stoolman
v. Camden County Boy Scouts Council, 77 N.J.Super. 129, 185 A.2d 436 (1962) (for
organization to provide citizenship training); Matter of Howell, 109 N.Y.S.2d 270
(Sur. Ct. 1951) (loan fund for teachers); Trustees of U. of N.C., Chapel Hill v.
Unknown Heirs of Prince, 311 N.C. 644, 319 S.E.2d 239 (1984) (to build theater for
university drama society); Westlake v. Ohio Northern University, 50 Ohio Op. 2d
417, 256 N.E.2d 642 (1969) (for recreational, educational, and character-building
activities primarily for rural people in a particular county); Smith v. Powers, 83 R.I.
415, 117 A.2d 844 (1955) (preservation of colonial-period house and contents);
Mercantile Banking & Trust Co. v. Showacre, 102 W.Va. 260, 135 S.E. 9 (1926)
(annual lecture series), 48 A.L.R. 1138, noted 34 West Va. L.Q. 386; and Estate of
Robinson, 248 Wis. 203, 21 N.W.2d 391 (1946) (to establish professorship to be
held by a woman).
Estate of Connolly, 48 Cal.App.3d 129, 121 Cal.Rptr. 325 (1975), concluded that
promotion of agnosticism is an educational purpose, whether the settlor's
"viewpoint" is "correct or incorrect."
Technical Advice Memorandum 9835003 ruled that the IRC § 501(c)(3) exempt
status of a consumer-education organization was not lost because its radio
programs and book sales occasionally (but insubstantially) focus on current political
events (and UFOs!); its activities are not operated in a commercial fashion and,
despite some politically controversial topics, they do not encourage audiences to
adopt a particular viewpoint or to take action. Such a trust should readily be upheld
as educational under this Comment (and of public interest under Comment l) and
thus charitable for trust-law purposes.
That an educational institution conducted for shareholder profit is not charitable,
see Radosevic v. Virginia Intermont College, 633 F.Supp. 1084 (W.D.Va.1986). But
contrast student fees or loan interest to assist students attending the educational
institution in Morgan v. National Trust Bank, 331 Ill. 182, 162 N.E. 888 (1928),
noted 3 Temple Univ. L.Q. 226; and also in Wright's Estate, 284 Pa. 334, 131 A.
188 (1925), noted 39 Harvard L. Rev. 659.
On the noncharitable character of trusts to educate friends or relatives of the
settlor, see Estate of Keenan, 519 N.W.2d 373 (Iowa 1994) (settlor's descendants);
Ball v. Knox, 768 S.W.2d 829 (Tex.App.1989) (for issue of brothers and sisters of
settlor and his wife); University of Louisville v. Isert, 742 S.W.2d 571
(Ky.App.1987) (for issue of 2 named individuals); but see Estate of Carlson, 187
Kan. 543, 358 P.2d 669 (1961) (upholding as charitable a trust to provide a medical
education for a person if she would agree to return home to practice).
Although trusts for the education of the settlor's relatives are not charitable,
scholarship trusts that indicate a preference for the settlor's issue or other relatives
may well be upheld as charitable. See Fratcher, Scott on Trusts, supra, § 375.3, and
even the tax case of Estate of Sells v. Comm'r, 10 T.C. 692 (1948) (allowing a
charitable deduction for estate-tax purposes). Cf. Griffin v. United States, 400 F.2d
612 (6th Cir.1968) (educational trust for settlor's grandchildren and "deserving boys
and girls," with the grandchildren to be "the primary beneficiaries," did not qualify
for the charitable deduction although it had been upheld as charitable under state
law).
That trusts to publish and disseminate the settlor's writings or to exhibit a
settlor's art collection is not charitable if the writings or collections are of negligible
public interest or literary or artistic value, see, e.g., Medical Society of S.C. v. South
Carolina National Bank, 197 S.C. 96, 14 S.E.2d 577 (1941); Wilber v. Asbury Park
National Bank & Trust Co., 142 N.J.Eq. 99, 59 A.2d 570 (1948), aff'd, 2 N.J. 167, 65
A.2d 843 (1949) (but the court found the settlor's "general charitable intent"
sufficiently broad that cy pres [§ 67] could be applied to authorize a proximate
purpose), noted 63 Harvard L. Rev. 348. But cf. Rosser v. Prem, 52 Md.App. 367,
449 A.2d 461, cert. denied, 294 Md. 651 (1982), and Matter of Manschinger, 74
Misc.2d 373, 343 N.Y.S.2d 426 (Sur. Ct. 1973), upholding trusts to publish and
distribute testator's book manuscript and musical compositions of testator's
husband, respectively, as items of literary and artistic merit. See also State ex rel.
Emmert v. Union Trust Co., 227 Ind. 571, 86 N.E.2d 450 (1949) (trust to publish
and distribute grandfather's diaries on state's early history).
Comment i:
"[A]s early as 1639 [in England] it was held that a trust to maintain a preaching
minister was a valid charitable trust. From then on the courts in England had no
doubt that a trust to promote in any way the established religion is a valid
charitable trust. Only gradually, however, did the English courts come to uphold, as
charitable, trusts for other religions than that of the establishment.... In the United
States the courts have had no difficulty in upholding trusts for the promotion of any
form of religion." IVA William A. Fratcher, Scott on Trusts § 371 (4th ed. 1989).
Also, unlike some of the English decisions, the American cases have consistently
shown considerable breadth in their acceptance of methods of advancing religion
and religious activities. A much cited and discussed case is Girard Trust Co. v.
Comm'r, 122 F.2d 108 (3d Cir.1941) (allowing an estate-tax deduction for a devise
to the Board of Temperance, Prohibition and Public Morals of a particular church),
138 A.L.R. 448, noted in 46 Dickinson L. Rev. 199, 30 Georgetown L.J. 346, 14
Rocky Mtn. L. Rev. 70, 90 Univ. of Pennsylvania L. Rev. 365, 27 Washington Univ.
L.Q. 276. See also, e.g., Estate of Starkey, 223 F.3d 694 (7th Cir. 2000) (for a
specified church and "missionaries preaching the Gospel of Christ"), on remand
2001 WL 175939 (S.D.Ind.2001); King v. Richardson, 136 F.2d 849 (4th Cir.1943),
cert. denied sub. nom. 320 U.S. 777, 64 S.Ct. 91, 88 L.Ed. 466 (1943) (to support
domestic and foreign missions and benevolent causes of a church); Estate of
Muhammad, 165 Ill.App.3d 890, 117 Ill.Dec. 444, 520 N.E.2d 795 (1987), appeal
denied, 119 Ill.2d 557, 119 Ill.Dec. 388, 522 N.E.2d 1247 (1988) (to leader of
Nation of Islam for support of himself and his family, for aid to the poor, and for
"uplifting the black man in America"); People ex rel. Marsters v. Missionaries, 409
Ill. 370, 99 N.E.2d 186 (1951) (to conduct retreats); Mt. Tremper Lutheran Camp v.
Board of Assessors, 70 A.D.2d 984, 417 N.Y.S.2d 796 (1979) (Christian Camp);
Matter of MacFarland, 95 N.Y.S.2d 258 (Sur. Ct. 1950) (weekly flower supply for
church); Estate of Geppert, 75 S.D. 96, 59 N.W.2d 727 (1953) (for bishop's use for
supporting activities in poor parishes); Bode v. Loeffler, 540 S.W.2d 465
(Tex.Civ.App.1976) (for retired ministers).
That a gift to a foreign government to rebuild a mosque is a religious purpose
eligible for a charitable deduction for tax purposes, see Private Letter Ruling
200024016.
In England until 1934, and in some early cases in the United States, trusts for
masses were held not to be charitable. See, e.g., Estate of Schmucker, 61 Mo. 592
(1876); cf. Chelsea National Bank v. Our Lady, Star of the Sea, 105 N.J.Eq. 236,
147 A. 470 (1929) (not charitable but allowed as a funeral expense), noted 78 Univ.
of Pennsylvania L. Rev. 573; In re Shanahan, 159 Ohio St. 487, 112 N.E.2d 665
(1953) (not exempt for inheritance-tax purposes). Now, by a considerable and
growing weight of authority in this country, trusts for masses are charitable as
benefiting living members of the church and possibly, according to the Roman
Catholic church doctrine, the world as a whole. See Fratcher, Scott on Trusts, supra,
§ 371.5, collecting authorities. (If not held "charitable," however, see § 47.)
Illustrative of cases upholding such devises as charitable are Mahoney v. Nollman,
309 Mass. 522, 35 N.E.2d 265 (1941); Will of Kavanaugh, 143 Wis. 90, 126 N.W.
672 (1910) (overruling prior decision), 28 L.R.A. (n.s.) 470. Cf. Matter of Beckley,
63 App.Div. 2d 855, 405 N.Y.S.2d 861, appeal denied, 45 N.Y.2d 837 (1978).
This Comment is not in agreement with Gilmore v. Coats, [1949] A.C. 426,
invalidating a gift for the "purposes of the Roman Catholic community known as the
Carmelite Priory" and stating (at 444-446): "[R]eligious purposes are charitable, but
that can only be true [of activities] tending directly or indirectly toward the
instruction or edification of the public.... [A court does not] accept as proved
whatever a particular church believes [for] the courts only act on proof. A gift to
one or two or a hundred cloistered nuns in the belief that their prayers will benefit
the world at large does not from that belief derive validity any more than does the
belief of any other donor for any other purpose."
What is a religion? "Even though there is nothing positively illegal in the tenets
of a religious sect [see, e.g., Late Corporation of the Church of Jesus Christ of the
Latter-Day Saints v. U.S., 136 U.S. 1, 10 S.Ct.792, 34 L.Ed.478 (1890) (on unlawful
advocacy of practice of polygamy)], if they appear to be so absurd as to be
irrational it is arguable that a trust to promote the religion is not a charitable trust.
The difficulty, however, is that very frequently the tenets of one religion are
irrational to the adherents of other religions and to those who have no religious
convictions. Where the purpose of the trust is not the promotion of religion but
merely the promotion of purposes that are of a character beneficial to the
community, it is obvious that a distinction must be drawn between what may
rationally be thought to be beneficial to the community and what is clearly absurd.
Where the purpose is to promote a particular religion, however, it is almost
impossible to draw such a line. In an English case [In re Hummeltenberg, (1923) 1
Ch. 237], it was held that a trust to establish a college to train suitable persons as
spiritualistic mediums was not a charitable trust. It was not contended in that case,
however, that the trust was for the promotion of religion, but the contention was
that it might be upheld as a trust for the advancement of education or a trust
generally beneficial to the community." Fratcher, Scott on Trusts, supra § 37.4. See
also Stephan's Estate, 129 Pa.Super. 396, 195 A. 653 (1937), which invalidated a
trust for the upkeep of a spiritualist camp.
See also related discussion in Comment l and citations on spiritualist causes
collected in the Reporter's Note thereto.
The Scott treatise is also informative with regard to religious trusts that are
general or vague (id. § 371.2): "A trust for the advancement of religion without
specifying any method of achieving the purpose is a valid charitable trust. Thus in
Matter of Durbrow [245 N.Y. 469, 157 N.E. 747 (1927), noted 13 Cornell L.Q. 310,
22 Illinois L. Rev. 454] a testatrix left the residue of her estate to her executor to
distribute it as he or his successor should consider 'most effective to the
advancement of Christ's kingdom on earth.' The lower court held that this was too
indefinite a purpose and that the intended trust failed, but the Court of Appeals
upheld the trust.... Occasionally, it is true, there is a decision to the effect that such
a trust fails because the purpose is too general. By the great weight of authority,
however, it is held that if the purpose is limited to the advancement of religion the
mere fact that the testator has not specified a particular religion and has not
specified any method by which religion is to be advanced is not fatal to the validity
of the trust."
In re Freshour's Estate, 185 Kan. 434, 345 P.2d 689 (1959), involved a will that
left a share of a residuary estate in trust "for the benefit of the parish of St.
Joseph's Catholic Church" and "for the benefit of the members of the First Methodist
Church," both of Hayes, Kansas. Id. at 436, 345 P.2d at 692. The appeal in the case
was from a district-court decision that the trusts were intended to be private trusts
for the benefit of the individual members of the two churches and were therefore
invalid both for indefiniteness of beneficiaries and for violation of the rule against
perpetuities. In reversing, the Kansas Supreme Court stated: "A trust may be valid
as a trust for the advancement of religion although in the terms of the trust it is not
stated in specific terms that the purpose is religious. Thus, the fact that a legatee or
devisee is a religious organization or a person holding a religious office may indicate
that it is to be applied for religious purposes, although by the terms of the trust its
application is not specifically so limited. (Restatement of Law, Trusts, § 371c....)"
185 Kan. at 439, 345 P.2d at 694. The opinion went on to state that it "remains to
inquire whether the respective bequests and devises are void because the testator
designated no uses to which the property should be applied" and concluded: "[A]
gift to a church or to a church society by name, without declaration or restriction as
to the use to be made of the subject matter of the gift, must be deemed to be a gift
for the promotion of the purposes for which the church was organized. Courts look
with favor upon trusts for charitable purposes and construe language creating such
trusts most favorable for their validity." Id. at 443-444, 345 P.2d at 697 (citations
omitted).
Comment j:
As noted in the text of this Comment, cases--usually with little difficulty-- uphold
many different methods of pursuing the charitable purpose of promoting health. The
trust purposes range from providing health-care services and medicine for the
needy, or for the young or elderly, to the construction and maintenance of hospitals,
and from the removal of causes of diseases to research for the purpose of
enhancing medical or psychological knowledge. For discussion and extensive
collection of cases, see George G. Bogert & George T. Bogert, The Law of Trusts and
Trustees § 374 (rev. 2d ed. 1991).
As with other charitable purposes, trusts for the promotion of health must not be
for the benefit of groups so narrowly defined as to constitute a private purpose and
must not be for the purpose of making profit for shareholders or purposes that are
not charitable. An interesting tax case involving the private-purpose question is
Estate of Orphanos, 67 T.C. 780 (1977), in which a U.S. citizen left land in trust to
accumulate income to be used to construct a hospital in a village in Greece, with the
land to be sold and the trust to terminate by expending the proceeds of sale for the
purchase of hospital equipment. The court held that the IRS could not properly
disallow the estate-tax deduction because the hospital and other trust assets would
not belong to or benefit the settlor's heirs but would pass to the village or its
representative to be held exclusively for charitable purposes. See also, e.g., on the
profit-making question, Darsie v. Duke University, 48 N.C.App. 20, 268 S.E.2d 554
(1980), that a private institution is charitable if it does not make a profit that can be
applied for a noncharitable purpose. And see Scripps Memorial Hospital v. California
Employment Commission, 24 Cal.2d 669, 151 P.2d 109 (1944), 155 A.L.R. 360
(charging patients according to their ability to pay does not render hospital
noncharitable when payments are applied to expenses of a hospital that is not run
for profit).
Although health services or benefits provided by a trust only for the settlor's
selected friends, descendants, or other relatives would not be charitable, a trust to
establish or maintain a hospital for the employees of a particular railroad was
upheld as charitable in Illinois Central RR. v. Buchanan, 126 Ky. 288, 103 S.W. 272
(1907). And compare Estate of McKenzie, 227 Cal.App.2d 167, 38 Cal.Rptr. 496
(1964), 7 A.L.R.3d 1275 (trust to reward individual who discovers the cause and a
cure for rheumatoid arthritis was held charitable despite the financial benefit to an
individual, because the "public is the true beneficiary of what will result").
The doctrine of cy pres was held inapplicable in In re Gonzalez, 262 N.J.Super.
456, 621 A.2d 94 (1992), because a trust of donations for a named individual's
medical treatment was not charitable; unneeded funds were therefore to be
returned to the donors.
Comment k:
The diverse cases falling within this Comment include: Riverton Area Fire
Protection District v. Riverton Volunteer Fire Department, 208 Ill.App.3d 944, 153
Ill.Dec. 165, 566 N.E.2d 1015 (1991) (funds contributed to not-for-profit
corporation for a volunteer fire department to serve a certain fire-department
district was held to be a charitable trust); Burr v. City of Boston, 208 Mass. 537, 95
N.E. 208 (1911) (devise to city to use the income to maintain city parks held to
create a charitable trust with a "public use" that would otherwise have to be paid for
by taxpayers); Estate of Butin, 81 Cal.App.2d 76, 183 P.2d 304 (1947) (to erect a
tower in memory of persons who contributed to the development of Madera
County), noted 46 Michigan L. Rev. 705; Hosmer v. City of Detroit, 175 Mich. 267,
141 N.W. 657 (1913) (for a fountain in a public park, even though accompanied by
statue of settlor); Petition of Simpson, 89 N.H. 550, 3 A.2d 97 (1938) (devise to
town for its best interests); Anderson v. Malone, 95 Ohio Abs. 211, 205 N.E.2d 131
(1963) (for police pension fund); and Rissman v. Lanning, 276 S.W.2d 356 (Tex.
App. 1955) (to state Board of Control for orphans' home).
An estate-tax deduction case, Dulles v. Johnson, 273 F.2d 362 (2d Cir. 1959),
cert. denied, 364 U.S. 834, 81 S.Ct. 54, 5 L.Ed.2d 60 (1960), held that the bar
associations involved were charitable organizations, regulating and monitoring
activities that would otherwise have to be supported by the public.
In Butler v. Shelton, 408 S.W.2d 530 (Tex.Civ.App.1966), it was held that a
trust to maintain a park for the benefit of particular land owners adjacent to it was
private in nature and not charitable.
Comment l:
The discussion in this Comment parallels the material in § 374 of the prior
Restatements of Trusts. The observations in Restatement Second, Trusts § 374 and
its Comment a, for example, are equally apt today. The black letter of that Section
states: "A trust for the promotion of purposes which are of a character sufficiently
beneficial to the community to justify permitting the property to be devoted forever
to their accomplishment is charitable." Comment a then begins: "The purposes
stated in §§ 369-373 [comparable to Comments g-k here] are particular classes of
purposes the promotion of which is beneficial to the community. These particular
purposes have long been recognized as of this character, and trusts to promote
them have long been upheld as charitable trusts. The present Section deals with the
large and indefinite classes of purposes other than those which are dealt with in the
preceding Sections which are nevertheless held to promote the social interests of
the community and are upheld as falling within the scope of charitable purposes. No
attempt will be made or can successfully be made to enumerate all the purposes
which fall within the scope of the present Section. See § 368, Comment b [here, see
Comment a of this Section]. On the question whether a particular purpose ... falls
within the present Section, much depends upon the time and the place at which the
question arises. The question in each case is whether at the time when the question
arises and in the State in which it arises the purpose is one the accomplishment of
which might reasonably be held to be for the social interest of the community."
To similar effect, see observations in IVA Fratcher, Scott on Trusts, supra, §
374, with further elaboration in § 374.1-374.11(A). See also Bogert & Bogert, The
Law of Trusts and Trustees, supra, § 379 (entitled "Miscellaneous Alleged Charitable
Purposes," with subheadings on "Generosity and Liberality," "Clubs and Lodges,"
"Protection of Animals Against Cruelty and Suffering," "Aid of the Underprivileged or
Distressed," "Sports, Games and Recreation," and "Whimsical or Irrational Trusts").
See A. Arpad, "Private Transactions, Public Benefits, and Perpetual Control Over
the Use of Real Property: Interpreting Conservation Easements as Charitable
Trusts," 37 Real Property, Probate & Trust J. 91 (Spring 2002).
With the fifth paragraph of this Comment compare the opinion (by Gray, J.) in
the influential Jackson v. Phillips, 96 Mass. (14 Allen) 539, 556 (1867), which stated
that a charitable gift was one that would "benefit ... an indefinite number of
persons" by, among other things, "assisting them to establish themselves in life"
(emphasis added).
Further to the effect that a trust to enhance economic opportunities or comforts
of life is of community or public benefit, and thus charitable, even if those who
benefit directly are not impoverished, see Reporter's Note to Comment g.
With Illustrations 4 and 5, and particularly the latter, compare the explanation
(Davies, L.J.) in Re Pinion, [1965] 1 Ch. 98, 197 (C.A.), that in cases of the type
before the court (much like Illustration 5), the court must "receive expert evidence
on the question whether the display [would be] for the advancement of education or
otherwise of benefit to the public," noting that "without such evidence the court
would be unable to decide the question." The character of the testator's collection of
his own and others' paintings in the Pinion case, plus some antique furnishings, led
one expert witness to express "surprise that so voracious a collector should not by
hazard have picked up even one meritorious object"!
See also cases on testators' creations and collections and their literary or artistic
merit, or lack thereof, described at the end of the Reporter's Note to Comment h
(on educational purposes).
"Gifts which are made out of mere sentiment or have no practical result except
the satisfying of a whim of the donor are obviously lacking in the widespread social
effect necessary to a charity.... Carrying them out would amount to waste." Bogert
& Bogert, supra, § 379 (pages 218-219), which continues by noting instances of
trusts: "to provide a band to march to the testator's grave" and play dirges "on his
birthday and on holidays," citing Detwiller v. Hartman, 37 N.J.Eq. 347 (1883); "to
provide a monument in a park to a relative of the settlor," citing Morristown Trust
Co. v. Town of Morristown, 82 N.J.Eq. 521, 91 A. 736 (1913) (refused by public
authorities), 62 Univ. of Pennsylvania L. Rev. 226; and "to conserve and keep up a
home or estate," citing Smith v. Heyward, 115 S.C. 145, 105 S.E. 275 (1920), but
distinguishing a house of great historic interest as in Smith v. Powers, 83 R.I. 415,
117 A.2d 844 (1955). The treatise further observes that as "private trusts they
would usually fail because of their indefinite duration...." Earlier in that section
(pages 215-218) it is observed that the tendency in England has been "to hold
trusts for the encouragement of sport and games noncharitable, unless the game in
question was connected in some way with an educational institution ... or was
related to the army or navy or other public service.... On the other hand an English
court has held, but with great hesitation, that a gift to encourage chess
tournaments by awarding prizes is charitable," as have been some more recent
trusts "to provide recreation, entertainment and amusement ... where a large class
of public was affected," noting that the "Recreational Charities Act, 1958, validates
recreational trusts 'if the facilities are provided in the interest of social welfare' as
there defined." The discussion then reports that in "the United States there would
seem to be no doubt that trusts to provide recreation and entertainment to a large
class of a community are regarded as charitable."
Estate of V. K. Alward v. Comm'r, T.C. Memo. 1999-262, denied an IRC § 2055
estate-tax deduction for a devise to a cemetery that was neither a "public entity"
nor operated by the adjacent church; and the cemetery association was not shown
to be "devoted to an exclusively charitable purpose." For trust-law purposes,
however, the cemetery may well have been sufficiently open to the public to be of
community interest and thus charitable under this Comment, absent a profit-making
objective.
An interesting case (included in at least three law-school casebooks in the
trusts-and-estates field and also illustrating the potential crossover between types
of at least arguable charitable purposes) is Shenandoah Valley National Bank v.
Taylor, 192 Va. 135, 63 S.E.2d 786 (1951), which involved a trust to divide its
income equally each year, on the last school day before Easter and Christmas,
among the pupils in the early grades of a certain school "to be used by such child in
the furtherance of his or her obtainment of an education." The trust was held not to
be educational because, under its terms and the realities of life, "the admonition to
the children would be wholly impotent and of no avail." As for a second argument
that it was, in the language of the original Restatement of Trusts, for "other
purposes the accomplishment of which is beneficial to the community," the opinion
observed "that where a gift results in mere financial enrichment, a trust was
sustained only when the court found ... from the entire context ... that the ultimate
intended recipients were poor or in necessitous circumstances," concluding: "nor
does it otherwise so benefit or advance the social interest of the community as to
justify its continuance in perpetuity as a charitable trust." The court had earlier
stated that it could not, given the clear directions in the will, imply a limit "to the
school children in the designated grades who are in necessitous circumstances."
In the leading case of Jackson v. Phillips, 96 Mass. (14 Allen) 539 (1867), a
trust "to create a public sentiment that will put an end to negro slavery" was upheld
along with a trust "for the benefit of fugitive slaves that may escape from the slave-
holding states." That very case, however, held invalid another intended trust to
promote women's suffrage because the purpose was "to change the laws." And a
later Massachusetts decision invalidated another trust to promote "women's rights,"
interpreted as meaning the right to vote and hold office, while upholding as
charitable two other trusts in the same will to promote the "best interests of sewing
girls in Boston" and the "cause of temperance." Bowditch v. Attorney General, 241
Mass. 168, 134 N.E. 796 (1922).
See also Estate of Breeden, 208 Cal.App.3d 981, 256 Cal.Rptr. 813 (1989),
holding that a trust to be distributed "to persons, entities, and causes advancing
principles of socialism and those causes related to socialism" was a valid charitable
trust.
Estate of Connolly, 48 Cal.App.3d 129, 121 Cal.Rptr. 325 (1975), held a trust for
the promotion of agnosticism charitable, whether the settlor's "viewpoint" is "correct
or incorrect."
See generally on the noncharitable character of a trust to assist a particular
political party, Note, "Charitable Trusts for Political Purposes," 37 Virginia L. Rev.
988 (1951).
On the more rigorous British tradition, see the dismissal of an appeal to the
Privy Council in London from the Cayman Islands Court of Appeal in Attorney
General of C.I. v. Wahr-Hanson [2000] 3 W.L.R. 642, because a perpetual trust for
organizations "operating for the public good" could operate beyond the legally
defined scope of charity, so that the trust had properly been held void as a
perpetuity.
Fund for the Study of Economic Growth and Tax Reform v. Internal Revenue
Service, 161 F.3d 755 (D.C.Cir.1998), involved a fund created by the Republican
Party congressional leadership ostensibly to study and recommend reforms in the
Internal Revenue Code. The court upheld the Service's denial of exemption under
IRC § 501(c)(3) because the fund was an "action organization" under Treas. Reg. §
1.501(c)(3)-1(c)(iv)(b); it advocated a flat tax to replace the current income-tax
system and its purpose was not nonpartisan analysis or research but rather to
advocate an assumed conclusion on a controversial question during the year
preceding a presidential election. For trust-law purposes, however, these fund
purposes would not be objectionable under this Section and Comment in
determining the fund's status as a charitable trust, and the underlying motivations
of settlors are normally irrelevant as long as the purpose is charitable in nature as
described in Comment a, above. These questions are properly given different
treatment under the clear language of IRC § 501 and the more lenient rules of trust
law.
Various types of trusts have posed difficult questions regarding what is of benefit
to the community. A trust to disseminate beliefs that are judged to be irrational or
so inconsequential as to be of no community interest are held not to be valid. That
views are unpopular or have only a few adherents is not alone sufficient to preclude
recognition of a purpose that is educational, religious, or of community interest. The
line drawing in such cases, however, is neither easy nor consistent from time to
time or place to place, although an effort must be made to do so if charitable trusts
and purposes are to justify the right of perpetual existence and other special
privileges attached to charitable trusts. On which side of the line, for example, does
spiritualism fall?
Estate of Lockwood, 344 Pa. 293, 25 A.2d 168 (1942), upheld an outright gift to
an incorporated spiritualist college, but Estate of Stephan, 129 Pa.Super. 396, 195
A. 653 (1937), held a trust for the perpetual upkeep of a spiritualist memorial
invalid. "The difficult task is imposed on the courts to determine whether a belief or
doctrine is of such a character that ... its dissemination cannot be of benefit to the
community because of its absurdity, or whether it is merely one that is displeasing
to the majority.... [I]t has been held in England that a trust to establish a college
for the training of spiritualist mediums is not charitable." IVA William F. Fratcher,
Scott on Trusts § 370.4 (4th ed. 1989), citing (n.6) In re Hummeltenberg, [1923] 1
Ch. 237, but continuing: "It is arguable, however, that since there are intelligent
persons who believe in spiritualism and the possibility of communicating with the
dead through the instrumentality of mediums, the purpose is not so irrational as to
prevent it from being a charitable purpose." New Jersey cases have seemed to
agree with the treatise. See Jones v. Watford, 62 N.J.Eq. 339, 50 A. 180 (1901),
modified in 64 N.J.Eq. 785, 53 A. 397 (1902); cf. Vineland Trust Co. v. Westendorf,
86 N.J.Eq. 343, 98 A. 314 (1916) (metaphysical thought), aff'd, 87 N.J.Eq. 675, 103
A. 1054 (1917). See also Funnell v. Stewart, [1996] 1 W.L.R. 288 (Ch. 1995)
(upholding as charitable a devise in trust to support the "spiritual" work of a small
faith-healing group with which testator had worked; absent contrary evidence and
despite providing mostly private services, presumed to be religious and sufficiently
of benefit to public). Compare Estate of Kidd, 106 Az. 554, 479 P.2d 697 (1971)
(upholding as charitable a trust to fund research to discover scientific proof of a soul
that leaves the human body at death). (See also possibility of distinguishing the
assertion of a religious purpose from the assertion of a purpose of "benefit to the
community," mentioned in the Reporter's Note to Comment i.)
On other purposes of community benefit, see Estate of Heil, 210 Cal.App.3d
1503, 259 Cal.Rptr. 28 (1989) (Californian's residuary devise to another state to
preserve the "wild horses" in that state; held a charitable trust); and Annotation,
"Validity, Construction, and Application of Statutes or Ordinances Regulating
Perpetual-Care Trust Funds of Cemeteries and Mausoleums," 54 A.L.R.5th 681
(1997).
Research References
West's Key No. Digests, Charities 9.
Validity, construction, and application of statutes or ordinances regulating perpetual-
care trust funds of cemeteries and mausoleums. 54 A.L.R.5th 681.
Validity, construction, and effect of provisions of charitable trust providing for
accumulation of income. 6 A.L.R.4th 903
Enforceability of subscription under conditional charitable pledge. 97 A.L.R.3d 1054.
Standing of minister of member of religious society to seek enforcement, termination,
or proper administration of charitable trust. 94 A.L.R.3d 1204.
Extension of charitable trust benefits to persons residing outside geographic area
prescribed by trust instrument, under doctrines of cy pres or equitable deviation. 68
A.L.R.3d 1049.
Application of cy pres doctrine to trust for promulgation of particular political or
philosophical doctrines. 67 A.L.R.3d 417.
Validity and effect of gift for charitable purposes which excludes otherwise qualified
beneficiaries because of their race or religion. 25 A.L.R.3d 736.
Validity of charitable trust to promote change in laws or systems or methods of
government. 22 A.L.R.3d 886.
Validity, as a charitable trust, of gift to church, church society, or trustees or officers
thereof, without declaration or restriction as to its use or purpose. 81 A.L.R.2d 819.
Gift for maintenance or care of private cemetery or burial lot, or of tomb or of
monument, including the erection thereof, as valid trust. 47 A.L.R.2d 596.
Constitutionality, construction, and effect of legislation authorizing sale of charitable
trust property. 40 A.L.R.2d 556.
Validity, as a charity, of trust to lend money to students. 33 A.L.R.2d 1183.
Gift to or for employees' pension fund as valid charitable gift or trust. 28 A.L.R.2d 428.
Provision for relief or education of member of family or relatives as creating charitable
trust. 131 A.L.R. 1277.
Validity of charitable trust in respect to certainty of beneficiaries designated as "the
poor," "the needy poor," "the worthy poor," etc. 99 A.L.R. 657.
Gift to prohibit or minimize manufacture, sale, or use of intoxicating liquor as a valid
charitable trust. 73 A.L.R. 1361.
Gift to preserve or develop beauties of nature as a valid charitable trust. 52 A.L.R. 980.
Provision for public utility or convenience commonly supplied as expense of taxpayers
as subject of valid charitable trust. 50 A.L.R. 593.
Gift to lectures as a valid charitable trust. 48 A.L.R. 1142.
Gift for public school as a valid charitable trust. 48 A.L.R. 1126.
Gift to retirement or pension fund of teachers or other public officers or employees as a
valid charitable trust. 47 A.L.R. 63.
Gift to boy or girl scouts as a valid charitable trust, 46 A.L.R. 827
Validity of bequest or trust for the care of a specified animal. 31 A.L.R. 430.
Validity of charitable trust to promote change in laws, or systems, or methods of
government. 21 A.L.R. 951.
Gift to fraternal order as a valid charitable gift. 5 A.L.R. 1175.
Case Citations
Case Citations through June 2004

Case Citations July 2004 -- November 2004
Case Citations through June 2004:
Mass.2003. Quot. in sup., com. (a) quot. in sup. After hospital employee fell on
ice in hospital parking lot, she sued hospital, hospital employee, and hospital
subcontractors. Jury awarded plaintiff damages for $183,000 against hospital; trial
court granted hospital's motion to amend judgment to $20,000, pursuant to statute
limiting liability of charitable corporations. This court affirmed, holding that hospital
functioned as a charity due to its promotion of health in the community and its care
and treatment of the sick. Plaintiff's argument that large nonprofit health
organizations, funded in part by government and private insurance, should no
longer benefit from tax exemption or charitable immunity was more appropriately
addressed to legislature. Conners v. Northeast Hosp. Corp., 439 Mass. 469, 474,
475, 789 N.E.2d 129, 133, 134.
Case Citations July 2004 -- November 2004:
Iowa, 2004. Com. (l) cit. in sup. After trustees of a charitable trust denied
funding for construction of a community center, the nonprofit corporation building
the center brought suit alleging that trustees acted unreasonably in revoking its
offer of funding and in proceeding with efforts to construct a competing senior-
citizens center. Trial court ruled that trustees acted reasonably in refusing to
contribute trust funds to the center, but held that trustees' action in using trust
monies for construction of senior center in same community was neither reasonable
nor prudent, and it directed trustees to sell the property. This court affirmed in part
and vacated in part, holding that plaintiff had no standing beyond its interest in
obtaining the promised funding, and that it could not challenge trust's general
administration, including trustees' decision to build competing senior center. In re
Clement Trust, 679 N.W.2d 31, 36.
(2003)
(C)
REST 3d TRUSTS s 29


§ 29. Purposes And Provisions That Are Unlawful Or Against Public Policy
An intended trust or trust provision is invalid if:

(a) its purpose is unlawful or its performance calls for the commission
of a criminal or tortious act;
(b) it violates rules relating to perpetuities; or
(c) it is contrary to public policy.
General Comment:
a. Scope; types of impermissible purposes or effects. An intended trust or trust

provision is invalid if its purpose or performance is unlawful or against public policy.
More specifically, an intended trust or a particular provision in the terms of a trust is
unenforceable: if it calls for the performance of criminal or tortious acts by the
trustee or its purpose is fraudulent or otherwise unlawful (Comments c-e); if its
implementation would violate the applicable rules regulating perpetuities (which are
treated briefly in Comments g and h, but are otherwise beyond the scope of this
Restatement (see cross-references in Comment e)); or if its performance would be
contrary to public policy (Comments i-m).
This list is not necessarily exclusive. Compare, e.g., § 27(2) and § 27,
Reporter's Note to Comment b; and § 58, Comments b and e (on impermissible
restraints on alienation).
With the subject matter of this Section, compare generally Restatement Second,
Contracts § 178 et seq.
Comment on Clause (a):
b. Voidable transfers contrasted. The types of situations addressed in Clause (a)

involve impermissible purposes or provisions of the trust itself. Analogous but
different are trusts that may fail in whole or in part because a third party is entitled
to set aside the settlor's transfer to the trustee or to reach the property in the
trustee's hands. Illustrative are cases in which the settlor's property had been
illegally acquired by the settlor and cases in which the settlor's transfer to the trust
constitutes a fraudulent transfer under applicable creditors' rights law. (The law of
fraudulent conveyances is not within the scope of the Restatement of this subject.)
Trusts in situations of these types are not invalid, and the beneficiaries may
ordinarily enforce their rights under the terms of the trust if or to the extent the
third party's right of avoidance is not exercised. In brief, trust beneficiaries
generally may enforce their beneficial interests in a trust to the same extent they
would be allowed to retain the property if it had been transferred to them directly
and free of trust.
Compare: § 56, § 58, Comment e, and § 60, Comment f (all on the rights of the
creditors of a settlor to reach the latter's retained interests in an irrevocable trust);
§ 25(2), Comments d and e (on the rights of a settlor's surviving spouse,
pretermitted heir, or creditors to reach property held in a revocable trust); and §§
56 through 60 (on the rights of creditors of a beneficiary to reach the latter's
beneficial interest in a trust).
c. Performance criminal or tortious. If an intended trust or trust provision calls
for the commission of a criminal or tortious act by the trustee, the trust provision is
invalid. Thus, where several persons establish a fund to be held in trust for the
purpose of securing, through bribery, legislation or administrative action favorable
to their business activities, the intended trust is unenforceable. Similarly, an
intended trust or provision to participate in an unlawful business, such as the
marketing of legally prohibited substances or the unlicensed practice of medicine or
law, is unenforceable; and a direction to operate a factory on certain land is
unenforceable if the factory operation would be a tortious nuisance to the owners of
adjoining lots or would be in violation of environmental law.
If a settlor transfers property upon a trust the terms of which provide for the
trustee to engage in conduct that at the time of creation of the trust is lawful but
that, owing to a change of law or circumstances, subsequently becomes unlawful,
the terms in question become unenforceable. (On modification of the terms of such
a trust, see § 66; also, in the case of a charitable trust, compare § 67.)
Whether an intended trust in any of the foregoing situations fails altogether
depends on whether the unlawful provision can be appropriately modified (supra) or
can be separated from the other provisions without defeating the purpose of the
settlor in creating the trust. See Comment e, below.
d. Fraudulent or otherwise unlawful purposes. Although not invalid because of
the inherent nature of the trust provisions or the fiduciary conduct they require, a
trust may be invalid and thus unenforceable under this Section because of the
purposes those provisions are to serve.
For example, the owner of property might transfer it to another who agrees to
hold it in trust for the transferor or another with the purpose being to conceal the
interest of the transferor or other person, not merely for reasons of privacy but in
order to mislead the government or others with respect to the true beneficial
interests in the property. Such a case may arise where a person pays money to
another pursuant to an oral agreement that the funds will be held in trust for the
payor and returned upon demand, intentionally creating a deceptive appearance of
ownership in the payee and thereby inducing a third person to make a loan to the
payee. Or a person may purchase land or securities and, for the purpose of
defrauding creditors or of evading a prohibition or limitation in a statute, have title
placed in the name of another, who agrees to hold the property upon a trust for the
purchaser.
Similarly, a trust or provision is invalid if the trust is created or the provision is
included for a consideration that is unlawful. Thus, if, in consideration of another's
agreement to commit certain felonious acts, a person transfers property in trust for
the purpose of compensating the other from time to time for the performance of the
various agreed criminal acts, the trust is unenforceable.
e. Consequences of illegality; cross-references. In general, the fact that a trust
purpose is not enforceable or that the settlor directs or suggests an unlawful means
of performing a trust does not invalidate the trust if it has a substantial purpose that
is valid and can be achieved by methods that are not unlawful. This is not the case,
however, if the purpose or method directed is so essential to the settlor's
objective(s) that the permissible and impermissible purposes cannot be separated.
A trustee is ordinarily under a duty to the beneficiaries not to carry out a trust
purpose or provision that the trustee knows or has reason to know is unlawful. If
the trust does not fail, however, the trustee is under a duty to administer the trust
property in a lawful manner to accomplish the valid trust purpose(s).
On the question of whether and under what circumstances a resulting trust
arises in favor of the settlor or the settlor's successors in interest when an intended
trust fails in whole or in part for unlawful purpose, see § 8, Comment i, and § 9,
Comment g.
On the consequences of analogous situations in which a transfer constitutes a
fraudulent conveyance or involves property unlawfully acquired, see Comment b.
Also, more generally, see Restatement Second, Property (Donative Transfers) §§
34.1-34.3 (rights of spouse, issue, and creditors of transferor).
The consequences of trust interests or conditions that violate rules regulating
perpetuities or other public policies are treated in the discussion of those types of
violations in the Comments below. See more generally: Restatement Second,
Property (Donative Transfers) § 1.5 (remote vesting), § 2.1 (trust duration), and §
2.2 (accumulations); id. Chapter 4 (restraints on alienation); and id. Chapters 5
through 9 (restraints on beneficiary conduct).
General Comment on Clauses (b) and (c):
f. In general. A beneficial interest, a condition attached to a beneficial interest,

or other provision in the terms of a trust is invalid if carrying out or enforcing the
provision would be against public policy, even though the provision does not have a
fraudulent purpose and does not involve the trustee in the performance of a
criminal or tortious act (as in Comments c and d).
For example, under Clause (b) of this Section, a provision in a trust is invalid
insofar as it purports to create an interest that by its terms is to vest at too remote
a time or purports to direct accumulation of income or to restrain alienation or trust
termination for too long a period. See Comments g and h.
Similarly, under Clause (c), some conditions or provisions are invalid because
their enforcement would tend to induce the commission of unlawful or immoral acts
by beneficiaries or would create an improper motive tending to induce conduct that
is not in itself unlawful or immoral. These latter supply a socially undesirable
inducement for beneficiaries to exercise or not to exercise fundamental rights that
seriously affect their personal interests and lives, and usually also those of others.
See Comment i, especially last paragraph of Scope note at end of that Comment.
See also Comments j through l. Public policy also forbids or limits trust provisions
that tend to undermine proper administration of trusts. See Comment m. On the
difficulty and variability of public-policy concepts, see Reporter's Notes, especially
the General Notes on Clause (c) and Comments i-m.
It is typical of situations under Clause (c), as it is not of situations falling under
Clause (a), that a provision in the terms of a trust may be held invalid although the
settlor personally might have been legally allowed to make payments under similar
circumstances, free of trust, to the same persons. See Comment i; see also
Introductory Note to this Chapter.
Comments on Clause (b):
g. Remoteness of vesting. An attempt to create a private trust fails unless the

trust has one or more definite beneficiaries or provides for one or more beneficiaries
to be ascertained within the requirements of the applicable rule against perpetuities.
See § 2, Comment h, and §§ 44 and 46. Although a trust may satisfy the
definiteness-of-beneficiaries requirement and be a valid trust, the terms of the trust
may nevertheless purport to create one or more beneficial interests or powers of
appointment that are invalid for violating Clause (b) of this Section.
The rule against perpetuities regulates remoteness of vesting and applies not
only to legal estates but also to the equitable interests of trust beneficiaries.
Although a comprehensive treatment of the rule is beyond the scope of the
Restatement of this subject, its relationship to trusts is briefly summarized in this
Comment.
Under the traditional common-law rule against perpetuities, no trust interest is
good unless, by the terms and time of its creation, it is certain to vest or fail no
later than 21 years after some life in being at the creation of the interest. See
generally original Restatement of Property, Division IV. Modern statutes and
statements of the rule tend to ease its most treacherous and harsh features, either:
(i) by allowing some form of wait-and-see approach, rather than judging the validity
of future interests or powers at the moment of their creation and on the basis of
what might possibly happen thereafter; or (ii) by providing for reformation (rather
than reversion) of offending dispositions to approximate a settlor's intention within
the mandates of the rule; or (iii) by some form of both, as in the Uniform Statutory
Rule Against Perpetuities and in Restatement Second, Property (Donative
Transfers), Chapter 1 (§§ 1.1-1.6).
g(1). When interest "created." In general, a beneficial interest or power in a
trust is created for purposes of the rule against perpetuities at the time the trust is
created--that is, when the transfer is made to create an inter vivos trust or at the
time of a testator's death in the case of a testamentary trust. In the case of a
revocable living trust, however, the interests are deemed to be created, and thus
the perpetuities period begins to run, when the settlor dies or the trust otherwise
becomes irrevocable.
An equivalence of ownership similar to that of revocability is recognized,
preventing the running of the perpetuities period, while a person holds a general
power of appointment that is presently exercisable.
Also, interests in property later added to a trust are not "created" until the
addition occurs, or until a beneficiary designation becomes irrevocable when
insurance or pension proceeds are made payable to a trustee.
g(2). Charitable interests. Although the rule against perpetuities is somewhat
relaxed where charitable purposes are involved, this is only so to the extent the
property is "vested in charity" within the period allowed by the rule. Thus, where
there is a trust for one charity, with a gift over upon a remote contingency to or in
trust for another charity, the disposition is valid.
On the other hand, where a trust is established initially for private purposes but
provides for a gift over to or in further trust for a charity upon an excessively
remote contingency, the charitable disposition violates the rule against perpetuities.
Similarly, private interests that follow charitable interests are subject to the timely
vesting requirements of the rule against perpetuities. On charitable trusts more
generally, see § 28.
h. Duration of trusts; accumulations. A trust is not invalid, either in whole or in
part, merely because its duration may exceed the period of the rule against
perpetuities, provided the vesting requirement of the applicable rule is satisfied. In
such a trust, the trustee may continue to have and exercise administrative powers
(to sell, lease, invest, and the like), but the trustee no longer may have discretion
with respect to distributions to beneficiaries; discretionary interests must not be
subject to a condition precedent of the trustee's exercise of discretion beyond the
perpetuities period.
Although spendthrift trusts are generally valid (see § 58), restraints on
voluntary or involuntary alienation of beneficiaries' interests are not effective
beyond the perpetuities period, not by reason of the rule itself against perpetuities
but by an analogous rule that uses the same time limit.
h(1). Indestructibility. Furthermore, also by analogous rule, a private trust may
not be indestructible beyond the perpetuities period. Thus, a "material purpose" of
the settlor that would otherwise preclude termination of a trust even though its sole
beneficiary or all beneficiaries wish to terminate it (see § 65(2) on the so-called
Claflin doctrine) is no longer respected in this manner after the period of the rule
against perpetuities has expired. The public policy against permitting an
indestructible trust of excessively long duration, however, does not invalidate the
trust itself. Nor does it enable less than all of the beneficiaries to terminate the
trust, unless the terms of the trust so provide. The rule allowing premature
termination by beneficiaries (see § 65(1)) continues normally to require consent of
all of them, although independent and separable shares of a single trust are treated
as separate trusts for these purposes.
On matters of trust duration, see more generally Restatement Second, Property
(Donative Transfers) § 2.1, especially Comment d and Comments g through i.
h(2). Accumulations. An expressed or implied provision in the terms of a private
trust directing or authorizing the income of the trust estate to be accumulated by
the trustee is invalid beyond the period of the rule against perpetuities.
Accumulations in charitable trusts are not limited to the perpetuities period.
In both charitable and private trusts, however, a court may prevent, by
appropriate reformation, directed accumulations that are capricious, even within the
perpetuities period. See Reporter's Notes. See more generally, and contrast,
Restatement Second, Property (Donative Transfers) § 2.2. Judicious management of
a trust (see id. § 2.2, Comments j-l) does not result in an "accumulation" for these
purposes; nor does a growth-oriented investment policy that is not inconsistent with
the trustee's duty of impartiality. On trust investment principles, see Chapter 17;
and on the duty of impartiality, see § 79. See also Restatement Third, Trusts
(Prudent Investor Rule) § 227, Comment i, and id. §§ 232, 240.
Comments on Clause (c):
i. Nature and rationale of public-policy limits on trust provisions. The rules

allowing and limiting the use of trusts, and the time-divided property ownership
usually associated with deadhand control, reflect a compromise between free
disposition of private property and other values (see § 27 and Introductory Note to
this Chapter). So also does the rule of Clause (c) of this Section, and ensuing
Comments j-l involving trust benefits conditioned upon the beneficiary's future
conduct.
The private trust is tolerated, even treasured, in the common-law world for the
flexibility it offers to property owners in planning and designing diverse beneficial
interests and financial protections over time, individually tailored as the particular
property owner deems best to the varied needs, abilities, and circumstances of
particular family members and others whom the owner chooses to benefit. Yet these
societal and individual advantages are properly to be balanced against other social
values and the effects of deadhand control on the subsequent conduct or personal
freedoms of others, and also against the burdens a former owner's unrestrained
dispositions might place on courts to interpret and enforce individualized interests
and conditions.
The simplest examples of trusts or provisions that offend public policy are those
that tend to encourage criminal or tortious conduct on the part of beneficiaries.
(Compare Comment c, on provisions that involve the trustee in such conduct.)
Thus, if certain persons are likely to engage in the commission of certain types of
crimes, a trust to pay the fines of any of them who may be convicted of committing
such acts is invalid; the payment of fines is not illegal, but the direct tendency of
the trust is to undermine the deterrent effect of the fines imposed by the law.
Similarly invalid would be a trust to pay someone's liabilities for operating a
nuisance. Less objective is the possibility that a trust provision may be invalid
because of a tendency to encourage immorality, or because of the array of more
common inducements described hereafter and considered more specifically in
Comments j through l.
Policies concerned with deadhand control limit the use of trusts in ways that do
not apply to living individuals in the direct disposition of their property. Thus, a
policy of fostering free family interaction or privacy between individuals, or simply
society's tolerance of human frailty, traditionally exempts acts of property owners
(and even their outright dispositions by will) from restrictions that would apply to
personally intrusive or socially dubious conditions in the distributive provisions of
irrevocable trusts. Furthermore, the "rigor mortis" of deadhand control is not
present while a property owner is able to respond to persuasion and evolving
circumstances.
Thus, although one is free to give property to another or to withhold it, it does
not follow that one may give in trust with whatever terms or conditions one may
wish to attach. This is particularly so of provisions that the law views as exerting a
socially undesirable influence on the exercise or nonexercise of fundamental rights
that significantly affect the personal lives of beneficiaries and often of others as
well. See Scope note, Comment i(2), below. Also compare § 28, Comment f, on
"invidious" restrictions in charitable trusts.
In cases of the types considered in the Comments that follow, simple and
precise rules of validity or invalidity frequently cannot be stated. This is particularly
so because of the need to weigh the often worthy concerns and objectives of
settlors against the objectionable effects or tendencies of conditions attached to
beneficial interests, each of which involves specific terms and personal and overall
estate-planning contexts that may vary subtly but significantly from situation to
situation. Furthermore, in these various situations, remedial flexibility is required to
reconcile (i) the policy objection to a provision with (ii) a motive or goal of the
settlor that is legally acceptable in whole or in part as an effort to protect the
beneficiary's interest or the trust property.
i(1). Consequences of invalidity; reformation. Ordinarily, if a beneficial interest
in a trust is to be conferred or is to terminate upon an invalid condition (whether, in
form, precedent or subsequent), the interest becomes effective or continues as if
the condition had not been imposed, or as if the settlor's requirements or
restrictions were satisfied. A different result may be reached, however, to avoid
distorting the settlor's underlying general plan for allocating his or her estate among
family members. Furthermore, if the settlor provides for a certain disposition in case
of a condition's invalidity, that direction will be respected unless it would have the
effect of deterring a beneficiary from asserting the rule of this Clause (c) of this
Section.
In addition, a provision that is not to be upheld as written but is susceptible of
adaptation to accommodate both public-policy concerns and legitimate settlor
objectives may be so adapted by the court. The rule allowing reformation under the
Comments that follow is rather like the use of equitable approximation (i.e.,
reformation) in cases of violations of the rule against perpetuities (Comment g).
i(2). Scope note. The policies restraining deadhand control in Clause (c) of this
Section do not apply to outright dispositions conditioned on conduct prior to the
death of the testator, or prior to the time a revocable trust becomes irrevocable.
See Restatement Second, Property (Donative Transfers) § 6.1, Comment c;
although the Property Restatement's rules on behavior restraints apply to nontrust
as well as trust dispositions in various forms, those rules (as here) only address
restraints on "future conduct."
Some of the personal relationships or freedoms considered in Comments j
through l may be protected in some fashion by federal or state statutes or
constitutions (such as religious freedom). These Comments, however, involve rules
and policies of the trust law and limit the purposes and terms of trusts in ways that
are not based on statutory or constitutional safeguards, although trust law may be
influenced by policies underlying such protections.
j. Family relationships. A trust or a condition or other provision in the terms of a
trust is ordinarily (see below) invalid if it tends to encourage disruption of a family
relationship or to discourage formation or resumption of such a relationship. See
also Restatement Second, Contracts §§ 189-191.
Thus, a trust provision normally may not terminate a beneficial interest if a
beneficiary and spouse who are living apart should resume living together, or confer
a beneficial interest upon a beneficiary if he or she obtains a divorce or legal
separation. Similarly, a trust provision is ordinarily invalid if it would tend to induce
termination of a long-established relationship of cohabitation without marriage.
In addition, a trust provision is ordinarily invalid if it tends seriously to interfere
with or inhibit the exercise of a beneficiary's freedom to obtain a divorce (creating a
risk, e.g., of encouraging financial dependency upon an abusive relationship) or the
exercise of freedom to marry, either by limiting the beneficiary's selection of a
spouse or by unduly postponing the time of marriage. A fundamental exception,
however, permits termination of a beneficial interest of the settlor's spouse in the
event of the spouse's remarriage or, if the restraint is reasonable under all the
circumstances (see Reporter's Notes), termination of a beneficial interest of the
surviving spouse of one who is or would have been a natural object of the settlor's
bounty (cf. definition in § 9, Comment b).
The policy against undermining family relationships applies as well to trust
provisions that discourage a person from living with or caring for a parent or child or
from social interaction with siblings.
Clause (c) of this Section is generally concerned with the objective effects of a
provision rather than with the settlor's underlying motive(s). Nevertheless, a
subjective inquiry into the settlor's reasons for including a provision in a trust may
be relevant. Thus, it may be shown that the settlor's motive was to provide for
special needs that might arise in the event of the beneficiary's divorce, or to provide
support for a beneficiary until marriage or for a child who feels unable to return to a
parent's home. A provision of this type may be upheld despite the incidental
influence it may have on the beneficiary's decision(s) affecting a marriage or family
relationship. Such a condition may even relieve financial pressure on a beneficiary
to remain in or enter a marriage. Similarly, in making or increasing provision for a
beneficiary upon divorce from a particular spouse, a settlor may be motivated by
reasonable concern over that spouse's financial irresponsibility or an apparent
gambling or substance addiction.
The credibility of any such explanation is diminished, however, and its socially
undesirable influence aggravated, when the provision does not take the form of
discretionary distributions appropriately tailored to the alleged risk or to the
beneficiary's needs and the availability of other means of meeting those needs.
Moreover, a provision may reflect a mixture of motives or may provide some other
basis for finding it invalid as written despite an acceptable purpose. In cases of
these various types, a provision may fail in its original form but nevertheless be
judicially reformed to accomplish the permissible objectives (possibly with fiduciary
discretion over distributions) while removing or minimizing socially undesirable
effects. Speculation about a settlor's motives and other difficulties inherent in these
cases may be eased by this remedial flexibility under which an all-or-nothing
decision is not required.
Illustrations:
1. H's will creates a trust for his wife, W, providing her with the trust income "for
her life or widowhood" and further providing that, upon her death or remarriage,
the trust is to terminate with the principal to be distributed by right of
representation to the then living issue of H and W. Although the terms of this trust
may have some effect of inhibiting remarriage by W, they are not invalid as an
impermissible restraint on marriage.
2. A transfers property to T Trust Co. in trust for her nephew, N. N is to receive
discretionary payments until age 18, after which he is to receive all the current net
income periodically and discretionary principal payments until age 30, when he is to
receive outright distribution of all of the trust property. The trust contains a
provision directing that, in the event "N should be so foolish as to marry before age
20, all of his rights and interests in the trust shall terminate, and the entire trust
estate at the time of his remarriage shall be distributed to C College." The condition
attached to N's beneficial interests is valid (and will be enforced absent extenuating
circumstances); it merely relates to the time of marriage, and the brief age
restriction involved does not unreasonably restrain his freedom to marry.
3. The same facts as in Illustration 2, except that the marriage condition
terminates all of N's rights if, before termination of the trust, he "should marry a
person who is not of R Religion," with the same gift over to C College. The condition
is an invalid restraint on marriage; the trust and N's rights will be given effect as if
the marriage condition and the gift over to C College had been omitted from the
terms of the trust.
4. S's will leaves half of his estate to T in trust primarily for the benefit of B, one
of S's children, and the other half outright to his other child, C. Under the terms of
the trust, T is to pay to B, or apply for her benefit, as much of the trust income as
necessary for the care, education, and maintenance of B and her children, if B lacks
other resources to provide for those needs; also, should B and her husband H
become divorced, the terms direct T to terminate the trust and distribute all
principal and accumulated income of the trust estate to B free of trust. Following S's
death, no evidence being offered of his reasons for creating this trust for B, she may
compel T, who is also executor of S's will (see § 6), to disregard the invalid
condition concerning divorce and to distribute the intended trust property directly to
her, free of trust, upon completion of estate administration.
5. The same facts as in Illustration 4, except that evidence shows that, at the
time of executing the will containing the trust provisions for B, S was concerned that
B's financial obligations and needs and her personal responsibilities would
significantly increase as a result of a divorce. This motivation of S, however, does
not change the undesirable effect of the divorce provision, and the overall design of
the trust goes beyond what would be necessary or expected in a trust designed to
make special provision for the welfare of B and her children in the event of her
divorce. If the terms of T's discretionary power to pay or apply trust funds is not
flexible enough to adapt to the possible circumstances of B's divorce, the terms of
that power can be modified by a court to provide for B's needs (for example, by
allowing increased distributions to be made from principal as well as income), so
that the invalidity of the express disposition upon divorce does not unnecessarily
jeopardize a worthy objective associated with that disposition.
6. The same facts as in Illustration 4, except that it is well known among S's
family, close friends, and advisers that, in designing B's trust, S's motivation was (in
B's own language) to keep "her inheritance" from being "wiped out one way or
another as a result of H's drug addiction." In these circumstances the trust
arrangement, including the divorce provision, fits the motive and may be upheld as
written; even here, however, thoughtful modification may be more appropriate.
Through suitable changes, a court can lessen the tendency of the trust to induce
divorce while making generous provision for B--provision that would also be more
flexible than the original disposition in meeting the variety of potential future
developments in B's circumstances or H's condition. The court therefore has
discretion to reform the trust.
k. Religious freedom. Individuals are normally free during life to promote their
theological views among others, and to create charitable trusts during life or at
death to support or advance a chosen religion (see § 28, Clause (b)). But the use of
private trusts that create financial pressure regarding the future religious choices of
beneficiaries is a different matter. A trust provision is ordinarily invalid if its
enforcement would tend to restrain the religious freedom of the beneficiary by
offering a financial inducement to embrace or reject a particular faith or set of
beliefs concerning religion. Illustrative is a provision granting or terminating a
beneficial interest only if the beneficiary should adopt or abandon a particular
religious faith. On religion-related restrictions on marriage, see Comment j,
especially Illustration 2.
On the other hand, trust provisions would ordinarily be upheld if reasonably
designed (or reformed) to protect beneficial interests or trust property from adverse
financial implications associated with a beneficiary's present or future religious
commitments. On situations in which a settlor's religious views or attitudes are
reflected in provisions involving a beneficiary's family relationships or career
choices, compare Comment j, particularly Illustration 6, and Comment l,
respectively.
l. Careers and conduct. It is not contrary to public policy for a trust provision to
encourage a beneficiary to be a productive member of society or to pursue a
particular career or form of training, as long as the effect of the provision is not
punitive or so rewarding as to be coercive. Thus, a settlor may validly create a trust
or include a provision solely to finance a beneficiary's higher education, or a
particular type of education, or to facilitate pursuit of a particular type of career
(such as religious or social service) by compensating for the financial sacrifices that
tend to be associated with the career choice.
Different policy considerations are presented, however, by a provision to
distribute the corpus of a trust to its income beneficiary only if the beneficiary
becomes a surgeon, or to terminate a beneficiary's interests for abandoning a
particular career or for failing to take it up by a stated age. In cases of this type,
society's interest in a property owner's freedom of disposition must be weighed
against the risk of excessive influence on a personal decision significantly affecting
the life of the beneficiary and perhaps others. The social concerns here involve not
only the increased risk of an unsuitable decision being made or adhered to by the
beneficiary but also the burdens and difficulties of judicial interpretation and
enforcement of such interpretations.
Trust provisions intended or likely to induce a change or continuation of a
beneficiary's personal habits or conduct ordinarily are not against public policy. But
compare Comments j and k, above, that where a provision is unnecessarily punitive
or unreasonably intrusive into significant personal decisions or interests, or involves
an unreasonable restraint on personal associations, the provision may be invalid.
Some restraints may be unenforceable for indefiniteness; or the settlor's
selection of an arbiter to determine whether a beneficiary is in violation of a
condition may give rise to conflicting interests or a variety of problems of fairness or
enforcement. See generally Restatement Second, Property (Donative Transfers) §
8.2, Comment b. A requirement, however, that a beneficiary abstain from
"gambling" or "smoking," or from "indulging in intoxicating liquor" or "using illegal
substances," at least with the aid of interpretation, is ordinarily sufficiently clear to
be enforced.
m. Capricious purposes; sound administration of trust. It is against public policy
to enforce a trust provision that would divert distributions or administration from
the interests of the beneficiaries to other purposes that are capricious or frivolous (§
47, Comment e), detrimental to the community, or otherwise (with limited
exceptions, see § 47, Comments b, c, and d) neither private nor charitable in
character. See § 27.
Similarly, a trust provision may not be enforced if to do so would undermine
proper administration of the trust. Thus, a provision that purports to prevent a court
from removing a trustee will be disregarded if removal appears appropriate to
proper administration of the trust; and an arbitrary restriction on the appointment
of trustees or successor trustees may be invalid if not reasonably related to the
trust purposes. A provision is also invalid to the extent it purports to relieve the
trustee altogether from accountability and the duty to provide information to
beneficiaries (see §§ 82, 83), or to relieve the trustee from liability even for
dishonest or reckless acts (see § 87, § 96, and §§ 76-79). See generally Chapters
14 through 18, and cf. Restatement Second, Property (Donative Transfers) § 9.2
and Restatement Third, Property (Wills and Other Donative Transfers) § 8.5.
This principle does not, however, prevent a settlor from prescribing
administrative provisions designed to serve a reasonable view of the beneficiaries'
best interests or to express a widely even if not generally held view of business
ethics or morality. See § 27, Comment b, and Reporter's Note thereto; and cf.
Principles of Corporate Governance: Analysis and Recommendations § 2.01(b) and
its Comments h and i.
On the validity and effect of provisions restraining contests of wills, trusts, or
other donative transfers, see § 96. Also, see generally Restatement Third, Property
(Wills and Other Donative Transfers) § 8.5 and Restatement Second, Property
(Donative Transfers) § 9.1; and compare "Consequences of invalidity; reformation"
in Comment i(1), supra this Section.
Clause (a). Clause (a) of this Section condenses but is consistent with
Restatement Second, Trusts § 60 (General Rule as to Illegality: "An intended trust
or a provision in the terms of a trust is invalid if illegal"), § 61 (Performance
Criminal or Tortious), § 63 (Fraudulent Purpose), § 64 (Illegal Consideration), and
parts of § 65 (Consequences of Illegality).
The matters considered in Clause (a) are discussed at length in IA William F.
Fratcher, Scott on Trusts (4th ed. 1987) §§ 61, 63-63.3, 64, and 65-65.3; and in
George G. Bogert & George T. Bogert, The Law of Trusts and Trustees (Rev. 2d ed.
1992) § 211, particularly at pages 57 and 122-127.
Clauses (b) and (c). The subject matter of the rest of this Section, both Clause
(b) and Clause (c), corresponds to that covered by Restatement Second, Trusts §
62 (Enforcement against Public Policy). Differences in treatment are noted and
discussed, as appropriate, throughout the Reporter's Notes to the various
Comments to these two Clauses.
Comment b:
The subject of fraudulent conveyances is treated in Restatement Second,

Property (Donative Transfers) § 34.3, Subsection (1) of which provides: "An inter
vivos donative transfer of property, which property is not exempt from the claims of
creditors of the donor, that leaves the donor unable to meet the claims of creditors
is subject to the statute in the controlling state on transfers in fraud of creditors."
Id., Subsection (2) calls for similar treatment of a donative transfer "that leaves the
donor unable to meet a legal obligation to provide support to another person."
See also widely adopted Uniform Fraudulent Conveyance Act and Uniform
Fraudulent Transfer Act, promulgated in 1918 and 1984, respectively, and also
federal Bankruptcy Code § 548, on fraudulent transfers and obligations that may be
set aside by creditors or by a bankruptcy trustee. Some states still have legislation
patterned after the English Statute of Fraudulent Conveyances, 13 Eliz. c. 5 (1571),
usually supplemented by provisions or case law developing a doctrine of
constructive or implied intent.
That a fraudulent transfer of property is void only as against creditors, and then
only to the extent necessary to deal with the conveyed estate for the creditor's
satisfaction, see Wagemann Oil Co. v. Marathon Oil Co., 306 Ill.App.3d 562, 239
Ill.Dec. 549, 714 N.E.2d 107 (1999) (involving an Illinois land trust); and in Estates
of Kalwitz v. Kalwitz, 717 N.E.2d 904, 910 (Ind.App.1999), appeal after remand 759
N.E.2d 228 (Ind.App.2001), the opinion noted that "[o]nly a creditor may bring an
action to set aside a fraudulent conveyance" but that the transfer is "neither void
nor voidable" as to others, so that "a conveyance of property in fraud of creditors is
generally valid and binding as between a fraudulent grantor and grantee, their
privies, heirs and devisees, and persons claiming under them."
For a few illustrative recent cases involving fraudulent transfers in trust, see
First Federal Sav. & Loan v. Napoleon, 428 Mass. 371, 701 N.E.2d 350 (1998)
(transfer to trust), Giove v. Stanko, 977 F.2d 413 (8th Cir. 1992) (transfer in trust),
Citizens National Bank v. Cook, 857 S.W.2d 502 (Mo.App.1993) (transfers in trust),
and Cullen Center Bank & Trust v. Hensley (In re Chriswell), 102 F.3d 1411 (5th Cir.
1997) (transfer in trust; bankruptcy case). For a particularly interesting trust case
finding an indirect "transfer," which in the circumstances resulted in a fraudulent
conveyance, see In re Green, 986 F.2d 145 (6th Cir.1993). Also cf. Casey National
Bank v. Roan, 282 Ill.App.3d 55, 218 Ill.Dec. 124, 668 N.E.2d 608 (1996)
(fraudulent nontrust transfer); and Estate of Cappetta, 315 Ill.App.3d 414, 424, 247
Ill.Dec. 962, 970, 733 N.E.2d 426, 434 (2000) (citations omitted): "Although the
administrator has a duty to those individuals interested in the estate, ... [he] stands
in the shoes of the decedent and acquires the same interest in the decedent's
property that the decedent had, but no more. The administrator therefore has no
authority [on behalf of testamentary trust beneficiaries] ... to set aside a fraudulent
conveyance made by the decedent.... [T]he right to avoid [such] a conveyance ...
lies with the creditor who had been defrauded."
Comment c:
Although cases of the type dealt with in this Comment are relatively rare, the
authorities clearly support the rules here stated. See Smith v. Barnes, 129 Or. 138,
276 P. 1086 (1929) (illegal liquor business), noted 14 Minnesota L. Rev. 103; Joe
Gouy Shong v. Joe Chew Shee, 254 Mass. 366, 150 N.E. 225 (1926) (unlawful
practice of medicine); Fidelity Title & Trust Co. v. Clyde, 143 Conn. 247, 121 A.2d
625 (1956) (trust for compilation and publication of testator's pornographic works,
although for benefit of charity, invalid); Wilson v. Smith, 373 S.W.2d 514
(Tex.Civ.App.1963), cert. denied sub nom. Burrows v. Carr, 379 U.S. 973, 85 S.Ct.
663, 13 L.Ed.2d 564 (1965) (intended charitable trust invalid because of terms
directing operation of unlawful business); and Woodall v. Peden, 274 Ill. 301, 113
N.E. 608 (1916) (obstruction of criminal prosecution).
See also Indiana Code § 30-4-2-12 prohibiting trust terms that purport to
require "the trustee to commit a criminal or tortious act," and see generally
Fratcher, Scott on Trusts, supra, § 61.
Comment d:
In Perkins v. Hilton, 329 Mass. 291, 107 N.E.2d 822 (1952), a veteran took title
to a home on behalf of his mother (who supplied the purchase price) in order to
obtain servicemen's advantages for her, advantages to which she was not entitled;
the oral trust was void, as a deception violating public policy, so that the veteran's
later performance of the agreed conveyance of the home to his mother while he was
insolvent could be set aside by his bankruptcy trustee. But cf. Makinen v. George,
19 Wash. 2d 340, 142 P.2d 910 (1943), involving daughter's purchase of U.S.
Savings Bonds in her mother's name, with no intent to evade Treasury regulations
or to defraud the government or an individual, held not subject to the counterpart
of this rule as set forth in the original Restatement of Trusts; thus the daughter was
not precluded from claiming ownership of the bond proceeds under a resulting trust.
See also In re Baum, 22 F.3d 1014 (10th Cir.1994), in which irrevocable trusts
for the benefit of settlor's children were held not to be "shams" benefiting settlor;
trusts had been created for reasons other than concealment from settlor's creditors.
The rule stated in this Comment is solidly supported by case law. See, e.g.,
Pattison v. Pattison, 301 N.Y. 65, 92 N.E.2d 890 (1950) (defendant's oral promise
to hold for and reconvey to plaintiff unenforceable because intended to deceive
plaintiff's creditors); Donaldson v. Thousand Springs Power Co., 29 Idaho 735, 162
P. 334 (1916) (invalid trust to hold for foreign corporation and thus evade law);
Jones v. United States, 61 F.Supp. 406 (D.Mass.1945) (national-service life-
insurance policy payable to eligible beneficiary, who agreed to hold part of proceeds
in trust for an ineligible beneficiary; on death of insured, trust for ineligible
beneficiary unenforceable as violation of statute); Dunn v. Dunn, 1 App. Div. 2d
888, 149 N.Y.S.2d 351 (1956) (to procure veteran's loan); MacRae v. MacRae, 37
Ariz. 307, 294 P. 280 (1930), noted 11 Boston Univ. L. Rev. 282, 44 Harvard L.
Rev. 1143; Flesner v. Cooper, 62 Okla. 263, 162 P. 1112 (1917); Griggs v. Griggs,
242 Ga. 96, 249 S.E.2d 566 (1978); and Hainey v. Narigon, 247 Cal.App.2d 528, 55
Cal.Rptr. 638 (1966). Cf. Shore v. Shore, 43 Cal.2d 677, 277 P.2d 4 (1954),
reversing id., 268 P.2d 569 (1954). See also "Validity of Agreement by Veteran,
Purchasing Property under Loan Guaranty, to Hold Property in Trust for Another who
Furnished the Consideration," 33 A.L.R.2d 1285 (1995); Fratcher, Scott on Trusts,
supra, §§ 63-63.3.
Intended trusts for transferors were invalid where purpose was to clothe
transferees with apparent ownership in order to deceive others in O'Keefe v.
Equitable Trust Co., 103 F.2d 904 (3d Cir. 1939); Fouquette v. Millette, 310 Mass.
351, 37 N.E.2d 1008 (1941). See also prominent English case, In re Great Berlin
Steamboat Co., 26 Ch. D. 616 (1884), noted 41 Illinois L. Rev. 487, 25 Texas L.
Rev. 31, and 95 Univ. of Pennsylvania L. Rev. 262.
Medicaid. Health Insurance Portability & Accountability Act of 1996 (P.L. 104-
191) § 217 added criminal penalties to the "period of ineligibility" applicable where a
person (42 U.S.C. § 1320a-7(b)(a)) "knowingly and willfully disposes of assets
(including by a transfer in trust) in order ... to become eligible for medical
assistance under a State plan under title XIX," unless the transfers are exempt
under id. § 1396p (e.g., home transfers to a spouse and trust transfers for certain
disabled persons). Id. § 1320a-7(b)(a) already provided a penalty for
"concealments" (e.g., by secretive trust), as well as the making of false statements,
failure to disclose, and the like. The Balanced Budget Act of 1997 repeals § 217 of
the above statute, but criminalizes the behavior of a person who "for a fee
knowingly and willfully counsels an individual to dispose of assets (including by
transfer in trust) in order for the individual to become eligible for medical assistance
... if [the disposition] results in imposition of a period of ineligibility for such
assistance." The Attorney General, however, subsequently announced that this
provision will not and cannot be enforced. Letter from Janet Reno to the Speaker of
the House (N. Gingrich), March 11, 1998. See also decision of U.S. District Court in
N.Y. State Bar Ass'n v. Reno, 97-CV-1768-TJM-DRH (N.D. N.Y., Sept. 14, 1998)
(holding unconstitutional; decision opposed by Justice Department not on merits but
as not ripe, no one having been charged under the provision).
Statutes sometimes authorize mutual-benefit insurance policies to be issued
only to certain near relatives of an insured, but the insured occasionally has a policy
issued to an eligible relative who agrees to receive the benefits and pay them to
persons outside the eligible class: "It would seem here that there is an attempt to
secure evasion of a civil statute, although the policy behind it is perhaps not very
important and the creation of the trust is not a serious wrong. Some courts have
refused to enforce a trust for the beneficiary, while others have given relief in cases
where the next of kin of the insured raised no objection or urged a decree for the
beneficiary." George T. Bogert, Trusts (Hornbook, 6th ed. 1987) § 48 (p. 178).
It is generally held that, where an owner transfers property in trust for his/her
own benefit for the purpose of avoiding a claim that is believed to be but is not in
fact enforceable, the trust is not illegal and may be enforced. See, e.g., Wantulok v.
Wantulok, 67 Wyo. 22, 214 P.2d 477 (1950), noted 37 Virginia L. Rev. 455, 5
Wyoming L.J. 152. Compare Stauffer v. Stauffer, 465 Pa. 558, 351 A.2d 236 (1976)
(claim not enforceable against the particular property transferred in trust); Estate of
Engel, 87 Ill.App.3d 273, 42 Ill.Dec. 425, 408 N.E.2d 1134 (1980) (enforcement not
barred where purpose for which ownership was concealed was not accomplished
anyway).
On resulting trusts in unlawful-purpose situations, see § 9, Comment g, and also
case and treatise references in Reporter's Note thereto.
Unlawful consideration. The cases are few but supportive of the rule stated with
respect to trusts created or provisions included for a consideration that is unlawful.
See, e.g., Taylor v. Ashe, 284 Mass. 182, 187 N.E. 548 (1933), and compare Wright
v. Martin, 214 Ala. 334, 107 So. 818 (1926). See generally Fratcher, Scott on
Trusts, supra, §§ 64 and 64.1; also cf. Hutchinson v. Hutchinson, 48 Cal.App.2d 12,
119 P.2d 214 (1941).
Comment e:
See generally Fratcher, Scott on Trusts, supra, § 65.1 and Bogert, Trusts
hornbook, supra, § 48.
General Comment f, on Clauses (b) and (c):
The types of issues discussed in this Section also arise in the context of other
donative property dispositions. Accordingly, these matters are covered more
comprehensively and in greater detail in the Restatements of the Law of Property.
The treatment in this Section of this Trusts Restatement is generally more selective
and summary in nature. In addition, in some matters involving Clause (c) of this
Section (specifically in Comments j, k, and l), the commentary here takes positions
more restrictive with respect to certain types of trust provisions than the positions
presently taken in some of the rules of Part III of Division I of Restatement Second,
Property (Donative Transfers).
Appropriate to both Restatements, however, are the observations of Professor
Herbert Wechsler, then Director of The American Law Institute, in his Foreword (p.
vii) to Volume 1 (containing Division I) of Restatement Second, Property (Donative
Transfers): "This volume ... is concerned with the body of law that in the interest of
some overriding social policy limits the nature of the property interests a donor can
create or the restraints he can effectively impose. It deals, therefore, with the rule
against perpetuities and related limitations on the power to postpone or inhibit
alienations; with the validity of various restraints on personal conduct, such as
marriage, separation and divorce, religious practice and affiliation, education,
occupation, or habitual activity; and with restraints upon a donee's interference with
or challenge to the donor's plan of disposition. The impingement of the law of
property on human interests of the first importance is plainly exhibited in these
materials."
See also General Notes on Clause (c) and Reporter's Notes to Comments i
through m, infra.
Clause (b) and Comments g and h:
The commentary on Clause (b) of this Section condenses, occasionally clarifies,

and generally updates (to reflect recent statutory, case, and Property Restatement
trends) the earlier treatment of perpetuities-related matters in Restatement Second,
Trusts § 62, Comments l through u. Comment h of this Section, however, modestly
but importantly qualifies the absolute acceptance in Restatement Second, Property
(Donative Transfers) § 2.2 of accumulations occurring within the perpetuities period
(allowing even a flat direction to accumulate all trust income every year for the
entire period).
Rationale. In its explanation of reasons underlying the rule against perpetuities,
Restatement Second, Property (Donative Transfers), Part I (Introductory Note) (pp.
8-10), in language nearly identical to that of the original Restatement of Property,
states that the rule "provides an adjustment or balance between the desire of the
current owner of property to prolong indefinitely into the future his control over the
devolution and use thereof and the desire of the person who will in the future
become the owner of the affected land or other thing to be free from the dead
hand," and continues: "Thus viewed, the regulation of the interference with the
alienation of property is socially desirable because it embodies one of the
compromises prerequisite to the maintenance of a going society controlled primarily
by its living members.
"In the second place, the rule against perpetuities probably contributes to the
increased use of the wealth of society....
"In the third place, the rule against perpetuities aids current owners in
responding to exigencies with their property. The division of ownership into
successive interests tends to lessen the amount realizable upon a sale of the
separate interests, and thus diminishes the total purchasing power of the wealth....
[In addition,] the responsiveness of these assets to the needs of their current
owners is diminished. Regulation of the extent to which the division of ownership
into successive interests can be carried serves to keep such diminution within
reasonable bounds. In another quite different way the rule against perpetuities
serves to keep property responsive to the needs of its current owners.... [I]t is well
established law that the rule against perpetuities applies not only to limitations
made concerning intangibles, such as bonds and shares, but also to limitations of
the beneficial interests under a trust where the trustee has unqualified power to
change the trust res. Both of these situations have one common factor, namely,
that a given quantum of wealth is sought to be committed to the satisfaction of
specific and stated ends. Such a commitment, for its duration, lessens the
availability of these assets for the meeting of current newly arising exigencies. Law
which is animated by the idea that the world and its wealth exist for the living
cannot tolerate too long a commitment of this sort.... [The rule's] function has
broadened to include the prevention of limitations which 'freeze' or 'tie up' property
for too long a time, even though no specific thing has been made inalienable, even
for a moment.
"From this ... it is fair to conclude that the social interest ... rests partly upon
the necessities of maintaining a going society controlled primarily by its living
members, partly upon the social desirability of facilitating the utilization of wealth,
and partly upon the social desirability of keeping property responsive to the current
exigencies of its current beneficial owners."
The operation of the traditional common-law rule against perpetuities is nicely
and briefly summarized in the classic, W.B. Leach, "Perpetuities in a Nutshell," 51
Harvard L. Rev. 638 (1938). For other summaries, see Lewis M. Simes, The Law of
Future Interests (Hornbook, 2d ed. 1966) ch. 24, §§ 127-136; and William M.
McGovern, Jr., Sheldon F. Kurtz & Jan Ellen Rein, Wills, Trusts and Estates
(Hornbook, 1988) ch. 13, §§ 13.1-13.10. A more detailed treatment is found in the
classic volume by John Chipman Gray, The Rule Against Perpetuities (4th ed. 1942).
A reform movement in this country was mobilized by Professor W. Barton Leach
in his "Perpetuities in Perspective: Ending the Rule's Reign of Terror," 65 Harvard L.
Rev. 721 (1952). English modifications are discussed in Morris & Wade,
"Perpetuities Reform at Last," 80 Law Quarterly Rev. 486 (1964).
New Hampshire has played an important role in judicial modernization of the
rule. First, over a century ago Edgerly v. Barker, 66 N.H. 434, 31 A. 900 (1891),
presaged the cy pres or reformation movement in this context; and that movement
was energized in 1962 by Carter v. Berry, 243 Miss. 321, 140 So.2d 843 (1962), 95
A.L.R.2d 791, noted 76 Harvard L. Rev. 1308, 61 Michigan L. Rev. 609, and 23 Ohio
St. L.J. 545; and also by Estate of Foster, 190 Kan. 498, 376 P.2d 784 (1962), 98
A.L.R.2d 795, noted 24 Ohio St. L.J. 651 and 12 Kansas L. Rev. 460. Second, wait-
and-see was advocated and relied on by the New Hampshire Supreme Court,
although there was an alternative basis for the result that could have been
employed, in Merchants National Bank v. Curtis, 98 N.H. 225, 97 A.2d 207 (1953),
which stated that "[w]hen a decision is made at a time when the events have
happened, the court should not be compelled to consider only what might have
been and completely ignore what was." Id. at 232, 97 A.2d at 212.
Also see Estate of Chun Quan Yee Hop, 52 Haw. 40, 40, 46-47, 469 P.2d 183,
184, 187 (1970): "We choose to resolve this issue by applying the doctrine of
equitable approximation (also known as the cy pres doctrine) so that the trust will
not violate the rule or its underlying policies and the testator's expressed desires
will be satisfied.... [A]ny interest which would violate the Rule Against Perpetuities
shall be reformed within the limits of that rule to approximate most closely the
intention of the creator of the interest. In the present case, ... the thirty-year period
need only be reduced to twenty-one years in order to bring the trust within the
rule."
The Uniform Statutory Rule Against Perpetuities (USRAP) is also set out in the
Uniform Probate Code, which, at § 2-901(a), declares that "a nonvested property
interest is invalid unless: (1) when the interest is created, it is certain to vest or
terminate no later than 21 years after the death of an individual then alive; or (2)
the interest either vests or terminates within 90 years after its creation." (Emphasis
added; paragraphing disregarded.) UPC § 2-903 provides: "Upon the petition of an
interested person, a court shall reform a disposition in a manner that most closely
approximates the transferor's manifested plan of distribution and is within the 90
years allowed" by § 2- 901(a), or by the analogous rules (in §§ 2-901(b), 2-901(c),
and 2-902) for powers of appointment, whenever the carefully articulated
circumstances of invalidity or practical necessity should arise.
Restatement Second, Property (Donative Transfers), also provides for wait-and-
see and reformation. A key problem in the wait-and-see approach is handled (quite
differently than by USRAP's 90-year alternative) in § 1.3(2) as follows
(paragraphing omitted): "If no measuring life with respect to a donative transfer is
produced under subsection (1), the measuring lives for purposes of the rule against
perpetuities as applied to the non-vested interest in question are: (a) The transferor
if the period of the rule begins to run in the transferor's lifetime; and (b) Those
individuals alive when the period of the rule begins to run, if reasonable in number,
who have beneficial interests vested or contingent in the property in which the non-
vested interest in question exists and the parents and grandparents alive when the
period of the rule begins to run of all beneficiaries of the property in which the non-
vested interest exists, and (c) The donee of a nonfiduciary power of appointment
alive when the period of the rule begins to run if the exercise of such power could
affect the non-vested interest in question." Reformation is provided for in id. § 1.5
as follows: "If under a donative transfer an interest in property fails because it does
not vest or cannot vest within the period of the rule against perpetuities, the
transferred property shall be disposed of in the manner which most closely
effectuates the transferor's manifested plan of distribution and which is within the
limits of the rule against perpetuities."
Abolition of the rule. On the more extreme movement in a growing minority of
states to allow perpetual trusts, see J. Blattmachr & D. Blattmachr, "A New
Direction in Estate Planning: North to Alaska," 136 Trusts & Estates 48, 52 (Sept.
1997); T. Foye, "Using South Dakota Law for Perpetual Trusts," 12 Probate &
Property 17 (Jan./Feb. 1998); and S. Greer, "The Alaska Dynasty Trust," 18 Alaska
L. Rev. 253 (2001).
V. Chaffin, "Georgia's Proposed Dynasty Trust: Giving the Dead Too Much
Control," 35 Georgia L. Rev. 1 (2000) (urging that Georgia resist the temptation to
repeal the Rule Against Perpetuities); J. Shively, "The Death of the Life in Being--
The Required Federal Response to State Abolition of the Rule Against Perpetuities,"
78 Washington Univ. L.Q. 371 (2000); D. Becker, "If You Think You No Longer Need
to Know Anything About the Rule Against Perpetuities, Then Read This!," 74
Washington Univ. L.Q. 713 (1996).
I. Bloom, "The GST-Tax Tail is Killing the Rule Against Perpetuities," 87 Tax
Notes 569 (2000). Professor Bloom concludes (at 576): "Having decried the
perpetuities repeal movement ... my politically incorrect suggestion is that the
repealing states should rescind their measures. If these states took such action,
then the real issue could be addressed: How long should society allow the dead
hand to control the duration of trusts?
"... Will the states next need to repeal their fiduciary income tax systems so that
residents will not flee to state tax havens to create perpetual trusts?
"Where does the law of the least common denominator stop? Will the states next
need to offer asset protection trusts to compete with Alaska and Delaware? [See §
60, Reporter's Note to Comment f.] If Alaska or some other state finds more
attractive ways to entice trust business, will all the states need to follow suit?
"Will the property and tax laws of each state cease to be based on principles and
societal good? I sincerely hope not."
h(1). Indestructibility. The material here in Comment h on the period of trust
indestructibility is consistent with Restatement Second, Property (Donative
Transfers) § 2.1 and its commentary. See also Lewis M. Simes & Allen F. Smith, The
Law of Future Interests § 1391 (2d ed. 1956 and Supp. 1991). See further § 65 and
id., Comment a.
h(2). Accumulations. The treatment here of accumulations differs modestly from
Restatement Second, Property (Donative Transfers) § 2.2 in that Comment h of this
Section (§ 29) disapproves of "directed accumulations that are capricious" in trusts
for either private or charitable purposes. No such qualification appears in the
Property Restatement as long as the accumulation, even a mandatory (i.e.,
directed) accumulation of all income (see id. Illustration 1), is limited to the period
of perpetuities. See also Gertman v. Burdick, 123 F.2d 924 (D.C.Cir.1941), cert.
denied, 315 U.S. 824, 62 S.Ct. 917, 86 L.Ed. 1220 (1942), noted 54 Harv. L. Rev.
147 (1940), 54 Harv. L. Rev. 839 (1941), and 41 Mich. L. Rev. 188 (1942).
In White v. Fleet Bank, 739 A.2d 373 (Me.1999), after initially applying the
state's wait-and-see statute to the future interests created by a testamentary trust,
the court went on to address (for the first time, it stated, since 1865) the common-
law rule regarding accumulations, ruling that a continuing direction to accumulate
one-quarter of the trust income, to be "reinvested annually" to enlarge the corpus
of the trust, was void from the outset and that this quarter of the income should be
distributed to the testator's intestate successors; the court expressly rejected the
approach of Restatement Second, Property (Donative Transfers) § 2.2.
Restatement Second, Property (Donative Transfers), would, however (as here),
limit accumulations in charitable trusts, apparently after some allowable perpetuities
period (e.g., 21 years or even named "lives" and 21 years), to those that are
"reasonable in the light of the purposes, facts and circumstances of the particular
trust." Id. § 2.2(2). No discernible reason appears for allowing accumulations of
other (i.e., capricious) types for an initial "perpetuities" period, even in charitable
trusts. (An interesting story from Dutch television reported by the Associated Press
from Haarlem, The Netherlands, January 6, 1999, describes a modest bequest in
1805 to aid the poor, but to accumulate and not to be expended until 140 years
after the death of the last of the testator's servants. The fund first became
distributable on January 5, 1999, and was then worth nearly $5,000,000.)
It must be admitted that relatively little to date, in the way of case law, has
come of the suggestion long ago in George G. Bogert, The Law of Trusts & Trustees
§ 326 (2d ed. 1964) (abandoned in § 215 of the Revised 2d ed. 1992) that: "It is
possible that accumulation provisions are subject to further restrictions based on
public policy. If they are useless, wasteful, and arbitrary the courts may refuse to
enforce them, even though the period and beneficiaries are satisfactory." See,
however, for an example of a permitted charitable accumulation, Fulton v. Trustees
of Boston College, 372 Mass. 350, 361 N.E.2d 1297 (1977), where the accumulation
appeared reasonably justified by the charitable purpose involved. And particularly
see Estate of James, 414 Pa. 80, 199 A.2d 275 (1964) (refusing to enforce a
direction that trust income be accumulated for 400 years, when the fund was to
pass to the Mason's).
See also K. Sneddon, "The Sleeper Has Awakened: The Rule Against
Accumulations and Perpetual Trusts," 76 Tulane L. Rev. 189 (2001).
In general, on limits applicable to accumulations, direct restraints on alienation,
and trust duration, see Simes & Smith, Future Interests, supra, §§ 1111-1171,
1391-1395, and 1461-1468.
General Notes on Clause (c) and Comments i through i(2):
Commentary on Clause (c) deals with subject matter that was covered in
Restatement Second, Trusts § 62, Comments b-j and v-x. Comments j through m in
the present Section, however, often state rules that are more specific than,
although rarely in direct conflict with, the Restatement Second of Trusts. The prior
(1959) Restatement commentary usually addressed the issues here involved simply
by declaring that provisions of the various types "may be invalid" for contravening
public policy, and occasionally (e.g., id. Comments c and d) stating: "Whether such
provisions are invalid depends upon the conceptions of public policy which are
prevalent in the community." For some situations, the relevant "conceptions" now
seem reasonably well established and stable.
On the role of public policy in judicial decisions generally, see Alan Handler in
"Judging Public Policy," 31 Rutgers L.J. 301 (2000) (paragraphing disregarded):
"[I]t is fair to say that no term [of a court] can come and go without some criticism
of the court.... Courts are characterized as activist if they are perceived to have
engaged in inappropriate, overreaching, or excessive decision-making, charges
usually sparked when decisions rely on considerations of 'public policy.' ... Guidance
for resolving whether judicial recourse to public policy is or is not sound should be
found in the judicial opinion itself. The clarity of the explanation and, particularly, its
reasoned elaboration of legislatively-articulated policies and its consistency with
those policies, should be the measure of the appropriateness of policy
considerations that are a foundation for the opinion itself.... That assumption
incorporates as its premise that public policy is a common ground for all
government actions and is necessarily shared by all branches of the government."
Id. at 301-302. Justice Handler later observes: "A precise definition of public policy
is elusive. It is rooted in the definition of law itself. Public policy may be defined
broadly to include both utilitarian and moral considerations. Oliver Wendell Holmes,
Jr., a jurist who was emblematic of the American pragmatist tradition, described
public policy as the essence of jurisprudence.... Justice Benjamin Cardozo saw law
as an instrument for the conscious pursuit for social welfare, an instrument whose
master term was policy rather than principle. Cardozo explained, more concretely
than did Holmes, [that] the final cause of law is the welfare of society, defined as
public policy, the good of the collective body.... In practice, ... hard cases often
raise concerns that compel courts to consider public policy." Id. at 303-307.
In Sir Arthur Hobhouse's The Dead Hand (1880), it was stated: "A clear,
obvious, natural line is drawn between those persons and events which the Settlor
knows and sees, and those which he cannot know and see. Within the former ... his
natural affections and his capacity of judgment [can] make better dispositions than
any external Law is likely to make for him. Within the latter ... the wisest judgment
is constantly baffled by the course of events." He also considered "not conjectural"
but "proved by experience in all human affairs ... that people are the best judges of
their own concerns" and, even if not, "that it is better for them, on moral grounds,
that they should manage their own concerns for themselves, and that it cannot be
wrong continually to claim this liberty for every Generation of mortal men." Id. at
183-188.
Also recall the quotation from Professor Herbert Wechsler's Foreword to
Restatement Second, Property (Donative Transfers), set out in the Reporter's Note
to General Comment f, on Clauses (b) and (c), above, concerning the need to
balance freedom of disposition against "overriding social policy limits" and "human
interests of the first importance."
See also J. Sherman, "Posthumous Meddling: An Instrumentalist Theory of
Testamentary Restraints on Conjugal and Religious Choices," 1999 Univ. of Illinois
L. Rev. 1273.
For an interesting discussion that is potentially relevant here, see E. Brody,
"Entrance, Voice and Exit: The Constitutional Bowels of the Right of Association," 35
U.C. Davis L. Rev. 821 (2002).
Professor Simes's observations on perpetuities, in Lewis M. Simes, Future
Interests (Hornbook, 2d ed. 1966) § 121, are relevant as well to the balancing of
conflicting social values in this part (Clause (c)) of this Section: "[T]he rule ... may
be said to be designed to strike a fair balance between the policy of allowing the
present generation to do as it wishes with the property which it enjoys, and the
policy of allowing succeeding generations to do as they wish with the property which
they will enjoy. That is to say, the rule offers a compromise between giving full
scope to the desires of the present ... and ... future generations ... [and] is needed
even though the marketability of specific property is not greatly impaired by the
existence of contingent future interests." Also, see more generally Lewis M. Simes,
Public Policy and the Dead Hand (1955); and A. Hirsch & W. Wang, "A Qualitative
Theory of the Dead Hand," 68 Indiana L.J. 1 (1992).
The general subject of policy limits on trust provisions is discussed in IA William
F. Fratcher, Scott on Trusts, (4th ed. 1987) at § 62: "We are here concerned with
the question of how far the power of an owner of property to dispose of it as he
likes is limited by considerations of public policy, how far on grounds of public policy
his intention shall be defeated.... In many situations the public policy that induces
the courts to refuse to permit the carrying out of the settlor's intention is obvious
and can be formulated without difficulty. This is the case, for example, where the
carrying out of the purposes of the trust would involve the commission of criminal
acts. [See the first part, i.e., Clause (a), of this § 29, as well as the text of this
present Comment.] In other cases, however, the questions of public policy are quite
nebulous." The treatise then quotes a couple of English jurists who, about a century
and a half ago, expressed their concern over applying principles of public policy that
cannot be clearly defined: one still often-quoted statement was that "public policy is
an unruly horse," and the other that it "seems to me extremely dangerous to limit
the power of disposition on any general notion of impolicy, without some definite
rule or principle being shown to apply to the case.... [T]he danger of relying on
general notions of public expediency or policy, which varies so much from time to
time ... [is that] such a rule of decision may lead ... to the greatest uncertainty as
to individual rights in each particular case, if Courts of justice are to decide upon
nice speculations ... without some definite mischief to the public being clearly shown
to apply to the case." (Ironically, English courts have been much less deferential to
deadhand control than American courts in more fundamental questions such as
tolerance for spendthrift trusts (see § 58) and the power of beneficiaries to
terminate trusts (see Claflin doctrine in the U.S. in § 65(2)), not to mention the
traditional strictness of English courts on purposes qualifying as charitable.)
The Scott treatise further observes that in the United States there "is a large
and miscellaneous class of trusts that are held invalid on the ground that their
enforcement would be against public policy, even though the enforcement does not
involve any criminal or tortious act," and offers a contrast to the above quotations
from English jurists: "As Mr. Justice Holmes has pointed out, public policy in a broad
sense is at the basis of most judicial decisions. He says in his famous lectures on
The Common Law [1881, p. 35], 'The very considerations which judges most rarely
mention, and always with an apology, are the secret root from which the law draws
all the juices of life. I mean, of course, considerations of what is expedient for the
community concerned. Every important principle which is developed by litigation is
in fact and at bottom the result of more or less definitely understood views of public
policy, most generally, to be sure, under our practice and traditions, the
unconscious result of instinctive preferences and inarticulate convictions, but
nonetheless traceable to views of public policy in the last analysis.' "
See also III Walter L. Nossaman & Joseph L. Wyatt, Jr., Trust Administration and
Taxation § 8.01 (Rev. 2d ed. 1990) ("Unfortunately, it is sometimes difficult to
determine what is the public policy at any given moment, for public policy often
changes. The invalid condition of another day may become accepted by the time
someone challenges it, and vice versa"), with footnotes (ibid.) quoting the early
case of Magee v. O'Neill, 19 S.C. 170, 185 (1883) ("The phrase 'public policy' is
very vague ..."), and the later Girard Trust Co. v. Schmitz, 129 N.J.Eq. 444, 457, 20
A.2d 21, 30 (1941) (public policy "may be said to be the community common sense
and common conscience ..., the general and well-settled public opinion relating to
man's plain, palpable duty to his fellow men, having due regard to all circumstances
of each particular relation and situation").
Compare the observations of Professor Gareth H. Jones of Cambridge University
in his "The Dead Hand and the Law of Trusts," Death, Taxes and Family Property
(Halbach ed. 1977) 119, 126-129 (paragraphing disregarded): "American courts
have always enjoyed the power to set aside 'restrictions and limitations' which are
repugnant to overriding principles of public policy. No settlor can require a
beneficiary to observe a condition which is criminal or tortious. A trust provision
may also be invalid because it is purely capricious.... Yet some critics have argued
that the courts' intervention has been too hesitant and too deferential to the wishes
of settlors, particularly concerning conditions which seek to regulate the conduct
and the quality of another's life.... [Conditions in restraint of marriage] are normally
invalid if general, but conditions in partial restraint of marriage or restraining
remarriage of widows or widowers are not against public policy.... Conditions
against remarriage are justified on the ground that the 'widows are praiseworthy
that content themselves with one husband,' ... or that a husband should 'be at
liberty to leave a homestead to his wife, without being compelled to let her share it
with a successor to his bed'.... Nowadays, the restraint on remarriage is sometimes
upheld on less colorful grounds; 'it is in the interest of the testator's children'.... Yet
there is nothing to indicate that the rule depends for its validity on the existence of
children of the marriage.... But, some judges have begun to question the propriety
of any testamentary restraint on marriage. In their view the court should 'view with
disfavour the power of testators to control from their grave the choice in marriage
of their beneficiaries.' To induce or to tempt, expressly or indirectly, a human being
not to ... marry a person of a certain race or faith is wholly objectionable; to uphold
the restraint is to endow the dead with an unjustifiable power of intruding
themselves into the most personal aspects of human life. Moreover, to justify a
restraint on the ground that the testator's intention was not to restrain marriage but
to provide for the support of a particular beneficiary does not make the restraint
any less offensive if it does indeed discourage marriage.... Many states, when
confronted with the analogous question whether a condition is invalid as inducing
divorce, take into account the testator's 'actual subjective intent,' while a few refuse
to consider whether his purpose was to provide for the needs in the event of divorce
or to induce it. On the other hand, courts agree [incidentally, this Section of this
Restatement does not agree] that dead hand inducements to remain married are
consistent with public policy and thus the trust conditions restraining divorce are
valid, although obviously these too intrude into the very personal lives of
beneficiaries." Jones continues: "Viewing the post-war cases, one must conclude
that [on the last point] the critical voices are still crying in the wilderness....
Conditions which seek to require the beneficiaries to remain within or to adopt a
particular faith have generally remained just as immune from the twin attacks of
public policy and unconstitutionality.... I doubt whether the settlor's private views
on marriage or religion, which may be sincerely and deeply held, are so offensive
that their imposition through trusts after death can unequivocally be said to offend
public policy. (It is more likely, however, that the temper of society will reject
restraints involving race as contrary to public policy.) Are marital or religious
restraints so much more offensive than conditions which require a beneficiary to
obtain a particular educational qualification or to live in a foreign country?..."
Somewhat ironically, after observing that judicial intervention "may be counter-
productive," he concludes that intervention may "require the creation of fine
distinctions, which may be properly condemned as illogical and indefensible"--
certainly a problem that already exists in what appear to be traditional lines of the
limited American authorities in this inherently troublesome area.
See also J. Stake, "Inheritance," New Palgrave Dictionary of Economics and Law
311, 317 (1998): "Decedents occasionally attempt to control the behaviour of their
friends or relatives after they die.... It is questionable whether the dead hand
should be granted such influence over the living"; and id. at 320: "It seems likely
that testators will continue to invent ways to extend their influence into the future,
and likely that the law will continue to find that some of these attempts have
unacceptable consequences for successors."
Compare E. Whiting, "Controlling Behavior by Controlling the Inheritance:
Considerations in Drafting Incentive Provisions," 15 Probate & Property 6
(Sept./Oct. 2001). After recalling that Warren Buffet is quoted as saying that "[t]he
perfect inheritance is enough money so that [children] feel they can do anything,
but not so much that they could do nothing," the author points out (at 9-12,
paragraphing disregarded): "Most clients seek to encourage behavior, and therefore
most provisions take on the characteristics of a carrot. This desire to influence
actions can also be manifested as a stick. Howard McCue ..., in a paper entitled
'Planning and Drafting to Influence Behavior' at the Phillip E. Heckerling Institute on
Estate Planning in 1999, points out the fine line between guiding behavior and
controlling it.... The desire to encourage or discourage behavior takes many forms.
Most often clients focus on incentives to make their heirs productive members of
society ... often [in] the form of supplements to a beneficiary's earnings, either by
dollar matching or by specific monetary distributions based on adjusted gross
income. A provision matching earnings can unintentionally favor the heir who
becomes a highly paid professional, to the detriment of the missionary or the
schoolteacher in the family.... Each silver lining therefore does have a cloud....
Clients also desire to promote what they perceive as a healthy family
environment.... Education is frequently a primary goal.... Incentives to begin a
business are also common.... Clients could seek to punish behavior considered
inappropriate or immoral. Commonly the client's concern focuses on abstinence
from the usual sins of divorce, drugs, alcohol or tobacco. Again, flexibility is the
key.... Little restricts the creativity of clients and attorneys in drafting trust
provisions ... [but] careful consideration must be given to the request in order not
to push the envelope beyond the bounds of public policy [citing this Trusts Third
Section in Tentative Draft].... During the donor's lifetime, the law does little to
intrude in the decisions to give property away. The donor can respond to changes in
circumstances or be persuaded to another course of action. However, the law is less
tolerant of control by a dead hand.... Incentives to change personal habits or
conduct are generally not against public policy unless they are unnecessarily
punitive, are unreasonably intrusive in significant personal decisions or interfere
with freedom of association. Drafting should also be as clear as possible to avoid
being unenforceable for indefiniteness." In her "Final Word" (p. 12) the author
reminds readers: "Incentive trusts are no substitute for good parenting.
However, ... [p]rovisions in trusts designed to encourage or discourage certain
behavior can be an effective part of an overall plan to leave a legacy of more than
money. By drafting within restrictions imposed by considerations of public policy
and sound tax-minimization techniques, the practitioner can address a client's
concern for his or her family. Planning for lifetime participation in the mission and
goal of the family through judicious family partnerships, charitable lead trusts and
foundations can alleviate the need for stringent restrictions on behavior later.
Incentive trusts can bolster the vision already communicated and can provide
significant safety nets for beneficiaries...." See also P. Meints, "Using Trusts to
Provide Incentives, Rewards, Remembrances, and Other Benefits to Chosen
Beneficiaries: A Checklist," 15 Practical Tax Lawyer 25 (2001).
Encouraging criminal and tortious conduct. The observation in Comment i that
trusts that tend to encourage criminal or tortious conduct are invalid is quite
traditional and consistently supported by the limited body of case authority in point,
see Fratcher, Scott on Trusts, supra, § 62.1, as is the general notion of a trust's
invalidity for tending to encourage immorality but with little basis for understanding
what "immorality" might be for these purposes. See id. § 62.2.
On invalidity for encouraging immorality, see Dannells v. United States National
Bank, 172 Or. 213, 138 P.2d 220 (1943), Kingsley v. Broward, 19 Fla. 722 (1883),
and Rehak v. Mathis, 239 Ga. 541, 238 S.E.2d 81 (1977) (a pre-Marvin case),
noted 12 Georgia L. Rev. 361.
See also George T. Bogert, Trusts (Hornbook, 6th ed. 1987) § 48, stating:
"Examples of trusts with illegal purposes are found where the object is ... to
encourage immorality or the violation or evasion of a statute, or to secure results
which are contrary to public policy."
For an unlawful trust involving payment of fines for criminal conduct (under the
game laws, cf. example in Comment), see Thrupp v. Collett, 26 Beav. 125 (1858).
See also Matter of Estate of Sage, 97 Misc.2d 790, 412 N.Y.S.2d 764 (Sur. Ct.
1979) (trust payments characterized as encouraging bribery), Daboll v. Moon, 88
Conn. 387, 91 A. 646 (1914), and Baker v. Hickman, 127 Kan. 340, 273 P. 480
(1929), 68 A.L.R. 743, although the latter case also indicates that a slight tendency
to induce a criminal act will be disregarded, as does Estate of Little, 403 Pa. 534,
170 A.2d 106 (1961), involving a bequest (not a trust) to a legatee should he
survive his wife, of whom the testator disapproved. And Estate of Robbins, 57
Cal.2d 718, 21 Cal.Rptr. 797, 371 P.2d 573 (1962), declined (in a 4-3 decision) to
invalidate a charitable trust because of the incidental tendency it might have to
diminish a deterrent to criminal conduct.
i(1). Consequences of invalidity generally. As noted in Comment i(1), a court
may sometimes refuse to apply that aspect of the general rule of the Comment that
would respect a substitute plan of the settlor. A recent and important case of this
type is Home For Incurables of Baltimore v. University of Maryland Medical System
Corp., 369 Md. 67, 797 A.2d 746, 751 (2002): "This court has long held that where
a ... condition is invalid on the ground of public policy ...., the condition will not be
enforced by awarding the bequest to an alternative beneficiary; instead, the illegal
condition will be excised." (Incidentally, the court also noted (footnote 3, p. 752)
that a "distinction between conditions precedent and conditions subsequent" was
irrelevant, so that there was no need to "consider whether the distinction ... has any
viability today.")
Reformation. Although existing case law does not suggest (as this commentary
does) the use of judicial modification in this particular context, the modern tendency
for cases and legislation to recognize the appropriateness of "equitable
approximation" or a noncharitable version of cy pres (to approximate the purposes
of the settlor of a private trust within what is allowed by public policy) with respect
to violations of the rule against perpetuities (Clause (b) of this Section) would seem
also to support equitable approximation in appropriate cases to reconcile a legally
acceptable settlor purpose with public-policy concerns under Clause (c) of this
Section.
See also In re Remnant's Settlement Trusts, [1970] Ch. 560, noted 34 Modern
L. Rev. 96, approving under England's Variation of Trusts Act (1958) a plan for the
benefit of all beneficiaries that would omit a forfeiture provision applicable to their
interests if they should in various enumerated ways practice Roman Catholicism.
i(2). Scope note. The observations in the Scope Note near the end of Comment i
are traditional and consistent with Restatement Second, Property (Donative
Transfers), which at § 6.1, Comment c, for example, states: "Insofar as these
limitations are intended to prevent the acquisition or retention of property if the
devisee or legatee should marry prior to the death of the testator, they do not
constitute restraints on marriage as that phrase is used in this Restatement....
[T]he acquisition or retention of that interest must be dependent upon the future
conduct of the devisee or legatee which the disposition is designed to influence ...
even though, in fact, its existence in the will prior to the death of the testator does
exert some coercion upon the prospective beneficiary.... Because of [a decedent's]
inability to consider changed circumstances, the law is less receptive to restraints
imposed by the dead hand than to those imposed by the living.... [and a] transferor
who sets up a revocable trust similarly has the ability to change the terms of the
trust, while he is alive." Note, however, the premature arrival of estate planning
"rigor mortis" (in the terms of the present Comment) when a living testator loses
capacity to make a new will or a codicil.
Matter Collura, 98 Misc.2d 1104, 415 N.Y.S.2d 380, 381 (Sur. Ct. 1979) (a
condition based on the married or unmarried status of the beneficiary at the time of
the testator's death "is not contrary to public policy since it refers to a past act").
See generally R. Storrow, "The Policy of Family Privacy: Uncovering the Bias in
Favor of Nuclear Families in American Constitutional Law and Policy Reform," 66
Missouri L. Rev. 527 (2001), discussing (at 583-592) "Family Policy in the Law of
Succession" (and trusts).
See also Restatement Second, Property (Donative Transfers) § 6.2, Comment c:
"The rules of law set out in this Restatement do not include the constitutional
principles which [might] apply to a restraint on marriage to members of a defined
group. The words 'otherwise effective restriction' [used throughout id. chs. 5
through 8] limit the inquiry as to the validity of a restraint to a consideration of the
relevant property law." Thus, a restraint may not be invalid under constitutional law
but nevertheless be invalid under state property and trust law. Nor, of course, does
the fact that a restraint is not found to be invalid under property or trust law
"prejudice an inquiry into the constitutionality of the provision." Id.
Nevertheless, it seems worth noting that the classic decision, Shelley v.
Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948) (involving not a state
imposed restraint but state action based on court enforcement of a privately
imposed restraint), although often distinguished in trust cases, was itself a
"deadhand control" case (see Introductory Note to this Chapter) in that it involved a
restraint (a racially restrictive covenant in a deed) sought to be imposed in an
earlier irrevocable transfer made by one who no longer owns the property.
Illustrative of long-standing, analogous statutory policies, see post-Civil War
provisions of the Civil Rights Act of 1866, now codified as 42 U.S.C. §§ 1981(a) and
1982. And compare Jones v. Alfred H. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20
L.Ed.2d 1189 (1968), and the interesting arguments made in F.W. Roisman, "The
Impact of the Civil Rights Act of 1866 on Racially Discriminatory Donative
Transfers," 53 Alabama L. Rev. 463 (2002). In her conclusion (id. at 553) Professor
Roisman states: "In Jones [supra], the Supreme Court resuscitated the [Act], by
which congress has prohibited the imposition of racial distinctions by 'custom, or
prejudice', as well as by state or local law. While most of the cases since 1968 have
focused on the Act's protection of the rights to buy or rent property, the Act broadly
protects the rights to 'inherit,' 'purchase,' and 'hold,' real and personal property. [¶
] Analysis of the 1866 Act indicates that it is violated when intentional racial
discrimination in a donative transfer is the basis for attempting to deny to citizens
the right to acquire or hold property, regardless whether state action has been
implicated in those transfers. The consequence of this analysis should be to
invalidate some discriminatory donative transfers that had been considered free of
state action, and to remedy other discriminatory donative transfers by excising the
discriminatory restraint rather than eliminating the underlying gift."
On public policy in the law of charitable trusts (and some introductory treatment
of federal and state constitutional and statutory rules, plus "state action" issues)
with regard to racial, ethnic, gender, and religious restrictions, see § 28, Comment
f, and also § 67, Comment c, on potential application of cy pres if the restriction is
not valid or is rejected by a trustee institution.
Comments j through l:
The Introductory Note to Part III of Restatement Second, Property (Donative

Transfers), states: "This Part deals with the extent to which considerations of public
interest restrict the attempts of transferors to regulate the private lives, conduct,
and habits of others by making the receipt or retention of benefits under donative
transfers dependent upon conformity with the desires and views of the transferor....
The dispositions dealt with in this Part are normally testamentary, the testator often
seeking to substitute the influence embodied in the disposition for the personal
influence which was exercised on the beneficiary during the testator's lifetime."
See also Introductory Note to Chapter 6 of Restatement Second, Property
(Donative Transfers), stating: "The family is a basic social unit. Since marriage
remains the most common method of initiating family relationships in our society,
the possibly adverse social consequences which would follow a successful attempt to
restrain an individual's freedom to enter into that relationship call for careful
examination of such endeavors. At the same time, the freedom which our law has
given property holders to dispose of their property as they see fit has made courts
reluctant to strike down provisions in dispositive instruments which arguably
restrain marriage, but which also seem to serve legitimate purposes. The resultant
body of law is understandably confused...." (Emphasis added.)
That Introductory Note in Restatement Second, Property (Donative Transfers),
continues: "[T]oday's courts probably do not feel the weight of the argument that
clearly moved many of the English courts--that parents should have considerable
control over the marriages of their children. The demise of many of the policies of
the past has not, however, relieved the tension in our policy. On the one hand, like
the medieval canon law, we are reluctant to brook any interference with the
marriage choice of the parties to the marriage (see Loving v. Virginia, 388 U.S. 1,
87 S.Ct. 1817, 18 L.Ed.2d 1010 (1967)). On the other hand, the policy in favor of
freedom of disposition of property remains strong. In light of this continuing tension
in policy, it seems best to restate the law as it has come down to us, but stripped of
the arcane distinctions (legacy vs. devise, condition vs. limitation, in terrorem vs.
gift over) which clearly no longer serve any useful function.... Consistent with the
policy principles above outlined, a condition rendering a gift contingent upon not
marrying anyone is invalid, unless clearly motivated by an intention to provide
support until the event of marriage. Restraints limited as to persons, group, or time
are excepted from the general condemnation ... unless the remaining sphere of
permissible marriages is so small that a permitted marriage is not likely to occur."
(Paragraphing disregarded and most citations omitted.)
Ironically, the subjectivity involved in line drawing and the difficulties of judicial
enforcement are illustrated not only by the inquiry into the motivation of the
transferor but also by the content of id. § 6.2, Comment c: "Restraints frequently
are employed to induce the transferee to marry within the membership of a
designated religious faith, or to refrain from marrying a member of such group.
Whether or not the restraint is merely partial frequently depends upon the type and
strength of the religious beliefs of the transferee. If marriage within the permitted
sphere would be so contrary to those beliefs that it is unlikely that such marriage
will ever occur, the restraint is general and invalid." (Emphasis added.) The
Comment further points out that "such restraints cannot be sustained under the rule
stated in this section unless the group is adequately described" and some cases in
the Reporter's Note thereto seem to find rather surprising difficulties in this regard,
possibly suggesting an unstated reluctance in real life to apply the restraints.
On Comment j in general: Next, it is interesting to note that Restatement
Second, Property (Donative Transfers), in § 7.1, Comment a ("Rationale") states
(emphasis added): "The public policy favoring unhampered entry into the marriage
relationship ... also favors continuance of the relationship once it has been created.
The stated rule thus invalidates provisions annexed to gifts which render the receipt
or retention of such gifts contingent upon the procuring of a divorce or otherwise
separating from a present spouse.... [I]t is not the actual effectiveness of the
inducement present in such provisions that impels the finding of invalidity, but an
unwillingness to penalize the transferee for his or her failure to respect the anti-
social attempt of the transferor to use his property as a means of coercing
separation or divorce." Comment b of § 7.1, in Restatement Second, Property
(Donative Transfers), observes that the statutory "adoption of such a policy [of
mutual consent] with regard to divorce, however, does not indicate an
abandonment of the policy of preventing outsiders from inducing the break-up of a
marriage by offers of wealth."
On the Restatement Second, Property (Donative Transfers), exception for a
dominant settlor motive of providing support in the event of dissolution, id.,
Comment d indicates that language in the governing instrument "indicating a desire
solely to provide support does not control" and that "the circumstances and scheme
of disposition are all relevant to indicate" what was or was not "the dominant
motive" of the transferor. Importantly relevant to the commentary in this Trusts
Restatement (both in evaluating motivation and in providing for a flexible remedy of
reformation) is the further observation in the Restatement Second, Property
(Donative Transfers), Comment d that "[o]f particular importance in assessing the
transferor's motive are the transferor's overall plan of disposition (including the
relative treatment of beneficiaries similarly situated and explanations of that
treatment) and the alternative schemes of disposition available for accomplishing
the alleged support purpose with less severe or more equitable consequences."
On the practical difficulties of determining rights or consequences on the basis of
the subjective intentions, or motivations, underlying a particular disposition, recall
the painful experience under the eventually discarded federal estate tax (I.R.C. §
2035) "contemplation of death" rule, briefly reviewed in J. Sherman, "Hairsplitting
Under I.R.C. § 2035(d): the Cause and the Cure," 16 Virginia Tax Rev. 111, 117-
118 (1996) (concluding: "Congress [became] persuaded that this absurd hunt for a
donor's subjective motive wasted valuable judicial resources and needed to end").
The "dominant motive" is also made determinative in Restatement Second,
Property (Donative Transfers) § 7.2, with respect to provisions detrimentally
affecting other (i.e., nonspousal) relationships, which provisions are "invalid where
the dominant motive of the transferor was to promote such a separation."
On encouraging divorce or other disruption of family relationships (in Comment
j): Both of the prior Trusts Restatements stated (like this Restatement) that trusts
that provide a financial inducement tending to encourage divorce or separation of
beneficiaries and their spouses, or tending to discourage resumption of the marital
relationship, may be invalid, absent a showing of the benign motive of providing
"for the support of a woman" in the event such a tragedy should befall her despite,
in this latter situation, "some tendency to induce her to secure a divorce or
separation from her husband." Restatement Second, Trusts § 62, Comment e. See
also Restatement Second, Property (Donative Transfers), above. Both the earlier
Trusts and Property Restatements have failed to mention the more serious,
reasonable, and likely settlor concerns over the relevant financial risks a particular
spouse may pose with respect to the beneficiaries' interests or the trust property.
The prior Restatement positions, and the primary thrust of the positions taken in
the commentary to this Restatement (including disruption of other family
relationships), have general support in the case law and other treatises. See, e.g.,
In re Gerbing's Estate, 61 Ill.2d 503, 337 N.E.2d 29 (1975). See also Fratcher,
Scott on Trusts, supra, § 62.4 and § 62.5, and George G. Bogert & George T.
Bogert, The Law of Trusts and Trustees (Rev. 2d ed. 1992) § 211 (at pp. 127-137);
also see Reporter's Notes to relevant Sections and Comments of Restatement
Second, Trusts § 62, Comments e ("Encouraging divorce or separation"), f
("Encouraging neglect of parental duties"), and g ("Disrupting other family
relations"), and of Restatement Second, Property (Donative Transfers) §§ 7.1 and
7.2.
The text of Restatement Second, Property (Donative Tranfers) § 6.1, Comment
f, is also consistent with the position taken here re inducing termination of long-
established relationships of cohabitation without marriage. Also compare Principles
of the Law of Family Dissolution: Analysis and Recommendations, Chapter 6,
recognizing that nonmarital unions or domestic partnerships may have financial
implications similar to those of marriage, at least upon dissolution.
With Illustration 6 of this Comment j, compare the case of Matter of Estate of
Donner, 263 N.J.Super. 539, 623 A.2d 307 (1993), in which the court upheld a
father's trust that denied the beneficiary, his daughter, the trust benefits (income,
and principal as needed) until age 65 unless her husband's death or a divorce
should occur earlier, finding that the trust terms and extrinsic evidence provided a
"reasonable economic basis" for not finding the provision in question to be contrary
to public policy. It is worth noting that the case illustrates (i) the mixture of
motivation--or feelings--realistically (however much denied) likely to be present in
these cases, and particularly (ii) how terms of a trust may reflect the acceptable
economic objectives of a settlor without the usual principal windfall that would offer
a significant incentive to divorce. The opinion concluded that the "facts present a
reasonable economic basis for the decedent to have withheld the trust income from
the plaintiff until she reaches age 65 unless she sooner loses her husband, the
breadwinner of her family, through either death or divorce ... [W]e therefore need
not consider whether the decedent [also] harbored the motive of encouraging
divorce." Id. at 543-544, 623 A.2d at 309. Based largely on uncontroverted
testimony, a summary of influential findings noted that the father "felt any gift ... to
[his daughter] should be at a time when it would be most needed-- i.e., when [she]
no longer had a husband to provide for her or ... when it was most likely that he
would be retired and his daughter would need an increased source of income....
upon age 65." Id. at 543, 623 A.2d at 309. The opinion adds: "He had absolutely no
intent to foster any divorce," although testimony also showed that the father
"strongly disliked plaintiff's husband," who "had more than adequate resources to
support his family," and that the father had "expressed the view that [the husband]
had exercised bad judgment regarding money management." Id.
An interesting case of similar, recent vintage is Estate of Romero, 115 N.M. 85,
847 P.2d 319 (1993), recognizing the policy objections to and general invalidity of
conditions that tend to disrupt other family relationships (here, a father's
testamentary trust discouraging his youthful children from living with their mother,
his former wife) but also illustrating the countervailing effect of other acceptable
motives and the complexity of accommodating them without aid of a reformation
rule (such as offered for these § 29(c) cases). Compare Stewart v. Republicbank,
698 S.W.2d 786 (Tex.App.1985) (condition violated policy in favor of guardians
being selected on the basis of the best interests of the child).
Some courts have understandably disagreed with the ready emphasis of prior
Restatements on subjective motivation and its effect. See, e.g., Keffalas Estate, 426
Pa. 432, 233 A.2d 248 (1967), asserting that probable effect, not subjective
motivation, should determine the validity of a condition (while upholding a
provision--see below--conditioned on the beneficiary's marrying someone "of Greek
blood and descent and of Orthodox religion"). Also see reference to Sherman article
and the "contemplation of death" experience, supra.
For a case that nicely illustrates the shortcomings of an unqualified exception
upholding conditions, despite an effect tending to encourage divorce, because of a
finding that a settlor had a "dominant motive" of protecting the beneficiary or
providing support in the event of divorce, see Hall v. Eaton, 259 Ill.App.3d 319, 197
Ill.Dec. 583, 631 N.E.2d 805, appeal denied, 157 Ill.2d 500, 205 Ill.Dec. 162, 642
N.E.2d 1279 (1994) (daughter sought to have remainder upon condition of her
divorce voided as contrary to public policy; court upholds dismissal on motion of
brother who takes as result of condition), in which the trust terms seemed both ill-
suited and excessive for the supposed motive and in which a confused opinion
emphasized that, "at the time the suit for construction [of her father's will] was
brought, the condition ... [could have] no 'tendency ... to encourage divorce ...'
[because] once it was determined that Hall was [still] married at her [life-
beneficiary] mother's death, Hall had nothing to gain by divorce."
On restraining marriage (in Comment j): Unlike the rules stated here in
Comment j (and the result of Illustration 3), Restatement Second, Trusts § 62,
Comment h, after stating that "such a provision is not invalid if it does not impose
an undue restraint on marriage," explained that under its rule a restraint on
marrying "a person of a particular religious faith or one of a different faith from that
of the beneficiary" would not ordinarily be invalid.
Similarly, Restatement Second, Property (Donative Transfers) §§ 6.1 and 6.2,
take the positions: (1) that restraining "any first marriage of the transferee is
invalid" and that the "transfer takes effect as though the restriction had not been
imposed," unless it is shown that "the dominant motive of the transferor is to
provide support until marriage"; but (2) that a continuing restraint applicable to
"some, but not all, first marriages of the transferee is valid if, and only if, under the
circumstances, the restraint does not unreasonably limit the transferee's
opportunity to marry." Comment a to id. § 6.2 explains that under this rule a
restraint is valid "unless the proscribed marriage is so broadly defined that ... a
marriage permitted by the restraint is not likely to occur." This "is a factual
question, to be answered from the circumstances of the particular case."
(Incidentally, it is unclear why, under a provision-of-support rationale (see (1) in
the preceding paragraph), this motivation should lead the settlor to terminate (or
justify the settlor's termination of) all provision for the beneficiary upon marriage,
unless and to the extent (especially as compared to the typical dispositive plan in
"remarriage" cases, infra) the provision involves special support for a particular
beneficiary out of shares otherwise intended for others (e.g., in a first-marriage
case, extra provision for one child at the expense of the other children).)
Problems posed by provisions requiring a designated person's consent to a
marriage are considered in Restatement Second, Property (Donative Transfers) §
6.2, Comment e, and the Reporter's Note thereto. An interesting case in which a
requirement that X's marriage be approved by Y and Z was held invalid, because
approval would adversely affect Y's and Z's interests in the trust, is Matter of
Liberman, 279 N.Y. 458, 18 N.E.2d 658 (1939), 121 A.L.R. 1.
In contrast with the leniency of Restatement Second, Property (Donative
Transfers), and Restatement Second, Trusts, see Bogert, Trusts hornbook, supra, §
48 (at p. 181), which states (emphasis added): "[T]he common law has a well-
defined interest in preserving freedom of marriage and of religion [see below], and
in the preservation of the family relation [see above]. Hence provisions in a trust
instrument which provide that a beneficiary shall have no interest under the trust
unless he obeys the instructions of the settlor regarding marriage or unless he
adopts a certain religion [see below], or unless he divorces his wife [see above],
may be held illegal as against public policy."
Also, Georgia Code Annotated § 19-3-6 (1981) only allows provisions restraining
marriage "to a particular person or persons or before a certain reasonable age or
other prudential provisions looking only to the interest of the person to be
benefitted."
Several other statutes invalidate conditions "imposing restraints upon marriage,"
excepting restraints upon "the marriage of a minor" or "limitations the intent of
which is ... only to give the use until marriage," with two of these statutes codifying
the general exception below for remarriage by the transferor's spouse. See
California Civil Code § 710; Montana Code Annotated § 70-1-404 (1981); North
Dakota Cent. Code § 47-02-25 (1978); and South Dakota Comp. Laws Annotated §
43-3-4 (1967).
Compare Restatement Second, Contracts § 189, which states: "A promise is
unenforceable on grounds of public policy if it is unreasonably in restraint of
marriage." Id., Comment a, states: "Marriage is regarded by the common law as of
concern to the state as well as to the individual, and the freedom of individuals to
marry should not be impaired except for good reason.... In order for the restraint to
be reasonable, it must serve some purpose ... [such as] that of providing support
until marriage ... and thereby acquiring another provider." Id., Illustration 1 ("A
pays B, his twenty-one-year-old child, $100,000 in return for B's promise not to
marry for ten years. B's promise is unreasonably in restraint of marriage and is
unenforceable on grounds of public policy") offers an appropriate contrast with the
facts of Illustration 2 of this Trusts Restatement.
Remarriage. Restatement Second, Property (Donative Transfers) § 6.3 states
that restraints on remarriage are valid only if either the "transferee was the spouse
of the transferor" or the restraint "is reasonable under all the circumstances." The
same reasonableness standard for restraints on remarriage is stated here in
Comment j but is limited to the surviving spouse of a "natural object" (essentially as
defined in § 9, Comment b). The Restatement Second, Property (Donative
Transfers), commentary (id., § 6.3, Comment f) is not so confined but notes that
"such restraints are normally annexed to gifts to the spouse of a descendant [thus,
see id., § 6.3, Illustration 5 involving a daughter-in-law] or other blood relative." On
rationale and reasonableness, see id., § 6.3, Comment f, that "a finding of
unreasonableness is more likely in view of the intermeddling nature of the restraint"
if imposed on strangers, and that the "weight of all of the factors indicating
reasonableness and unreasonableness must be determined in light of the special
circumstances of the parties concerned," noting further that "where the dominant
motive of the transferor is to provide support until such duty is assumed by a new
spouse, or to protect the recipient from anticipated undesirable marriages, a finding
of reasonableness is justified"-- justifications, incidentally, that it would seem
should be equally important in sustaining restraints on first marriages (above). Id.,
Reporter's Note 6, is a bit more specific in summarizing considerations mentioned in
cases: "Examples of relevant factors are: whether the restraint is an absolute
prohibition of marriage; whether, under the circumstances of a particular case, the
provision serves a legitimate purpose; and whether the restraint is 'plainly harsh,
unjust, and unwise' ... [; and] the relationship of the testator and the person
restrained, the needs of the beneficiary, and the purpose of the testator in placing
the restraint...."
A rare statute voiding conditions restraining remarriage of a spouse is Indiana
Rev. Code § 29-1-6-3. See Newton v. Wyatt, 98 Ind.App. 177, 188 N.E. 697
(1934). An earlier Indiana case invalidated, appropriately it would seem (per this
Comment, at least), a condition restraining remarriage of the testator's daughter.
Crawford v. Thompson, 91 Ind. 266 (1883). See also, based on general statutory
language (Cal. Civ. C. § 710: "Conditions imposing restraints upon marriage ... are
void" unless "the intent was not to forbid marriage, but only to give the use until
marriage"), Estate of Guidotti, 90 Cal.App.4th 1403, 109 Cal.Rptr.2d 674 (2001)
(income interest to terminate on remarriage of testator's surviving spouse;
termination provision held invalid).
(Aside: For a recent reminder that use of the legally well-established provision
against remarriage of a surviving spouse will disqualify a trust that is otherwise
eligible for the federal estate tax marital deduction under I.R.C. § 2056, see Roels
(Waldkirch Testamentary Trust) v. U.S., 928 F.Supp. 812 (E.D.Wis.1996).)
Restraining marriage: case law. It is probably true, as stated in the Reporter's
Note to Restatement Second, Property (Donative Transfers) § 6.2, that the rules of
that Section are "generally supported" by the American decisions in point (which are
indeed modest in number), but both the amount and force of the supporting
authorities cited are diminished by close examination. Furthermore, the breadth of
the position taken in that Section seems to go beyond the primary "justification"
stated in id., Reporter's Note 2: "Authorities discuss the appropriateness of familial
concern in this area, and most commonly cite protection of children from hasty or
impulsive marriages as the major policy reason for allowing partial restraints."
(Appropriately cited for that rationale are a pair of cases involving requirements of
parental consent.) Although restraints reflecting reasonably grounded concerns over
marriage to a particular individual do not seem seriously objectionable (compare
this Trusts Restatement's sympathetic mention of provisions that, although tending
to encourage divorce, are intended to protect against certain realistic financial risks
in a particular marriage), the three cases cited in point consisted of one that
invalidated a vague condition regarding marriage to a "social equal," another in
which the restraint upheld was limited in duration (to 10 years), and the other
involved a type of situation that clearly falls safely outside the scope of the various
rules there and here under discussion in any event because no continuing restraint
was involved (i.e., there was no potential effect on "future conduct"), the outright
bequest being dependent only on the daughter's situation at the time of the
testator's death.
Of the five cases cited to support the validity of conditions restraining marriage
"to members of a particular group" (id., Reporter's Note 4), two again were not in
point because they involved dispositions conditioned on marital status at the
transferor's death (with one of these opinions, in fact, expressing the court's various
concerns about some of the very types of conditions that Restatement Second,
Property (Donative Transfers), would accept), and a third was construed as applying
only to marital status at the testator's death (so as not to divest a beneficiary for
marrying out of the Jewish faith after that date!); a fourth case, the oft-cited United
States National Bank v. Snodgrass, 202 Or. 530, 275 P.2d 860 (1954), required,
rather invidiously, that the beneficiary neither join the Catholic church nor marry a
man of the Catholic faith, but only before attaining age 32 (although the opinion
does not emphasize the age point). The same Reporter's Note also observes that
"[n]o partial restraints on marriage outside a particular racial group were found"
and adds: "Possibly courts would be more reluctant to enforce a partial restraint in
this area."
On marriage "after attaining a certain age" (id., Reporter's Note 5), one of the
two cited cases involved the normally uncontroversial age of 21, while the other
upheld a prohibition against marriage before age 30 in a charitable trust established
to help needy young men to obtain educational and vocational training, finding the
condition reasonable in light of the particular trust's purpose, with which an earlier
marriage might interfere.
Finally, each of the three cases cited as upholding requirements of others'
consent to the marriage of beneficiaries (id., Reporter's Note 6) were either (i)
limited in time (in one, until the beneficiary reached age 21, and in another the
provision required marriage to be postponed until age 30 unless with the "sooner ...
approval of their parents") or (ii) not unreasonable or arbitrary because the
beneficiary in question (a niece) was only 10 years old, with still undeveloped ideals
and beliefs. (Matter of Liberman, supra, was also cited, but as an example of an
objectionable consent restraint.) Still another case in that Reporter's Note found the
issue moot because of the beneficiary's compliance with a consent requirement,
which the court recognized and accepted as being designed to "protect one who
may not be regarded as adequately mature," while adding that "to extend its scope
and continue it binding through life is not only to lose sight of the evident purpose
of the testatrix, but to transform it into a measure of undue hardship perhaps,
certainly into a whimsical and arbitrary restriction." United States Trust Co. v. Baes,
124 Misc. 48, 54-55, 207 N.Y.S. 19, 24-25 (1924), aff'd, 216 App.Div. 807, 215
N.Y.S. 933 (1926), aff'd, 245 N.Y. 514, 157 N.E. 839 (1927).
On the other hand, id., Reporter's Note 7 (on "Permitted marriage not likely to
occur") cites a case that declared a partial restraint void as unreasonable
(attempting to require marriage to a Quaker) and expressed the belief that a
restraint of this type violated an American policy of complete freedom of religion.
And an interesting case in Reporter's Note 8 is Estate of Coleman, 456 Pa. 163, 317
A.2d 631 (1974), which declared void, as a type of thing that overburdens the
judicial system and merely reflects a settlor's "personal vagaries" unrelated to the
trust purpose, a provision prohibiting persons married to non-Protestants from
being appointed as trustees.
The types of unfortunate cases that (even in trust context) the Restatement
Second, Property (Donative Transfers), rule would seemingly allow are illustrated by
Shapira v. Union National Bank, 39 Ohio Misc. 28, 315 N.E.2d 825 (Com. Pleas
1974), upholding (in an action for declaratory judgment and construction of a will) a
requirement in a devise that the testator's son be "married at the time of my death
[or within 7 years thereafter] to a Jewish girl whose both parents were Jewish."
It may also be subtly revealing that, when presented with the opportunity, a
number of courts have not hesitated to invalidate partial restraints on marriage for
vagueness or uncertainty. See, e.g., Turner v. Evans, 134 Md. 238, 106 A. 617
(1919), and Watts v. Griffin, 137 N.C. 572, 50 S.E. 218 (1905). See also In re
Lanyon, [1927] 2 Ch. 264, noted 3 Cambridge L.J. 299.
Also see Crawford v. Thompson, 91 Ind. 266 (1883), invalidating a condition
that would require forfeiture of a legacy if the legatee (a daughter) should "marry a
second time."
On the "acceptable" motive of providing support until a daughter's marriage,
compare Winters v. Miller, 23 Ohio Misc. 73, 261 N.E.2d 205 (1970).
On discouraging divorce (in Comment j): Although expressing no policy concern
over the alleged restraint against divorce in a testator's conditional bequest of a
share of her estate to her daughter provided "at the time of my death, she is
married to and living with her [named] husband" (39 Wis. 2d at 319, 159 N.W.2d at
83) (emphasis added), the court in Estate of Heller, 39 Wis.2d 318, 159 N.W.2d 82
(1968), found it "difficult to understand how [the condition] could have any
restraining effect," properly adding: "Public policy regarding restraints on marriage
should only be concerned with continuing inducements.... Only when death ensues,
thus making a change of mind impossible, will ... expressions of future intention
bring rights into existence. When, as here, those rights become absolutely fixed at
death, without a continuing inducement to either do or refrain from doing some act,
it is difficult to see how a restraint in the true sense of the word could ever arise."
Id. at 323-324, 159 N.W.2d at 85.
Among the modest number of cases sustaining a continuing condition
discouraging divorce, see Dickey v. Citizens' State Bank, 98 Ind.App. 58, 180 N.E.
36 (1932).
Comment k. Provisions restraining religious freedom. Many states have
constitutional provisions modeled after the First Amendment of the United States
Constitution, which prohibits laws "respecting an establishment of a religion, or
prohibiting the free exercise thereof," while the others prohibit in other terms
governmental interference with religious freedoms. The policy underlying these
constitutional safeguards is reflected in a general way in the principles and
discussion in the commentary on the policies and possible prohibitions in the trust
law. So also, however, the commentary tolerates a settlor's concerns that are
related to the property and purposes of the trust, involving risks ranging from cult
membership to vows of poverty for members of various traditional religious orders.
In one prominent early case, Maddox v. Maddox's Administrator, 52 Va. (11
Gratt.) 804 (1854), the Supreme Court of Virginia expressed strongly the case for
protecting religious choice: "[U]pon no subject is the policy of our law more firmly
settled, or more plain, clear and unmistakable than upon this [policy of religious
freedom].... And I regard a restriction imposed by the terms of a bequest, requiring
as the condition of its enjoyment, that the legatee should be a member of any
religious sect or denomination, as directly violative of this policy, and pregnant with
evil consequences. It holds out a premium to fraud, meanness and hypocrisy; it
tends to corrupt the pure principles of religion, by holding out a bribe for external
profession and conformity to a particular sect." 52 Va. at 814-815.
In Drace v. Klinedinst, 275 Pa. 266, 118 A. 907 (1922), 25 A.L.R. 1520, the
Supreme Court of Pennsylvania described provisions restraining religion as contrary
to the policy of the state's Charter Grant and Bill of Rights. See also Devlin's Trust
Estate, 284 Pa. 11, 130 A. 238 (1925); but these Pennsylvania cases were
distinguished and have been, realistically, placed in doubt by a divided court (two
judges dissenting and two not participating) in Estate of Laning, 462 Pa. 157, 339
A.2d 520 (1975), 89 A.L.R.3d 972.
Compare Lynch v. Uhlenhopp, 248 Iowa 68, 78 N.W.2d 491 (1956), involving a
divorce decree giving the mother custody of the couple's child with a direction that
the child be reared in the Roman Catholic religion and holding the provision void for
indefiniteness. Even some modern English cases have shown resistance to that
country's general, traditional acceptance of conditions restraining religious freedom
by finding provisions void for uncertainty. See, e.g., Clayton v. Ramsden, [1943]
A.C. 320, the House of Lords finding "of Jewish faith" too uncertain for failure to
define the required degree of adherence to the faith.
See also Bogert, Trusts hornbook, supra, § 48 (at p. 181), noting "that the
common law has a well-defined interest in preserving freedom ... of religion," and
that a provision "that a beneficiary shall have no interest under the trust ... unless
he adopts a certain religion ... may be held illegal as against public policy."
The Restatement Second, Trusts (§ 62, Comment i), gently states only that a
trust provision "may be" held invalid on the ground that "its enforcement would
tend to restrain the religious freedom ... by offering the beneficiary an improper
inducement to change his religious faith ... [or] not change his religious faith...."
Section 8.1 of Restatement Second, Property (Donative Transfers), however,
states that a provision "designed to prevent the acquisition or retention of property
on account of adherence to or rejection of certain religious beliefs or practices on
the part of the transferee is valid." Most of the modest number of American
decisions in point support this position. E.g., Delaware Trust Co. v. Fitzmaurice, 27
Del.Ch. 101, 31 A.2d 383 (1943), modified sub nom. Crumlish v. Delaware Trust
Co., 27 Del.Ch. 374, 38 A.2d 463 (1944); Will of Paulson, 127 Wis. 612, 107 N.W.
484 (1906); Barnum v. Baltimore, 62 Md. 275 (1884); and United States National
Bank v. Snodgrass, 202 Ore. 530, 275 P.2d 860 (1954), 50 A.L.R.2d 725. See also
Lasnier v. Martin, 102 Kan. 551, 171 P. 645 (1918) (dictum).
The stricter rules stated in the present Comment would not necessarily prevent
results such as those reached in Matter of Kempf's Will, 252 App.Div. 28, 297 N.Y.S.
307 (1937), aff'd mem., 278 N.Y. 613, 16 N.E.2d 123 (1938), and Magee v. O'Neill,
19 S.C. 170, 45 Am. Rep. 765 (1883), because a requirement that a young child be
"educated" or "reared" in a certain religion does not prevent a mature exercise of
religious freedom but merely seeks to assure that the child has a favorable
opportunity to understand and accept that religion. Compare the distinction in
Comment l between a condition that relates to education and one related to choice
of career; cf. Innes's Trustees v. Innes, [1963] Sess. Cas. 339 (Scotland),
upholding a requirement that a beneficiary be a Protestant to receive a disposition
but suggesting that to exact a promise to remain a Protestant would be invalid as
against public policy.
Comment l. Provisions affecting careers and conduct. The suggestion in this
Comment that a beneficial interest conditioned on a beneficiary's choice or
continuation of a particular career may involve difficult line drawing and weighing of
policy considerations, with a possibility of invalidity, departs from the unqualified
acceptance in §§ 8.2 and 8.3 of Restatement Second, Property (Donative
Transfers), of conditions turning on "specified personal habits" of a transferee or on
the beneficiary's undertaking or failing to undertake or continue "an education or
occupation." The traditional position of the Restatements of Trusts (see
Restatement Second, Trusts § 62, Comment j) suggests only that a condition
attached to a beneficial interest may be invalid if it would intend to induce the
beneficiary not to "perform jury duty" or not to voluntarily "enter the military or
naval service of the country," or otherwise tend to induce a failure to perform
"public duties."
What limited authorities there are support the Restatement Second, Trusts,
position on those points and also the position of the Property Restatement on other
than career matters, although cases reveal as well some of the difficulties inherent
in the enforcement of education-related conditions. (On indefiniteness generally, cf.
§ 30, which follows in this Trusts Restatement.)
No case has been found, however, that appears inconsistent with the possible
"departure" suggested in the present Comment of this Restatement Third. Cf. Estate
of Budd, 166 Cal. 286, 135 P. 1131 (1913), declaring void for indefiniteness a
condition related to carrying on the (religious) "life work" of the testator. On the
various points in this paragraph, see generally cases collected in the Reporter's
Notes to Restatement Second, Property (Donative Transfers) §§ 8.2 and 8.3; and
on the civic or public-duties point, see Fratcher, Scott on Trusts, supra, § 62.8.
For a "conduct" condition held permissible, see Koeppel v. Koeppel, 268 App.
Div. 2d 282, 701 N.Y.S.2d 382 (2000) (provision terminating certain payments if
beneficiary attempts to become involved in any business in which estate holds an
interest; not contrary to public policy and applies to petition for dissolution or buy-
out of beneficiary's minority interest).
A situation worth pondering was reported by the Associated Press under a
dateline of September 20, 1993, from Bucharest, Romania:
A man who was nagged by his wife to stop smoking has left her everything--but
only if she takes up his habit as punishment for 40 years of "hell," newspapers
reported Saturday.
Marin Cemenescu, who died last week in his hometown of Timisoara at age 76,
stipulated in his will that to inherit his house and $30,000 estate, his 63- year-old
wife Aneta must smoke five cigarets a day for the rest of her life, the Romania
Libera daily reported.
"She could not stand to see me with a cigaret in my mouth, (and) I ended up
smoking in the bathroom like a schoolboy," Cemenescu reportedly wrote in his will.
"My life was hell," he wrote.
The report said that Mrs. Cemenescu plans a legal challenge to the conditions of
the will. "I'd rather lose everything than touch a cigaret," she told the newspaper.
The report did not specify the cause of Cemenescu's death or say whether it was
related to his smoking.
Compare the trust provision for granddaughters, provided they and their
husbands refrain from using tobacco and intoxicating liquor, in Holmes v.
Connecticut Trust & Safe Dep. Co., 92 Conn. 507, 103 A. 640 (1918) (holding the
condition valid as applied to granddaughters' conduct but not as it might be applied
to their husbands' conduct, which was not within the beneficiaries' control and could
become a source of marital discord).
Comment m:
A classic early English case on caprice and deadhand control was Egerton v. Earl
Brownlow, 10 Eng. Rep. 359, 417, 4 H.L.C. 1, 144 (1853), stating: "The law does
not interfere with the owner and compel him to cultivate his land, (though it be for
the public good that land should be cultivated) so far the law respects ownership;
but when, by a condition, he attempts to compel his successor to do what is against
the public good, the law steps in, and pronounces the condition void...."
Compare the waste that "a well-ordered society cannot tolerate" in Eyerman v.
Mercantile Trust Co., 524 S.W.2d 210 (Mo.App.1975) (invalidating a direction that
decedent's residence be razed). See also Matter of Estate of Pace, 93 Misc.2d 969,
400 N.Y.S.2d 488 (Sur. Ct. 1977) (holding that a clause directing demolition of
certain houses on settlor's property and that the property remain vacant until the
death of 7 persons, 5 of whom were minors, violated public policy and thus was
invalid). And see G. Jones, "The Dead Hand and the Law of Trusts," in Death, Taxes
and Family Property (Halbach ed. 1977) 118, 126 ("A settlor may destroy his own
Rembrandt but he cannot establish a trust and order his trustees to destroy it.
Society will not assist him to waste economic assets"), and J. Stake, "Inheritance,"
New Palgrave Dictionary of Economics and the Law 311, 317 (1998).
But compare Matter of Estate of Beck, 177 Misc.2d 203, 676 N.Y.S.2d 838 (Sur.
Ct. 1998), in which, in settling a proceeding "for condemnation and demolition," the
Buffalo Urban Renewal Agency had agreed with the owner "to purchase the cleared
lot" upon her death but later challenged her will provision "to demolish my house ...
and offer the property to the City" for the agreed $100 price, BURA arguing that
demolition of the house would be contrary to public policy. The court noted the
irony of the agency position and upheld the will provision despite some "undefined
public interest" asserted by BURA. The opinion added: "Neither is the court willing
to overlook the fact that to vitiate the decedent's intent ... could result in financial
harm to the [charitable] residuary beneficiary who might well be burdened by the
need to maintain an aging structure on limited resources."
See also A. Sykas, "Waste Not, Want Not: Can the Public Policy Doctrine Prohibit
the Destruction of Property by Testamentary Direction?," 25 Vermont L. Rev. 911
(2001) (discussing the doctrine as applied to the destruction of animals and also
discussing why some refinement of vague public-policy concepts may be needed to
clarify the applicable policy principles and to serve better as a guide to types of
cases in which destruction of property may be allowed).
Cross-references in the text of this Comment are provided for supporting
authorities and elaboration on most of the positions stated here. See also § 27,
Reporter's Note to Comment b; and more generally see IA William F. Fratcher, Scott
on Trusts (4th ed. 1987) §§ 62.12 through 62.15.
Relevant cases include Mitchell v. Leavitt, 30 Conn. 587 (1862) (trustee
removed despite settlor's awareness of grounds of unfitness at time of nomination);
Estate of Coleman, 456 Pa. 163, 317 A.2d 631 (1974) (requirement that spouses of
trustees of charitable foundation must be Protestant, called whimsical and
disregarded); In re Pinkerton, 165 Misc.2d 886, 630 N.Y.S.2d 481 (Sur. Ct. 1995)
(irrelevant requirement for trustee appointment disregarded); and Cast v. National
Bank of Commerce Tr. & Sav. Ass'n, 186 Neb. 385, 183 N.W.2d 485 (1971) (invalid
condition would have required devisee of farm, or one of his children, to occupy the
farm as his or her residence within 1 year and add to his or her legal name the
surname of the testator). See also the often cited M'Caig v. University of Glasgow,
[1907] Sess. Cass 231 (Scotland) (invalid trust to erect, on lands left by testator,
statues of testator and family members); and, on what purposes qualify as
charitable, see § 28. The point is amusingly but aptly made by the disapproval
expressed in J. Langbein, "The Uniform Prudent Investor Act and the Future of Trust
Investing," 81 Iowa L. Rev. 641, 663 (1996), of a trust plan for the erection of
"bronze, equestrian Langbeins" in public squares throughout Iowa.
Anti-contest clauses. The difficulties inherent in anti-contest clauses that are so
broad as to jeopardize sound administration of an estate or trust are illustrated by
the fine, debatable distinctions in the opinion in Estate of Ferber, 66 Cal.App.4th
244, 77 Cal.Rptr.2d 774, 779-780 (1998) (paragraphing disregarded):
No contest clauses that purport to insulate executors completely from vigilant
beneficiaries violate the public policy behind court supervision.... [A]s a practical
matter, the courts lack the resources to scrutinize every matter for executor
malfeasance. They must rely on beneficiaries to be aware of the facts and raise
cogent points. We cannot allow no contest clauses to significantly increase the odds
trial courts will become unwitting accomplices to executor malfeasance. [The
present] no contest clause provides for forfeiture only if the complaining beneficiary
is unsuccessful. But even that type of clause casts much too great of a chilling effect
on beneficiaries.... [Although] the [California] Supreme Court recognized [that no-
contest] clauses are 'favored by the public policies of discouraging litigation in
giving effect to the purposes expressed by the testator' ..., when public policy
interests conflict, as they do here, we engage in a balancing process.... We strike a
balance in this instance by enforcing no contest clauses against beneficiaries who
attempt to oust the executor with a frivolous challenge. This standard allows
beneficiaries who believe an executor is engaged in misconduct to bring the
potential malfeasance to the court's attention without fear of being disinherited,
furthering the public policy of eliminating errant executors. The beneficiaries would
be deterred from bringing frivolous contests, however, which furthers the public
policies of discouraging unnecessary probate litigation and supporting the testator's
intent whenever possible.... On the other hand, the trial court correctly ruled the no
contest clause was not enforceable against objections to the accounting. Absent the
ability of a beneficiary to point out defects in the accounting, a court cannot
properly perform its duty to monitor the administration of the estate.
Then, however, the court looked at a provision of the anti-contest clause that
"disinherited any beneficiary who 'objects to any construction or interpretation of
[the will] or any provision of it, that is adopted by [the executor],' " who was also
the primary beneficiary of the will. 66 Cal. App. 4th at 255, 77 Cal. Rptr. 2d at 780.
The opinion continued: "We do not see how enforcement of this provision under
these circumstances violates any public policy. Nothing about the claim implies any
misfeasance by the executor" (emphasis added). Id.
California Prob. C. § 21305 was enacted (May 5, 2000) a couple of years after
the above case. A provision on narrow construction of anti-contest clauses in §
21305(a) is followed by provisions in § 21305(b), expressly based on "public
policy," invalidating the terms of anti-contest clauses that would apply to
challenges, inter alia, to "the exercise of a fiduciary power," "the appointment ... or
removal of a fiduciary," "an accounting of a fiduciary," or petitions seeking
instructions or the termination or modification of a trust. A bill awaiting the
governor's signature at press time would add to the list of matters exempt from no-
contest clauses "as a matter of public policy," inter alia, a "pleading regarding the
interpretation of the instrument containing the no contest clause or any
instrument ... expressly identified in the no contest clause." See also S. Kovar,
"Updating the No Contest Clause," 5 California Trusts & Estates Q. 24 (Fall 1999).
The above statute was applied to protect the petitioner (removal action) in
Estate of Hoffman, 97 Cal.App.4th 1436, 119 Cal.Rptr.2d 248 (2002).
A suit (brought by a beneficiary who was also a co-trustee) to remove his co-
trustee was held not to trigger a forfeiture under a no-contest clause in Conte v.
Conte, 56 S.W.3d 830 (Tex.App.2001), the court observing not only that the clause
did not expressly include a prohibition against a beneficiary's suit to remove a
trustee but also that an attempt to prohibit such a suit would deprive a beneficiary
of a statutory right.
See also Matter of Estate of Stralem, 181 Misc.2d 715, 718-721, 695 N.Y.S.2d
274, 276-279 (Sur. Ct. 1999) (noting that, if a will contains a pour-over provision to
an inter vivos trust, the trust beneficiaries may lose their shares by violating an
anti-contest provision in the will; but Surrogate Radigan also observed that a no-
contest clause is not violated by objections to fiduciary accountings, by a proceeding
to revoke letters of trusteeship, or by a construction proceeding relating to language
in the amended trust instrument [N.Y. EPTL § 3-3.5(b)(3)(E), extending wills policy
to trusts], and held that language purporting to void the benefits of anyone not
joining in a release to the fiduciaries, thereby denying the right to object to
accountings, was void as against public policy, further adding that no-contest
clauses in inter vivos instruments should be disfavored in the same manner as those
in wills).
See further, on anti-contest and exculpatory clauses, § 96 of this Restatement,
and the Sections of the Property Restatement and Restatement Second, Trusts,
cited at the end of the text of this Comment. Also see, on various aspects of anti-
contest clauses, Restatement Third, Property (Wills and Other Donative Transfers) §
8.5 (especially Comment d, providing that a "proceeding brought by a beneficiary
for the purpose of resolving an ambiguity, or for reforming or modifying the
document, valid under all possible constructions or valid under [that] advocated by
the beneficiary, is not a contest as that term is used in this section"; absent these
or other policy-based exceptions, the Section allows enforcement of no-contest
clauses unless there was "probable cause" for the contest).
Research References
West's Key No. Digests, Perpetuities 4(15), 8; Trusts 11, 21(2), 46, 51.
Validity, construction, and application of statutes or ordinances regulating perpetual-
care trust funds of cemeteries and mausoleums. 54 A.L.R.5th 681.
Validity, construction, and effect of provisions of charitable trust providing for
accumulation of income. 6 A.L.R.4th 903.
Validity and effect of gift for charitable purposes which excludes otherwise qualified
beneficiaries because of their race or religion. 25 A.L.R.3d 736.
Distribution of income released by declaration of invalidity of express direction for
accumulation. 17 A.L.R.3d 231.
Validity and effect of provision in will or trust instrument, conditioning gift on
beneficiary's assumption or retention of family name. 38 A.L.R.2d 1343.
Settlor's right to revoke or terminate trust, or to withdraw funds or invade corpus
thereof, as affecting operation of rule against perpetuities. 7 A.L.R.2d 1089.
Contract in consideration of renunciation of one's status, or right to appointment, as
guardian, executor, administrator, trustee, or other fiduciary as contrary to public
policy. 121 A.L.R. 677.
Validity, interpretation, and application of provisions of will making devise or bequest to
or in trust for religious or educational body dependent upon adherence to particular
body of principles or dogmas, or ecclesiastical connection. 120 A.L.R. 971.
Rule against perpetuities as affecting limitation over charity after a gift of indefinite
duration to another charity. 30 A.L.R. 594.
Prior estate as affected by remainder void for remoteness. 28 A.L.R. 375.
(2003)
(C)
REST 3d TRUSTS s 30


§ 30. Impossibility And Indefiniteness
A private trust, or a provision in the terms of a trust, may be

unenforceable because of impossibility or indefiniteness.
Comment:
a. Impossibility. If all of the purposes for which a private trust is created are or
become impossible of accomplishment, the trust will be terminated. Whether the
property will then be turned over to one or more of the beneficiaries (when the
impossibility is not due to failure of intended beneficiaries) or will revert to the
settlor, or to the settlor's successors in interest, is a matter for interpretation when
the matter is not covered by the terms of the trust. On trust termination generally,
see § 61; also, on the possibility of a resulting trust in general, see §§ 7 and 8.
On charitable trusts and the cy pres doctrine see § 67.
If a particular administrative provision in the terms of the trust fails for
impossibility, ordinarily the trust does not terminate but will be administered as if
that provision had not been included in the trust. If necessary, the court may
authorize deviation from the terms of the trust based on unanticipated
circumstances. See § 66.
Where a condition precedent or subsequent is or becomes impossible of
performance, the impossibility excuses the performance unless this result would be
contrary to the purposes of the settlor. Thus, if a trust provides that a beneficial
interest shall only arise (or shall terminate) if the beneficiary performs (or fails to
perform) a specified act, such as serving in the U.S. armed forces, and it is
impossible for the beneficiary to perform the act, such as for reason of disqualifying
physical disability, the beneficiary will acquire the interest in question (or the
interest will not terminate), unless it is shown that this result would be inconsistent
with a more general purpose of the settlor. Cf. Restatement Second, Property
(Donative Transfers) § 5.2.
On the application of the doctrine of cy pres when performance of a charitable
trust is or becomes impossible, see § 67.
b. Indefiniteness. If all of the purposes for which a trust is created are so
indefinite that the trust cannot be enforced, the intended trust fails. Thus, a trust
may fail because of the indefiniteness of the beneficiaries, or of their interests or the
purposes for which the trust is created. On possibilities for enforcement and
alternatives to complete failure of the settlor's intended purposes, when
beneficiaries or purposes are initially indefinite, see §§ 46 and 47. Cf. Restatement
Third, Property (Wills and Other Donative Transfers) § 11.2.
A condition precedent or subsequent may be of such a character that it is or
becomes impossible to determine whether it has been performed. It is a matter for
interpretation whether the beneficial interest in question takes effect as if the
condition had been satisfied (the result usually to be inferred), whether the trust is
to be carried out without regard to that interest, or whether a resulting trust (§§ 7
and 8) arises. Compare Restatement Second, Property (Donative Transfers) § 8.1,
Comment e, and § 8.2, Comment b.
On the effect upon a charitable trust of the settlor's failure to state a definite
charitable purpose, see § 28, Comment a, and § 67 (on cy pres). See, however,
Reporter's Notes.
This Section combines and condenses Restatement Second, Trusts §§ 65A and
65B.
The contents of the two editions are consistent with respect to private trusts
(see §§ 28 and 67 on charitable trusts), except that the earlier discussions of
burden of proof and of a supposed distinction between conditions precedent and
subsequent (also cf. Restatement Second, Property (Donative Transfers) § 5.2)
seemed neither helpful nor appropriate and have been omitted here. See generally
the discussion in IA William F. Fratcher, Scott on Trusts (4th ed. 1987) §§ 65A and
65B.
For an illustrative case contrary to some of the dubious suggestions in earlier
Restatements that an interest dependent upon a condition precedent ordinarily fails
if the condition is too indefinite to ascertain whether it has been complied with, see
Farmers State Bank & Trust Co. v. Mangold, 415 Ill. 602, 114 N.E.2d 797 (1953)
(trust for W for life, then to 2 foster children provided they do that which is right,
otherwise as W may direct; despite its condition precedent form, the condition's
uncertainty allowed the children to take unconditionally on W's death).
Charitable Trusts. On indefiniteness in charitable trusts, see § 28, Comment a
("A trust need not designate a specific charitable purpose ... in order to be
charitable.... [Illustrative would be] a trust simply 'for charitable purposes' or even
a devise simply to 'Charity,' for which the intention to create a charitable trust will
be implied, with the trustee [in either case] to have power and a duty to select one
or more charitable purposes."). That Comment goes on to note (a point not limited
to charitable trusts) that when a trustee is not named, one will be appointed by the
court, for a trust ordinarily does not fail for want of a trustee, citing § 31.
(Comment a to § 28 is consistent with Restatement Second, Trusts § 396.)
But compare Restatement Second, Trusts § 395: "If property is given upon trust
to be applied only to a particular charitable purpose, but the settlor [fails to]
manifest an intention as to what the particular purpose is, the intended charitable
trust fails." (Emphasis added.) But also note the qualification stated in id., Comment
b.
Research References
West's Key No. Digests, Trusts 21(2), 46, 61(1).
Effect of impossibility of performance of condition precedent to testamentary gift. 40
A.L.R.4th 193.
Impossibility by reason of economic or other conditions of carrying out terms of
testamentary trust profitably or without loss as ground for holding it invalid or
terminating it. 97 A.L.R. 325.
(2003)
(C)
REST 3d TRUSTS s 31

Chapter 7. The Trustee
§ 31. Trust Does Not Fail For Lack Of Trustee
A trust does not fail because no trustee is designated or because the

designated trustee declines, is unable, or ceases to act, unless the trust's
creation or continuation depends on a specific person serving as trustee; a
proper court will appoint a trustee as necessary and appropriate (see §
34).
Comment:
a. General rule. Even though a trustee is essential to a trust, a trust does not fail
simply because no trustee is provided by the terms of the trust or because, before
or when or after the trust is created, the designated trustee dies, is unable or
unwilling to act, or is removed. Absent provision for the situation in the terms of the
trust, and except as provided in Comment b, the court will appoint a trustee. See §
34.
Illustrations:
1. S's will leaves property in trust upon specified terms for L's issue, but fails to
name or otherwise provide for a trustee. A trust is created, with the trustee to be
appointed by the court.
2. S transfers land to T in trust for specified purposes. Those purposes have not
been completed when T dies. The court will appoint a trustee so the trust will not
fail.
b. Trust creation or duration dependent on specific trustee. A settlor may
manifest an intention that the creation of a trust is contingent on acceptance of the
trusteeship by a particular trustee, or that the trust continue only for as long as a
particular person serves as trustee. In these cases, the rule that a court will appoint
a substitute or successor trustee does not apply. The settlor's intention is being
respected in such a case, for the settlor's contemplated trust was conditioned upon
and limited to service by the designated trustee. Cases of this type are most
unusual. See also § 14, Comment b.
On the analogous possibility that a particular power conferred upon a designated
trustee may be personal and therefore not pass to a successor trustee, see § 70.
Also cf. § 46, Comment d, and § 47, Comments c, d, and f.
A trust may fail if no competent trustee can be found to serve at a cost that can
be justified. Compare generally § 66 (on unanticipated circumstances and equitable
deviation) and id., Comment b (that appropriate judicial action may occasionally
involve termination).
This Section is similar to Restatement Second, Trusts § 101. It reflects the
maxim that equity will not allow a trust to fail for want of a trustee.
Comment a:
The principles of this Comment appear in a number of statutes. E.g., Ind. Code
§ 30-4-2-2; La. Rev. Stat. § 9:1785. See also George G. Bogert & George T. Bogert,
The Law of Trusts and Trustees § 123 (rev. 2d ed. 1984).
Illustration 1 is based on Lux v. Lux, 109 R.I. 592, 288 A.2d 701 (1972).
Illustration 2 is derived from Creel v. Martin, 454 So.2d 1350 (Ala.1984).
In Epperly v. Mercantile Trust & Bank of Quincy, Ill., 415 S.W.2d 819 (Mo.1967),
a will left property to an out-of-state bank which, the court thought (erroneously as
it later appeared, see id., 457 S.W.2d 1), was incapable of acting as trustee. Since
nothing in the will showed "an intention that [the] named trustee only administer
the trust, the court may appoint a qualified Missouri trustee." See also Magee v.
Magee's Estate, 236 Miss. 572, 111 So.2d 394 (1959).
Comment b:
In his treatise, Professor Scott noted that only in "rare cases" has a trust failed
because of a designated trustee's failure to serve. See IIA William F. Fratcher, Scott
on Trusts § 101.1 (4th ed. 1987). Indeed, modern examples are hard to find.
This matter is closely connected with the question whether the trustees' powers
are personal, discussed in Scott supra, at § 196. See also § 70, and compare §§ 46
and 47 of this Restatement.
Finding that a trusteeship is personal is not the preferred interpretation, but if
the settlor did intend this, continuation of the trust without the designated trustee is
not appropriate. In Estate of Worthley, 535 A.2d 433 (Me.1988), a will requested
that three friends dispose of the testator's furniture. One of them predeceased the
testator. Although the court held that this was a power of appointment that passed
to the survivors, had they all predeceased the testator the power may have failed.
Restatement Second, Property (Donative Transfers) § 11.2, Comment b.
For a case of serious, practical difficulty in finding a substitute trustee, see
McCarthy v. Poulsen, 173 Cal.App.3d 1212, 219 Cal.Rptr. 375 (1985) (fear of tort
liability).
Research References
West's Key No. Digests, Trusts 155, 160(2), 169(1).
Trusts: Duty of personal representative of deceased trustee to render account. 36
A.L.R.3d 1071.
Want of trustee as invalidating charitable trust. 5 A.L.R. 315.
(2003)
(C)
REST 3d TRUSTS s 32


§ 32. Capacity Of Individual To Be Trustee
A natural person, including a settlor or beneficiary, has capacity

(a) to take and hold property in trust to the extent the person has
capacity to take and hold the property as beneficial owner; and
(b) to administer trust property and act as trustee to the same extent
the person would have capacity to deal with the property as beneficial
owner.
Comment:
a. Scope; general principles. This Section is concerned with questions of whether

an individual as a trustee can legally acquire and hold property in trust, or can
legally act as a trustee of the property. It is not concerned with the individual's
practical fitness or suitability to serve as trustee; those matters are considered
hereafter in §§ 34 and 37.
This Section also does not deal with questions concerning the validity or failure
of an intended trust. That an intended trust ordinarily will be given effect despite
the transferee-trustee's inability to take title to the property, see § 31, § 14,
Comment d, and § 16, Comments b and c; and that once created, a trust ordinarily
will not fail for want of a trustee, see §§ 31 and 34 (court will ordinarily appoint a
substitute or successor trustee).
Whether and to what extent a witness to a will may benefit from the will is not
strictly a matter of capacity to take title and is beyond the scope of this
Restatement. See Restatement Third, Property (Wills and Other Donative Transfers)
§ 3.1, Comment o. The role of witness, however, ordinarily does not disqualify a
person from taking and acting as trustee, because service in that fiduciary role
(even with compensation) does not constitute a "beneficial interest" under the will.
See Reporter's Notes.
One who lacks capacity to administer a trust need not be formally removed by
court order. Thus, if the terms of the trust designate or provide a procedure for a
substitute or successor trustee to assume the vacant trusteeship, no judicial action
is required. As necessary or appropriate, however, a court will replace a trustee or
will confirm a successor's appointment or title to trust property. See § 37; see also
§ 34.
b. Settlor or beneficiary as trustee. An owner of property who gratuitously
declares a trust (see § 10(c) on declarations of trust) is both settlor and trustee,
and is sometimes also a beneficiary. The settlor may also be one of several trustees
by transferring property to several persons (including the settlor) as co-trustees;
and the settlor may become a successor trustee or co-trustee.
A person who receives both the sole legal title to property and the entire
beneficial interest in that property, whether by will or by inter vivos transfer, takes
the property free of trust because of the doctrine of merger (§ 69). This rarely
happens because most trusts have multiple beneficiaries, and merger does not
occur even if all beneficiaries are co-trustees (id., Comment c). On termination
when all legal and beneficial interests in a trust become united in a single person
after the trust's creation, see § 69, Comments a and b.
It is virtually inherent in the nature of trusts and trustees' responsibilities that,
in many matters of trust administration, personal interests of a beneficiary-trustee
will come into conflict with the interests of other beneficiaries, to whom the trustee
owes fiduciary duties. Illustrative are matters ranging from the exercise of
discretion regarding distributions (see especially § 50, Comment b) to the trustee's
selection of investments. (In general, on the duties of loyalty and impartiality, see
§§ 78 and 79.) Because of considerations of this type, a court will generally not
appoint a beneficiary as trustee (see § 34, Comment f(1)). Nevertheless, settlors
often select beneficiaries as trustees or co-trustees, and the existence of conflicting
interests is not ordinarily a basis for a court to remove (or deny appointment to) a
trustee of the settlor's choice. See generally § 37 on grounds for removal. In any
event, these are not issues of capacity to act as a trustee but issues of suitability, or
of fitness to serve as trustee of a particular trust.
Possible tax consequences of settlors or beneficiaries serving as trustees are
beyond the scope of this Restatement. See, however, Reporter's Notes.
c. Minors and others under legal disability. A minor or incompetent adult can
acquire and hold property either beneficially or as trustee. Because transfers and
contracts by persons under legal disability are voidable, however, such an individual
cannot act as trustee, at least until the disability is removed.
d. Nonresidents and aliens as trustees. A natural person who is not a citizen of
the United States, or who does not reside in the state in which a trust is created or
to be administered or in which trust property is situated, can receive and administer
property as trustee. Those characteristics, however, may be relevant to questions of
suitability or the fitness of a particular individual to serve or to continue as trustee
or co-trustee of a particular trust. See §§ 34 and 37 on judicial appointment and
removal of trustees.
In a few jurisdictions, statutes or constitutional provisions may limit the capacity
of certain categories of natural persons to take or hold title to property. The
significance of these restrictions on capacity to administer property in trust depends
on the terms and underlying policies of the statutory or constitutional provision.
These terms and policies may also affect the place and manner in which the trust
will be administered.
Statutes in some jurisdictions purport to limit the ability of nonresidents or
noncitizens to serve as trustees. Such statutory provisions may raise constitutional
issues (see Reporter's Notes). In any event, these statutes should be construed not
to impose stricter limits than are appropriate to fiduciary suitability and convenience
in the administration of trusts. Compare § 33, Comment c, and more generally §§
34 and 37.
This Section is partly based on Restatement Second, Trusts §§ 89, 91-94. The
content of former § 90, dealing with married women, has been eliminated as
unnecessary today.
Comment a:
That a witness to a will is not disqualified by being designated as trustee under

that will, even in those states that bar devises to witnesses, see, e.g., II William F.
Fratcher, Scott on Trusts § 89 (4th ed. 1987); and Cal. Prob. Code § 6112(c)
(presumption of undue influence in a devise to a witness does not apply if "the
devise is made solely in a fiduciary capacity").
Comment b:
Settlor as trustee. Prior Restatements (see Restatement Second, Trusts § 100)

and cases have consistently recognized that the settlor can be a trustee. Obviously
the settlor cannot be the trustee of a testamentary trust, but it is common for the
settlor to act as trustee for life for inter vivos trusts. This is particularly so in the
case of revocable trusts (see § 25), although tax considerations make the practice
less common in cases of irrevocable trusts. (See below.)
When the settlor is the sole trustee, a declaration of trust without any other
transfer of title is effective. See § 10, Comment c; Taliaferro v. Taliaferro, 260 Kan.
573, 921 P.2d 803 (Kan. 1996). A settlor may even be the initial trustee of a trust
designed to provide for property management in the event of incompetence, with a
successor trustee designated to take over when the settlor is no longer able to
serve. See § 25, Comment a.
Depending on the terms of the trust, having the settlor act as trustee may cause
trust assets to be taxed in the settlor's estate at death, or the trust income to be
attributed to the settlor for income-tax purposes during life. On the estate tax, see
Int. Rev. Code §§ 2036 and 2038; and United States v. O'Malley, 383 U.S. 627, 86
S.Ct. 1123, 16 L.Ed.2d 145 (1966). On the income tax, see Int. Rev. Code §§ 671-
677. Details of the tax laws are beyond the scope of this Restatement.
Beneficiary as trustee. Cases, prior Restatements (see Restatement Second,
Trusts §§ 99 and 115), and several statutes recognize that a beneficiary can serve
as trustee. E.g., Ga. Code § 53-12-24; Ind. Code § 30-4-2-11(c); Tex. Prop. Code §
112.008(b).
In Contella v. Contella, 559 So.2d 1217 (Fla.Dist.Ct.App.1990), it was held
erroneous for the lower court to terminate a trust because the life beneficiary was
also the trustee: "[M]erger applies only when the legal and equitable interests are
held by one person and are coextensive.... [Here, the trustee's] children hold
equitable remainder interests, which have not legally or equitably merged with their
father's interests in the trust." Id. at 1219. See also First Alabama Bank v. Webb,
373 So.2d 631 (Ala.1979), in which the court, overruling prior cases, held there was
a valid trust when all five beneficiaries were also the trustees. On merger generally,
see § 69.
In Rose v. O'Reilly, 116 Or.App. 512, 841 P.2d 3 (1992), the appellate court
held it was improper for the lower court to refuse to appoint a beneficiary who was
designated as successor trustee in a will. See also Lovett v. Peavy, 253 Ga. 79, 316
S.E.2d 754 (1984), in which the court refused to remove remaindermen as trustees.
Contrast Estate of Zerbey, 481 Pa. 374, 392 A.2d 1340 (1978), where the court
upheld a decision not to select beneficiaries who had not been designated as
trustees in the instrument because of the conflict of interest this would create. See
§ 34, Comment f(1), and § 37, Comment f(1).
Estate of Vissering, 96 T.C. 749 (1991), rev'd, 990 F.3d 578 (10th Cir.1993),
however, illustrates the tax risks when a beneficiary is a trustee. In that case, a co-
trustee had power to distribute principal to himself for his "comfort, support or
maintenance." The court held the trust assets were taxable in his estate, since the
power was not limited by the "ascertainable standard" set forth in Internal Revenue
Code § 2041. A trustee who can distribute to herself or himself may also be taxed
on the trust income under Internal Revenue Code § 678.
Some state statutes have attempted to deal with these tax problems (and
perhaps other concerns, as well) by implying restrictions on the power of a trustee-
beneficiary. For example, N.Y. E.P.T.L. § 10-10.1 makes inoperative any power in a
trustee to distribute to himself. W. Va. Code § 44-5-13 is similar but does not apply
to powers limited by the tax-approved standard. See also Cal. Prob. Code §
16081(c). In First Union Bank v. Cisa, 293 S.C. 456, 361 S.E.2d 615 (S.C. 1987),
the court, seeking to achieve a good tax result, held that a beneficiary co-trustee
could not participate in decisions to distribute to herself. See also Dana v. Gring,
374 Mass. 109, 371 N.E.2d 755 (1977); cf. Armington v. Meyer, 103 R.I. 211, 236
A.2d 450 (1967). See more generally § 50, Comment b, and Reporter's Note
thereto. Restatement Second, Trusts § 187, Comment g, merely said that in
reviewing a trustee's exercise of discretion "the fact that the trustee has an interest
conflicting with that of the beneficiary is to be considered." Also see Firestone Tire &
Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989).
Comment c:
Restatement Second, Trusts §§ 90-93, drew a distinction between "infants" and

"married women," who had capacity to administer a trust to some extent, and
"insane persons" who did not. This distinction does not reflect modern case law, and
the legal incapacities of married women have disappeared. Compare Reed v. Reed,
404 U.S. 71, 92 S.Ct. 251, 30 L.Ed.2d 225 (1971) (statute which preferred males
over females in choosing administrators was unconstitutional).
In Farmers State Bank v. Harmon, 778 F.2d 543 (10th Cir.1985), a trust
designated the settlor and his two minor sons as co-trustees; the court held that
when one of the sons reached his majority he became a trustee and his consent was
necessary to exercise the trustees' powers. The opinion assumes that so long as the
sons were minors the settlor could act alone. Compare § 34, Comment d.
Comment d:
Restatement Second, Trusts §§ 93 and 94, also stated that aliens and
nonresidents can be trustees.
In In re Joss, 33 D.L.R.3d 152 (Ont. 1973), the court refused to remove a co-
trustee who had moved to another jurisdiction. In In re Quirin Estate, 116 N.H. 845,
367 A.2d 594 (1976), the court held it was an abuse of discretion for the lower
court to refuse to appoint two New York residents designated as co-executors and
co-trustees in a will, the opinion observing: "No family members live in New
Hampshire. The stock which constitutes the majority of the estate's assets, is
located in New York.... It does not appear that any New Hampshire resident has
such an intimate familiarity with both the family's fortune and the personal lives of
the family members."
In Munford v. Maclellan, 258 Ga. 679, 373 S.E.2d 368 (1988), the court refused
to remove a nonresident trustee, distinguishing trustees and personal
representatives. In Succession of Batton v. Prince, 384 So.2d 506 (La.App.1980),
the court appointed a nonresident trustee after the designated trustee had declined
to serve, pointing out that the trustee would be subject to service of process in the
state.
In Ashman v. Pickens, 12 Ark.App. 233, 674 S.W.2d 4 (1984), a nonresident
trustee was removed, but nonresidence does not seem to have been a major factor
in the decision. See also Donahue v. Watson, 411 N.E.2d 741 (Ind.App.1980), in
which, in removing a trustee, the court expressly said that nonresidence of itself
was not a sufficient ground.
In Estate of Fernandez, 335 So.2d 829 (Fla.1976), the court held
unconstitutional a statute that barred noncitizens from serving as administrators on
the ground that it had no rational basis. Contrast In re Guardianship of Coller, 74
Ohio App.3d 386, 599 N.E.2d 292 (1991) (nonresident guardian of the person
removed under a statute); and Estate of Damskog, 1 Cal.App.4th 78, 1 Cal.Rptr.2d
653 (1991) (a party's "very persuasive argument" against a statutory bar on foreign
administrators "is better addressed to the Legislature than to the courts").
A distinction has been drawn between corporate and individual fiduciaries with
respect to the constitutional issue, because corporations are not protected by the
privileges and immunities clause of the constitution. "The real objection, however,
to a statute prohibiting the appointment of foreign trust companies as testamentary
trustees is not that it deprives the trust company of the privilege of acting as
testamentary trustee, but rather that it deprives the testator of the power to choose
his own trustee." VA William F. Fratcher, Scott on Trusts § 558 (4th ed. 1989), at
137. Under this rationale, a Florida statute requiring personal representatives to be
residents of the state unless they were related to the decedent by blood or marriage
was held to violate the testator's right to due process in Fain v. Hall, 463 F.Supp.
661 (M.D.Fla.1979), but the Florida court held otherwise in a later case. In re Estate
of Greenberg, 390 So.2d 40 (Fla.1980), appeal dismissed, 450 U.S. 961, 101 S.Ct.
1475, 67 L.Ed.2d 610.
Some statutes distinguish between trustees and personal representatives, or
between types of personal representative. Wisconsin Stat. § 856.23 makes
nonresidence a cause for removal or nonappointment of an executor, but no
comparable provision appears for trustees. California Prob. Code § 8402 bars
nonresidents of the United States from serving as personal representatives, but
excepts executors named in a will. There are no such limitations on trustees in
California; id. § 17003 says that a trustee who accepts a trust with its principal
place of administration in the state submits to the jurisdiction of its courts. New
Hampshire Stat. § 564.12 requires nonresident trustees to appoint a local agent for
service of process.
Texas Prob. Code § 105A, applicable to both trustees and executors, also
requires nonresidents to submit to process in the state. And Iowa Code § 633.71 is
similar, but id. § 633.64 also requires that a resident be appointed as co-fiduciary
unless the court "for good cause" dispenses with this requirement.
Kentucky Rev. Stat. § 395.001 bars nonresident fiduciaries who are not related
by blood or marriage. Ohio Rev. Code § 2109.02 requires nonresident trustees or
executors to be related to the testator by blood or marriage, or to be residents of a
state that allows nonresidents to serve. A similar reciprocity provision appears in
Maryland Estates & Trusts Code § 14-110.
New York Sur. Ct. Prac. Act § 707 gives the court discretion to refuse to appoint
as fiduciaries nondomiciliary aliens or persons unable to read or write English. As to
the former, an exception is made if there is a resident co-fiduciary. "If the resident
co-trustee moves out of state or cannot otherwise serve by reason of death or
disability, ... the letters issued to the nondomiciliary alien are suspended." Estate of
White, 133 Misc.2d 971, 972, 509 N.Y.S.2d 252, 253 (1986). 20 Pennsylvania
C.S.A. § 7103 allows a court to appoint resident co-trustees to serve with a
nonresident.
For a general discussion of statutes of this type, see George G. & George T.
Bogert, The Law of Trusts and Trustees § 132 (rev. 2d ed. 1984).
Although many statutes appear to apply the same rules to testamentary and
inter vivos trustees, the latter are not usually appointed by a court, and it is hard to
find cases in which a trustee was removed on grounds of nonresidence. In King v.
King, 228 Ga. 818, 188 S.E.2d 502 (1972), a trustee who had moved out of the
state was removed under a statute that has since been repealed.
One reason sometimes given for the use of living trusts as a will substitute is to
avoid the restrictions on personal representatives operating outside the state of
their appointment. See William M. McGovern, Jr., Sheldon F. Kurtz & Jan Ellen Rein,
Wills, Trusts and Estates 605 (1988); VA William F. Fratcher, Scott on Trusts § 563
(4th ed. 1989).
It is not always clear whether "nonresidence," if relevant, should be considered
from the standpoint of the domicile of the settlor, or of the beneficiaries, or of the
situs of the trust property. In Matter of Estate of Ikuta, 64 Haw. 236, 639 P.2d 400
(1981), a court appointed a resident co-trustee where a trust owned land in Hawaii
and the existing trustee was a resident of California. But widely adopted Uniform
Probate Code § 7-105 allows "a foreign trustee, corporate or individual" to "hold,
invest in, manage or acquire property located in this state."
If a person living in state A creates a trust, and the designated trustee and
beneficiaries reside in state B, state B would be the principal place of administration
of the trust under Uniform Probate Code § 7-101, and so § 7-105 would allow a
court in state A to appoint the designated trustee (assuming court appointment was
needed). The comment to Section 7-105 observes that "the ease of avoiding foreign
corporation qualification statutes by the common use of local nominees or
subtrustees ... are evidence of the futility and undesirability of more restrictive
legislation." Compare Uniform Trust Code § 108(b) stating simply that a trustee "is
under a continuing duty to administer the trust at a place appropriate to its
purposes, its administration, and the interests of the beneficiaries." Other
subsections ((c) through (f)) of § 108 (entitled "Principal Place of Administration"),
however, deal with transfer of a trust's principal place of administration.
Estate of Brown, 107 Misc.2d 970, 436 N.Y.S.2d 132 (Sur. Ct. 1981), illustrates
how restrictive statutes are sometimes avoided. A New York resident who had
named a New York lawyer as executor moved to Florida before she died, but left
assets in New York. Because Florida law did not allow the designated executor to
serve, he had the will probated in New York, where he was appointed. See also
Matter of Estate of Siegel, 83 Misc.2d 1062, 373 N.Y.S.2d 812 (1975).
Research References
West's Key No. Digests, Trusts 159.
Standard of care required of trustee representing itself to have expert knowledge or
skill. 91 A.L.R.3d 904.
(2003)
(C)
REST 3d TRUSTS s 33


§ 33. Corporations And Other Entities As Trustees
(1) A corporation has capacity to take and hold property in trust except
as limited by law, and to administer trust property and act as trustee to the
extent of the powers conferred upon it by law.
(2) If a partnership, unincorporated association, or other entity has
capacity to take and hold property for its own purposes, it has capacity to
take, hold, and administer property in trust.
a. Statutory restrictions on corporations holding property. Statutes in some

jurisdictions may restrict the amount or purposes of corporate property holdings.
These statutes do not invalidate an intended trust; a proper court will normally
appoint a substitute trustee (see § 31) if the terms of the trust do not provide for a
replacement or for a co-trustee who can carry out the trust.
b. Capacity to administer a trust. A corporation's capacity to administer a trust is
determined by constitutional or statutory provisions and by the corporation's charter
or certificate of incorporation. If property is transferred to a corporation in trust for
a purpose germane to the purposes for which the corporation is created, it has
capacity to administer the trust.
Illustration:
1. S transfers certain land and securities to C, an incorporated church, in trust to
pay income to L for life and thereafter to apply the trust income for C's corporate
purposes. C has capacity to administer the trust according to its terms for L's
benefit and then for its own purposes.
b(1). National banks. The Federal Reserve Act of 1913 authorized the Federal
Reserve Board to grant (or revoke) authority to national banks to act as trustees,
when not in contravention of state law. The authority over trust powers of national
banks was shifted in 1962 to the Comptroller of the Currency, whose Regulation 9
supersedes Regulation F issued pursuant to the 1913 Act. The Comptroller can
revoke a national bank's authority to provide trust services for continued improper
conduct without removal proceedings under state law.
c. Foreign corporations. A corporation organized and authorized to act as trustee
under the laws of one state has capacity to act as trustee in another state except as
limited by a statute of the latter state.
Many states have legislation limiting or conditioning the ability of foreign
corporations to act as trustees within the legislating state. Statutes of this type
should be construed not to apply when the trust will be administered in a state in
which the corporation is authorized to act as trustee, even if that state is not the
settlor's domicile or the situs of some or all of the trust property. On the other
hand, if the distance between the trustee and beneficiaries interferes with the
proper administration of the trust, this may be a ground for removal or other
remedy. See § 37.
Use of a corporation outside the United States as trustee may raise tax
problems, which are not within the scope of this Restatement.
d. Municipal corporations. The powers of a municipal corporation may be limited
by the express provisions of statutes. Otherwise, a municipal corporation may act as
trustee for purposes that fall within the scope of permitted activities of
municipalities. Ordinarily, these include such charitable purposes as promotion of
health and education, relief of poverty, construction and maintenance of public
parks, buildings and works, and the like; but religious purposes, although
charitable, would generally be inappropriate because of principles of separation of
church and state.
Municipal functions would not ordinarily include administration of wholly private
trusts.
e. Effect of inability to act as trustee. Even if a corporation designated as trustee
lacks capacity to administer the trust property, the trust does not fail. Compare
Comment a, and see § 31.
Illustration:
2. S's will leaves property to Helpful Savings & Loan in trust for the benefit of
the testator's widow and children. Although Helpful is not authorized by applicable
law to act as a trustee, a proper trustee can be appointed to carry out the trust.
In the above Illustration, if Helpful nevertheless undertakes to administer the
trust and mismanages the property, it may be held liable as a trustee.
f. Capacity of partnership, unincorporated associations, and other entities to

administer a trust. To the extent, by statute or otherwise, a partnership,
unincorporated association, limited-liability company, or other entity can, as such,
take and hold property beneficially, it can take, hold, and administer property in
trust.
Legislation has been widely enacted to provide or confirm that various forms of
partnerships and unincorporated associations are legal entities and are capable of
holding title to property. See Reporter's Notes.
g. Lack of capacity to take and hold property. To the extent a partnership or
unincorporated association cannot take or hold title to property, it cannot take or
hold property in trust. The trust, however, does not fail. See § 31. (On the effect of
an attempted transfer outright to such an unincorporated association see § 43,
Comment d.)
Under the law of some jurisdictions, a transfer of property to a partnership or an
unincorporated association for its own benefit places the title to the property in the
partners or the members of the association. In these jurisdictions, a purported
transfer to the partnership or association in trust similarly will have the effect of
passing the property to the partners or members of the association in trust. The
members of the association may be insufficiently definite or it may appear that the
settlor would not have intended the individual partners or association members to
serve as trustees; or having them serve as trustees may be an unsuitable or
inefficient arrangement. In such cases, a proper court will appoint one or more
suitable trustees, possibly including one or more of the partners or association
members.
This Section is similar to Restatement Second, Trusts §§ 96, 97, and 98.
Comment a:
On private corporations as trustees, see George G. Bogert & George T. Bogert,

The Law of Trusts and Trustees § 131 (rev. 2d ed. 1984); and II William F.
Fratcher, Scott on Trusts §§ 96-96.6 (4th ed. 1987), of which the last section (§
96.6) treats "Foreign corporations."
In Omaha National Bank v. Spire, 223 Neb. 209, 389 N.W.2d 269 (1986), the
court upheld a state statute that barred corporations from holding farm land in trust
or otherwise.
Comment b:
In Erwin & Erwin v. Bronson, 117 Or.App. 443, 844 P.2d 269 (1992), a
professional corporation of lawyers was removed as trustee because by statute it
could only render legal services, and serving as a trustee was not considered to be
ancillary to the practice of law.
In Ozee v. American Council on Gift Annuities, 888 F.Supp. 1318
(N.D.Tex.1995), a not-for-profit corporation was held to be engaged in unauthorized
trust business when it provided charitable-remainder trusts, because this exceeded
the authority granted by its charter. The court cited the statutory requirements for
engaging in trust business, which are designed for the protection of beneficiaries.
But In re Trust Created by Hormel, 282 Minn. 197, 163 N.W.2d 844 (1968), upheld
the power of a charitable corporation to act as the trustee of a primarily private
trust, at least where it also had an interest in the trust.
Comment b(1); national banks. Central National Bank v. U.S. Dept. of Treasury,
912 F.2d 897 (7th Cir.1990), upheld an order of the Comptroller of Currency
requiring a national bank to discontinue providing trust services because of its
imprudent practices. Regulations governing state and national banks and trust
companies are reviewed in George G. & George T. Bogert, The Law of Trusts and
Trustees §§ 134-136 (rev. 2d ed. 1984).
For some significant recent reports concerning federal preemption (involving
authorization by the Office of the Comptroller of the Currency (OCC) for national
banks to exercise fiduciary powers in various states under 12 U.S.C. § 92a), see
"Interstate Fiduciary Activities--OCC Takes on California," 8 Trust Regulatory News
1 (No. 12, Dec. 1999); "OTS [Office of Thrift Supervision] Guidance on Preemption
of State Branching Statute," ABA [Amer. Bankers Ass'n] Trust Letter 2 (No. 410,
Jan. 2000); "Another OCC Interpretive Letter on State Law Preemption," Id. 1;
"OCC Proposes Multistate Trust Operations Rule," Id. 1 (No. 422, Jan. 2001); "ABA
Comments on OCC's Multistate Trust Proposals," Id. 1 (No. 424, Mar. 2001) (on the
Association's 1-9-01 comment letter on two Treasury (OCC) proposals, 12 CFR Parts
5 and 9, one of which would amend Regulation 9 to clearly permit national banks to
operate in a fiduciary capacity in any state that permits its own institutions to
engage in fiduciary activities, as in various regulatory interpretations (e.g., supra)
issued by the OCC in the past several years); and "OTS Proposes Fiduciary Rules for
Savings Associations," id. 5 (No. 440, July 2002) (on Office of Thrift Supervision's
proposal, 67 Fed. Register 39886 (6-11-02), to amend its regulation on federal
savings associations along lines similar to OCC proposals, supra). Cf. "Colorado
Credit Unions Get Trust Company Charter: ABA Continues Fight Against Expansive
NCUA [National Credit Union Administration] Rules," ABA Trust Letter 9 (No. 431,
Oct. 2001).
One advantage of a corporate trustee is "permanence." Many statutes provide
that, if a corporate fiduciary is merged or consolidated with another, the new entity
succeeds to the fiduciary roles held by its predecessor. In New England Mut.
National Bank v. Centenary Methodist Church, 342 Mass. 360, 173 N.E.2d 294
(1961), a state bank that had been appointed as trustee later converted to a
national bank and merged with another bank; the court held that this change did
not require the new entity to obtain reappointment as trustee, citing 12 U.S.C. §
215. On the other hand, Ind. Code § 30-4-3-29(e) allows the beneficiaries of a trust
to petition for removal of a corporate trustee if there has been a change in control
of the company.
Comment c:
Several statutes limit the ability of foreign corporations to act as fiduciaries.

Some others allow foreign corporations to act only if the state of their origin allows
reciprocal privileges. The Uniform Probate Code (§ 7-105), on the other hand,
requires a foreign corporation to qualify locally only "if it maintains the principal
place of administration of any trust within the state"; qualification is not required
simply to "receive distribution from a local estate or to hold ... property located in
this state or to maintain litigation." This follows the views expressed in VA William F.
Fratcher, Scott on Trusts § 558, at 128 (4th ed. 1989):
If the testator names as trustee a trust company of a state other than that of his
domicil and manifests an intention that the trust should be administered in the state
where the trust company was organized and does business, it is difficult to justify a
refusal by the state of his domicil to permit the trust company to act as trustee.
Such a refusal clearly defeats the testator's intention and can be justified only on
some ground of public policy. One ground may be the protection of local trust
companies against competition. This is the obvious purpose of the reciprocal
statutes. But trusts are not created for the benefit of the trustees.
The Scott treatise also cites with approval Florida Stat. Ann. § 737.105, which
provides that "local qualification by a foreign trustee is not required in order for the
trustee to receive distribution from a local estate." Most statutes are less clear "but
may well be construed" to mean the same thing. However, Scott notes a conflict of
authority on this. See also Restatement Second, Conflict of Laws § 267, Comment
b.
Cases on these issues have tended to disappear from the appellate reports in
recent years, in part at least because of modernized legislation in many of the
states. Among the more recent cases in point is Estate of Taylor, 5 Ariz.App. 144,
424 P.2d 186 (1967), in which the will of a testator who died domiciled in state A
named a bank in state B as trustee. Even though the bank was not qualified to do
business in state A, the testator intended that the trust be administered in state B,
and therefore the bank could serve. See also In re Farnsworth's Estate, 109 N.H.
15, 241 A.2d 204 (1968), authorizing the transfer of assets from the estate of a
New Hampshire domiciliary to a New York bank designated as trustee in the
decedent's will.
In Dollar Savings & Trust Co. v. First Nat. Bank of Boston, 32 Ohio Misc. 81, 285
N.E.2d 768 (1972), a testamentary trust of an Ohio resident gave his daughter a
power of appointment that she used to appoint the property to trustees (corporate
and individual) resident in Massachusetts. The court said the Massachusetts trustees
did not need to qualify in Ohio.
In Epperly v. Mercantile Trust and Savings Bank, 457 S.W.2d 1 (Mo.1967), an
Illinois bank was held to be qualified to act as trustee after it produced a "certificate
of reciprocity."
In Grasty v. Clare, 210 Va. 21, 168 S.E.2d 261 (1969), the will of a testator who
died domiciled in Virginia directed that the bulk of his estate be administered by
executors (corporate and individual) residing in New York. The court held that
"effect should be given to the testator's stated intention," noting that "portions of a
decedent's personal estate are frequently administered in another State." Id. at 28,
168 S.E.2d at 265-266.
In Dunn v. North Carolina Nat. Bank, 276 S.C. 202, 277 S.E.2d 143 (1981), a
statute barring foreign corporations domiciled in a contiguous state from serving as
testamentary trustees was held invalid as having no rational basis. A few years
earlier, a federal district court had upheld the statute, but struck down a related
provision that barred domestic corporations that were controlled by foreign
corporations. American Trust Co. v. South Carolina St. Bd. of Bk. Com., 381 F.Supp.
313 (D.S.C.1974).
The Scott treatise draws a distinction between corporate and individual
fiduciaries with respect to the constitutional issue, because corporations are not
protected by the privileges and immunities clause of the constitution. (See also
Northeast Bancorp v. Board of Governors, FRS, 472 U.S. 159, 105 S.Ct. 2545, 86
L.Ed.2d 112 (1985), upholding state restrictions on acquisition of banks by out-of-
state companies, since "banking and related financial activities are of profound local
concern.") However, Scott notes that "the real objection to a statute prohibiting the
appointment of foreign trust companies as testamentary trustees is not that it
deprives the trust company of the privilege of acting as testamentary trustee, but
rather that it deprives the testator of the power to choose his own trustee." VA
William F. Fratcher, Scott on Trusts § 558 (4th ed. 1989), at 137.
Although many statutes appear to apply the same rules to testamentary and
inter vivos trustees, the latter are not usually appointed by a court, and it is hard to
find cases in which a trustee was removed on grounds of nonresidence.
It is not always clear whether "nonresidence," if relevant, should be considered
from the standpoint of the domicile of the settlor, or of the beneficiaries, or of the
situs of the trust property. In Holladay v. Fidelity National Bank of Baton Rouge,
312 So.2d 883 (La.App.1975), the designated trustee was an officer of a Louisiana
bank who delegated his duties to the bank. The court held that this was improper
under a Texas statute barring foreign corporations "from serving as trustees of any
trust containing Texas property." Apparently the settlor and beneficiaries were
residents of Louisiana.
In Matter of Estate of Westpfal, 140 Misc.2d 487, 531 N.Y.S.2d 81 (1988), the
court appointed a Florida bank as ancillary trustee so it could sell land in New York,
because Florida statutes granted reciprocal privileges.
Under Uniform Probate Code § 7-105, "a foreign trustee, corporate or
individual," may "hold, invest in, manage or acquire property located in this state."
Compare Uniform Trust Code § 108(b) imposing "a continuing duty" upon a trustee
"to administer the trust at a place appropriate to its purposes, its administration,
and the interests of the beneficiaries." Transfer of a trust's principal place of
administration is dealt with in id. § 108(c)-(f).
When distance between the trustee and beneficiaries creates difficulties, the
situs of a trust may be moved. In Matter of Weinberger's Trust, 21 App. Div. 2d
780, 250 N.Y.S.2d 887 (1964), a New York resident created a trust with her son,
her husband, and a New York bank as trustees. The husband and son later moved
to California. Since the distance between the trustees made administration of the
trust difficult, a New York court approved a transfer of the situs of the trust to
California. Under Uniform Probate Code § 7-305, "if the principal place of
administration becomes inappropriate" a court may remove a trustee and appoint
one in another state. See also California Prob. Code § 17400 et seq.
In order to qualify for the federal estate tax marital deduction when the
surviving spouse is not a U.S. citizen, a "qualified domestic trust" must be used, one
of the requirements of which is that "at least 1 trustee be an individual citizen of the
United States or a domestic corporation." Int. Rev. Code § 2056A(a)(1).
Comment d:
As to municipal corporations, State v. Rand, 366 A.2d 183 (Me.1976), held that
land deeded to a city for use as a park was held in trust; statutory language merely
authorized municipalities to receive money in trust, but this authorization was not
deemed to be exclusive.
In Petition of Acchione, 425 Pa. 23, 227 A.2d 816 (1967), a township passed an
ordinance dedicating certain land "for public park and recreation purposes." This
was held to constitute a declaration of trust, noting that "a municipality can act as
trustee for a trust of a public nature provided that such trust is germane to the
objects of the municipal corporation." See also Alden v. Lewis, 254 Miss. 704, 182
So.2d 600 (1966) (upholding a devise to a city for the support of a museum);
Cohen v. City of Lynn, 33 Mass. App. Ct. 271, 598 N.E.2d 682 (1992) (conveyance
of land to city for park purposes created an enforceable trust); Timothy Christian
Schools v. Village of Western Springs, 675 N.E.2d 168, 173 (Ill. App. 1996) ("A
non-home-rule [municipal] corporation may acquire and hold title to real property
only for a legitimate [constitutional or statutory] corporate purpose"); George G. &
George T. Bogert, The Law of Trusts and Trustees § 130 (rev. 2d ed. 1984).
When a state agency acting as trustee of a charitable trust excluded black
applicants pursuant to the terms of the trust, this was held to constitute state action
in violation of the 14th Amendment. Pennsylvania v. Board of Trusts, 353 U.S. 230,
77 S.Ct. 806, 1 L.Ed.2d 792 (1957). A later shift to trustees unconnected with the
state was too late to solve the problem. Commonwealth of Pennsylvania v. Brown,
392 F.2d 120 (3d Cir.1968), cert. denied, 391 U.S. 921, 88 S.Ct. 1811, 20 L.Ed.2d
657, overruling in effect In re Girard College Trusteeship, 391 Pa. 434, 138 A.2d
844, cert. denied, 357 U.S. 570, 78 S.Ct. 1383, 2 L.Ed.2d 1546 (1958). See also
Evans v. Newton, 382 U.S. 296, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). For a general
discussion of comparable restrictions in charitable trusts, see § 28, Comment f; and
on cy pres as a possible cure for invalid or rejected restrictions, see § 67.
Comment e:
Illustration 2 is based on Stephan v. Equitable Savings & Loan Ass'n, 268 Or.
544, 522 P.2d 478 (1974), in which the court said "because defendant undertook
and assumed to administer and manage [a devise under a will], it ... is subject to all
the duties of a regularly appointed and fully qualified trustee." 522 P.2d at 486.
Subsection (2) and Comments f and g:
On unincorporated associations as trustees, see George G. & George T. Bogert,

The Law of Trusts and Trustees § 125 (rev. 2d ed. 1984); IIA William F. Fratcher,
Scott on Trusts § 97 (4th ed. 1987). On partnerships as trustees, see id. § 98.
On unincorporated associations as trust beneficiaries, see § 43, Comment d.
Legislative trends have been particularly influenced by Uniform Partnership Act
§§ 201 and 203 and by Uniform Unincorporated Nonprofit Association Act § 4. Also
see Vermont Stat. Ann. §§ 2041-2411 (as amended in 1998 by Public Act of Vt. §
8b, authorizing "independent trust companies" in "corporation or limited liability
company" form).
More generally, and on limited partnerships, limited-liability companies, and
limited-liability partnerships, see DeBruyn, "Choice of Entity and Structuring Limited
Liability Entities for the Best of Both Worlds," 1997 U. of Miami Heckerling Estate
Planning Institute ¶¶ 900-910 (ch. 9) (with appendices on then current Discussion
Draft of Amendments to the Revised Uniform Limited Partnership Act). Erickson &
Sanders, "Assessing LLCs v. LLPs," 28 Texas Tech. L. Rev. 1005 (1997), focuses on
the nature and recent development of limited-liability companies and partnerships.
For discussion of some analogous problems that may be affected by the holding of
title to property that is used in various business forms, see Palomar, "Limited
Liability Companies, Corporations, General Partnerships, Limited Partnerships, Joint
Ventures, Trusts--Who Does the Title Insurance Cover?," 31 Real Prop., Probate &
Trust J. 605, 607-608 and 625-636 (1997).
On the problems of trustees acquiring title to inalienable interests, compare §
40, Comments c and d.
In In re Horgan, [1971] P. 50 (1969), a will named a firm of solicitors as
executors and trustees. The court said that this was effective; "[t]he law does not
permit the appointment as executor of a partnership firm as such," but the clause
should be construed as "appointing the individual partners" as of the date of the
testator's death. Id. at 60. "[T]estators often want their solicitors to act as [their]
executors and, in case the individual solicitor or solicitors they have in mind at the
time of giving instructions pre-decease them, they want an appointment which will
enable succeeding partners to act." Id. at 59.
Research References
West's Key No. Digests, Charities 33; Corporations 381; Trusts 159.
Eligibility of foreign corporation to appointment as executor, administrator, or
testamentary trustee. 26 A.L.R.3d 1019.
Eligibility of foreign corporation to appointment as trustee of inter vivos trust. 82
A.L.R.2d 946.
Changes in corporate organization as affecting status as trustee, executor,
administrator, or guardian. 131 A.L.R. 753.
Eligibility of foreign corporation to appointment as executor, administrator, or
testamentary trustee. 65 A.L.R. 1237.
(2003)
(C)
REST 3d TRUSTS s 34


§ 34. Appointment Of Trustees
(1) Except as required by statute, a trustee designated by or selected in

accordance with the terms of a trust may act without being appointed or
confirmed by an order of court.
(2) If the appointment of a trustee is not provided for or made pursuant
to the terms of the trust, the trustee will be appointed by a proper court.
(3) A trustee need not provide a performance bond except as required
by statute, trust provision, or court order.
General Comment:
a. When court appointment necessary; bonding. Some statutes require that
testamentary trustees be appointed by a court in the manner of personal
representatives. (The grounds upon which a court may refuse to appoint a
designated trustee are discussed in § 37, Comment a.) These statutes, however, do
not invalidate the acts of a trustee who fails to obtain the court appointment. Acts
undertaken without formal appointment constitute an acceptance of fiduciary
responsibility, subjecting the person designated as trustee to the duties of
trusteeship. See § 35 and compare § 33, Comment e.
Illustration:
1. A will creates a trust and designates T as trustee. T's sale of certain property
devised to the trust is effective even though she had not yet been appointed by the
probate court as required by statute.
a(1). Bond of trustee. A trustee is not required to give bond to secure
performance of the duties of the fiduciary office unless required by the terms of the
trust or a statute, or unless ordered by court upon a finding that bonding is
necessary to protect the interests of the beneficiaries. Such an order is reviewable
for abuse but is not precluded by a provision in the trust stating that no bond is
required.
The cost of a bond is normally paid from the trust.
b. Judicial role: trustee provided for in terms of trust. If the terms of a

testamentary or inter vivos trust designate or provide a procedure for designating a
trustee, including a substitute, successor, or additional trustee, no court
appointment or confirmation is needed in the absence of a statutory requirement.
Illustration:
2. A will named two individual trustees and provided that, if either failed or
ceased to serve, B Bank would become successor trustee. One of the original co-
trustees becomes incompetent, and B Bank is willing to serve as successor. A
petition to appoint a different successor trustee will be dismissed in the absence of
an allegation that B Bank is not qualified or is unsuitable to act (see § 37), because
B Bank succeeds to the office of co-trustee automatically under the terms of the
trust.
c. Terms of trust or statute. By statute in some states, certain defined trustees
or beneficiaries are authorized to appoint new trustees to fill vacancies without court
action.
It is also common for the terms of trusts to provide for the appointment of new
trustees, thereby avoiding need for court involvement. For example, the terms of a
trust may reserve to the settlor a power to appoint trustees or may grant such a
power to one or more named or described beneficiaries, trustees, or other persons.
Trust terms imposing limitations on those powers (or on judicial appointments),
such as requiring the selection of a corporate trustee, ordinarily must be respected.
On the possibility of court-ordered deviation in appropriate circumstances, see § 29,
Comment h, and § 66.
Although appointments made in compliance with these statutes or trust
provisions are effective, a proper court may remove an unsuitable trustee so
appointed. See § 37.
The tax consequences of settlor or beneficiary powers to designate or replace
trustees are beyond the scope of this Restatement. See, however, Reporter's Notes.
Illustration:
3. S's will leaves her residuary estate to B Bank in trust and authorizes certain
defined, adult current and remainder beneficiaries to replace the trustee with
another corporate trustee. The defined beneficiaries may remove and replace B
Bank but are not authorized to appoint an individual trustee.
c(1). Appointment by beneficiaries. To the extent the beneficiaries have power
to terminate or modify the trust under § 65 (but note id., Comment f), they also
have the power even without specific trust provision to fill a vacancy in the
trusteeship or to remove and replace the trustee. Otherwise, except as authorized
by statute or the terms of the trust (supra), the beneficiaries are not entitled to
select a trustee, although the court will ordinarily consider the wishes of
beneficiaries in making an appointment (see Comment f).
d. Judicial power: remaining co-trustee. If several persons are named as

trustees and one of them dies, declines to serve or resigns, is removed, or is or
becomes incapable of acting as trustee, a replacement trustee is required only if the
settlor manifested an intention, or it is conducive to proper administration or
purposes of the trust, that the number of trustees should be maintained. Otherwise,
the remaining trustee or trustees are entitled to administer the trust.
e. Appointment of additional trustees. Even when there is no vacancy, a proper
court may appoint one or more additional trustees when this would promote better
administration of the trust.
f. Judicial power to fill vacancies. Application to fill a vacancy in the trusteeship
may be made by any beneficiary, the settlor, a continuing or retiring trustee, or a
trustee who is named by the settlor but unwilling to serve as trustee; or by a person
having an interest in the subject matter of the trust (see § 3, Comment b) or in the
administration of the trust (see § 25, Comment e); or, in the case of a charitable
trust, by the Attorney General.
f(1). Factors considered in court's selection of trustee. In exercising its discretion
in appointing a trustee, a court will consider: (1) the objectives and probable
intentions of the settlor, as well as any guidance provided by the terms of the trust;
(2) the interests and wishes of beneficiaries; and (3) the promotion of the proper
administration of the trust. The last of these naturally looks to the basic fiduciary
duties of prudence (care, skill, and caution, § 77), loyalty (§ 78), and impartiality (§
79), as well as respect for the terms and purposes of the trust (§ 76). (Compare
generally § 37 on removal of trustees.)
A court may refuse to appoint a person who applies or is nominated for court
appointment as trustee even though the court would not have removed that person
if appointed by the settlor or by person(s) upon whom a trustee-appointment power
was conferred by the terms of the trust. Thus, the court will not normally appoint as
trustee a person who would have a conflict of interests, such as one of the
beneficiaries or even a relative of some but not others of the beneficiaries, unless
the appointment of such a person is supported by an apparent intention or objective
of the settlor.
Subsection (2) of this Section is generally consistent with Restatement Second,

Trusts § 108.
The mechanics of how the new trustee gets title to the trust property, by court
order or by conveyance, were covered in Restatement Second, Trusts §§ 109 and
110; and id. §§ 104-105 dealt with the passing of title when an individual trustee
dies. These conceptual problems have generated no modern case law; specific
practices vary from place to place and time to time, and appear not to be a source
of controversy. Thus, they are not discussed here. See generally II William F.
Fratcher, Scott on Trusts §§ 104-105, 109-111 (4th ed. 1987).
Comment a:
Personal representatives have no power to act until they are appointed by a

court or registrar. E.g., Uniform Probate Code § 3-103; Cal. Prob. Code § 8400. In
several states, similar statutes apply to testamentary trustees.
Several decades ago it was stated that "Eleven states appear to require
testamentary trustees to qualify and account in much the same manner as
executors, though quite different requirements relate to trustees of inter vivos
trusts in these same states." Uniform Probate Code, Comment (as of 1969) to
Article VII.
Illustration 1 is based on Lentz v. Lentz, 5 N.C.App. 309, 168 S.E.2d 437
(1969), in which the court said, "a trustee derives his title, powers and duties from
the instrument creating the trust ... and not from the authority of the court." 168
S.E.2d at 443. See also Kirsch v. Kahn, 276 Minn. 294, 149 N.W.2d 676 (1967)
(deed by a trustee who was never appointed is valid); Pratt v. Lavender, 319 So.2d
88 (Fla.App.1975) (same).
Bond. There is little case law on the subject of bonds by trustees, but many
states have statutes on the subject. See George G. Bogert & George T. Bogert, The
Law of Trusts and Trustees § 151 (2d rev. ed. 1979). Very much like the rule stated
here is Uniform Probate Code § 7-304: "A trustee need not provide bond to secure
the performance of his duty unless required by the terms of the trust, reasonably
requested by a beneficiary or found by the court to be necessary to protect the
interests of the beneficiaries...." See also Uniform Trust Code § 702; Ga. Code § 53-
12-174; Ind. Code § 30-4-6-8; Uniform Transfers to Minors Act §§ 15(c), 18(f)
(custodians); and Uniform Custodial Trust Act § 14(3). California Prob. Code §
15602 is similar except that a bond is required when "an individual who is not
named as trustee in a trust instrument is appointed by the court." See also N.J.
Stat. Ann. 3B: 15-1.
Some states require a bond for trustees unless waived in the instrument. E.g.,
Texas Prop. Code § 113.058; N.Y. Sur. Ct. Proc. Act § 806; Iowa Code § 633.169;
Kentucky Rev. Stat. § 395.130. But even in some of these states there are
important exceptions, e.g. for corporate trustees, as in Texas Prop. Code §
113.058; Iowa Code § 633.172; and Kentucky Rev. Stat. § 287.220. Often the
court has power to dispense with a bond. See, e.g., Wisconsin Stat. § 701.16(2)
(that court may require bond).
Probably most drafters who consider the matter decide that, with a well-chosen
trustee, the expense of a bond is not worthwhile. See William M. McGovern, Jr.,
Sheldon F. Kurtz & Jan Ellen Rein, Wills, Trusts and Estates § 14.5 (1988) at 634;
and Uniform Statutory Will Act § 14, observation in comment. To require a bond
only of testamentary trustees would seem to make no sense, except as a matter of
procedural convenience; nevertheless, most statutes requiring bond are so limited.
The Restatement Second of Trusts did not discuss this question except to
mention it in commentary (§ 107, Comment b), noting that if a bond is required,
refusal to provide one could be grounds for removal.
The statement here that a court may order a bond if it is found necessary,
despite a waiver in the instrument, is consistent with Uniform Probate Code § 7-
304. See also Cal. Prob. Code § 15602(a)(2); and Ga. Code § 53-12- 174. And
compare Uniform Trust Code § 702(a) requiring a bond only if found necessary by
the court or if "required by the terms of the trust and the court has not dispensed
with the requirement" (emphasis added).
In Holst v. Purdy, 117 Or.App. 307, 844 P.2d 229 (1992), the court rejected a
petition to remove a trustee, but it ordered the trustee to post bond because of the
hostility manifested between him and a beneficiary. Without a showing of cause,
however, a minor beneficiary has no "fundamental right" to require bond of a
testamentary trustee; see Cibulk v. Cibulk, 67 Cal.App.4th 690, 79 Cal.Rptr.2d 168
(1998).
Costs of bond. For statutes allowing trustees to be reimbursed for the cost for
surety bonds, see George G. Bogert & George T. Bogert, The Law of Trusts and
Trustees § 975, at 18 (rev. 2d ed. 1983).
Comment b:
Where the settlor of three trusts, one for each of her three sisters, named her
father as initial trustee and also named a bank as "substitute Trustee," the bank
was held to be entitled to letters of trusteeship on the father's death although each
sister sought to be appointed as trustee of her own trust for the purpose of avoiding
trustee commissions. In re Estate of Wickwire, 270 App. Div. 2d 659, 660-662, 705
N.Y.S.2d 102, 103-105 (2000).
Potential rights to act as, or to nominate, a successor trustee are protected by
the due-process clause of the 14th Amendment, according to Estate of Sigourney,
93 Cal.App.4th 593, 113 Cal.Rptr.2d 274 (2001), so that probate-court orders
modifying those rights were void because of a failure to give notice to the holders of
the rights.
See T. Gaspard, "What Are the Implications When a Lawyer Serves as Trustee?,"
28 Estate Planning 542 (Nov. 2001); and P. Spalding (Chair, Fid. Matters Subcom.,
ACTEC Practice Com.), "Guide for ACTEC Fellows Serving as Trustees," 26 ACTEC
Notes 313 (2001).
Illustration 2 is based on Barnett First Nat. Bank v. Cobden, 393 So.2d 78
(Fla.App.1981).
Comment c:
Illustration 3 is based on Matter of Schroll, 297 N.W.2d 282 (Minn.1980).

In Matter of Guardianship of Brown, 436 N.E.2d 877 (Ind.App.1982), the
nomination of a new trustee by the settlors under a power reserved in the
instrument was ignored since they had been adjudicated incompetent. But Uniform
Probate Code § 5-409(a)(2) states that courts should consider the wishes of a
protected person in appointing a conservator if the protected person has "sufficient
mental capacity to make an intelligent choice." See also California Prob. Code §
1810.
In In re Estate of Hulme, 6 Kan.App.2d 771, 634 P.2d 1152 (1981), the terms of
the trust empowered the trustees to appoint a successor; but an attempted
appointment signed by less than all the trustees was held to be ineffective. See also
Restatement Second, Trusts § 194.
In Pinkowitz v. Edinburg, 22 Mass. App. Ct. 180, 492 N.E.2d 1153 (1986), an
executor-trustee who had been removed for misconduct was held to have lost her
power under the will to appoint a successor.
In Matter of Sherman B. Smith Family Trust, 167 Wis.2d 196, 482 N.W.2d 118
(1992), the court refused to appoint a trustee selected by the beneficiaries under a
power granted them in the instrument when in the court's opinion their nominee
was unsuitable. See also North Carolina Gen. Stat. § 36A-34(c) (procedure in will
for designating trustee in will shall be followed unless it produces an unsuitable
trustee). On the other hand, Galbreath v. del Valle, 91 Ohio App.3d 829, 633 N.E.2d
1185 (1993), held it was an abuse of discretion to appoint a successor trustee
without allowing the beneficiaries sufficient time to agree on one pursuant to their
power under the terms of the trust.
Kentucky Rev. Stat. § 395.326 allows testamentary trustees to designate their
successors, subject to court approval, if no successor is designated in the will.
Uniform Transfers to Minors Act § 18(b) allows a custodian to designate a successor
by a written instrument. Section 13(c) of the Uniform Custodial Trust Act allows the
beneficiary, if not incapacitated, to name a successor trustee. If the beneficiary is
incapacitated and has no conservator, a resigning custodial trustee may designate a
successor.
Under Uniform Statutory Will Act § 12(c), a personal representative can name a
trustee if the will fails to do so or if the designated trustee cannot or will not serve.
If a trustee dies, resigns, or is removed, the testator's spouse or a majority of the
adult children can appoint a successor.
California Prob. Code § 15660(c) allows a vacancy to be filled by "agreement of
all adult beneficiaries who are receiving or are entitled to receive income under the
trust or to receive a distribution of principal if the trust were terminated." A
conservator may act on behalf of a conservatee. See also Illinois Rev. Stat. c. 760,
§ 5/13, Mississippi Code § 91-9-203, and Washington Rev. Stat. § 11.98.039(2),
which are similar but differ in the details.
Although no comparable provision appears in the Uniform Probate Code, id. § 7-
201(b) states that "change of trusteeship, and other aspects of the administration
of a trust shall proceed expeditiously ... free of judicial intervention.' " A
comprehensive (and efficient) set of rules and procedures is set out in Uniform Trust
Code § 704 (entitled "Vacancy in Trusteeship; Appointment of Successor").
Tax considerations. Under Treas. Reg. § 20.2041-1(b), if a decedent had the
"unrestricted power to remove ... the trustee at any time and appoint any other
person including himself," the powers of the trustee are attributed to the decedent
for tax purposes. See also id. § 20.2036-1(b)(3). In Durst v. United States, 559
F.2d 910 (3d Cir.1977), and First Nat. Bank of Denver v. United States, 648 F.2d
1286 (10th Cir.1981), the courts avoided the imposition of an estate tax under
these provisions by construing the decedent's power as limited so that he could not
appoint himself as trustee. The risks (and cautions), however, have been
considerably expanded by a series of revenue rulings (Rev. Ruls. 77-182 and 79-
353, as modified by 81-51) culminating in Rev. Rul. 95-58 (safe harbor only for
appointment of successor who is "not related or subordinate to the decedent (within
the meaning of [IRC] § 672(c)).")
Comment d:
Consistent with this Comment are Uniform Trust Code §§ 108(b) and 108(d).
In Bank of Delaware v. Bancroft, 269 A.2d 254 (Del.Ch.1970), a will designated
a bank and an individual as co-trustees. After the individual died, the bank became
the sole trustee and there was no need to appoint a successor. The earlier common-
law rule that a corporation could not hold in joint tenancy had been implicitly
repealed. See also Estate of Crozer, 493 Pa. 352, 426 A.2d 585 (1981); In re
Michal, 273 N.C. 504, 160 S.E.2d 495 (1968).
This is consistent with Restatement Second, Trusts § 103, which provided that
when one trustee died, title to the trust property passed to the surviving trustee(s),
and with id. § 195, which provided that the remaining trustees in this situation
could properly exercise the powers conferred on the trustees.
Uniform Trustees' Powers Act § 6(b) provides that "the surviving or remaining
trustees shall perform the trust." See also California Prob. Code § 15621; Illinois
Rev. Stat. c. 760 § 5/13; and Ohio Rev. Code § 2109.27. But in Massie v. Barth,
634 S.W.2d 208 (Mo.App.1982), the court refused to dismiss a petition to appoint a
co-trustee after one had declined to serve, since this might promote the proper
See also Matter of Jones, 91 Misc.2d 143, 397 N.Y.S.2d 558 (1977) (new trustee
appointed where the remaining ones were octogenarians, and would soon be
incapacitated); and First National Bank v. Edgeworth, 94 Ill.App.3d 873, 50 Ill.Dec.
264, 419 N.E.2d 372 (1981) (a sale of property by 2 trustees was held invalid when
the trust instrument required that there always be 3 trustees).
Comment e:
In Matter of Estate of Ikuta, 64 Haw. 236, 639 P.2d 400 (1981), the court
appointed an additional trustee when the trust owned land in Hawaii and the only
existing trustee was a California resident who was involved in litigation with some of
the beneficiaries.
The court appointed a co-trustee in Estate of Kagan, 118 Misc.2d 1084, 462
N.Y.S.2d 128 (Sur. Ct. 1983), and in Matter of Estate of Seidman, 58 App. Div. 2d
72, 395 N.Y.S.2d 674 (1977), because a statute disqualified the existing trustee
from making distributions to herself as contemplated by the terms of the trust.
On the other hand, in Schildberg v. Schildberg, 461 N.W.2d 186 (Iowa 1990),
the court held it improper for the lower court to appoint a co-trustee; this power
should "rarely" be used because it might lead to an impasse when the co-trustees
disagreed.
In Moody v. Haas, 493 S.W.2d 555 (Tex.Civ.App.1973), the court declined to
appoint additional trustees above the number specified in the trust instrument
where no change in circumstances warranted a deviation from the trust terms. See
§ 66. Contrast Mills v. Ball, 380 So.2d 1134 (Fla.App.1980) (expansion in number of
trustees justified because the trust had grown in size and some trustees had
become too old to fully participate).
Comments f and f(1):

In Matter of Estate of Wasson, 117 Ill.App.3d 368, 72 Ill.Dec. 815, 453 N.E.2d
120 (1983), the trial court's appointment of a family member was held to be within
its discretion. A limitation on trustee fees in the instrument, plus the settlor's
designation of family members as the original trustees, indicated that he did not
want a professional trustee.
Compare Estate of Tyler, 100 Ohio Misc.2d 17, 18, 716 N.E.2d 1239, 1240
(1999), in which the testator's daughter was nominated by other beneficiaries to
succeed their deceased mother, whom the testator had appointed as executor. The
court recognized that "lack of expertise in a specialized area is not the equivalent of
unsuitability." After acknowledging that a bank named by the testator as
testamentary trustee, and also wishing to serve as successor personal
representative, "has many areas of expertise, has handled many estates, would
secure counsel to handle legal questions, and would file appropriate taxes," the
court observed: "The appointment of a fiduciary is not necessarily a question of
expertise. Most testators appoint a loved one, a relative, or a trusted friend as a
fiduciary. The testator assumes the fiduciary will hire the experts necessary, such as
attorneys and accountants. The court cannot assume [that the beneficiaries'
nominee] will not do this."
Petition of Lovejoy, 352 Mass. 660, 227 N.E.2d 497 (1967), held it improper to
appoint a particular trustee when the beneficiaries wanted another person who was
equally well qualified.
In In re Estate of Nassar, 467 Pa. 325, 356 A.2d 773 (1976), the court
overturned the appointment of a bank that was hostile to a beneficiary. But in In re
Wilson, 372 Mass. 325, 361 N.E.2d 1281 (1977), it was held proper to appoint a
person nominated by the other trustees of a charitable trust rather than the
nominee of the Attorney General.
In In re C.D. Harader Trust, 303 Pa.Super. 10, 449 A.2d 52 (1982), the court
followed the later-expressed wishes of the settlor in choosing a successor trustee;
but Bonney v. Granger, 292 S.C. 308, 356 S.E.2d 138 (1987), appeal after remand
300 S.C. 362, 387 S.E.2d 720 (Ct. App. 1990), refused to give effect to the settlor's
choice of a successor trustee who the court thought was unsuitable.
In In re Estate of Coleman, 456 Pa. 163, 317 A.2d 631 (1974), the court held
that a requirement in a charitable trust that all future trustees and their spouses be
Protestants could be disregarded since it had no relationship to the proper
Research References
West's Key No. Digests, Trusts 155, 160, 161.
Adverse interest or position as disqualification for appointment of administrator,
executor, trustee, or other personal representative. 11 A.L.R.4th 638.
Court's power to appoint additional trustees over number specified in trust instrument.
59 A.L.R.3d 1129.
Construction and operation of will or trust provision appointing advisors to trustee or
executor. 56 A.L.R.3d 1249.
Eligibility of foreign corporation to appointment as trustee of inter vivos trust. 82
A.L.R.2d 946.
Trustee's appointment of associate or successor trustee under powers of trust
instrument. 57 A.L.R.2d 887.
Court's power to appoint trustee to preserve, manage, and control personal property of
nontrust life estate or other particular estate notwithstanding terms of will. 46
A.L.R.2d 502.
Case Citations
W.Va.2004. Com. (d) quot. in sup. Resigning trustees brought a declaratory-

judgment action against remaining trustee for appointment of replacements. Trial
court entered summary judgment appointing replacements. Reversing and
remanding, this court held, inter alia, that trust did not permit replacements, and
statute did not permit court to appoint replacements. Bond v. Bond, 592 S.E.2d
801, 807.
(2003)
(C)
REST 3d TRUSTS s 35


§ 35. Acceptance Or Renunciation Of Trusteeship
(1) A designated trustee may accept the trusteeship either by words or

by conduct.
(2) A designated trustee who has not accepted the trusteeship may
decline it.
Comment:
a. Scope of Section. A person who has not accepted the office cannot be
compelled to act as trustee. To be distinguished from the rejection of a trusteeship
is a trustee's resignation after acceptance of the office (see § 36); also to be
distinguished is a disclaimer in the trustee's fiduciary capacity either of property
that would otherwise be transferred to the trust or of specific powers that would
otherwise accompany the trusteeship (see § 85 and also § 70).
A trust may be created despite the designated trustee's refusal to accept the
trust (see § 31; § 14, Comment d; and § 16, Comments b and c), and a court can
appoint a new trustee (§§ 31 and 36).
The requirements, effectiveness, and consequences of a designated trustee's
renunciation of the trusteeship for trust-law purposes are not the same as for a
disclaimer for tax purposes under Internal Revenue Code § 2518. The state and
federal income- and transfer-tax considerations in accepting or rejecting a
trusteeship, however, are not within the scope of this Restatement.
b. Manifestation of intention to accept or decline. No particular formalities are
necessary for a designated trustee to manifest a refusal to accept the trusteeship.
Similarly, unless otherwise provided by the terms of the trust, no particular
formality is necessary to constitute an acceptance by the trustee of the fiduciary
office. Thus, although trustees usually indicate acceptance by signing a trust
agreement or other writing to that effect, an acceptance can be expressed orally or
inferred from conduct.
It is a question of fact in each case whether the trustee has manifested an
intention to accept or to reject the trusteeship. Dealing with trust property in a
manner that would be proper only by a trustee normally constitutes an acceptance,
but merely protecting the property temporarily until a trustee is appointed does not.
Failure to accept a trusteeship for a long period of time normally indicates an
intention to reject it. Contrast Restatement Second, Property (Donative Transfers) §
32.2(2) (failure to disclaim beneficial interest as acceptance). If the trustee, before
the creation of the trust, made a promise to accept the trust, such a promise does
not preclude the trustee from declining; but under these circumstances a failure
promptly to decline may constitute an acceptance. Compare Restatement Second,
Contracts § 69(1)(c) (silence may be acceptance of an offer "where because of
previous dealings or otherwise, it is reasonable that the offeree should notify the
offeror if he does not intend to accept").
Even if one designated as trustee has not accepted the office, in some
circumstances it may be appropriate for a court to impose liability for unreasonable
delay in acting or in declining the trusteeship if this conduct causes harm to
beneficiaries who reasonably relied on the designated trustee to protect their
interests.
On the duties and liabilities of a trustee who has accepted the office, see
generally Chapters 14-19 and 21.
c. Withdrawal of renunciation. In the case of an inter vivos trust, a designated
trustee who declines the office cannot thereafter accept it without the settlor's
consent. As to the effect on creation of the trust and on title to the trust property,
see § 14, Comment d, and § 31.
In the case of a testamentary trust, a proper court may allow a trustee to
withdraw a renunciation made while the probate estate is still in administration if
doing so would not prejudice the interests of the beneficiaries.
d. Partial renunciation. A person designated both as executor and trustee under
a will may accept the executorship and renounce the trusteeship, or vice versa,
unless the testator manifests a different intention. If two separate trusts are
created, by the settlor or by the court (see § 68), a person named as trustee may
accept one and decline the other, unless this would be contrary to the purposes of
the settlor or the sound administration of the trusts.
This is to be distinguished from a disclaimer of part of the trust property or of
particular trustee powers, as noted above in Comment a.
This Section is similar to Restatement Second, Trusts § 102.
Comment a:
Given the nature of the fiduciary relationship, it is inappropriate to force a

person to act in that capacity. In McCarthy v. Poulsen, 173 Cal.App.3d 1212, 219
Cal.Rptr. 375 (1985), even though it was virtually impossible to find a trustee to
serve because of the potential tort liability arising from holding title to the trust
property, the settlors could not be appointed as successor trustees over their
objection. See also Blieden v. Greenspan, 742 S.W.2d 93 (Tex.App.1987) (trustee
who never accepted trust cannot be held liable as trustee), judgment rev'd, 751
S.W.2d 858 (Tex.1988).
On the liability of trustees arising from holding title to trust property, see
generally Chapter 21.
Comment b:
George G. & George T. Bogert, The Law of Trusts and Trustees § 150, at 88
(rev. 2d ed. 1984), states that "since the trust involves a relation requiring high
good faith and much responsibility, it seems of doubtful expediency to indulge in
presumptions of acceptance where there is no affirmative conduct by the trustee."
Many statutes reaffirm that a trustee who has never accepted cannot be held
liable as trustee, but that acceptance can be inferred from conduct. For example,
California Prob. Code §§ 15600 and 15601 provide that a person who "rejects" a
trust is not liable, and failure to accept within a reasonable time is equivalent to a
rejection, but a person can accept by "knowingly exercising powers" as trustee,
except in an emergency with proper notice. Under Indiana Code § 30-4-2-2, a
person who exercises trust powers is presumed to have accepted, but rejection is
presumed from mere failure to act or speak. See also Texas Property Code §
112.009.
On the other hand, Uniform Transfers to Minors Act § 18(a) states that a
designated custodian "may decline to serve by delivering a valid disclaimer," which
might imply that failure to do so may be deemed an acceptance. On the other hand,
§ 18(c) makes it easy for a custodian to resign. And see Uniform Custodial Trust Act
§ 13(a) saying that, "before accepting the custodial trust property, a person
designated as custodial trustee may decline to serve by notifying the person who
made the designation."
In Dunaway v. Clark, 536 F.Supp. 664 (S.D.Ga.1982), the court rejected a
designated trustee's claim that she could not be liable as trustee because she had
never accepted, the court finding otherwise because she had signed a deed of trust
property as trustee. See also Rathbun v. Hill, 187 Kan. 130, 354 P.2d 338 (1960)
(trustee accepted by collecting income and paying charges on trust property).
Comment c:
In In re Slotkin Estate, 191 N.J.Super. 486, 467 A.2d 803 (A.D. 1983), a
designated co-trustee who had declined to serve tried to change her mind when the
court appointed someone other than the man she had suggested to take her place.
The court held it was too late for her to accept. But compare In re Silvagni's Estate,
76 Nev. 93, 349 P.2d 1062 (1960), in which an executor was allowed to retract his
renunciation of the office.
Comment d:
In Lentz v. Lentz, 5 N.C.App. 309, 168 S.E.2d 437 (1969), a woman was
designated as both executor and trustee under a will. Her refusal to serve as
executor did not preclude her from accepting as trustee. See also Magee v. Magee's
Estate, 236 Miss. 572, 111 So.2d 394 (1959).
Research References
What constitutes sufficient repudiation of express trust by trustee to cause statute of
limitations to run. 54 A.L.R.2d 13.
Contract in consideration of renunciation of one's status, or right to appointment, as
guardian, executor, administrator, trustee, or other fiduciary as contrary to public
policy. 121 A.L.R. 677.
Delay of one named as executor and created trustee in setting up trust as declination of
or vacancy in trust, or as ground for removal as trustee. 76 A.L.R. 1385.
(2003)
(C)
REST 3d TRUSTS s 36


§ 36. Resignation Of Trustee
A trustee who has accepted the trust can properly resign:

(a) in accordance with the terms of the trust;
(b) with the consent of all beneficiaries; or
(c) upon terms approved by a proper court.
Comment:
a. Terms of the trust. The terms of a trust may allow a trustee to resign without
court proceedings. For example, where there are several trustees or a provision
naming a successor trustee, unless the terms of the trust provide otherwise a
trustee may resign by written notice to the co-trustee(s) or to the person named as
successor trustee. Or a trustee may be authorized to resign by notice to or with
consent of certain designated beneficiaries.
Under any such provision, the trustee's resignation becomes effective only upon
the acceptance of the trusteeship by a new trustee.
Also, a trustee may not exercise a power of resignation or otherwise resign for
the purpose of facilitating a breach of trust by the remaining co-trustee(s) or of
escaping adverse circumstances without disclosing the breach or circumstances to
the beneficiaries, settlor, or court, as the case may be. That all trustee powers are
subject to a duty of good-faith exercise, see § 187; see also §§ 70 and 76-78.
b. Consent of beneficiaries. Even in the absence of a provision in the terms of
the trust, statutes in some states facilitate trustee resignation without court
proceedings by allowing certain defined beneficiaries to act for all of them in
accepting a trustee's resignation.
If the consent of all the beneficiaries of a trust can be obtained, they may
authorize and accept the resignation of the trustee even in the absence of a trust or
statutory provision to that effect. On obtaining consent on behalf of all beneficiaries,
see § 65, Comment b. (On the requirements for effective consent by a beneficiary,
see § 97 (and also § 65, last sentence of Comment a).) On trust modification by
beneficiaries generally see § 65, but the material purpose ("Claflin") doctrine (§
65(2) and id., Comment d) need not be satisfied in a resignation under Clause (b)
of this Section (but contrast removal by beneficiaries, discussed in § 65, Comment
f).
The consent of a settlor holding a power to revoke a trust (and thus able to act
for all beneficiaries, see §§ 74 and 97) is sufficient to enable a trustee to resign.
Even without the settlor's consent, however, a trustee of a revocable trust may
resign if the addition of property or a change in the trust terms significantly changes
the trustee's responsibilities. See § 63, Comment g.
c. Authorization of court. It is within the discretion of the court to determine the
conditions upon which a trustee's resignation becomes effective. The purpose of this
discretion is not to force involuntary service by a trustee but to protect the interests
of the beneficiaries and to assure continuity and efficiency in the administration of
the trust. See Reporter's Notes. Of particular importance in this respect is the ability
to find a suitable successor to the resigning trustee.
d. Liability and duties of resigning trustee. Resignation does not relieve the
trustee from liability for breaches of trust committed prior to the time the
resignation becomes effective. Normally the trustee has a duty to account to the
beneficiaries, and this accounting may have the effect of determining any liability of
the resigning trustee and of relieving the trustee of other liability. See §§ 83, 97,
98. The trustee also has a duty to administer and preserve the trust property until a
successor is properly appointed and assumes the duties of the trusteeship.
On resignation without appropriate disclosure of hazardous circumstances of the
trust, see Reporter's Notes.
e. Transfer of trust estate. Upon resignation, the trustee is under a duty to
transfer the trust property to a successor trustee unless by statute, the terms of the
trust, or court order the trust property vests in the new trustee without such an act
of transfer.
It is a breach of trust for a trustee to transfer the trust estate to another as
trustee except under the circumstances of resignation stated in this Section. Cf. §
80.
This Section is the counterpart to Restatement Second, Trusts § 106.

Comparable to the rules stated in this Section are the provisions set out in
Uniform Trust Code § 705.
Comment a:
Several reported decisions properly qualify the initial statement in Comment a

about a trustee's right to resign without court approval if the terms of the trust
allow it. In Matter of Sherman B. Smith Family Trust, 167 Wis.2d 196, 482 N.W.2d
118 (1992), the trust terms allowed the trustee to resign by notifying the income
beneficiaries, but a trustee was not allowed to take inappropriate advantage of this
provision. "The words of a will putting the acts of a trustee beyond review are not to
be taken literally." The court did not approve of the proposed successor trustee; in
this situation "permitting the bank to resign would have left the trust without a
successor."
In Vale v. Union Bank, 88 Cal.App.3d 330, 151 Cal.Rptr. 784 (1979), a bank-
trustee was required to follow the instructions of a committee in making
investments but could resign by giving written notice to the committee. The bank
became unhappy with the committee's instructions and resigned. This caused the
liquidation of the trust portfolio at a loss. The court held the bank liable for this loss,
saying that "the right to resign ... must be exercised in good faith and in accordance
with the trustee's fiduciary obligation." Id. at 336, 151 Cal. Rptr. at 787. See also
Comment d and Ream v. Frey in the Reporter's Note to that Comment, infra
(observing also that a "trustee may be liable for ... resigning without providing for a
'suitable and trustworthy replacement' ").
The essential point of the foregoing cases is that a trustee should not leave the
trust in the lurch by a resignation; hence the further observation in this Comment
that the resignation becomes effective only when a replacement (implicitly an
appropriate successor) is in place.
Comment b:
Some statutes allow resignation without court approval. Under Illinois Rev. Stat.
c. 760 § 5/12, a trustee may resign by giving written notice to the settlor, co-
trustee, or the income beneficiaries. See also Miss. Code § 91- 9-203.
Uniform Transfers to Minors Act § 18(c) allows a custodian to resign "by
delivering written notice to the minor if the minor has attained the age of 14 years."
The Uniform Custodial Trust Act § 13(b) allows custodial trustees to resign by
"delivering written notice to a successor custodial trustee, if any, the beneficiary,
and, if the beneficiary is incapacitated, to the beneficiary's conservator, if any."
Agents can generally resign by notice to the principal. E.g., Cal. Prob. Code §
4207; cf. Restatement Second, Agency § 14B, Comment h, §§ 377-378. The
differing rules governing agents and trustees seem somewhat anomalous if the two
perform similar functions. See W. McGovern, "Trusts, Custodianships, and Durable
Powers of Attorney," 27 Real Property, Probate & Trust J. 1, 27 (1992).
Most trusts give interests to unborn, incapacitated, or unascertainable
beneficiaries, such as "issue." In this situation, the consent of all the trust
beneficiaries may be impossible to obtain. See, however, § 65, Comment b, and
Reporter's Note thereto. Under California Prob. Code § 15640 a trustee may resign
"with the consent of the person holding the power to revoke the trust," and in an
irrevocable trust "with the consent of all the adult beneficiaries who are receiving or
entitled to receive income under the trust or to receive a distribution of principal if
the trust were terminated at the time the consent is sought." A conservator or an
authorized agent may consent on behalf of a beneficiary. Also compare Uniform
Trust Code § 705(a)(1) (and also definition in § 103(12)).
Some trust instruments contain similar provisions in order to eliminate the need
for court proceedings. Compare Westfall, "Nonjudicial Settlement of Trustees'
Accounts," 71 Harv. L. Rev. 40, 60 (1957) (suggesting a form to allow income
beneficiaries to approve trustees' accounts so as to avoid court proceedings). The
effectiveness of such a provision may depend upon the absence of any conflict of
interest between the beneficiaries who give their approval and the others. Cf.
Uniform Probate Code § 1-403(2) (unborn or unascertained person is bound by an
order if the person's interest "is adequately represented by another party having a
substantially identical interest in the proceeding").
Even with the consent of all the beneficiaries, a trustee was not allowed to
resign in Matter of Sherman B. Smith Family Trust, 167 Wis.2d 196, 482 N.W.2d
118 (1992). The court viewed this as an attempt to circumvent an earlier decision
refusing to allow the beneficiaries to terminate the trust. As to termination of a trust
with the consent of all the beneficiaries, see § 65.
Comment c:
Several statutes provide specifically for court orders allowing a trustee to resign.
Most of them do not indicate the standards the court should apply in passing on
such requests. E.g., Cal. Prob. Code § 15640(d); Conn. Gen. Stat. § 45a-242(b).
Georgia Code § 53-12-175 suggests that the trustee must demonstrate that "he
is unable to serve," but Indiana Code § 30-4-3-29(b) implies that resignation should
be allowed unless it will be "detrimental to the trust." Texas Prop. Code § 113.081
expressly allows a court to impose terms in accepting a resignation. See also Wis.
Stat. § 701.18; and Kan. Stat. § 58-2411.
In Re Heintzman, 31 O.R.2d 724 (Ont. 1981), a will designated the testator's
wife and a trust company as co-trustees. Their relationship deteriorated, and two of
the testator's children were now qualified and willing to manage the trust. The
trustee's petition to resign and substitute the children was accepted. But in Re Joss,
33 D.L.R.3d 152 (Ont. 1973), where a will also designated the testator's wife and a
trust company as co-trustees, and the trust company sought to resign after the wife
had moved to another jurisdiction, the court denied the request because it was
desirable to have one resident trustee. Presumably, if the petitioning trustee had
procured a replacement, its petition would have been allowed.
In Oregon Bank v. Hendricksen, 267 Or. 138, 515 P.2d 1328 (1973), a trustee
sought permission to resign or to raise its fee, which the trust instrument fixed at
less than half the going rate. The court allowed it to raise the fee. But on similar
facts, the court in In re Loree's Trust Estate, 24 N.J.Super. 604, 95 A.2d 435
(1953), refused to let the trustee resign, since the beneficiaries would not be able to
find a replacement for the same fee as the trustee had accepted by accepting the
trusteeship.
In In re White, 506 Pa. 218, 484 A.2d 763 (1984), a corporate trustee was
allowed to resign, but a dissent argued that the resignation would frustrate the
settlor's intent to have diverse trustees.
Comment d:
Under California Prob. Code § 15641, a resigning trustee's "liability for acts or
omissions ... is not released or affected in any manner by the trustee's resignation."
And id. § 16062 requires an accounting whenever there is a change of trustees. See
also Ohio Rev. Code § 2109.26.
That a trustee may not exercise a power of resignation or otherwise resign
under the provisions of this Section for the purpose of facilitating or ignoring a
breach of trust by the remaining co-trustee(s), or of escaping from adverse or
hazardous circumstances of the trust without disclosing them to the beneficiaries,
settlor, or court, as the case may be, see Ream v. Frey, 107 F.3d 147 (3d Cir.1997)
(ERISA case). See also cases cited in Reporter's Note to Comment a.
Comment e:
Under California Prob. Code § 15644, for example, a former trustee is

responsible for delivering the trust property to the successor and has all the powers
reasonably necessary to preserve the trust property until this is accomplished.
Research References
(2003)
(C)
REST 3d TRUSTS s 37

§ 37. Removal Of Trustee
A trustee may be removed

(a) in accordance with the terms of the trust; or
(b) for cause by a proper court.
Comment:
a. Refusal to appoint. If a statute requires testamentary trustees to be

appointed by a court (§ 34, Comment a), the court will refuse to appoint a person
as trustee under circumstances that would warrant the person's removal as trustee.
In similar circumstances, even if no statute requires court appointment, while a
settlor's estate is in administration a court may replace a person designated by the
settlor to serve as a testamentary trustee.
Courts are less hesitant to reject a designated trustee's appointment at the
outset than to remove an acting trustee, because of the severity of the action and
the disruption in administration that the latter entails.
Trustees may be disqualified for reasons that predate the creation of the trust.
For example, a spouse named as a fiduciary in a will may be ineligible to serve as
testamentary trustee if the settlor and the spouse are later divorced. Also, undue
influence or inappropriate taking advantage of a confidential relationship in
procuring the designation as trustee may be a ground for rejecting the appointment,
or for the trustee's removal if later discovered.
Illustrations:
1. A's will creates a trust and names B as trustee. At the time of A's death, B
has a conflict of interest that did not exist at the time the will was executed and of
which it does not appear A became aware during his lifetime. The probate court
may find this conflict of interest a sufficient ground to remove or refuse to appoint B
as trustee. Compare Illustration 10.
2. L, as lawyer for an elderly client, drafted a will in which L was designated as
the trustee of a charitable trust, the income of which (and principal in the trustee's
discretion) is to be distributed among charities to be selected by the trustee. The
circumstances and applicable rules of professional responsibility (see Reporter's
Notes) may justify a court in refusing to allow L to serve as trustee, even if the trust
itself is not challenged or found to be the product of undue influence.
b. Removal by beneficiaries. The beneficiaries cannot compel removal of a
trustee except for cause (see Comments d and e on removal by court), unless the
terms of the trust authorize them to remove the trustee (see Comment c) or they
have the power by unanimous consent to terminate or modify the trust (see § 65,
especially Comment f).
c. Terms of the trust. The settlor may remove the trustee if the power to do so
is reserved in the terms of the trust, or if the settlor has retained the power to
revoke (or unrestricted power to amend) the trust. See also § 74.
Also, power to remove a trustee may be conferred by the terms of the trust
upon one or more beneficiaries or others. Such a power allows removal without
court proceedings, although its exercise must conform to any valid (see § 29,
Comment h) requirements or limitations imposed by the trust terms.
Illustration:
3. The terms of a trust allow the income beneficiary to remove and replace any
trustee by written notice to the trustee. The income beneficiary may do this by
giving that notice without providing any reason for doing so.
The tax consequences of the retention or grant of removal powers are beyond
the scope of this Restatement. See, however, Reporter's Notes.
d. Removal by court; judicial discretion. A court may remove a trustee whose
continuation in that role would be detrimental to the interests of the beneficiaries.
See Comment e. The matter is largely left to the discretion of the trial court, but is
subject to review for abuse of discretion.
The court may act on the petition of any beneficiary, co-trustee, or other
interested party, or on its own motion (see generally § 94). The trustee is entitled
to due process, with notice and an opportunity to be heard, although the court may
suspend a trustee's powers (including, if necessary, by appointing a temporary
trustee) pending a removal hearing.
e. Grounds for removal. The following are illustrative, but not exhaustive, of
possible grounds for a court to remove a trustee: lack of capacity to administer the
trust (see § 32); unfitness, whether due to insolvency, diminution of physical vigor
or mental acuity, substance abuse, want of skill, or the inability to understand
fiduciary standards and duties; acquisition of a conflicting interest (cf. Comment
f(1)); refusal or inability to give bond, if bond is required (see § 34, Comment a);
repeated or flagrant failure or delay in providing proper information or accountings
to beneficiaries (see §§ 82 and 83); the commission of a crime, particularly one
involving dishonesty; gross or continued inadequacies in matters of investment (see
§§ 90-92); changes in the place of trust administration, location of beneficiaries, or
other developments causing serious geographic inconvenience to the beneficiaries
or to the administration of the trust; unwarranted preference to the interests of one
or more beneficiaries; a pattern of indifference toward some or all of the
beneficiaries; or unreasonable or corrupt failure to cooperate with a co-trustee.
Not every breach of trust warrants removal of the trustee (cf. Comment g), but
serious or repeated misconduct, even unconnected with the trust itself, may justify
removal.
Illustrations:
4. A beneficiary of a trust petitions for the trustee's removal on the ground that
the trustee filed an accounting three weeks later than required by applicable
statute. The court's refusal to remove the trustee is not an abuse of discretion.
5. A's will named her brother B both as executor of her will and as trustee for
her minor children. B was guilty of serious misconduct as executor. It is not
improper for the court, on its own motion, to remove B as trustee.
e(1). Friction between trustee and beneficiaries. Friction between the trustee
and some of the beneficiaries is not a sufficient ground for removing the trustee
unless it interferes with the proper administration of the trust. Beneficiaries may be
resentful when property they expected to inherit is placed in trust, or of reasonable
exercise of a trustee's discretion with regard to matters of administration or the
alleged underperformance of the trustee's investment program. Such resentment
ordinarily does not warrant removal of the trustee; but a serious breakdown in
communications between beneficiaries and a trustee may justify removal,
particularly if the trustee is responsible for the breakdown or it appears to be
incurable.
Serious friction between co-trustees may also warrant removal of one or both of
them.
Illustrations:
6. S appointed T Trust Co. as trustee of a trust to pay income to his widow for
life, remainder to S's issue by a prior marriage. The trust authorizes the trustee in
its discretion to invade principal for the widow's "support and comfort." The widow
petitions for the trustee's removal because she is extremely dissatisfied with its
exercise of discretion and feels that it has been inappropriately "stingy" in making
distributions to her since the inception of the trust; but no abuse of the trustee's
discretion or other breach of trust is shown. In these circumstances, it is within the
court's discretion to deny the petition to remove the trustee. Even if the court
believes that the trustee has abused its discretion and orders it to make more
generous distributions to the widow, it might reasonably decide that removal of the
trustee is not appropriate. See Comment g.
7. The settlor named two of her five children as co-trustees of a trust for all of
the children and their families. Over several years, extreme ill will has developed
among the children and is now impairing the proper functioning of the trust. It is
within the reasonable discretion of the court to remove and replace the trustees.
f. Trustee named by settlor. The court will less readily remove a trustee named
by the settlor than one appointed by a court. Courts may also show some but a
lesser degree of deference with regard to a trustee appointed by beneficiaries or
others pursuant to the terms of a trust. Such deference, however, may no longer be
justified if, after being designated, a corporate trustee undergoes a significant
structural change, such as by merger, or any trustee significantly reduces the level
or quality of service to the trust or its beneficiaries.
If the trustee named by the settlor is unfit to act as trustee--for example, is
under an incapacity, or is shown to be dishonest or entirely lacking the qualifications
necessary for proper administration of the trust--a court will remove or refuse to
confirm the trustee. Compare § 29, Comment m.
Ordinarily, a court will not remove a trustee named by the settlor upon a ground
that was known to the settlor at the time the trustee was designated, even though a
court would not itself have appointed that person as trustee. In cases of unfitness to
serve (supra), however, a court may remove a trustee even upon a ground known
to the settlor at the time of designation.
f(1). Conflicting interests. Thus, the fact that the trustee named by the settlor is
one of the beneficiaries of the trust, or would otherwise have conflicting interests, is
not a sufficient ground for removing the trustee or refusing to confirm the
appointment. This is so even though the trustee has broad discretion in matters of
distribution and investment.
A trustee's removal may be warranted, however, by a conflict of interests that
existed but was unknown to the settlor at the time of the designation, or that came
into being at a later time.
Furthermore, when a beneficiary serves as trustee or when other conflict-of-
interest situations exist, the conduct of the trustee in the administration of the trust
will be subject to especially careful scrutiny. See § 78. See also § 87, and compare
§ 50, Comment c.
Illustrations:
8. W's will left her residuary estate to T, in trust, to pay "all of the net income,
and such amounts of principal as the Trustee in his sole discretion may deem
appropriate, to my husband H," and on H's death to distribute the principal "by right
of representation to my then living descendants," all of whom were issue of W by a
prior marriage. T predeceased W, and W's daughter D has petitioned to be
appointed as trustee to fill the vacancy, for which W's will makes no provision. Even
though D is an adult with suitable skills to act as a trustee, the court will ordinarily
deny D's petition because of the conflict of interest. See § 79 on the duty of
impartiality.
9. The same facts as in Illustration 8 except that, after learning of T's death, W
executed a codicil naming her daughter D as trustee in the place of T. The court will
not remove D (or refuse to appoint her) as trustee.
Although D in Illustration 9 may properly proceed to act as trustee, the court will
remove her from the trusteeship upon a showing that she has not fairly exercised
the discretion conferred upon her with respect to distributions to H or has, through
her investment authority or otherwise, unduly favored her own interests. On the
duty of impartiality, see § 79.
Illustration:
10. The same facts as in Illustration 8, except that T survived W and thereafter
married W's daughter. This may justify a court in removing (or refusing to appoint)
T as trustee.
g. Alternatives to removal of trustee. Courts may grant more limited relief to
deal with cases in which removal is not necessary or appropriate.
For example, conflict-of-interest problems might be ameliorated by the
appointment of an additional trustee, or by the appointment of a trustee ad litem to
handle a specific, conflict-sensitive transaction. Insolvency concerns might be dealt
with by requiring a bond (see § 34, Comment a) or other security for the proper
administration of the trust. When a national bank fails, its responsibilities may be
transferred to a successor, thereby obviating the need for removal proceedings
under state law. See generally Reporter's Notes.
This Section is similar in coverage to Restatement Second, Trusts § 107.
Comment a:
Comment a tends to make it harder to remove a trustee than to refuse to

appoint one at the outset. But in Estate of Backer, 164 Cal.App.3d 1159, 211
Cal.Rptr. 163 (1985), a court appointed an executor despite a conflict of interest
because this was not included in the (then governing) statutory list of
disqualifications, even though the executor could be later removed under a different
provision! See also Wolzinger v. Eighth Judicial Dist. Court, 105 Nev. 160, 773 P.2d
335 (1989).
Illustration 2 is modeled on two cases. In Allen v. Estate of Dutton, 394 So.2d
132 (Fla.App.1980), the court overturned a summary judgment for the proponent of
a will in which the attorney who drafted the will was named trustee with discretion
to distribute the bulk of the estate to charities of his selection. A presumption of
undue influence was held to apply in this situation. In the second case, Matter of
Estate of Weinstock, 40 N.Y.2d 1, 386 N.Y.S.2d 1, 351 N.E.2d 647 (1976), the court
refused to appoint the designated executors (the attorney who drafted the will and
his son), citing the Code of Professional Responsibility.
For a discussion of the issues of professional responsibility and undue influence
see W. McGovern, "Undue Influence and Professional Responsibility," 28 Real
Property, Probate & Trust J. 643 (1994). For a discussion of rescinding trusts
created by undue influence, see § 12, Comment b, and § 62, Comment a.
Under California Prob. Code § 15642, when an attorney drafts a trust in which
the attorney is designated as sole trustee, the trustee may be removed unless "the
court finds that it is consistent with the settlor's intent that the trustee continue to
serve and that this intent was not the product of fraud, menace, duress, or undue
influence." In Disciplinary Counsel v. Galinas, 76 Ohio St.3d 87, 666 N.E.2d 1083
(1996), an attorney was suspended from practice for drafting a will that named him
as executor and gave him a share of the estate, even though the will was
uncontested. In Matter of Estate of Loomis, 810 P.2d 126 (Wyo.1991), on the other
hand, a claim of undue influence was dismissed when the drafting attorney was
named as a co-trustee, with normal trustee powers. In Matter of Will of Wasson,
562 So.2d 74 (Miss.1990), the testator's sister-in-law drafted his will in which her
children were named as devisees and she was designated as executor. The court
upheld the will on the ground that the presumption of undue influence had been
rebutted.
Under Uniform Probate Code § 2-804(b), a divorce "revokes any revocable ...
nomination in a governing instrument, nominating a divorced individual's former
spouse or a relative of the divorced individual's former spouse to serve in any
fiduciary ... capacity, including ... trustee." California Prob. Code § 6122 is similar
but it applies only to wills and to the former spouse, not to relatives of the spouse.
Compare Matter of Estate of Robbin, 230 Mont. 30, 747 P.2d 869 (1987), in which
the court refused to remove an executor who had divorced a devisee.
Comment b:
Under Ohio Rev. Code § 2109.24, a court may generally remove a trustee on
petition of half of the beneficiaries, but a trustee appointed in a will may not be
removed without good cause.
Comment c:
In Mucci v. Stobbs, 281 Ill.App.3d 22, 216 Ill.Dec. 882, 666 N.E.2d 50 (1996),
the terms of the trust allowed the income beneficiary to remove any trustee by
written notice. Removal of a trustee under this power was effective even though no
ground for it was asserted. In First National Bank v. Office of Public Advocate, 902
P.2d 330 (Alaska 1995), a settlor's expressly reserved power to remove a trustee of
an inter vivos trust was exercised by the settlor's guardian after the settlor had
become incompetent.
Compare Uniform Probate Code § 5-503(a) (court-appointed conservator can
revoke a power of attorney given by the conservatee). Cf. Unif. Custodial Trust Act
§ 10.
In Stewart v. Towse, 203 Cal.App.3d 425, 249 Cal.Rptr. 622 (1988), a court
treated a petition by a settlor to change trustees as a permissible deviation from the
trust terms due to changed circumstances under a statutory version of Restatement
Second, Trusts § 167. See now § 66 of this Restatement. In Matter of Trust Created
by Hill, 499 N.W.2d 475 (Minn.App.1993), the trust terms allowed the settlor's
children to remove the trustee with the concurrence of the settlor's wife "if she be
then surviving"; the court construed this provision not to allow the children to
remove the trustee after the settlor's wife had died.
A trust provision authorizing a beneficiary to replace a trustee may avoid
expensive court proceedings to remove a trustee in whom the beneficiary has lost
confidence. Such a provision is unwise, however, if the settlor lacks confidence in
the beneficiary's own judgment. On "trust protectors," see A. Duckworth,
"Protectors--Fish or Fowl? (Part II)," 5 J. of International Trust & Corporate Planning
18 (1996), quoted in § 48, Reporter's Note to Comment c.
Tax considerations. Under Treas. Reg. § 20.2041-1(b), if a trustee has power to
appoint trust principal to persons including himself, a decedent who "has the power
to remove or discharge the trustee at any time and appoint any other person
including himself ... is considered as having a power of appointment." In Estate of
Wall, 101 T.C. 300, 2002 WL 404110 (1993), the court rejected a position the
Internal Revenue Service had taken in Rev. Rul. 79-353, ruling that a settlor's
power to remove a bank trustee and substitute another corporate trustee made the
trustee's powers attributable to the settlor thus causing the trust assets to be taxed
in the settlor's estate under Internal Revenue Code §§ 2036 and 2038. A more
moderate position is now asserted in Rev. Rul. 95-58, I.R.B. 1995-36. See D.
Baskies, "Recent Ruling Affects Powers to Remove and Replace Trustees," 135
Trusts & Estates 62 (Jan. 1996); J. Blattmachr, "IRS Revokes Rev. Rul. 79-353 But
Leaves a Small Black Cloud," 21 ACTEC Notes 197 (1995).
Comment d:
In Donahue v. Watson, 411 N.E.2d 741 (Ind.App.1980), the court removed a

trustee who had improperly distributed the proceeds of sale of trust property to
herself as income, even though the issue of removal was not raised by the
pleadings, since a court can act on its own motion.
California Prob. Code § 15642 allows a trustee to be removed "by the court on
its own motion, or on petition of a settlor, co-trustee or a beneficiary." Connecticut
Gen. Stat. § 45a-242(a) refers to the court's own motion or a petition by an
"interested person." See also Uniform Trust Code § 706(a). Georgia Code § 53-12-
175, on the other hand, refers only to a petition by an "interested person."
In Holzhauser v. Fagan, 363 So.2d 1232 (La.App.1978), the settlor of an
irrevocable trust was held to have no standing to sue to remove the trustee. But
Uniform Trust Code § 706(a) is contrary (in an apparent departure from common-
law tradition).
In In re Trusts Created by Hormel, 282 Minn. 197, 163 N.W.2d 844 (1968), the
court overturned a removal order issued without notice or an opportunity to be
heard by either the trustees or the beneficiaries. However, the court "decline [d] to
hold that the district court may not, under any circumstances, remove a trustee on
its own motion." Id. at 206, 163 N.W.2d at 850.
California Prob. Code § 15642(e) allows a court to suspend a trustee's powers
during removal proceedings. Compare Uniform Trust Code § 706(c) ( "such
appropriate relief ... as may be necessary to protect the trust property or the
interests of the beneficiaries"), and Uniform Probate Code § 3- 611(a) ("after
receipt of notice of removal proceedings, the personal representative shall not act
except to account, to correct maladministration or to preserve the estate").
The cases are too numerous to cite in which the appellate court deferred to the
trial court's discretion as to removal, but in a not insubstantial number of cases the
trial court is overruled. Decisions to remove were reversed in Birmingham Trust
National Bank v. Henley, 371 So.2d 883 (Ala.1979), cert. denied, 445 U.S. 915, 100
S.Ct. 1273, 63 L.Ed.2d 598 (1980); Copley v. Copley, 126 Cal.App.3d 248, 178
Cal.Rptr. 842 (1981); In re Estate of Croessant, 482 Pa. 188, 393 A.2d 443 (1978);
Estate of Feeney, 139 Cal.App.3d 812, 189 Cal.Rptr. 84 (1983) (removal of
executor); Lovett v. Peavy, 253 Ga. 79, 316 S.E.2d 754 (1984); and In re Zoellner
Trust, 212 Neb. 674, 325 N.W.2d 138 (1982). Conversely, it was held an abuse of
discretion not to remove a fiduciary in Brown v. Batt, 631 P.2d 1346 (Okl. App.
1981); Rennacker v. Rennacker, 156 Ill.App.3d 712, 109 Ill.Dec. 137, 509 N.E.2d
798 (1987); In re Estate of Senz, 417 So.2d 325 (Fla.App.1982), pet. denied, 426
So.2d 28 (Fla.1983); and Smith v. Underwood, 113 N.C.App. 45, 437 S.E.2d 512
(1993); and cf. Estate of Hammer, 19 Cal.App.4th 1621, 24 Cal.Rptr.2d 190 (1993)
(executor); Matter of Estate of Jones, 492 N.W.2d 723 (Iowa App.1992) (executor).
Rejection of a petition to remove a trustee does not preclude a later attempt if
circumstances have changed. Succession of Noe, 398 So.2d 1173 (La.App.1981)
(dicta). The drafters of the Uniform Probate Code considered but rejected a bar on
proceedings to remove a personal representative until "after a set period from entry
of any previous order reflecting judicial consideration of the qualifications of the
personal representative." Comment to UPC § 3- 611.
Comment e:
Statutes in many states provide for the removal of trustees. Although the
language of these statutes differ, the basic principles are similar to the common-law
rules stated in this Section. For example, see Uniform Trust Code § 706(b). See also
Cal. Prob. Code § 15642, which allows trustees to be removed, inter alia, "(1)
Where the trustee has committed a breach of trust. (2) Where the trustee is
insolvent or otherwise unfit to administer the trust. (3) Where hostility or lack of
cooperation among co-trustees impair the administration of the trust." Under Mass.
Gen Stat. c. 203, § 12, courts may remove trustees if they are incapacitated by
mental illness or otherwise unsuitable, or if removal is in the best interests of the
beneficiaries. In Ohio, fiduciaries may be removed for failure to file accounts on
time, for "habitual drunkenness, neglect of duty, incompetency, or fraudulent
conduct or because the interests of the trust demands it." Ohio Rev. Code §
2109.24.
The Ohio statute applies to all fiduciaries, but many states have different
provisions for personal representatives, trustees, conservators, and guardians. In
California, for example, Cal. Prob. Code § 8502, dealing with removal of personal
representatives and id. § 2650 dealing with guardians and conservators, use
language that differs from the section governing trustees. Uniform Probate Code §
3-611(b) lists grounds for removal of personal representatives in some detail,
whereas id. § 5-414 simply says a conservator may be removed "for good cause,"
and § 7-201 merely gives courts jurisdiction to remove a trustee. Uniform Transfers
to Minors Act § 18(f) says a custodian may be removed "for cause" and § 13(f) of
the Uniform Custodial Trust Act is the same. Probably these variations in language
are without significance.
Recent legislation in Connecticut adds to (may or may not actually expand) the
traditional grounds upon which a court (on its own motion or upon application of an
interested party) may remove a fiduciary. Amendments allow removal if lack of
cooperation among cofiduciaries substantially impairs administration of the trust, if
the court determines that the best interests of the beneficiaries would be served by
removal of a trustee that is unfit or unwilling to administer the trust effectively, or
if, because of substantially changed circumstances or upon request of "all" of the
beneficiaries, the court finds that removal would serve the beneficiaries' best
interests and is not inconsistent with a material purpose of the trust. Conn. Gen.
Stat. § 45a-242 (as amended, 2001 Conn. Legs. Service PA 01-114). See also Ind.
Code Ann. § 30-4-3-29(e) (enacted 2001, but applicable to trusts created after June
30, 1996) (allowing removal of a corporate trustee "if there has been a change in
control of the corporate trustee after the date of the execution of the trust" and "if
the court determines the removal is in the best interests of all of the beneficiaries of
the trust"; change in control is defined as occurring "whenever a person or group of
persons acting in concert acquire the beneficial ownership of an aggregate of at
least twenty-five percent (25%) of the outstanding shares of voting stock" of the
trustee or of a corporation controlling the trustee).
One ground for removal mentioned in California Prob. Code § 15642(b) is
"where the trustee's compensation is excessive under the circumstances." In In re
Estate of Pfahler, 64 Ohio App.3d 331, 581 N.E.2d 602 (1989), the court appointed
the testator's spouse as executor rather than a lawyer designated in the will who
intended to charge a fee both as lawyer and executor. (Cf. T. Gaspard, "What Are
the Implications When a Lawyer Serves as Trustee?," 28 Estate Planning 542 (Nov.
2001).) Normally, however, if a settlor designated a professional trustee, this choice
should be respected, even if an individual can be found who is willing to serve
without compensation.
In Matter of Estate of McComas, 165 Misc.2d 947, 630 N.Y.S.2d 895 (Sur. Ct.
1995), situs of a trust was transferred to England (where the beneficiaries resided)
for convenience through proximity.
Illustration 4 is based on In re Estate of Ehlers, 80 Wash.App. 751, 911 P.2d
1017 (1996).
A few statutes bar persons convicted of a felony from being fiduciaries. N.Y. Sur.
Ct. Proc. Act § 707(d); Wash. Rev. Code § 11.36.021(2) (felony or misdemeanor
involving moral turpitude); cf. 29 U.S.C. § 1111 (a much more detailed provision
governing fiduciaries under ERISA).
Even without a specific statute, a convicted criminal may be removed under
more general standards. Jones v. McGuirt, 416 So.2d 970 (Ala. 1982).
Illustration 5 is based on Hargraves v. Hargraves, 14 Ark.App. 230, 686 S.W.2d
816 (1985). See also Matter of Guardianship of Brown, 436 N.E.2d 877
(Ind.App.1982) (failure to keep proper accounts); Brault v. Bigham, 493 S.W.2d
576 (Tex. App. 1973) (trustee claimed trust property as her own); and Mahoney v.
Mahoney, 5 Mass. App. Ct. 720, 370 N.E.2d 1011 (1977) (refusal to appoint trustee
who had claimed trust assets as her own).
Cases in which the court refused to remove a trustee despite a breach of trust
include Schildberg v. Schildberg, 461 N.W.2d 186 (Iowa 1990) (failure to file
accounts); Windishar v. Windishar, 83 Or.App. 162, 731 P.2d 445 (1986) (trustee
not removed, but instructed to be more generous in making distributions); In re
Estate of Ehlers, 80 Wash.App. 751, 911 P.2d 1017 (1996) (delay in filing
accounts); Curtis v. Breaux, 458 So.2d 582 (La.App.1984) (inadequate accounts);
Citizens & Southern Nat. Bank v. Haskins, 254 Ga. 131, 327 S.E.2d 192 (1985)
(trustees surcharged but not removed); Copley v. Copley, 126 Cal.App.3d 248, 178
Cal.Rptr. 842 (1981) (same).
Illustration 7 is based on Matter of Guardianship of Brown, 436 N.E.2d 877
(Ind.App.1982). Other cases in which a trustee was removed because of hostility
between the trustee and beneficiaries, or between trustees, are Ackley v. Loughlin,
406 So.2d 832 (Ala.1981) (trustee treated beneficiary "high-handedly"); Ashman v.
Pickens, 12 Ark.App. 233, 674 S.W.2d 4 (1984) (hostility between trustees led to an
impasse in decisionmaking); Matter of Estate of Brecklein, 6 Kan.App.2d 1001, 637
P.2d 444 (1981) (refusal to appoint trustee); Kerper v. Kerper, 780 P.2d 923
(Wyo.1989), appeal after remand 819 P.2d 407 (Wyo.1991); Matter of Estate of
Malone, 42 Colo.App. 353, 597 P.2d 1049 (1979) (friction between co-trustees and
beneficiaries); Rennacker v. Rennacker, 156 Ill.App.3d 712, 109 Ill.Dec. 137, 509
N.E.2d 798 (1987); and Shear v. Gabovitch, 43 Mass. App. Ct. 650, 685 N.E.2d
1168 (1997) (hostility between beneficiaries and trustees), appeal after remand 50
Mass. App. Ct. 249, 736 N.E.2d 854 (2000).
A leading case on conflicting interests and hostility arising between trust
beneficiaries and a settlor-designated successor trustee is Matter of Jurzykowski, 36
App. Div. 2d 488, 321 N.Y.S.2d 438 (1971), aff'd, 30 N.Y.2d 510, 330 N.Y.S.2d 60,
280 N.E.2d 887 (1972). See also Matter of Estate of Duell, 258 App. Div. 2d 382,
382-383, 685 N.Y.S.2d 686, 686 (1999), that antagonism between co-trustees may
be sufficient to justify removal of either or both from the office, but this may also be
accomplished in a less severe way by a splitting of the trust into two trusts, allowing
each trustee to administer the trust in which he or she is especially interested.
In Malachowski v. Bank One, 682 N.E.2d 530 (Ind.1997), the Indiana Supreme
Court affirmed the probate court's removal of a trustee upon a finding that the
trustee's "assertion that there was a mandate" from national bank examiners to
diversify investments (then consisting entirely of Eli Lilly stock) "constituted
misrepresentation" that "so jeopardized its trust relationship as to require removal."
Id. at 531. The court also affirmed the trial court's order requiring the trustee to
"bear its own attorney fees and costs of litigation without reimbursement from the
Trust" even though the trustee "had successfully defend[ed] against the bulk of the
beneficiaries' claims." Id. at 531-532.
In Waits v. Hamlin, 55 Wash.App. 193, 776 P.2d 1003 (1989), the court said
that "bad will" generated by litigation challenging a trustee's actions and seeking
her removal might be grounds for removal where the trustee had broad discretion.
On the other hand, many cases have refused to remove a trustee on the basis of
such friction. See Akin v. Dahl, 661 S.W.2d 911 (Tex.1983), cert. denied, 466 U.S.
938, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984) (hostility was created by the
beneficiaries); Symmons v. O'Keeffe, 419 Mass. 288, 644 N.E.2d 631 (1995)
(similar); Hardiman v. Hardiman, 11 Mass. App. Ct. 626, 418 N.E.2d 347 (1981);
Massey v. St. Joseph Bank & Trust Co., 411 N.E.2d 751 (Ind.App.1980); and
Succession of Noe, 398 So.2d 1173 (La.App.1981). In Holst v. Purdy, 117 Or.App.
307, 844 P.2d 229 (1992), the court refused to remove a trustee but ordered him to
post a bond because of the animosity he had shown toward a beneficiary.
Removal of a trustee was justified in Estate of Cooper, 81 Wash.App. 79, 913
P.2d 393 (1996), in which breach of the duty of impartiality in investment matters
gave rise to a distrustful relationship that made it likely that litigation would
continue if the trustee were retained. See also similar breach of impartiality in
management giving rise to ill-feeling toward a trustee that might interfere with
proper administration of the trust, warranting the trustee's removal, in Dennis v.
Rhode Island Hospital Trust National Bank, 744 F.2d 893 (1st Cir. 1984).
See generally Matter of Duke, 305 N.J.Super. 408, 702 A.2d 1008, 1023 (1995)
(citations omitted), aff'd, 305 N.J.Super. 407, 702 A.2d 1007 (A.D.1997): "Where
there is conduct by a fiduciary toward a beneficiary which causes mutual animosity
between them, a court may invoke its equity powers to remove the trustee.
Removal of a trustee, however, should be granted only sparingly. The decision is in
the sound discretion of the court, and will not be disturbed by an appellate tribunal
in the absence of manifest abuse. In order for hostility between a beneficiary and
trustee to form the basis for removal, there must be evidence that the relationship
is likely to materially interfere with the administration of the trust."
According to II William F. Fratcher, Scott on Trusts § 107 (4th ed. 1987):
"Hostility is not necessarily a sufficient ground for removal, since otherwise the
beneficiaries could by quarreling with the trustee force him out.... On the other
hand, where there is such friction or hostility as seriously to impede the proper
performance of the trustee, especially if the trustee is at fault, the trustee will be
removed."
In Jones v. McGuirt, 416 So.2d 970 (Ala. 1982), an executor-trustee was
removed because he had several unpaid judgments against him, as well as criminal
convictions. An insolvent executor was removed in In re Estate of Quinlan, 441 Pa.
266, 273 A.2d 340 (1971). Insolvency is listed as a ground for removal in Cal. Prob.
Code § 15642; Kan. Stat. § 58-2413; N.Y. E.S.P.T.L. § 7-2.6; and Tex. Prop. Code
§ 112.082.
Under California Prob. Code § 15643, the appointment of a conservator for an
individual trustee creates a vacancy in the office. See also Tex. Prop. Code §
112.082 (trustee who becomes incompetent may be removed); Mass. Stat. c. 203 §
12 (trustee may be removed if incapacitated by mental illness). Under Washington
Rev. Code § 11.36.021, persons under 18 or of "unsound mind" cannot serve as
trustee. See also Ind. Code § 30-4-2-11. A person who is not so incapacitated as to
warrant appointment of a conservator, may, of course, be unable to manage a
trust.
In Ashman v. Pickens, 12 Ark.App. 233, 674 S.W.2d 4 (1984), a trustee was
removed, inter alia, because he was "not qualified" to make decisions about
farming, as would be necessary to manage the trust assets.
Compare Estate of Tyler, 100 Ohio Misc.2d 17, 18, 716 N.E.2d 1239, 1240
(1999), in which the testator's daughter was nominated by other beneficiaries to
succeed their deceased mother, whom the testator had appointed as executor. The
court recognized that "lack of expertise in a specialized area is not the equivalent of
unsuitability." Id. After acknowledging that a bank named by the testator as
testamentary trustee, and also wishing to serve as successor personal
representative, "has many areas of expertise, has handled many estates, would
secure counsel to handle legal questions, and would file appropriate taxes," (id.) the
court observed: "The appointment of a fiduciary is not necessarily a question of
expertise. Most testators appoint a loved one, a relative, or a trusted friend as a
fiduciary. The testator assumes the fiduciary will hire the experts necessary, such as
attorneys and accountants. The court cannot assume [that the beneficiaries'
nominee] will not do this." Id.
See generally R. Chester & S. Ziomek, "Removal of Corporate Trustees Under
the Uniform Trust Code and Other Current Law: Does a Contractual Lense Help
Clarify the Rights of Beneficiaries?," 67 Missouri L. Rev. 241 (2002).
Comment f:
Illustration 10 is inspired by Estate of Hammer, 19 Cal.App.4th 1621, 24

Cal.Rptr.2d 190 (1993), in which the court removed an executor who had been
married to a devisee when the testator died but was later involved in an
acrimonious divorce from the devisee. For the removal of a beneficiary/co-executor
for conflicting interests other than those that are inherent in such a nomination, see
Richardson v. Laney, 911 S.W.2d 489 (Tex.App.1995).
In Ramsdell v. Union Trust Co., 202 Conn. 57, 519 A.2d 1185 (1987), the court
removed an executor against whom the estate had a claim. In Shriners Hospitals v.
Gardiner, 152 Ariz. 527, 733 P.2d 1110 (1987), the court refused to appoint a
designated successor trustee who was also the guardian of a former trustee against
whom the trust had a claim. On the other hand, in Symmons v. O'Keeffe, 419 Mass.
288, 644 N.E.2d 631 (1995), the court refused to remove a trustee who was an
officer and director of a company in which the trust held stock, because the settlor
was aware of the conflict of interests this might create.
In Getty v. Getty, 205 Cal.App.3d 134, 252 Cal.Rptr. 342 (1988), suit was
brought by the income beneficiaries and presumptive remainder beneficiaries to
remove the trustee, partially and temporarily. The court held that there need be no
evidence of "actual past wrongdoing by the trustee" to justify his removal if some
legally proper ground for removal existed; the trial court found "irreconcilable
conflicts" between the trustee's personal interests and those of the trust estate and
its beneficiaries, disqualifying the trustee from defending law suits arising out of the
sale of the trust's oil stock. The appellate court recognized that the trial court had
power to single out those particular law suits and suspend the trustee's powers
regarding them, and in so doing, to appoint a "trustee ad litem" with limited powers
to conduct that litigation. (Such an appointment was viewed as a modification of the
trust terms as necessary to preserve the trust assets.)
In Coffey v. Coffey, 286 N.J.Super. 42, 668 A.2d 76 (1995), the defendant had
established an irrevocable trust for the benefit of his three daughters and served as
trustee of that trust, but he violated its terms in various ways, including by using
trust funds to pay his youngest daughter's educational expenses, which he was
personally obligated to pay. After noting (id. at 53, 668 A.2d at 82) that the
"fiduciary duties of a trustee are the same whether the settlor serves as trustee or a
third party does," the court stated: "[A]t least since the divorce, defendant has
functioned as trustee with as much a purpose of controlling his adult children as
managing the assets of the trust with care, prudence and fidelity to the terms of the
trust instrument. His goal of controlling or punishing his children for what he
perceives to be their derelictions in their relationships with him is, by dint of how
the trust has been administered since the divorce, clearly and unavoidably in
conflict with defendant's duties as trustee. Defendant has demonstrated ... that he
is not capable of discharging his responsibilities as trustee while he harbors the
personal hurt he feels. Where a trustee's interests conflict with those of the
beneficiaries, the trustee is obliged to resign; and where he has not done so, the
conflict is grounds for [his] removal." Id. at 56-57, 668 A.2d at 83-84.
Comment g:
For cases in which courts have declined to remove trustees despite their
breaches of trust, see Reporter's Note to Comment c, supra (paragraph between
Note on Illustration 5 and Illustration 7).
In NCNB Texas Nat. Bank v. Cowden, 895 F.2d 1488 (5th Cir.1990), the transfer
of the assets including fiduciary offices of a failed bank to a successor pursuant to
FDIC regulations was upheld, the court holding that federal law superseded state
trust law on this issue. "An attempt ... to obtain state court appointments as
successor fiduciary for each of these positions would take several years and cost $8
million in legal expenses.... [I]t would also leave literally thousands of fiduciary
positions vacant for a period of years." 895 F.2d at 1494-1495. The court said that
"once the transfer of appointments is complete, the [successor] bank is treated as
any other fiduciary under state law and it may be removed from office." Id. at 1502.
In Matter of Trust of Getty, 205 Cal.App.3d 134, 252 Cal.Rptr. 342 (1988), third
parties attempted to impose liability on a trust and the trustee for the trustee's
actions in selling stock of the trust. Both the plaintiffs and the trustee had an
interest in establishing that the trustee's actions were authorized, since this would
allow the plaintiffs to reach the trust assets and would exonerate the trustee from
personal liability. (Compare Restatement Second, Trusts § 268.) The court
appointed a trustee ad litem to represent the trust in this suit instead of removing
the trustee.
Compare Bailey v. Leatherman, 615 So.2d 810 (Fla.App.1993) (a second trustee
was appointed; his approval is needed for any transaction with a corporation in
which the original trustee held an interest).
In Matter of Estate of Sauter, 189 Mont. 244, 615 P.2d 875 (1980), a court
refused to remove an executor whose partner represented a person against whom
the estate had a claim, but directed the appointment of a special administrator to
handle this claim; and in Holst v. Purdy, 117 Or.App. 307, 844 P.2d 229 (1992), the
court refused to remove a trustee, but ordered him to post a bond as security.
Compare Conservatorship of Ramirez, 89 Cal.App.4th 1312, 108 Cal.Rptr.2d 229
(2001), where the removal of or refusal to appoint a conservator of the person and
estate was found not to be justified; the appellate court in reversing directed that
an order be entered prescribing lesser, alternative remedies that were available to
protect the interests of the conservatee and other family members.
Cf. In re Estate of Stuart, 261 App. Div. 2d 550, 551, 690 N.Y.S.2d 644, 645
(1999) (that, in addition to liability for any losses caused, attorney who uses estate
assets for own purposes may be denied compensation for services rendered to the
estate).
Further on the trustee ad litem concept (Getty, supra), compare Judge Friendly's
often cited opinion in Donovan v. Bierwirth, 680 F.2d 263 (2d Cir.1982), 64 A.L.R.
Fed. 580, stating in part (pp. 276-277): "[The trustees] were caught in a difficult
and unusual situation.... However, they should have realized that, since their
judgment on this score could scarcely be unbiased, at the least they were bound to
take every feasible precaution to see that they had carefully considered the other
side, to free themselves, if indeed this was humanly possible, from any taint of the
quick negative reaction characteristic of targets of hostile tender offers.... We do not
decide whether even this would have sufficed; perhaps, after the events of late
September, resignation was the only proper course....
"Not seriously disputing that if interlocutory relief is to be granted, the
preliminary injunction embodied in Part I of the court's order ... was appropriate,
the trustees challenged the propriety of Part II directing the appointment of an
Investment Manager to act as receiver pendente lite. They insist ... that, under ...
the Trust Agreement, new trustees can be appointed only by the Grumman board....
"Although ERISA does not provide specifically for the appointment of a receiver
in an action by the Secretary under § 1132(a)(5), such power is conferred by the
provision authorizing him to seek 'other appropriate equitable relief.' ... Still, the
appointment of a receiver is a harsh remedy, not to be imposed without a showing
of necessity. We fail to see why Part I of the order ... does not sufficiently protect
the situation during the interval before final judgment can be entered.... The
financial integrity of the trustees is not questioned, as is demonstrated by the
court's willingness that they continue to act as such with respect to more than 90%
of the Plan's assets. The only added benefits from the appointment of an
Investment Manager [at this point] do not warrant the disruption and expense
which the appointment would cost for what should be a short period. We therefore
modify the order by striking Part II, without prejudice to the right of the Secretary
to move for relief similar to that therein provided if there should be another tender
offer prior to the entry of final judgment."
Research References
Adverse interest or position as disqualification for appointment of administrator,
executor, or other personal representative. 11 A.L.R.4th 638.
Bankruptcy: grounds for disapproval of trustee elected by creditors. 99 A.L.R.2d 1290.
Hostility between trustee and beneficiary as ground for removal. 63 A.L.R.2d 523.
Right of appeal from order on application for removal of personal representative,
guardian, or trustee. 37 A.L.R.2d 751.
Delay of one named as executor and created trustee in setting up trust as declination of
or vacancy in trust, or as ground for removal as trustee. 76 A.L.R. 1385.
(2003)
(C)
REST 3d TRUSTS s 38


§ 38. Trustee's Compensation And Indemnification

(1) A trustee is entitled to reasonable compensation out of the trust
estate for services as trustee, unless the terms of the trust provide
otherwise or the trustee agrees to forgo compensation.
(2) A trustee is entitled to indemnity out of the trust estate for
expenses properly incurred in the administration of the trust.
General Comment:
a. Individual and corporate trustees. The rules stated in this Section apply to
both private and charitable trusts, and to family members or friends who act as
trustee as well as to corporate or professional trustees.
The trustee's experience, skill, and facilities, however, are factors in determining
the reasonableness of compensation. See Comment c(1). Also, a family relationship
or friendship may be relevant to the parties' expectations (and therefore intentions)
concerning compensation. Compare Comment g, infra.
b. Lien for compensation and indemnification. The right of indemnification in
Subsection (2) entitles a trustee to pay directly from funds of the trust, or to obtain
reimbursement from the trust estate if the trustee has personally paid, expenses of
the trust properly incurred in the course of administration.
Before distributing income or principal of the trust, the trustee may withhold
funds for such reimbursement or for appropriate compensation.
On what constitutes proper administration expense generally, see § 88. Also
compare Comment c.
On the possibility and basis of indemnification for expenses improperly incurred,
see § 88.
c. Amount of compensation. Some state statutes still prescribe formulas for

determining the amount of a trustee's compensation. They usually provide that
trustees' fees are to be based on specified percentages of the principal or of the
income and principal of the trust. Normally, the statute in effect at the time the
compensation is claimed controls, regardless of when the trust was created. If the
trustee has negligible active duties, statutes fixing compensation for trustees are
usually held not to apply. Furthermore, statutes are normally to be interpreted as
allowing the court to authorize additional or reduced compensation if the court
determines that the statutory formula would result in a trustee's fee that is
unreasonably high or low.
Many statutes merely provide that trustees are entitled to reasonable
compensation. The reasonable compensation rule applies where there is no statute
dealing with trustee compensation.
Trustees ordinarily receive some compensation periodically and, when the trust
terminates, additional compensation for their special responsibilities at that time.
c(1). Determining reasonable compensation. Trial courts have discretion in
determining reasonable compensation, but their determinations are subject to
review for abuse of discretion.
Local custom is a factor to be considered in determining compensation. Other
relevant factors are: the trustee's skill, experience and facilities, and the time
devoted to trust duties; the amount and character of the trust property; the degree
of difficulty, responsibility, and risk assumed in administering the trust, including in
making discretionary distributions; the nature and costs of services rendered by
others; and the quality of the trustee's performance.
The amount of compensation received by a trustee is relevant in determining
whether certain costs of others' services are reimbursable under Subsection (2).
This is particularly so of costs of hiring advisors, agents, and others to render
services expected or normally to be performed by the trustee. Conversely, even
proper expenses of this type may affect what is reasonable compensation for the
trustee. Cf. Illustration 1. On the requirement that expenses be properly incurred,
see generally § 88.
Absent a statute so requiring, the trustee's compensation need not be approved
by a court, but a trustee who has taken excessive compensation may be ordered to
refund it. To make the possibility of judicial review meaningful, beneficiaries should
be informed of compensation being taken by the trustee. On the extent to which a
trustee is protected by a court decree, or by approval or acquiescence of
beneficiaries, see § 83 (on accounting) and §§ 97 (beneficiary consent) and 98
(laches).
Illustration:
1. A trustee claims reimbursement for a fee paid to an investment advisor. The

fee itself is reasonable. Reimbursement will ordinarily be allowed if the trustee is
serving without compensation. If, however, the trustee receives normal
compensation, especially a full statutory or settlor-prescribed fee, reimbursement
will depend on the nature and purposes of the consultation and how the advisor's
employment relates to the responsibilities reasonably expected of the particular
trustee or to those that are customary for trustees in the relevant community. See
§ 90, Comment m [and Restatement Third, Trusts (Prudent Investor Rule) § 227,
Comment m], and Reporter's Note thereto. See also § 88; and commentary to
Uniform Prudent Investor Act § 9.
d. Special services. A trustee who renders special services in the administration
of the trust, for example as attorney or real-estate agent, may be awarded
compensation for such services when it is advantageous to the trust that the trustee
rather than another perform those services. This is particularly relevant under a
statutory fee schedule. Compare § 78 on the duty of loyalty. See Reporter's Notes.
e. The terms of the trust. When the terms of a trust provide that the trustee is
to receive a certain compensation or no compensation, the trustee's right to
compensation is ordinarily governed by that provision. It is a question of
interpretation whether such a provision applies also to successor trustees.
If the amount of compensation provided by the terms of the trust is or becomes
unreasonably high or unreasonably low, the court may allow a smaller or larger
compensation, or may allow the trustee to resign. See § 36.
A trustee who has expressly agreed with the settlor to act for a certain
compensation, however, is entitled only to the agreed compensation, unless there
are unanticipated circumstances that are substantial and relevant to compensation
(cf. § 66).
If a trust provides a benefit for the person designated as trustee or is created by
a will that also makes a devise to the trustee, it is a question of interpretation
whether the benefit or devise is in addition to or in lieu of the trustee's regular
compensation, and whether it is conditional upon the beneficiary or devisee
performing the duties of trustee. In the absence of evidence of a different intention,
the presumption is that a devise or benefit is in addition to compensation as trustee
and is not conditional on performing the duties of trustee.
Illustrations:
2. The terms of a testamentary trust specify that the trustee is to receive annual
compensation on a prescribed basis (which has proven to be fair and adequate over
the years) and a termination fee set at five percent of the trust principal. The
termination fee would produce what amounts to an unreasonably large sum for the
circumstances of the trust, the assets of which now entirely consist of cash
equivalents and readily marketable securities worth $50,000,000. This latter figure
represents a much greater appreciation in the value of the trust estate than could
have been anticipated when the trustee accepted the trusteeship. The court will
reduce the termination fee to the extent it concludes that the formula in the will
produces an unreasonably large fee. The court's authority to modify or disregard a
compensation provision is not limited to situations involving unanticipated
developments (here, the exceptional increase in corpus value), although that factor
may be relevant to a court's decision. Cf. § 66 and Restatement Second, Contracts
§ 208.
3. S's will leaves $10,000 to T and the residue of the estate to T in trust for
others. In the absence of other evidence of S's intent, T is entitled to the $10,000 in
addition to compensation for her services as trustee; and if T fails to serve as
trustee, she is nevertheless entitled to the $10,000.
f. Agreement with beneficiaries. The amount of compensation or indemnification
to which the trustee would otherwise be entitled may be enlarged or diminished by
agreement between the trustee and the beneficiaries. Such an agreement will bind
only the beneficiaries who are parties to it, directly or by virtual representation. Cf.
§ 65, especially Comment b, and § 97. An agreement enlarging the trustee's
compensation or indemnification will not bind a beneficiary who personally
consented but was under incapacity and was not otherwise bound by
representation; nor will it bind a consenting beneficiary if the trustee failed to
disclose all the relevant circumstances that the trustee knew or should have known,
or if the agreement is unfair to the beneficiary. See §§ 78, 97, and 65, Comment b.
g. Waiver. A trustee may voluntarily forgo any claim to compensation or
indemnification. A waiver may be inferred from conduct in some circumstances, for
example, when upon termination (with no showing of mistake) the trustee
distributes the trust property without withholding any compensation.
That the absence of compensation does not diminish the trustee's normal duties,
see § 70.
h. Double commissions for double roles. A person who acts both as executor and
as trustee is entitled to such compensation as is reasonable in view of all the duties
performed. See generally discussion in Comment c. Compare Comment d and also §
78, dealing with the duty of loyalty where self-hiring is involved.
i. Several trustees. When there are two or more co-trustees, compensation that
is fixed by statute or trust provision ordinarily is to be divided among them in
accordance with the relative value of their services. Where the rule of reasonable
compensation applies, see generally Comment c, and especially Comment c(1).
In the aggregate, the reasonable fees for multiple trustees may be higher than
for a single trustee, because the normal duty of each trustee to participate in all
aspects of administration (see § 81, and cf. § 80) can be expected not only to result
in some duplication of effort but also to contribute to the quality of administration.
And see Comment c(1) on factors (time, skill, etc.) relevant to establishing the
compensation of each of the co-trustees.
j. Successive trustees. If a trustee fails to complete the administration of the
trust because of death, resignation, or removal, each trustee (or a deceased
trustee's estate) is entitled to reasonable compensation for such services as the
trustee has performed.
k. Cross-references. On the effect of a breach of trust on the trustee's
compensation, see Chapter 19.
On the trustee's power to incur expenses, and also on indemnification for
expenses not properly incurred, see § 88.
On the allocation of costs of trustees' compensation between income and
principal, see Chapter 23; and also Revised Uniform Principal and Income Act
(1997) §§ 501(2), 502(a)(2); Revised Uniform Principal and Income Act (1962) §
13; and Uniform Principal and Income Act (1931) § 12.
This Section covers the same subject matter and is substantially similar in
content to Restatement Second, Trusts § 242 (private trusts), § 390 (charitable
trusts), and portions of § 244 (indemnification, some aspects of which will be
treated in subsequent Sections).
Comment a:
With this Comment, contrast McCormick v. McCormick, 180 Ill.App.3d 184, 129
Ill.Dec. 579, 536 N.E.2d 419 (1988), in which the court denied a claim for a fee by
a family member serving as co-trustee, saying that "when services are rendered by
a family member, the presumption of law is that the services were intended to be
gratuitous."
Despite the questionable dictum above, family members often are entitled to
compensation when they serve as fiduciaries. The decision to claim or waive
compensation may be influenced by tax considerations: fees are ordinarily
deductible by the trust but are taxable income to the recipient. If a trustee wishes
to waive compensation, however, the waiver of fees must be reasonably prompt to
avoid imputed income. See Rev. Rul. 66-167, 1966-1 C.B. 20.
Contrast generally the English tradition, including legislation now providing
compensation (on a "reasonable remuneration" basis, but still excluding charity
trustees) only for trust corporations and, under some circumstances, for other
trustees who act "in a professional capacity," as described in N. Le Poievin, "A New
Trustee Act for England," 5 The Chase Journal: Insights on Tr. & Est. Plng. 31, 37-
38 (No. 1, 2001), also discussing rights of trustees to indemnity for expenses
properly incurred on behalf of the trust (on which § 31(1) of the 2000 Act is similar
to Trustees Act 1925 § 30(2) and principles of American trust law).
Comment c:
Although the problem of determining fair compensation of trustees is analogous

to fair compensation for other fiduciaries, such as personal representatives,
conservators, and custodians, the rules are not always the same. For example,
California Prob. Code § 10800 provides a fee schedule for personal representatives,
using a sliding scale beginning with four percent of the first $15,000, three percent
on the next $85,000, two percent on the next $900,000, one percent on the next
$9,000,000, one-half percent on the next $15,000,000, and "a reasonable amount"
for amounts over $25,000,000. Trustees, on the other hand, are entitled to
"reasonable compensation under the circumstances." Id. § 15681.
References to "reasonable compensation" are also found in various uniform acts.
See Uniform Probate Code § 3-719 for personal representatives; Uniform Transfers
to Minors Act § 15(b) for custodians; and Uniform Trust Code § 708(a) for trustees.
"Reasonable compensation" and statutory percentages may lead to a similar
result in many cases. Tennessee Code § 35-1-112 lists the factors used in
determining "reasonable compensation," including the size of the trust. Also,
statutory percentages are often framed as ceilings or minimums, which allow at
least some degree of "reasonableness" and discretion. For example, in Bank of New
Jersey v. Abbott, 207 N.J.Super. 29, 503 A.2d 893 (1986), the court approved a fee
amounting to two percent of the trust corpus under a statute which allowed "a
percentage, not in excess of 5%, as the court may determine ... according to actual
services rendered." The court said that the award "was not ... a manifest abuse of
discretion."
Under a reasonable-compensation statute, the amount of compensation to be
awarded to a trustee rests within the "sound discretion" of the trial court, subject to
appellate review for "abuse" of that discretion; but compensation for a trustee's
services does not include personal services the trustee hired herself to perform for
the settlor-beneficiary during the latter's lifetime, the trustee's "reasonable
compensation" being only for services performed in the administration of the trust
and in the management and protection of the trust estate. See Lampe v.
Pawlarczyk, 731 N.E.2d 867 (Ill. App. 2000).
In Matter of Trusts Under Will of Dwan, 371 N.W.2d 641 (Minn.Ct.App.1985), a
two-percent termination fee (amounting to $53,456, in addition to annual fees over
an 18-year period, totalling $66,981) was affirmed under a "reasonable
compensation" statute for a trust with an ending corpus of over $2,500,000. The
court said that "most trust institutions in the area charged a 2 percent deferred
charge after 5-10 years of trust administration, as well as an annual fee." Id. at
643. A dissenting judge understandably opined "that the trial court abdicated its
fact finding function to a panel of industry experts and ought to have considered
factors such as time and labor, the complexity and novelty of [the] problems
involved, the extent of the responsibilities assumed, and the results obtained....
These trusts were as easy to administer as can be imagined." Id. at 644.
See J. Sklarz & R. Whitman, "Are Percentage Trust Termination Fees
Appropriate?," 15 Probate & Property 49 (Nov./Dec. 2001), suggesting that
corporate fiduciaries should consider abandoning the practice of attempting to
charge percentage termination fees, and observing (at 52): "If a court challenge is
brought, any percentage termination fee may be viewed as suspect. Charging a
reasonable hourly fee for work performed should markedly reduce beneficiary
dissatisfaction and court challenges."
In Gregory v. First National Bank & Trust Co., 84 Ill.App.3d 957, 40 Ill.Dec. 577,
406 N.E.2d 583 (1980), a beneficiary complained that a fee was "based solely on
the value of the securities [in the trust] without regard to the services rendered,"
but the fee was upheld on the basis of testimony that it was both "customary and
reasonable." See also Estate of Taylor, 6 Cal.App.3d 16, 85 Cal.Rptr. 474 (1970)
(allowing a bank co-trustee a fee of 3/4 of 1% of the value of the trust corpus
because "this rate generally prevailed among banks in the Los Angeles area"); and
Mercer v. Merchants National Bank, 112 N.H. 441, 298 A.2d 736 (1972) (2-1/2%
termination fee approved as being customary).
The Revised Uniform Principal and Income Act of 1962 § 13 refers with apparent
approval both to "the trustee's regular compensation, whether based on a
percentage of principal or income," and to "compensation computed on principal as
an acceptance, distribution, or termination fee."
The size of the trust principal or income, however, is not the only relevant
factor. 12 Delaware Code § 3561(b) mentions time spent, the character of the trust
assets, and the trustee's skill and experience. Tennessee Code § 35-1- 112 refers
also to the nature of the assets and the time required.
In In re Estate of Sonovick, 373 Pa.Super. 396, 541 A.2d 374 (1988), the court
said that "compensation should be based upon actual services rendered and not
upon some arbitrary formula." Id. at 399, 541 A.2d at 376. In reducing the trustee's
claim, the court mentioned both the low "monetary value of the estate and trust
and the paucity of actual services rendered." Id. at 401, 541 A.2d at 377.
See also Sokol v. Nattans, 26 Md.App. 65, 337 A.2d 460 (1975) (commissions
based on income were enough since final distribution involved little additional
labor), cert. denied, 275 Md. 755 (1975); In re Estate of Thompson, 426 Pa. 270,
232 A.2d 625 (1967) (fees reduced for trustee who simply distributed funds to
charities and did not have to perform the usual management duties of a trustee);
and Sterling v. Blackwelder, 383 F.2d 282 (4th Cir.1967) (trustee who performed no
substantial services is entitled to nominal compensation at most, plus
reimbursement for expenses).
Fee schedules of corporate trustees have often provided lower fees when funds
are placed in a (now rare) common trust fund, and distinguish between types of
assets such as securities and real estate. George G. & George T. Bogert, The Law of
Trusts and Trustees § 975, pp. 24-28 (2d rev. ed. 1983). For the various factors
mentioned by courts in fixing reasonable compensation see id., § 977.
Statutes that provide for fees based on percentages of income and/or corpus
often allow additional compensation for extra services. See, e.g., N.C. Stat. § 32-
50(a)(3); Ky. Rev. Stat. § 386.180(2); N.J. Stat. § 3B: 18- 29; Haw. Rev. Stat. §
607-18(c) (mentioning litigation, tax returns, sales of real estate, carrying on a
business).
Practice varies as to whether a court order is required before trustees can take
compensation. See Estate of Gilfillan, 79 Cal.App.3d 429, 144 Cal.Rptr. 862 (1978)
(citing inconsistent local court rules on this question). Uniform Probate Code § 7-
205 allows courts to review "the reasonableness of the compensation determined by
the trustee for his own services." The comment to that section notes that this
"marks an important departure from much existing practice under which fees are
determined by the court in the first instance." See also Uniform Trust Code §
816(15) (trustees can pay trustee and agent compensation without court order, but
id. § 813(b)(4) requires notice to certain beneficiaries "in advance of any change in
the method or rate" of compensation); and Uniform Trustees' Powers Act § 3(c)
(20).
California Prob. Code § 15686, requires trustees to notify beneficiaries of an
"increased fee" 60 days in advance, during which time a beneficiary may petition for
court review. If such a petition is filed, "the increase does not take effect until
ordered by the Court or the petition is dismissed."
In In re Estate of Thompson, 426 Pa. 270, 232 A.2d 625 (1967), the court held
it could, on its own motion, reduce a fee claimed by a trustee even though the
charitable beneficiaries had not objected to it.
Courts have frequently ordered trustees to refund excessive compensation they
have taken. See, e.g., In re Estate of Deibig, 49 Wis.2d 237, 181 N.W.2d 413
(1970); Vogt v. Seattle-First National Bank, 117 Wash. 2d 541, 817 P.2d 1364
(1991); Marks v. Marks, 51 Haw. 548, 465 P.2d 996 (1970); and Fred Hutchinson
Cancer Research Center v. Holman, 107 Wash.2d 693, 732 P.2d 974 (1987).
Cf. In re Estate of Stuart, 261 App.Div.2d 550, 551, 690 N.Y.S.2d 644, 645
(1999) (that, in addition to liability for any losses caused, attorney who uses estate
assets for own purposes may be denied compensation for services rendered to the
estate).
Illustration 1 is based on Stillman v. Watkins, 3 Mass. App. Ct. 175, 325 N.E.2d
294 (1975), and Chase v. Pevear, 383 Mass. 350, 419 N.E.2d 1358 (1981).
Technical Advice Memorandum 2014004 reminds trust beneficiaries that
excessive trustees fees (here, allowed by a surviving spouse, as life beneficiary of a
QTIP trust, to her children who were serving as trustees) may constitute taxable
gifts, having the effect in this situation of depleting a trust that will eventually be
included in the spouse's estate.
Comment d:
A trustee who claims extra compensation for services that could have been
performed by another may face the objection that this amounts to self dealing. See
generally § 68. IIIA William F. Fratcher, Scott on Trusts § 242.2 (4th ed. 1988)
states:
The danger is that if [a trustee] is entitled to compensation, he will be tempted
to create a job for himself in order to secure the compensation [or] ... to employ
himself even if another person might render better service. The question is whether
there is sufficient protection to the estate in [the fact] that the court will not award
the trustee extra compensation unless it believes that he really deserves it.... By
the weight of authority in the United States ... the trustee is entitled to extra
compensation for extra services, subject to the safeguard that the compensation is
given only to the extent that the court may award it.
Views are divided as to whether an attorney who renders legal services to an
estate and is also a personal representative can get a fee for services performed in
each capacity. See William M. McGovern, Jr., Sheldon F. Kurtz & Jan Ellen Rein,
Wills, Trusts and Estates 631 (1988). California Prob. Code § 10804 bars this
"unless the court specifically approves the right to the compensation in advance and
finds that the arrangement is to the advantage ... of the decedent's estate." Id. §
15687 imposes a similar rule on attorney-trustees, but not if they are related to the
settlor or give notice to the beneficiaries and no objection is raised. In Estate of
Haviside, 102 Cal.App.3d 365, 162 Cal.Rptr. 393 (1980), the court held that the
restrictions on attorneys did not apply to other professionals, and allowed a fee for
an accounting firm that had been hired by one of its members who was the executor
of an estate.
Uniform Trustees' Powers Act § 3(c)(24) allows trustees "to employ persons,
including attorneys, auditors, investment advisors, or agents, even if they are
associated with the trustee," subject to the general requirement of prudence.
Uniform Probate Code § 3-715 is similar with respect to personal representatives.
In Lembo v. Casaly, 5 Mass. App.Ct. 240, 361 N.E.2d 1314 (1977), the court
held it was proper to allow "extra compensation to a trustee who is also an attorney
for his performance of legal services in behalf of a trust which are necessary and not
comprehended within the usual duties of a trustee." Id. at 244, 361 N.E.2d at 1317.
See generally T. Gaspard, "What Are the Implications When A Lawyer Serves as
Trustee?," 28 Estate Planning 542 (Nov. 2001); and P. Spalding (Chair, Fid. Matters
Subcom., ACTEC Practice Com.), "Guide for ACTEC Fellows Serving as Trustees," 26
ACTEC Notes 313, 321, 324 (2001).
In In re Estate of Hackett, 51 Ill.App.3d 474, 9 Ill.Dec. 592, 366 N.E.2d 1103
(1977), the court, overruling earlier cases, allowed compensation to an executor-
attorney for work in both capacities, stating (id. at 477-478, 366 N.E.2d at 1106):
[D]uring the time of the early cases, compensation for personal representatives
was related to a percentage of the estate, whereas now both their fees and those of
their attorneys are subject to court approval based only on reasonableness....
The requirement that the charges be reasonable is sufficient protection in most
instances.... Usually money will be saved the estate because, although the fee for
the representative for dual services will be larger than would be a fee for only
nonlegal services or that of an attorney for legal services, it will be substantially
smaller than the combined fees for a separate representative and attorney.
In Beaty v. Bales, 677 S.W.2d 750 (Tex.App.1984), the court awarded a trustee
additional compensation for services in managing a ranch; and in Lefkowitz v.
Arizona Trust Co., 10 Ariz.App. 415, 459 P.2d 332 (1969), a trustee who took a
monthly salary was also allowed a broker's commission on a sale of trust real
estate.
Comment e:
With respect to the right of a trustee to claim more compensation than is

provided by the terms of the trust, the Comment here is more favorable to such
claims than Restatement Second, Trusts § 242, Comment f, which allowed relief
only if the "amount of compensation provided by the terms of the trust is so
inadequate that no duly qualified person would be willing to act as trustee for the
compensation so provided...." However, the same Comment also noted that some
statutes allowed testamentary trustees to renounce the compensation fixed by the
will and claim the statutory compensation. Uniform Probate Code § 3-719 has a
provision similar to this latter statement for personal representatives if "there is no
contract with the decedent regarding compensation." See also Underwood v. United
States, 407 F.2d 608 (6th Cir.1969); and Estate of Craft, 68 T.C. 249 (1977).
The language in the present Comment is similar to Uniform Trust Code § 708(b),
which was based on Cal. Prob. Code § 15680. See also 12 Del. Code § 3560(a):
"Upon proper showing, the Court of Chancery may fix or allow greater or lesser
compensation than could be allowed under the terms of such trust in any of the
following circumstances: (1) Where the duties of the trustee are substantially
different from those contemplated when the trust was created; (2) Where the
compensation in accordance with the terms of the trust would be unreasonably low
or high; (3) In extraordinary circumstances calling for equitable relief." Id. § 3561
generally provides for "reasonable compensation" for "qualified trustees," and §
3562 provides for judicial review of trustees' compensation.
According to George T. & George G. Bogert, The Law of Trusts and Trustees §
976, p. 143 (2d rev. ed. 1983), if the settlor has provided for "grossly inadequate"
compensation, the court may "increase the compensation to such amount as is
necessary to obtain a trustee of reasonable prudence and skill."
Cf. Estate of Grimm, 705 N.E.2d 483 (Ind.App.), transfer denied, 726 N.E.2d
302 (1999), in which the court refused to increase the fees prescribed in a will for
the executor and his attorneys, although acknowledging its authority to increase
compensation under appropriate circumstances.
Also, in Estate of Bissinger, 60 Cal.2d 756, 36 Cal.Rptr. 450, 388 P.2d 682
(1964), the court refused to give a trustee additional compensation, while
recognizing its power to do so under the circumstances set forth in Comment f of
Restatement Second, Trusts § 242. And in Estate of Taylor, 6 Cal.App.3d 16, 85
Cal.Rptr. 474 (1970), the court, operating under a California statute which the court
characterized as "somewhat broader" than the rule in the Second Restatement,
awarded a trustee the "going rate" of compensation, even though this was higher
than the rate specified in the will. (These cases preceded Cal. Prob. Code § 15680,
cited above.)
In Matter of Ritzman, 479 Pa. 475, 388 A.2d 1029 (1978), the court said a
trustee might in a proper case be awarded more than the compensation specified in
the instrument, but there had not been adequate proof in the case that the amount
specified was not "fair compensation." See also Sokol v. Nattans, 26 Md.App. 65,
337 A.2d 460 (1975).
Some courts have escaped compensation provisions in trusts by construing them
as not exclusive. For example, in Matter of Indenture Agreement of Lawson, 414
Pa.Super. 550, 607 A.2d 803 (1992), a provision that "the total compensation to
the Trustee ... during the continuance of this trust" shall be four percent of the
income was held not to preclude a fee from principal when the trust terminated. See
also In re Reed, 467 Pa. 371, 357 A.2d 138 (1976) (specified fee of $4000 a year
did not preclude award of $175,000 as terminal compensation). But in Lehman v.
Irving Trust Co., 55 N.Y.2d 97, 447 N.Y.S.2d 897, 432 N.E.2d 769 (1982), the court
construed as exclusive a provision in a trust instrument calling for commissions on
termination to be based on principal, thus barring a claim for an annual commission
based on principal.
In In re Duncan Trust, 480 Pa. 608, 391 A.2d 1051 (1978), a trustee was held
to be bound by a letter that it had written to the settlor setting forth its fees. The
court said that there was an exception when "the trustee has performed
extraordinary services beyond those contemplated by the parties" but there was no
such showing in the case. Id. at 614, 391 A.2d at 1055. In Estate of Breyer, 475 Pa.
108, 379 A.2d 1305 (1977), the result was the same, but the agreement was held
not to apply to assets added to the trust by the settlor's wife. As to the latter point,
contrast Estate of Ingram v. Ashcroft, 709 S.W.2d 956 (Mo.App.1986).
Providing the settlor with a fee schedule does not necessarily create a contract
to continue to follow it, particularly if the schedule recites that it is subject to
change. See the representative provision quoted in George T. & George G. Bogert,
The Law of Trusts and Trustees § 975, p. 28 (2d rev. ed. 1983): "We reserve the
right to adjust fees in the future to accommodate changes in circumstances." See
also Templeton v. Continental Illinois National Bank & Trust Co., 429 F.Supp. 1294
(N.D.Ill.1977).
For cases in which the specified compensation is unreasonably high, Comment f
of Restatement Second, Trusts § 242, stated that courts could reduce this amount
when the provision resulted from "an abuse of a fiduciary or confidential relationship
existing between the trustee and the settlor at the time of the creation of the
trust...." Bogert, supra, § 976 (p. 145), uses somewhat stronger language:
If the settlor fixed a rate of compensation for the trustee which was extravagantly
high, and if the trustee was influential in obtaining the insertion of this clause in the
instrument, the court will require the trustee to prove the utmost fairness in his
negotiations on the subject. Unless the trustee could establish that there was no
undue influence, fraud, or duress upon the settlor, and that the settlor acted
independently and after full disclosure of his rights and of the legal situation about
compensation, the court will set aside the provision.
See also IIIA William F. Fratcher, Scott on Trusts § 242.6 (4th ed. 1988).
In Andrews v. Gorby, 237 Conn. 12, 20, 22, 675 A.2d 449, 453, 454 (1996), the
court held that "an attorney who drafts a will that names the attorney as executor
and contains a fee schedule for his compensation as executor is limited to
reasonable compensation, irrespective of the schedule" (but not to exceed the
amount in the schedule) because of the "fiduciary relationship between the lawyer
who drafts the will and the testator." See also In re Estate of Small, 346 F.Supp.
600 (D.C. 1972) (stipulated compensation for executor who witnessed will is
disregarded under a statute voiding devises to a witness); and Fred Hutchinson
Cancer Research Center v. Holman, 107 Wash.2d 693, 732 P.2d 974 (1987) (co-
trustee ordered to refund excessive fee despite an exculpatory clause that he had
drafted).
But in Boatmen's Trust Co. v. Sugden, 827 S.W.2d 249 (Mo.App.1992), on
which the facts in Illustration 3 are based, the court awarded the full compensation,
saying that the question whether the fee was justified was "irrelevant." Apparently,
it did not consider the possible existence of a fiduciary relationship between the
settlor and trustee.
Courts sometimes take into account the fact that generous provisions for
fiduciary compensation may arise from the settlor's wish to benefit a friend or
relative who is named as the fiduciary. In Estate of McClenahan v. Bibertstein, 671
N.E.2d 482 (Ind.App.1996), the fee allowed to an executor was found to be justified
by the fact that he had received no compensation for preparing the estate plan. In
Mercantile Trust Company National Ass'n v. Jaeger, 457 S.W.2d 727 (Mo.1970), the
court allowed the trustees a termination fee of seven percent of the corpus as
specified in the trust; although this was higher than normal, the trustees had also
served as executors for less than the statutory fee.
According to Professor Bogert, a court may feel obliged to give effect to a
"provision for unusually high compensation ... on the theory it was a gift ... unless it
was so high as to frustrate the general object of the trust." George T. & George G.
Bogert, The Law of Trusts and Trustees § 976, p. 145 (2d rev. ed. 1983).
Illustration 3 is derived from Illustration 1 of Restatement Second, Trusts § 242.
For cases on the question whether a trustee is entitled to a fee in addition to a
devise, see IIIA William F. Fratcher, Scott on Trusts § 242.4 (4th ed. 1988).
Characterization of a compensation provision as a devise or gift may have tax
and other consequences to the fiduciary or the estate. In Vredenburgh v. Jones, 349
A.2d 22 (Del.Ch.1975), a will devised $35,000 to the designated executor "as
compensation ... in addition to" the legally authorized fees. This was held to be a
devise that abated proportionally with others when the estate was insolvent. An
excessive fee may also be denied a deduction for tax purposes. Treas. Reg. §
20.2053-3(b).
Comment f:
This Comment is essentially a continuation of Restatement Second, Trusts §

242, Comment i.
In Matter of Trust of Grover, 109 Idaho 687, 710 P.2d 597 (1985), a trustee was
awarded fees specified in an agreement between him and the beneficiaries. The
case did not raise the question of excessive compensation since the court found the
trustee's services were worth more "on a quantum meruit basis."
California Prob. Code § 10803 makes an agreement between a personal
representative and an heir or devisee for higher than the statutory compensation
void, but this does not apply to trustees. Id. § 16004(c) exempts agreements
concerning the trustee's compensation from the general rule that agreements
between a trustee and beneficiary from which the trustee benefits are "presumed to
be a violation of the trustee's fiduciary duties." See also Haw. Rev. Stat. § 607-18,
which applies to both executors and trustees.
Since most trusts have many beneficiaries, some of whom are likely to be under
disability or unborn, such contracts are rare. Georgia Code § 53-12-173 allows an
agreement fixing the trustee's compensation between the trustee and a "majority in
number of both of the sui juris income and vested [sic] remainder beneficiaries."
This provision does not yet appear to have been interpreted by an appellate court.
Comment g:
This Comment is similar to Comment j of Restatement Second, Trusts § 242,

although that earlier Comment required either a manifestation of intent to waive
compensation or (to be compared with the last sentence in the text of the new
Comment) a change of position by the beneficiary in reliance on the trustee's failure
to withhold compensation. Such a change of position, of course, would be
unreasonable if the trustee had made it clear that compensation would be deducted
in the future. See IIIA William F. Fratcher, Scott on Trusts § 242.8, p. 304 (4th ed.
1988).
Conversely, it may be reasonable to infer a waiver in some circumstances, even
without an expression of that intent. In McCormick v. McCormick, 180 Ill.App.3d
184, 129 Ill.Dec. 579, 536 N.E.2d 419 (1988), the court found that a family
member who had failed to claim compensation for many years had waived his right
to claim it thereafter. But in In re Trust of Ischy, 490 Pa. 71, 415 A.2d 37 (1980),
the court held that a trustee who presented an account without claiming a fee had
not waived its right to one. See also In re Estate of Salus, 421 Pa.Super. 87, 617
A.2d 737 (1992).
Uniform Transfers to Minors Act § 15(b) gives custodians "a non-cumulative
election during each calendar year to charge reasonable compensation for services
performed during that year." This is designed "to avoid the accumulation of a large
unanticipated claim for compensation at termination of the custodianship"
(Comment). Uniform Custodial Trust Act § 14 is similar.
In Riddleberger v. Goeller, 263 Md. 44, 282 A.2d 101 (1971), the court held that
a waiver of fees by an executor was not binding without consideration. But Uniform
Probate Code § 3-719 allows personal representatives to renounce their
compensation, apparently without consideration.
In Graddick v. First Farmers & Merchants Nat. Bank, 453 So.2d 1305
(Ala.1984), the court gave effect to an express waiver by a trustee. The opinion
stressed the beneficiary's reliance on the waiver. Reliance would not be necessary
under the terms of the Comment here.
As to family members serving as trustees, see the Reporter's Note to Comment
a. Cf. Restatement Second, Agency § 441, Comment a, that courts sometimes infer
an intent to act without compensation from a family relationship in the case of
agency.
Under the Uniform Transfers to Minors Act § 15(b), a donor who acts as a
custodian is not entitled to compensation.
Comment h:
This Comment is a shortened version of Comment k of Restatement Second,
Trusts § 242. The problem arises principally under statutory fee schedules.
In In re Scott's Estate, 418 Pa. 332, 211 A.2d 429 (1965), an executor-trustee
that had received a three percent commission when the probate estate closed was
denied further commissions on principal as trustee under the then controlling
statute. The court noted that this might be unfair when a trust lasted for many
years after the estate closed, and that a new law had already changed the rule for
the future. In In re Armour's Will, 33 N.J. 517, 166 A.2d 376 (1960), a court held
that when a statute allowed "fiduciaries" six percent of the income, a trustee
executor could not claim a double commission on income it received as trustee and
then distributed to the beneficiary, even though commissions on corpus might be
allowed in both capacities.
Because of the popular use of living trusts to avoid the costs of probate,
including the avoidance of executor's fees based on the size of the probate estate,
some trust companies take this into account in their fees. For example: "Upon the
death of the Settlor, a principal charge will be made based on the trust's then
market value for services performed by the bank which are similar to those usually
performed by an Executor." Trust clause quoted in George T. & George G. Bogert,
The Law of Trusts and Trustees § 975, p. 26 (2d rev. ed. 1983).
Comment i:
The counterpart of this Comment was Comment l of Restatement Second, Trusts

§ 242, which said that "the total amount of [co-trustees'] compensation is ordinarily
the same as if there were a single trustee, unless it is otherwise provided by the
terms of the trust or by statute." See also West Coast Hospital Ass'n v. Florida
National Bank, 100 So.2d 807, 812 (Fla.1958) ( "where there are two or more co-
trustees the total amount of compensation is ordinarily the same as if there were a
single trustee.") This restriction may be thought to be appropriate where trustees'
fees are set by statute, court rule, or trust provision based simply on a percentage
of principal, or of income and principal. See, e.g., Court Rules of State of Ohio rule
74 (amended and adopted 1979).
Such a restriction, however, will prove unfair to the trustees in many situations,
and may be counterproductive so far as the settlor's objectives are concerned, and
is therefore inappropriate to (and not included in) the rules of this Section, under
which each trustee is to receive "reasonable" compensation based on the value of
the services the trustee performs.
Some banks specify in their fee schedules that "the same fee will be charged
when the Bank is acting as sole Trustee or as Co-Trustee." Quoted in George T. &
George G. Bogert, The Law of Trusts and Trustees § 975, p. 27 (2d rev. ed. 1983).
This seems reasonable when the other trustee has little or no responsibility. If such
a provision is brought to the settlor's attention, it may indicate a contract between
them. See Comment e.
In Estate of Ingram v. Ashcroft, 709 S.W.2d 956 (Mo.Ct.App.1986), a bank was
held bound by its agreement to charge half of its customary rate when it acted as
co-trustee of a charitable trust. The opinion noted that in the situation before the
court "the individual co-trustee has the lion's share of responsibilities of
management as compared with the bank's responsibilities of reinvestment and
accounting." Id. at 959.
In Fred Hutchinson Cancer Research Center v. Holman, 107 Wash. 2d 693, 732
P.2d 974 (1987), beneficiaries challenged fees charged by a bank and an individual
as co-trustees. After the claim against the bank was settled, the court held that the
fee of the individual, Holman, amounting to .85% of the corpus annually, was
excessive. Holman had "performed none of the administration services; they are
entirely undertaken by [the bank].... As his risk and responsibility is shared with a
corporate cotrustee, Holman's exposure as an individual cotrustee is substantially
less than that of a sole trustee." Id. at 701-702, 732 P.2d at 979. Although Holman
alleged that he and his associates spent seven hours a day on the trusts, the court
found this to be "excessive." The co-trustees "have no real estate to manage and no
ongoing business to operate." Id. at 703-704, 732 P.2d at 980. The shares of the
beneficiaries were fixed in the trust instrument and "[t]he cotrustees are not
required to ... exercise any discretion in the distribution of trust funds." Id. at 704,
732 P.2d at 980. The court apparently allowed Holman to retain an amount based
on "the custom and practice in the community [which] is that an individual
cotrustee receives, at most, a fee of 50 percent of the corporate cotrustee's fee.... If
the individual cotrustee undertakes no investment responsibilities, then a normal
fee for the individual cotrustee is 25 percent of the corporate cotrustee's fee." Id. at
700, 732 P.2d at 979. The latter figure was said to be appropriate for trusts
invested in the bank's common trust fund. The court also said that "the general rule
is that when there is more than one trustee, they divide one fee among them, and
do not, in any event, charge the equivalent of two fees to one trust." Id. at 710,
732 P.2d at 984. This implies that the bank should have received only 50 percent or
75 percent of its normal fee because there was a co-trustee, but the question of the
bank's compensation was not before the court.
California Prob. Code § 15683 provides (there being no set fee schedule) that
the trustees' reasonable "compensation shall be apportioned among the cotrustees
according to the services rendered by them." Commentary to Uniform Trust Act §
708 is somewhat similar, citing this (Restatement Third) Comment and stating that
the "total compensation to be paid and how it will be divided depend on the totality
of the circumstances"; it also describes the relevant factors and rationale in terms
similar to this Comment.
Comment j:
This Comment is similar to Comment m of Restatement Second, Trusts § 242.

See also Ga. Code 53-12-173(c)(2).
In Estate of Cahen, 483 Pa. 157, 394 A.2d 958 (1978), a trustee who resigned
during the term of a trust was denied a claim to a percentage of the corpus because
the trust provided the trustee would get such a percentage only when the trust
terminated. But in In re Reed, 467 Pa. 371, 357 A.2d 138 (1976), the estate of a
trustee who died before the trust terminated was awarded compensation where the
trust contained no provision on this question.
For more cases on this issue see IIIA William F. Fratcher, Scott on Trusts §
242.10 (4th ed. 1988), and 96 A.L.R.3d 1102, 1125-1137.
Research References
West's Key No. Digests, Trusts 236, 314.
Resignation or removal of executor, administrator, guardian, or trustee, before final
administration or before termination of trust, as affecting his compensation. 96
A.L.R.3d 1102.
Right to double compensation where same person (natural or corporate) acts as
executor and trustee. 85 A.L.R.2d 537.
Testamentary gift to one named as executor or trustee as conditioned upon his
qualifying or serving as such. 61 A.L.R.2d 1380.
Right of trustee to compensation on corpus withdrawn from the trust. 18 A.L.R.2d
1379.
Trustee's right to compensation as affected by provision of trust instrument that
contemplates future agreement in that regard between trustee and beneficiary or
other person. 165 A.L.R. 772.
Validity and effect of provision of contract or trust instrument limiting the amount of
fees of trustee. 161 A.L.R. 860.
Trustee's compensation as payable from income or corpus. 117 A.L.R. 1154.
Compensation of testamentary trustee for conducting business or taking active part in
management of corporation. 99 A.L.R. 961.
Resignation or removal of executor, administrator, guardian, or trustee, before final
administration or termination of trust, as affecting his compensation. 94 A.L.R.
1101.
Compensation of executor, administrator, or trustee as affected by change in statute
after decedent's death and before final account, or after creation of trust. 91 A.L.R.
1421.
Trustee's commission in case of successive trusts, or of single trust for benefit of
different persons in succession. 85 A.L.R. 163.
(2003)
(C)
REST 3d TRUSTS s 39


§ 39. Exercise Of Powers By Multiple Trustees

Unless otherwise provided by the terms of the trust, if there are two
trustees their powers may be exercised only by concurrence of both of
them, absent an emergency or a proper delegation; but if there are three or
more trustees their powers may be exercised by a majority.
Comment:
a. Basic rule and rationale. If a trust has two trustees, they must concur in order
to exercise powers of the trusteeship. If there are three or more trustees and they
disagree, the decision of the majority controls, although when feasible all trustees
must be consulted before decisions are made. See Reporter's Notes, and also
compare Comment c.
For purposes of this rule, the number of trustees in office at the time of the
action is controlling, rather than the original number of trustees. As to delegation
see Comment d.
Traditionally, the majority-rule principle has applied only to charitable trusts; in
private trusts all the trustees had to agree in order to take action. Considerations of
sound and efficient administration, however, tend to be better served by the rule
stated in this Section. This is evidenced not only by widespread drafting practice but
also by the fact that most states today provide for majority rule by statute. See
Reporter's Notes. See also Uniform Trustees Powers Act § 6; Uniform Trusts Act
(1937) § 11; and Uniform Trust Code § 703(a).
These statutory provisions and the rule of this Section ordinarily protect a
dissenting trustee from liability for an act authorized by the majority, while
preserving the co-trustee's duty normally to participate in deliberations and
decisionmaking and to act reasonably to prevent a breach of trust. See Reporter's
Notes, and also § 81.
Illustrations:
1. A trust has five trustees. Three of them join in a conveyance of land

belonging to the trust. Absent a contrary provision in the trust, such as one stating
that the trustees "shall act by unanimous vote," the conveyance is valid. If the
conveyance is a breach of trust, the two trustees who did not join in it will not be
liable, unless they failed to act reasonably to prevent the breach of trust, such as by
failing to bring suit to prevent or set aside the conveyance.
2. A deed purporting to convey trust property is signed by only one of two
trustees. The deed is subject to rescission and the rights of the beneficiaries are
ordinarily unaffected. (On the protection of bona-fide purchasers, and on the
question of who is a bona-fide purchaser, see generally Chapter 22.)
3. A trust began with two trustees, one of whom died. Ordinarily, an action
taken thereafter by the surviving trustee, now as sole trustee (see § 34, Comment
d), is effective.
4. A trust began with five trustees, one of whom has recently died. Absent a
contrary provision in the terms of the trust, action by the four surviving trustees still
requires concurrence of three of them. If another trustee dies, however, action may
now be authorized by a vote of two of the three remaining trustees.
b. Ratification or acquiescence by co-trustee. An action taken by one trustee
with the consent of the other trustee(s) is valid. When a trustee has acted without
the others' consent, they can ratify the action.
Thus, a contract to sell trust property signed by one of two trustees with the
knowledge and acquiescence of the other is valid. If the other trustee did not know
of the contract when it was signed but later learned of it and failed to object within
a reasonable time, this would be an effective ratification. Compare § 97 on
affirmance of a breach of trust by a beneficiary.
c. Emergencies. If an action important to the purposes of the trust is required by
an emergency to be carried out before consent can be obtained from the other
trustee(s) or from the court, one or more of multiple trustees (including a majority
of the available trustees) can properly exercise powers conferred upon the trustees.
d. Delegation. To the extent that a trustee can properly delegate authority to a
co-trustee (see Reporter's Notes and § 81), acts can properly be performed
pursuant to the delegation.
e. Breaking deadlocks. If multiple trustees are deadlocked with regard to the
exercise of a power, on application of a co-trustee or beneficiary a proper court may
direct exercise of the power or take other action to break the deadlock.
Illustration:
5. A provision of a trust having two trustees grants them discretion from time to
time to select charities to which trust property is to be distributed. The trustees
cannot agree on charities to receive distributions. Unless it is appropriate for no
action to be taken in the circumstances, the court may make selections, ordinarily
among charities proposed by the trustees; or it may appoint a temporary or
permanent third trustee to participate in a specific decision or transaction, or may
appoint a trustee ad litem (see Reporter's Notes) to handle the matter.
f. Terms of the trust. The terms of a trust may provide that the powers of
multiple trustees are to be exercised in a manner that differs from that prescribed
by the rule of this Section. Thus, for example, a trust provision may require that all
of the trust's three trustees concur in exercising powers or a particular power, or
may provide that the decision of a particular trustee prevails in the event two
trustees are deadlocked with regard to certain matters.
Illustration:
6. The terms of a trust with three trustees provide that one of them, X, has sole
responsibility for the operation of a business held by the trust. A lease renewal for
real estate used in the operation of the business is executed only by X. The lease
renewal is valid. A lease executed by a majority consisting only of the other two
trustees would not be valid. On the duties of the other two trustees in such a
situation, see § 81.
It is a matter of interpretation whether a provision in a trust instrument stating
that "the trustees shall act jointly" sufficiently manifests an intention contrary to the
rule stated in this Section with respect to decisionmaking by three or more trustees.
The inference is that it does. In the context of a trust that is initially established
with multiple trustees, one of whom dies, however, the quoted language alone is
not sufficient to require the appointment of a successor trustee; thus, the normal
result (Illustration 3) applies, allowing the surviving trustee(s) to act alone in
exercising the powers of the trusteeship.
This Section is the counterpart to Restatement Second, Trusts §§ 194 and 383,
but adopts a different rule providing for majority rule in the case of private as well
as charitable trusts.
Comment a:
On standards applicable to co-trustees, in addition to § 81 cited in this Comment

before the Illustrations, see ERISA § 405.
The text departs from the rule in Restatement Second, Trusts § 194, which
required unanimity for action by the trustees of private trusts, even though id. §
383 allowed action by a majority vote of the trustees in the case of charitable
trusts.
George T. Bogert, Trusts § 91 (Hornbook, 6th ed. 1987) seeks to explain the
traditional distinction as follows: "In the case of charitable trusts numerous co-
trustees are often used and the difficulties of getting all to unite in a decision ... are
greater than in the instance of the usual private trust where the employment of
more than three trustees is rare." See also Donaldson v. Madison Borough, 88
N.J.Super. 574, 213 A.2d 33 (1965). Where adhered to, however, the distinction is
not limited to situations to which the rationale in Bogert would apply; for example,
in a charitable trust with three trustees, a majority could act, but not in a private
trust with five trustees.
The Uniform Trusts Act, promulgated in 1937, broke with tradition in allowing
majority rule in all trusts (§ 11). The drafters ascribed the traditional rule to "the
medieval incidents of joint tenancy." This Act has been adopted in six states, and
was cited by Justice Rutledge in dissent in American Security & Trust Co. v. Frost,
117 F.2d 283, 73 App. D.C. 75, cert. denied, 312 U.S. 707, 61 S.Ct. 829, 85 L.Ed.
1139 (1941), in arguing for a change in the law. The majority in that case, however,
reaffirmed the unanimity requirement, which has since then been largely eroded by
statutes, such as those based on the Uniform Trustees' Powers Act (§ 6), which has
been adopted in 13 states. Other states have independently followed this trend,
including Illinois (760 ILCS 5/10), Indiana (Ind. Code § 30-4-3-4), Missouri (Mo.
Stat. § 456.540(1)), New York (N.Y. E.P.T.L § 10-10.7), Pennsylvania (20 Pa. Stat.
§ 7133), Texas (Tex. Prop. Code § 113.085), Virginia (Va. Code § 26-5.2),
Washington (Wash. Rev. Code § 11.98.016(1)), and Wisconsin (Wis. Stat. §
701.19(9)).
A few states have reaffirmed the traditional rule by statute, including Montana
(Mont. Code § 72-23-308), North Dakota (N.D. Code § 59-02-11), Iowa (Ia. Code §
633.76), and California (Cal. Prob. Code § 15620). In California, trustees must be
unanimous, but for personal representatives, guardians, and conservators majority
rule prevails. Id. §§ 2105, 9630. In Edwards v. Edwards, 61 Cal.App.4th 599, 71
Cal.Rptr.2d 653 (1998), however, the Probate Code provision requiring unanimous
action by trustees was held to be trumped by a provision in the Corporations Code
providing for majority rule when shares of stock are held by more than one person.
Also, cf. Uniform Probate Code § 3-917, which (with exceptions) requires
unanimity among personal representatives but was silent as to trustees, although,
as the result of apparently uncontroversial deliberation, Uniform Trust Code §
703(a) now provides for majority action by trustees.
Some states have a rule applicable uniformly to all fiduciaries, e.g. Iowa
(unanimity), Virginia (majority), and New York (majority), all cited above.
The many statutes and trust provisions dealing with the question probably
account for the scarcity of recent, reported cases on this point.
Illustration 1 is similar to Butler v. Shelton, 408 S.W.2d 530 (Tex.Civ.App.1966),
in which the court relied on a statute. See also Forth v. Forth, 409 N.E.2d 1107
(Ind.App.1980) (action taken by 3 out of 4 trustees upheld under a statute);
Madden v. University Club, 97 Ill.App.3d 330, 422 N.E.2d 1172, 52 Ill.Dec. 963
(1981) (dismissing a suit brought by 1 of 4 trustees, citing a majority-rule statute);
Siegel v. Cherry, 120 App. Div. 2d 460, 502 N.Y.S.2d 735 (1986) (upholding action
by a majority under both a statute and the terms of a trust).
Illustration 2 is based on Walter E. Wilhite v. Pension Fund, 128 Idaho 539, 916
P.2d 1264 (1996), in which the court held that a majority-rule statute implicitly
prevented an act sought to be taken by one of two trustees.
Consistent with the statements in this Comment concerning the duty of all
cotrustees to participate in trust deliberations and decisions, and concerning a
dissenting trustee's protections and obligations, are Uniform Trust Code § 703(c)
and §§ 703(f), (g), and (h). On the right of potentially dissenting trustees to be
consulted, see Kline v. Reed, 20 Mass. App. Ct. 940, 479 N.E.2d 714 (1985).
As to the possible protection of bona-fide purchasers, Farmers State Bank of
Yuma v. Harmon, 778 F.2d 543 (10th Cir.1985), held that a creditor could not
enforce a guarantee signed by only one of two trustees, despite a statute protecting
persons who deal with a trustee without knowing that they are exceeding their
powers, because the creditor had seen a copy of the trust instrument. In Colonie
Hill, Ltd. v. Duffy, 114 App. Div. 2d 879, 495 N.Y.S.2d 55 (1985), the court vacated
a settlement made by a single trustee of a multi-trustee pension fund, saying that
his claim of authority did not create apparent authority and that the other side had
not taken any action in reliance, since the settlement was repudiated the same day.
Uniform Probate Code § 3-717 protects "persons dealing with a co-
representative if actually unaware that another has been appointed to serve with
him or if advised by the personal representative with whom they deal that he has
authority to act alone for any of the reasons mentioned herein." These reasons
include delegation by the others or an emergency (compare Comments b and c of
this Section), or "when any co-representative receives and receipts for property due
the estate." The language of Uniform Trustees' Powers Act § 7 is more general, but
in Gleason v. Elbthal Realty Trust, 122 N.H. 411, 445 A.2d 1104 (1982), the court
said that the Act would protect a purchaser under an agreement signed by only one
trustee.
Illustration 3 is based on Rubinson v. Rubinson, 250 Ill.App.3d 206, 190 Ill.Dec.
10, 620 N.E.2d 1271 (1993).
Comment b:
Illustration 4 is based on Gleason v. Elbthal Realty Trust, 122 N.H. 411, 445
A.2d 1104 (1982), in which only one of two trustees signed an agreement to sell
land. A second trustee was informed about the agreement the next day. The
agreement was enforceable because it had been "ratified or acquiesced in by a
sufficient number of co-trustees under the terms of the trust." Id. at 414, 445 A.2d
at 1105.
Comments c and d:
Uniform Trust Code § 703(d) provides: "If a cotrustee is unavailable to perform

duties because of absence, illness, disqualification under other law, or other
temporary incapacity, and prompt action is necessary to achieve a purpose of the
trust or to avoid injury to the trust property, the remaining trustee or a majority of
the remaining cotrustees may act for the trust."
Although the language of these Comments is similar to Comments a and b to
Restatement Second, Trusts § 194, the rules on delegation to agents in
Restatement Second, Trusts § 171, are considerably liberalized in Restatement
Third, Trusts § 80 [and in revised § 171 of Restatement Third, Trusts (Prudent
Investor Rule)].
The liberalized rule for agents is not necessarily appropriate or applicable to
delegation between or among co-trustees, because of the absence (or lesser
likelihood) of effective control over the delegee and also because co-trustees'
actions in this respect must not amount to a "dividing up" by them of the
trusteeship or its intended joint functions and responsibilities. See, e.g., Uniform
Trust Code § 703(e) ("A trustee may not delegate to a cotrustee the performance of
a function the settlor reasonably expected the trustees to perform jointly"), and also
comment to id. § 708. In Lewis v. Emerson, 391 Mass. 517, 462 N.E.2d 295 (1984),
however, the court appropriately enforced an agreement to sell land signed by one
trustee, because it was not "improper to delegate to a cotrustee the ministerial task
of signing documents" to implement the decision of all.
Obviously, a co-trustee can sue another trustee for breach of trust without the
latter's consent. See § 81. (Restatement Second, Trusts § 200, Comment e, states:
"If there are several trustees, one or more of them can maintain a suit against
another" to prevent or redress a breach of trust.)
In Madden v. University Club, 97 Ill.App.3d 330, 422 N.E.2d 1172, 52 Ill.Dec.
963 (1981), a court dismissed an appeal by one of four trustees, saying that the
refusal of the other three to appeal was binding. Contrast, however, Commercial
Nat. Bank v. Hayter, 473 S.W.2d 561 (Tex.Civ.App.1971) (an appeal by 1 of 3
trustees allowed).
Comment e:
Similar language appeared in Restatement Second, Trusts § 194, Comment a.

Illustration 5 is based on Stuart v. Continental Illinois National Bank & Trust, 68
Ill.2d 502, 12 Ill.Dec. 248, 369 N.E.2d 1262 (1977), cert. denied, 444 U.S. 844,
100 S.Ct. 86, 62 L.Ed.2d 56 (1979). Compare Matter of Jacobs, 127 Misc.2d 1020,
487 N.Y.S.2d 992 (Sur. Ct. 1985), in which the court merely "advised" a solution,
saying that, if this advice was not heeded, it would appoint a third trustee to break
the deadlock. Also compare Re Mattick, 62 D.L.R.2d 539 (B.C. 1967) (court lays
down "guidelines" to assist trustees in reaching an agreement); and Re Allen-
Meyrick's Will Trusts, [1966] 1 All E.R. 740 (Ch. 1965), where two trustees were
unable to agree about the distribution of income, the court said that, although the
trustees could not surrender their discretion to the court permanently, they could
get instructions about specific situations. (On instructions generally, see § 70.) See
also Matter of Larson, 341 N.W.2d 627 (N.D.1983) (deadlock over form of final
distribution resolved by court).
On the use of a trustee ad litem, see § 37, Reporter's Note to Comment g.
Comment f:
Some cases have construed arguably uncertain trust instruments to allow action
by one of several trustees. Illustration 6 is based on but has stronger wording than
Wyman v. Wyman, 208 Mont. 57, 676 P.2d 181 (1984) (construing "Horace C.
Wyman shall have general charge of the business" to allow him to act alone in
negotiating a lease). More dubious is the holding in Dunker v. Reichman, 841 F.2d
177 (7th Cir.1988), that an agreement made by one of two trustees was binding
where the instrument gave powers to the "trustees" and said (in essentially
boilerplate language), that the plural included the singular. In Stuart v. Continental
Illinois National Bank & Trust, 68 Ill.2d 502, 12 Ill.Dec. 248, 369 N.E.2d 1262
(1977), cert. denied, 444 U.S. 844, 100 S.Ct. 86, 62 L.Ed.2d 56 (1979), in which
two individuals and a bank served as trustees, a decision by the two individuals was
ineffective despite a majority-rule statute because the instrument required that the
bank be part of the majority for an effective decision.
In Kline v. Reed, 20 Mass. App. Ct. 940, 479 N.E.2d 714 (1985), a trust in which
the settlor was a co-trustee provided that "the settlor shall have a deciding vote if
the trustees shall be at variance upon any question." This did not allow the settlor
to "disregard [the co-trustee] altogether and act" without even consulting him.
Research References
West's Key No. Digests, Charities 33; Trusts 239.
Award of attorneys' fees out of trust estate in action by trustee against cotrustee. 24
A.L.R.4th 624.
Case Citations
N.J.Super.2002. Com. (d) quot. in sup. (T.D. No. 2, 1999). Brokerage firm
sought to enjoin cotrustee's arbitration action, which alleged that firm and its broker
executed various unsuitable trades with the consent of the other cotrustee, but
without knowledge or approval of plaintiff in arbitration action. Trial court dismissed
firm's complaint. This court affirmed, holding that cotrustee had a colorable claim to
arbitrate regarding trades that were allegedly unsuited for trust's investment
objectives and contrary to instructions the trustees provided brokerage firm in
certification form. The court rejected firm's assertion that cotrustee could not
commence arbitration without other cotrustee's consent, since trust language did
not prohibit unilateral trustee action. Merrill Lynch Pierce Fenner & Smith Inc. v.
Nora-Johnson, 351 N.J.Super. 177, 182, 797 A.2d 226, 228.
(2003)
(C)
REST 3d TRUSTS s 40


Chapter 8. Trust Property
§ 40. Any Property May Be Trust Property
Subject to the rule of § 29, a trustee may hold in trust any interest in
any type of property.
Comment:
a. Scope note. This Section is primarily concerned with the fundamental

question of whether trust law in any way limits the forms of property that can be
held in trust. This Section also addresses problems posed by other bodies of law or
private arrangements that might prevent or limit a property owner's ability to place
property in trust (Comment d) and problems that might arise because of a property
owner's failure to adequately identify the property of an allegedly intended trust
(Comment e).
This Section does not address again the general requirements that there be trust
property (see § 2, Comments f and i) and a legally effective declaration or transfer
(§§ 10, 14, and 16) in order to create a trust. Nor does it address issues of illegality
(§ 29(a)) or the trustee's possible duty to dispose of particular trust property in
order to make investments in accordance with the terms of a trust or statute or the
general principles of the Prudent Investor Rule. On trust investing see §§ 90
through 92 [§§ 227-229 of Restatement Third, Trusts (Prudent Investor Rule)].
Section 41 considers closely related questions about hopes or expectations that
relate to property but that are not themselves "property" interests.
b. The basic rule: any property may be trust property. Subject to requirements
of lawful purpose and administration (§ 29(a)), no policy of the trust law restricts
the types of property interests a trustee may hold in that fiduciary capacity. See
also qualifications discussed in Comment d and those implicit in Comment c.
Property denotes interests in things, not necessarily the things themselves, but
necessarily things that are legally capable of being owned (and, ordinarily,
transferred) and to which property interests can attach. See generally original
Restatement of Property, volume I, Introductory Note, page 3. See also Reporter's
Notes. Nevertheless, what the law includes within the definition of "property" has
evolved over common-law history and can be expected to continue doing so in the
future. Trust law continues to reflect such developments in property law, especially
the law of gifts.
Trust property may be real or personal, tangible or intangible. It may consist of
such diverse rights as undivided interests, terms of years, contingent future
interests, and choses in action, even choses with respect to things that are not
specifically ascertainable (cf. Comment e) at the time the trust is created, or with
respect to things that are not owned by the settlor or in existence (cf. § 41) at that
time.
Thus, a trademark, patent, or , even an unpatented invention or uned literary
production, can be held in trust, as can the interest of a person designated as
beneficiary of a life-insurance policy. Also, legal or equitable present interests in real
or personal property for life or for a term of years, and presently existing future
interests, whether legal or equitable, whether reversionary interests, executory
interests, or remainders (contingent, vested, or vested subject to being divested),
may be held in trust.
Trust property may also take the form of a fractional or undivided interest,
whether it is clearly and specifically designated as such or it results from an
assignment, bequest, or declaration with respect to a dollar (e.g., $25,000) portion
of a designated bank account or of "my X Corporation stock." Segregation is not
required as long as the portion of a fund or of fungible items can be ascertained
from the expressed or implied terms of the disposition.
Despite some early expressions of a contrary view, a chose in action consisting
of a legally enforceable claim against the trustee may be held in trust. See § 2,
Comment i, and Reporter's Note thereto. Trust property may also take the form of
claims against the settlor or a beneficiary, as well as against some other person.
Although trust beneficiaries have equitable title to the trust property and it is
generally stated and usually true that the trustee has legal title, in some instances
the trustee will hold only an equitable interest because that is the character of the
interest owned and placed in trust by the settlor. See Illustration 2 of § 2.
c. Transferable property. Any property interest of which an owner may make
disposition by will can be the subject of a testamentary transfer in trust. Any
property interest of which an owner may make a present transfer by way of outright
gift can be the subject of a declaration of trust or of an inter vivos transfer to
another to be held in trust.
d. Nontransferable property. Because trusts serve as a means of disposing of
equitable interests in property, and of the legal title as well unless the trust is
created by declaration, difficulties are presented when property that a settlor seeks
to hold or transfer in trust is nontransferable or may be transferred only upon
certain conditions or circumstances.
The problems arise not from any prohibition or policy of trust law but from other
bodies of statutory or common law, from articles or bylaws of business entities, or
from the terms of private agreements, deeds, or other governing instruments. If the
owner of property cannot transfer it to another to be held for the other's own
benefit, usually (but see below) the owner will not be able either to transfer it to
another to be held in trust or to make an effective declaration of trust. Thus, the
problem is not one of acceptability as trust property but of whether or how an
owner is able to place certain property in a trust.
Limitations on the transfer of property rights include restrictions on alienation of
participants' rights under public and private pension programs, the inalienability of
certain future interests under antiquated common-law property doctrines, and
privately imposed restrictions on alienation of the interests of trust beneficiaries
(see §§ 58 and 59 on spendthrift trusts). Other types of restrictions may apply to
some government bonds, tort and contract claims, seats on financial or commercial
exchanges or boards, governmental life-insurance programs, and shares of
corporations or other business entities or of cooperative housing projects or
condominiums.
These or other impediments to transfer may frustrate a particular owner's
wishes or efforts to hold a particular form of property in trust by declaration or to
transfer it to another in trust. Nevertheless, absent some policy against separation
of legal title from the equitable or beneficial rights, there is no objection to
nontransferable property interests being held in trust if those interests somehow
either arise in trust or come to be held by a trustee.
The latter can occur if a restriction on transfer can be waived or is only partial.
Partial restrictions, for example, may allow transfers to or for certain relatives of the
owner, dispositions at death, or inter vivos donative transfers; or they may apply
only to the legal title (that is, to the identity of the obligee), so that the asset may
be held by the title holder in trust by declaration. Except for the subject of
spendthrift trusts (see §§ 58 and 59), comprehensive review of the nature, validity,
effect, and interpretation of rules or arrangements that may inhibit the transfer of
property are beyond the scope of this Restatement. See Reporter's Notes; and, on
various types of privately imposed restraints on alienation, see Restatement
Second, Property (Donative Transfers), Chapters 3 (§§ 3.1-3.4) and 4 (§§ 4.2-4.5).
A nontransferable property interest may be held in trust when, as occasionally
occurs, it is created in trust by act of the trustee or it accrues to a trustee of a trust
that is already in existence. Ordinarily, these or other nontransferable interests that
are held in trust will pass to successor trustees.
Illustrations:
1. T is trustee of Blackacre, upon which X trespasses. T holds the cause of action

against X in trust even though, by the law of the state in which Blackacre is
situated, a right of action for trespass to land cannot be assigned.
2. T holds Whiteacre in trust. Acting within the powers conferred upon him by
the terms of the trust, T transfers Whiteacre to X, reserving a right of entry for
condition broken (sometimes called a power of termination). T holds the right of
entry in trust even though, under the law of the state in which Whiteacre is
situated, a right of entry cannot be transferred.
3. The owner of Greenacre transfers it to L for life, remainder to R if then living,
and if not remainder to T to be held in trust for B. T's interest in Greenacre is held
in trust (having been created in T as trustee), even though by the law of the state
in which Greenacre is situated contingent remainders (or counterpart executory
interests) are not transferable and even though T, as a beneficial owner of such an
interest, could not have effectively declared herself trustee thereof.
e. Indefinite subject matter. The subject matter of a trust must be definite or
ascertainable. There is no trust property if the identity of the intended subject
matter remains wholly in the control of the settlor or if its description is so indefinite
that it cannot be ascertained. Thus, although S may declare himself trustee of all of
the stocks and bonds he owns at the time of the declaration, if he declares himself
trustee of "the bulk of my securities" or purports to transfer "some substantial
portion of my X Co. stock" to T in trust, no trust is created.
It is not necessary that the trustee or beneficiary have the entire legal or
beneficial interest in the subject matter. Nor is it necessary that the extent of the
interests of the various beneficiaries be definite at the time the trust is created, or
when the property is transferred to an existing trust, as long as the extent of the
interests will be ascertained within the requirements of the applicable rule regarding
perpetuities (see § 29(b)). Furthermore, it is not necessary that the parties actually
know what the subject matter is as long as its identity can be ascertained from
existing facts.
Illustrations:
4. S directs her stockbroker to buy a thousand shares of X Corporation stock or

any part thereof that can be purchased at no more than $100 per share. After the
broker has bought 650 shares for S but before S knows whether any shares have
been bought for her, she declares herself trustee of such shares of X Corporation as
the broker may have bought for her. A trust of the 650 shares is created.
5. O owns 24 bonds of various corporations. He declares that he holds those
bonds in trust to transfer to B such 10 of those bonds as O may select at any time
after B attains age 18 but before she reaches 21. A trust is created of which all 24
bonds are the trust property, with O and B as beneficiaries, even though the
beneficial interest of B is dependent on O's later exercise of his power of selection.
6. S has a savings account at Reliable Bank in an amount comfortably exceeding
$100,000, but the precise amount is not presently known to S. She declares herself
trustee for B of $50,000 worth of the funds then on deposit in the savings account
at Reliable. A trust of an undivided interest in the savings account is created for the
benefit of B, with the original undivided interest of the trust at time of its creation to
be ascertained by a fraction, of which $50,000 is the numerator and of which the
denominator is the amount actually on deposit at the time of S's declaration. (On
the effects of subsequent account activity, see Reporter's Notes.)
Although no trust can be created where the subject matter is not definite or
ascertainable, a trust may subsequently arise when the intended trust property
becomes definite or ascertainable if the settlor at that subsequent time expressly or
impliedly manifests an intention to hold the property in, or add it to, the intended
trust. See § 16, Comment b; compare § 41.
The material in this Section is similar in coverage and consistent with the
content of Restatement Second, Trusts § 74 (necessity of trust property), § 76
(indefinite subject matter), § 77 (limited interests in definite subject matter), § 78
(transferable property), §§ 79-81 (non-transferable property), and §§ 82-85 (on
intangible, equitable, defeasible, and contingent interests).
Also covered here is the material covered in Restatement Second, Trusts § 87
(obligor as trustee), but for reasons explained in § 2, Reporter's Note to Comment i,
the position here has been modernized and changed to reflect the development and
recognition of the trust as an entity and the distinction between the trustee as an
individual and the trustee in a fiduciary or representative capacity.
"Where the present transfer of legal title to property is required [conceptually
distinguishing a declaration of trust], it is because common sense and logic dictate
that the requirements of a valid trust cannot be fulfilled without it. Before property
can be said to be held in trust by a trustee, the trustee must have legal title.
Without legal title the trustee holds nothing in trust. Furthermore, the backbone of
trust law is the concept of separate ownership of equitable and legal interests....
Ordinarily, a transfer of legal title to the trust property to a trustee accomplishes the
separation of legal and equitable interests.... Where, as [in a declaration of trust],
the settlor and the trustee are the same person, ... the trustee already holds legal
title. The important question in such cases is whether an equitable interest has been
divested to a cestui que trust by the settlor." Taliaferro v. Taliaferro, 260 Kan. 573,
581, 921 P.2d 803, 809 (1996).
Comment b:
That intangibles can be held in trust, see Eychaner v. Gross, 321 Ill.App.3d 759,
254 Ill.Dec. 557, 747 N.E.2d 969 (2001) (right to restore, maintain, and operate a
theater for an indefinite period was trust property, even without the theater
property itself).
Illustrative of property interests that, over common-law history and sometimes
with aid of legislation, have come generally to be recognized as existing "interests in
property" but that earlier were conceived of as bare "expectancies" (or at least not
transferable forms of property (see Comment d)) are contingent remainders,
executory interests, possibilities of reverter, and rights of entry for condition broken
(or, as sometimes they are called, powers of termination). See Lewis M. Simes, The
Law of Future Interests §§ 5, 31 (Hornbook, 2d ed. 1966). Probably with more
disagreement among the jurisdictions, and considerable difficulties remaining in the
drawing of lines, the law has undergone substantial evolution with regard to the
nature and characteristics of the future yield or rights to future yield of property
(such as land and livestock) and the future earnings of individuals working under
existing or contemplated employment contracts. See § 41, Reporter's Note to
Comment b. Possibly in transition and to come into greater doubt in the future are
the interests of remainder beneficiaries under revocable inter vivos trusts; see § 41,
Comment a, that these interests are traditionally and currently accepted as existing
property rights despite increasing recognition (and the rules of § 25(2) of this
Restatement) that revocable trusts are effective as will substitutes and that the
property held in such trusts is to be treated for some purposes as belonging to the
settlor rather than to the other trust beneficiaries.
Compare Canter v. Commissioner of Public Welfare, 423 Mass. 425, 668 N.E.2d
783 (1996), finding unjustified the Public Welfare Department's denial of Medicaid
assistance on the ground that the applicant's husband had amended his revocable
trust to remove her as a "contingent beneficiary," thus constituting an objectionable
"asset transfer." The opinion states (id. at 429-431, 668 N.E.2d at 786-787):
The department asserts ...: First, the beneficiary of a contingent remainder in a
revocable trust has an "interest in an asset," as required by the regulations....
Second, the husband's amendment of the trust instrument to substitute remainder
interests in his son and other family members in place of his wife, constituted a
transfer of the wife's interest.... Third, this transfer ... was entirely gratuitous....
Therefore, Fourth, the full value of the trust assets at the time of this transfer is
countable against the plaintiff for the purposes of calculating her period of
ineligibility for Medicaid institutionalization benefits....
The department's argument is deficient both in logic and practicality.... [E]ven if
we accepted all the prior steps, the value of the asset for purposes of the ineligibility
calculation would have to be the full value of the corpus discounted to reflect the
likelihood of the contingent interest finally vesting. And.... of course, there is no
practical way in which the discounted value of the interest may be calculated. And
this ... casts doubt ... on the entire argument. For it is a classic example of an
argument that proves too much. Although the department assures us that the
change in the designation of a beneficiary under a life insurance policy or by a
codicil to a will (or by the writing of a will where none had existed, or by allowing
the disinheriting provisions of a will written long before to remain in effect) "is not
at issue in the present case," we are at a loss to see why the department's
argument does not exactly fit those cases.
.... As far as we can determine, none of the cases [involving assignability of
interests or attachment by creditors] cited [by the department] for those
propositions involved revocable trusts which, as here, were still subject to
revocation by the grantor. Rather they deal with the very different situation where
the contingency depends on external events like the survival of a certain person or
the achievement of a specific age.... When this court has considered an interest
analogous to the plaintiff's interest here, it has described it as a mere expectancy....
Also, for purposes of the present discussion, see the current uncertainty
concerning the possible "property" character of renewal privileges expected to
attach (even if unenforceably--or maybe, "revocably"?) to scarce season tickets of
professional sports franchises, and even to kindred versions of certain "amateur"
university sports teams. Compare Kullbom v. Kullbom, 209 Neb. 145, 306 N.W.2d
844 (1981) ("all rights, if any," awarded to husband in marriage dissolution
proceedings), with Kully v. Goldman, 208 Neb. 760, 305 N.W.2d 800 (1981) (no
trust for B resulted from A's practice under a gratuitous "agreement" with B; under
their arrangement, A annually for a number of seasons purchased 8 season tickets,
4 for his own use and 4 for the use of B, who annually paid A for those tickets; not
enforceable as a declaration of trust or otherwise either when the "agreement" was
made or when the tickets were issued by the University of Nebraska, and without
regard to A's pattern of performance following the issuance of tickets in prior years;
A was "on the list of annual purchasers," and his "prospect of obtaining the same
seats and the same number of seats each year was good," and "the university,
barring some change in circumstances, was most likely to continue to sell" the
tickets to A, but he had no "property right" because the university "was not
required" to renew the tickets). A recent casebook, Roger W. Andersen, John T.
Gaubatz, Ira M. Bloom & Lewis D. Solomon, Fundamentals of Trusts and Estates
(1996) asks (p. 296), following a discussion question about a transfer in trust of a
quite uncertain contingent remainder that was also subject to a life beneficiary's
power of appointment, whether the reader would "rather have [that] contingent
remainder or William Goldman's [i.e., A's] chance of getting Nebraska football
tickets?"
See also Restatement Second, Contracts § 321(1), that rights expected to arise
out of a continuing business relationship are assignable.
Compare First Victoria Bank v. United States, 620 F.2d 1096 (5th Cir.1980),
holding that a decedent's "rice history acreage" (prior use entitling land owner to
continue rice production under governmental crop-control program) constituted
"property" for purposes of inclusion in the gross estate under Int. Rev. Code §
2033. The opinion states (id. at 1102-1103):
... As we attempt to resolve this question, we necessarily must wrestle with the
meaning of the label "property." Documentation of the history and derivation of
many interests which are today denominated "property" would require philosophers,
professors of jurisprudence, and scholars of economics to call upon their full
erudition and exegetic talents. The shelves of our jurisprudence are tomed with
obituaries of species of property long ago tolled. Announcements of the nascence of
other species which were unheard of and unspeculated upon centuries ago populate
further volumes.
Although the varieties of property may be infinite, any attempt to enumerate
every species of property would beggar the mind and intellect of even the wisest of
persons. Avoiding this Sisyphian endeavor, we embark on a Delphian one. As we
begin, we must remind ourselves that "property" is an expansionist term. Its
mooring is contemporary rather than historical.
The attempt to define "property" is an elusive task. There is no cosmic synoptic
definiens that can encompass its range. The word is at times more cognizable than
recognizable. It is not capable of anatomical or lexicographical definition or proof. It
devolves upon the Court to fill in the definitional vacuum with the substance of the
economics of our time.
The Restatement of Property uses the word "property" to denote legal relations
between persons with respect to a thing, see 1 RESTATEMENT OF PROPERTY 3
(1936), but does not attempt to define which "things" constitute "property." The
Supreme Court has said that "[t]he accurate delimitation of the concept of
'property' would afford a theme especially apposite for amplificative philosophic
disquisition." Gleason v. Thaw, 236 U.S. 558, 560, 35 S.Ct. 287, 288, 59 L.Ed. 717
(1915). Legal encyclopedias can provide us an interminable string of definitions
suggested by various courts. See, e.g., 73 C.J.S. Property § 1 (1951).
.... "Property" evolves over time. It can be described as the bundle of rights
attached to things conferred by law or custom, or as everything of value which a
person owns that is or may be the subject of sale or exchange.... Both of these
definitions contemplate the possibility that law or custom may create property rights
where none were earlier thought to exist.
For a recent illustration of ongoing struggles in other areas of the law concerning
what is "property," see R. Wenar, "The Concept of Property and the Takings
Clause," 97 Columbia L. Rev. 1923 (1997), also discussing writings on the property
concept by others, ranging from Blackstone and Hohfeld (with Corbin's foreword) to
the more recent, such as Ackerman, Coase, Epstein, Michelman, Munger, Radin, and
Sax. And see a recent pair of articles, one by C. Jordan, Jr. & C. Price, "First Moore,
Then Hecht: Isn't It Time We Recognize a Property Interest in Tissues, Cells, and
Gametes?," 37 Real Property, Probate & Trust J. 151 (Spring 2002), and the other
(more closely in point) by A. Arpad, "Private Transactions, Public Benefits, and
Perpetual Control Over the Use of Real Property: Interpreting Conservation
Easements as Charitable Trusts," 37 id. 91, the latter struggling (at 128-131) with
the "trust property" question and discussing (at 143-149) the "Implications of a
Charitable Trust Analysis."
Comment c:
Special considerations have been said to result from the separation of legal and
equitable titles in seats on stock exchanges, boards of trade, and the like (e.g., the
supposed problem being whether creditors with exchange-based claims against the
trustee would be able to reach the asset if held in trust, so that the trustee would
hold only the bare legal title), see IA William F. Fratcher, Scott on Trusts § 82.7
(4th ed. 1987).
Comment d:
For an example of nontransferable property, see Integrated Solutions, Inc. v.

Service Support Specialties, Inc., 124 F.3d 487 (3d Cir.1997), in which a debtor's
prejudgment tort claim became property of a bankruptcy estate under federal law,
but the trustee in bankruptcy could not transfer the claims to a purchaser because
state law prohibited such an assignment.
"[A] personal injury cause of action is not transferable and cannot thereby be
made the subject of a trust," according to Vittands v. Sudduth, 49 Mass. App. Ct.
401, 408, 730 N.E.2d 325, 333 (2000), but also noting (footnote 15, at 409, 73
N.E.2d at 334) that "[m]ost property damage claims and contract claims are
assignable, unlike personal injury claims," citing Rubenstein v. Royal Insurance Co.
of America, 45 Mass. App. Ct. 244, 696 N.E.2d 973 (1998). Also compare Office of
Statewide Health Plng. & Devel. v. Musick, Peeler & Garrett, 76 Cal.App.4th 830, 90
Cal.Rptr.2d 705, 707-708 (1999) ("California law prohibits assignment of a chose in
action for legal malpractice" although under federal law "even claims that are not
assignable under state law transfer to the bankruptcy estate," where the trustee is
authorized to prosecute it and to hire agents to do so on the trustee's behalf. Yet,
"under state law, the trustee [in bankruptcy] cannot assign a legal malpractice
claim"); and Baum v. Duckor, Spradling & Metzger, 72 Cal.App.4th 54, 84
Cal.Rptr.2d 703 (1999).
The interests of R and T in Illustration 3 in the above commentary are
traditionally classified as alternative contingent remainders, if given their normal
construction, so that R's interest as well as T's would be inalienable under the
antiquated common-law rule assumed in the Illustration. The situation, however,
may also serve to illustrate how matters treated in this Section may be affected by
the vagaries of other bodies of law, here the law of future interests. It would not be
startling, even if unorthodox, for R's interests to be "interpreted" as a vested
remainder subject to being divested (i.e., upon R's death before L's, R's remainder
would be divested by operation of what would be, under this interpretation, an
executory interest in T). See generally E. Halbach, "Creditors' Rights in Future
Interests," 43 Minnesota L. Rev. 217 (1958). This interpretation would make R's
interest freely alienable and therefore capable of being transferred to another in
trust or held by R in trust by declaration.
Contracts with anti-assignment provisions are discussed (in another context) in
Cromer & Hines, "Service Contracts: Protecting Real Estate Lenders," 11 Probate &
Property 39, 40-41 (ABA RP, P & T Sec., 1997). See also relevant and important
rule of Restatement Second, Contracts § 322(1): "Unless the circumstances indicate
the contrary, a contract term prohibiting assignment of 'the contract' bars only the
delegation to an assignee of the performance by the assignor of a duty or
condition."
Comment e:
In Illustration 6, assume that the trust is irrevocable, that the trust's initial share
of the savings account is 40 percent, and that at a later date, interest of $1250 is
credited to the account; 40 percent of this amount will belong to the trust so that its
undivided interest will be worth $50,500 (S's personal share being worth $75,750).
If, on the date of that interest credit, S withdraws $25,250 for personal use, the
dollar amount of the trust's share is unaffected but its percentage share becomes
50 percent--the percentage having to be recomputed with respect to the $101,000
then remaining in the account. When, still later, the account is again credited with
interest, the interest will be allocated equally to the 50 percent trust portion and to
S's personal 50 percent share.
On the creation of ownership "in common" of an "undivided share in a described
bulk of fungible goods," compare Uniform Commercial Code, Revised Article 2
(Sales) § 2-106(d) (Discussion Draft, 1997) ("even if the quantity of the bulk is not
determined").
Research References
Imposition of constructive trust in property bought with stolen or embezzled funds. 38
A.L.R.3d 1354.
Case Citations
W.D.Wash.Bkrtcy.Ct.2004. Com. (d) cit. in disc. Chapter 13 debtor brought

adversary proceeding for declaration that structured-investment company's claim
was unsecured. Granting debtor's motion for summary judgment, this court held,
inter alia, that although agreement between the parties might have been attempt to
create express trust, it was unsuccessful because there was no trust res. The court
said that the rights to debtor's military retired pay and veterans' disability benefits
were neither entitlements nor vested rights, and, therefore, debtor had no interest
or property right in the future payments, nor could he transfer any right or interest
at the time of the putative declaration of trust. In re Bowden, 315 B.R. 903, 907.
(2003)
(C)
REST 3d TRUSTS s 41


§ 41. Expectancies; Nonexistent Property Interests
An expectation or hope of receiving property in the future, or an interest

that has not come into existence or has ceased to exist, cannot be held in
trust.
Comment:
a. Expectation of receiving property by testate or intestate succession. A person
who expects to receive property in the future by the will of a living person or by
intestate succession has no presently existing interest of which to make a
declaration of trust or a transfer to another in trust. Such an expectancy is not a
contingent future interest (cf. § 40, Comment b) but a mere hope or expectation,
however well founded or likely to materialize. By all traditional and current concepts
of property, expectancies are not property interests.
Although the holder of a contingent future interest in a clear and growing
majority of states (cf. § 40, Comment d) has property of which present disposition
can be made, by gift or otherwise, a person cannot transfer an expectancy. The
hope of an expectant heir, for example, is not property; it cannot be reached by
creditors of the expectant heir; nor does it ordinarily (but cf. conservatorship
proceedings) entitle the expectant heir to notice of proceedings involving the assets
in question while the owner is still alive.
Once a testator has died leaving a will under which a particular person will be
entitled to receive distribution of property on completion of estate administration, or
on the happening of some future event(s), that person has an interest that can be
held or transferred in trust. This is true even if the chance is remote that the person
will ever receive the property.
On the other hand, if the testator has not yet died, a beneficiary named in the
will has only a bare expectancy in the testator's property even though the testator
is unlikely (or even hopelessly without capacity) to change the will. Similarly, one
who is expected to inherit the property of a person who has made no will has no
existing interest in that person's property of which to make a gift or other present
transfer, or to create a trust.
Illustration:
1. S's father, F, died some years ago leaving most of his estate in a
testamentary trust for S's mother, M, for life, remainder to S if then living and if not
to S's then living issue. M also has a substantial estate of her own, which she plans
to leave to S. For tax and other reasons, S executes and delivers a deed purporting
immediately to transfer to T, as trustee, both his remainder interest in the trust
created by F and any property he may receive from the estate of M. A trust is
created of S's equitable contingent remainder interest in the trust previously
created by his father, but not of his expectancy in the estate of his mother.
Note: Illustration 1 assumes a typical modern body of property law, freely
allowing voluntary transfer of all future interests (see § 51), and that S's interest is
not subject to a spendthrift restraint (§ 58). In this Illustration, T takes S's
remainder interest subject to the same uncertainties it had in S's hands (here, at
least his survival of M). S's adult children also have existing future interests of
which any of them can make a present assignment, outright or in trust, or a
declaration of trust.
A person has a property interest even though his or her interest is subject to
being divested at the will of another, even if the interest is also subject to some
condition precedent. See § 40, Comment b. (For example, if M in Illustration 1,
above, had been given an inter vivos or testamentary power of appointment, the
result of the Illustration and the observations noted after it would not change.)
So also, under traditional and currently accepted principles of property law, the
beneficiaries of revocable inter vivos trusts have existing property interests (see §
25(1)) that can be transferred outright or in trust, even though in other important
respects (see § 25(2)) the trust property is treated as if it belongs to the settlor
holding the power of revocation rather than to the beneficiaries designated in the
trust instrument. See § 40, Reporter's Note to Comment a. See also § 69, Comment
c (that no merger occurs even if the settlor of a revocable trust is its sole trustee).
b. Nonexistent interests. An interest may not be in existence because the thing
that would be the subject matter of the interest is not itself in existence or,
although the thing exists, no one has an interest in it. In these cases, no one has an
interest in anything of which there could be a declaration of trust or a transfer to
another in trust. A person can make a promise to create a trust of an interest in
such a thing should it thereafter be acquired, but such an agreement is not binding
unless the requirements of the law of contracts are satisfied. See Comment c.
Thus, if A gratuitously declares herself trustee of the next picture she paints or
of such shares as she may thereafter acquire in a corporation not yet organized,
without more a trust is not created. The result is the same if A purports to transfer
the contemplated painting or shares to another as trustee. Similarly, one cannot
create a trust of property of which another has sole and complete ownership. In
these situations, there is at most a gratuitous undertaking to create a trust in the
future.
The rule of this Section applies even though the would-be settlor once owned or
has reason to expect, but no legally enforceable right, to acquire the thing or an
interest in it in the future (Comment a). Difficulties may be encountered in drawing
lines between property to be acquired in the future and the future yield of an
existing property right. See Reporter's Notes; also see observations concerning
"property" in § 40, Comment b.
c. Contractual liability. If consideration is received for a purported declaration of
trust or assignment in trust of a bare expectancy or nonexistent property, the
purported declaration or transfer is treated as a contract to create a trust even
though it is worded as a present declaration or transfer.
On legally enforceable promises to create a trust in the future, and the
possibility that a contract to create a trust in the future may create an immediate
trust of a chose in action (i.e., of the rights under the contract), see § 10, Comment
g, and § 15, Comment b.
d. Intended trust property subsequently acquired. A person gratuitously purports
to declare a trust, or to make a transfer to another in trust, of a bare expectancy or
nonexistent property. No trust arises when the person later acquires the intended
trust property in the absence of some express or implied manifestation at the later
time of an intent to give effect to the trust. See § 16, Comment b; compare § 40,
Comment e.
e. Other matters. The rule of this Section is applicable to property the person
hopes to acquire by gift inter vivos.
To the extent a right to expected compensation in the future under an existing
contract of employment is assignable (see Restatement Second, Contracts § 321), a
trust of such rights can be created, either by declaration or transfer.
On tortious interference with expectancies, see Restatement of Restitution §
133(1) and § 169, Comment c; and compare id. § 184. See also Restatement
Second, Torts § 774B.
The material in this Section is comparable in coverage and consistent with the
contents of Restatement Second, Trusts §§ 75 (nonexistent interests) and 86
(expectancies).
Comment a:
Wacker Oil, Inc. v. LoneTree Energy, Inc., 459 N.W.2d 381 (N.D.1990), makes
the usual observation that a mere possibility, such as the expectancy of an heir
apparent, is not to be deemed a property interest of any kind and, accordingly, that
it cannot be transferred.
But, on the assignability of an inheritance, as distinguished from an expected
inheritance, see Estate of Wright, 90 Cal.App.4th 228, 108 Cal.Rptr.2d 572 (2001).
Comment b:
"The prevailing view is that rights expected to arise in the future under a
contract of employment in existence at the time ... can be effectively assigned, but
an assignment of a right expected to arise under a contract of employment not then
existing has the effect only of a promise to assign the right.... To the extent to
which an assignment of future earnings or other contract rights is effective, an
assignment in trust or a declaration of trust is equally effective." IA William F.
Fratcher, Scott on Trusts (4th ed. 1987) § 86.2. Cited in that same section are a
pair of cases dealing with the validity of statutes declaring all assignments of future
earnings void, plus distinguishable cases dealing with the effectiveness of
assignments of future earnings for purposes of the federal income tax.
On other aspects of the sometimes difficult line-drawing between what is and
what is not "property," in addition to § 41, Comment b, above, and particularly on
the line between property to be acquired in the future and the future yield of
existing property, see William M. McGovern, Jr., Sheldon F. Kurtz & Jan Ellen Rein,
Wills, Trusts and Estates (Hornbook, 1988) § 4.7: "Thus, a purported trust of profits
which the settlor expected to make in the stock market during the next year was
ineffective [citing Brainard v. Comm'r, 91 F.2d 880 (7th Cir.1937), which is
discussed at the start of the Reporter's Note to § 16, Comment b].... This distinction
can sometimes be circumvented by drafting. If Mary declares herself trustee of
stock which she now owns, stipulating that the dividends will go to her and the
other beneficiary will receive only capital gains, the practical effect is the same as a
trust of her future profits in stock trading, but the stock would provide a corpus."
(Might one suppose that, in an inviting case, a like result could be achieved by
imaginative interpretation?)
Also see Fratcher, Scott on Trusts, supra, § 86.3, stating that under the "so-
called doctrine of potential possession there is some authority to the effect that the
assignee ... acquires an interest in [a farmer's crops] when they mature or in the
young [of animals] when born, at least when the crops were planted or the young
conceived" at the time of an assignment, noting that the doctrine has been
"modified by the Uniform Sales Act [§§ 5(3) and 17]" and that "[n]o cases have
been found involving a trust ... where the trust was gratuitously declared." The
treatise continues: "In one English case [Petch v. Tutin, 15 M. & W. 110 (1846)] an
assignment in trust of future crops made for value was upheld. But the case can be
supported on the ground that it was in substance a contract to assign," citing
Professor Williston's classic "Transfers of After-Acquired Personal Property," 19
Harvard L. Rev. 557, 564 (1906).
That crops not planted at adjudication of bankruptcy do not pass to a
bankruptcy trustee, see Bank of Nez Perce v. Pindel, 193 F. 917 (9th Cir.1912); also
see Hull v. Hull, 48 Conn. 250, 40 Am. Rep. 165 (1880) (on afterborn animals); and
on the future catch of particular voyages, compare Low v. Pew, 108 Mass. 347, 11
Am. Rep. 357 (1871), with Langton v. Horton, 1 Hare 549 (1842).
After a footnote quoting portions of Uniform Commercial Code §§ 2-105 and 2-
501(1), declaring that " 'Goods' also includes the unborn young of animals and
growing crops and other identified things attached to realty" but that before
interests and goods can pass they must be "both existing and identified [emphasis
added]" (thereby to be distinguished from "future" goods, a purported present sale
of which "operates as a contract to sell"), and further declaring that absent explicit
agreement "identification occurs ... when the crops are planted ... or the young are
conceived" if the contract is for those to be harvested or born "within 12 months or
the next normal harvest season after contracting, whichever is longer," the Scott
treatise (supra) invites us to speculate about the young of elephants, which have
gestation periods of 18 months or more.
Comments c and d:
"A trust of an expectancy, like a promise to assign an expectancy, is binding if

supported by consideration. Even without consideration, a trust becomes effective if
it begins to operate with the settlor's tacit consent." McGovern, et al, Wills, Trusts
and Estates, supra, at 193.
Research References
Comment Note.--Creation of express trust in property to be acquired in future. 3
A.L.R.3d 1416.
(2003)
(C)
REST 3d TRUSTS s 42


§ 42. Extent And Nature Of Trustee's Title
Unless a different intention is manifested, or the settlor owned only a

lesser interest, the trustee takes a nonbeneficial interest of unlimited
duration in the trust property and not an interest limited to the duration of
the trust.
Comment:
a. Scope and rationale. The rule stated in this Section is applicable although the
trust is passive in whole or in part, and applies even if a statute of uses or
counterpart doctrine (see § 6) immediately passes some or all of the trustee's title
through to some or all of the beneficiaries.
The statement in this rule that the interest taken by the trustee is nonbeneficial
(and see Comment c) is standard common-law doctrine. It reflects the basic
concept that the beneficiaries hold the beneficial interests (or "equitable title") in
the trust property, while the trustee (ordinarily) holds "bare" legal title to the
property. See § 2, Comment d.
The rule of this Section concerning the extent of the trustee's interest is long
established for trusts of personal property. A more limited view (see Reporter's
Notes) is sometimes expressed with regard to the extent of the trustee's title to real
property held in trust, but that view is counterproductive and no longer justified.
Furthermore, the rule stated here accords with modern doctrine eliminating
distinctions between real and personal property. In any event, the narrower concept
of the extent of the trustee's estate in land is, in modern circumstances, virtually
consumed by its own qualifications or exceptions; and whatever utility the concept
may have had is adequately and more properly served by statutes of uses (§ 6).
The rule that a trustee ordinarily takes an interest of unlimited duration reflects
the extent of administrative powers normally granted trustees in modern trust
instruments, and also by implication of law (§§ 70 and 85), in addition to typical
provisions and rules relating to the manner of winding up a trust's affairs and
making distributions upon termination (§§ 70 and 89). In addition, it provides
certainty and a generally sound, simple set of concepts for the management of trust
property, for fiduciary dealings with third parties, and for procedural aspects of
litigation involving trust property. Furthermore, the rule serves simply and
appropriately to establish the extent to which a fiduciary relationship exists between
trustees and beneficiaries (especially remainder beneficiaries, cf. § 2), the extent to
which restraints on alienation may be made applicable to future interests (§ 58),
and the extent of a court's equitable authority to deal with unanticipated
circumstances (§ 66). Also see Reporter's Notes.
b. Extent of the trustee's interest: effect of the rule. When a settlor transfers
property to another as trustee or declares a trust of that property, unless the
transferor manifests a different intention, the trustee takes the settlor's full title or
interest in that property. The trustee's interest, therefore, ordinarily will not be
limited in duration to the duration of the trust. Thus, if the owner of land, chattels,
or securities transfers them to another in trust for a designated beneficiary for life,
with remainder to others, the trustee takes a legal title of unlimited duration and
not one limited to the lifetime of the life beneficiary.
The settlor may limit the duration of the trustee's interest by manifesting the
intention to do so. Thus, O, who owns the full fee-simple title to Blackacre, conveys
"to T a life estate in Blackacre for the life of B, with T to manage the property and
distribute its rents and profits to B for as long as B lives, and I convey the
remainder interest in Blackacre to R." Although this deed clearly grants T only a
legal life estate pur autre vie (for B's life), it would be possible for O to supplement
that interest by a grant of what are usually referred to as powers in trust. These
powers might be designed to enable T to mortgage Blackacre or to rent it for a
period that might run beyond B's lifetime, or might even include a power to sell
Blackacre, thereby allowing T to encumber or even divest B's legal remainder
interest in the original trust property.
It would be possible also for O to confer an interest of limited duration upon T by
language less explicit than the foregoing. Thus, that intention might be found by
implication from the fiduciary powers specified and particularly those expressly
withheld, from the disposition's overall context within the document by which the
trust is created, and from the circumstances surrounding the transaction and other
admissible evidence tending to show that intention (see § 4).
In cases of trustees who take typical titles of unlimited duration, however, the
terms of a governing instrument may withhold specific powers. On the other hand,
it is usual (though unnecessary) for trust instruments to recite fiduciary powers that
would otherwise be implied by law.
As a result of similarities of appearance in the various situations in the preceding
paragraphs, difficult questions of interpretation may arise when the settlor has not
expressly stated the extent of the trustee's title. In such cases, an interpretation is
preferred that does not displace the general rule of this Section, because of likely
intention and the practical advantages (Comment a) inherent in that result.
c. Nature of trustee's interest: bare, nonbeneficial title. The observation in the
rule of this Section that a trustee takes only a nonbeneficial interest in the trust
property refers to the quality of the title taken in the trustee's fiduciary role. The
trustee may, of course, also be a beneficiary of the trust (§ 32, Comment b; § 43,
Comment a), but the resulting beneficial interest is not held in the trustee's
fiduciary capacity.
Thus, a trustee, as trustee, ordinarily takes only what is generally described as
the "bare" legal title to the trust property. (Occasionally, however, the trustee takes
a non-beneficial, "bare" equitable title because that is the nature of the interest the
settlor owned and transferred to the trust. See § 2, Illustration 2.)
Although a beneficial interest in a trust may generally be reached by creditors of
the beneficiary (§ 56, but cf. §§ 58-60 on spendthrift and discretionary trusts), the
trustee's personal creditors or trustee in bankruptcy may not reach either the trust
property or the trustee's nonbeneficial interest therein. Also, unlike the general rule
that beneficiaries may transfer their beneficial interests during life or by will (§ 51,
Comment b, and § 55, Comment b, but cf. §§ 58-60), the trustee may not transfer
the trust property or the nonbeneficial interest therein, except as incidental to
procedures for replacement of trustees (§§ 34-37) or, acting in a fiduciary capacity
as trustee, in the course of administration by exercising a power of sale or other
power of the trusteeship (§ 85 and §§ 70, 76). (But, on claims against the trust
estate--i.e., against the trustee in its representative capacity--and on the rights of
bona fide purchasers, cf. Chapters 21 and 22.)
Comments a and b:
The matters addressed in this Section on the extent of the trustee's interest
were dealt with in Restatement Second, Trusts § 88, which stated: "(1) Unless a
different intention is manifested, the trustee of an interest in land takes such an
estate, and only such an estate, as is necessary to enable him to perform the trust
by the exercise of such powers as are incident to ownership of the estate."
(Emphasis added.) Subsection (2) of Restatement Second, Trusts § 88, stated, for
trusts of personal property, a rule like that of the present Section (applicable to all
property).
The rules, as traditionally stated, are discussed and critiqued in IA William F.
Fratcher, Scott on Trusts § 88 (land) and 88.1 (personalty) (4th ed. 1987), and id.
§ 88.2 discusses at some length "[w]hy the extent of the trustee's estate may be of
importance."
Comment c:
For a case that illustrates the well-settled proposition that a trustee's personal
creditors cannot reach the trust property (or the trustee's bare legal title to it), see
Universal Bonding Insurance Co. v. Gittens & Sprinkle Enterprises, 960 F.2d 366 (3d
Cir.1992).
See also In re Intrenet, Inc., 273 B.R. 153 (Bankr.S.D.Ohio 2002) (Chapter 11
bankruptcy estate did not include funds held by the debtor as trustee under a
statutory trust).
Property the bankrupt had received from his mother, with stated wishes that
were precatory and not mandatory, was found not to be held by him as trustee and
was therefore not protected from creditors (i.e., it was property of the bankruptcy
estate) in Minella v. Phillips, 245 F.2d 687 (5th Cir.1957).
An interesting case is Lagae v. Lackner, 996 P.2d 1281 (Colo.2000), in which
the transferee (trustee) was described in a recorded deed simply as "trustee"; this
was inadequate to give notice of the trust character of the transferee's title under
the applicable recording act (certain additional information being required), but this
"defect" did not expose the trust property to the trustee's personal creditors
because a valid trust was created and the trustee's creditors were not "purchasers"
or persons who had relied on the deed in extending credit.
On the effect of recording statutes generally, see American Law of Property §§
17.4-17.36 (Casner ed. 1952).
Also see, generally, lengthy discussion in the Reporter's General Note to § 2 of
this Restatement.
Research References
West's Key No. Digests, Trusts 133; Wills 681(2).
(2003)
(C)
REST 3d TRUSTS s 43


Chapter 9. Beneficiaries
§ 43. Persons Who May Be Beneficiaries
A person who would have capacity to take and hold legal title to the
intended trust property has capacity to be a beneficiary of a trust of that
property; ordinarily, a person who lacks capacity to hold legal title to
property may not be a trust beneficiary.
Comment:
a. In general. If a person has capacity to take and hold legal title to property,
that person may take and hold equitable title as a trust beneficiary to the same
extent and of like property. (The term "person" includes corporations,
unincorporated associations, and, for this purpose at least, other trusts, as well as
individuals. See § 3, Comment e.)
An individual, although a minor or otherwise lacking capacity to transfer
property or to enter into contracts, may be a trust beneficiary. A corporation,
municipal or private, including a nonprofit corporation (whether or not for charitable
purposes), may be a beneficiary of trust property to the extent it has capacity to
take and hold legal title to like property (Comment c). Also, the United States or a
state may be a beneficiary of a trust, which to the extent of the governmental
interest would normally be a charitable trust.
Ordinarily, but not necessarily (see Comment d), a person who lacks capacity to
take legal title to property lacks capacity to become the beneficiary of a trust of that
property; and a person who becomes a trust beneficiary ordinarily has capacity to
continue as beneficiary of the trust property only to the extent the person has
capacity to hold legal title to that property.
A settlor of a trust may be the sole beneficiary or one of the beneficiaries of the
trust. A trustee may also be a trust beneficiary, provided the trust has at least one
other beneficiary or another trustee. See § 69 on the doctrine of merger.
An animal or a "purpose" is not a person and may not hold title to property or be
a beneficiary of a private trust (but compare § 47 on what have often been called
"purpose" or "honorary" trusts). A charitable purpose (see § 28), however, will
support a charitable trust, to which the definite-beneficiary requirement of § 44
does not apply (see § 44, Comment a).
b. Noncitizens. Noncitizens generally have capacity to take legal title to property
and therefore have capacity to become trust beneficiaries. If by statute, however,
land held by a noncitizen is subject to forfeiture to the government (see Reporter's
Notes), the equitable interest of a noncitizen beneficiary of a trust of land in such a
jurisdiction is likewise subject to forfeiture.
c. Corporations. If, by statute or the terms of its charter or articles, a
corporation cannot take title to land, or to land of more than a certain value or for
other than certain purposes, it cannot become the beneficiary of a trust of land, or
of land of more than the designated value or for other than the designated
purposes. If the corporation can take but cannot hold title to certain land against
the objection of the state or a shareholder, it cannot continue to hold a beneficial
interest in a trust against the objection of the state or shareholder.
d. Unincorporated associations. In nearly all jurisdictions today, unincorporated
associations of various types may take and hold legal title to property, but that
matter is not within the scope of this Restatement. See Reporter's Notes. Whether
or not it has capacity to take or hold legal title to property, however, an
unincorporated association has capacity to be the beneficiary of a trust, the
disability being a technical and historical one rather than one based on current
substantive policy. Accordingly, if property is left by will directly to an
unincorporated association that is incapable of taking or holding title to property,
the disposition does not fail; a trust arises for the intended purpose, and the court
will appoint one or more trustees (§ 34) to hold the property in trust for the
association.
This rule applies where the trust is for the benefit of the association, as such,
rather than for the benefit of its members (see and contrast Comment e, below, and
§ 45, Comment a). It does not matter that all potential members of the continuing
entity may not be ascertainable at any point in time. Ordinarily, the association's
rights in the trust are enforceable in a suit in the name of the association by an
appropriate officer or, if necessary, in a representative suit by members of the
association.
e. Associated perpetuities issues. The intended duration of trusts for
corporations or unincorporated associations may conflict with policies related to the
rule against perpetuities. If the corporation or association has capacity to hold title
to property, however, and its interest in the trust is not subject to a condition
precedent, the problem is not one of "vesting" (§ 29, Comment g). In such a
situation, an apparent problem of trust duration is avoided by the related rule (§ 29,
Comment h(1)) that a trust is valid but not indestructible, regardless of a "material
purpose" of the settlor (see § 65(2)), after the period of the rule against
perpetuities has expired. The corporation or association may then, as sole
beneficiary (see § 65), terminate the trust and acquire the property outright by
action taken in accordance with its governing procedures.
This solution is not available, however, if distribution to an unincorporated
association is precluded (as may still be the case in a few states) by its incapacity to
take title at the time the perpetuities period expires. Nevertheless, in this situation,
the trust is valid for a perpetuities period (see Reporter's Notes), with a severable
disposition of the property thereafter to depend on the terms of the trust and the
rules applicable to the association. If the trust provisions can be interpreted as so
providing, either (i) the trust property is to be distributed to the association
members ascertained when the trust can no longer continue or (ii), if the governing
law of the association empowers it to determine the disposition of property, a
disposition may be made accordingly. Otherwise, the property is held upon resulting
trust for the settlor, or his or her successors in interest (§ 8).
e(1). Perpetuities and association members, rather than association itself, as
beneficiaries. Rather than creating a trust for the association as such, a settlor may
create a trust for the individual members of the association as then constituted. In
such a case, the beneficiaries are definite and ascertained (for purposes of § 44) at
the outset, and the trust is enforceable.
On the other hand, a trust might be intended to benefit the individual members
of the association as constituted from time to time. Although those beneficiaries
might be susceptible of ascertainment from time to time (in the terms of § 44),
their interests would not comply with the vesting requirements of the traditional
rule against perpetuities. A consideration of the results that follow from this
noncompliance, under the various types of rules regulating perpetuities in this
country, is not within the scope of this Restatement. (Illustratively, however,
compare reformation in § 29, Comment g.)
f. Applications.
Illustrations:
1. S, a graduate of C College, leaves $50,000 by will to T in trust to promote the

purposes of the Big C Club, an unincorporated, noncharitable association composed
of graduates of C College and organized to arrange social activities for the
graduates. The income and principal are to be expended for such of the purposes of
the club as its board of directors at any time may determine. The trust is valid;
technically, it will be "destructible" upon demand by the club after the allowable
perpetuities period. See Comments d and e.
2. Same facts as Illustration 1 except that the terms of the trust allow only the
income to be used for the association's purposes. The Big C Club is the identified
beneficiary of a trust that is valid and may continue for at least a perpetuities
period. Continuation or disposition of principal thereafter depends (i) on whether the
association is capable of taking and holding title to the property, in which case the
trust may continue but will not be indestructible, or else (ii) on the terms and
interpretation of the trust and the governing law of the association. See Comment
e.
3. S's will leaves $50,000 to T in trust to divide the money among the persons
who at the time of S's death are the members of the A Association. The trust is
valid whether the A Association is a charitable organization, a business organization,
a social club, or any other form of association, because its membership and thus the
trust beneficiaries are immediately ascertainable.
4. S's will leaves $50,000 to T in trust for the P Association, which is a general
partnership of which X and Y are equal partners at the time of S's death. If the
partnership as such is not capable of holding title to property or of being a
beneficiary of a trust, X and Y are the beneficiaries of the trust. In that event, if Z is
subsequently admitted as a partner in place of Y and all the assets of the old
partnership are transferred to the new partnership, X and Z become the
beneficiaries of the trust.
This Section condenses and updates subject matter covered by Restatement

Second, Trusts §§ 116 through 119. Updating mainly reflects modernization in the
law of unincorporated associations and the relaxation in legislation and in the
Property Restatement of rules and consequences associated with rules against
perpetuities. See § 29, Comment g, and Reporter's Note thereto.
Comment b:
On the possibility of resulting trusts in these situations, see § 9, Comment g,
and Reporter's Note thereto, and also more generally § 8.
The current state of the law concerning alien property ownership is discussed in
II William F. Fratcher, Scott on Trusts § 117.2 (4th ed.) (1987). See also Warren,
"Personal Trusts for Nonresident Aliens," 124 Trusts & Estates 29 (1985); Note,
"Creation, Administration and Effectiveness for 'Failsafe' Trusts for Nonresident
Aliens," 17 Georgia J. of International & Comparative Law 121 (1987).
Comment c:
"A non-home-rule [i.e., a municipal corporation] may acquire and hold title to
real property only for a legitimate [constitutional or statutory] corporate purpose."
Timothy Christian Schools v. Village of Western Springs, 285 Ill.App.3d 949, 955,
221 Ill.Dec. 261, 265, 675 N.E.2d 168, 173 (1996).
Comment d:
On the capacity of various forms of partnerships and associations to hold title to

property, and on the relevant Uniform Acts, see § 33, Reporter's Note to Comment
f.
Comment e:
By analogy, under a strict, traditional common-law rule against perpetuities, the

period mentioned in the second paragraph of the Comment would be 21 years,
unless the settlor has designated one or a permissible number of measuring lives to
precede the 21 years. Considerably greater leeway should be allowed under the
wait-and-see (and reformation) rules of the Uniform Statutory Rule Against
Perpetuities (with its special 90-year period) and of Restatement Second, Property
(Donative Transfers) § 1.3(2)(b) and, e.g., id., Comment e (supplying the "lives" by
default). Also, note that the perpetuities problem in this commentary is not strictly
one of the rule against perpetuities, with its focus on "vesting"--i.e., on the absence
of a condition precedent. See Restatement Second, Property (Donative Transfers) §
1.4, Comment b. Nor does the rule (normally) apply to invalidate reversionary
interests ("resulting trust" interests in the commentary here). Id. § 1.4, Comment
c.
Research References
(2003)
(C)
REST 3d TRUSTS s 44


§ 44. Definite-Beneficiary Requirement
A trust is not created, or if created will not continue, unless the terms of
the trust provide a beneficiary who is ascertainable at the time or who may
later become ascertainable within the period and terms of the rule against
perpetuities.
Comment:
a. Scope of Section; general principles. The rule stated in this Section is not
applicable to charitable trusts. See § 28, Comment c. On the effect of a transfer
upon an intended trust for a specific or general noncharitable purpose, without
designating a definite or ascertainable person as beneficiary, see § 47.
The creation or continuation of a trust, or the validity of a trust provision
purporting to create a beneficial interest, requires that there be a person to receive
and hold the beneficial interest in the trust property--an identifiable person by
whom or on whose behalf the trust or the provision in question can be enforced.
It is not necessary that the intended beneficiary or beneficiaries be known at the
time of the creation of the trust. A beneficiary must be either: (1) specifically
named or capable of ascertainment from facts existing at the time the trust or
interest is to be created (cf. the doctrine of facts of independent significance in §
17, Comment d), or at the time when a question of the trust's continuance is to be
resolved; or (2) capable of becoming existent and ascertainable in the future from
facts that will be determinable within the period and terms of the rule against
perpetuities, including by exercise of a power of appointment. (The operation and
effects of common-law and statutory rules against perpetuities are not within the
scope of this Restatement, but see § 29(b) and especially § 29, Comment g, for a
summary discussion.)
A trust may have a single beneficiary or multiple beneficiaries whose interests
may be enjoyable concurrently or successively. And just as legal interests may be
held in tenancy in common or joint tenancy, so may the equitable interests of trust
beneficiaries.
The interests of some trust beneficiaries may be valid although the intended
interests of others are not, including invalidity for indefiniteness, unless the failure
of some interests defeats the entire plan of the settlor in creating the trust.
b. Beneficiaries ascertainable by description. Beneficiaries need not be named in
the terms of the trust, but may be designated by class terminology or by
description. Thus, wills often establish trusts for the primary or eventual benefit of
classes consisting of the testator's children and other descendants. Other forms of
description also may be used.
Illustration:
1. S's will leaves her residuary estate to T in trust to pay $10,000 to each
person who is a full-time employee of S at the time of her death, and to pay
$25,000 to each of S's brothers and sisters who are living at her death, with the
rest of the trust estate to be held in trust (in accordance with terms described in the
will) for S's issue. A trust is created, and all of the beneficiaries mentioned here are
ascertainable by description.
c. Trusts for unborn or subsequently ascertainable beneficiaries. A trust or trust
provision may be created, and once created may continue, for the benefit of a
person or persons not in existence or not ascertainable at the time of the creation or
continuation of the trust if they and their interests will be ascertainable, or the
beneficial interests will fail, within the period and the terms of the applicable rule
against perpetuities. Thus, a child who has not been born or conceived at the time
of the creation of a trust can be a beneficiary of the trust.
Illustrations:
2. O declares himself trustee of certain securities to pay the income of the trust
to B during her lifetime and following her death to accumulate the income and to
pay the principal and accumulated income to B's children who attain age 21. The
trust, including the remainder interest, is valid whether or not B had any children at
the time of the declaration of trust. If at B's death she leaves children then living,
the trust will continue (or be distributed) pursuant to its terms. If she dies leaving
no children, or if no children who survive her live to age 21, the trust, although valid
throughout its existence, will terminate (assuming no other disposition is provided
in the terms of O's declaration), and the trust property will revert to O, if living, or
to his successors in interest, in either case by resulting trust (see §§ 7 and 8).
3. X, a childless bachelor, transfers Blackacre to T in trust to manage the
property and to accumulate or expend the rents and profits for the benefit of X's
first-born child and to convey Blackacre, together with any accumulated rents and
profits, to that child on attaining majority. A trust is created. If X later dies without
ever having a child, the trust will not continue, and T will hold the trust property for
X's estate (or other successor(s) in interest, possibly even by assignment by X
during life).
4. S's will leaves $50,000 to T in trust to invest and manage and to pay such
amounts from the income or principal of the trust as S's husband H may direct,
during his life or by will, to or for the benefit of such relatives, friends, charities, or
others as H may select (but excluding H, his estate, or the creditors of H or his
estate); and to the extent H does not so direct the disposition of the trust property,
the trustee is to distribute the remainder of the trust estate in equal shares to those
of S's nieces and nephews who have graduated from high school by the time of H's
death. A trust is created with H being granted a valid power of appointment by
which beneficiaries may be ascertained in the future, and also with beneficiaries,
ascertainable by description, to take in default of appointment.
As in Illustrations 2 and 3, the validity of the trust in Illustration 4 is not affected
by the fact that the beneficial interests provided by the terms of the trust may
eventually fail to materialize and that the trustee may then hold upon resulting trust
for the settlor's successors in interest.
Although the reversionary beneficiaries in these Illustrations take by operation of
law rather than by the terms of the trusts, they are nevertheless beneficiaries of the
trusts and their interests are legally protected and enforceable. See § 48, Comment
a.
c(1). Corporation not yet organized. Subject to limits imposed by the rule
against perpetuities, a trust may be created in favor of a corporation (see § 43) that
is not organized at the time of the creation of the trust. Thus, a corporation to be
formed by the settlor may be a trust beneficiary because the described corporation
will necessarily be organized, if at all, within the settlor's lifetime. If no corporation
is so organized, the trust reverts (by resulting trust, § 8) to the settlor's successors
in interest.
d. Predeceased beneficiary. A person who has died prior to the creation of a
trust cannot be a beneficiary of the trust. Thus, if property is devised in trust for a
person who predeceases the testator, the devise of the beneficial interest lapses. If
other beneficiaries are not provided by the terms of the trust (or by anti-lapse
statute), the designated trustee ordinarily holds the property upon resulting trust
for the estate of the testator (see § 8).
So also, if property is transferred inter vivos in trust, or a property owner makes
a declaration of trust, for a designated person who is dead at the time of the
transfer or declaration, in the absence of other beneficiaries no express trust is
created. Ordinarily (§ 8, Comment f), in such a case the transferee holds upon a
resulting trust for the transferor, or the declarant holds the property free of trust.
In the case of a revocable trust, however, the interest of a designated
beneficiary who is alive at the time the trust is created but dies before the trust
becomes irrevocable, under traditional doctrine, does not fail unless that interest is
subject to an expressed or implied condition of survival. Statutes or modernized
doctrine may bring such dispositions under lapse rules and anti-lapse statutes. See
§ 25(2), and particularly § 25, Comment e, and Reporter's Note thereto; also see
Restatement Second, Property (Donative Transfers), Chapter 34 (and compare id.,
Chapter 13).
The material in this Section condenses the subject matter dealt with in
Restatement Second, Trusts §§ 112 through 115, without change of substance
except for clarification or as called for by updating (most pervasively, to reflect
Property Restatement and legislative relaxation of rules and consequences
associated with rules against perpetuities; see § 29, Comment g, and Reporter's
Note thereto).
Comments a through c:
On these Comments and Illustrations, see generally discussion and cases

collected in II William F. Fratcher, Scott on Trusts §§ 112, 112.1 (where the only
beneficiaries are unborn) and 112.2 (corporation not yet formed) (4th ed. 1987).
That treatise (§ 112) states (paragraphing disregarded and sequence adapted):
"[T]here need not be a specific designation of the beneficiaries by name, if there is
such a description of the beneficiaries in the trust instrument that they can be
identified from extrinsic facts.... It is very common, of course, to provide for a
division among the children or grandchildren or other relatives of the testator who
are living at the time of the death of a life tenant.... [T]rusts created by will have
been upheld where the beneficiaries are referred to as [business] partners of the
testator at the time of his death, or persons taking care of the testator during his
last illness or in his old age, or persons in his employ at the end of his life. The
description, however, must be sufficiently definite so that the persons can be
identified.... A trust can be created in favor of beneficiaries not specifically named in
the trust instrument and not ascertainable from facts existing at the time of the
creation of the trust, if they are ascertainable at some future time within the period
of the rule against perpetuities."
On Illustration 3, see Folk v. Hughes, 100 S.C. 220, 84 S.E. 713 (1915), and
Foreman v. Hazard, [1984] 1 New Zealand L. Rep. 586 (1984); cf. Spilman v.
Mercer County Nat'l Bank, 268 Ky. 761, 105 S.W.2d 1031 (1937), and W. Fratcher,
"Trustor as Sole Trustee and Only Ascertainable Beneficiary," 47 Michigan L. Rev.
907 (1949). Also, however, with this Illustration contrast Morsman v. Comm'r, 90
F.2d 18 (8th Cir.1937) (in which dissent seems correct, and the majority's generally
criticized view seems strained in order to block a tax-avoidance plan), noted in 38
Columbia L. Rev. 195, 51 Harvard L. Rev. 176, and 24 Virginia L. Rev. 83.
On beneficiaries or noncharitable purposes to be determined in the trustee's
discretion, see §§ 46(2) and 47(1), infra this Chapter.
Comment d:
A comprehensive discussion of the lapse doctrine and anti-lapse statutes is

beyond the scope of this Restatement. See Restatement Third, Property (Wills and
Other Donative Transfers) §§ 1.2 and 5.5. Also compare original Uniform Probate
Code §§ 2-605, 2-606, with Revised UPC 2-603 and 2- 604.
On the application of the lapse doctrine and anti-lapse statutes to persons taking
under trusts created by will, see, e.g., In re Trusts Under Will of Holt, 491 N.W.2d
25 (Minn.App.1992), Hester v. Sammons, 171 Va. 142, 198 S.E. 466 (1938), 118
A.L.R. 554, both cases citing Restatement Second, Trusts, supra (§ 112), and
supporting the rule stated in this Comment; and cf. Zweifel v. Dougherty, 761
S.W.2d 215 (Mo.App.1988) (traditional view that the anti-lapse statute is not
applicable to an inter vivos transfer).
The subject of the applicability of the lapse doctrine and anti-lapse statutes to
revocable inter vivos trusts is dealt with in this Restatement at § 25(2) and its
commentary and Reporter's Notes, as noted in the text of this Comment. See also
Restatement Third, Property (Wills and Other Donative Transfers) §§ 1.2 and 5.5.
Also compare Restatement Second, Property (Donative Transfers) § 27.2, Comment
f (death after trust executed but before effective date), and § 27.1, Comment e
(death before instrument executed).
Research References
West's Key No. Digests, Perpetuities 4(15); Trusts 1, 9, 21(2).
Time of ascertaining persons to take, under deed or inter vivos trust, where designated
as the "heirs," "next of kin," "children," "relations," etc., of life tenant or
remainderman. 65 A.L.R.2d 1408.
Time as of which members of class described as grantor's or settlor's "heirs," "next of
kin," "relations," and the like to whom a future gift is made, are to be ascertained.
38 A.L.R.2d 327.
Charitable trust as affected by lack of territorial limitations as regards beneficiaries. 141
A.L.R. 346.
(2003)
(C)
REST 3d TRUSTS s 45


§ 45. Members Of A Definite Class As Beneficiaries
The members of a definite class of persons can be the beneficiaries of a

trust.
Comment:
a. Application of the rule. A class of persons is definite within the meaning of the
rule stated in this Section and the rule of § 44 if the identity of all the individuals
comprising its membership is ascertainable at the time the trust is created or will
become ascertainable within the period and terms of the rule against perpetuities. A
class is not indefinite for this purpose merely because it consists of a changing or
shifting group, the number of whose members may increase or decrease.
Typical of provisions for definite classes are trust provisions for the "children" or
"grandchildren," the "issue" or "descendants," or the "heirs" or "next of kin" of a
designated person, or for a person's "brothers and sisters" or "nieces and nephews."
Also, under ordinary circumstances, a provision for the members of an
unincorporated association on the date of the disposition, or on a date five or 10
years later, is or will timely become sufficiently definite to permit the intended
beneficiaries to be ascertained (§ 43, Comment e).
b. Shares of class members. If the shares in which class members are to take
are specified, or the manner in which they are to benefit is stated, those directions
in the terms of the trust will be followed. A settlor's unclear directions can be
clarified by interpretation or construction. (On the meaning of "per capita," "per
stirpes," and similar expressions, with relevance also to construction of class gifts,
compare Restatement Third, Property (Wills and Other Donative Transfers) §§ 2.3,
Comments b through g.)
If the settlor fails to specify the shares of class members or to provide for the
manner in which they are to benefit, class members described as "children,"
"grandchildren," "brothers and sisters," or "nieces and nephews" are presumed to
take equally. Those described as "issue," "descendants," "heirs," or "next of kin" of
a person are presumed to take in the manner in which those class members would
take the person's property as intestate successors under applicable law. (The
various distribution systems are discussed in Restatement Third, Property (Wills and
Other Donative Transfers) § 2.3.)
c. Power of selection. A trust may be created for the benefit of selected
members of a definite class when the terms of the trust authorize the trustee or
another person to determine the recipients and the portions in which they are to
take. (On power to select beneficiaries from the members of an indefinite class, see
§ 46, Comment d.)
If the trustee or other person having the power of selection fails to exercise it,
the trust property will be divided among the members of the definite class, as
determined at the time of the expiration of the power, in equal shares or in other
shares appropriate to the class term (see Comment b), unless the transferor has
manifested a different intention.
d. "Relatives." Whether the term "relatives" is a definite class depends on the
settlor's intended meaning in using the term.
If it is shown that, in using the word "relatives," the settlor intended to create a
trust for all individuals who are related to the designated person, the intended class
is not sufficiently ascertainable to sustain a trust, because a person has an indefinite
number of close and remote relatives. Thus, an intended trust to divide the trust
property equally among all relatives of a designated person fails under the rule
stated in the Section.
On the other hand, under the preferred construction, an intended trust for
"relatives" is to be interpreted not to mean all relatives (supra) but to mean some
definite group of near relatives or some other ascertainable group of relatives.
Absent evidence of the settlor's actual intention (or a power of selection, see below
and Comment c), the term will be construed to refer to the heirs of the designated
person. Under any such construction, the class is definite within the rule stated in
this Section.
d(1). Selected "relatives." A trust for the benefit of "relatives" of the settlor or
other designated person does not fail if the trustee has power to select who among
the relatives shall take and in what portions. See Comment b. In such a case, the
trustee may select any person or persons who reasonably fit within the meaning of
the term, whether or not they would be heirs of the designated person.
If the trustee fails to make a selection, however, the property will be divided
among those relatives who would be the heirs of the designated person as
determined at the time the power expires and in shares determined by the
applicable intestacy statute, unless the transferor has manifested a different
intention.
e. "Family." In the case of a trust for members of the "family" of a designated
person, a difficult question of interpretation arises. The term may be construed to
include the designated person and his or her spouse and children, or such of these
persons or other relatives or others as are living with the designated person, or it
may include certain other relatives. In any event, once the meaning is determined,
by interpretation, the term supplies a definite class for purposes of the rules stated
in this Section and in § 44, unless the term is found to include relatives generally, in
which case it falls within the principles of Comment d.
Where a trust is created for members of the family of a designated person, the
extent of the interests of the various family members involves a further question of
interpretation. The settlor may have intended that each member of the "family" be
entitled to an equal share, especially in the case of a prompt distribution of the trust
property. On the other hand, the settlor may have intended successive life and
remainder interests, or that one member of the family be entitled to the whole
beneficial interest except to the extent funds are needed for the support of other
members of the family. Or the settlor may have intended the trustee to have
discretion concerning the benefits to be received by the various members of the
family.
An analogous question is whether a transfer to A for the benefit of "himself and
his family" manifests an intention to create a trust or merely an intention to make a
beneficial gift to A, with an expression of motive for making the gift. That question
is discussed in § 13, Comment d (and compare § 13, Illustration 10). On the
treatment of a class gift directly to a person and his or her family, see original
Restatement of Property § 303(2).
f. Persons who can enforce the trust. When a trust is created for members of a
class, suit to redress or enjoin a breach of trust can be maintained by any member
of the class. See generally § 94. This is true even though the trustee has power to
select which members of the class shall take and has not yet exercised the power;
each member of the class is a beneficiary of the trust until excluded by the trustee's
exercise of the power in favor of other class members (cf. § 48, Comment a). The
fact that a member of the class may ultimately take nothing does not prevent that
beneficiary from maintaining suit; each of the beneficiaries of such a trust is in this
position, for if none could sue the trustee might commit a breach of trust with
impunity.
Illustrations:
1. S's will leaves $100,000 to T in trust to pay the income to B for life and upon
B's death to pay the principal to such of the issue of B and in such proportions as T
may select. During B's lifetime and with B's consent, T commits a breach of trust by
borrowing some of the trust fund. Any of B's issue can maintain a suit to compel T
to redress the breach of trust.
2. Same facts as in Illustration 1, except that upon B's death T decides not to
exercise his power of selection. T is to distribute the property to such of B's then
living issue and in such shares as called for by that form of representation
prescribed by the applicable statute of intestate succession. At that time, only one
or more of the issue so determined may enforce the trust. (The choice-of-law rule
for determining the applicable statute is not within the scope of this Restatement.)
g. Declaration of trust. The rules stated in this Section apply where the owner of
property makes a declaration of trust, as well as where the owner conveys or
devises property to another in trust. Thus, if S effectively declares herself trustee of
property for such of her issue as she may thereafter appoint, until the power is
exercised, assuming the trust is irrevocable, it may be enforced by any of S's issue,
because the issue constitute a definite class that would take by implied remainder in
default of appointment.
The material in this Section goes a bit beyond the subject matter of Restatement
Second, Trusts §§ 120 and 121, but is consistent with the content of Restatement
Second, Trusts, so far as that content goes.
Comment b:
For purposes of intestate succession, the shares of descendants and the

meaning of "per stirpes," "per capita," and various forms of these terms and of
"representation" are discussed in Restatement Third, Property (Wills and Other
Donative Transfers) § 2.3 (see also § 2.4 on shares of ancestral and collateral
relatives). The parent and child (adoptive and nonmarital) relationships and other
definitional aspects of class membership are discussed in id. § 2.5. (Matters of
construction of class terminology used in donative instruments had not been
reached in the Restatement Third, Property (Wills and Other Donative Transfers),
project at the time of publication of this volume of Restatement Third, Trusts.)
Comments c through e:
Most matters covered in these Comments and the relevant cases are discussed
in II William F. Fratcher, Scott on Trusts, §§ 120 (definite classes), 120.1 ("family"),
and 121 ("relatives") (4th ed. 1987).
That the trustee (or another) can have power to select among the members of a
definite class, see, e.g., Edgerton v. Johnson, 178 F.2d 106 (7th Cir.1949), In re
Work Family Trust, 260 Iowa 898, 151 N.W.2d 490 (1967), and Rice v. Morris, 541
S.W.2d 627 (Tex.Civ.App.1976); and that a division will be made among the
members of a definite class if the trustee refuses or fails to make selections, see,
e.g., First-Mechanics Nat'l Bank v. First-Mechanics Nat'l Bank, 137 N.J.Eq. 106, 43
A.2d 674 (1945), and Schroeder v. H.C. Coe Trust, 437 N.W.2d 178 (S.D.1989).
See also § 46, Comment c, and Reporter's Note thereto. (All of the cases cited in
this paragraph relied on Restatement Second, Trusts, supra (§ 120) and support the
relevant positions of this Section.)
The position stated at the end of Comment b and in Illustration 2 of Comment f
concerning the shares in which distribution is to be made among "issue" (or
"descendants") rejects the position (a "strict per stirpes" rule) adopted in 1987 in
Restatement Second, Property (Donative Transfers) § 28.2(3). (The position stated
here, however, reflects the position taken in the first Restatement of Property §
303. It was also supported by numerous Advisers to the Property Second project
and has been agreed to without dissent by the Trusts Third Advisers, a group that
includes the Reporter for the Property Third project, which has yet to state its rules
on class gifts; nor were any objections raised at the 1999 Annual Meeting of The
American Law Institute when the Tentative Draft (No. 2) covering this material was
approved.)
On the term "relatives" or its equivalent, see Estate of Lawrence, 104 N.H. 457,
189 A.2d 491 (1963), 5 A.L.R.3d 709, and Lundie v. Walker, 126 N.J.Eq. 497, 9
A.2d 783 (1939); but see Binns v. Vick, 260 Ark. 111, 538 S.W.2d 283 (1976). "The
term 'relatives' is construed to mean heirs in order to avoid uncertainty. The trustee
can select a relative who is not an heir, but if the trustee fails to make a selection,
the property passes to the heirs in the proportions established by law." William M.
McGovern, Jr., Sheldon F. Kurtz & Jan Ellen Rein, Wills, Trusts, and Estates § 8.5
(Hornbook 1988).
On the term "family," see Garner v. Andreasen, 96 Idaho 306, 527 P.2d 1264
(1974); McLendon v. Priest, 259 Ga. 59, 376 S.E.2d 679 (1989); Lewis B. Simes &
Allen F. Smith, The Law of Future Interests § 726 (2d ed. 1956); M. Minow,
"Redefining Families: Who's In and Who's Out?," 62 Colorado L. Rev. 269 (1991);
and Note, 154 A.L.R. 1411 (1945).
Research References
West's Key No. Digests, Trusts 9, 21(2).
Adopted child as within class named deed or inter vivos trust instrument. 37 A.L.R.5th
237.
Husband or wife as heir within provision of will or trust. 79 A.L.R.2d 1438.
(2003)
(C)
REST 3d TRUSTS s 46


§ 46. Members Of An Indefinite Class As Beneficiaries
(1) Except as stated in Subsection (2), where the owner of property

transfers it upon intended trust for the members of an indefinite class of
persons, no trust is created.
(2) If the transferee is directed to distribute the property to such
members of the indefinite class as the transferee shall select, the
transferee holds the property in trust with power but no duty to distribute
the property to such class members as the transferee may select; to
whatever extent the power (presumptively personal) is not exercised, the
transferee will then hold for reversionary beneficiaries implied by law.
General Comment:
a. When class is "indefinite." A class of persons is indefinite under the rule of this
Section if the identity of all individuals comprising its membership cannot be
ascertained. Although it is possible to determine that certain persons fall within a
class and that others do not, it may be impossible to determine all of the persons
who fall within it. In such a situation, the class or group is indefinite. This is the
case, for example, of a class consisting of all of the "friends" of the settlor or of
another person. So also, a class is indefinite if it includes all persons other than the
transferee or the transferee's estate.
A different situation is presented where a class reference is merely precatory
and the transferor is found to have intended a beneficial gift to the transferee,
rather than to create a trust. See § 13, Comment d.
b. Where an equal division is directed among, or a specified amount is to be paid

to, all members of the class. If the only beneficial provision of an intended trust
directs the trust property to be divided in equal shares among all of the members of
an indefinite class, no member of the class can maintain a proceeding to enforce the
intended trust, nor can anyone else. Because the intended trustee is under no
enforceable duty to carry out the testator's direction, no trust is created. Moreover,
since the total membership of the class cannot be ascertained, it is impossible to
make an equal distribution among all of the members of the class, even if the
intended trustee wishes to do so.
Similarly, where a testator directs the trustee to pay a specified sum to every
member of an indefinite class, the intended trust provision for those class members
fails. Accordingly, in these circumstances, the intended trustee holds the property
upon resulting trust for the testator's estate.
Although a disposition is expressed simply as a trust for the members of an
indefinite class, a literal interpretation would seem doubtful as a matter of
transferor intention and (unless the transferor is alive to take by resulting trust)
would wholly defeat whatever specific objective the transferor had in mind. An
interpretation is therefore preferred that would give the disposition some effect
reasonably consistent with the transferor's general objective. Thus, the disposition
may be interpreted as intended to create a trust for members of the described class
as determined or selected by the designated trustee, in which case the situation
falls within Subsection (2). See Comment d. Or, if the disposition is interpreted as
one intended to benefit those members of an otherwise indefinite class that are or
may become identifiable in a manner described in § 44, Comments a and b, a valid
trust is created. See § 45.
Illustrations:
1. S leaves all of his property to T in trust to distribute it in equal shares among

S's friends and relatives. Under a literal interpretation, the intended trust fails, and
S's estate will be distributed by resulting trust to S's next of kin. By interpretation,
however, it may be found either (i) that some ascertainable group of friends and
relatives was intended (in which case see § 45) or (ii) that an implied term of the
trust authorizes T to determine who the friends and relatives are or to select
distributees from among S's friends and relatives, with the direction then being to
distribute the property in equal shares to all of those so determined or selected (in
which case see Comments c-g).
2. S leaves his entire estate to T in trust to hold and manage the property until
she can liquidate sufficient amounts to pay $10,000 to each of S's friends, and then
to distribute the rest of the estate to C Church. Unless interpretation shows an
intended membership for the class of "friends" that is ascertainable, or an intended
power of selection among them, the intended trust provision for the friends fails,
with the entire estate to be distributed to C Church.
c. Background and comparison: powers of appointment. Subsection (2)

addresses situations in which a property owner conveys or devises property to a
person who is directed, not merely authorized, by the terms of the intended trust to
distribute the property to persons to be selected by the trustee from an indefinite
class of intended beneficiaries. This situation is discussed hereafter in Comment d.
Different from those situations and much more frequent are instances of valid
transfers in trust for the benefit of definite beneficiaries under which one or more of
the beneficiaries, or occasionally a trustee or other person, is granted a power of
appointment by which the trust property or remainder may be (i.e., is authorized
but not required to be) appointed to or for one or more "objects" (permissible
appointees) of the power.
Under well-established doctrine, the objects of powers of appointment may
properly consist of classes that are either definite or indefinite; powers of
appointment may even be general, with no limit whatever with respect to
permissible appointees. Thus, a fairly typical trust might direct T to pay the income
to A for life and thereafter to distribute the remainder as A may appoint by her will
to or for any one more of her issue (a special testamentary power), with T directed
to distribute the remainder in default of appointment to A's issue by some form of
representation prescribed by the trust terms. The validity of the trust would not be
affected if A's power of appointment had allowed her to appoint by will among "her
or my friends and relatives" or to "any one or more persons or entities she may
choose, including her estate," or, as is sometimes provided for tax purposes, "to
any one or more persons or entities, excluding her estate or the creditors of herself
or her estate." Nor would the validity of the power or trust be affected if she had
been allowed to exercise her power inter vivos.
The donee (holder) of one of the above powers of appointment is under no duty
to exercise the power--unlike the intended mandate to a trustee to make selections
in the situations considered in Comment d and falling within the rule of Subsection
(2). (Unfortunately, judicial opinions or texts sometimes use confused terminology,
such as "power held in trust," to express the typical result that, in the absence of an
express gift in default of appointment, cures the drafting defect simply by implying
a gift in default of an appointment when the class of objects is definite. Illustrative
would be the first of the powers in the preceding paragraph if the settlor had
omitted the default provision providing for A's issue to take by right of
representation. See § 45, and particularly compare § 45, Comments b and d. Also
cf. Restatement Second, Property (Donative Transfers) § 24.2.)
A trust can be created for beneficiaries whom the settlor, or another, is
authorized later to designate or "appoint." See § 44, Comment a, and especially §
44, Comment c, and Illustrations 3 and 4. Also see § 45, Comment g.
d. Beneficiaries to be selected by trustee. Occasionally, a testator leaves
property to another upon an intended trust for members of an indefinite class to be
selected by the devisee, intending thereby to impose upon the devisee, as trustee,
a duty to make selections and to hold and administer the property in the meantime
solely for the members of the class. This presents a problem that differs significantly
from that in Comment b but that similarly arises from the requirement that a trust
have definite beneficiaries.
d(1). Example. Instead of attempting to create a trust simply for all of the
members of an indefinite class (as in Subsection (1) and Comment b), the testator
leaves property to a person who, as trustee, is directed to liquidate the property
and to distribute all of its proceeds in equal shares to those of the testator's
"friends" whom the trustee shall select.
This trust, as written, fails for lack of definite beneficiaries capable of enforcing
the intended fiduciary duty of selection. See Reporter's Notes. The settlor's intended
trust purpose, however, need not fail altogether: That the trustee cannot be
required to select the beneficiaries, and that a court will not direct a recalcitrant
trustee to make equal distribution to class members too indefinite to be ascertained,
nor even remove and replace the trustee, does not mean that the trustee cannot be
allowed to make the selections if willing to do so.
The result of this example is that the devisee holds the property upon a trust,
adapted by operation of law, for reversionary beneficiaries (the same persons who
would take by resulting trust under § 8 if the trust had immediately and completely
failed), subject to the interests of potential beneficiaries later to be identified by the
devisee's exercise of a nonmandatory power of selection. (On the validity of such a
trust, cf. § 44, Comments a and c; Comment c, above, on powers of appointment;
and § 45, Comment g.) Thus, the law simply treats the defective disposition as
having a trust effect approximating that stated by the testator. Instead of complete
failure, with an immediate resulting trust, there is a legally implied reversion to take
effect only in default of selection.
d(2). Rationale. A testator can create a trust expressly for the people who would
be his or her own heirs (or residuary beneficiaries), subject to an express power of
appointment by which the trustee is allowed to appoint among an indefinite class of
objects. (See Comment c.) Or the testator could have created a trust for
beneficiaries authorized to be appointed later by the trustee, with either an express
gift or one implied by law (a reversionary or "resulting trust" interest) in favor of the
testator's estate (see § 44, Comments a and c).
Therefore, if an intended trust that purports to require the trustee to select
distributees from an indefinite class (such as "friends") fails as written, then, rather
than to have the purpose fail altogether, the testator's purpose would be better
served--and no policy of the law is violated (see Comment c)-- by treating the will
as having created an adapted version of the intended trust. This results in an
enforceable trust for a definite though unexpressed (legally implied) class of
reversionary beneficiaries, whose interests are subject, by legal adaptation, to a
nonmandatory power in the trustee to select other distributees.
In brief, if a devisee can properly make distributions where merely authorized to
do so, there is no reason why a devisee should be precluded from doing so where
directed to do so. In neither case can the devisee be compelled to make the
distributions, but in both cases a willing devisee should be permitted to carry out
the testator's intention. This rule also serves to remove (or at least to reduce to
technical questions) any issue of whether a particular power was or was not
intended by the settlor to be mandatory.
Under the rule of Subsection (2), the primary purpose of the adapted trust will
fail only to the extent the trustee (i) refuses to make selections, (ii) selects
beneficiaries to receive some of the property but declines to make additional
selections, (iii) fails to make selections within the specified time or the otherwise
implied "reasonable period" for doing so, or (iv) dies without having exercised the
power.
d(3). Selection power presumed personal. The preceding paragraph assumes, as
is normally presumed, that the power of selection in any such case (like the typical
power of appointment) was intended by the settlor to be personal to the designated
trustee. (It is not presumed that the general administrative duties of the trusteeship
are also personal to the named trustee; the person so designated may decline or
cease to serve as trustee while retaining the power of selection. See Illustration 4,
below, and more generally § 47, Comment f. Also, see § 34(2) on court
appointment of substitute and successor trustees generally; and cf. § 70(2), that
powers conferred upon a designated trustee, unless personal to that trustee, may
properly be exercised by a successor or substitute trustee.)
On the other hand, if the testator in the Example above (Comment d(1)) had
designated or provided a means for designating a substitute or successor trustee,
the power of selection in the adapted trust would pass to the substitute or successor
upon the initially designated trustee's disclaimer, resignation, incapacity, or death
before the power is exercised or expires.
Similarly, if no substitute or successor was designated but the testator's
intention is shown not to depend on the designated person serving as trustee (cf.
observation following Illustration 3 of § 47, Comment c), then the selection power
as well as the trusteeship in the adapted trust would pass to a court-appointed
substitute or successor trustee.
Illustrations:
3. S's will leaves her residuary estate to T, in trust, "to administer and liquidate
the property and to distribute its proceeds, within five years after my death, equally
to such of my friends and relatives as T shall select." The intended trust will not be
enforced as written, but T holds S's residuary estate upon an adapted trust with the
power but no duty to distribute the trust property equally among any persons T may
select, but excluding anyone he selects who does not reasonably qualify as a friend
or relative of S. Thus, by adaptation, T holds S's residuary estate in trust for S's
heirs at law (a definite class of beneficiaries), who have power to enforce the trust
but whose interests are subject to divestment by an exercise of T's nonmandatory
power to select one or more qualified distributees.
4. The same facts as in Illustration 3, except that T wishes to make the
selections entrusted to him but does not feel able to handle all of the fiduciary
responsibilities of the trusteeship. T may retain and perform the presumptively
personal, nonmandatory power of selection while declining to serve as trustee. A
court will appoint a substitute trustee to manage and liquidate the trust property
and to distribute it as instructed by T.
5. The same facts as in Illustration 3, except that T is to determine the shares to
be taken by any friend or relative he selects. T completes the liquidation of the
estate and selects eligible distributees to receive a total of two-thirds of the
proceeds, after which he makes no further selections within the five-year period
specified by S. T holds the remaining one-third of the estate, with respect to which
he has not exercised his power of selection, in trust for S's heirs at law (or their
successors in interest), to whom he is obligated promptly to make distribution.
e. Rule against perpetuities. An intended disposition of the type considered in
this subsection may fail altogether on the ground that the power in the adapted
trust violates the severe, traditional common-law rule against perpetuities. See §
29(b). Powers of this type, however, as we have seen (Comment d(3)), are usually
personal to named individuals and thus are not likely to involve risks of invalidity
under the rule; nor would other powers that are expressly or impliedly limited by
their terms to being exercised within the period of the rule. Examples of the latter
are powers even in corporate trustees that may be exercised only "within 21 years
of my death" or only in favor of a class of persons necessarily alive at the testator's
death (e.g., "my friends"). Furthermore, modernized rules regulating perpetuities
would preserve nearly all adapted trusts recognized under this subsection. See §
29, Comment g.
f. Transfers inter vivos; declarations of trust. The rule of Subsection (2) applies
to a transfer inter vivos directing the transferee to liquidate the property and to
distribute all of its proceeds among such members of an indefinite class as the
transferee shall select. The adapted trust, however, is revocable (cf. § 63, Comment
c) until the earlier of the settlor's death or the exercise of the power of selection and
distribution. This is the case even if the settlor had manifested the intention to
create an irrevocable trust, which as written cannot be enforced.
On the other hand, if the property owner executes a declaration of trust stating
that the property is held for such members of an indefinite class of persons as the
declarant may select, no trust is created. The declarant holds the property free of
trust, but free to perfect the contemplated dispositions by later selecting those who
are to benefit.
g. Enforcement of adapted trust. In no event is the devisee in the situation in
Subsection (2) permitted to keep or misappropriate the property. Either the power
of selection must be exercised or the trust property must be returned to the
settlor's estate. See Comment d.
The heirs or other successors in interest of the settlor can maintain a proceeding
to prevent or redress a breach of trust, or to compel the trustee to convey the trust
property to them if the power is not exercised within the period specified in the will
or, if none is specified, within a reasonable period fixed by the court. Thus, the
devisee holds the property upon an enforceable trust for the legally implied
reversionary beneficiaries, subject to a power in the devisee (trustee) voluntarily to
select and make distribution among members of the class.
A situation may arise in which the named trustee disclaims the office or resigns,
dies, or becomes incapacitated before the power in the adapted trust is exercised
and, although the power is not personal to that trustee (see Comment d(3)), no
substitute or successor is designated in the will. In such a case, either the testator's
successors in interest or a person who fits within the class description may petition
the court for appointment of another trustee. So may the testator's personal
representative if the named trustee in such a case predeceases the testator, as may
the personal representative, conservator, or guardian of a trustee who survives the
testator but dies or becomes incapacitated before the exercise or expiration of a
nonpersonal power. On nonjudicial means of obtaining a substitute or successor
trustee, see § 34, Comments c and c(1).
The subject matter of this Section is the same as the material covered in
Restatement Second, Trusts § 122, and the treatment of these matters here is
generally consistent in substance with the treatment in the prior edition. Important
differences (particularly in § 46(2)) are indicated below in the Notes to the
commentary.
Comment a:
It is sometimes stated that a class may be so indefinite that it will be impossible,

regardless of whom the devisee might select, to determine whether the person falls
within the intended class. (This statement is made in the Restatement Second of
Trusts, but the example used, id. § 122, Comment e, was a bequest to someone in
trust to be divided among persons to be named in a codicil to the testator's will, but
no codicil is ever found. This, however, would properly seem to fall within the rule
stated in § 17 of this Restatement, rather than being a case of a class designation
that is indefinite. See § 17, Comment g.) Although it is conceivable that such a
problem of total indefiniteness might arise in connection with matters considered in
Subsection (2), Comment d, the problem does not arise and failure does not result
merely because some person(s) might be selected whose eligibility could not be
determined; it is enough that a class is sufficiently defined that it would be possible
for the devisee to select some person(s) who could be fairly judged to fall within the
class. See In re Gulbenkian's Settlements, [1968] 1 Ch. 126, 134 (C.A. 1967),
stating that "if there is some particular person at hand [i.e., who might be
selected], of whom you can say that he is fairly and squarely within the class
intended to be benefitted, the clause is good. You should not hold it to be bad
simply because you can envisage borderline cases in which it would be difficult to
say whether or not a person was within the class."
Subsection (1) and Comment b:
The rule stated in this subsection and Comment results from the definite-
beneficiary requirements stated in § 44. Although modern appellate cases of the
particular type here addressed are understandably few, the stated result is long
settled and well accepted. The same view was taken in § 122 of the original
Restatement of Trusts and continued in Comment b of § 122 of Restatement
Second. See also II William F. Fratcher, Scott on Trusts § 122 (4th ed. 1987); and
George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 162 (Rev.
2d ed. 1979).
Illustrative cases include Dalton v. White, 129 F.2d 55 (D.C.Cir.1942) (specific
amount to every one of "my cousins living at my death, irrespective of the
remoteness of their relationship and irrespective of whether his or her parent cousin
may be living"); In re Williams' Estate, 167 Wash. 524, 10 P.2d 219 (1932), noted
31 Michigan L. Rev. 1181; and Sheedy v. Roach, 124 Mass. 472, 26 Am. Rep. 680
(1878)--although the provision in this last case might properly have been construed
as a general power of appointment. Cf. United States Trust Co. v. Montclair Trust
Co., 133 N.J.Eq. 579, 33 A.2d 901 (1943), noted 42 Michigan L. Rev. 926.
See also D. Hayton, "The Irreducible Core Content of Trusteeship," 5 J. of
International Trust & Corporate Planning 3 (1996) (substantially reprinting id.,
Contemporary Trends in Trust Law (A. Oakley ed. 1996)), which begins (p. 3):
At the core of the trust concept is a duty of confidence imposed upon a trustee
in respect of particular property and positively enforceable in a Court of Equity by a
person. As Lord Evershed MR has stated [(1960) Ch. 232, 246], "No principle,
perhaps, has greater sanction or authority behind it than the general proposition
that a trust by English law, not being a charitable trust, in order to be effective must
have ascertained or ascertainable beneficiaries." The beneficiaries' rights to enforce
the trust and make the trustees account for their conduct with the correlative duties
of the trustees to the beneficiaries are at the core of the trust.
See also In re Gulbenkian's Settlement Trust (Whishaw v. Stephens), [1970]
A.C. 508; and Brown v. Gould, [1992] Ch. 53, 57.
An interesting case to be compared to qualifications (i) and (ii) stated at the end
of Illustration 1 is Adams v. Simpson, 358 Mo. 168, 213 S.W.2d 908 (1948)
(residue to be divided equally among testator's friends and relations upheld as a
definite class because the court concluded the testator intended only to include his
relatives!). See also Armington v. Meyer, 103 R.I. 211, 236 A.2d 450 (1967)
(severing "acquaintances" from "employees" in a trust for both).
Comment c:
According to Lewis M. Simes, The Law of Future Interests § 55 (2d ed. 1966), a
"power of appointment may be defined as a kind of power created by a person
(called the donor) ... whereby a person (called the donee) can, subject to the
restrictions of the creating instrument, designate the transferees of the property
(called the appointees) or the shares or interests which they are to take." He adds
that this definition "may be supplemented by pointing out two important
characteristics of a power of appointment: (a) the exercise of the power has a dual
character; sometimes it is thought of as an event relating back to the instrument
creating the power, and sometimes as a transfer of property; (b) the power is
essentially personal to the donee."
See further Eugene F. Scoles, Edward C. Halbach, Jr., Ronald C. Link, & Patricia
G. Roberts, Problems and Materials on Decedent's Estates and Trusts Ch. 9, section
D (at pp. 363-364) (6th ed. 2000):
Unlike the trust's requirement of definite beneficiaries, a valid power of
appointment (see Chapter 10, section B) is personal to the power holder ("donee")
and may have a definite class of beneficiaries or it may not. In fact, in general
powers of appointment the "objects" (permissible appointees) are not limited. In
marginal cases, ... courts distinguish powers from trusts and try to decide whether
something is a trust or a power. Yet powers are not incompatible with trusts. The
typical power of appointment is but a provision of a trust, intended to give flexibility
to the trust and usually to provide a beneficiary of a limited beneficial interest some
broader power to dispose of trust property or some interest in it.
A fairly typical illustration is the following: W leaves her estate to T in trust to
pay the income to H for life; on H's death T is to distribute the principal to such of
H's issue as H may appoint by will, remainder in default of appointment to H's then
living issue by right of representation. H has a testamentary nongeneral ("special")
power of appointment. (In addition to its managerial powers, T also may have a
power over beneficial enjoyment, usually a power to invade principal for H's benefit
but sometimes broader; on such fiduciary powers, see Chapter 10, section A.2.) H's
power need not be exercised in a "fiduciary manner" and, in fact, may be left
unexercised, although none but permissible appointees may be benefitted by an
exercise.
What if W had failed to specify takers in default of appointment and H died
intestate or otherwise, leaving the power unexercised? Here, even with a power of
appointment, it becomes important to determine whether there is a definite class of
objects. If not, subject to narrow exceptions, it will be held that W made an
incomplete disposition of her property and that there is a reversion (or "resulting
trust") under which the property belongs to her (not H's) successors in interest. If,
however, there is a definite class of objects, the property passes to that class. Most
classes, such as children, they take in equal shares, although other definite classes,
such as issue (and perhaps relatives where ... considered definite enough), may
take in the pattern of the local intestacy statutes. Thus, a remainder or gift in
default of appointment is being implied in favor of the definite class. It is sometimes
said that the gift was to the class, subject to H's power to exclude some and to vary
the shares....
The distinction between a trust and a power was also recognized in the
Restatement Second of Trusts, which in § 122, Comment d, states: "The testator
may manifest an intention to give the legatee a power thus to distribute the
property without attempting to impose a duty upon him to make the distribution. In
other words, he may give the legatee a power of appointment over the property,
without attempting to make him trustee of it. Such a power is valid. In the [original]
Restatement of Property, § 323, Comment h, it is stated that a power to appoint to
a group of whatever size is not for that reason invalid, and if the power is exercised
in favor of one or more members of the group, such members are entitled to
receive the property. Thus, where the legatee is given a power to distribute the
property among such of the 'friends' of the testator as the legatee may select, and
the legatee selects persons who can be shown to be friends of the testator, the
persons so selected are entitled to the property." See also Restatement Second,
Property (Donative Transfers) § 11.4, Comment b, and § 12.1, Comment h.
Fratcher, Scott on Trusts, supra, § 122 (at p. 215) briefly restates and
summarizes the positions of the Property Restatements as follows, after noting that
a power of appointment need not be classifiable as either "general" or "special" in
order to be valid: "[I]f the class is so described that some person might reasonably
be said to answer the description, the power is valid and an appointment to a
person who falls within it is valid, although an appointment would be invalid if it
could not be determined whether the appointee answers the description. Under this
view a power to appoint property among the friends of the testator would not be
invalid merely because in some cases it might be difficult to determine the limits of
the class designated, and an appointment to a person or to persons who were
clearly friends of the testator would be valid." See also Reporter's Note to Comment
a.
The point has been so well accepted in future interest and property law that
modern cases involving specific issues of taxation, or of construction or application,
with respect to the whole spectrum of powers of appointment simply proceed to the
issues before the court without even pausing to consider the validity of the powers.
See, e.g., Nowlin v. Frost National Bank, 908 S.W.2d 283 (Tex.App.1995), involving
a power to appoint to a class that included relatives and charities.
Comment d:
American case law (infra) does not support the position of Subsection (2)
allowing intended trusts of the type discussed in this Comment, and in Comments e
through g, to be carried out even by treating them as "powers." In fact, the rule of
original Restatement of Trusts § 122 (reflecting case law) was simply that, because
there is no means of enforcing an intended trustee's fiduciary duty to select among
members of an indefinite class, the intended trust fails and the devisee takes the
property immediately upon resulting trust.
This position was changed (with little if any supporting case law even then) in
Restatement Second, Trusts § 122, which, although reaffirming that a disposition of
this type does not create "an enforceable" trust, stated that the disposition does
give rise (and does subject the testator's successors in interest) to a nonmandatory
power by which the devisee can effect a disposition in favor of selected members of
the indefinite class.
The Second Restatement, however, did not recognize, as this Subsection (2)
does, that the devisee takes the property as a trustee, with enforceable fiduciary
duties to hold for any beneficiaries who, pursuant to the terms of what is here called
an "adapted trust," may later become ascertainable (in accordance with § 44 of this
Restatement, and also for comparable situations in § 112 of Restatement Second)
and, in default of the selection of ascertainable distributees, to hold for reversioners
implied by law, though usually referred to in Restatement Second as beneficiaries of
a resulting trust, even in this context.
The material here in the commentary, recognizing the possibility that such a
power may not be personal to the initially named devisee (in accordance with the
discussion of enforcement later in Comment g), goes beyond the Restatement
Second view (§ 122, Comment d) that "no member of the class can maintain a
proceeding to enforce the trust, nor can any other person maintain such a
proceeding." Properly, this earlier observation should be limited to the matter of
enforcing exercise of the power, which after all is nonmandatory. It should not be
extended to insist that in other respects the trustee's fiduciary duties cannot be
enforced, for the legally implied reversionary takers in default of exercise certainly
have enforceable rights (as is even recognized at the end of Comment d of
Restatement Second, Trusts § 122). Also see Comment g, here, recognizing the
possibility of other enforcement.
Compare the opinion of Lord Wilberforce in the landmark, change-of-heart
English case (infra) of Baden's Trust, [1971] A.C. 508 at 557, containing dictum to
the effect that, if the trustee fails to exercise the power, the court might in some
manner "give effect to the settlor's or testator's intentions," by appointing a new
trustee or by some other method, but with no discussion of the issue of standing to
initiate a proceeding of this type.
See also, subsequent to Baden, the words of the Reporter for both of the prior
Trust Restatements, in the 1972 supplement to his treatise, Austin W. Scott, Trusts
§ 122, saying: "I have been too ready to suggest that the disposition fails if the
donee of the power fails to exercise it. It is more sensible to hold that, if this is
necessary to effectuate the intention of the settlor, and if it is practicable, the court
may take measures best calculated to see that a proper disposition is made...." Also
compare Fratcher, Scott on Trusts, supra, § 122 (at pp. 222-223) stating that:
"There is great wisdom in" Lord Wilberforce's dictum, and further that it "is certainly
desirable that the intention of the settlor or testator should be carried out, to the
extent that this is not against public policy or impracticable. But even if it is
impracticable to carry out the intention where the trustee of the power fails ... to
exercise it, the disposition should not fail if he is willing and able to exercise it
whether or not he is under a duty to do so."
The traditional and clearly prevailing American view probably had its roots, as
did the earlier English view, in the classic Morice v. Bishop of Durham, 10 Ves. 522,
32 Eng. Rep. 947 (Ch. 1805) (see Reporter's Notes on § 47). Also, and more
directly in point, see In re Gestetner Settlement, [1953] Ch. 672, and Inland
Revenue Commission v. Broadway Cottages Trust, [1955] Ch. 20 (C.A. 1954)
(observing summarily that a trust for class members the trustees shall select "is
void for uncertainty, unless the whole range of objects eligible for selection is
ascertained or capable of ascertainment"). Even this line of doctrine, however,
distinguished intended trusts from what are merely intended to be powers. See In
re Gulbenkian's Settlement Trusts (Whishaw v. Stephens), [1970] A.C. 508,
although there were some occasional slips, as in In re Gresham Settlement, [1956]
2 All E.R. 193. Also see Brown v. Gould, [1992] Ch. 53, 57.
The early American classic is Nichols v. Allen, 130 Mass. 211, 39 Am. Rep. 445
(1881), where the testator left the residue of her estate to her executors and their
successors "to be distributed to such persons, societies or institutions as they may
think most deserving." Gray, C.J., stated (130 Mass. at 212, 213, 215, 221):
Two general rules are well settled: 1st. When a gift or bequest is made in terms
clearly manifesting an intention that it shall be taken in trust, and the trust is not
sufficiently defined to be carried into effect, the donee or legatee takes the legal
title only, and a trust results by implication of law to the donor and his
representatives, or to the testator's residuary legatees or next of kin.... 2d. A trust
which by its terms may be applied to objects which are not charitable in the legal
sense, and to persons not defined, by name or by class, is too indefinite to be
carried out....
The terms of this bequest clearly manifest the intention of the testatrix to create
a trust. The bequest contains no words tending to show that the executors are to
take the property, or any part of it, absolutely or for their own benefit; and by our
law no such intention is to be implied....
The omission of the words "in trust" is unimportant where, as in the case before
us, an intention is clearly manifested that the whole property shall be applied by the
legatees for the benefit of others than themselves....
The conclusion of the whole matter is, that the testatrix having given the residue
of her property to her executors in trust, and not having defined the trust
sufficiently to enable the court to execute it, the plaintiff, being her next of kin, is
entitled to the residue by way of resulting trust.
The next American classic was Tilden v. Green, 130 N.Y. 29, 28 N.E. 880
(1891); it was followed by other cases such as, in order, Clark v. Campbell, 82 N.H.
281, 133 A. 166 (1926); Armington v. Meyer, 103 R.I. 211, 236 A.2d 450 (1967);
and Estate of Kradwell, 44 Wis.2d 40, 170 N.W.2d 773 (1969). Cf. Estate of Boyer,
117 N.M. 74, 868 P.2d 1299 (Ct.App.1994).
Although often cited as a leading case, and usually without criticism, Clark v.
Campbell, supra, was wrongly decided, even under the rule it purported to apply,
because the testator explicitly provided a gift in default of the power's exercise.
Thus, the arrangement should have been upheld as a power of appointment, despite
the court's insistence that the power (i.e., intended trust) was mandatory. Another
confused case is Estate of Stewart, 271 So.2d 754 (Fla.1972) (what clearly
appeared to be a power of appointment held to fail for indefiniteness).
Morice v. Bishop of Durham (supra) was criticized by Professor Ames in his
sound if generally uninfluential article prompted by the failure of a provision of
another famous will (supra), "The Failure of the 'Tilden Trust,' " 5 Harvard L. Rev.
389, 395-399 (1892):
It may be said that there can be no trust without a definite cestui que trust. This
must be admitted.... But it does not follow ... that such a gift is void. Even though
there be no express trust, there is a plain duty imposed upon A [one in the position
of the Bishop of Durham] to act, and his act runs counter to no principle of public
policy.... The only objection that has ever been urged against such a gift is that the
court cannot compel A to act if he is unwilling. Is it not a monstrous non sequitur to
say therefore the court will not permit him to act when he is willing?
It may be objected that a devise might in this way become "the mere equivalent
of a general power of attorney"; but this objection seems purely rhetorical. Suppose
a testator to give A a purely optional power of appointment in favor of any person in
the world except himself, with a provision that in default of the exercise of the
power the property shall go to the testator's representatives--or this provision may
be omitted altogether, the effect being the same.... [Y]et the validity of the power
would go unquestioned. If the power is exercised, the appointee takes; if it is not
exercised, the testator's representatives take.
Now vary the case by supposing that the testator imposes upon the donee of the
power the duty to exercise it. Can the imposition of this duty furnish any reason for
a different result? ... Does it not seem a mockery of legal reasoning to say that the
court will sanction the exercise of the power where the donee was under no
obligation to act at all, but will not sanction the appointment when the donee was in
honor bound to make it?
It is time enough for the court to interfere when A proves false to his duty and
sets up for himself. Then, indeed, a court of equity ought to turn him into a
constructive trustee for the donor or his representative. This contingent right of the
heir or next of kin may be safely trusted to secure the performance of his duty by
the trustee.... The position of the heir or next of kin is, in substance, the same as in
the cases where the property is given to them subject to a purely optional power of
appointment in another to be exercised, if at all, within a reasonable time....
Although Morice v. Bishop of Durham has never been directly impeached, either
in England or in this country, there are several groups of cases, indistinguishable
from it in principle, in which equity judges have declined to interfere, at the suit of
the next of kin, to prevent the performance of a purely honorary trust [on which see
§ 47(2), infra].
... The most conspicuous illustration of the doctrine which is here advocated is to
be found in a recent English case ... in [which] a bequest of £750 for the
maintenance of the testator's horses and dogs ... was upheld. [See § 47, Comment
d.]
Although, as we have seen, nearly all American cases have followed the rule of
Nichols v. Allen and Tilden v. Green above, the approach advocated by Professor
Ames has essentially been adopted in this Restatement and its predecessor, and
appears to have been adopted in Feinberg v. Feinberg, 36 Del.Ch. 438, 131 A.2d
658 (1957), and in Estate of Rowlands, 73 Az. 337, 241 P.2d 781 (1952), noted 6
Oklahoma L. Rev. 205, 38 Virginia L. Rev. 954. More recently, see Leach v. Hyatt,
244 Va. 566, 423 S.E.2d 165 (1992), upholding what was certainly worded like the
traditionally defective mandatory direction (i.e., a trust) by simply insisting that the
testator's "unambiguous" intent was to "grant a limited power of appointment." Id.
at 569, 423 S.E.2d at 168 (although viewing even this as a "minority" position).
Moreover, it is important to note a recent trend of legislation that appears quite
clearly intended to adopt this position. See Cal. Prob. Code § 15205, Mont. Code
Ann. § 72-33-206, and Nev. Rev. Stats. § 163.006. Also see Uniform Trust Code §
402(b) and (c) and comment thereto; and also see id. §§ 408 and 409 and Uniform
Probate Code § 2-907 on so-called "honorary trusts," which are examined hereafter
in § 47.
Particularly worth noting are the decisions in recent English cases and the
absence of difficulty arising from them. In McPhail v. Doulton (In re Baden's Deed
Trusts), [1971] A.C. 424, noted 37 Modern L. Rev. 643, 87 Law Quarterly Rev. 31,
and Hopkins, "Certain Uncertainties of Trusts and Powers," 29 Cambridge L.J. 68
(1971), the Chancery Division had upheld a disposition in a deed directing trustees,
in their absolute discretion, to make grants to any other present or past officers and
employees of a named company or to any relatives or dependents of such persons,
finding that a power rather than a trust had been created; the Court of Appeals
partially affirmed, and the House of Lords held that the direction in the deed was
mandatory and thus constituted a trust rather than a mere power, but nevertheless
held that the test of the validity for both should be the same. Baden's Deed Trusts
(no. 2), Ch. 607, aff'd, [1973] Ch. 9, noted [1973] Cambridge L.J. 36. The
Broadway Cottages Trust case (supra) was overruled, and the views of the Second
Restatement and the Scott treatise (3d ed.), supra, were cited with approval. The
Chancery Division to which the case was remitted to determine only whether the
appropriate test--i.e., whether any member of the class, rather than all members of
the class, can be ascertained--was satisfied, found the test satisfied and the
disposition valid. Ultimately, the trust was upheld, with the further statement by
Lord Wilberforce that the application of the same validity test "does not involve the
complete assimilation of trust powers with powers." Although there may be some
uncertainty and difficulty in translating from the British to the American, because of
some fine differences in relevant matters and terminology, the statement goes on to
say that in the case of a mere "power" held by a trustee, "the court will normally
not compel its exercise. It will intervene if the trustees exceed their powers, and
possibly if they are proved to have exercised them capriciously. But in the case of a
trust power, if the trustees do not exercise it, the court will," possibly by appointing
new trustees, or by authorizing or directing representative persons from the classes
of beneficiaries to prepare a scheme of distribution, or even, should the proper
bases for distribution appear, by directing the trustees to so distribute. "The books
give many instances where this has been done and I see no reason in principle why
they should not do so in the modern field of discretionary trusts."
Subsequent English cases provide no illumination in the matter of what is and is
not enforceable and how. See In re Barlow's Will Trusts, [1979] 1 All. E.R. 296,
[1979] 1 W.L.R. 278; and cf. In re Beatty's Will Trusts [1990] 3 All. E.R. 844,
[1990] 1 W.L.R. 1503 (Ch.) (trustees had no duty to exercise their powers with
respect to certain property because of provision that undistributed property was to
fall into the residue).
Comment e:
The cross-reference at the end of this Comment to Comment g of § 29 is to such

modern statutory rules and Restatement Second, Property (Donative Transfers)
rules as those providing for reformation or for wait-and-see evaluation of interests,
or both.
Comment f:
In the case of an owner's inter vivos transfer to another upon an intended trust
of the type here under discussion, Restatement Second, Trusts § 122, Comment h
(by cross-reference to id., § 419), treated the attempted trust like an agency.
The change here, in Comment f, is significant and preferable because, under the
revocable adapted-trust result, the intended disposition would not automatically fail
(as an agency would) upon the settlor's death or legal disability. In the former
event (death) the desired disposition could still be carried out under this
Restatement's adapted-trust concept; so could it in the latter (disability) except as
revoked by the settlor's conservator for personal or family needs. Also compare
criticism of prior Restatement position in G. Palmer, "Private Trusts for Indefinite
Beneficiaries," 71 Michigan L. Rev. 359, 370, in footnote 45 (1972).
Although something of a moot point, this Comment effectively characterizes the
result of the declaration-of-trust situation as a non-event (as had the Second
Restatement) because it seems strained (and an unnecessary test of the merger
doctrine) to describe the declarant as holding upon a resulting trust for her/himself,
subject to her/his own power to select beneficiaries.
Comment g:
See Reporter's Note to Comment e. Also see the last two paragraphs of text
(preceding the Illustrations) in Comment d, recognizing the possibility that a
trustee's power of selection under an adapted trust might not be personal to the
particular devisee named as trustee. This would be the case (as noted in the
Comment) where the instrument designates or provides a process for designating
substitute or successor trustees, but also (upon the appropriate finding) even when
no substitute or successor is designated or expressly provided for. Compare Nichols
v. Allen, cited and quoted at length early in the Reporter's Note to Comment d, in
which the testator's executors and their successors were to act as trustees; but cf.
Clark v. Campbell, 82 N.H. 281, 133 A. 166 (1926), in which, although there were
multiple trustees to provide some continuity, the power (if recognized) would have
been personal to them, as would seem reaffirmed by the fact that they were
selected because each was "competent by reason of familiarity with the property"
and with "my wishes and friendships, to wisely" make the contemplated selections
and distributions.
An interesting issue of interpretation and enforcement, which cases seem not to
have confronted, arises when--as is so often the case--the trustee (power holder) is
a person who would be eligible to be selected to receive distributions. See William
M. McGovern, Jr., Sheldon F. Kurtz, & Jan Ellen Rein, Wills, Trusts and Estates § 8.5
(Hornbook 1988): "Could [the power holder, decedent's] sister have given the
property to herself as a 'deserving person'? When conflicts of interest exist in trusts
with definite beneficiaries, the settlor must have been aware of the conflict and
assumed the trustee would act fairly. But if the trustee is authorized to distribute
property among her 'friends' and she chooses herself, one wonders whether the
settlor actually contemplated this."
Research References
West's Key No. Digests, Trusts 1, 9, 21(2), 66.
(2003)
(C)
REST 3d TRUSTS s 47


§ 47. Trusts For Noncharitable Purposes
(1) If the owner of property transfers it in trust for indefinite or general

purposes, not limited to charitable purposes, the transferee holds the
property as trustee with the power but not the duty to distribute or apply
the property for such purposes; if and to whatever extent the power
(presumptively personal) is not exercised, the trustee holds the property
for distribution to reversionary beneficiaries implied by law.
(2) If the owner of property transfers it in trust for a specific
noncharitable purpose and no definite or ascertainable beneficiary is
designated, unless the purpose is capricious, the transferee holds the
property as trustee with power, exercisable for a specified or reasonable
period of time normally not to exceed 21 years, to apply the property to the
designated purpose; to whatever extent the power is not exercised
(although this power is not presumptively personal), or the property
exceeds what reasonably may be needed for the purpose, the trustee holds
the property, or the excess, for distribution to reversionary beneficiaries
implied by law.
General Comment:
a. Scope and basic principles. This Section is concerned with what are often
called "purpose" or "honorary" trusts. These are a special form of noncharitable
trust in which the purpose as expressed by the settlor is normally unenforceable.
Thus, a testator may seek to establish a trust (1) for a noncharitable purpose that is
general or indefinite (compare § 46(2) dealing with indefinite beneficiaries) or (2)
for a specific noncharitable purpose. In either case, for lack of a definite beneficiary,
the trust is not enforceable in accordance with its intended terms.
Although reversionary interests arise in these cases by operation of law
(compare §§ 7, 8 on "resulting trusts"), the primary question is whether the
intended purpose should fail entirely or whether the devisee who wishes to do so
may carry out the intended purpose. That is, does the devisee hold the property in
trust for the testator's successors in interest, with a "power" (rather than a duty) to
divest those successors in whole or in part by making distributions for the
noncharitable purpose? Cf. § 46(2) on "adapted trusts" in the private-trust context.
The rule of this Section also applies to trust provisions for either general or
definite noncharitable purposes. In either case, there is no definite beneficiary to
enforce the particular provision, even if the trust has identifiable express
beneficiaries (§§ 44 and 45) to enforce it in other respects. The provision for the
noncharitable purpose is unenforceable as written, leaving again the question of
whether that purpose may be carried out through a power, even at the expense of
express interests of ascertainable beneficiaries.
These questions are addressed, with affirmative answers, in Subsections (1) and
(2) of this Section and are further considered in Comments c and d. The underlying
principles are similar to those applicable to the indefinite-beneficiaries situations in
§ 46(2). See particularly § 46, Comments c through g.
The adapted trust rule of this Section does not apply to intended trusts for
purposes that are capricious (see Comment e) or otherwise contrary to public
policy. See generally § 29(c).
Perpetuities issues are considered hereafter in Comment b.
On the application of the rules of this Section to trusts, or trust provisions,
intended to be created by inter vivos transfer, see Comment g.
The rules of this Section do not apply if the transferor intended a beneficial gift
to the transferee. See § 13, Comment d, and cf. § 46, Comment a. Nor do they
apply to trusts or provisions that have an indefinite charitable purpose. See
Comment c, and also § 28, Comment c. Charitable trusts are enforceable by the
attorney general or similar official of the state. See generally §§ 28, 67, and 94.
b. Perpetuities issues and limits. Both powers of appointment (except presently
exercisable general powers) and trustees' discretionary powers over income or
principal distributions are subject to the rule against perpetuities. They are
therefore void at their inception under traditional concepts if the rule is violated.
See § 29(b) and § 29, Comments g and h.
In all but the exceptional situations involving care of graves or pets (Comment
d(2)), however, perpetuities issues are eliminated by the associated rule in
Comments c and d limiting the duration of powers under adapted trusts. As in other
"associated rules" on perpetuities matters (see § 29, Comment h, and Restatement
Second, Property (Donative Transfers), Chapter 2), the maximum allowable period
for these powers is derived, by analogy, from the "lives in being and 21 years"
vesting period of the rule against perpetuities itself.
Because a suitable measuring life is usually absent in cases under this Section,
the time allowed for the exercise of devisees' powers is normally confined to 21
years. More precisely, the allowable period in these situations is that specified in the
will or, if none, a "reasonable time" for accomplishing the settlor's intended
purpose, but no more than 21 years, except for the special cases under Comment
d(2).
c. Trusts for indefinite noncharitable purposes. This subsection and Comment

address questions that arise when a testator leaves property upon an intended trust
for such "benevolent" or "worthy" or "charitable or benevolent" objects as the
devisee may select, or uses other language of purpose that is not limited to charity.
In such cases, if a power of selection is not expressed it is implied.
A preliminary question of interpretation in these situations is whether the
testator's words were intended to be limited to charitable objects. A constructional
preference favors that meaning, resulting in an enforceable charitable trust. See §
28. This subsection and Comment deal with the effect of dispositions in which the
objects are not so limited.
When the intended trust is for general or indefinite purposes that are not limited
to charitable purposes, although they may include charitable purposes, no one can
maintain a proceeding to enforce that aspect of the intended trust. Therefore, under
the rule of Subsection (1), the devisee holds the property as trustee (of an adapted
trust) for the testator's successors in interest (i.e., those who would take by
resulting trust under § 8 if the trust had immediately and completely failed), subject
to a nonmandatory power in the trustee to apply the property to the designated
purposes. To the extent the trustee is unwilling to exercise the power, fails within a
reasonable time to do so, or dies without having done so, ordinarily (but see
Comment f) the property is held in trust for distribution to the testator's successors
in interest.
Illustration:
1. S devises funds to T in trust to dispose of it to such objects of benevolence
and liberality, charitable or otherwise, as T may select. T dies without having made
any selection. Unless the power of selection is shown not to be personal to T
(Comment f), the trust property is to be distributed to the residuary beneficiaries of
S's estate.
If willing and able to do so, however, the devisee (T in the above Illustration)
will be permitted to distribute or apply the trust property to purposes falling within
the scope of the testator's directions. Thus, the devisee holds the devised property
in trust, upon terms adapted by operation of law.
The adapted trust in a case of this type is a trust for the testator's residuary
beneficiaries (or heirs if the devise is residuary), but subject to the devisee's power,
with no duty, to select and make distributions for one or more of the testator's
intended purposes. To the extent the devisee has not fully exercised the power by
the time of its expiration (Comment b), or declines to exercise the power or dies
without having fully done so (unless the power is exercisable by a successor trustee,
see Comment f), the property then held in trust is to be distributed to the
reversionary (residuary or intestate) beneficiaries.
That borderline situations might arise in which it would be difficult to say
whether a decision by the devisee falls within the testator's directions does not
prevent recognition of the adapted trust or preclude the devisee from selecting
purposes that can be determined to fall within the intended purposes.
c(1). Rationale: The rationale underlying the rule of this subsection is essentially
the same as that stated in § 46, Comment d. See also § 46, Comment c.
Illustrations:
2. The same facts as in Illustration 1, except that T is willing and able to carry
out S's intended purposes. T holds upon adapted trust with a nonmandatory power
to dispose of the property in favor of one or more objects of benevolence and
liberality of her choosing. If within a reasonable time she fails to do so, she then
holds in trust for distribution to the residuary beneficiaries of S's estate.
3. S leaves his residuary estate to T, with a direction "annually to apply the
income forever to such worthy purposes as T may select." Even if the disposition is
found not to create a charitable trust, it does not fail altogether because under the
rule of this Section the disposition results in an adapted trust with a nonmandatory
power in T to apply the income annually to worthy objects of her selection for a
period of 21 years. (The limited duration inherent in the rule of this Section for most
types of adapted trusts (Comment b) removes perpetuities concerns in this case
even if T is a corporation.) Any income not so applied is to be distributed annually to
S's heirs, who will also be entitled to the principal at the end of the trust period.
Where the devisee or designated trustee is a corporation or simply anyone who
may serve as "executor," the usual presumption that the power is personal to the
designated trustee may be inapplicable. The question is one of interpretation. See
generally Comment f.
d. Intended trust for a specific noncharitable purpose. If property is devised to a

person on an intended trust for a specific noncharitable purpose without a definite
or ascertainable beneficiary, the devisee cannot be compelled to apply the property
to the designated purpose, there being no beneficiary to enforce the intended trust
(§ 44) and no charitable purpose to be enforced by the attorney general or other
appropriate officer of the state (see §§ 28 and 94). If willing to do so, however, the
devisee can properly apply the property to the designated purpose, provided that
purpose is not capricious (see Comment e).
Such a willing devisee holds the property in trust, adapted by operation of law,
for the successors in interest of the testator, subject to the devisee's nonmandatory
power to carry out the testator's intended purpose. To the extent the trustee fails
within the allowable time (see Comment b, above, but also see Comment f, below)
to apply the property to the designated purpose or the trustee or a court determines
at the outset or later that the amount of the property exceeds what is reasonably
necessary to carry out the purpose, the trustee is under a duty to distribute the
unexpended or unneeded property to the successors in interest of the testator. The
trustee may not misappropriate or keep the property. (On who may bring
enforcement proceedings, see Comment f.)
While the adapted trust continues, the trustee has the usual duties with respect
to protecting and managing the trust property (see §§ 70, 76-84, and 90-92).
These include a fiduciary duty to the beneficiaries (testator's successors in interest)
to proceed efficiently and within a reasonable time either to implement the
noncharitable purpose or to distribute to these reversionary beneficiaries any
property that is not to be so applied.
The usual remedies for breach of trust are available to the beneficiaries to
enforce this duty. In addition to surcharge, denial or reduction of compensation, and
the like, these remedies include removal of the trustee. See generally §§ 37, 95.
Removal may result in termination of the trust, or it may result in the appointment
of a successor trustee provided the adapted power is not personal to the original
trustee and it is reasonable to expect that the appointment of a successor trustee is
a reasonable means of accomplishing the noncharitable purpose. See generally
Comment f.
d(1). Application and rationale. The rule stated in this subsection and its
Comments applies (i) to such purposes (where not charitable) as the care of graves
and the erection or maintenance of tombstones or cemetery monuments, the
support and care of animals, and the saying of masses and (ii) to the continuation
or support of activities that are worthwhile or meritorious but fall short of
constituting charitable activity. As under Subsection (1), the rationale here is
essentially that stated in § 46, Comment d (also cf. § 46, Comment c).
The purposes stated in the Illustrations that follow can be upheld as written, or
with modest modification, in many states: (i) because of legislation (particularly
common for the situations in Illustrations 4, 5, and 8); or (ii) as trusts for religious,
educational, humane, or other charitable purposes (as particularly may be the case
with the situations in Illustrations 6, 7, and 8); or (iii) simply as part of or by
inference from some other statutory or nonstatutory policy or process, such as an
expenditure incident to estate administration (see Illustrations 4 and 5). Otherwise,
the matters in the Illustrations fall within the rule of Subsection (2).
Illustrations:
4. S's will leaves (a) $10,000 to his friend F "in trust" for the erection of a
monument on S's grave and (b) $10,000 to brother-in-law B for the erection of a
monument on the grave of S's predeceased wife. Unless the dispositions are
otherwise enforceable (e.g., as a funeral expense), F and B cannot be compelled to
expend the funds but have power to do so; if either refuses or fails within a
reasonable time to do so, the funds in question are held for S's residuary estate,
except as a successor may be appointed (Comment f) to exercise the power, there
being no presumption under Subsection (2) that the powers are personal to F and
B.
5. S's will leaves $25,000 to T "in trust" to invest the funds and to expend the
income for the care of S's grave during the lifetime of her only child, C. Unless the
disposition is otherwise enforceable (see text, supra), T has power but no duty to
use the income for the care of S's grave. If T fails to expend the income as
intended, and if the power is not exercised as provided in Comment f, T must hold
the property for S's residuary estate; in any event, upon the death of C the trust
property is to be distributed to S's residuary beneficiaries. (Although the normal 21-
year limit on powers under this Section does not apply (see Comment d(2)), the
intended trust is expressly limited by S's will to the lifetime of a person in being at
her death. See Comment b.)
6. S's will leaves $10,000 to T "in trust" to expend it for the offering of masses
for the repose of the souls of S and his predeceased wife, W, the principal and any
interest to be expended for that purpose within a five-year period from S's death. In
a state in which this disposition is not enforced as a charitable trust (as it would be
under § 28, Comment i) or otherwise, T cannot be compelled to expend the money
for the designated purpose but, as trustee for the specified five-year period, has
power to do so. To the extent T fails to spend the funds for masses, presumptively
she can be replaced within the five-year period (Comment f); otherwise she holds
the funds for S's residuary estate.
7. George Bernard Shawnessy, a playwright and critic of the English language,
left his entire estate to T "in trust to use one-third of the income for thirty years, or
until the trust sooner terminates, to support (a) the study of the advantages of a
phonetic alphabet and (b) the publication and free distribution of my play, 'Andrew
and the Leopard,' written in this alphabet." The trust is otherwise for the primary
benefit of Shawnessy's sole survivors, a daughter and the two children of his
predeceased son; the trust is to terminate at the death of the last of these three life
beneficiaries, with remainder to Shawnessy's then living issue. If the state will not
uphold the "purpose" provision as one for a charitable purpose (as it would be under
§ 28(b) or (f) and § 28, Comments h and l), T cannot be compelled to expend the
intended share of the income as directed, but she has power as trustee of an
adapted trust to do so for 21 years (not for the specified 30 years), subject also to
the specified lives-in-being duration of the trust. To the extent T does not so expend
the full income share and no successor trustee is appointed under Comment f, T is
to pay the rest of the income to the individual beneficiaries.
8. S's will leaves $100,000 to T "in trust" to use the income and principal as
necessary for the support and care of S's dog. Unless the intended trust is otherwise
enforceable in the state in question (see Reporter's Notes), T cannot be compelled
to use the funds for the dog, but she (or probably, if necessary, a substitute or
successor trustee, see Comment f) has power under an adapted trust to do so for as
long as the dog lives, unless an earlier termination of the trust is required by a rule
against perpetuities (see Comment b and particularly Comment d(2)). Subject to
this power, T (or a successor) holds upon an adapted trust for the settlor's
successors in interest as described in this Comment; if, however, the fund exceeds
what is reasonably likely to be required for the dog's needs, the excess funds are to
be distributed to the residuary beneficiaries of S's estate.
d(2). Special duration rule: care of pets and graves. An adapted trust is allowed
a period reasonably appropriate to accomplish the settlor's legally permissible
purpose, although a period specified by the settlor is normally accepted if
reasonably related to the purpose. Generally, however, regardless of how the
reasonable period is determined, the period may not exceed 21 years, by analogy to
the period of the rule against perpetuities. See Comment b.
The 21-year period is neither sacred nor necessarily suitable to all cases of
adapted trust powers. If an adapted trust for the care of a pet is worth allowing at
all (see Illustration 8), it makes sense to allow it to continue for the life of the pet,
although not a human "life in being" for perpetuities purposes (but see below). Also,
a trust power to maintain a grave should be allowed for the lifetime of the
decedent's spouse and children, or of other concerned individuals designated in the
will (see Illustration 5), all lives in being at the testator's death.
These exceptions to the 21-year limit are based on the special nature of the
permissible noncharitable objective and the modest commitment of resources
involved.
The power to support the dog in Illustration 8 is likely to be validated by modern
versions of the rule against perpetuities either by use of an alternative statutory
period (90 years under the Uniform Statutory Rule Against Perpetuities § 1(c)(2)) or
by the wait-and-see or reformation features adopted by many statutes and some
judicial decisions. See § 29, Comment g; and Restatement Second, Property
(Donative Transfers) § 1.4, Comment a, and § 1.5. Furthermore, the rule against
perpetuities, as such, may be held to have no application to powers of this type
under adapted trusts. See Reporter's Notes.
Further General Comments:
e. Capricious purposes. The rule of this Section does not apply when the specific
noncharitable purpose is capricious. Nor does it allow the devisee in making
distributions from an adapted trust under Subsection (1) to select purposes that are
capricious. Furthermore, in a trust that has definite or ascertainable beneficiaries, a
provision intended to allow property to be used for a capricious purpose is to that
extent invalid.
A clear line cannot be drawn for purposes of this rule between objectives that
are capricious--or "frivolous" or "whimsical"--and those that are not. A purpose is
not capricious merely because no living person benefits directly from its
performance, if it satisfies a desire that many (even if not most) people have with
respect to the disposition of their property (see Illustrations following Comment
d(1)) and the amount of the property to be devoted to the purpose is not
unreasonably large. On the other hand, it is capricious to provide that money shall
be thrown into the sea, that a field shall be sowed with salt, that a house shall be
boarded up and remain unoccupied, or that a wasteful undertaking or activity shall
be continued. Also, an intended trust for the progeny of particular pets, or for the
maintenance of a menagerie under circumstances that are inhumane or not of
reasonably widespread interest to others (i.e., not charitable, see § 28(f) and
Comment l), may be invalidated as capricious even within the "reasonable time"
limit allowed in this Section.
Although one may deal capriciously with one's own property, self-interest
ordinarily restrains such conduct. In any event, society may be properly reluctant to
interfere with such a use of property by its current owner. Where, however, a
former owner has attempted to confer such a power upon another who is not the
beneficial owner of the property, it is contrary to sound public policy to allow the
exercise of the power. Thus, a trust or trust provision, even as a power, is not
allowed for capricious purposes, although the line is sometimes difficult to draw and
policies inevitably vary from time to time and place to place. See generally § 29(c)
and Comment m.
f. Successor trustee; enforcement. In the case of an adapted trust under either
Subsection (1) or Subsection (2), the devisee may retain the power to direct the
distribution or application of trust funds while declining or resigning from the
trusteeship. A substitute or successor may be appointed by court, or by other
means described in § 34, Comments c and c(1), to hold and administer the trust
property. See § 46, Illustration 4.
Where the terms of the disposition neither designate nor make provision for the
appointment of a substitute or successor trustee, it is generally presumed that the
power of selection and distribution under an adapted trust under Subsection (1) is
personal to the named devisee. Cf. § 46(2). There is no such presumption,
however, where the intended trust is for a definite noncharitable purpose under
Subsection (2) (and see Comment d). The power in the adapted trust is more a
power of implementation than one of personal selection. In such a case, if the
designated trustee effectively refuses the power or resigns, becomes incapacitated,
or dies before its expiration, absent a contrary trust provision a successor trustee
may be appointed by the court or by other means described in § 34, Comments c
and c(1).
A proceeding to prevent or redress a breach of trust, or to replace a trustee-
power holder, may be brought (i) by the personal representative of the settlor or of
a trustee who dies while in office, (ii) by any of the settlor's successors in interest,
or (iii) by a person identifiably interested in the purpose of the power, such as the
person caring for a pet or a member of the immediate family of a decedent for
whom masses, grave care, or a monument is to be provided. (The trustee's
fiduciary duties and the available remedies are briefly noted in the last two
paragraphs of Comment d, above.)
g. Transfer inter vivos; declaration of trust. If a settlor transfers property inter
vivos to another upon an adapted trust, the transferee has power to distribute or
apply the property for the intended purpose(s) as described in Comments c and d,
but the trust is revocable (cf. § 63, Comment c) as to undistributed property during
the settlor's lifetime. This is the case even if the settlor had manifested the intention
to create an irrevocable trust, which as written cannot be enforced.
If the owner of property declares that he or she holds the property as trustee for
a noncharitable purpose, no trust is created and the declarant holds the property
free of trust. If, however, in a situation falling within Subsection (2), the declarant
dies believing that a trust has been created that will be continued by a successor
trustee, an adapted trust will then be given effect by constructive trust. Compare §
24(3) and (4).
The subject matter of this Section is the same as that covered by Restatement
Second, Trusts §§ 123 through 125, and most of the rules and principles stated
here are fundamentally consistent with those of the prior Restatement. Specific
differences, however, are noted in the commentary or Reporter's Notes.
General Comment a and Comments b through d:
The so-called "Diplock principle" in England (involving the will of Caleb Diplock)
was derived from the House of Lords decision in Ministry of Health v. Simpson,
[1951] A.C. 251, affirming Re Diplock [1948] Ch. 465, CA, in which the disposition
directed the testator's residuary estate to be applied by his executors to such
"charitable or benevolent" objects as they might choose--and choose they did,
making a large number of gifts to various charities. The court concluded that the
disposition was void because it permitted gifts to noncharitable objects (i.e., those
that were benevolent yet not charitable) and that the funds should therefore have
been paid to Diplock's next of kin rather than to the charities, which were strictly
liable to the next of kin. Some jurisdictions have reacted to the importance
attributed in this context to the word "or" (based on Chichester Diocesan Fund v.
Simpson [1944] A.C. 341) by enacting legislation to alter the result. See, e.g.,
Charitable Trusts (Validation) Act 1954; and Alberta Wills Act, R.S.A. 1980, c. W-11,
§ 32.
The reasons for a cautious approach in this Restatement to noncharitable
"purpose" trusts, and for leaving fully enforceable trust status and more aggressive
development of the law to the enactment of legislation and amendments, can be
recognized in reviewing Comments f and i to § 29, and the Reporter's Notes thereto,
and also in a narrower sense in reading a recent article by Simon M. Gould. In his
"Jersey and Non-Charitable Purpose Trusts: The Product of an Evolutionary
Process?," 5 J. of International Trust & Corporate Planning 87 (1996) (substantially
reprinting id., Contemporary Trends in Trust Law (A. Oakley ed., 1996)), he states
(at 87-89):
The Trusts (Amendment No. 3) (Jersey) Law came into force on 24 May 1996,
when it was registered in the Royal Court of Jersey, and will introduce to the
Island's expanding repertoire of trust, corporate and other financial vehicles, the
concept of the noncharitable purpose trust.
In this particular respect Jersey will depart from English law which, aside from
various innovations introduced in the Trusts (Jersey) Law 1984, has customarily
provided a guide to Jersey Trust Law, including non-charitable purpose trusts and
will no doubt continue to do so in other respects in the future. But, Jersey has now
looked further afield to those other offshore jurisdictions that have already adopted
non-charitable purpose trusts, in particular, Bermuda, which was the first
jurisdiction to pass comprehensive legislation to permit such trusts....
It has generally been accepted in both English law and Jersey law that the
reason for not permitting non-charitable purpose trusts has been, in broad terms,
the lack of a beneficiary.... The sum of the rights of all the beneficiaries of a
particular trust amounts to equitable ownership of the trust assets and English law
requires that such rights must be vested [sic] in a person (if not a natural individual
then at least a legal person). It is well established that neither animals, monuments
nor buildings, let alone purposes, are capable of having legal rights vested in them.
Clearly, in the case of a trust created for specified purposes, there is no legal person
holding the rights of a beneficiary and the English courts have therefore determined
that, as a general rule, such trusts cannot exist.
Despite the promising logic of [this so-called] "beneficiary principle," it has not
remained an immutable rule of English law. On the contrary, it has mutated to meet
popular demands, admittedly not in modern times, but (aside from the English law
anomalies referred to below) the acceptance of charitable purpose trusts as valid
was an addition to this basic rule and one that was obviously dictated by public
policy and the demands of the time. That amendment to the "beneficiary principle"
is now justified in law on the basis that the Attorney General has an historic role as
the representative of the public interest and therefore may enforce the right that a
charity has as the purpose of a trust created in its favour.
English law clearly, therefore, does not recognize that trusts can validly exist
where there is no ascertainable beneficiary and now regards purpose trusts as valid
if they are either created for charitable purposes, in which case the purpose must
fall within the strict rules determining the meaning of charity, or created for one of
the anomalous "concessions to human weakness or sentiment" [i.e., certain
"honorary trusts"] in which the English courts have upheld a non-charitable purpose
trust as being valid [in a limited way and to a limited extent, it might be added].
The Trusts (Jersey) Law 1984 made it clear that Jersey follows the first part of this
rule but, not surprisingly, it did not enact the anomalous exceptions....
However, Jersey, like other offshore jurisdictions, has now perceived a demand
for non-charitable purpose trusts.... [T]his mutation now [depends on] an
"enforcer". The enforcer may vary somewhat jurisdiction to jurisdiction but its
essential role is to enforce the trust in relation to its non-charitable purposes and,
indeed, this is the enforcer's express statutory duty under the Trusts (Amendment
No. 3) (Jersey) Law....
Of course, the amendment of the Trusts Jersey Law 1984 is not the entirely
random change that is typical of the evolution process, but one that has received
long and careful consideration after a wide consultative process involving local
professionals in the trust industry....
... Clearly, the ability to create trusts for "objects of benevolence and liberality",
to provide monuments or memorials, or for political purposes or to provide care for
animals is not the principal motive behind the proposed change in Jersey law.... The
principal motivation in legislating in Jersey to permit non-charitable purpose trusts,
in fact, is to encourage the further use of the Island as an offshore centre for
Special Purpose Vehicles (SPVs), which are typically created for the purpose of off
balance sheet securitization and debt defeasance transactions.
As the article continues, it discusses Jersey's "non-charitable purpose trust" and
its "enforcer," plus some of the drawbacks of the SPV (special-purpose vehicle,
supra), such as problems with the enforcer and with international recognition, plus
questions about the "self-serving or substantive purposes" of SPVs.
For another report on legislation rather timidly allowing "purpose" trusts, see J.
Glasson, "Isle of Man: Purpose Trusts Act 1996," 5 J. of International Trust &
Corporate Planning 185 (1996), which notes (at 186) that "[n]o land or interest in
land in the Isle of Man shall be held, directly or indirectly, in a purpose trust under
the Act."
For an article suggesting that the law should go further in supporting trusts for
noncharitable purposes than permitted by Restatement Second, Trusts (and even
beyond what is set forth here), see A. Hirsch, "Bequests for Purposes: A Unified
Theory," 56 Washington & Lee L. Rev. 33 (1999). See also A. Hirsch, "Trusts for
Purposes: Policy, Ambiguity, and Anomaly in the Uniform Laws," 26 Florida St. Univ.
L. Rev. 913 (1999).
Perpetuities: the state of the law. In addition to the obvious problems arising
from the absence of definite or ascertainable beneficiaries and from the resulting
unenforceability of the intended trust, the view has long been held that an
"honorary" trust, as a nonmandatory and unenforceable power (like a power of
appointment), is simply void if it might possibly endure for a period longer than the
"lives in being and 21 years" period of the common-law rule against perpetuities.
See, e.g., Alexander v. House, 133 Conn. 725, 54 A.2d 510 (1947), noted 46
Michigan L. Rev. 707 (1948); and Matter of Estate of Kelly, [1932] 1 Ir. 255, noted
46 Harvard L. Rev. 1036 (1933). See also A. Smith, "Honorary Trusts and the Rule
Against Perpetuities," 30 Columbia L. Rev. 60 (1930); and J. Gray, "Gifts for a Non-
Charitable Purpose," 15 Harvard L. Rev. 509, 515 (1902). And cf. strict English view
of charity and resulting (void) perpetuity in Attorney General of Cayman Islands v.
Wahr-Hanson [2000] 3 W.L.R. 642 (intended trust for organizations "operating for
the public good" not properly limited to legally defined charities).
Decisions to this effect (supra) are numerous. See II William F. Fratcher, Scott
on Trusts § 123 (at p. 230) and § 124.1 (4th ed. 1987); and 3 Lewis M. Simes &
Alan F. Smith, The Law of Future Interests (2d ed. 1956) § 1394 (especially fn. 24).
Accordingly, although approving the concept and generally the application of
"honorary trusts" as nonmandatory powers, the position of the Restatement Second
of Trusts (rejected or at least avoided here in Comment c) has been that the
provision is invalid from the outset if the devisee is directed or authorized to apply
the property to the intended noncharitable purpose for a period that could extend
beyond that permitted by the rule against perpetuities. Id., § 123, Comment f, and
§ 124, Comment f.
Compare, however, the position of Professor Simes in his hornbook, Lewis M.
Simes, The Law of Future Interests § 46 (1966) (on "Duration of Honorary Trusts"),
stating of this prevalent rule that an honorary trust that may endure too long is
void:
It has been said that this is merely an application of the common law rule
against perpetuities with respect to powers; that the honorary trust is not a trust at
all, but a power; and that, if the power is exercisable at a time beyond the period of
the rule against perpetuities, it is void. While it is possible to explain the result in
this way, it is believed that nothing is gained by the process....
Moreover, if [an honorary trust] is a power, then presumptively it is personal to
the donee, and would last only for his lifetime. Hence, unless the power is vested in
a corporation, it is difficult to see how it could ever be exercised beyond the period
of the rule. But if this is a trust [in which] another trustee could administer it on the
death of the one named by the settlor, [then] the first trustee's life could not be
used as the measure of the duration of the trust.... Indeed, [in such a case,] it
would seem preferable to regard the honorary trust as a unique sort of trust, and to
say that the rule which restricts its duration is a unique sort of rule which follows
the analogy of the rule against perpetuities, but is not the same thing.
With the reconsidered common-law position stated in the rules of this Section,
compare the optional provision of the Uniform Statutory Rule Against Perpetuities,
as originally promulgated and as incorporated into Uniform Probate Code § 2-907
until amended in 1993. Entitled "Honorary Trusts; Trusts for Pets," id., subsection
(a), stated that a trust "for a specific lawful noncharitable purpose or for
noncharitable purposes to be selected by the trustee ... may be performed by the
trustee for [21] years but no longer, whether or not the terms of the trust
contemplate a longer duration." The comment to that section notes that the "figure
'21' is bracketed to indicate that an enacting state may select a different figure."
The comment continues by explaining that "Subsection (b) provides more elaborate
provisions for a particular type of honorary trust, the trust for the care of pets ...
[providing that] a trust for the care of a designated domestic or pet animal and the
animal's offspring is valid for a period of up to 21 years." Again, "21" is bracketed,
the comment noting: "The normal lifespan of some animal species exceeds 21
years. If a state would prefer to allow the trust to continue until the death of the
animal, subsection (b) can easily be adapted to that purpose. If a state chooses to
take this approach, it would probably be desirable not to allow the trust to continue
for the lifetime of the animal's offspring." This latter approach, rather like the rule of
this Restatement, was adopted in 1993 by amending UPC § 2-907(b) to provide that
the "trust terminates when no living animal [i.e., living when trust created] is
covered by the trust." Section 2-907(b) also ordinarily makes such a trust purpose
enforceable rather than "honorary." Compare N.Y. EP & TL § 7-6.1 (as amended in
1996).
The exception in Comment e to the special duration rule of this Section of this
Restatement Third of Trusts allows the trust to continue only until the death of the
pet(s) in question. The commentary to Subsection (2), and to the Section generally,
does not suggest that the power in an adapted trust for the care and support of
animals should go beyond the "pets" of a decedent. Thus, it does not endorse
provisions for animals (e.g., offspring) other than those alive at a pet owner's
death.
N.Y. EPTL 7-6.1 (McKinney Supp. 1999) authorizes a trust for the care of a
domestic or pet animal to last for the life of the animal but not more than 21 years,
and also allows the trust to be enforced by a person designated by the settlor or by
a person appointed by the court.
See generally G. Beyer, "Estate Planning for Pets," 15 Probate & Property 7
(July/Aug. 2001); and Note, "Pet Animals: What Happens When Their Humans
Die?," 40 Santa Clara L. Rev. 617 (2000).
In the last part of his thoughtful 1972 commentary on the then just decided
Baden's Trusts (discussed supra in the Reporter's Notes on § 47, and allowing in
England the performance of a trust for members of an indefinite class of
beneficiaries to be selected by the trustee), Professor Palmer states the following
(see "Private Trusts for Indefinite Beneficiaries," 71 Michigan L. Rev. 359 (1972), at
368-369):
One of the principal casualties of the rule invalidating trusts for indefiniteness is
the trust for benevolent purposes. Less than thirty years ago, in Chichester
Diocesan Fund v. Simpson, [(1944) A.C. 341,] the House of Lords declared such a
trust invalid after the trustees had distributed more than 200,000 pounds to various
charitable and benevolent institutions. As a result the trustees became personally
liable to the next of kin who were entitled to the money by way of resulting trust.
The decision should have come as no surprise since essentially the same sort of
trust was held invalid in Morice v. Bishop of Durham, [10 Ves. 522, 32 Eng. Rep.
947 (Ch. 1805), holding void a trust for "objects of benevolence and liberality"], the
case which has been the principal source of our [American] present rules relating to
indefiniteness ... There is no reference to the Diocesan Fund case in the opinions in
Baden's Trusts, nor is there any suggestion as to the effect of the decision on such a
"purpose" trust.
Only time will tell whether the decision will have any effect on the validity of
various types of purpose trusts which in the past have been held invalid under
English law ... [possibly leading] to the rejection of some relatively recent decisions
in which trusts for specific or relatively specific purposes have been struck down; for
example, a trust established by George Bernard Shaw to carry on specific projects
connected with the development of a new English alphabet [In re Shaw, [1957] 1
W.L.R. 729 (Ch.), with which compare Illustration 7 here in Comment d]. Arguably
also, [this] could lead to the validation of a trust for benevolent purposes; but ... it
is improbable that the House of Lords intended to disturb a decision as firmly settled
as that in the Diocesan Fund case.
For American law the application to trusts of the rule of validity that obtains for
powers would mean the overruling of decisions which have denied effect to trusts
for benevolent purposes. This has not yet occurred....
Comment e:
Capricious purposes are further discussed in § 29, Comment m, and see cases
collected in the Reporter's Note thereto. Also compare § 27, Comment b, and
Reporter's Note thereto.
Comment f:
What this Comment allows goes well beyond the counterpart discussion in
Restatement Second, Trusts §§ 123 and 124, which simply assumed that all such
nonmandatory powers were strictly personal to the devisee.
Numerous statutes expressly recognize the power of a court to appoint a trustee
or a substitute or successor trustee for an honorary (or specific-purpose) trust. The
revised Uniform Probate Code (§ 2-907) has been particularly influential; see
statutes in Alaska (Stat. § 13.121.907(7)), Arizona (Rev. Stat. § 14-2907),
Colorado (Rev. Stat. § 15-11-901(3)), Montana (Code Ann. 72-2-1017), New
Mexico (Stat. Ann. § 45-2-907), North Carolina (Gen. Stat. § 36A-147), and Utah
(Code Ann. § 75-1-1001). Another representative statute is New York's E.P.T.L. § 7-
6.1(e), providing that, if "no trustee is designated or no designated trustee is willing
or able to serve, a court shall appoint a trustee and make such other orders as are
advisable to carry out the intent of the transferor."
Comment g:
On the differences between this Comment and Restatement Second, Trusts §

123, Comments g and b, and id. § 124, Comments h and i, compare § 46,
Reporter's Note to Comment f, of this Restatement.
Research References
West's Key No. Digests, Trusts 11(1), 21(2), 66.
Validity of bequest or trust for the care of a specified animal. 31 A.L.R. 430.
(2003)
(C)
REST 3d TRUSTS s 48


§ 48. Beneficiaries Defined; Incidental Benefits
A person is a beneficiary of a trust if the settlor manifests an intention

to give the person a beneficial interest; a person who merely benefits
incidentally from the performance of the trust is not a beneficiary.
Comment:
a. Persons who are beneficiaries: in general. The "beneficiaries" of a trust are

the persons or classes of persons, or the successors in interest of persons or class
members, upon whom the settlor manifested an intention to confer beneficial
interests (vested or contingent) under the trust, plus persons who hold powers of
appointment (special or general) or have reversionary interests by operation of law.
Also included are persons who have succeeded to interests of beneficiaries by
assignment, inheritance, or otherwise.
Persons who may incidentally benefit in some manner from the performance of
the trust are not beneficiaries of the trust and cannot enforce it. Cf. Restatement
Second, Contracts § 302 (on incidental beneficiaries of contracts). Those persons,
however, may have other rights, for example, as creditors.
Illustrations:
1. S leaves her residuary estate to T, in trust, to pay the income to S's brother B
during his lifetime and thereafter to distribute the principal to C Charity; S further
directs that T retain her shares in a specified stock mutual fund of M Investment Co.
and continue to invest at least half of the trust principal in that mutual fund. M
Investment Co. is not a beneficiary of the trust and cannot compel T to retain or
purchase shares of the designated fund. On the rights of B and C Charity as
beneficiaries and T's duty to them under this investment direction, see § 94 (on
standing to enforce trusts) and § 76 (on duty to administer in accordance with the
terms of the trust).
2. S leaves the S Proprietorship and other assets to T in trust for L for life,
remainder to R or R's issue, authorizing T to continue the business and to pay from
the trust property any debts T may properly incur in the operation of the business. T
incurs several such debts. The creditors are not beneficiaries of the trust.
3. S transfers $100,000 to T upon irrevocable trust to apply as much of the
income and principal as needed to cover the tuition, living expenses, and other
costs of education for his recently deceased sister's child, N, in a specified private
boarding school. The school is not a beneficiary of the trust.
b. Directions to employ a designated person. Where the terms of a trust call for
the trustee to employ one or more designated persons in the administration of the
trust, those persons are not beneficiaries of the trust unless the settlor intended to
give them a right to compel the trustee to employ them. Such a provision may be
merely precatory (see § 13, Comment d). Even if mandatory, it is presumed not to
be for the benefit of the designated person but to promote the administration of the
trust. In such a case, the trustee has no duty to the designated person.
Thus, a direction to employ a named lawyer as attorney for the trustee is
ordinarily intended merely to promote the efficient administration of the trust rather
than to confer a benefit on the lawyer. Similarly, where a settlor's business is placed
in trust, with a direction to employ a particular person as manager of the business,
that person cannot enforce the direction unless the settlor manifested an intention
to confer such a beneficial right upon the person.
Even if a settlor intended to confer a right to the employment, the trustee is not
necessarily obliged to employ the person. Thus, there is no such obligation to that
person where the employment is of such a character that it might seriously interfere
with the trustee's proper administration of the trust. A direction to employ a
specified attorney, for example, is not enforceable because the relationship is highly
fiduciary and personal in character.
Although the services involved may be such that the trustee cannot be
compelled to employ a designated person, a trust provision may be found to
manifest the settlor's intention that the person be entitled to damages if denied the
employment, or be paid an appropriate amount as a beneficiary, at least as long as
the person is willing to perform the specified services. A settlor might, for example,
provide for the payment of a specified sum periodically to a named person with a
further provision that, upon refusal to perform certain services, the person should
lose the right. On the other hand, a provision for a person's employment may have
been intended as a gift or legacy, as in the case of an elderly person who has been
in the settlor's employ for many years. Absent clear answers in the terms of the
trust, these issues are all matters for interpretation.
c. Trustee or administrative power holder as beneficiary. A person who is a
trustee may also be a beneficiary of the trust (§ 43, Comment a). The fact that a
trustee is entitled to compensation for serving in that capacity (see § 38(1)),
however, does not make the trustee a beneficiary of the trust. Compare § 65,
Comment a, that a trustee, as such, need not consent to the termination of a trust
by action of all of its beneficiaries.
It is possible, however, that a person's designation as trustee, or as holder of a
power to direct or veto actions of a trustee, was intended by the settlor as a means
of conferring a special benefit on that particular person through control over some
or all of the trust property or decisions. For example, a testator may leave one-third
of the probate estate outright to one child while leaving the rest of the estate to
that child as trustee for the testator's other two children and their families, with the
purpose being to assure the trustee-child control over a farm or business that
passes in part to that child and in part to the trust for the others.
Because of the diversity of trust situations and objectives, and of family or other
relationships, subtle questions of interpretation may be presented concerning the
existence, degree, and significance of any such "beneficiary" status. The degree and
character of the person's fiduciary responsibility in such a case also are matters of
interpretation that inevitably inquire into the purposes of the person's role, and can
particularly determine the nature and extent of the duty of impartiality (§ 79) in the
exercise of fiduciary powers.
Some of the subject matter of this Section is treated in Restatement Second,

Trusts § 126. The rules and principles in the present Section are consistent with
those of § 126 of the prior edition, although the discussion here in Comment c goes
beyond the matters treated in the earlier Section, raising and considering
increasingly common and important questions (on which little authority exists)
about trusteeships and related roles.
Comment a:
In Rosenthal v. United States, 11 Cl. Ct. 165 (1986), the consent of the
claimant-plaintiff was not required for the settlor-defendant in the latter's
revocation of a trust it had created to pay any judgment that might be entered
against it; and in Davis v. Davis, 734 S.W.2d 707 (Tex.App.1987), a parent, who
was an heir apparent and also guardian of the person (but not conservator of the
estate) of the minor beneficiaries of a trust, was held to lack standing to bring an
action to enforce the trust and to seek removal of the trustee.
On this Comment generally, see II William F. Fratcher, Scott on Trusts § 126-
126.2 (4th ed. 1987), and Smith, "Mortgagees and Trust Beneficiaries," 106 Law
Quarterly Rev. 545 (1990).
Comment b:
On matters discussed in this Comment, see, e.g., Estate of Fresia, 390 So.2d
176 (Fla.App.1980) (no legal obligation imposed on trustee to employ); Will of Platt,
205 Wis. 290, 237 N.W. 109 (1931) (again, incidental benefit), noted 80 U. of
Pennsylvania L. Rev. 139, and 7 Wisconsin L. Rev. 61; and Estate of Bloom, 107
Cal.App.3d 195, 165 Cal.Rptr. 591 (1980) (same; attorney). But see Rivet v.
Battistella, 167 La. 766, 120 So. 289 (1929), noted in 43 Harvard L. Rev. 144.
See also Note, "Testamentary Designation of an Attorney," 34 Wisconsin L. Rev.
322 (1958), and Note (same topic), 166 A.L.R. 491 (1947). See generally Fratcher,
Scott on Trusts, supra, § 126.3.
Comment c:
Compare the situations discussed in A. Duckworth, "Protectors--Fish or Foul?

(Part II)," 5 J. of International Trust & Corporate Planning 18 (1996) (substantially
reprinting id., Contemporary Trends in Trust Law (A. Oakley ed. 1996)), under the
heading "Administrative Powers--Purpose Restrictions" (id. pp. 18-19):
There is less case law dealing with implied purpose restrictions on administrative
powers than there is for dispositive powers, but it seems that the court undertakes
the same exercise of considering the purpose or purposes for which the power has
been given, and preventing its use for any extraneous purpose. In practice the
questions most likely to arise are:
(a) For whose benefit may the administrative power be exercised?
and
(b) May a power to influence one aspect of the trust administration be used to
influence a different aspect of it?
So far as benefit is concerned the range of possibilities is that the power has
been given:
(a) for the benefit of the protector himself;
Example: The trust instrument designates successive income beneficiaries as
protector, and gives the protector power to veto the acquisition of new investments.
This may be to enable the protector to look after his own interests without regard to
the interests of the other beneficiaries.
(b) for the benefit of the beneficiaries of the trust or some class of them.
Obviously this is the most common situation, [and] the natural inference unless
there is clear evidence to the contrary....
The article next recognizes two other possibilities concerning the reasons for the
grant of the power. These are "(c) for the benefit of persons other than trust
beneficiaries;" and "(d) for other collateral purposes of the settlor," further noting
that these four possibilities are not mutually exclusive and that a protector may
have a dual role.
Also compare § 64 (on powers to terminate or modify conferred upon a trustee,
beneficiary, or third person, including a "trust protector"), and especially § 64,
Comments b-d, and Reporter's Note to Comment d.
Research References
Anti-lapse statute as applicable to interest of beneficiary under inter vivos trust who
predeceases life-tenant settlor. 47 A.L.R.3d 358.
(2003)
(C)
REST 3d TRUSTS s 49

Part 4. Nature Of Beneficiaries' Rights And Interests

Chapter 10. Extent And Enforceability Of Beneficial Interests
§ 49. Extent Of Beneficiaries' Interests
Except as limited by law or public policy (see § 29), the extent of the
interest of a trust beneficiary depends upon the intention manifested by
the settlor.
Comment:
a. In general. The interests of beneficiaries are usually prescribed with

reasonable clarity by the express provisions of a trust. When this is not the case,
uncertainties may be resolved through the process of interpretation or by
application of rules of construction. See generally § 4 on "terms of the trust." On
interpretation and construction more generally, see Restatement Third, Property
(Wills and Other Donative Transfers), Chapters 10 and 11. The terms of the trust in
these matters will be respected and given effect unless contrary to public policy.
See §§ 27 and 29, particularly § 29(c) on conditions that may be unenforceable as
against public policy. See also Chapter 12 (§§ 57-60) of this Part 4.
Words of inheritance (such as "to A and his heirs") are unnecessary to the
creation of an equitable interest in fee simple, whether the trust is created by
declaration, by transfer inter vivos, by will, by the exercise of a power of
appointment, or by order of court.
a(1). Future interest in heirs of settlor or another. At early common law there
were rules of law, known as the doctrine of worthier title and the rule in Shelley's
Case, that essentially prohibited the creation of a remainder interest in land in the
heirs of a grantor (treating that interest as a reversionary interest) and the creation
of a remainder in the heirs of another following a freehold interest in that other
person (treating the remainder as belonging instead to that person and often
resulting in a beneficial interest in fee simple). Over time, these rules were
narrowed in application or softened into rules of construction. They have now been
abolished by legislation or rejected as a part of the common law in nearly all
jurisdictions.
No such rules of law or construction are recognized by this Restatement.
Compare Restatement Second, Property (Donative Transfers), Chapter 30. There
remains only a question of construction, with the presumption being that language
expressing an apparent intention to create a remainder in someone's heirs is so
intended and is to be given that effect. Thus, the potentially destructive effects of
antiquated doctrine have been removed while the potential advantages often
perceived in some retention of those doctrines have been provided by other
adaptations of doctrine. See, e.g., § 65 and cf. § 66 on modification and termination
of trusts.
On the creation of trusts for members of a definite or indefinite class of persons,
see §§ 45 and 46; and on the many questions of construction that arise from the
varied language used in expressing class gifts, see Restatement Second, Property
(Donative Transfers) §§ 29.1-29.8 (on "heirs" and related terms) and §§ 25.1-28.5
(on other class-gift terms).
b. Definiteness of extent of beneficiary's interest. The extent of the interests of
the beneficiaries of a trust need not be definite at the time of the creation of the
trust. It is sufficient if the extent of an interest will become ascertainable within the
period and terms of the rule against perpetuities.
The interest of a beneficiary may be a present or future interest; and an interest
may or may not be subject to conditions with respect to the recipients or the extent
of the interest. Furthermore, an interest may be subject to the discretionary
decisions of a trustee or another (see § 50), or subject to a power of appointment
or a power of revocation or amendment. In fact, there is practically no limit to the
variety of interests a settlor may create. But see § 29(b) (perpetuities matters) and
§ 29(c) (other policy limitations).
c. Dispositions of income. If a disposition of income is limited to the lifetime of
the designated beneficiary, and no other disposition is made of the income
thereafter or of the principal, on the designated beneficiary's death the trustee
holds the trust property upon resulting trust for the settlor or for the settlor's
successors in interest (see § 8 and also §§ 51 and 55). If by the terms of a trust a
person is entitled to the income from the trust property perpetually and there is no
other disposition of the beneficial interest, that person is the sole beneficiary of the
trust and has the full and absolute equitable interest in the trust property. (On the
rights of such a beneficiary or his or her successors in interest to terminate the
trust, see § 65; and on succession to the beneficiary's rights at death, see § 55.) If
the trust terms are unclear on the matter, it is a question of interpretation whether
a direction simply to pay income to a designated beneficiary is intended to include a
right to the income perpetually or is limited to income during the life of the person.
c(1). Right to and timing of distributions. Where a trustee is directed to pay the
trust's income to a beneficiary for life or a designated period, in the absence of
other direction the trustee is under a duty to pay the beneficiary the net income of
the trust property at reasonable intervals, normally monthly or quarter-annually,
but at least annually, whether or not the beneficiary needs the income. On what is
included in "income," see Chapter 23.
Illustration:
1. S's will leaves property to T "to pay all of the net income to B for her support
and care, remainder at B's death to my issue." B is entitled to all of the trust income
even though it exceeds what is reasonably needed for support and care. The
inference from the quoted language is that the reference to support and care is a
mere recitation of motive. (But compare discussion of incapacity in Comment c(2),
below.)
Despite a duty to distribute all income periodically, the trustee can properly
withhold a reasonable amount of income receipts to meet present or anticipated
expenses that are properly chargeable against income, or temporarily for the
trustee's and beneficiaries' protection where there is reasonable doubt as to the
amount of income properly payable to the income beneficiary. Also, the trustee may
rely on reasonable projections and adjustments in the scheduling and making of
income distributions, particularly in order to facilitate frequent, relatively stable
distributions (monthly, for example, even though dividends tend to be received by
the trust on a quarterly basis).
Furthermore, a court may permit or direct the trustee to distribute or apply trust
principal or otherwise undistributable income to or for the support, care, or other
needs of a beneficiary before the time when, by the terms of the trust, the
beneficiary would be entitled to the enjoyment of that principal or accumulated
income, if the interest of no other beneficiary of the trust is thereby impaired. On
these and further possibilities for deviation from or modification of administrative
and distributive provisions under other circumstances, see § 66 (judicial authority)
and § 65 (consent of beneficiaries).
c(2). Beneficiary under incapacity. Where a beneficiary who is entitled to receive
trust income is legally incapacitated, such as by minority or judicial declaration of
incompetency, what disposition should the trustee make of the income that is
required to be distributed? If the terms of the trust authorize the income to be
applied by the trustee directly for the benefit of a beneficiary, the trustee can
properly do so. Absent either express authorization or a contrary provision, it is
implied from a direction to distribute income (or other amounts) that the trustee
has authority to apply the funds for the beneficiary's benefit so long as no objection
is raised by or on behalf of the beneficiary.
It is further implied that, if the trustee has good-faith doubt concerning a
beneficiary's practical or legal capacity to handle the funds, distributions to which
the beneficiary is entitled may be retained and managed by the trustee as a
separate fund belonging to the beneficiary, subject to a continuing right of
withdrawal upon demand by or on behalf of the beneficiary. (Compare § 66 on
unanticipated circumstances and principles of equitable deviation.) This tentative
power of retention will often make it unnecessary for a personal fiduciary (guardian,
conservator, or the like) to be appointed for the beneficiary, or, if one has been
appointed, for the trustee to make distribution to the personal fiduciary (including
an agent holding the beneficiary's durable power of attorney) until the personal
fiduciary asserts the right of withdrawal. Also, in these various circumstances, in the
absence of a duly appointed personal fiduciary, the trustee has discretionary
authority to select and distribute the funds to a suitable statutory custodian for the
beneficiary, or to act as that custodian, unless this is contrary or inappropriate to
the terms of the applicable Uniform Transfers to Minors Act, Uniform Custodial Trust
Act, or other custodianship statute. On the effect of such retention or distribution on
a spendthrift restraint, see § 58, Comment d. (In all of the foregoing situations, the
trustee's implied authority to retain funds to which a beneficiary is entitled, or to
distribute them to a custodian, is inapplicable if that authority is contrary or
inappropriate to the purposes of the trust, such as an objective of qualifying for the
federal estate tax marital deduction. See Reporter's Notes.)
Illustration:
2. The terms of a trust direct T, as trustee, to pay all of the income to B during
his lifetime, remainder to R. B becomes legally incapacitated, and C is appointed to
act as his conservator. The provisions of the trust neither authorize nor forbid T to
apply or retain income for the benefit of B. Nevertheless, T can properly expend
income of the trust directly for B's benefit and any income that is not so applied
may be held by T in a separate fund, as the property of B (investing and accounting
for those assets and their earnings), except as she is otherwise instructed by C. If
the separate fund is still held by T when B dies, it will be property of B's probate
estate.
A trustee who is under a duty to apply the income for the benefit of the
beneficiary in the event of incompetency can properly pay the income to a personal
fiduciary for this purpose, provided the manner and cost of so delegating the
trustee's duty are appropriate and reasonable. (On authority and duties with respect
to delegation generally, see § 80.)
A trustee who improperly applies or distributes income in good faith for the
support, care, or other needs of the beneficiary (whether or not under a legal
disability) is entitled to credit in the trust accounts to the extent the beneficiary
would otherwise be unjustly enriched. See generally § 76; also see Chapter 19.
If the terms of a trust validly (see § 29, Comment h(2)) authorize or direct the
trustee to accumulate some or all of the income of the trust, the trustee is not
under a current duty to pay that income to the beneficiary. Similarly, if the terms of
the trust direct or authorize the trustee merely to apply or distribute income as
needed for the support of a beneficiary, the trustee is neither required nor
permitted to pay the beneficiary income that is not needed for that purpose.
Contrast Illustration 1, above; also compare generally § 50.
On the disposition of income accrued or received in the trust but undistributed
on the death of the life-income beneficiary, see Chapter 23. Compare the duty of
the trustee, upon termination of the trust, to pay principal to the beneficiaries
entitled thereto (§ 76).
c(3). Multiple life beneficiaries: income share(s) not expressly disposed of.
Where trust property is distributable to a class, or otherwise to multiple
beneficiaries, the rules for determining the eligibility of potential recipients and the
shares in which they take (of income or principal currently or later) are the same as
those for legal interests. On these matters generally, see Restatement Second,
Property (Donative Transfers) § 25.1 et seq.
Where the income of a trust is payable to two or more life beneficiaries with a
gift over on the death of the survivor, and an income beneficiary dies, the
disposition of the income share the deceased beneficiary had been receiving
depends upon the terms of the trust. Where the terms of the trust make no express
provision for the situation, the normal inference is that the settlor intended the
income share to be paid to the issue (if any) of the deceased income beneficiary in
the typical case of this type in which the remainder is to pass to the descendants of
the income beneficiaries upon the survivor's death. This presumed result applies
whether or not the beneficiaries are described in class terminology. It may appear
from language of the trust or the circumstances, however, that the settlor would
have preferred: (i) that the income be paid to or divided among the surviving
income beneficiary or beneficiaries (as "cross remainders"), even if the beneficiaries
are not described as a class; or (ii) that the income share be paid to the estate, or
successors in interest, of the deceased income beneficiary (whose interest is thus
one "pur autre vie"); or (iii) that it be paid to or accumulated for all of the
remainder beneficiaries; or (iv) that it be paid (by reversion) to the settlor's
successors in interest as property not disposed of by the terms of the trust (see § 7,
Comment b, and § 8, Comment d, especially Illustration 16, on resulting trusts).
Illustration:
3. A trust directs that the income is to be paid "equally to my son S and my

daughter D" and that "on the death of the survivor the trust principal shall be
distributed to [the settlor's] then living issue." After receiving her share of income
for a number of years, D dies; the trust instrument fails to state who is now entitled
to what had been D's one-half share of the trust income. Having heard various
claims being asserted by S, by H (who is D's widower and the executor of her will),
by D's child C, and by S's children, the trustee petitions the court for instructions.
(On the bases of the various contentions made or likely to be made by these
claimants, see Reporter's Notes.) If no settlement is reached, the hearing on the
petition will begin with a presumption that D's descendants who are living at the
time of each distribution are to receive half of the trust income until the death of S.
Thus, initially at least, C is the presumed recipient of that income share. (If D is not
survived by issue in such a case, the rule of construction further provides for the
entire income to be paid to S, by cross remainder, under possibility (i) in the text,
supra.)
d. Invasion of principal. Questions of whether, under what circumstances, and to
what extent a beneficiary who is entitled to receive trust income may also be
entitled to receive principal depend upon the terms of the trust. The terms of the
trust may, expressly or impliedly, authorize the trustee to pay or apply principal to
or for the income beneficiary as appropriate for support or for other specific or
general purposes. In the absence of such authority the trustee has no power to
invade principal for an income beneficiary. But cf. the judicial power to authorize
deviation from the terms of the trust in § 66.
So also, a beneficiary may be empowered to require the trustee to pay the
beneficiary or another some or all of the trust principal. The extent of any such
power, as well as the fiduciary or nonfiduciary character of the power, depends
upon the terms of the trust. Thus, a beneficiary may be authorized by the terms of
the power to require the payment only of such sums as the beneficiary reasonably
believes to be necessary for support or other current expenditure; or the beneficiary
may be authorized to demand the payment of any part or all of the principal with no
limitation.
d(1). Related issues; cross-reference. In these various trust situations, whether
the trustee can properly distribute or apply the principal for the intended purposes
when the beneficiary has personal resources available for those purposes depends
on the language used by the settlor, as interpreted in light of the circumstances and
other admissible evidence (§ 50, Comment e). So does the question (§ 50,
Comment d) of whether and for what purposes the trustee may make discretionary
payments of income or principal to the estate of a deceased beneficiary. Similar
issues arise also in the increasingly common situations in which a trustee's
discretion applies to distribution of income as well as principal. In either event, a
court will not interfere with the exercise of discretion conferred upon the trustee
except to prevent its abuse. These and other questions of construction involving
discretionary powers over distributions are considered hereafter in § 50.
e. Annuities and unitrust interests. The terms of the trust may provide that a
beneficiary is to receive periodically a stated sum (an annuity) or a sum to be
determined by some mathematical formula, such as a stated percentage of the trust
estate's value determined annually (a unitrust). The required sum is payable from
the funds of the trust without regard to distinction between income and principal
unless the settlor has manifested an intention that the annuity or unitrust amount is
payable only from income.
In the latter situation, in which the trustee may not use principal when the
income is insufficient to pay the stated or formula amount, further questions of
interpretation may arise. Is the deficiency in one year to be made up from excess
income of subsequent years? And is the trustee to use excess trust-accounting
income of earlier years to prevent possible deficiencies in subsequent years? When
the settlor's language is unclear on these points, there is no generally applicable
rule of construction and the questions are necessarily ones of interpretation. See
Reporter's Notes. On accumulations generally, see § 29, Comment h(2).
f. Conditions. Sometimes the terms of a trust provide that a beneficiary is to
take an interest in income or principal only on the happening of a designated event,
or that the beneficiary's interest in income is to terminate on the happening of a
designated event. Unless contrary to public policy (see § 29(c) and § 57), such a
condition is valid.
As to the effect of indefiniteness or impossibility of performance of such
conditions, see § 30.
On whether a gift to a person on reaching a certain age is conditional on his or
her reaching that age, or is an absolute gift with mere postponement of enjoyment,
see Restatement Second, Property (Donative Transfers) § 27.3, Comment f (and id.
§ 27.3, Reporter's Note 5). On the general question of whether the interest of a
remainder beneficiary is subject to an implied requirement of survival, see id. §§
27.1-27.3, 28.2(1), and 29.5. Cf. Restatement Third, Property (Wills and Other
Donative Transfers) § 16.3 (Preliminary Draft No. 9, 2002), on future interests to
classes. See also Reporter's Notes.
Much of the subject matter of this Section was covered in Restatement Second,
Trusts §§ 127-129, 168, and 182.
On the Introductory Note to Chapter 10 (preceding this Section), see II William
F. Fratcher, Scott on Trusts (14th ed. 1987) at §§ 130, 130.1, and 131 ("The
Nature of the Beneficiary's Interest"), some of which is excerpted below.
Equitable ownership vs. chose in action. In discussing whether the beneficiary
has "rights in rem or rights in personam," or whether those rights give the
beneficiary "a proprietary interest in the trust property or merely a claim against the
trustee," the Scott treatise (supra, § 130) notes:
When Maitland [Equity 107 (1936)] deals with the question whether the
beneficiary of a trust has rights in rem, it is not always easy to tell in which sense
he is using the phrase. Indeed, he appears to use it at times to denote rights
against the world at large and at other times to denote a proprietary interest in the
subject matter of the trust. His contention seems to be that the beneficiary of a
trust does not have rights in rem in either sense. He says that
the thesis that I have to maintain is this, that equitable estates and interests are
not jura in rem. For reasons that we shall perceive by and by, they have come to
look very much like jura in rem; but just for this very reason it is more necessary
for us to observe that they are essentially jura in personam, not rights against the
world at large, but rights against certain persons....
Our contention [which is consistent with this and prior Trusts Restatements] is
that [the question whether a beneficiary has a property interest and not merely a
chose in action] should be answered in the affirmative. The beneficiary of a trust
has a property interest in the subject matter of the trust. He has a form of
ownership. He has much more than a mere claim against the trustee, a mere chose
in action. It must be remembered, however, that the chancellors at the beginning
gave him no more than a claim against the trustee, and only gradually gave him
proprietary rights. The growth of the trust has been a process of evolution. It must
be noticed, also, that the incidents of equitable ownership are not [everywhere]
entirely coextensive with those of legal ownership. Trusts formerly were, and in a
few jurisdictions still are, protected in different courts from those that protect legal
interests....
We have seen that the interest of the beneficiary was treated almost from the
beginning as a property interest so far as the beneficiary and his successors in
interest were concerned. As far as outsiders are concerned, the courts were a little
slower in recognizing the proprietary interest of the beneficiary....
... [I]n protecting that interest against third persons acting adversely to the
trustee, [the beneficiary usually] must proceed through the trustee rather than
directly against the third person. It is true that if the trustee fails to sue the third
person for so long that he is barred by the statute of limitations from maintaining an
action against him, the beneficiary is precluded from maintaining an action against
him [treatise § 327.1]. This is so even though the beneficiary was under a disability.
The beneficiary's remedy is against the trustee for permitting the action against the
third party to be barred, and the beneficiary can maintain a suit against the trustee
unless he has lost the rights to do so by his own laches. This does not mean,
however, that the beneficiary had no proprietary interest in the subject matter of
the trust. It merely means that he must ordinarily proceed through the trustee in
order to protect his interest. The trustee has the power and the duty to protect the
interest of the beneficiary against third persons acting adversely to the trustee. As
against such third persons, the trustee is the representative of the beneficiary.
That the reason why the beneficiary of a trust has no direct right of action
against a disseisor but must proceed through the trustee is that his interest is
adequately protected this way, and not that he has no interest in the subject matter
of the trust, is clearly shown by the decision in In re Nisbet and Potts' Contract
[[1905] 1 Ch. 391, aff'd, [1906] 1 Ch. 386, which] ... shows that the owner of an
equitable interest can under some circumstances maintain a suit against a third
person acting adversely to the holder of the legal title. If he could not maintain such
a suit, he would be helpless....
The principle that a beneficiary of a trust has a proprietary interest in the
subject matter of the trust has been accepted by the Supreme Court of the United
States in two decisions ... The House of Lords in England has also recognized the
fact that a beneficiary of a trust has a proprietary interest in the subject matter of
the trust....
This section of the Scott treatise concludes by expressing the belief "that the
prevailing view in the United States as well as in England is that a beneficiary of a
trust has a property interest in the subject matter of the trust and not merely a
chose in action."
See generally § 2 and authorities and discussion in General Note at outset of
Reporter's Notes to § 2. But see In re Raymond W. George Trust, 296 Mont. 56, 986
P.2d 427 (1999), which reached a conclusion contrary to the usual conception
because the "plain and unambiguous language of § 72-24-201, MCA, states that the
beneficiaries of an express trust in real property take no estate or interest in the
trust property and that the trustee has the whole estate in the trust property.
Thus, ... the beneficiaries of an express trust in real property do not have either a
legal or an equitable estate or interest in the trust property; they may only enforce
the performance of the trust."
More typically: "Where the present transfer of legal title to property is required
[conceptually distinguishing a declaration of trust], it is because common sense and
logic dictate that the requirements of a valid trust cannot be fulfilled without it.
Before property can be said to be held in trust by a trustee, the trustee must have
legal title. Without legal title the trustee holds nothing in trust. Furthermore, the
backbone of trust law is the concept of separate ownership of equitable and legal
interests.... Ordinarily, a transfer of legal title to the trust property to a trustee
accomplishes the separation of legal and equitable interests.... Where, as [in a
declaration of trust], the settlor and the trustee are the same person, ... the trustee
already holds legal title. The important question in such cases is whether an
equitable interest has been divested to a cestui que trust by the settlor." Taliaferro
v. Taliaferro, 260 Kan. 573, 581, 921 P.2d 803, 809 (1996).
Real or personal property. In Fratcher, Scott on Trusts, supra, § 130.1
("Whether beneficiary's interest is realty or personalty") it is observed that
"wherever the rules governing descent of real property differ from those governing
distribution of personalty"--which, incidentally, is rare today--"the rules that apply
to legal interests are applicable to the interest of a beneficiary of a trust."
Accordingly: "Where the trust property is personal property, the interest of the
beneficiary passes to his next of kin as personal property. Where the trust property
is real property and the interest of the beneficiary is an interest in fee, his interest
descends as real property. Where, however, the trust property is real estate but the
interest to the beneficiary is limited to a term of years, his interest is personal
property."
On the matter of equitable conversion, id. § 131 notes that "cases are numerous
in which it is held that a mandatory direction to trustees to sell land that they hold
in trust causes an equitable conversion, and that the interest to the beneficiary is to
be treated not as real estate but as personal property, even though the trustees
have not yet sold the land," noting further that an equitable conversion occurs even
where the duty of the trustee to sell the land "arises by implication from the terms
of the trust." Furthermore, equitable conversion occurs where the trustee is under
"an absolute duty to sell at some time," even if not immediately, but does not occur
"if duty to sell is conditional on the happening of a future event that may never
happen" or if the trustee is merely "empowered to sell the land." The treatise
section continues:
The question of whether under the doctrine of equitable conversion the interest
of a beneficiary of a trust is to be treated as real property or personal property is
important in various situations. The character of the interest of the beneficiary may
determine [the rights of potential successors] on his death.... Where land is held in
trust for an alien in a state in which alien ownership of land is forbidden, it has been
held in a number of cases that if by the terms of the trust there was a mandatory
direction to the trustee to sell the land and pay the proceeds to the alien, the
beneficiary's interest is to be regarded as personal property ... and not subject to
forfeiture to the state.
The question whether the interest of a beneficiary of a trust is to be regarded as
realty or personalty may [determine the appropriate procedures to be used] where
creditors seek to reach his interest....
The doctrine of equitable conversion may be of importance in determining
whether [under the statutes of a particular state] the interest of a beneficiary is
subject to a tax....
Id. §§ 654-656 consider conflict-of-laws questions in situations in which there is or
may be an equitable conversion. And on "reconversion" id. § 131.1 notes that even
though "the settlor has directed the sale of real estate included in the trust and
thereby effected an equitable conversion of the property, the beneficiary [or
beneficiaries], if [all are] sui juris, can elect to take the real estate in specie; and ...
an equitable reconversion of the property is effected."
Comments a and a(1):
Lewis M. Simes, The Law of Future Interests (Hornbook, 2d ed. 1996) §§ 20-25
discuss the historical origin and justification, requirements and operation, and
present status of the rule in Shelley's case; and id. §§ 26-30 provides similar
discussion of the "Worthier Title Doctrine." See also id. §§ 15-19 discussing the
obsolete doctrine of destructibility of contingent remainders.
Also on the rule in Shelley's case and the doctrine of worthier title, see Fratcher,
Scott on Trusts, supra, §§ 127-127.2.
For a case finding the remnants of neither rule applicable, see Warren Boynton
State Bank v. Wallbaum, 143 Ill.App.3d 628, 97 Ill.Dec. 539, 493 N.E.2d 21 (1986).
Prior Trusts Restatements recognized and discussed worthier title as a rule of
construction (Restatement Second, Trusts § 127, Comment b); and they recognized
and discussed Shelley's rule as a rule of law, except in the many states that had
then abolished it (id. § 27, Comment c, and § 128, Comment h).
That words of inheritance (e.g., to a person and his heirs) are no longer
necessary to the creation of a fee-simple interest, and on the distinction between
words of "inheritance" and words of "limitation," see Simes, Future Interests, supra,
§ 20, and William M. McGovern, Jr., Sheldon F. Kurtz, & Jan Ellen Rein, Wills, Trusts
and Estates, Including Taxation and Future Interests (Hornbook, 1988) § 11.2 (pp.
461-462), which also discusses the rule in Shelley's case (pp. 463-465 and 469-
470) and the doctrine of worthier title (pp. 467-469).
The position stated in Comment a(1) is in no way inconsistent with cases such
as Estate of Straube v. Barber, 990 S.W.2d 40 (Mo.App.1999), in which a residuary
devise to a sister "and her heirs" was held to constitute a fee-simple interest, with
no ambiguity that would justify admission of extrinsic evidence of intention; absent
clear manifestation to the contrary, "heirs" in such a context is not a word of
purchase but a word of limitation, i.e., language defining the extent of the estate
given in a devise.
Also compare Estate of Calden, 712 A.2d 522 (Me.1998), in which the will, after
listing four residuary devisees by their names, continued with "to have and to hold
the same to him, her or them, and his, her, or their heirs forever." One of the
devisees predeceased the testator. With an atypical construction, the court avoided
the complete failure of the devise, which in this case a statute would have caused to
go to the other residuary devisees, by construing the "heirs" language as a
substitutionary gift covering the risk of a devisee's death before the testator.
Instead of applying the normal principle that the "heirs" language represented
words of limitation in such a context, the court concluded that the words here were
"words of purchase," determining the intended recipients.
Comment b:
On the long-standing recognition that a beneficiary has an existing future

"interest" even though it is subject to another's power of appointment, see Simes
(hornbook) supra, § 11 (at page 20), or even though it is a remainder interest
(following the settlor's death) in a revocable trust, as in such leading cases as First
National Bank v. Tenney, 165 Ohio St. 513, 138 N.E.2d 15 (1956), and Randall v.
Bank of America, 48 Cal.App.2d 249, 119 P.2d 754 (1941), both allowing the
interest of a remainder beneficiary who predeceased the settlor to pass to the
beneficiary's estate (i.e., to the predeceased beneficiary's successors in interest).
See further, on both of these matters, 1 Lewis M. Simes & Alan F. Smith, The Law
of Future Interests § 113 (2d ed. 1956). And see Estate of Capocy, 102 Ill.App.3d
609, 58 Ill.Dec. 880, 430 N.E.2d 1131 (1981), in which the beneficiary of a
"revocable inter vivos savings account trust" predeceased the settlor, and the court
held that upon the settlor's death without having amended the trust the corpus of
the trust passed to the estate (i.e., to the successors in interest) of the beneficiary.
"Because generally the beneficial interest in a Totten trust does not vest until the
death of the settlor, the general rule developed in other jurisdictions (the issue has
apparently not yet arisen in Illinois) that if the beneficiary [of the Totten trust]
predeceases the settlor [depositor], the trust fails and the corpus of the trust
reverts to the estate of the settlor.... However, in the case at bar, the savings
account trust is not a Totten trust.... [T]he trust is not 'tentative' but is rather a
valid, revocable inter vivos trust. Therefore, any rule governing the disposition of
Totten trusts is inapplicable here." Id. at 612, 430 N.E.2d at 1133-1134, citations
omitted and paragraphing disregarded. The court noted a supportive, earlier
Michigan case in which "the court held a savings account trust coupled with the
execution of a form trust agreement established a valid inter vivos trust." Id. at
612, 430 N.E.2d at 1134.
On other matters briefly mentioned here, see II William F. Fratcher, Scott on
Trusts § 129 (4th ed. 1987).
On relevant general principles examined elsewhere in this Restatement, see §
44, Comments b and c; also compare §§ 45 and 50.
Comments c-c(3):
The matters discussed in this Comment, and relevant authorities, are discussed
in IIA William F. Fratcher, Scott on Trusts (4th ed. 1987) § 182 ("Duty to Pay
Income to Beneficiary") and § 182.1 ("Where the Beneficiary is Under an
Incapacity"). See also id. § 128.2. On "Anticipation of Income and Principal," see id.
§ 128.7, and also Restatement Second, Trusts § 168.
On Illustration 1, see Taylor v. Hutchinson, 17 Ariz.App. 301, 497 P.2d 527
(1972); Philp v. Trainor, 100 So.2d 181 (Fla.App.1958); and Ward v. Ward, 88
N.C.App. 267, 362 S.E.2d 847 (1987), review denied, 322 N.C. 115, 367 S.E.2d 921
(1988).
The draft of a never promulgated Uniform Statutory Will Act would have allowed
trustees to retain property that would otherwise be distributable "to an individual
who ... the trustee determines cannot effectively manage the property," with the
accumulation to be distributed "upon removal of the [beneficiary's] disability." Also,
cf. Calif. Prob. C. § 3906(c) (allowing a trustee to make payment to a custodian for
a minor beneficiary).
Despite the cautionary parenthetical statement at the end of the paragraph
preceding Illustration 2, the trustee's retention of income subject to demand by the
spouse (or his or her conservator or other personal fiduciary) should not jeopardize
the marital deduction (although distribution of that income to a form of statutory
custodianship under present or future statutes may be a different matter). See
Treasury Reg. § 20.2056(b)-5(f)(8) (on general-power trusts), effectively
incorporated by the cross-reference in id. § 20.2056(b)-7(c)(1) (on QTIP trusts).
Reg. § 20.2056(b)-(5)(f)(8) states that the requirements for a qualifying income
interest are satisfied "if, under the terms of the trust instrument, the spouse has the
right exercisable annually (or more frequently) to require distribution to herself of
the trust income," and this will suffice even though "otherwise the trust income is to
be accumulated and added to corpus" (emphasis added)--a result not appropriate in
any event for the circumstances described in the text of the Comment and in the
Illustration. On QTIP trusts specifically, see Example 2 (especially third sentence) of
Reg. § 20.2056(b)-7(h).
On Illustration 3 and the constructional problem that arises (see text preceding
Illustration 3) when the income of a trust is to be paid equally to several
beneficiaries until the survivor's death and one of the income beneficiaries dies, see
McGovern, et al, Wills, Trusts and Estates, supra, § 11.1 (pp. 453-454); and Edward
C. Halbach, Jr. & Eugene F. Scoles, Materials on Future Interests (1977) 197-198.
The Comment and Illustration differ from Restatement Second, Trusts § 143(2)
("the survivor or survivors are entitled to the income until the death of the last
survivor, unless the settlor manifested a different intention"), which had followed
original Restatement of Property § 115, a provision that has no counterpart in the
Restatement Second of Property.
The view of the earlier Restatements is not continued here because there is also
substantial support in the cases for other possible solutions (see below) and
because the earlier view attributes to the settlor in most cases the unlikely intention
of favoring one line of descendants (or of other similarly related persons) over
another based on the fortuities of order of death. Also, many statutes today disfavor
rights of survivorship, recognizing a joint tenancy only where a right of survivorship
"is expressly provided in the instrument." Fratcher, Scott on Trusts, supra, § 143
(with statutes collected in n.4).
Whether by applying the doctrine of "cross remainders" or saying that the
income disposition is one to a "class" or one with "survivorship," however, the
slightly prevalent view in the cases still appears to be to allow the surviving income
beneficiary or beneficiaries to receive the deceased beneficiary's share of income.
But other courts have found this result unsatisfactory. A better result (reached by
some courts and preferred in this Comment and Illustration 3) would be to pay the
income to those remainder beneficiaries who are issue of the deceased life
beneficiary. A number of other courts have treated the deceased beneficiary's
interest or property rights as a life estate pur autre vie, so that until the survivor
dies the income will be paid to the deceased beneficiary's successors in interest as
an asset of that beneficiary's testate or intestate estate. Still another result might
be to pay the income or possibly a proportionate share of the principal to all of the
remainder beneficiaries (settlor's issue in Illustration 3). Or a court could either
order the deceased beneficiary's share of income to be accumulated for distribution
on termination, or find a resulting trust of the income share (see § 8)--that is, a
reversionary interest of property rights not effectively disposed of by the settlor and
thus belonging to the settlor's successors in interest.
The solution suggested in Illustration 3, presuming an intent to make a
substitute gift to the issue of a deceased income beneficiary, is analogous to
Uniform Probate Code § 2-707, extending the anti-lapse concept to future interests;
the section applies to both class gifts and gifts to named individuals. That no
distinction should be drawn between a gift to "children" and one to "my son S and
my daughter D" or to "my children, S and D," see also W. McGovern, "Facts and
Rules in the Construction of Wills," 26 U.C.L.A. L. Rev. 285, 317 (1978).
Case law. The "cross-remainder" solution was adopted recently in Westervelt v.
First Interstate Bank, 551 N.E.2d 1180 (Ind.App.1990). See also In re Estate of
Conway, 59 N.J. 221, 280 A.2d 189 (1971), and In re Estate of Hannah, 215 Kan.
892, 529 P.2d 154 (1974), both citing Restatement Second, Trusts § 143. In the
last case, this excluded the children of the deceased income beneficiary.
But in Dewire v. Haveles, 404 Mass. 274, 534 N.E.2d 782, 786 (1989), the court
refused to exclude a deceased class member's issue in dealing with "the question
whether the class gift of income to grandchildren calls for the payment of income
equally to those grandchildren living from time to time (as joint tenants with right of
survivorship) or whether the issue of any deceased grandchild succeeds by right of
representation to his income interest. The latter result better conforms with the
testator's intentions.... Such a pattern treats each grandchild and his issue equally
throughout the intended term of the trust." The result in this case is like that
presumed by the rule of construction preferred in this Comment and would produce
a result like that in Illustration 3. (The increasing willingness of courts to find such
gifts by implication in other trust contexts is illustrated by Matter of Bieley, 91
N.Y.2d 520, 673 N.Y.S.2d 38, 695 N.E.2d 1119 (1998).)
Also compare the results in the cases of Collier v. Napierski, 357 Mass. 516, 258
N.E.2d 789 (1970) (trust to pay income to A and B for 20 years: A's interest held to
survive--i.e., continue beyond--his death), and Matter of Lopez, 64 Haw. 44, 636
P.2d 731, 737 (1981), where a gift of income to a class of "children" was held to
bestow "a vested right in the income which would last until the final distribution of
the corpus," so that "when one of the children died the right to receive the income
passed to his or her estate." Briggs v. Briggs, 950 S.W.2d 710 (Tenn.App.1997),
reached the same result in the form of a legal life estate pur autre vie following the
death of one of two cotenants for their lifetimes, the heirs of the intestate decedent
taking his interest for the life of the survivor. See also Oak Park Trust & Sav. Bank
v. Baumann, 108 Ill.App.3d 322, 64 Ill.Dec. 35, 438 N.E.2d 1354 (1982) (rejecting
cross-remainder doctrine and finding deceased beneficiary's interest one pur autre
vie that passes to beneficiary's estate), United States Trust Co. v. Boshkoff, 148 Me.
134, 90 A.2d 713 (1952), and Michigan Trust Co. v. Young, 347 Mich. 78, 78
N.W.2d 581 (1956); cf. Wing v. Wachovia Bank & Trust Co., 301 N.C. 456, 272
S.E.2d 90 (1980).
In Fidelity Union Trust Co. v. Cavanagh, 61 N.J.Super. 96, 160 A.2d 308 (1960),
a trust for four daughters provided that, if one died with issue, her issue would take
her share, and if she died without issue her share of the income should be paid to
the survivors. Two daughters died without issue. The court held that, upon the
death of the second daughter, only her original share passed to the survivors, in
accordance with the "general rule that accrued shares do not re-survive. The
exception comes into play when the trust ... provides that the corpus remain intact
until the death of the last life tenant and then be distributed to the remaindermen.
Such intention [in this case] is negatived by the provision for successive diminution
of the principal as each daughter died leaving issue surviving." Id. at 102-103, 160
A.2d at 312.
Accumulation for the remainder beneficiaries, rather than cross remainders, was
ordered in Jorgensen v. Pioneer Trust Co., 198 Or. 579, 258 P.2d 140 (1953), and
in Jones v. Heritage Pullman Bank & Trust Co., 164 Ill.App.3d 596, 115 Ill.Dec. 653,
518 N.E.2d 178 (1987), appeal denied, 121 Ill.2d 570, 122 Ill.Dec. 438, 526 N.E.2d
831 (1988).
A statutory provision led to distribution to the presumptive remainder
beneficiaries in Estate of Robinson, 262 Cal.App.2d 32, 68 Cal.Rptr. 420 (1968).
An illustrative "resulting trust" decision is Union & New Haven Trust Co. v.
Sellek, 128 Conn. 566, 24 A.2d 485 (1942), 140 A.L.R. 837.
Comment d:
See II William F. Fratcher, Scott on Trusts § 128.7 (4th ed. 1987). On

anticipation of principal, also see Comment c and opening paragraph of Reporter's
Note thereto.
Comment e:
Annuities are discussed in II Fratcher, Scott on Trusts, supra, § 128.7 at pages

387-395. Most of our recent learning and practices on the use and drafting of
unitrusts and annuity interests, however, arise from the 1969 enactment of the
split-interest (specifically the charitable lead- and remainder-interest) rules of
Internal Revenue Code § 2055(e)(2)(A) and (B). See also 1981 provision for
combined marital and charitable deduction in id. § 2056(b)(8). See generally Boris
J. Bittker, Elias Clark, & Grayson M.P. McCouch, Federal Estate and Gift Taxation ch.
5, pt. C 3 (7th ed. 1996).
That beneficiaries were to receive no more than the annuity amounts stated in
the terms of the trust, despite the greater income generated by the trust assets,
see Jones v. Heritage Pullman Bank & Trust Co., 164 Ill.App.3d 596, 115 Ill.Dec.
653, 518 N.E.2d 178 (1987), appeal denied, 121 Ill.2d 570, 122 Ill.Dec. 438, 526
N.E.2d 831 (1988). A particularly interesting problem of interpretation, and a
matter for drafting care in unitrust cases, arose in First National Bank v. Moffett,
479 So.2d 312 (Fla.App.1985), finding that a provision calling for each of two
beneficiaries to receive payment of five percent of the "value of the trust assets,"
valued annually, referred to the value of only half of the original trust assets when
the trust was to be divided into "two equal parts" (one for each beneficiary)
following the settlor's death and after payment of estate obligations and another
bequest.
On the last paragraph of the Comment (no presumption either way), both of the
alternatives are allowed--and commonly used--in split-interest charitable giving
(supra). E.g., contrast net income charitable remainder unitrusts ("NICRUTs") with
the NIMCRUT (the "M" for "makeup") in Private Letter Ruling 9825001.
Illustrative of the so-called "NIMCRUT" (the lesser of trust income or a 15%
(here) unitrust payout, with any deficit to be made up if there is an excess of
income in future years) is the disposition in Private Letter Ruling 200035014.
Comment f:
On conditions of survival and other future-interest constructional problems

(including those of class gifts mentioned at the end of Comment a of the above
commentary), see Simes, Future Interests, supra, §§ 86-111, and McGovern, et al,
Wills, Trusts and Estates, supra §§ 11.1-11.3, in addition to the Restatement of
Property Sections cited in Comment a. Also see Fratcher, Scott on Trusts, supra, §§
127.4, 128.2, and 128.8.
That the receipt of different amounts of discretionary distributions by the
beneficiaries during the period of the trust does not ordinarily result in charges
against their shares on termination, in the absence of separate shares during the
trust period, see, e.g., New England Merchants National Bank v. Morin, 16 Mass.
App. Ct. 104, 449 N.E.2d 682, review denied, 389 Mass. 1105, 452 N.E.2d 1158
(1983); and Hartford National Bank & Trust Co. v. Turner, 21 Conn. Supp. 437, 156
A.2d 800 (1959). See also § 50, Comment f.
Research References
West's Key No. Digests, Trusts 140(1); Wills 682(2).
Relinquishment of interest by life beneficiary in possession as accelerating remainder of
which there is substitutional gift in case primary remainderman does not survive life
beneficiary. 7 A.L.R.4th 1084.
Validity and construction of trust instrument which fails to designate respective interest
of beneficiaries. 87 A.L.R.3d 925.
Applicability of testamentary trust income to payment or amortization of mortgage
upon realty included in trust assets where beneficiary is given "net income". 68
A.L.R.3d 811.
Anti-lapse statute as applicable to interest of beneficiary under inter vivos trust who
predeceases life-tenant settlor. 47 A.L.R.3d 358.
Implication of right of life tenant to entrench upon or dispose of corpus from language
contemplating possible diminution or elimination of gift over. 31 A.L.R.3d 6.
Distribution of income released by declaration of invalidity of express direction for
accumulation. 17 A.L.R.3d 231.
Right to intrench upon corpus, when income is insufficient, to pay stated sum which
trust instrument directs to be paid periodically to beneficiary out of income. 67
A.L.R.2d 1393.
Rights of tenant for life or for years and remaindermen inter se in royalties or rents
under oil, gas, coal, or other mineral lease. 18 A.L.R.2d 98.
Trust beneficiaries as necessary parties to action relating to trust or its property. 9
A.L.R.2d 10.
Allocation as between successive beneficiaries of trust, or as between corpus and
income, of amount paid for privilege of redeeming or retiring securities before
maturity. 175 A.L.R. 308.
Grant or gift of income as carrying an absolute interest in the property. 174 A.L.R. 319.
Disposition and rights in respect of surplus income from trust in excess of amount
directed to be paid to, or required for support of, beneficiaries during the trust
period. 157 A.L.R. 668.
Right of estate of life beneficiary to income of trust available for distribution, but not
actually distributed, by trustee at time of life beneficiary's death. 141 A.L.R.1466.
Apportionment of income where right to income commences or ends during accrual
period. 126 A.L.R. 12.
Right or duty of trustee to withhold income as a reserve against future charges,
anticipated loss, or reduction of future income or other emergencies. 125 A.L.R.
629.
Validity of charitable gift or trust in remainder as affected by discretion of life tenant, or
of trustee acting in life tenant's behalf, to invade or dispose of corpus. 117 A.L.R.
1200.
Annuity or stated sum directed to be paid during life as charge upon principal in event
of insufficient income, where will or other trust instrument neither expressly
specifies income as the source of payment, nor expressly authorizes use of principal
for that purpose. 109 A.L.R. 717.
Allocation to capital or income of testamentary trust of interest, dividends, or other
earnings, during settlement of estate or pending conversion directed by testator. 70
A.L.R. 636.
Relative rights of income or life beneficiary and of corpus or remaindermen in return on
bonds or other obligations for the payment of money, and in profits from a sale
thereof, and corresponding duties of trustees. 48 A.L.R. 689.
(2003)
(C)
REST 3d TRUSTS s 50

Part 4. Nature Of Beneficiaries' Rights And Interests

Chapter 10. Extent And Enforceability Of Beneficial Interests
§ 50. Enforcement And Construction Of Discretionary Interests

(1) A discretionary power conferred upon the trustee to determine the
benefits of a trust beneficiary is subject to judicial control only to prevent
misinterpretation or abuse of the discretion by the trustee.
(2) The benefits to which a beneficiary of a discretionary interest is
entitled, and what may constitute an abuse of discretion by the trustee,
depend on the terms of the discretion, including the proper construction of
any accompanying standards, and on the settlor's purposes in granting the
discretionary power and in creating the trust.
General Comment:
a. Scope of Section. The powers of trustees and the discharge of trusteeship

responsibilities regularly involve the exercise of discretion, or fiduciary judgment,
with which courts do not interfere except to prevent abuse. On discretionary powers
in trust administration generally, see § 87. On investment matters, see § 90 [§ 227
of Restatement Third, Trusts (Prudent Investor Rule)], and Comment j thereto; § 91
[id. § 228], Comment g; and § 92 [id. § 229], Comment d. On grants of discretion
in principal-and-income accounting matters, see Chapter 23.
This Section deals with situations in which trustees are granted discretion with
respect to beneficiaries' rights to trust benefits. For these situations, the
terminology "discretionary trust" or "discretionary interest" is used in this
Restatement whether or not the terms of the trust provide standards (see
Comments d, e, and f) to limit or guide the trustee's exercise of the discretionary
power.
Situations of this type range from the typical power to invade principal for an
income beneficiary to the discretionary trust that calls for distributions or
applications of income, or of income and principal, for the support of a designated
beneficiary (often a surviving spouse, elderly parent, or underage child) or for the
benefit of "any one or more" of a group of beneficiaries, such as the settlor's spouse
and issue. The trustee may have discretion whether or not to make payments to a
particular beneficiary; or the trustee may have discretion only to determine the
time, manner, and amount of distributions, pursuant to a particular standard or
otherwise. A power's "discretionary" character may be implied from its being
attached to a standard, such as a simple direction to pay "amounts appropriate to
B's support."
The commentary that follows is concerned not only with the trustee's duties but
also with the ability of beneficiaries of these discretionary interests to enforce their
rights, and thus with the extent of the beneficiaries' interests. Comments b and c
address the limited but important judicial authority to control a trustee's exercise of
discretion, while Comments d, e, and f examine the meaning and effects of various
standards and omissions frequently encountered in trust terms accompanying a
grant of discretion.
A trustee's discretionary power with respect to trust benefits is to be
distinguished from a power of appointment. The latter is not subject to fiduciary
obligations and may be exercised arbitrarily within the scope of the power. That an
appointment may not be made to persons who are not objects (i.e., not permissible
appointees) of a power of appointment, see Restatement Second, Property
(Donative Transfers) § 20.1; "fraud on powers" is discussed in id. §§ 20.2-20.4;
and cf. §§ 16.1, 16.2 (on contracts to appoint). (Tax law generally does not
categorize powers in this manner, and even traditional property-law distinctions
between fiduciary powers and powers of appointment may be difficult to draw; this
is especially so because a true power of appointment can be conferred upon one
who is also a trustee, although a power that runs with the office of trustee is
strongly presumed to be a fiduciary power.) Also to be distinguished are
nonfiduciary powers to demand or direct trust distributions based on "ascertainable"
(Internal Revenue Code § 2041) or "objective" (case law under id. § 2038)
standards; nevertheless, the discussion in Comments d, e, and f may have
relevance to these powers. Compare the inclusion of these powers in the discussion
of "discretionary interests" in § 60 (rights of creditors). Also, on powers granted
others to terminate or amend, or to direct the trustee, see §§ 64, 75, and 87.
b. Judicial review and control of trustee's discretion. A court will not interfere
with a trustee's exercise of a discretionary power when that exercise is reasonable
and not based on an improper interpretation of the terms of the trust. Thus, judicial
intervention is not warranted merely because the court would have differently
exercised the discretion.
On the other hand, a court will not permit abuse of discretion by the trustee.
What constitutes an abuse depends on the terms of the trust, as well as on basic
fiduciary duties and principles (§§ 76-83). Of particular importance are the purposes
of the power and the standards, if any, applicable to its exercise (see Comments d-
f) and the extent of the discretion conferred upon the trustee (Comment c).
Relevant fiduciary principles include (i) the general duty to act, reasonably
informed, with impartiality among the various beneficiaries and interests (§ 79) and
(ii) the duty to provide the beneficiaries with information concerning the trust and
its administration (§ 82). This combination of duties entitles the beneficiaries (and
also the court) not only to accounting information but also to relevant, general
information concerning the bases upon which the trustee's discretionary judgments
have been or will be made. See Comment e(1).
Court intervention may be obtained to rectify abuses resulting from bad faith or
improper motive, and to correct errors resulting from mistakes of interpretation.
Absent language of extended (e.g., "absolute" or "uncontrolled") discretion
(Comment c), a court will also intervene if it finds the payments made, or not made,
to be unreasonable as a means of carrying out the trust provisions. For example, a
beneficiary may be entitled to amounts sufficient to provide support, or to meet
some other standard, and the amounts being paid by the trustee may be clearly
excessive or inadequate for the purpose. It is not necessary, however, that the
terms of the trust provide specific standards in order for a trustee's good-faith
decision to be found unreasonable and thus to constitute an abuse of discretion.
Furthermore, a court will intervene where the exercise of a power is left to the
judgment of a trustee who improperly fails to exercise that judgment. Thus, even
where a trustee has discretion whether or not to make any payments to a particular
beneficiary, the court will interpose if the trustee, arbitrarily or without knowledge
of or inquiry into relevant circumstances, fails to exercise the discretion.
Illustrations:
1. S's will left her residuary estate in trust to pay the income to her husband, H,
and also to distribute to him "as much of the principal as the trustee deems
appropriate for H's comfortable support," remainder to S's descendants, all of whom
are issue by her prior marriage. She appointed H to serve as trustee "if and for as
long as he is willing and able to serve," with S's and H's friend and financial advisor,
T, designated as substitute or successor trustee. A few years after S's death, with H
serving as trustee, two of S's children challenge the extent of H's principal invasion
for his own benefit. H has a permissible, settlor-created conflict of interest, but his
acts are to be carefully scrutinized for abuse (see § 37, Comment f, and also § 78
on the duty of loyalty). Nevertheless, the court will not substitute its judgment for
H's merely because it would have exercised the discretion differently. It will,
however, intervene if it finds that H has acted unreasonably, after considering in
this situation not only such matters as the standards set out in the terms of the
trust (see Comments d and e) but also the fact that S has trusted H to serve as
trustee with the fiduciary authority to determine the amounts of principal
appropriate to his own comfortable support.
2. Same facts as in Illustration 1, except that T has succeeded H as trustee. The
court will interfere with T's exercise of discretion only in the event of abuse. Despite
T's personal relationship with H, which was known to S, or T's possible irritation with
the complaints of S's children, T's fiduciary duties include a duty of impartiality (see
§ 79).
When judicial intervention is required, a court may: direct the trustee to make
or refrain from making certain payments; issue instructions (§ 71) to clarify the
standards or guidelines applicable to the exercise of the power; or rescind the
trustee's payment decisions, usually directing the trustee to recover amounts
improperly distributed and holding the trustee liable for failure or inability to do so.
(On the elements of a trustee's liability for breach of trust, see Chapter 19.) The
court may also deny or diminish the trustee's compensation, establish safeguards
against abuse in the future, or even remove the trustee for repeated or serious
abuse of the discretionary power. See § 37, Comments e and g.
c. Effect of extended discretion. Although the discretionary character of a power
of distribution does not ordinarily authorize the trustee to act beyond the bounds of
reasonable judgment (Comment b), a settlor may manifest an intention to grant the
trustee greater than ordinary latitude in exercising discretionary judgment. How
does such an intention affect the duty of the trustee and the role of the court?
It is contrary to sound policy, and a contradiction in terms, to permit the settlor
to relieve a "trustee" of all accountability. (Cf. § 87, and also § 76.) Once it is
determined that the authority over trust distributions is held in the role of trustee
(contrast nonfiduciary powers mentioned in Comment a), words such as "absolute"
or "unlimited" or "sole and uncontrolled" are not interpreted literally. Even under
the broadest grant of fiduciary discretion, a trustee must act honestly and in a state
of mind contemplated by the settlor. Thus, the court will not permit the trustee to
act in bad faith or for some purpose or motive other than to accomplish the
purposes of the discretionary power. Except as the power is for the trustee's
personal benefit, the court will also prevent the trustee from failing to act, either
arbitrarily or from a misunderstanding of the trustee's duty or authority.
Within these limits, it is a matter of interpretation to ascertain the degree to
which the settlor's use of language of extended (e.g., "absolute") discretion
manifests an intention to relieve the trustee of normal judicial supervision and
control in the exercise of a discretionary power over trust distributions.
Illustrations:
3. Following S's death his previously revocable trust has been administered for
nearly a decade by T Bank, which is directed to pay income to S's widow, W, and
also empowered to pay her "such additional amounts from the principal of the trust
as the Trustee, in its sole and uncontrolled discretion, believes appropriate for W's
comfortable support and care," with the remainder upon W's death to pass to S's
then living issue. In response to requests by W, T Bank has begun to pay
substantially increased amounts to her to enable her to accumulate funds from
which she may aid C (her child by a prior marriage) in his plans to obtain control
and expand the activities of X Co., of which C has been an officer and shareholder
for a number of years. S's children petition the court to instruct T Bank that
principal distributions for that purpose are improper and that it must recover
amounts previously paid to W for that purpose. Nothing in relevant circumstances or
in other terms of the trust indicates a broader purpose for the invasion power than
the support-related (see Comment d) language quoted above. The court will issue
the order requested by the remainder beneficiaries. Despite S's grant of extensive
discretion, and without a finding of bad faith, T's judgment was not exercised in an
appropriate state of mind, that is, for a purpose falling within the quoted standard.
4. S's testamentary trust grants T, as trustee, the "absolute and uncontrolled
discretion to pay or apply such amounts of income or principal or both to or for the
support and benefit of my wife W and any one or more of my descendants, as T
may consider desirable and in their best interests." On W's death, the trust estate
will be distributed to S's then living issue, if any, and otherwise to others. After a
meeting with W (who does not expect to need funds from the trust), her tax
accountant, and D (S's only child), T made a large distribution to D to enable her to
acquire a home and to advance her career and investment objectives, and has
begun to implement a plan of modest distributions to D's two children (ages 14 and
15) to develop funding for their career and personal objectives. Assuming no
showing of bad faith or of settlor intention contrary to the quoted trust provisions, T
has not abused the extended discretion it has in pursuing the broad standard (see
generally Comment d) set out in S's will. (On a trustee's duties to provide
information to beneficiaries and to act with impartiality, see Comment b.)
Extended discretion serves to discourage challenges by remainder beneficiaries
to the generosity of trustees, as in Illustration 4. On the other hand, it may also
make it difficult for a discretionary beneficiary to obtain judicial intervention when a
trustee's judgments are highly conservative with regard to matters that fall within
the settlor's authorized purposes. The overall tenor of the terms of a power may,
however, in the context of the trust's more general purposes, lead to an
interpretation granting the trustee ordinary discretion with respect to the benefits to
which the discretionary beneficiary is minimally entitled (e.g., reasonable support),
with the extended discretion applicable to the trustee's allowance of more. This
"one-sided" liberalization of the discretionary authority, where a court finds the
settlor's language was intended to assure generosity in favor of a life beneficiary,
would thus tend to encumber the efforts of remainder beneficiaries who seek to
challenge what might otherwise be excessively generous decisions by a trustee.
d. Meaning of frequently used standards. The terms of trusts usually provide

some standards or guidelines concerning the purposes the settlor has in mind in
creating a discretionary interest. Reasonably definite or objective standards serve to
assure a beneficiary some minimum level of benefits, even when other standards
are included to grant broad latitude with respect to additional benefits. On the
trustee's duty to inform beneficiaries of the bases upon which discretionary
distributions have been or will be made, see Comment b.
Sometimes trust terms express no standards or other clear guidance concerning
the purposes of a discretionary power, or about the relative priority intended among
the various beneficiaries. Even then a general standard of reasonableness, or at
least of good-faith judgment, will apply to the trustee (Comment b), based on the
extent of the trustee's discretion, the various beneficial interests created, the
beneficiaries' circumstances and relationships to the settlor, and the general
purposes of the trust.
d(1). General observations. This Comment is concerned with the construction of
expressions frequently used in the terms of discretionary powers, and particularly
with the types of benefits likely to be encompassed by typical standards. (The
manner in which other resources available to a beneficiary relate to various
standards is considered hereafter in Comment e; and Comment f discusses multiple
beneficiaries or groups as concurrent discretionary distributees.) Presumed
meanings yield to findings of actual contrary intention and also may be affected by
context and the more general purpose(s) of the trust and the estate plan of which it
is a part. See Comment g. Thus, distributions to which a discretionary beneficiary
would ordinarily be entitled by a standard might properly be withheld if distribution
would divert funds from other beneficiaries or purposes without achieving the
purpose of the discretionary power.
d(2). Support or maintenance. The terms "support" and "maintenance" are
normally construed as synonyms, even when this treats the terms as redundant.
Probably the most common guides used in grants of discretion, these terms are
sometimes accompanied by a reference to the beneficiary's accustomed standard of
living or station in life. That level of intended support is normally implied from
"support" or "maintenance" even without an express reference to the beneficiary's
customary lifestyle. Whether this accustomed style is expressed or implied, a lower
level of distributions may be justifiable if the trust estate is modest relative to the
probable future needs of the beneficiary.
The accustomed manner of living for these purposes is ordinarily that enjoyed
by the beneficiary at the time of the settlor's death or at the time an irrevocable
trust is created. The distributions appropriate to that lifestyle not only increase to
compensate for inflation but also may increase to meet subsequent increases in the
beneficiary's needs resulting, for example, from deteriorating health or from added
burdens appropriately assumed for the needs of another. See Illustration 5. Also, if
a beneficiary becomes accustomed over time to a higher standard of living, that
standard may become the appropriate standard of support if consistent with the
trust's level of productivity and not inconsistent with an apparent priority among
beneficiaries or other purpose of the settlor. Furthermore, distributions allowing the
beneficiary an increased standard of living may be appropriate if, in light of the
productivity of the trust estate, the eventual result would otherwise favor the
remainder beneficiaries over the present beneficiary to a degree unlikely to have
been intended by the settlor. "Productivity" for these purposes refers not only to
trust income but also to a pattern of appreciation beyond maintenance of
purchasing power, such as might result from a growth-oriented investment
program.
Illustrations:
5. S's residuary estate was left to T, in trust, to pay "to my wife W all of the
income and also such amounts of the principal as the trustee may deem necessary
to maintain her in her customary manner of life," remainder to S's issue. W is
dependent on the distributions from this trust to continue the comfortable lifestyle
she enjoyed during H's lifetime. A number of years after H's death, C, an adult child
of W's prior marriage, became unable to care or provide for himself and has
returned to his mother's home to live with her. T can properly increase the
payments to W to preserve her accustomed standard of living, taking account of the
additional expenses of having D reside with her, assuming that these additional
distributions will not jeopardize W's future security or other purposes of the trust.
6. S's will left her residuary estate to T, in trust, to pay or apply "as much of the
income and principal as T deems appropriate for the support of my [adult] daughter
B," remainder to B's issue. Except during a brief period while her children were in
college, B has received no distributions from S's trust and has relied on her own
earnings and those of her husband, H, to enjoy an increasingly comfortable
standard of living until the time of H's death and her retirement shortly thereafter.
The trust estate is now quite sufficient to permit a level of distributions that will
enable B to maintain the standard of living to which she has become accustomed.
This standard, although considerably beyond what she enjoyed at the time of S's
death, is appropriate to the reasonable exercise of T's discretion.
Under the usual construction of a support standard (supra) it would not be
reasonable (Comment b), or even a result contemplated by the settlor (Comment
c), for the trustee to provide only bare essentials for a beneficiary who had enjoyed
a relatively comfortable lifestyle. (This is so even though the discretionary power is
couched in terms of amounts the trustee considers "necessary" for the beneficiary's
support.) The standard ordinarily entitles a beneficiary to distributions sufficient for
accustomed living expenses, extending to such items as regular mortgage
payments, property taxes, suitable health insurance or care, existing programs of
life and property insurance, and continuation of accustomed patterns of vacation
and of charitable and family giving. Reasonable additional comforts or "luxuries"
that are within the means of many individuals of like station in life, such as a special
vacation of a type the beneficiary had never before taken, may be borderline as
entitlements but would normally be within the permissible range of the trustee's
judgment, even without benefit of a grant of extended discretion (Comment c).
Without additional language suggesting a broader standard (infra), however,
even with extended discretion, the terms "support" and "maintenance" do not
normally encompass payments that are unrelated to support but merely contribute
in other ways to a beneficiary's contentment or happiness. Thus, these terms do not
authorize distributions to enlarge the beneficiary's personal estate or to enable the
making of extraordinary gifts. See Illustration 3; but also compare Comment g.
A support standard normally covers not only the beneficiary's own support but
also that of persons for whom provision is customarily made as a part of the
beneficiary's accustomed manner of living. This generally includes the support of
members of the beneficiary's household and the costs of suitable education (infra)
for the beneficiary's children. The beneficiary is entitled also to receive reasonable
amounts for the support of a current spouse, and of minor children who reside
elsewhere but for whom the beneficiary either chooses or is required to provide
support. Additional amounts to cover the beneficiary's support obligation to a
former spouse would normally be within the trustee's reasonable discretion. (These
matters of construction differ from but may be relevant to the question, discussed in
§ 60, whether a beneficiary's discretionary interest may be reached in satisfaction of
claims for spousal or child support.)
d(3). Other standards and supplementary language. Other terms or language
may be used with or instead of a support standard to define or guide a trustee's
discretionary authority with respect to trust distributions. These provisions may
permit or even entitle beneficiaries to receive greater or lesser, or different, benefits
than would have been authorized under a support provision standing alone.
Sometimes, however, additional language adds little or nothing to what "support"
might imply.
Supplementary terminology may affect the degree of generosity appropriate to a
beneficiary's support, or it may suggest a special emphasis. For example, the term
"education," without elaboration, is ordinarily construed as extending to payment of
living expenses as well as fees and other costs of attending an institution of higher
education, or the beneficiary's pursuit of a program of trade or technical training,
and the like, as may be reasonably suitable to the individual and to the trust funds
available for the purpose.
Similarly, without more, references to "health," "medical care," and the like in
the terms of a discretionary power may be useful to inform beneficiary expectations
or guide an inexperienced trustee, but presumptively they provide merely for health
and medical benefits like those normally implied by a support standard. Thus, if the
intention is to assure the beneficiary some special form of education, or expensive
home care when not cost efficient, further elaboration would be helpful. Even a
grant of extended discretion is likely to make it more difficult, if the trustee does not
act generously, for a beneficiary to compel a trustee to follow a particular course of
action (see Comment c).
Language of "comfort" often accompanies a support standard. Whether
modifying support (e.g., "comfortable support" or "support in reasonable comfort")
or as an additional standard ("support and comfort"), the normal construction is the
same: the language adds nothing to the usual meaning of accustomed support
(supra) for a beneficiary whose lifestyle is already at least reasonably comfortable.
Such terms, however, would tend to elevate the appropriate standard for a
beneficiary whose accustomed lifestyle has been more modest. "Comfort," in
isolation, normally has like effect, impliedly referring to a comfortable level of
support. On the other hand, stronger language, such as "generous" support, may
permit and encourage the trustee to allow, and may even require, some reasonable
enhancement of the beneficiary's lifestyle; but it falls short of a "happiness"
standard (infra) in that the benefits still must normally be support-related. (On the
possible tax consequences of these terms, and their construction, and of other
terms considered below, see Reporter's Notes.)
Although one effect of authorizing distributions for the "benefit," "best interests,"
or "welfare" of a beneficiary is to suggest a support standard, these terms tend also
to authorize discretionary expenditures that fall beyond the usual scope of a purely
support-related standard. For example, a "benefit" standard might make it
reasonable for a trustee to make substantial distributions to provide a beneficiary
with capital needed to start a business. (See also loans to beneficiaries, infra this
Comment.) Terms of this type, however, lack the objective quality of a term such as
"support." Thus, they may not facilitate a beneficiary's efforts to obtain judicial
intervention to compel distributions by the trustee. On the other hand, the presence
of less objective terminology in a discretionary standard may diminish the relevance
of the beneficiary's other resources, except a parent's obligation to support a minor
beneficiary. See Comment e.
The terms of a discretionary standard occasionally include stronger language,
such as the word "happiness." Such language suggests an intention that the
trustee's judgment be exercised generously and without relatively objective
limitation. Although "happiness" alone expresses no objective minimum of
entitlements (which to some extent may nevertheless be readily implied), the
primary effect of such a term is to immunize from challenge by remainder
beneficiaries almost any reasonably affordable distributions. This, however, does
not mean that the trustee cannot properly resist any reasonable request by the
beneficiary, because the decision remains one within the fiduciary discretion of the
trustee.
Illustration:
7. T is trustee of the residuary trust under S's will and holds a discretionary
power to distribute principal to the life beneficiary, B (S's widow), "for her
comfortable support and happiness." B has requested T to make a special
distribution for an extended overseas vacation--something she and S had never
done during his lifetime--and to provide the funds for B's sister (a person of modest
means) to accompany her. This request, readily affordable by the trust, falls within
the permissible range of T's discretion.
d(4). Restrictive terminology. Illustrative of terms that tend to be highly
restrictive are those that authorize invasion of principal or other discretionary
payments in the event of an "emergency," "severe hardship," "disability," or the
like. These are construed as authorizing distributions only when the described
conditions or circumstances arise, and then only to the extent appropriate to
alleviate the emergency, hardship, or special need.
d(5). Post-death obligations. A question may arise, following the death of the
beneficiary of a discretionary interest, whether a support or other standard
authorizes or requires the trustee to pay the beneficiary's funeral and last-illness
expenses and debts incurred by the beneficiary for support. Ultimately, the question
is one of interpretation when the terms of the trust are unclear, with the
presumption being that the trustee has discretion to pay these debts and expenses.
A duty to do so is presumed only to the extent that (i) probate estate, revocable
trust, and other assets available for these purposes are insufficient or (ii) the
trustee, during the beneficiary's lifetime, either agreed to make payment or
unreasonably delayed in responding to a claim by the beneficiary for which the
terms of the trust would have required payment while the beneficiary was alive. (A
deceased beneficiary's estate may also recover distributions the trustee had a duty
to make but did not make during the beneficiary's lifetime.)
d(6). Loans to beneficiaries. Sometimes a beneficiary requests funds for a
purpose that falls within the reasonable discretion of the trustee but which the
applicable standard would not require the trustee to furnish. If the trustee is
reluctant for some reason to make the requested distribution, and particularly if the
trustee's concern is one of impartiality, the trustee has discretion to make a loan or
advance to the beneficiary. The loan need not qualify as a prudent investment
under § 90 [Restatement Third, Trusts (Prudent Investor Rule) § 227]. It is a form
of discretionary benefit, and may be made at a market rate of interest or at low or
no interest; and funds may be advanced with recourse only against the beneficiary's
interest, without personal liability. See also Comment f, final paragraph.
e. Significance of beneficiary's other resources. It is important to ascertain
whether a trustee, in determining the distributions to be made to a beneficiary
under an objective standard (such as a support standard), (i) is required to take
account of the beneficiary's other resources, (ii) is prohibited from doing so, or (iii)
is to consider the other resources but has some discretion in the matter. If the trust
provisions do not address the question, the general rule of construction presumes
the last of these.
Specifically, with several qualifications (below), the presumption is that the
trustee is to take the beneficiary's other resources into account in determining
whether and in what amounts distributions are to be made, except insofar as, in the
trustee's discretionary judgment, the settlor's intended treatment of the beneficiary
or the purposes of the trust will in some respect be better accomplished by not
doing so.
One qualification is that, if the discretionary power is one to invade principal for
(or to distribute additional income to) a beneficiary who is entitled to all or a specific
part of the trust income, or to an annuity or unitrust amount, the trustee must take
the mandatory distributions into account before making additional payments under
the discretionary power. Where a beneficiary is entitled to payments from another
trust created by the same settlor (e.g., nonmarital and marital deduction trusts for
a surviving spouse), or as a part of coordinated estate planning with another (such
as the settlor's spouse), required distributions from the other trust--and the
purposes of both trusts--are to be taken into account by the trustee in deciding
whether, in what amounts, and from which trust(s) discretionary payments are to
be made.
Another qualification is that, to the extent and for as long as the discretionary
interest is intended to provide for the support, education, or health care of a
beneficiary (or group of beneficiaries, Comment f) for periods during which a
beneficiary probably was not expected to be self-supporting, the usual inference is
that the trustee is not to deny or reduce payments for these purposes because of a
beneficiary's personal resources. (But contrast the effect of another's duty to
support the beneficiary, Comment e(3)).
Furthermore, in cases of nonobjective standards (e.g., "benefit" or "happiness"),
other resources have less direct relevance than with regard to additional amounts
necessary to maintain an accustomed lifestyle, for example. Those resources,
however, may have some bearing on the overall reasonableness of an exercise of
the discretionary authority.
As a rule of construction, the above presumption, with its qualifications, does
not apply when the settlor expresses a different intent or if the presumption is
contrary to purposes or terms of the trust as interpreted in light of circumstances
and other evidence of the settlor's intention (§ 4). Thus, the settlor may manifest
an intention that other resources are not to be taken into account (as in an absolute
gift of support) or that they must be (as in a provision for payments "only if and as
needed" to maintain an accustomed standard of living), with the trustee to have no
discretion in the matter. (Contrast, however, the common phrase "necessary for
support," which without more normally does not limit the trustee's discretion in this
way.) On factors relevant to this question of interpretation, see Comment g.
A grant of extended discretion (Comment c) does not relieve the trustee of a
duty to take into account, or of a duty to disregard, a beneficiary's other resources,
although the extended discretion is a factor to be considered in the process of
interpretation. If, under the general rule of construction, the trustee has discretion
in the matter the trustee has greater latitude in exercising that discretion when the
settlor has used language of extended discretion in granting the power of
distribution.
e(1). Underlying fiduciary duties: ascertaining needs and resources; informing
beneficiaries. The trustee has a duty to act in a reasonable manner in attempting to
ascertain the beneficiary's needs and, under the usual rule of construction, other
resources that may be appropriately and reasonably available for purposes relevant
to the discretionary power. The trustee generally may rely on the beneficiary's
representations and on readily available, minimally intrusive information requested
of the beneficiary. This reliance is inappropriate, however, when the trustee has
reason to suspect that the information thus supplied is inaccurate or incomplete.
Conversely, the trustee's duty to keep beneficiaries reasonably informed (§ 82),
together with the trustee's duty of impartiality (§ 79), entitles the beneficiaries to
disclosure of the bases upon which the trustee's discretionary decisions concerning
distributions have been or will be made. See Comment b. Appropriate disclosure can
usually be provided in general terms that allow reasonable protection for
confidential, private, or sensitive information.
e(2). What other resources are to be considered? Where a trustee is to take a
beneficiary's other resources into account in deciding whether and in what amounts
to make discretionary payments to satisfy a standard, those resources normally
include the beneficiary's income and other periodic receipts, such as pension or
other annuity payments and court-ordered support payments.
A trustee may have discretion, and perhaps a duty, to take account of the
principal of the beneficiary's personal estate, depending on the terms and purposes
of the discretionary power and other purposes of the trust. The settlor's
relationships and objectives with respect to both the beneficiary in question and the
trust's other current and remainder beneficiaries are of particular relevance. Also
important are any income, estate, and other tax purposes the trust may serve (see
Comment g), as well as the liquidity (including marketability and income-tax basis)
of the discretionary beneficiary's assets.
e(3). Others' duties of support. It is a question of interpretation whether and to
what extent the duty of another to support a beneficiary is to be taken into account
by the trustee in determining distributions to be made to or for the beneficiary
under a discretionary power.
The question may arise with regard to the normally mutual support obligations
between married individuals, one of whom is the designated beneficiary of a
discretionary interest and the other of whom has resources from which to provide
their support. Whatever duty or discretion the trustee has generally in the matter of
other resources presumptively extends also to the right of spousal support.
Regardless of the trustee's general duty and authority with regard to a
beneficiary's personal resources, however, the presumption is that the trustee is to
take account of a parental duty to support a youthful beneficiary under applicable
state law. (The presumption may be reinforced when the governing standard for the
discretionary power is to "benefit" the child, for only the parents would be likely to
benefit economically if the trustee provides what the child is entitled to in any
event.) Thus, the trustee's discretionary authority normally should be exercised only
to provide types of support or other benefits that fall beyond the parental obligation.
This is particularly so when a parent is trustee or co-trustee; the presumption then
is that the usual further element of discretion, allowing the trustee sometimes to
disregard other means of the beneficiary, does not apply to disregarding a child's
support entitlements. (This avoids attributing to a settlor the unlikely intention to
create a conflict of interest or to expose the parent to adverse tax consequences,
which may result even if the power is not in fact exercised in a way that benefits the
parent. See Reporter's Notes.)
These usual presumptions concerning a parental duty of support and the
trustee's discretion are inapplicable when the child's only parent is a widow or
widower at the time the trust is created (e.g., by the other parent's will or by a
grandparent). Ultimately, in such a case, as in others, a trustee's duty and authority
with respect to other resources are matters of settlor intention, and it may be
determined through interpretation that a particular settlor intended to provide for,
or allow, the beneficiary's full support to come from the trust, and thus to assist and
benefit the parent indirectly.
A rare but potentially important exception to the foregoing principles applies to
parental support obligations that result from the adoption of a discretionary
beneficiary after the creation of the trust. It is presumed in such a case that this
parental duty of support is to be disregarded by the trustee, except that the trustee
has the reasonable discretion that a trustee generally has in these matters to depart
from the applicable rule of construction concerning a beneficiary's other resources.
(Thus, the construction is the inverse of the usual presumption and discretion
described in the first two paragraphs of Comment e above.) Even while recognizing
that adopted children have the same family entitlements as children by birth, the
presumption is based on the likelihood that the settlor(s) contemplated that trust
distributions would provide for the beneficiary's support and other needs through
the period of the trust. It is further based on a likely settlor preference for a
construction that will be neutral with respect to possible future adoption decisions--
more specifically, for terms that will not tend to discourage adoption by imposing
what might be prohibitive, added financial burdens on a potential adoptive family.
(Also, compare Illustration 14 and especially the last three sentences of the
paragraph thereafter.)
Illustration:
8. B and C were orphaned, at ages seven and 10 respectively, by the accidental

deaths of their parents. The parents' wills poured their modest probate estates into
their (previously revocable) life-insurance trust, funded mainly with the proceeds of
substantial policies on their lives. The terms of the trust provide for termination,
essentially, when B attains age 23; until then the trustee is to pay or apply such
amounts as it deems appropriate for the children's support, health care, education,
and general welfare. The parents' wills designated their good friend F as guardian of
the persons (and property, if necessary) of B and C; F and her husband, H, have
three children of their own, ranging in age from seven to 11 at the inception of the
guardianship. About four years later, B and C are adopted by F and H. Unless the
terms of the trust (§ 4) reveal a different intention of the settlors, the trustee
should, presumptively at least, continue distributions to provide support (as well as
other benefits) for B and C, even though this has the effect of relieving F and H of
support obligations newly resulting from the adoption. The trustee, however, has
reasonable discretion (cf. Comment e, supra) not only to consider the adequacy of
the trust funds to meet expected future needs of B and C and the educational and
other purposes of the trust, but also to consider the overall financial burdens and
resources of F and H and their likely ability to provide all five of their children with
an accustomed level of support and suitable educational opportunities.
The presumption in Illustration 8 is, of course, rebuttable. And this exceptional
presumption will have no application in many of the diverse situations in which
adoptions occur, even situations in which an adopted child subsequently inherits
property or becomes a trust beneficiary. In these latter cases, there would be no
inference that the decedent's or settlor's purpose, or the perceived need, was to
meet the child's basic support requirements or to assist the adoptive family.
e(4). Public benefits. If a discretionary beneficiary is or may be eligible to
receive public benefits, this factor, like the availability of other resources generally,
is to be taken into account by the trustee under the usual rule of construction. Thus,
to the extent consistent with the terms and purposes of the trust, and allowable by
applicable benefits statutes (see Reporter's Notes), the presumption is that the
trustee's discretion should be exercised in a manner that will avoid either
disqualifying the beneficiary for other benefits or expending trust funds for purposes
for which public funds would otherwise be available.
e(5). Other and related matters. Many specific issues cannot properly be
addressed by rules of construction or constructional preferences. Absent some
guidance from the settlor, such questions inevitably become matters for
interpretation, on a case-by-case basis. An example is whether a trustee is to take
account of an unemployed or underemployed beneficiary's earning capacity after
completion of his or her education.
Another example involves the negative side of the resources issue: the liabilities
of the beneficiary. Payments to an insolvent beneficiary, even if literally conforming
to the language of the discretionary standard, might fail to achieve the settlor's
purposes or run counter to the trustee's duty of impartiality. The trustee's duty may
turn on the identity of an attaching creditor, such as whether the creditor is a
person (e.g., a minor child) whose needs the settlor would normally expect to be
met, albeit indirectly, by distributions to the beneficiary. See § 60, Comment e.
It is normally appropriate, and often necessary, for a trustee to take tax
considerations into account in determining what discretionary distributions to make,
and often to whom (see Comment f), considerations usually affected by the nature
and amount of the beneficiary's independent resources. An often more troublesome
question is whether distributions can properly be made purely for tax reasons to
selected beneficiaries under a flexible power (as in Comment f and its Illustrations
9-12). See Reporter's Notes. An appropriate answer may require careful
consideration of the other resources of the various beneficiaries, as well as their
income-tax and estate-tax positions, the tax circumstances of the trust, and the
underlying purposes of the settlor (Comment g).
f. Multiple beneficiaries or groups as concurrent discretionary distributees.
Questions about the presumed meaning of standards and the significance of
beneficiaries' other resources are complicated when a trust has multiple
discretionary beneficiaries, whether of the same or different generations. Difficulty
of generalization through rules or preferences is aggravated by the number and
interrelatedness of issues and alternative meanings to be considered, and by
diversity in the terms of these discretionary powers, in the purposes and size of
trusts, and in the beneficiaries' circumstances and their relationships to the settlor
and to one another.
Illustrative is a trust in which the income is required to be distributed to B
(usually the settlor's spouse or adult child), with discretion in the trustee to invade
principal for the benefit of B and others, often a class consisting of B's or the
settlor's children or descendants. A wholly discretionary variation of such a trust
simply provides for discretionary distributions of income as well as principal to "any
one or more of a group consisting of B and my [or B's] issue." Another example is a
discretionary trust for "my children and their issue" (or, more simply, for "my
descendants"), or for "X, Y, and Z and their issue." (In all of the above, the
provisions for different individuals and classes may be separately stated, sometimes
by generation, with the same or different standards for each.) A somewhat different
prototype involves discretionary distributions among beneficiaries of one generation
(e.g., "my children"), probably with contingent provision for distributions to the
issue of any deceased members of that generation. A familiar version of this is the
family trust providing collectively for the young children of a deceased couple (or of
a deceased parent under a grandparent's will) until some age or other condition is
satisfied.
In all of these cases, the structure and terms of the interests may suggest a
priority to be accorded various individuals or classes. Complex issues of
management and distribution (as well as taxation) can be eliminated or simplified if
the trust directs or allows either administration as separate shares or division into
separate trusts, one for each member of the first beneficiary generation. This,
however, is likely to be both impractical and undesirable in a trust for the support
and education of orphaned children.
Most questions arising in these various situations must be resolved through
case-by-case interpretation. Nevertheless, a few appropriate inferences and
constructional preferences can be identified, and can be quite useful as starting
points. Structure and context often suggest that someone is the trust's primary
beneficiary or has "favored status" (see Illustration 9, infra), or that a particular
person (e.g., an elderly in-law or collateral relative) stands lower in the settlor's
priorities, perhaps to benefit only in the event of need or hardship. In any event:
--Relationship to the settlor is relevant, leading in the most common situations
to an inference that the beneficiary at the top of a line of descendants is favored
over his or her own issue, with the settlor's spouse also so favored whether or not
an ancestor of the others (e.g., settlor's issue by prior marriage).
--Among multiple lines of descent (e.g., all of the settlor's issue) there is an
inference of priorities per stirpes, that is, that (i) the various lines are entitled to
similar, impartial (see § 79, but not necessarily equal) treatment, with disparities to
be justified on a principled basis consistent with the trust purposes, and that (ii) the
inference of favored status within a descending line begins with the person(s) at the
top (e.g., the settlor's child or the children of a deceased child).
--The preceding inference applies to the typical family trust for the support and
education of minor or youthful beneficiaries following the death of one or both of
their parents, with a preference for a common standard of living and similarity of
opportunity to be balanced against usually modest funding and almost inevitably
different beneficiary needs, capacities, and interests.
--Because these various situations do not involve "substantially separate and
independent shares" for different lines of beneficiaries (see Reporter's Notes), it is
presumed that differences in benefits received by remainder beneficiaries or their
ancestors during the trust period are not later to be taken into account in
determining shares upon subsequent distribution, or in dividing the original trust for
continuation thereafter in separate shares or trusts for separate lines of issue.
Illustrations:
9. As trustee of a trust created by H, T is directed to pay all of the income to W

(H's widow) for life, with further grant of discretionary power to make principal
distributions "to W and to any one or more of my issue, as T may deem appropriate
for her or their comfortable support, health, education, and general best interests";
the remainder is to be distributed on W's death to S's then living issue. "Context"
suggests that W is the primary beneficiary of this trust, with a favored position for
T's exercise of discretion. This is reinforced by an inference based on her
"relationship to the settlor."
Note: "Favored status" (or status as a "primary" beneficiary) does not
necessarily mean that W should receive principal payments greater than--or even
equal to--the distributions made to others; nor does it mean either that the trustee
may not withhold principal payments to her because of her other resources or that
in considering and making distributions to H's descendants T must take account of
their independent resources (see Comment g). What W's favored status does mean
is that, in the absence of compelling considerations, T is to give priority to providing
what she needs, if anything, to continue her lifestyle and to have appropriate care
and other suitable benefits. (On the significance of standards and independent
resources, see Comments d and e; on the relevance of a settlor's tax and other
objectives, see generally Comment g.)
9 (continued). A similar significance attaches to the favored status S's children
hold in relation to their own issue by reason of both their relationship to S and their
position at the top of their respective stirps, with a further inference of impartiality
among the various lines of descent. It is both common and proper for trustees in
these circumstances, for tax reasons and other considerations of common family
interest, to make rare or no principal payments to the surviving spouse, while, for
example, making principal distributions to each child whose best interests and
wishes are thereby served and making similar distributions to the issue of each of
the other children (i.e, of those children needing or wishing no personal benefits).
The latter distributions, especially to grandchildren, generally serve purposes that
fall outside the support obligations of the children.
10. T, as trustee of a discretionary trust created by W, is to "pay or apply such
amounts of income or principal as T deems appropriate to or for the support or
benefit of my husband, H," and is granted further discretionary power to "distribute
such additional amounts of income or principal as T deems appropriate to or for the
support or benefit of such of our descendants as T may determine." Upon H's death,
the trust is to terminate, with the trust estate to be distributed among the then
living issue of H and W. The observations in Illustration 9 concerning favored status
and impartiality apply.
11. The same facts as in Illustration 10, except that the provisions for H and the
issue were combined into a discretionary power in T "to distribute such amounts of
income or principal both as T deems appropriate to or for the benefit of any one or
more of a group consisting of my husband H and our issue." On the basis of
relationship to the settlor, and positions at the top of their respective lines of
descent, the beneficiaries enjoy the same priorities or favored positions as in
Illustration 10, with the same inference of impartiality among different lines of
descendants.
12. The same facts as in Illustration 10, except that an additional discretionary
power states: "T shall also have discretion to make payments from income or
principal to or for the benefit of my father, F." It is a fair inference that the provision
for F is need based, depending on F's lack of readily available resources.
13. Under the facts in the various foregoing Illustrations, the remainders to the
settlor's living issue on termination impliedly call for distributions to be made among
those issue (by whatever pattern of representation is otherwise appropriate) without
taking account of prior differences in the discretionary distributions.
14. M and F died in a plane crash while returning from a business trip together.
Their wills (or revocable trusts) create a single trust for the support, health, care,
and education of their three children, and also for the family of any child who might
thereafter die before the trust terminates; termination is to occur as soon as no
living child is under the age of 24. The concept of impartiality described in the
paragraph preceding these Illustrations applies. (See also Comment e on the
possible relevance of a child's independent means.)
Difficult problems of judgment may be presented to the trustee in Illustration
14. These are exemplified by differences in the duration and costs of education
sought by various beneficiaries; or a child may make a reasonable request for
assistance in acquiring a home, or in beginning a business or profession, while the
youngest child is still under age. Although the trustee may lack authority to charge
these differences in educational or other benefits against different distributive
shares on termination, the trustee does have discretion--instead of possibly denying
an appealing but troubling request--to make loans or advances from the trust estate
for all or part of the requested amount (see final paragraph of Comment d), with a
lien or right of offset against the ultimate distributive share of the beneficiary or his
or her issue. The trustee may also contribute suitably to the common expenses of
the family of the guardian or other person by whom the children are being raised,
without itemizing or directly applying funds for the beneficiaries. To the extent
safely consistent with the size of the trust fund and the probable future needs of the
beneficiaries, the trustee may assist those other family members financially when to
do so would be in the overall best interest of the beneficiaries. In short, in the
family trust in Illustration 14, the trustee has quite flexible discretion to carry out
the probable purposes of the trust within a general duty of impartiality of the type
described above.
Comment on Subsections (1) and (2):
g. General observations on relevant factors in the interpretation of discretionary

powers. Many factors may be influential in a process of interpretation that seeks to
determine whether, based on evidence of the intention of a particular settlor, a
relevant rule of construction or some aspect of it is inapplicable or modified with
respect to the discretionary trust in question, or to decide how some inference may
apply in a particular situation. This is evident in judicial opinions involving matters
considered in the preceding commentary. Many reported cases have proceeded
without acknowledging any applicable presumption or constructional preference as a
starting point.
Factors often cited in opinions as influential range from the particular language
used in the grant of discretion (e.g., details of wording such as whether "may" or
"shall" was used, whether discretion was about amounts "necessary" rather than
"appropriate" to a beneficiary's support, and whether remainder beneficiaries were
to take "the principal" or "whatever principal remains") to the relationships between
the settlor and one or more of the beneficiaries. Relevant relationships include not
only family relationships but also the settlor's personal feelings about a beneficiary,
and occasionally about the beneficiary's spouse, and whether it had been customary
or would be "natural" for the settlor to provide for the beneficiary's needs. Among
many other factors cited as influential are whether the trustee is also a beneficiary
of the power, whether the discretion is applicable to income as well as principal,
whether the settlor made other provision for the discretionary beneficiary (or other
beneficiaries) under the same document or otherwise, whether the settlor was
aware of the beneficiary's other resources or of other circumstances, whether a
spendthrift restraint was imposed on the beneficiary's interest, and whether a given
interpretation might incidentally benefit someone other than the designated
beneficiary.
Specific language, facts, and circumstances in a situation are properly to be
considered in the process of interpretation, and may overcome, alter, or reinforce a
particular presumption. Realistically, however, these factors often reveal little of a
settlor's actual intent. The settlor may have formed no intention on the matter at
issue, or whatever intention may have existed might not have been ascertained by
counsel or preserved in the drafting. In any event, the significance of particular
facts and circumstances is often highly speculative, or they may cut both or several
ways even if judicial opinions sometimes mention but one side. Furthermore, to be
influenced by and draw meaning from subtle details of wording may well ignore the
realities of how drafting is done, not to mention that the words were those of one
whose work product suggests inattention to the particular issue or circumstances for
which it has become necessary to discover, or attribute, an intention.
Frequently, therefore, the most revealing and reliable guides for resolving these
types of questions are the underlying or general purposes of the trust or provision in
question. From these it may be deduced what objectives the settlor had in mind,
and thus what intention might appropriately be attributed to the settlor on the
matter at issue. Accordingly, rather than relying on speculation about the import of
specific details of fact or wording, it is often more instructive to analyze the variety
of beneficial interests and other provisions of the trust as a whole, with any other
available evidence, in a broader effort to ascertain why the trust was created and
what role the particular discretionary power was to play in the trust plan.
g(1). An illustrative situation. A common and revealing example is that of a trust
that can be readily recognized as tax motivated and planned, with further indication
that the discretionary beneficiary was of first concern to the settlor, even if others
were also important beneficiaries of the plan. A discretionary beneficiary's favored
status may be discerned, collectively, from the trust terms and other provisions of
the governing instrument, from other actions and prior estate plans of the settlor,
from records of the lawyer who interviewed the settlor and drafted the trust, and
the like. It may be discovered, for example, that the settlor had intended to leave
everything outright to that beneficiary, often the settlor's spouse, until counsel
pointed out tax-planning opportunities and the importance to other family members
of avoiding unnecessary taxation. The lawyer may have further explained that these
tax objectives can be achieved without significantly sacrificing the security and
comfort--and wishes--of the spouse, while avoiding management burdens, risks
associated with aging, and probate when the spouse dies. Similar considerations
and comparable examples are frequently found in trusts for a settlor's mature, well-
to-do children.
Without the tax-planning element prominently in mind, the discretionary
beneficiary's favored position might have suggested various conclusions, such as
that the independent resources of the beneficiary, especially the principal of his or
her estate, should not be taken into account by the trustee in determining
distributions to be made pursuant to a standard of generous support. With a fuller
understanding of the settlor's purposes, however, and perhaps the beneficiary's own
wishes and expectations in developing a common estate plan, the appropriate and
almost natural conclusions would be: (i) that the trust purposes and thus the
settlor's intentions would be best served by a liberal and generous construction of
any discretionary standards in question, and of the lifestyle and luxuries the
beneficiary should enjoy; but that those same purposes and intentions would be
served by recognizing (ii) that the trustee should have flexible discretion with
respect to the question of considering other resources, and (iii) that in this trust the
discretion should be exercised, when advantageous and not a cause of feelings of
insecurity, to encourage consumption of substantial principal of the beneficiary's
potentially taxable wealth.
g(2). Tax-sensitive trusteeships. An understanding of a trust's underlying
purposes and estate-planning context is also important in appropriately resolving
issues of interpretation in frequent situations involving tax-sensitive trusteeships. It
is proper, and also realistic in ascertaining settlor intention, that the interpretation
of discretionary powers should reflect circumstances, and tax (and other) rules, that
are relevant to the settlor's tax (and other) objectives. These circumstances include
the fact that, when the trust instrument was drafted, a discretionary beneficiary or
other economically interested individual was being designated as trustee or co-
trustee.
h. Cross-references. On ascertaining the meaning and effect of donative
transfers generally, see § 4 and Reporter's Notes thereto; §§ 62 and 66; and
Restatement Third, Property (Wills and Other Donative Transfers) § 10.1 (donor's
intention controls to extent allowed by law), § 10.2 (on evidence admissible in
determining intent), §§ 11.1-11.3 (on resolving ambiguities), and §§ 12.1
(reformation to correct mistakes) and 12.2 (modification to achieve tax objectives).
Little of the contents of this Section appears in prior Restatements. Restatement

Second, Trusts § 187, addresses discretionary powers of trustees in administration
matters generally and briefly discusses abuse, extent of discretion (its meaning and
limits on the settlor's power), and some other issues related to discretion. The black
letter of § 187 is quoted in the Reporter's Note to Comments a and b. Also, id. §
128 ("Extent of the Beneficiary's Interest"), which is more closely related to § 49 of
this Restatement, begins by observing that the "extent of the interest ... depends
upon the manifestation of intention of the settlor...." and provides brief Comments
on discretionary and support trusts, the latter (id. § 128, Comment e) addressing
questions about funeral expenses and the significance of a beneficiary's other
resources (see infra these Reporter's Notes). On the rejection in this Third
Restatement of artificial distinctions between "discretionary" and "support" trusts,
see extensive explanation in § 60, Reporter's Note to Comment a.
Matters considered in this Section are dealt with in II William F. Fratcher, Scott
on Trusts §§ 128.3-128.7 (4th ed. 1987), and III id. (1988) at §§ 187- 187.6;
George G. Bogert & George T. Bogert, The Law of Trusts and Trustees § 182 (at pp.
424-428), §§ 228-230, and § 811 (Rev. 2d ed. 1979); William M. McGovern, Jr.,
Sheldon F. Kurtz, & Jan Ellen Rein, Wills, Trusts and Estates (Including Taxation and
Future Interests) § 8.2 (Hornbook, 1988); E. Halbach, "Problems of Discretion in
Discretionary Trusts," 61 Columbia L. Rev. 1425 (1961); and C. Mooney,
"Discretionary Trusts," 25 Arizona L. Rev. 939 (1983).
Comments a and b:
Restatement Second, Trusts § 187, addresses administrative matters in general

(not just powers over distribution), the black letter of which states: "Where
discretion is conferred upon the trustee with respect to the exercise of a power, its
exercise is not subject to control by the court, except to prevent an abuse by the
trustee of his discretion."
George T. Bogert, Trusts § 89 (Hornbook, 6th ed. 1987) states in part
(paragraphing disregarded): "The settlor may also authorize the trustee to do or
refrain from doing a certain act, or to use his judgment as to when or how a power
should be used, in which case the power is described as 'discretionary'. The court
will order the trustee to exercise a mandatory power or hold him liable for failure to
do so, but it will not direct the holder of a discretionary power to act in any
particular way or set aside a decision made by him in the use of that power, unless
there has been an abuse of the discretion."
Also compare K. Davis, "Judicial Review of Fiduciary Decisionmaking--Some
Theoretical Perspectives," 80 Northwestern Univ. L. Rev. 1, 40-49 (1985); and for
more general observations primarily on administrative law, see Kenneth Davis,
Discretionary Justice: A Preliminary Inquiry page v (1969).
"The desirability of protecting a trustee from second-guessing and possible
reversal by a court should be balanced against the desire to enable a beneficiary to
protect his right to receive what the settlor intended him to have." Halbach,
"Problems of Discretion in Discretionary Trusts," supra at 1428, which continues: "It
is elementary that a court will not interfere with a trustee's exercise of discretion
when that exercise is reasonable.... [J]udicial intervention is not warranted merely
because the court would have differently exercised the discretion to pay out
principal or income. In fact, it is reversible error for a court to 'improve upon' the
reasonable decision of a trustee.... It is equally clear, of course, that a court will not
permit the trustee to abuse his discretion. What constitutes an abuse depends on
the scope of the discretion ... and the standards, if any, to be applied by the trustee
in its exercise." Id. at 1428-1429.
That a reasonable decision is not to be disturbed, see Clarke v. Clarke, 246 Ala.
170, 19 So.2d 526 (1944); City of Bridgeport v. Reilly, 133 Conn. 31, 47 A.2d 865
(1946); Wight v. Mason, 134 Me. 52, 180 A. 917 (1935); Estate of Vohland, 135
Neb. 77, 280 N.W. 241 (1938); Matter of Roberts, 61 N.Y.2d 782, 473 N.Y.S.2d
163, 461 N.E.2d 300 (1984); Glenn v. Chase Lincoln First Bank, 201 App. Div. 2d
908, 607 N.Y.S.2d 802 (1994); Barnard v. United States Bank, 8 Ore. App. 608,
495 P.2d 766 (1972); Martin's Estate, 135 Pa.Super. 136, 4 A.2d 551 (1939);
Peoples National Bank v. Jarvis, 58 Wash. 2d 627, 364 P.2d 436 (1961). The lower
court was reversed for ordering an additional $4000 to be paid over to a beneficiary,
to whom the trustee had been distributing $36,000 per year, in Matter of Hilton,
174 App.Div. 193, 160 N.Y.S. 55 (1916); and although courts can correct trustees
for mistakes of law or construction by compelling exercise in the manner intended,
it was improper for the lower court to go beyond this by instructing the trustee
concerning the amounts to be paid in Estate of Marré, 18 Cal.2d 184, 114 P.2d 586
(1941). In Woodard v. Mordecai, 234 N.C. 463, 67 S.E.2d 639 (1951), even though
the trustees themselves were divided, the court would not compel the assent of the
dissenting trustee (whose vote prevented distribution) when his position was
reasonable. See also Rowe v. Rowe, 219 Ore. 599, 610, 347 P.2d 968, 974 (1959),
where the lower court was reversed because courts "are permitted to control the
trustee only if ... no reasonable person ... could have exercised that power in the
manner in which it was exercised."
Court intervention was approved or directed in Strawn v. Caffee, 235 Ala. 218,
178 So. 430 (1938) (finding abuse and directing increased payments for
comfortable support to a disabled widow in need of hospital care when trustee had
refused to increase the $5000 annual payments he had been making from a trust
producing $15,000 of income yearly); Coker v. Coker, 208 Ala. 354, 94 So. 566
(1922) (discretion abused where no payments were made from a trust for support
of a widow who was confined to an asylum); Sisters of Mercy Health v. First Bank,
624 N.E.2d 520 (Ind.App.1993) (discretion abused by refusal to pay for medical
expenses of beneficiary); Corkery v. Dorsey, 223 Mass. 97, 111 N.E. 795 (1916);
Clark v. Mississippi Valley Trust Co., 357 Mo. 785, 211 S.W.2d 10 (1948); Schofield
v. Commerce Trust Co., 319 S.W.2d 275 (Mo.App.1958); Conlin v. Murdock, 137
N.J.Eq. 12, 43 A.2d 218 (1945) (discretionary provision for settlor's aged and
destitute sister abused when support payment of only $50 per month were made
from a trust of $60,000); Kemp v. Paterson, 6 N.Y.2d 40, 159 N.E.2d 661, 188
N.Y.S.2d 161 (1959); Buck v. Cavett, 353 P.2d 475 (Okla.1960); Stallard v.
Johnson, 189 Okla. 376, 116 P.2d 965 (1941) (discretion abused in paying $15
monthly from a $20,000 trust to an elderly widow in need of medical care); and Will
of Hafemann, 265 Wis. 641, 62 N.W.2d 561 (1954).
That a clear standard or guide in the terms of the power is not necessary in
order for a good-faith decision of a trustee to be found so unreasonable as to
constitute an abuse, see Rinker's Adm'r. v. Simpson, 159 Va. 612, 166 S.E. 546
(1932), 81 U. of Pennsylvania L. Rev. 1008 (1933) ("as [trustee] deems best"). See
also Rowe v. Rowe, 219 Ore. 599, 347 P.2d 968 (1959), stating that where better
guidance is lacking the court will require a trustee to follow "a general standard of
reasonableness" in exercising the discretion.
That abuse of discretion can occur through nonexercise of a discretionary power,
see Clark v. Mississippi Valley Trust Co., 357 Mo. 785, 211 S.W.2d 10 (1948); or, at
the other extreme, by allowing the beneficiary to receive payments on demand
without exercise of judgment, as in Matter of Osborn, 252 App.Div. 438, 299 N.Y.S.
593 (1937), and also in In re Murray, 142 Me. 24, 45 A.2d 636 (1946), and In re
Will of Sullivan, 144 Neb. 36, 12 N.W.2d 148 (1943). For an example of court
intervention based on a trustee's misinterpretation of trust terms, see Griffin v.
Griffin, 463 So.2d 569 (Fla.App.1985).
In relation to Illustrations 1 and 2, see Jones v. Jones, 8 Misc. 660, 30 N.Y.S.
177 (1894), in which a trustee was removed for favoring one beneficiary over the
others; and another trustee was removed for abusing a conflict of interest in Carter
v. Young, 193 N.C. 678, 137 S.E. 875 (1927). See also Colton v. Colton, 127 U.S.
300, 8 S.Ct. 1164, 32 L.Ed. 138 (1888) (where the trustee was beneficially
interested). On the other hand, even when a possibility of conflict of interests is
present, a court will decline to intervene without a showing of abuse. See Estate of
Genung, 161 Cal.App.2d 507, 326 P.2d 861 (1958); Bracken v. Block, 204
Ill.App.3d 23, 149 Ill.Dec. 577, 561 N.E.2d 1273 (1990) (discretionary life
beneficiary-trustee not required to deplete her own resources before resorting to
trust property for support); and Estate of Utterback, 521 A.2d 1184 (Me.1987)
("general welfare"; need not consider the beneficiary's own resources).
For other cases of abuse involving the duties of loyalty and impartiality, or for
benefiting a third party, see, e.g., Feibelman v. Worthen National Bank, 20 F.3d 835
(8th Cir.1994) (upholding surcharge of a trustee who had invaded principal without
inquiry into the other assets of the beneficiary or her standard of living, noting also
that the trustee had failed to communicate with the remainder beneficiaries
concerning the use of principal, as impartiality would require); Matter of Estate of
Ahrens, 272 A.D. 472, 71 N.Y.S.2d 462, appeal dismissed, 297 N.Y. 600, 75 N.E.2d
271 (1947); Matter of Estate of Watts, 167 App. Div. 2d 725, 562 N.Y.S.2d 888
(1990) (use and maintenance did not allow trustee-discretionary beneficiary to take
funds for purposes not involving consumption or otherwise contemplated by the
settlor); In re Estate of Briggs, 150 Pa.Super. 66, 27 A.2d 430 (1942); Pollok v.
Phillips, 186 W.Va. 99, 411 S.E.2d 242 (1991) (remainder beneficiary-trustee
abused "sole discretion"; must act reasonably and not from improper motive); and
Estate of McCart, 847 P.2d 184 (Colo.App.1992) (abuse of sole discretion by
remainder beneficiary-trustee for withholding payments to life beneficiary).
But compare inference drawn in favor of a beneficiary when the discretionary
power has been vested by the settlor in the beneficiary himself or herself, in Estate
of Worman, 231 Iowa 1351, 4 N.W.2d 373 (1942); Estate of Houghton, 118 Vt.
228, 105 A.2d 257 (1954); and Matter of Estate of Curtis, 253 Wis. 119, 33 N.W.2d
193 (1948); and also Lyman v. Morrissey, 242 Mass. 544, 136 N.E. 606 (1922)
(where this factor worked in favor of the less generous decision of a beneficiary
who, as co-holder of a power, did consider her own resources; thus her estate could
not recover additional funds despite the usual inference in the state at the time that
a beneficiary's other resources are immaterial).
See also First Union National Bank v. Cisa, 293 S.C. 456, 361 S.E.2d 615 (1987)
(questionably concluding co-trustee not allowed to participate in decisions to make
distributions to herself, out of respect for duty of loyalty).
Note that, as pointed out in Illustration 1, the fact that a discretionary
beneficiary was also appointed by the settlor to serve as trustee is a "two-edged
sword," calling for recognition that it was intended that the beneficiary be allowed to
determine his/her own benefits, as well as calling for careful scrutiny to prevent
abuse. Although only the latter aspect of the situation was pointed out in
Restatement Second, Trusts, it is also important to recognize the former (as this
Comment does) and then to balance these competing factors in reviewing a
particular decision of the settlor-selected trustee.
Cf. Pittman v. Blue Cross & Blue Shield of Okla., 213 F.3d 550 (10th Cir.2000)
(opinion depublished), that a health insurer operating under a conflict of interest
should be accorded less than typical deference in its discretionary denial of benefits
as administrator under an ERISA plan; although a non-profit corporation, it had an
interest in denying claims in order to remain economically viable and competitive
within the insurance industry. Contrast, however, In re McCoy, 274 B.R. 751, 766
(Bankr.N.D.Ill.2002), aff'd, 2002 WL 1611588.
Wiggins v. PNC Bank, 988 S.W.2d 498 (Ky.App.1998), was an interesting case
involving a bank trustee's conflicting fiduciary interests as between two different
trusts it was administering for the same life beneficiary but for different sets of
remainder beneficiaries. One trust was created by the beneficiary's mother and the
other was created by the beneficiary himself. In both, the trustee had discretion to
invade principal for the life beneficiary's maintenance, comfort, welfare, and
happiness. The court held that the bank had a conflict of interest in deciding to
invade principal of the first trust and therefore, under local law, was required to
seek court authority to exercise that power. Having invaded the trust without
seeking approval, the trustee was liable to the remainder beneficiaries of the first
trust.
New York EPTL § 10-10.1, as amended in 1997, provides: "Except in the case of
a trust which is revocable by such person during lifetime, a power conferred upon a
person in his or her capacity of trustee of an express trust to make discretionary
distribution of either principal or income to himself or herself, or to make
discretionary allocations in his or her favor of receipts or expenses as between
principal and income, cannot be exercised by him or her. If the power is conferred
on two or more trustees, it may be executed by the trustees who are not so
disqualified. If there is no trustee qualified to execute the power, its execution
devolves on the supreme court or the surrogate's court, except that if the power is
created by will, its execution devolves on the surrogate's court having jurisdiction of
the estate of the donor of the power."
Statutory protections against adverse tax consequences are often provided for
beneficiary-trustees holding discretionary powers exercisable for their own benefit,
as in California Probate Code § 16081(b) stating: "Notwithstanding the ... use of
terms like 'absolute,' 'sole,' or 'uncontrolled ...' by a settlor or testator, a person
who is a beneficiary of a trust ... that permits the person either individually or as
trustee or cotrustee, ... to make discretionary distributions of income or principal to
or for the benefit of himself or herself pursuant to a standard, shall exercise that
power reasonably and in accordance with the standard." And see id. § 16081(c):
"Unless a settlor or a testator clearly indicates that a broader power is intended by
express reference to this subdivision, a person who is a beneficiary of a trust that
permits the person, as trustee or cotrustee, to make discretionary distributions of
income or principal to or for the benefit of himself or herself may exercise that
power in his or her favor only for his or her health, education, support, or
maintenance within the meaning of Sections 2041 and 2514 of the Internal Revenue
Code...." Compare Colo. Rev. Stat. 15-1- 1401; Ind. Code § 30-4-3-5; Mo. Rev.
Stat. §§ 456.535, 456.540.4; N.Y. EPTL § 10-10.1B; N.C. Stat. § 632-29; S.C. Code
§ 21-11-5(A); W. Va. Code § 44-5-13; and Wis. Stat. § 701.19(10).
H was income beneficiary of a trust created by W, with discretion to invade
corpus for his maintenance, care, comfort or wellbeing; H was also a co-trustee, but
the trusts specifically prevented him from participating in decisions involving
distributions of corpus to himself. Consequently, even though the standard clearly
would have exceeded the "ascertainable standard" allowed a trustee-beneficiary
under § 2041 (see italicized words, supra), H did not have a general power of
appointment under the terms of Revenue Ruling 54-153 (1954-1 C.B. 185) and,
more recently, under Private Letter Ruling 200040011.
For other statutory or judicially developed rules, either tax-motivated or
intended to avoid fiduciary abuse, or both, preventing a trustee (at least in some
circumstances, such as where the power can be exercised by one or more co-
trustees) from exercising a discretionary power to make distributions to that
trustee, see III Fratcher, Scott on Trusts, supra, § 187.6.
See also I. Bloom, "How Federal Transfer Taxes Affect the Development of
Property Law," 48 Cleveland St. L. Rev. 661 (2000).
Remedies for abuse. A remedy for excessive payments made in abuse of
discretion is illustrated by Dunkley v. Peoples Bank & Trust Co., 728 F.Supp. 547
(W.D.Ark.1989). Also see Heller v. First National Bank, 657 P.2d 992
(Colo.App.1982).
Comment c:
The contents of this Comment on extended discretion are consistent with the
position of Restatement Second, Trusts § 187, Comment j. See also III William F.
Fratcher, Scott on Trusts §§ 187 & 187.2-187.5 (4th ed. 1988).
The Uniform Trust Code § 814(a) similarly states: "Notwithstanding the breadth
of discretion granted to a trustee, including the use of terms such as 'absolute,'
'sole,' or 'uncontrolled,' the trustee shall exercise a discretionary power in good faith
and in accordance with the terms and purposes of the trust and the interests of the
beneficiaries." And see id. § 105(b): "The terms of the trust prevail over any
provision of this [Code] except: ... (2) the duty of the trustee to act in good faith
and in accordance with the purposes of the trust; (3) the requirement that a trust
and its terms be for the benefit of the beneficiaries; ..." Also cf. id. 105(b)(9), (10),
and (13).
The power of appointment distinction (like that in the Comment) is noted in
Rowe v. Rowe, 219 Ore. 599, 604-605, 347 P.2d 968, 971 (1959); and compare
Hoffman v. McGinnes, 277 F.2d 598 (3d Cir.1960), in which the trustee was to pay
principal as the beneficiary "may desire," finding that the beneficiary had a general
power of appointment and the trustee no discretion. Powers of appointment are also
discussed and contrasted in § 46, Comment c; also see § 46, Comment d, and § 47.
In Armitage v. Nurse, [1998] Ch. 241 (CA), Millot, L.J., stated (at 253-254):
"[T]here is an irreducible core of obligations owed by the trustees to the
beneficiaries and enforceable by them which is fundamental to the concept of a
trust. If the beneficiaries have no rights enforceable against the trustees there are
no trusts.... The duty of the trustees to perform the trusts honestly and in good
faith for the benefit of the beneficiaries is the minimum necessary to give substance
to the trusts...." And also in England, see In re Wynn, [1952] Ch. 271, noted in 68
Law Quarterly Rev. 156 and 30 Can. B. Rev. 308; In re Raven, [1915] 1 Ch. 673.
Compare, however, Dundee General Hospitals v. Walker, [1952] 1 All E.R. 896,
noted in 68 Law Quarterly Rev. 292.
That a trust provision that would have the effect of ousting the jurisdiction of
courts is invalid as contrary to public policy and repugnant to the interests of the
beneficiaries, see In re Wickman's Will, 289 So.2d 788 (Fla.App.1974). See also
Uniform Trust Code § 105(b)(13). Compare the often-cited observation of Cardozo,
J., in Carrier v. Carrier, 226 N.Y. 114, 125- 126, 123 N.E. 135 (1919), that merely
because a trustee's "discretion was to be 'absolute and uncontrolled' ... does not
mean ... that it might be recklessly or willfully abused.... His discretion, however
broad, did not relieve him from obedience to the great principles of equity which are
the life of every trust."
"It cannot be that the creator of a trust by will can absolutely exclude the courts
from controlling any and all expenditures from the trust fund, or from making any
allowances from such fund except upon the consent of the trustees.... Not only was
there no power to make the trustee such absolute master ... but by any reasonable
construction the testator should not be held to have ... gone beyond the desire to
make the trust effective." In re Clark, 174 Iowa 449, 454-455, 154 N.W. 759, 760
(1915). See also the often quoted statement of Judge Learned Hand in Stix v.
Comm'r, 152 F.2d 562, 563 (2d Cir.1945): "[N]o language, however strong, will
entirely remove any power held in trust from the reach of a court of equity. After
allowance has been made for every possible factor which could rationally enter into
the trustee's decision, if it appears that he has utterly disregarded the interests of
the beneficiary, the court will intervene. Indeed, were that not true, the power
would not be held in trust at all; the language would be no more than a precatory
admonition."
Also see Helvering v. McCormack, 135 F.2d 294, 297 (2d Cir.1943) (although
instrument provided that no one was to control the judgment of the settlor-trustee);
Estate of Thompson, 139 Ill.App.3d 930, 94 Ill.Dec. 316, 487 N.E.2d 1193 (1986);
Briggs v. Crowley, 352 Mass. 194, 224 N.E.2d 417 (1967); and Angell v. Angell, 28
R.I. 592, 598, 68 A. 583, 586 (1908).
"Even though there is no standard by which it can be judged whether the trustee
is acting reasonably or not, or though by the terms of the trust he is not required to
act reasonably, the court will interfere where he acts dishonestly or in bad faith, or
where he acts from an improper motive." III Fratcher, Scott on Trusts, supra, §
187.2 (p. 39).
That "absolute discretion" does not allow a trustee to make distributions for
other than health, support, maintenance, and education of the beneficiary when a
standard expressed in those terms is included in the wording of the discretionary
power, see In re Estate of Mayer, 176 Misc.2d 562, 672 N.Y.S.2d 998 (Sur. Ct.
1998).
Many cases have quoted the language of Restatement Second, Trusts § 187,
Comment j, that words of extended discretion ("absolute," etc.) "are not interpreted
literally" and that courts "will interfere if the trustee acts in a state of mind not
contemplated by the settlor," further stating that such language is "ordinarily
construed as merely dispensing with the standard of reasonableness" and that "the
mere fact that the trustee has acted beyond the bounds of a reasonable judgment is
not a sufficient ground for interposition by the court...." Cases, however, are
difficult to find, involving extended discretion relating to distribution of income or
principal, in which courts have approved what actually appears to be unreasonable
conduct. See, e.g., Robertson v. Hatfield, 240 Pa. 476, 87 A. 853 (1913), in which
the court in upholding the trustee's decisions found as a matter of fact, with no
evidence to the contrary, that the beneficiary did not need more than the funds
then being received from the trust. In Estate of Ferrall, 41 Cal.2d 166, 258 P.2d
1009 (1953), the court inquired into an alleged abuse but found the trustee's
decision to be in accord with "the intentions of the settlor"; in fact, a dissenting
opinion disagreed concerning the settlor's intent and would have found abuse from
an inadequacy of payments even though the beneficiary was not in want, possibly
suggesting (like the Comments in this Section) that extended discretion might
operate on the "up" side without making it difficult for the discretionary beneficiary
to enforce a fairly generous minimum entitlement. See also Glenn v. Chase Lincoln
First Bank, 201 A.D.2d 908, 607 N.Y.S.2d 802 (1994). Although emphasized, the
extended discretion also did not seem essential to the result (upholding generous
distributions) in Matter of Estate of Ledyard, 21 N.Y.S.2d 860 (Sur. Ct. 1939), aff'd,
259 App.Div. 892, 20 N.Y.S.2d 1006 (1940), or in Auchincloss v. City Bank Farmers
Trust Co., 136 Conn. 266, 70 A.2d 105 (1949); Offutt v. Offutt, 204 Md. 101, 102
A.2d 554 (1954); Boston Safe Deposit & Trust Co. v. Johnson, 326 Mass. 664, 96
N.E.2d 155 (1951); Matter of Bisconti's Will, 306 N.Y. 442, 119 N.E.2d 34 (1954);
and Ballenger v. Ballenger, 694 S.W.2d 72, 79 (Tex.App.1985) (preliminary
injunction obtained by remainder beneficiaries below dissolved, because such action
"defeats the clear language of the trust which leaves such decisions to the sole
discretion of the trustees" and had "in effect, rewritten the trust ... by imposing
special restrictions on the trustees"). While probably not an "easy" case (as
demonstrated by a dissenting opinion), the court in Culver v. Culver, 112 Ohio App.
100, 169 N.E.2d 486 (1960), did not seem to see any unreasonableness in the
trustee's action when it declined to interfere with a good-faith decision made (id. at
489) "within the limits of sound discretion."
Cases that do interfere with the trustee's judgment under extended discretion
provisions often justify doing so on the ground that the trustee has not acted in "the
state of mind contemplated by the settlor," as in Conlin v. Murdock, 137 N.J.Eq. 12,
43 A.2d 218 (1945) ("absolute" discretion); Matter of Will of Kaminester, 16 Misc.2d
1071, 184 N.Y.S.2d 237 (Sur. Ct. 1959) ("uncontrolled"); Kolodney v. Kolodney, 6
Conn.App. 118, 503 A.2d 625 (1986) ("sole discretion" reviewable under support
standard; increased payments ordered); First National Bank v. Howard, 149 Tex.
130, 229 S.W.2d 781 (1950) (despite "sole and uncontrolled discretion" that was to
be "final and conclusive"). See also Estate of Mendelson, 391 Mich. 706, 220
N.W.2d 33 (1974); Gulf National Bank v. Sturtevant, 511 So.2d 936 (Miss.1987);
Emmert v. Old National Bank, 162 W.Va. 48, 246 S.E.2d 236 (1978); and Lees v.
Howarth, 85 R.I. 321, 326-327, 131 A.2d 229, 231-232 (1957) (dictum that bad
faith will not be tolerated even under "sole and uncontrolled" discretion, the
exercise of which is to be "binding and conclusive" on all concerned). In Estate of
Lackmann, 156 Cal.App.2d 674, 320 P.2d 186 (1958), "complete and absolute"
discretion with a support standard was held to be an enforceable interest that was
subject to a claim for hospital care; and In re Will of Sullivan, 144 Neb. 36, 12
N.W.2d 148 (1943), said that a court could not only compel a trustee to take action
under an extended discretion but could also prescribe a minimum payment as well.
Compare the general attitude of the court on the possibility of surcharging an
unpaid trustee for distributions made in Caswell v. Lenihan, 163 Ohio St. 331, 126
N.E.2d 902 (1955) (finding "absolute" discretion not abused). For a useful
discussion, see Fine v. Cohen, 35 Mass. App. Ct. 610, 617, 623 N.E.2d 1134, 1139
(1993).
Rowe v. Rowe, supra (Ore. 1959), in a leading discussion of discretionary
powers over distributions, noted that even under extended discretion a court, with
no standards provided in the instrument, would impose a "general standard of
reasonableness" and good faith.
That good faith and reasonableness, or at least exercise of the power in a
manner consistent with the purposes of the trust and fiduciary principles, will be
required despite extended discretion, see Copley v. Copley, 126 Cal.App.3d 248,
178 Cal.Rptr. 842 (1981); and Estate of Collins, 72 Cal.App.3d 663, 139 Cal.Rptr.
644 (1977).
That a court should intervene for nonexercise of judgment in an extended
discretion case, see In re Murray, 142 Me. 24, 45 A.2d 636 (1946), and In re Will of
Sullivan, supra (Neb. 1943).
That a court may correct a trustee's interpretation of a will when contrary to its
provisions, even though the will provided that the executors and trustees should
have full authority to determine its construction, see Taylor v. McClave, 128 N.J.Eq.
109, 15 A.2d 213 (1940), noted in 31 Columbia L. Rev. 761 and 39 Michigan L. Rev.
1255. See also Estate of Jones, 358 Mich. 85, 99 N.W.2d 365 (1959).
On the contrast between Illustration 3 and Illustration 4, compare the conclusion
that support does not authorize payments to enlarge a beneficiary's estate or to
permit the making of unusual gifts, see, respectively, Estate of Ward, 342 Mich.
172, 69 N.W.2d 187 (1955), and Estate of Tretheway, 32 Cal.App.2d 287, 89 P.2d
679 (1939); also see, in addition to In re Estate of Meyers (supra), Wright v. Trust
Company Bank of Northwest Georgia, 260 Ga. 414, 396 S.E.2d 213 (1990) (no
principal invasion to enable beneficiary to make an investment, because not within
"any reasonable need of any kind or character" language). Compare these cases
with a court's acceptance of a trustee's distribution of the entire principal under a
"sole and uncontrolled discretion" to make corpus payments for "comfort, well-
being, maintenance, or otherwise for [the beneficiary's] benefit" (emphasis added)
in Lees v. Howarth, 85 R.I. 321, 326, 131 A.2d 229, 231-232 (1957) (to permit
beneficiary to start a business), and the like result under rather similar wording in
Matter of Bisconti's Will, 306 N.Y. 442, 119 N.E.2d 34 (1954), although a similar
degree of latitude was not allowed a trustee under a simple discretion in Kemp v.
Paterson, 6 N.Y.2d 40, 188 N.Y.S.2d 161, 159 N.E.2d 661 (1959). See also Matter
of Levinson's Will, 5 Misc.2d 979, 162 N.Y.S.2d 287 (Sur. Ct. 1957) (allowing
purchases of homes for beneficiaries).
On the possibility of a discretionary beneficiary being able to enforce some
minimum level of current benefits despite extended discretion (which offers a
protection that is more likely to be applied against remainder beneficiaries'
complaints), see Estate of Ferrall, 41 Cal.2d 166, 258 P.2d 1009 (1953). See also In
re Will of Sullivan, 144 Neb. 36, 12 N.W.2d 148 (1943), discussed supra, Reporter's
Notes to Comments a and b.
In a major early decision on the application of Internal Revenue Code § 678
(taxing a beneficiary on income of a trust created by another if and to the extent
the beneficiary is entitled to the income), Funk v. Comm'r, 185 F.2d 127, 130-131
(3d Cir.1950), addressed the issues of trust law necessary to its decision: "Nor does
it follow, when the settlor lays down a standard, here 'respective needs', that the
designation of the trustee as 'sole judge', or even the grant to him of 'absolute
discretion', obviates the necessity of exercising his judgment in a sound and honest
manner, or relieves him of the duty to act in good faith and with a proper motive
within the reasonable boundaries of such a standard" (citing Restatement Second,
Trusts § 187); and "the term 'needs' is not, of course, one the content of which can
be defined precisely. Nevertheless, we think it establishes a standard effectively
distinguishing this case from, and taking it out of the rule of, the [landmark]
Mallinckrodt and Stix decisions.... While obviously [needs at least] must include the
essentials of life, it has been construed in New Jersey to mean that which is
reasonably necessary to maintain a beneficiary's station in life.... Thus, its use
confined the trustee to limits objectively determinable, and any conduct on her part
beyond these limits would be unreasonable and a breach of trust; certainly it did not
countenance extravagance, whim, or caprice ... [and therefore] did not result in the
entitlement of the taxpayer to the trust income."
On the other hand, in In re McCoy, 274 B.R. 751 (Bankr.N.D.Ill.2002), aff'd,
2002 WL 1611588, a bankruptcy judge recently concluded that an income
beneficiary-trustee was "bound by no ascertainable standard" but was intended
instead "to have complete dominion and control over the corpus" and "unfettered
discretion" (id. at 764, rendering the trust's spendthrift provision unenforceable
under state law [see, on ownership equivalence, § 58, Comment b(1)]) where the
power allowed invasion of corpus "as the trustee determines from time to time to be
required or desirable for his health, maintenance and support" but with no need to
"consider the interests of any other beneficiary in making distributions to ... or for
his benefit."
Comment d:
Introduction: general observations. "In reviewing a trustee's action, the

language of the trust instrument is important.... If a will allows a trustee to make
distributions as they 'deem best,' judicial review will be very limited, but if it says
that the trustee shall pay whatever amount it 'deems necessary for the support' of a
beneficiary, a court will order the trustee to increase payments if it finds that they
were inadequate for support." William M. McGovern, Jr., Sheldon F. Kurtz, & Jan
Ellen Rein, Wills, Trusts, and Estates § 8.2 (p. 305) (Hornbook 1988). Compare First
National Bank v. Dept. of Health, 284 Md. 720, 399 A.2d 891 (1979), with Old
Colony Trust Co. v. Rodd, 356 Mass. 584, 254 N.E.2d 886 (1970).
Choice of terminology and interpretation of standards are not only significant in
controversies involving trustees and beneficiaries but are very much influenced by
tax considerations. See, e.g., the rules of Internal Revenue Code §§ 2041 and 2514
in which tax treatment often depends on whether the power of a trustee-beneficiary
is limited by "an ascertainable standard relating to health, education, support or
maintenance." Also cf. id. § 678 (income tax). The potential for controversy is
placed in focus by estate-tax regulation § 20.2041-1(c)(2), providing: "A power is
limited by such a standard if the extent of the holder's duty to exercise and not to
exercise the power is reasonably measurable in terms of his needs for health,
education, or support (or any combination of them). As used in this subparagraph,
the words 'support' and 'maintenance' are synonymous and their meaning is not
limited to the bare necessities of life. A power to use property for the comfort,
welfare or happiness of the holder of the power is not limited by the requisite
standard. Examples of powers which are limited by the requisite standard are
powers exercisable for the holder's ... 'support in reasonable comfort,' 'maintenance
in health and reasonable comfort,' 'support in his accustomed manner of living,'
'education, including college and professional education,' 'health,' and 'medical,
dental, hospital and nursing expenses and expenses of invalidism.' "
Support standards. That a mere reference to "support" or "maintenance"
normally implies more than necessities and refers to enabling the beneficiary to live
in a manner suitable to his or her customary lifestyle or station in life, see, e.g.,
Hartford-Connecticut Trust Co. v. Eaton, 36 F.2d 710, 711 (2d Cir.1929) (meaning
"station in life"); Cromwell v. Converse, 108 Conn. 412, 427, 143 A. 416, 421
(1928); Barnett Banks Trust Co. v. Herr, 546 So.2d 755 (Fla.App.1989); Sibson v.
First National Bank & Trust Co., 61 N.J.Super. 88, 160 A.2d 76 (Ch.), modified, 64
N.J.Super. 225, 165 A.2d 800 (App.Div.1960).
In applying I.R.C. § 678 (taxing beneficiaries on trust income to which they are
entitled), Funk v. Comm'r, 185 F.2d 127, 130-131 (3d Cir.1950), addressed
relevant issues of trust law: "Nor does it follow, when the settlor lays down a
standard, here 'respective needs', that the designation of the trustee as 'sole judge',
or even [a grant] of 'absolute discretion', obviates the necessity of exercising his
judgment in a sound and honest manner.... [T]he term 'needs' is not, of course, one
the content of which can be defined precisely.... While obviously [it includes] the
essentials of life, it has been construed in New Jersey to mean that which is
reasonably necessary to maintain a beneficiary's station in life.... Thus, its use
confined the trustee to limits objectively determinable, and any conduct on her part
beyond these limits would be unreasonable and a breach of trust; certainly it did not
countenance extravagance, whim, or caprice ... [and therefore] did not result in the
entitlement of the taxpayer to the trust income."
Also, despite the word "necessary," see Marsman v. Nasca, 30 Mass. App.Ct.
789, 573 N.E.2d 1025, review denied, 411 Mass. 1102, 579 N.E.2d 1361 (1991);
and Estate of Lindgren, 268 Mont. 96, 885 P.2d 1280 (1994). See also Amoskeag
Trust Co. v. Wentworth, 99 N.H. 346, 111 A.2d 198 (1955) (construing "personal
necessities and needs").
In the case of a surviving spouse, the appropriate standard is likely to be that to
which the beneficiary was accustomed while living with the testator, as in Barnett
Banks Trust Co. v. Herr, 546 So.2d 755 (Fla.App.1989) (her standard of living at
testator's death); and in Hicks v. Jones 138 N.J.Eq. 280, 47 A.2d 894 (1946),
finding relevant the testator's frugal tendencies during the period from the
execution of his will until his death, including his efforts to augment his estate and
his concern over the amount of property that would be left for the remainder
beneficiaries, and also observing that the beneficiary's rights were not to be
enlarged to whatever the large trust in question would bear.
In applying an accustomed lifestyle standard, some courts have considered it
unnecessary, contrary to the trustee's judgment at least, to permit a beneficiary to
maintain from trust distributions a manner of living to which the beneficiary became
accustomed after the death of the settlor. See, e.g., Equitable Trust Co. v.
Montgomery, 28 Del.Ch. 389, 44 A.2d 420 (1945) (involving "comfortable support"
language). At least in some circumstances, this Restatement takes a more generous
view toward a primary beneficiary. See Illustration 6 and the paragraph
immediately preceding Illustrations 5 and 6 of this Comment.
According to Ithaca Trust Co. v. United States, 279 U.S. 151, 154, 49 S.Ct. 291,
291, 73 L.Ed. 647 (1929) (dictum), the customary standard of support is a question
of fact. It is not a question of what the trustee thinks the standard should be,
according to Matter of Will of Golodetz, 118 N.Y.S.2d 707, 713 (Sur. Ct. 1952); nor
is it one of what the beneficiary thinks it should be, Matter of Will of Morse, 198
Misc. 364, 98 N.Y.S.2d 43 (Sur. Ct. 1950).
See Estate of Miller, 230 Cal.App.2d 888, 41 Cal.Rptr. 410 (1964), appeal after
remand 259 Cal.App.2d 536, 66 Cal.Rptr. 756 (1968) that trustee is to maintain the
beneficiary "in the social and economic position in which the latter had been living
at the time of the creation of the trust, and give him the comforts and necessities to
which he had become accustomed and not merely ... the bare necessities of life." A
pair of New Hampshire cases treated references to such words as "needs,"
"necessities," and "necessary" as the substantial equivalent of support in the
beneficiary's accustomed manner, rather than being limited to what is essential. See
Amoskeag Trust Co. v. Wentworth, 99 N.H. 346, 111 A.2d 198 (1955), and Orr v.
Moses, 94 N.H. 309, 52 A.2d 128 (1947). Compare Huntington National Bank v.
Aladdin Crippled Children's Hosp. Ass'n, 108 Ohio App. 234, 157 N.E.2d 138 (1959);
and Wright v. Trust Company Bank of Nw. Ga., 260 Ga. 414, 396 S.E.2d 213
(1990).
That the normal expenses encompassed by a support standard would include
payment of property taxes, premiums on life and property insurance, and interest
on debts, see Akers v. Fidelity & Columbia Trust Co., 192 Ky. 850, 234 S.W. 725
(1921), and Orange First National Bank v. Preiss, 2 N.J.Super. 486, 64 A.2d 475
(Ch. 1949). "Support" required trustees to pay attorney's fees for defense of
criminal charges against beneficiary in Citizens National Bank v. Orkin, 223 Ga. 385,
156 S.E.2d 86 (1967). Cf. In re Cavanagh, 250 B.R. 107 (9th Cir. Bankr. Panel,
2000) (in determining "disposable income" of Chapter 13 debtors, no error in
finding that charitable contributions to their church of 7% of annual gross income
were "reasonably necessary" for their "maintenance and support").
But that support does not authorize payments to enlarge a beneficiary's estate,
see Estate of Ward, 342 Mich. 172, 69 N.W.2d 187 (1955), or to permit the making
of unusual gifts, see Estate of Tretheway, 32 Cal.App.2d 287, 89 P.2d 679 (1939)
(trustee could not cancel a third party's debt to trust at beneficiary's request). Nor
did maintenance in accustomed "station of life" allow payments to retire debts in
Dahl v. Akin, 645 S.W.2d 506 (Tex.App.1982), aff'd, 661 S.W.2d 911 (1983) (other
subsequent history through 467 U.S. 1231, 104 S.Ct. 2691, 81 L.Ed.2d 885,
disregarded). Also compare Amoskeag Trust Co. v. Wentworth, supra, and Matter of
Estate of Watts, 167 App. Div. 2d 725, 562 N.Y.S.2d 888 (1990). And that "absolute
discretion" does not allow a trustee to make distributions for other than health,
support, maintenance, and education of the beneficiary when a standard expressed
in those terms is included in the wording of the discretionary power, see In re
Estate of Mayer, 176 Misc.2d 562, 672 N.Y.S.2d 998 (Sur. Ct. 1998). But contrast
In re McCoy, 274 B.R. 751 (Bankr.N.D.Ill.2002) (finding ownership equivalence
rendering spendthrift clause unenforceable [see § 58, Comment b(1)] where
beneficiary-trustee had power to invade principal as he "determines to be required
or desirable for his health, maintenance and support"), aff'd, 2002 WL 1611588.
See generally E. Abravenal, "Discretionary Support Trusts," 68 Iowa L. Rev. 273
(1983).
With Illustration 5, compare Colburn v. Burlingame, 190 Cal. 697, 214 P. 226
(1923), in which testator's widow was a legal life tenant with power to consume
principal for her individual benefit and support. The court stated that the widow "has
remarried, and for a time lived with her husband in Chicago.... [until] the not
unnatural desire arises in her to remove to California." Id. at 704, 214 P. at 229.
The opinion continued: "Should she leave her husband toiling and moiling in
Chicago? ... [She] concluded that it would be for her benefit that he should
accompany her West. ... [I]f in her opinion her life is made pleasanter ... we
perceive no reason why ... the expense[s] of [their] common life may not be
included under [her individual benefit and support]. We can imagine expenditures
which would be neither for her support nor benefit, the indulgence in which would
give to the remaindermen a right to protection by appropriate legal remedy; but
until [she] uses the funds of the estate for a purpose [beyond] the support of her
husband the [remainder beneficiaries] must be content to leave [her] in the
undisturbed enjoyment of the estate...." Id.
"The needs of a married man include ... the needs of his family living with him
and entitled to his support. It would not be consistent with his welfare for his family
to be in want and it is hardly probable that the testatrix intended to provide for his
needs and let his wife and children go without." Robison v. Elston Bank & Trust Co.,
113 Ind.App. 633, 654, 48 N.E.2d 181, 189 (1943). There is similar dicta in
Bridgeport-City Trust Co. v. Beach, 119 Conn. 131, 139, 174 A. 308, 312 (1934),
and in Cromwell v. Converse, 108 Conn. 412, 427, 143 A. 416, 421 (1928). See
also Garvey v. Garvey, 150 Mass. 185, 22 N.E. 889 (1889); In re Will of Sullivan,
144 Neb. 36, 12 N.W.2d 148 (1943); Gardner v. O'Loughlin, 76 N.H. 481, 84 A. 935
(1912); Reynolds v. Reynolds, 208 N.C. 254, 180 S.E. 70 (1935); Huntington
National Bank v. Aladdin Crippled Children's Hosp. Ass'n, 108 Ohio App. 234, 157
N.E.2d 138 (1959); Seattle First National Bank v. Crosby, 42 Wash. 2d 234, 254
P.2d 732 (1953); and Ewing v. Ruml, 892 F.2d 168 (2d Cir.1989) (funds sufficient
to provide for beneficiary's stepchildren; mentions that "benefit" is broader than
"support" but may not have been essential to the result), cert. denied, 495 U.S.
949, 110 S.Ct. 2210, 109 L.Ed.2d 536 (1990). That suitable education of the
beneficiary's children is included, see, e.g., First National Bank v. Howard, 149 Tex.
130, 229 S.W.2d 781 (1950) (college education), and Boston Safe Deposit & Trust
Co. v. Stebbins, 309 Mass. 282, 34 N.E.2d 616 (1941) (the suggested relevance of
the inclusion of the word "convenience" in the standard for this discretionary
support trust appeared to be a makeweight and unimportant to the result).
It is, of course, conceivable that a settlor did not intend to provide for the
support of the beneficiary's dependents, but without express language to that effect
such a finding would appear likely only in situations in which the beneficiary chose
not to support dependents from whom he or she was separated, as in Burrage v.
Bucknam, 301 Mass. 235, 16 N.E.2d 705 (1938), and even this view of a settlor's
intent is unusual. An often cited case is Eaton v. Eaton, 82 N.H. 216, 132 A. 10
(1926), noted in 35 Yale L.J. 1025 (following beneficiary's divorce and loss of child
custody, the trustee was instructed to make payments to beneficiary that would
cover the support of his children, although not amounts to cover support payments
to his ex-wife). Especially given that a station-in-life test is appropriate for most
beneficiaries of support standards, the extent of a discretionary beneficiary's legal
obligation is not conclusive and should not ordinarily be deemed very persuasive;
see Citizens' Bank v. Foglesong, 326 Mo. 581, 31 S.W.2d 778 (1930), indicating
that an appropriate inference should be that, so long as the named beneficiary
thinks it proper to support a person as a member of his or her family, that person's
support requirements should be taken into account in determining the amounts to
be distributed to the named beneficiary. Both this case and an earlier one, Easton v.
Demuth, 179 Mo.App. 722, 162 S.W. 294 (1913), involved express provisions to
include the beneficiary's children and held these trust terms not equivalent to
provisions for minors but to mean children who resided with the parent as a
member of his household, with each case excluding a minor child who had left home
while including an adult child who remained in the parental home.
In Matthews v. Matthews, 5 Ohio App.3d 140, 450 N.E.2d 278, 281 (1981), the
court stated that "reasonable support" included funds for payment of all of the
beneficiary's normal, expected, and legal responsibilities. "It would have been
unreasonable, had [the beneficiary] lived with his child, for the trustee to have
refused to pay [him] sufficient funds from the trust to support both himself and his
child. We have been given no reason why 'reasonable support' should have any
different application simply because [he] lived apart from his daughter."
Other language. For the variety of contexts, issues, and results of cases
concerning what an "education" provision might include, see First National Bank v.
Howard, 149 Tex. 130, 229 S.W.2d 781 (1950) (college education of children
implied from power to support and educate parent); Lanston v. Children's Hospital,
148 F.2d 689 (D.C.Cir.1945) (upholding trustee's refusal of payments for further
education of 42-year-old beneficiary); Matter of Estate of Wolfe, 164 Misc. 504, 299
N.Y. Supp. 99 (Sur. Ct. 1937) (education in broadest and informal sense, even
throughout beneficiary's lifetime, testator having been "a scholarly man himself");
and Estate of Kessler, 120 Cal.App.2d 383, 387, 261 P.2d 27, 29 (1953)
(interpreting a standard of "maintenance, care and education" as intended to
provide "increased opportunity for education, training, and development" during the
beneficiary's formative years in order to prepare her successfully to earn a living).
Compare these cases with New Britain Trust Co. v. Stoddard, 120 Conn. 123, 179 A.
642 (1935) (standard and formal schooling), and with application of provisions for
college education in Epstein v. Kuvin, 25 N.J.Super. 210, 95 A.2d 753 (1953) (not
including medical-school education), Estate of Egan, 39 N.Y.S.2d 96 (Sur. Ct. 1942)
(included support during college vacation), and Security Trust Co. v. Smith, 284 Ky.
611, 145 S.W.2d 512 (1940) (including high school as lesser-included education).
For an unusual finding that education was not impliedly included in support under
the circumstance of the case, see Matter of Estate of Wells, 165 Misc. 385, 300
N.Y.S. 1075 (Sur. Ct. 1937).
That "comfort" should be interpreted as equivalent to the "station of life" to
which the beneficiary is "accustomed," as stated in the commentary, see Rock
Island Bank & Trust v. Rhoads, 353 Ill. 131, 187 N.E. 139 (1933). On such terms as
"comfort," "welfare," and "care" generally, see Rock Island Bank v. Rhoads, supra at
141-142, 187 N.E. at 144 (contrasting "comfort" with "satisfaction"); Equitable
Trust Co. v. Montgomery, 28 Del.Ch. 389, 44 A.2d 420 (1945) ("comfort"); Blodget
v. Delaney, 201 F.2d 589 (1st Cir.1953) ( "comfort and welfare"); Will of Razall,
243 Wis. 152, 9 N.W.2d 639 (1943) ( "care").
That the discretion of trustees who are authorized to invade principal for a
widow's "benefit" was not limited to payments necessary for her support, see Will of
Rachlin, 133 N.Y.S.2d 151 (1954); and Matter of Levinson, 5 Misc.2d 979, 162
N.Y.S.2d 287 (1957) (authorizing trustees under proper circumstances to invade
principal for the purchase of houses and furnishings for beneficiaries entitled to
payments for support and other purposes the trustees deem appropriate). Cf.
Wiedenmayer v. Johnson, 106 N.J.Super. 161, 254 A.2d 534, aff'd, 55 N.J. 81, 259
A.2d 465 (1969), which allowed trustees to make a distribution conditioned on the
beneficiary's creating a new trust (with other beneficiaries different from those of
the original trust) under an extended discretion with a best-interests standard.
"Where by the terms of the trust it is provided that the trustee shall pay to a
beneficiary as much as he believes would be for the best interest of the beneficiary,
the standard is even less definite than where he is directed to pay so much as is
necessary for the beneficiary's support or for his comfort. Nevertheless, the trustee
is guilty of an abuse of discretion if it clearly appears that he is paying the
beneficiary less than any reasonable person would give him under the
circumstances." Fratcher, Scott on Trusts, supra, at § 172 (pp. 36, 37).
On the possible broadening effect of such terminology as "benefit,"
"satisfaction," "convenience," and "or otherwise," standing alone or as part of an
overall context, see, e.g., Ewing v. Ruml, 892 F.2d 168 (2d Cir.1989), cert. denied,
495 U.S. 949, 110 S.Ct. 2210, 109 L.Ed.2d 536 (1990); Colburn v. Burlingame, 190
Cal. 697, 214 P. 226 (1923) (legal life estate and power to consume for "benefit"
and support); Boston Safe Deposit & Trust Co. v. Stebbins, 309 Mass. 282, 34
N.E.2d 616 (1941); American Cancer Society v. Hammerstein, 631 S.W.2d 858
(Mo.App.1981) ("should [trustees] deem it best"); Matter of Will of Bisconti, 306
N.Y. 442, 119 N.E.2d 34 (1954); Lees v. Howarth, 85 R.I. 321, 131 A.2d 229
(1957); and Estate of Hartzell, T.C. Memo. 1994-576 (recognizing that "general well
being" would allow payments to permit beneficiary to make gifts for tax purposes).
That "benefit" is "more comprehensive than the word 'support' and is 'anything that
works to the advantage or gain of the recipient,' " see Will of Rachlin, 133 N.Y.S.2d
151, 152 (Sur. Ct. 1954).
But, of course, the addition of "benefit" to a support standard does not mean
that the sky (a request for a $4.5 million personal jet plane) is the limit, as
recognized by an obviously irritated court in backing the beneficiary-trustee's two
co-trustees in Stuart v. Wilmington Trust Co., 474 A.2d 121 (Del.1984); also see In
re Estate of May, 112 N.Y.S.2d 847 (Sur. Ct. 1952), aff'd, 283 App.Div. 786, 129
N.Y.S.2d 229 (1954) (unaccustomed charitable giving not permitted under an
extended discretion with regard to "benefit"); and Kemp v. Paterson, 6 N.Y.2d 40,
188 N.Y.S.2d 161, 159 N.E.2d 661 (1959) (simple discretion exercisable for "best
interest" of the beneficiary was held not to permit all corpus to be paid out for the
purpose of saving taxes (resulting from unusual foreign contacts), although three
dissenting judges thought that the trustee's judgment should be approved, stressing
the "best interest" standard). See also Dunkley v. Peoples Bank & Trust Co., 728
F.Supp. 547 (W.D.Ark.1989), surcharging the trustee and requiring the return of
assets that had been distributed to allow indirect gifts to be made by the
discretionary beneficiary, gifts that favored some remainder beneficiaries over
others; the trustee had a power of distribution relating to the beneficiary's (the
widower's) support, reasonable comfort, and best interests.
In normal usage "happiness" is a broader term than support, and this has long
been generally recognized in the cases--at least absent a dubious tax tilt (below).
See, e.g., Merchants National Bank v. Comm'r, 320 U.S. 256, 64 S.Ct. 108, 88 L.Ed.
35 (1943); Combs v. Carey's Trustee, 287 S.W.2d 443 (Ky.1955); Amoskeag Trust
Co. v. Wentworth, 99 N.H. 346, 111 A.2d 198 (1955); and Estate of Curtis, 253
Wis. 119, 33 N.W.2d 193 (1948).
The rather extraordinary decision, asserting that "happiness" does not allow
more than accustomed support, in Brantingham v. United States, 631 F.2d 542 (7th
Cir.1980) (applying, to a beneficiary's nonfiduciary power to invade corpus,
Massachusetts trust law based on the court's reading of Dana v. Gring, 374 Mass.
109, 371 N.E.2d 755 (1977)), not surprisingly evoked an IRS nonacquiescence,
announcing that "the Service will not follow the Brantingham decision." Revenue
Ruling 82-63, 1982-1 Cum. Bull. 135. Another unusual decision is Warner v. Trust
Company Bank, 250 Ga. 204, 296 S.E.2d 553 (1982), although such cases are a
reminder that language must be read not only in instrument context but also in light
of trust objectives. Sound as Revenue Ruling 82-63 may be in rejecting
Brantingham as a general precedent and in refusing to ignore such strong
terminology as "happiness," it is also worth noting that the IRS itself often stretches
to make a great deal more than seems appropriate out of much softer terminology.
See, e.g., Revenue Ruling 77-60, 1977-1 C.B. 282 (tediously distinguishing a power
to invade "to continue the donee's accustomed standard of living" from the
regulation-approved "support in his accustomed manner of living"), and,
contemporaneously, Revenue Ruling 77-194, 1977-1 C.B. 283 (insisting that
principal invasion for a beneficiary's "proper comfort and welfare," under the
applicable New Jersey law, is fatally broader than regulation language "support in
reasonable comfort"). Also, that "emergency" falls fatally outside the ascertainable
standard, as not sufficiently related to health, education, support, and maintenance,
see Private Letter Rulings 9044081 and 8339004 (but see and contrast "Powers for
emergencies or disability," below).
The Service's frequent but inconsistent pattern of success in cases of this
general type (e.g., Lehman v. U.S., 448 F.2d 1318 (5th Cir.1971) ( "comfort,
welfare")) seems to have been reversed with more recent taxpayer successes in
cases such as Estate of Vissering v. Comm'r, 990 F.2d 578 (10th Cir.1993) (note
the importance of overall context when the frequently challenged word "comfort"
was contained in the trustees' discretionary power exercisable "for the continued
comfort, support, maintenance, or education of" a beneficiary-trustee), Estate of
Strauss v. Comm'r, T.C. Memo. 1995-248 ("care and comfort considering his
standard of living"), and Best v. United States, 902 F.Supp. 1023 (D.C.Neb.1995)
("as my Trustees in their sole and absolute discretion shall determine may be
reasonably necessary for her comfort, support and maintenance," relying on a
decision of the applicable state in Estate of McDonald, 194 Neb. 221, 231 N.W.2d
332 (1975) (emphasis added in parenthetical descriptions of foregoing cases)). See
earlier taxpayer victory in Estate of Gokey v. Comm'r, 72 T.C. 721 (1979)
("welfare"). Compare Estate of Finlay v. United States, 752 F.2d 246 (6th Cir.1985)
(life beneficiary-trustee with "the right to encroach [upon principal] if she desires").
Illustrative of increasingly widespread statutes offering beneficiary-trustees
protection from adverse tax consequences is Calif. Probate Code § 16081(b) and
(c), quoted in the Reporter's Note to Comment b (at Illustrations 1 and 2). See
generally M.A. Moore, "The Tax Importance of Ascertainable Standards in Estate
Planning," 111 Trusts & Estates 946 (Dec. 1972); and R. Harris, "Ascertainable
Standard Restrictions on Trust Powers Under the Estate, Gift, and Income Tax," 50
Tax Lawyer 489 (1997).
See more generally Raithel, "Avoiding Tax Pitfalls and Family Conflicts When a
Child[-Beneficiary] Is Trustee," 25 Estate Planning 218 (1998) (paragraphing
disregarded): "Broad standards for distribution, such as 'welfare,' 'happiness,' or
'best interests,' give a child-trustee so much control that the trustee is treated as
having a general power of appointment over his or her trust for federal transfer tax
purposes.... To avoid inclusion in the child-trustee's estate, an ascertainable
standard ['relating to health, education, support or maintenance'] as defined in Reg.
20.2041-1(c)(2) should be used. Ascertainable standards provide less flexibility
than do broad standards. Clients should be advised that their children's access to
the trust will be more limited than if there is an independent trustee with broad
standards. In addition, courts will review decisions made under ascertainable
standards more closely [for fiduciary abuse] than is the case with a broad
standard...."
Illustration 7: In an early case in which the trust was quite large and the
trustee's discretion was not subject to clear standards, major expenditures were
approved for travel and vacationing by a beneficiary who had been frugal and who
had not customarily traveled or enjoyed luxuries. Kimball v. Reding, 31 N.H. 352
(1855). See also Matter of Estate of Wells, 165 Misc. 385, 388, 300 N.Y.S. 1075,
1078 (Sur. Ct. 1937).
Powers for emergencies or disability. Cases supporting the statements in the
commentary include Warner v. Trust Company Bank, 250 Ga. 204, 296 S.E.2d 553
(1982); Estate of Tone, 240 Iowa 1315, 39 N.W.2d 401 (1949); Lyter v. Vestal, 355
Mo. 457, 196 S.W.2d 769 (1946); Pyne v. Payne, 152 Neb. 242, 40 N.W.2d 682
(1950) ("casualty"); Estate of Seacrist, 362 Pa. 190, 66 A.2d 836 (1949). See also
Griffin v. Griffin, 463 So.2d 569 (Fla.App.1985). But compare Application of Sabol,
20 Misc.2d 112, 191 N.Y.S.2d 773 (Sup.Ct.1959) ("emergency" extended to include
general inadequacy of resources and earning capacity). Cf. "ascertainable standard"
tax cases Estate of Ira M. Sowell, 74 T.C. 1001 (1980), rev'd, 708 F.2d 1564 (10th
Cir. 1983) (concluding that Tax Court erred in finding "emergency" broader than a
standard of support); and Hunter v. U.S., 597 F.Supp. 1293 (D.C.Pa.1984) (could
"envision no emergency ... not reasonably [within] health or to support a
beneficiary's standard of living").
Post-death (estate) obligations. On the question of a deceased beneficiary's
funeral and last-illness expenses and debts incurred for support, see II William F.
Fratcher, Scott on Trusts, § 128.4 (pp. 363-367) (4th ed. 1987). See also Cross v.
Cross, 177 Ill.App.3d 588, 126 Ill.Dec. 801, 532 N.E.2d 486 (1988), review denied,
126 Ill.2d 558, 133 Ill.Dec. 667, 541 N.E.2d 1105 (1989) (trustee allowed to pay
last-illness but not funeral expenses); Third National Bank v. Brown, 691 S.W.2d
557 (Tenn.App.1985) (allowing estate's claim for support expenses incurred by
beneficiary); cf. Marsman v. Nasca, 30 Mass. App. Ct. 789, 573 N.E.2d 1025, review
denied, 411 Mass. 1102, 579 N.E.2d 1361 (1991).
"It is a question of interpretation whether the trustee [of a trust for support] is
authorized to pay the funeral expenses of the beneficiary. The inference is that he is
so authorized." Restatement Second, Trusts § 128, Comment e.
Loans to beneficiaries. For an example of a statute authorizing such loans, see
California Probate Code § 16244, stating: "The trustee has the following powers: (a)
To make loans out of trust property to the beneficiary on terms and conditions that
the trustee deems are fair and reasonable under the circumstances. (b) To
guarantee loans [by others] to the beneficiary by encumbrances on trust property."
Loans to a beneficiary (for home repairs) were approved in Matter of A.H. Killian
Trust, 519 N.W.2d 409 (Iowa App.1994).
An illustration of a beneficiary-loan situation is provided in Illustration 14 (with
discussion of the situation thereafter) in Comment f.
Comment e:
This Comment adopts a position different from that stated in prior Trusts
Restatements, and one that seems more realistic as a reflection of probable settlor
objectives, and therefore one that is of more practical help to courts and trustees. It
also appears that the trend of actual results in the more recent cases suggests that
this change of view is desirable. Restatement Second, Trusts § 128, Comment e,
had stated: "It is a question of interpretation whether the beneficiary is entitled to
support out of the trust fund even though he has other resources. The inference is
that he is so entitled."
Certainly the cases, frequently even within a given jurisdiction, are in conflict.
They generally offer little trustworthy guidance to trustees or to lower courts, and in
any event are usually sufficiently weak to yield to speculative interpretations based
on faint indications of a settlor's supposed intentions. See, e.g., conflicting results in
a pair of recent cases decided within several weeks of each other: Matter of Estate
of Lindgren, 268 Mont. 96, 99, 101, 885 P.2d 1280, 1281-1283 (1994) (trust to
"provide for and assure so far as possible, the generous care and support" of a
surviving spouse, and instructing the trustee to "pay to or apply for my said wife as
much of the Trust Income and Trust principal as Trustee deems necessary for her
support, care and health during her lifetime," held to require reversal of trial-court
determination that the trustee was justified in finding that there was no "need" for
the trust to be invaded because of beneficiary's available personal estate, the
Supreme Court basing its decision on the inescapable "conclusion ... that the Trust
itself is clearly worded" and therefore "solely liable for [the beneficiary's] care from
the day her husband died," leaving no need to consider other evidence); and
NationsBank of Virginia v. Estate of Grandy, 248 Va. 557, 558, 561, 562, 450
S.E.2d 140, 141-142, 143 (1994) (reversing trial court's substitution of "its
judgment for that of a testamentary trustee by ordering the invasion of trust
principal to satisfy the debts of an incapacitated beneficiary with substantial
personal assets" under an instrument empowering the trustee to use corpus "for the
benefit of any of the beneficiaries of said trusts," noting that cases "in which courts
have required trustees to invade principal generally have involved circumstances in
which a beneficiary had no outside resources or the testator clearly anticipated the
use of principal to support the beneficiary").
More than three decades earlier it was pointed out: "Despite the vast number of
cases considering the problem, few guides of any real utility can be found in most
states." E. Halbach, "Problems of Discretion in Discretionary Trust," 61 Columbia L.
Rev. 1425, 1442 (1961), finding three lines of cases particularly worth examining.
One of these lines was in accord with the Restatement Second of Trusts inference
(supra) that the beneficiary is presumptively entitled to support without regard to
other resources, as in Cross v. Pharr, 215 Ark. 463, 221 S.W.2d 24 (1949) (despite
"when and as needed" wording), and Winkel v. Streicher, 365 Mo. 1170, 295
S.W.2d 56 (1956); but other supposed adherents to this view have often reached a
contrary result under the particular facts of the case, as in Offutt v. Offutt, 204 Md.
101, 102 A.2d 554 (1954), and Sibson v. First National Bank & Trust Co., 64
N.J.Super. 225, 165 A.2d 800 (App.Div.1960) (requiring other income to be
considered but not requiring consumption of principal). A second view seemed quite
openly to espouse a general rule that the trustee must consider other resources of
the beneficiary, especially in Connecticut as in Guaranty Trust Co. v. New York City
Cancer Comm., 145 Conn. 542, 144 A.2d 535 (1958) (despite extended discretion),
and in some other states that 2 A.L.R.2d 1375, 1432 (1946) described as the
weight of authority, in a statement of doubtful accuracy and on the basis of meager
authority. The third line of decisions seemed simply to restate the question, asking
whether there is (i) a "gift of support," as in the oft-cited Matter of Estate of
Gatehouse, 149 Misc. 648, 649, 650, 657, 267 N.Y. Supp. 808, 809, 811, 819 (Sur.
Ct. 1933) ("the private sources of support of the beneficiary have no bearing upon
his rights" when the trustees were instructed "in their discretion to apply from the
principal so much as may be necessary to maintain my wife in her accustomed style
of living," such a "gift of a sum of money, the amount of which is ascertainable by a
calculation," being analogized to a legacy "of a gold watch" when the legatee
"already possessed such an article") or (ii), as stated in the leading Matter of Clark,
280 N.Y. 155, 19 N.E.2d 1001 (1939), whether there is merely a gift of
maintenance "in case of need," as in the earlier case of Matter of Martin, 269 N.Y.
305, 199 N.E. 491 (1936).
Little has changed in terms of clarity and predictability since that time in the
early 1960s. "Some courts agree [with Restatement Second, Trusts], saying that if
the settlor had intended to require the beneficiary to use other resources first, the
trust instrument would have said so. But others hold that consideration of other
resources is implicit in a phrase like 'necessary for support' because nothing is
necessary for the support of a beneficiary who has ample resources of his own. If a
trust says that a beneficiary is to receive principal 'if the trust income is insufficient
for his support,' one might infer that the trust income is the only resource the
trustee should consider, but this construction is not always followed." McGovern, et
al, Wills, Trusts and Estates, supra at § 8.2 (p. 308). In regard to the foregoing
observations, contrast Estate of Wells v. Sanford, 281 Ark. 242, 663 S.W.2d 174
(1984), with Loar v. Massey, 164 W.Va. 155, 261 S.E.2d 83 (1979), and Boston
Safe Deposit & Trust Co. v. Boynton, 15 Mass. App. Ct. 103, 443 N.E.2d 1344
(1983), and then with Matter of Flyer's Will, 23 N.Y.2d 579, 297 N.Y.S.2d 956, 245
N.E.2d 718 (1969). See also Feibelman v. Worthen National Bank, 20 F.3d 835 (8th
Cir.1994), upholding surcharge of a trustee for not inquiring into beneficiary's other
resources. See also R. McDowell, "The Trustee's Dilemma: Whether to Consider a
Beneficiary's Other Resources in Exercising Discretion to Distribute Trust Funds," 5
Connecticut Probate L.J. 223 (1991).
In Godfrey v. Chandley, 248 Kan. 975, 811 P.2d 1248 (1991), the trustee was
directed to pay as much income to the testator's widow "as may be necessary for
her support, health and maintenance"; finding that the provision was unambiguous
and that extrinsic evidence of intent was inadmissible, the court concluded that it
was not permissible for the trustee to consider the beneficiary's personal income in
determining what distributions to make from the trust income (principal invasion
being prohibited by the trust terms). The court observed (citations omitted):
"Whether a trustee can consider the personal income of a trust beneficiary is to be
determined from the language of the instrument and surrounding circumstances.
Where the trust settlor manifests an intention that the trust property be applied to
the beneficiary's support only if and to the extent the beneficiary is in actual need,
then the beneficiary is not entitled to support from the trust fund if other sufficient
resources are available. On the other hand, where a settlor directs the trustee to
pay the beneficiary so much as is necessary for support and maintenance, an
inference arises that the settlor intended the beneficiary to receive support from the
trust estate, regardless of other income." Id. at 978-979, 811 P.2d at 1251. After
examining a number of cases from Kansas and other jurisdictions as well, the court
reversed the result reached by the trial court (which had looked to other evidence
than the language of the instrument) and found that the "unambiguous" language
required the trustee to pay for the beneficiary's "support, health and maintenance"
irrespective of her independent income.
The confusion in cases of this type is illustrated by IRS Private Letter Ruling
9448024, as revised by Letter Ruling 9522032, which, although citing and
purporting to rely on Restatement Second, Trusts (supra), concludes that: "In
making these distributions [for support and maintenance], the trustee must take
into account any other resources of the beneficiaries, and distributions must be
limited to the extent needed to providing support and maintenance taking into
account other resources of the beneficiary," so that the "proposed 'construction' [in
taxpayer's ruling request] that would authorize the trustee to distribute trust
income without limitation or restriction would conflict with this interpretation." The
ruling thus concluded that "[s]uch a 'construction' by a local probate court contrary
to this interpretation would constitute a reformation of the trust." Accordingly, it
would result in a "transfer" by the remainder beneficiaries for tax purposes.
For some of the more recent cases generally supporting the position of this
Comment concerning the appropriateness of a trustee's consideration of other
resources, see Hertel v. Nationsbank, N.A., 37 S.W.3d 408 (Mo. 2001) (trustee
entitled to consider beneficiaries' private income); NCNB National Bank v.
Shanaberger, 616 So.2d 96 (Fla.App.1993) (no abuse of trustee's discretion in
requiring information about beneficiary's other sources of income); Barnett Banks
Trust Co. v. Herr, 546 So.2d 755 (Fla.App.1989) (trustee required to take account
of other income but not required to liquidate non-income-producing assets); Boston
Safe Deposit & Trust Co. v. Boynton, 15 Mass. App. Ct. 103, 443 N.E.2d 1344
(1983) (despite language that, if trust income is insufficient, trustee is to use
principal as it deems "necessary" in its sole discretion for maintenance, support, and
medical care); Lineback v. Stout, 79 N.C.App. 292, 339 S.E.2d 103 (1986); Matter
of Estate of Winston, 205 App. Div. 2d 922, 613 N.Y.S.2d 461 (1994) (trustees
entitled to discovery of beneficiary's financial statements where principal
distributable as they "deem appropriate" for support in welfare); Estate of Tashjian,
375 Pa.Super. 221, 544 A.2d 67 (1988); and Austin v. U.S. Bank, 73 Wash.App.
293, 869 P.2d 404 (1994) (abuse of discretion for trustee to make payments when
beneficiary had other assets; sole discretion but language of need).
Other cases in which the trustee was required or allowed to disregard the
beneficiary's other resources are Hamilton National Bank v. Childers, 233 Ga. 427,
211 S.E.2d 723 (1975) (discretionary monthly payments to maintain an accustomed
standard of living); Bracken v. Block, 204 Ill.App.3d 23, 149 Ill.Dec. 577, 561
N.E.2d 1273 (1990) (trustee-beneficiary given discretion to determine her own
income and principal distributions); Godfrey v. Chandley, 248 Kan. 975, 811 P.2d
1248 (1991); and Estate of Lindgren, 268 Mont. 96, 885 P.2d 1280 (1994) (despite
word "necessary" in provision for support of spouse, because of tenor of the will as
whole and a requirement that the trustee be liberal in exercising the discretion).
That a trustee may have discretion in this matter, i.e., "may disregard ... but is
not required to disregard" other assets of the beneficiary, see Estate of Jones, 68
Cal.App.3d 274, 279, 137 Cal.Rptr. 138, 141 (1977). Compare earlier Estate of
Ferrall, 41 Cal.2d 166, 258 P.2d 1009 (1953) (citing cases from other states, as the
weight of authority, that a trustee should consider a beneficiary's other resources
before making a distribution of principal unless the trust instrument expresses a
different intention), with Estate of Patten, 217 Cal.App.2d 167, 31 Cal.Rptr. 767
(1963) (trustee should pay beneficiary's expenses from principal without requiring
her to sell or lease her real property; the grantor did not intend to force liquidation
of her other assets).
Even when other resources are not to be considered generally, a trustee
ordinarily must take account of the income from the trust itself in deciding whether
to exercise a power to invade principal. See, e.g., Sibson v. First National Bank &
Trust Co., 61 N.J.Super. 88, 160 A.2d 76 (Ch.), modified, 64 N.J.Super. 225, 165
A.2d 800 (App.Div.1960). Compare Matter of Estate of McNab, 163 App. Div. 2d
790, 558 N.Y.S.2d 751 (1990), and Smith v. Gillikin, 201 Va. 149, 109 S.E.2d 121
(1959), each taking account of an annuity that had also been provided by the
settlor. In fact, when the trustee is expressly authorized to invade principal "when
the income is insufficient" to meet the discretionary standard, it is likely to be
inferred that other available resources of the beneficiary are not to be considered.
See, e.g., Indian Head National Bank v. Brown, 123 N.H. 87, 455 A.2d 1056 (1983)
(marital-deduction trust), and also compare cases immediately below.
It has sometimes been indicated that language authorizing invasion of principal
if "the income of the trust is insufficient to maintain" the specified standard
suggests that other resources of the beneficiary are not to be considered, especially
when the settlor knew of the beneficiary's other resources. See, e.g., Hoops v.
Stephan, 131 Conn. 138, 38 A.2d 588 (1944) (despite that state's rather strong
general inference to the contrary); Matter of Rosenberg's Will, 121 N.Y.S.2d 874
(Sur. Ct. 1953); Estate of Leonard, 115 Vt. 440, 63 A.2d 179 (1949); Will of Olson,
208 Wis. 492, 243 N.W. 214 (1932). This, of course, is not always so. See, e.g.,
Estate of Ferrall, 41 Cal.2d 166, 258 P.2d 1009 (1953).
That it is more likely to be within a trustee's discretion whether or not to
consider a beneficiary's other means when an indefinite or nonobjective standard is
used, see a series of New York cases beginning with Matter of Kohlman's Estate, 60
N.Y.S.2d 556 (Sur. Ct. 1946) ("not limiting ... to support ... [but including] comfort
and well being"), and including Matter of Davis' Will, 195 Misc. 213, 88 N.Y.S.2d
192 (Sur. Ct. 1949) ("comfort and happiness"), and Matter of Rachlin's Will, 133
N.Y.S.2d 151 (Sur. Ct. 1954).
In Stein v. Scott, 252 Ill.App.3d 611, 613, 616, 625 N.E.2d 713, 715, 717
(1993), the trust provided that "the trustee may in the trustee's discretion pay [the
beneficiary] so much or all of the income and principal of her share as the trustee
from time to time deems necessary or advisable"; in response to the discretionary
beneficiary's argument that the trustee was precluded from taking her other assets
into account, the court concluded that this interpretation would "compromise the
role of the trustees implicit in the trust and render superfluous the grant of
discretion given to them.... Thus, [trustees] may take into account [her] other
income when determining whether to make payments to her, and may require
exhaustion of all or any part thereof."
Although courts may find it necessary to base their decisions on supposed
peculiar facts of the case or on a settlor's particular choice of words, a review of
many cases on this topic reveals, not surprisingly, that the same set of facts or
words that may be stressed in one case will be disregarded in the next. See
Halbach, "Problems of Discretion in Discretionary Trusts," supra at 1445-1449.
Possibly the most apt dictum to be found in these cases is that "under ordinary
circumstances ... particular precedents are substantially valueless in ...
interpretation." Matter of Estate of Gatehouse, 149 Misc. 648, 650, 267 N.Y. Supp.
808, 811 (Sur. Ct. 1933), noted 47 Harvard L. Rev. 1073, 18 Minnesota L. Rev.
607.
That when a trust fund is small, it is more likely to be required that other
resources be taken into account, see Hanford v. Clancy, 87 N.H. 458, 183 A. 271
(1936).
Duties to inquire and inform (Comment e(1)). Feibelman v. Worthen National
Bank, 20 F.3d 835 (8th Cir.1994), upheld the surcharge of a trustee who had
invaded principal without inquiry into the other assets of the beneficiary or into her
standard of living at the time called for in the trust; also the trustee had failed to
communicate with the remainder beneficiaries about the invasion of principal.
See also Matter of Estate of Winston, 205 App. Div. 2d 922, 613 N.Y.S.2d 461
(1994) (trustees entitled to discovery of beneficiary's financial statements); NCNB
National Bank v. Shanaberger, 616 So.2d 96 (Fla.App.1993) (no abuse of discretion
by trustee in requiring beneficiary to disclose other sources of income); and Estate
of Winograd, 65 Ohio App.3d 76, 582 N.E.2d 1047 (1989) (abuse of discretion not
to inquire into financial circumstances of all discretionary distributees before making
payments to one).
And see Marsman v. Nasca, 30 Mass. App. Ct. 789, 573 N.E.2d 1025 (failure to
inquire into and understand husband's needs), review denied, 411 Mass. 1102, 579
N.E.2d 1361 (1991), noted in R. Young, "Exculpatory Clauses," 13 [Mass.] Probate
L.J. 63 (1995). This case involved a trustee's duty to inquire into the circumstances
of a beneficiary of a discretionary trust (and also involved the effect of an
exculpatory clause drafted by the trustee as lawyer for the settlor). The settlor's
income had provided most of the support for herself and her husband during their
marriage. The trust, of a portion of the residue of settlor's estate, entitled her
surviving husband to all of the income plus as much of the principal as the trustee
deemed appropriate for the husband's "reasonable maintenance, comfort and
support" after considering his "various available sources of support." After the
settlor's death, her husband lost his job, remarried, and later took out a mortgage
on his home (previously owned with the settlor as tenants by the entirety), using
the proceeds to pay bills. The trustee's apparently insensitive manner of disclosing
the husband's modest distribution request to the primary remainder beneficiary (the
settlor's daughter by a prior marriage) appeared to have had the effect of
discouraging the husband from requesting any principal thereafter. The trustee did
not investigate the husband's needs or available resources, failed to advise him that
principal could be used for the expenses of his home, and made no further
distributions of principal to him during the rest of his lifetime. Briefly stated, the
court imposed a constructive trust on the trust estate to enable the husband's
estate to recover amounts that should have been distributed to him during his
lifetime. Although the court noted that a surcharge against the lawyer-trustee
"could be considerable," it concluded that the self-drafted exculpatory clause was
valid and enforceable as to breaches not "committed in bad faith or intentionally or
with reckless indifference to the interest of the beneficiary," in the absence of a
showing, by or on behalf of a beneficiary, that the drafter had been guilty of
overreaching or abuse of a fiduciary or confidential relationship. 30 Mass. App. Ct.
at 800, 573 N.E.2d at 1032.
A trustee was held to have acted properly in requesting a discretionary
beneficiary to furnish information regarding her other financial resources in Hertel v.
Nationsbank, 37 S.W.3d 408 (Mo.Ct.App.2001), despite the beneficiary's contention
that the trustee was required to invade trust principal to pay her medical bills
without regard to her other resources; in interpreting the language of the trust in
light of "surrounding circumstances" (especially the settlor's awareness, when the
trust was created, that the beneficiary was in nursing care), the court inquired
whether there was "an absolute gift of support and maintenance" or a "gift of
income coupled with a provision that the principal be invaded in case of need,"
concluding the latter. Id. at 410.
Although in exercising a discretionary power a trustee is only required to use
reasonable diligence in attempting to ascertain the existence of other resources, see
Matter of Clark, 280 N.Y. 155, 19 N.E.2d 1001 (1939), such cases do not mean that
a trustee is always entitled to assume that a beneficiary is acting in good faith in
stating his or her needs. See, e.g., In re Murray, 142 Me. 24, 45 A.2d 636 (1946).
On the effect of the terms of the instrument in this regard, see Estate of Seacrist,
362 Pa. 190, 66 A.2d 836 (1949).
For a recent analysis of English trust cases (in an effort to understand current
pension-law issues), considering both judicial review of trustee actions and a
trustee's duty of disclosure to beneficiaries under general trust law, see D. Pollard,
"Review and Disclosure of Decisions by Pension Trustees," (Parts 1 and 2), 6 Trust
Law International 11 and 42 (1997).
What other resources are to be considered? (Comment e(2)). Courts have not
generally been specific on this matter, but normally when other resources are
expressly or impliedly to be considered, a beneficiary is required at least to use the
income from his or her independent estate. See, e.g., Matter of Murray, 142 Me. 24,
45 A.2d 636 (1946); Offutt v. Offutt, 204 Md. 101, 102 A.2d 554 (1954); and also
compare Matter of Estate of McNab, 163 App. Div. 2d 790, 558 N.Y.S.2d 751
(1990), and Smith v. Gillikin, 201 Va. 149, 109 S.E.2d 121 (1959), each taking
account of an annuity that had also been provided by the settlor.
Courts have sometimes said that no part of the principal of a beneficiary's estate
need be used, e.g., in Stetson v. Community Chest, 24 N.J.Super. 243, 93 A.2d 796
(1952); and cf. Estate of McNab, supra (N.Y. 1990); but circumstances and trust
purposes often justify a trustee in requiring some consumption of principal. E.g.,
Lumbert v. Fisher, 245 Mass. 190, 139 N.E. 446 (1923); Matter of Estate of Willey,
139 N.J.Eq. 118, 48 A.2d 789 (1946); and see discussion in Comment g(1).
An unusually explicit set of provisions is found in Eckes v. Richland County Social
Services, 621 N.W.2d 851 (N.D.2001), in which the entire net income of her
husband's testamentary trust was to be paid to Mrs. Hillestad for as long as she
lived, and if, in the trustee's judgment the income from this trust and from all
property accumulated during her lifetime was not sufficient to provide for Hillestad's
"suitable support, care, necessities, and medical attention," the trustee then had
discretion to pay such sums as required for those purposes from the principal of the
trust for her benefit; the settlor added the "express direction that the principal of
this trust not be invaded for the above-mentioned purposes until my said wife shall
have exhausted all property held by her. I have purposely avoided making gifts of
my property to my children during my lifetime to assure that the income of this
trust be as large as possible. Therefore, in the event my wife shall have made
substantial gifts of her property to her children during her lifetime then I direct that
no part of the principal be invaded for her benefit." The remaining principal on her
death was to go to her husband's children or their descendants. The County denied
Hillestad Medicaid eligibility because her assets exceeded the maximum allowable of
$3000. On appeal, the administrative law judge found the trust was an available
asset to Hillestad for these purposes and determined, inter alia, that her gifts in
1994, 1995, and 1996 ($24,000 in total) to the children, although "arguably
substantial," were more reasonably not to be so considered in light of her resources
and advanced age. The State Department of Social Services "adopted the findings of
ALJ and affirmed the determination of the County that Hillestad was ineligible for
Medicaid benefits" (621 N.W.2d at 854). The court continued (id. at 855-857,
paragraphing disregarded): "The settlor's intent determines whether a trust is
classified as a support or a discretionary trust, which in turn determines what
portion of the trust is available to an applicant for the purpose of qualifying for
Medicaid benefits.... However, the language of a trust may include elements of both
a support trust and a discretionary trust.... Here, the intent of Hillestad's late
husband may be discerned from the unambiguous language of the trust creating a
support trust regarding the trust income, but ... the trust language contains
elements of both a discretionary trust and a support trust regarding the principal.
This hybrid trust may discerned by the unambiguous language limiting the trustee's
discretion to invade the principal for purposes of Hillestad's support and by the
settlor's preservation of the remaining principal and undistributed income for his
children and their heirs.... [T]he trust principal is [neither] a classic discretionary
trust, because there are standards governing the trustee's invasion, ... [nor] a
classic support trust either, because the trustee unequivocally could not invade the
principal unless Hillestad complies with the terms and conditions provided by the
trust.... Therefore, we hold the settlor intended the trust income as a support trust,
which was an available asset for the purpose of qualifying for Medicaid benefits.
However, the settlor intended the principal as a hybrid trust, with elements of both
a support and discretionary trust, which was only an available asset if Hillestad
fulfilled the conditions limiting the trustee's power to invade the principal for her
support.... The will ... imposed two conditions limiting the authority of the trustee to
invade trust principal[, first, principal is] 'not to be invaded ... until [Hillestad] shall
have exhausted all property held by her' [and, second, that she not] 'have made
substantial gifts of her property to her children ...'." (Note at this point that the
words made all of these conditions self-evident, and there was no real need to have
struggled at such length with the supposed distinction between "support" and
"discretionary" trusts.) The opinion finally concludes (at 859): "The Department's
decision that the trust principal could be invaded and was available for the purpose
of Medicaid eligibility is not supported by preponderance of the evidence. We
reverse and remand for further proceedings consistent with this opinion." On other
grounds, however, Mrs. Hillestad was still a long way from qualifying for Medicaid.
Even a requirement that the beneficiary's estate be first "depleted" did not mean
exhausted in Matter of Trust Estate of Woods, 181 Kan. 271, 311 P.2d 359 (1957),
but under the highly restrictive language of Matter of Hogeboom, 219 App.Div. 131,
219 N.Y. Supp. 436 (1927), exhaustion was required. For a generally severe rule on
the matter, see Guaranty Trust Co. v. New York City Cancer Comm., 145 Conn.
542, 144 A.2d 535 (1958).
Others' duties of support (Comment e(3)). For a case that, under its special
circumstances, called for consideration of a spouse's duty to support the
discretionary beneficiary, see Estate of Ferrall, 41 Cal.2d 166, 258 P.2d 1009
(1953).
Because a minor child is entitled to be maintained by the parents in a manner
consistent with their standard of living (Singer v. Singer, 7 Cal.App.3d 807, 87
Cal.Rptr. 42 (1970)), regardless of the child's own estate, trust funds to benefit the
child can be expended only if the parent is unable to meet the obligation, according
to Armstrong v. Armstrong, 15 Cal.3d 942, 947, 126 Cal.Rptr. 805, 807 (1976). For
a rather peculiar treatment of the parental duty of support, suggesting that it may
be secondary to the use of the child's own resources, see McElrath v. Citizens &
Southern National Bank, 229 Ga. 20, 189 S.E.2d 49 (1972). More typically: "We
doubt that Grantor intended that trust income be used for the benefit of A's
grandchildren, to the extent a grandchild's parent is living and capable of providing
the requisite support, etc. for that grandchild." Private Letter Ruling 9448024. And
more generally see J. Pennell & A. Fleming, "Avoiding the Discharge of Obligation
Theory," 12 Probate & Property 49, 51-54 (Sept./Oct. 1998).
On the strengthened presumption when the parent is the trustee, see Weiss v.
Weiss, 1996 WL 91641 (S.D. N.Y. 1996). Cf. Ross v. United States, 348 F.2d 577
(5th Cir.1965). California Probate Code § 16082 states: "Except as otherwise
specifically provided in the trust instrument, a person who holds a power to appoint
or distribute income or principal to or for the benefit of others, either as an
individual or as trustee, may not use the power to discharge the legal obligations of
the person holding the power." Similar is Colorado Rev. Stat. Ann. § 15-1-1401(1)
(a)(II). Also see Stout, "Should the Surviving Spouse Serve as Trustee of the
Nonmarital Trust?," 17 Estate Planning 168 (1990); and Raithel, "Avoiding Tax
Pitfalls and Family Conflicts When a Child Is Trustee," 25 Estate Planning 218, 219
(1998) (warning of the adverse consequences of allowing the "use of trust property
to discharge the trustee's legal obligation of support").
Public benefits (Comment e(4)). That it is appropriate for the trustee to take into
account the availability of benefits under governmental programs, see Tidrow v.
Director, Division of Family Services, 688 S.W.2d 9, 12 (Mo.Ct.App.1985) (involving
a trust for "support in reasonable comfort" and recognizing that otherwise the
moderate-sized trust would be "wholly dissipated" in a few years, and would also
"invite anyone, finding himself in the position of [the settlor] in the future, to make
no testamentary provision for a handicapped child"). Also, in Stein v. Scott, 252
Ill.App.3d 611, 613, 616, 625 N.E.2d 713, 715, 717 (1993), the beneficiary was to
receive "in the trustee's discretion ... so much or all of the income and principal of
her share as the trustee from time to time deems necessary or advisable"; the court
believed that the settlor "did not intend [the beneficiary] to receive trust funds to
the extent those funds may prevent her from receiving disability benefits to which
she may otherwise be entitled," observing that if trust funds were "disbursed to
[her] without consideration of her other income and assets, her eligibility for such
benefits could be impaired."
"It is divorced from the realities of life to presume that if the testator were
aware of the facts as they now exist, he would desire to pay the immense cost for
his daughter's care in preference to having society share this burden." Estate of
Escher, 94 Misc.2d 952, 959, 407 N.Y.S.2d 106, 111 (Sur. Ct. 1978).
See also Department of Mental Health v. Phillips, 114 Ill.2d 85, 102 Ill.Dec. 407,
500 N.E.2d 29 (1986); First National Bank v. Dep't of Health, 284 Md. 720, 399
A.2d 891 (App.1979); Town of Randolph v. Roberts, 346 Mass. 578, 195 N.E.2d 72
(1964); Young v. Dep't of Public Welfare, 416 Mass. 629, 624 N.E.2d 110 (1993)
(trustee has no discretion to make payments that would render beneficiary ineligible
for public benefits); Matter of Roberts, 61 N.Y.2d 782, 473 N.Y.S.2d 163, 461
N.E.2d 300 (1984); Maul v. Fitzgerald, 78 App. Div. 2d 706, 708, 432 N.Y.S.2d 282,
284 (1980) (stating, in language closely similar to an earlier New York case (supra),
that it "would be divorced from reality of life to presume that [the settlor] would
intend the amount of the trust to be paid to [the state] in preference to having
society share the burden"); Lineback v. Stout, 79 N.C.App. 292, 339 S.E.2d 103
(1986) (error for lower court to order trustee with "absolute discretion" to make
payments that would replace state aid); Chenot v. Bordeleau, 561 A.2d 891
(R.I.1989) (error for State Department of Human Services to treat trust assets as
resources of beneficiary and terminate his benefits, because trustee could properly
refuse to pay for those services); and a couple of Pennsylvania cases, Snyder v.
Dep't of Public Welfare, 528 Pa. 491, 598 A.2d 1283 (1991), and Lang v. Dep't of
Public Welfare, 515 Pa. 428, 528 A.2d 1335 (1987) (even though trust was to
maintain, support, and benefit an incompetent adult son, it was "discretionary" and
intended to supplement other resources available to him, so the trust interest was
not an available resource that would render him ineligible for state medical-
assistance payments). An extreme example of this position is Matter of Estate of
Downing, 88 App. Div. 2d 679, 450 N.Y.S.2d 913 (1982).
An easy case in which trust language compelled the opposite conclusion is State
ex rel. Secretary of SRS v. Jackson, 249 Kan. 635, 822 P.2d 1033 (1991).
See also the interpretation in Commonwealth Bank & Trust Co. v. Dep't of Public
Welfare, 528 Pa. 482, 598 A.2d 1279 (1991), decided by the same court on the
same day as the Snyder case, above; the court found a beneficiary ineligible for
public assistance because the trust interest and principal were "available
resources"; the court emphasized that the trust's terms did not authorize the
trustee to consider other income or benefits in deciding whether to make a
discretionary distribution and that the same estate plan had created a separate
testamentary trust as the supplemental-needs trust.
Shaak v. Pennsylvania Dept. of Public Welfare, 561 Pa. 12, 747 A.2d 883 (2000)
(involving a self-settled trust, a factor not relied on at all, and also failing to discuss
the relevance of a discretionary beneficiary's other resources), helps to reconcile
and explain the current status of the Pennsylvania cases involving the "available
resources" issue.
A particularly interesting and instructive case, resorting to an artificial distinction
that--not surprisingly, we should learn--is a source of serious decisional difficulty, is
Matter of Estate of Ferguson, 186 Mich.App. 409, 465 N.W.2d 357 (1990), rev'd,
439 Mich. 963, 483 N.W.2d 353 (1992) (sole and uncontrolled discretion for "best
interest" of beneficiary, with the wish that she reside in a group home and be
provided with "all reasonable needs"; the intermediate appellate court had held that
this was a "support" rather than "discretionary" trust and thus that its assets were
available to pay for public mental-health services; the Supreme Court, however,
reversed and remanded for a determination, via evidentiary hearing, whether a
"discretionary" trust had been intended); and see Owens v. Heisel, 67 Ore. App.
537, 679 P.2d 331 (1984) (after filing a claim against the discretionary beneficiary's
estate, the state was allowed to present its claim to the trustee for him to consider
in light of the terms and possibly unfulfilled purposes of the trust).
See also Kryzsko v. Ramsey County Social Services, 607 N.W.2d 237
(N.D.2000), which found that a trust established by another for the claimant's
benefit was a "support trust" so that the claimant's entitlements were "available
resources" to be considered in determining her Medicaid eligibility. A dissenting
opinion believed that the trust's language showed clear intention to create a
"discretionary" trust, which would not be counted as an available asset, noting that
the instrument grants the trustee "sole discretion" to determine whether the
additional distributions from this small trust ($32,000) were "necessary or
advisable"--the small size having been held by other courts to indicate the absence
of an intent to provide primary support. The dissent quoted Heckler v. Turner, 470
U.S. 184, 200, 105 S.Ct. 1138, 1147, 84 L.Ed.2d 138 (1985), that the court's
interpretation of the actual availability standard "must be 'reasonable and humane
and [in] accordance with its manifest intent and purpose....' " 607 N.W.2d at 247.
And also struggling with the counterproductive, elusive (and artificial) distinction
between "support" and "discretionary" trusts, see Eckes v. Richland County Social
Services, 621 N.W.2d 851 (N.D.2001), discussed at length above in the Reporter's
Note to Comment e(2).
See generally C. Mooney, "Discretionary Trusts: An Estate Plan to Supplement
Public Assistance," 25 Arizona L. Rev. 939 (1983); Goldberg & Frank, "Estate
Planning to Meet the Special Needs of a Severely Disabled Child," 16 Estate
Planning 232 (1989); J. Zartman, "Planning for Disability [of a child]," 15 Probate
Notes 11 (1989); McEowen & Harl, "Estate Planning for the Elderly and Disabled:
Qualifying for Federal Medical Extended Care Assistance," 24 Indiana L. Rev. 1379
(1991); Tobin, "Planning Ahead for Special Needs Trusts," 12 Probate & Property 56
(May/June 1997); Barrett, "Trusts and Medicaid Eligibility," 43 Practical Lawyer 57
(1997); D. Gordon, "Special Needs Trusts," 15 Quinnipiac Prob. L.J. 121 (2000),
discusses drafting so that a trust will not undermine its beneficiary's eligibility for
public assistance; and J. Rosenberg, "Supplemental Needs Trusts for People with
Disabilities: The Development of a Private Trust in the Public Interest," 10 Boston
Univ. Public Interest L.J. 91 (2000). Also compare Fliegelman & Fliegelman, "Giving
Guardians the Power to do Medicaid Planning," 32 Wake Forest L. Rev. 341 (1997).
A position contrary to most of the above case authorities has been taken on
grounds of public policy in Third National Bank v. Brown, 691 S.W.2d 557
(Tenn.App.1985), and Bureau of Support v. Kreitzer, 16 Ohio St.2d 147, 243 N.E.2d
83 (1968) (despite, in this case, an express provision for the trustee to take account
of welfare benefits). Cf. Barham v. Rubin, 72 Haw. 308, 816 P.2d 965 (1991)
(finding trust self-settled).
Recent trends have been away from this view, e.g., Matter of L. Carlisle Trust,
498 N.W.2d 260 (Minn.App.1993), and Trust Company of Oklahoma v. Dep't of
Human Services, 825 P.2d 1295 (Okla.1991), cert. denied, 506 U.S. 906, 113 S.Ct.
300, 121 L.Ed.2d 224 (1992), but cf. Trust Company of Oklahoma v. Dep't of
Human Services, 890 P.2d 1342 (Okla.1995) (no estoppel when trust funds later
became "available resources" as result of actual use for "basic needs" under state
regulations). A view that public policy prevents recognition of special-needs trusts is
more difficult to justify in the Medicaid arena following The Omnibus Budget
Reconciliation Act of 1993 ("OBRA ' 93"), 42 U.S.C. § 1396p, on "Disability Trusts."
See generally Clifton B. Kruse, Jr., Third Party and Self-Created Trusts--Planning for
the Elderly and Disabled Client (2d ed., Amer. Bar Ass'n 1998).
"Families of loved ones with severe and persistent disabilities have strong and
common interests in providing special amenities for the disabled person without
interrupting Medicaid or other governmental benefits to which the disabled person
would otherwise be entitled. Following judicial authorization [in New York that]
discretionary trusts [were] exempt from governmental claims, legislative recognition
of the wisdom of the supplemental needs trust provided guidelines [citing N.Y. EPTL
7-1.12] which were intended to reduce the likelihood of governmental challenges."
J. Welsh, "Estates and Trusts (1999- 2000 Survey of New York Law)," 51 Syracuse
L. Rev. 457, 477 (2001).
Most of the cases involving Medicaid eligibility or recovery since the legislation in
OBRA '93, and most other relatively recent decisions, have focused on one of two
issues:
(1) Whether the trust, as interpreted, (a) qualifies as what has come to be called
a "special [or supplemental] needs trust" or (b) entitles the discretionary
beneficiary-applicant to benefits that constitute a disqualifying "available
resource"--e.g., compare Myers v. Dep't of Social & Rehabilitation Services, 254
Kan. 467, 866 P.2d 1052 (1994) (trustee could decline to pay costs of medical
assistance and care), and Hecker v. Stark County Social Services Bd., 527 N.W.2d
226 (N.D.1994), with Estate of Rosenberg v. Dep't of Public Welfare, 165
Pa.Cmwlth. 9, 644 A.2d 215 (1994) (interpretation that intent was to provide for
beneficiary's medical expenses without relying on public assistance--see further
description below), aff'd, 545 Pa. 27, 679 A.2d 767 (1996); or
(2) Whether the trust is disqualified as a proper special (or supplemental) needs
trust because the discretionary beneficiary-applicant was, in fact though maybe not
in form, settlor of the trust (cf. traditional trust-law treatment of settlor-debtors
hereafter in §§ 58(2) and 60)--see, e.g., Miller v. Dep't of Human Services, 105
Ohio App.3d 539, 664 N.E.2d 619 (1995) (straightforward self-settled trust); Matter
of Johannes Trust, 191 Mich.App. 514, 479 N.W.2d 25 (1991) (creditors, including
state mental-health department, could reach trust assets and compel discretionary
payments from the portion of the trust assets that came from the beneficiary but
not from any portion of the trust settled by others); Thomas v. Arkansas Dep't of
Social Services, 319 Ark. 782, 894 S.W.2d 584 (1995) (disqualifying a trust funded
with proceeds of applicant's claim settlement from employer and workers'
compensation carrier); Forsyth v. Rowe, 226 Conn. 818, 629 A.2d 379 (1993)
(benefits denied; person who supplies the funding is settlor, even when personal-
injury claim settlement proceeds are placed in trust on behalf of a child), appeal
after remand 1995 WL 152124 (Conn.Super.1995); Cohen v. Comm'r of Division of
Medical Assistance, 423 Mass. 399, 668 N.E.2d 769 (1996) (upholding general
practice of denying Medicaid to settlors of trusts that grant the trustee discretion to
make payments to the settlor only if the payments will not render the settlor
ineligible for Medicaid, the latter restriction being disregarded in the case of self-
settled trusts, including a trust established by an applicant's conservator with funds
received in settlement of a claim), cert. denied, 519 U.S. 1057, 117 S.Ct. 687, 136
L.Ed.2d 611 (1997); Masterson v. Dep't of Social Services, 1997 WL 612882
(Mo.App.1997) (holding that applicant whose assets funded the trust was properly
the settlor even though the trust instrument was authored by another, who as
trustee also held power to revoke or amend the trust and to prevent distributions to
applicant; opinion depublished upon transfer to Mo. Supreme Ct. on 1-27-98);
Cricchio v. Pennisi, 90 N.Y.2d 296, 660 N.Y.S.2d 679, 683 N.E.2d 301 (1997) (state
and local governments are allowed to recover for Medicaid benefits from the
personal-injury settlements of a disabled tort victim before it would be proper for
those proceeds to be preserved by court-authorized transfer to a supplemental-
needs trust, unanimously reversing the appellate division holding that a court could
place the recovery proceeds safely in the trust, free of the Medicaid lien, until after
the Medicaid recipient's death); Streigel v. South Dakota Dep't of Social Services,
515 N.W.2d 245 (S.D.1994) (trust created with guardianship funds; beneficiary
disqualified from Medicaid); and Gulick v. Dep't of Health & Rehabilitative Services,
615 So.2d 192 (Fla.App.1993) (despite trustee's absolute discretion over
distributions, trust created by applicant's husband was an available resource of
husband in determining eligibility of applicant). There are contrary views (i.e.,
viewing court-created trusts as not self-settled), e.g., Kegel v. New Mexico Human
Services Dep't, 113 N.M. 646, 830 P.2d 563 (1992).
In Oxenhorn v. Fleet Trust Co., 94 N.Y.2d 110, 700 N.Y.S.2d 413, 722 N.E.2d
492 (1999), the state Social Services Department was allowed recovery from an
ineligible recipient's estate for Medicaid payments that were erroneously made due
to SSD's failure to recognize that the irrevocable trust in question was self-settled
by the aid recipient, whose available assets thus rendered him ineligible for
benefits.
An arguably extreme case is Estate of Cross, 75 Ohio St.3d 530, 664 N.E.2d 905
(1996) (eligibility lost by failure to elect against spouse's will, thereby giving up
"available" assets); the case for this position is well presented in Tannler v. DHSS,
211 Wis.2d 179, 564 N.W.2d 735 (1997), with the "legislative compromises"
analyzed and explained in Chief Justice Abrahamson's concurrence (564 N.W.2d at
741-742).
An interesting case--unique to date under OBRA '93 because of its three
dissents, plus a one-justice concurring opinion that was essential to the result--is
Young v. Ohio Dep't of Human Services, 76 Ohio St.3d 547, 668 N.E.2d 908 (1996),
which involved a trust instrument calling for discretionary payments of income and
principal as the trustee "deems necessary" to the beneficiary-applicant but prohibits
"any distributions ... which shall render [her] ineligible or cause a reduction in any
benefit she may be entitled to receive [from any state or federal program]." Id. at
549, 668 N.E.2d at 910. The opinion states (id. at 549-551, 668 N.E.2d at 910-912)
(citations omitted and paragraphing sometimes disregarded):
ODHS urges that the Court of Appeals be reversed and the trust provision held
unenforceable as contrary to important public policy. We do not agree.... It is
axiomatic that a grantor may dispose of his or her property in any manner chosen
so long as the disposition is not prohibited by law or public policy.... [No one]
contends that [Settlor] was under any obligation to provide for the support of his
adult child. Had [he] not chosen to establish the trust ... there would be no question
as to her eligibility to receive Medicaid benefits.
Though the issue before us is one of first impression in Ohio, the majority rule
from other jurisdictions appears to hold that if the purpose of the trust is to
supplement rather than supplant Medicaid (or other government benefit programs),
the instrument will be enforceable as drafted.... The language of the trust
instrument [in the Tidrow case, cited and quoted at the start of the first paragraph
under Public benefits, above] was less restrictive than in the case at bar, yet the
court held that the intent of the settlor was controlling, and found that his intent
was to supplement state support.... [holding] that the trust did not constitute an
available asset....
.... We find that ODHS's approach would not serve the ends of justice.... We
prefer a standard analysis that requires us to determine the intent of the settlor....
The absence of the word 'supplement' is not determinative of the settlor's intent to
supplement or supplant the beneficiary's Medicaid support.
Our resolution of this case, however, is guided most directly by the language of
the [Ohio] administrative regulations themselves...: "If the individual/beneficiary's
access to the trust principal is restricted, the principal is not a resource to the
individual." ... [T]he language of the trust gives the trustee sole discretion over
distributions made to [the beneficiary] (limited by the proviso that the trustee may
not make any distributions affecting [her] Medicaid eligibility). We conclude,
therefore, that because [she] has no control over the distributions that the trustee
decides to make for her benefit, she does not have the ability to use or dispose of
the resource.... Finally, we decline ... to hold the ... trust provision unenforceable on
public policy grounds.
The dissenting opinion "would find that to allow a trust to distribute income or
principal for virtually any purpose except for purposes that would eliminate or
reduce Medicaid is against public policy because it shifts the beneficiary's financial
responsibility to the taxpayers despite the fact the beneficiary has the financial
means to pay for his or her own medical expenses.... Where trust language is
against public policy, the court has a duty to nullify such trust language." 76 Ohio
St. 3d at 553, 668 N.E.2d at 913. The essential concurring opinion, however,
accepted the result in this case but only "because of the limited effect our decision
today will have," noting that the "loophole exploited in this case has been closed by
the recently adopted [change in] Ohio Adm. Code 5101:1-39-271(A)(2)(e)." Id. at
552, 668 N.E.2d at 912.
Regardless of any possible argument that may be raised concerning public
policy, it is clear that the language and interpretation of a trust instrument may
overcome the constructional inference in this Comment and may thus lead to the
conclusion that the trust property is "an available resource" that would render the
beneficiary ineligible for Medicaid or other public benefits. See, e.g., Estate of
Rosenberg v. Dep't of Public Welfare, 545 Pa. 27, 679 A.2d 767 (1996), in which the
combination of the settlor's language authorizing the trustees (even though in their
"sole discretion") to invade principal "for the comfort, welfare, and maintenance and
support, for educational requirements, medical and surgical expenses and any
unusual needs of my said wife" and the fact that she was the sole beneficiary of the
trust led the court to find that the trust principal was an available resource, the
settlor's intent being to provide for the wife's medical care from the trust without
reliance on public aid.
The risks of interpretation are further illustrated by the following excerpt from C.
Kruse, "OBRA '93 Disability Trusts--a Status Report," 11 Probate & Property 15, 16
(May/June 1996):
The OBRA '93 Trusts may, presumably, be either discretionary in form or limited
to purchases by the trusts beyond what is made available through Medicaid. The
State Medicaid Manual prepared by HCFA [Health Care and Financing
Administration] evidences that such trusts are intended to be supplemental to state
support. HCFA's Transmittal Letter No. 64 (Nov. 1994) refers to these trusts as
"special needs trusts."
If these disability trusts allow for the payment for the support or medical care,
however, some courts may interpret their terms to override the insulation that the
federal statute and conforming state law and regulations otherwise provide,
including supplemental security income (SSI) requirements. The agency
administering the Medicaid program may interpret a trustee's decision not to pay for
support or medical needs of the beneficiary, when the trust includes these
standards for consideration, as an abuse of the trustee's power. See Frerks v.
Shalala, 52 F.3d 412 (2d Cir.1995). Although the trustee in these situations had
discretion to determine the amount and manner of payment, no distribution at all
for such enumerated standards may be deemed to be unlawfully arbitrary.
Numerous trust cases have reached this conclusion, although none has been
decided in the context of a OBRA's '93 disability trust. [The most recent of the
several cases cited is Matter of Estate of Dodge, 281 N.W.2d 447 (Iowa 1979).]
The safe harbor that the federal statute assures--insulating disability trusts [that
satisfy] the guidelines of [42 USC § 1396p](d)(4)(A) and (C) from disqualifying
beneficiaries from eligibility for Medicaid--may be unintentionally abandoned by
careless drafting. The settlor's intent may be determined by the unambiguous
language in the trust instrument itself. See the following pre-OBRA '93 cases: In re
Schrams' Will, 268 N.Y.S.2d 814 (N.Y. Sur. Ct. 1996); Third Nat'l Bank in Nashville
v. Brown, 691 S.W.2d 557 (Tenn.Ct.App.1985).
An insightful court, however, may acknowledge the OBRA '93 legislation's
intent--protection for the community of disabled persons--and therefore find that
the (d)(4)(A) and (C) trusts themselves, discretionary in form, are intrinsically not
resources of disabled beneficiaries, regardless of the trusts' discretionary
distribution standards. By definition, assets held in these trusts should be
unavailable to their beneficiaries for Medicaid eligibility purposes because that
purpose satisfies the statutory intent. 42 U.S.C. § 1396p(d)(4). Unfortunately, at
this time, there is limited case law to assist in determining the breadth of standards
governing distribution that one may use in these federalized trusts....
In re Matter of Kindt, 542 N.W.2d 391 (Minn.Ct.App.1996), involved a trust that
was funded by assets intended to settle the applicant's tort claim and concluded
that, as contents of a self-settled trust, the assets deemed available to the applicant
included any and all amounts the trustee could validly, in its discretion, distribute to
him if no medical assistance benefits had been available. After a careful examination
of the cases decided to the date of the opinion, the court stated (citations omitted
and paragraphing disregarded): "In applying 42 U.S.C. § 1396a(k) to determine
whether a trust is self-settled, most courts employ a broad, functional definition
designed to prevent the use of formalistic devices to shelter assets, at Medicaid
expense, for the potential benefit of heirs.... [Applicant] argues [that] the South
Dakota court acted as grantor, using funds supplied by" the alleged tort-feasors.
542 N.W.2d at 396-397. The court dismissed (or distinguished) the few cases that
lend support to this argument, and it then noted that "the appellate courts of seven
states have concluded that the 1986 law's purpose implies," as the 1993 law
expressly requires, that "a broad definition of self-settled trusts" is to be applied. Id.
at 398.
Also compare Estate of Calhoun, 291 Ill.App.3d 839, 225 Ill.Dec. 851, 684
N.E.2d 842 (1997), holding that the lien of the Illinois Department of Public Aid had
to be paid from the proceeds of a personal-injury settlement before the remaining
funds could be transferred to a supplemental-needs trust designed to provide for
the disabled infant's special needs; the court applied the fairly representative
language of the Illinois Trusts and Trustees Act (760 Ill. Comp. Stat. 5/15.1) (West
1996), stating: "A discretionary trust for the benefit of an individual who has a
disability that substantially impairs the individual's ability to provide for his or her
own care or custody and constitutes a substantial handicap shall not be liable to pay
or reimburse the State or any public agency for financial aid or services to the
individual except to the extent the trust was created by the individual or trust
property has been distributed directly to or is otherwise under the control of the
individual, provided that such exception shall not apply to a trust created with the
disabled individual's own property or property within his or her control if the trust
complies with Medicaid reimbursement requirements of federal law. Notwithstanding
any other provisions to the contrary, a trust created with the disabled individual's
own property or property within his or her control shall be liable, after
reimbursement of Medicaid expenditures, to the State for reimbursement of any
other service charges outstanding at the death of the disabled individual." 291 Ill.
App. 3d at 842, 684 N.E.2d at 844.
Other (and related) matters (Comment e(5)). "Some trust instruments provide
that the trustee assess beneficiaries' capacities for gainful employment and their
potential earnings after completing their education. However, most do not, with the
result that the trustee will be obliged to make payments by the terms of the
instrument, regardless of his or her feelings as to the propriety of such payments....
However, in obvious cases of malingering, because other beneficiaries may later
protest the payments, the trustee should consider petitioning the court for
instructions as to the propriety of discretionary payments to the malingerer." Calif.
Cont. Educ. of Bar, Estate Planning for the Blended Family 145 (program handbook,
1997).
In the last paragraph of this Comment, the parenthetical reference to Comment
f might involve, for example: distributions to the settlor's grandchildren (or great
grandchildren) not for current needs or expenditure but to reduce income tax on the
earnings of a trust that is exempt from the generation-skipping transfer tax; or
distributions to the settlor's children from a trust that is not exempt from that tax
(thus subject at the time of this writing to a 55% tax) for the purpose of depleting
the trust if either the children have modest estates or the distributions facilitate
annual exclusion gifts by the children to grandchildren, great-grandchildren, and
maybe their spouses.
Also, on tax-motivated distribution, see Estate of Hartzell, T.C. Memo. 1994-
576, under a marital-deduction trust (which allowed invasion of principal for the
spouse's general well being), the trustee could properly distribute trust assets to the
spouse to enable her to make gifts to the children to reduce her eventual gross
estate. Also see Kemp v. Paterson, 6 N.Y.2d 40, 188 N.Y.S.2d 161, 159 N.E.2d 661
(1959), and Lees v. Howarth, 85 R.I. 321, 131 A.2d 229 (1957).
Comment f:
"Substantially separate and independent shares" (mentioned in the

commentary) is a familiar tax-law concept (see IRC § 663(c) and § 2654(b)).
Normally such shares are readily recognizable, and the concept is generally one of
easy, certain application. See Treas. Regs. § 1.663(c)-3 and -4. Also see Raithel,
"Avoiding Tax Pitfalls and Family Conflicts When a Child is Trustee," 25 Estate
Planning 218, 219-220 (1998).
The terms of the trust in Estate of Winograd, 65 Ohio App.3d 76, 582 N.E.2d
1047 (1989), authorized, during the lifetime of daughter D, distributions "to or
for ... any one or more ... members of a class composed of [D] and her lineal
descendants" (id. at 78, 582 N.E.2d at 1048); although, according to the court, "the
settlor intended to have [D] provided for primarily," distributions were "also to
reflect consideration of the individual needs of all of the [discretionary]
beneficiaries." Id. at 80, 582 N.E.2d at 1050.
In Lang v. Commonwealth, Dep't of Public Welfare, 515 Pa. 428, 528 A.2d 1335
(1987), although a disabled son was clearly the primary beneficiary, others'
interests were not to be disregarded; thus the trustee had discretion to withhold
payments so that trust benefits were not "available resources" that would make the
son ineligible for public medical assistance. See also similar result re wholly
discretionary trust for "any one or more of" B, her spouse, and her "issue or the ...
spouses of [her] issue" in Simpson v. Dep't of Social & Rehabilitation Services, 21
Kan.App.2d 680, 906 P.2d 174 (1995).
In Old Colony Trust Co. v. Rodd, 356 Mass. 584, 254 N.E.2d 886 (1970), the will
directed the trustee to distribute "such part of the income or principal as may be
necessary in its judgment for the comfortable support of any one or more of [named
and described descendants of testator's father-in-law], provided that in the
judgment of said trustee any one or more of said persons shall need assistance and
shall be worthy of the same, it being my intention hereby to carry out as far as
possible the wishes of my wife's father ... as expressed to me on many occasions";
on the death of the last of the named beneficiaries, whatever remained of the fund
was to go "in such proportions [and] unto such charities ... as said trustee shall
select." Id. at 585-586, 254 N.E.2d at 888. After reviewing the amounts distributed
and determining that the "method employed by the trustee in determining the
amount of assistance required in each case to attain 'comfortable support and
maintenance' was superficial," the trial judge nevertheless noted that "the trustee
was here given broad discretion" and then stated: "I do not quite find that it has
been abused." Id. at 588, 254 N.E.2d at 889. The conclusion of the appellate court,
however, was that, "whether due to misuse of discretion or to misconception of the
purpose of the trust on the part of the trustee, several of the intended primary
beneficiaries of the trust [i.e., those named by the settlor] are not receiving that
which the settlor intended they should receive and which the trustee has the means
to provide...." Id. at 589, 254 N.E.2d at 889. The court further noted that: "The
prospect of illness in old age does not warrant a persistent policy of niggardliness
toward individuals for whose comfortable support in life the trust has been
established" and that in some cases "the amounts given for the education of
[children of the primary beneficiaries] was greater than one half of the amount
granted to the [primary beneficiaries themselves] for 'comfortable support.' " Id. at
589-590, 254 N.E.2d at 890. Although not reversing the lower-court decrees
because "Comfort cannot be retroactively given," the court instructed the trustee
that future "accounts" should "reflect a trusteeship that is neither superficial in its
administration nor parsimonious in its spirit." Id. at 590, 254 N.E.2d at 890.
For a peculiar decision (but note it was a tax-lien case) asserting that, in a trust
for X and his issue, the trustee must pay something to every member of the
discretionary distributee group, see Magavern v. United States, 550 F.2d 797 (2d
Cir.1977); but cf. Shelley v. Shelley, 223 Ore. 328, 354 P.2d 282 (1960).
On impartiality among multiple discretionary beneficiaries, see Snyder v. Dep't
of Public Welfare, 528 Pa. 491, 598 A.2d 1283 (1991).
That the receipt of different amounts of distributions by the beneficiaries during
the period of the trust does not result in charges against their shares on
termination, see, e.g., New England Merchants National Bank v. Morin, 16 Mass.
App. Ct. 104, 449 N.E.2d 682, review denied, 389 Mass. 1105, 452 N.E.2d 1158
(1983); and Hartford National Bank & Trust Co. v. Turner, 21 Conn. Supp. 437, 156
A.2d 800 (1959). Also, regarding probable intention on the matter, see suggested
form for multi-beneficiary discretionary trusts in M. Ferguson, "Wills and Trusts:
Meeting the Challenges," 43 Practical Lawyer 21, 56-57 (1997).
On Illustration 15 and discussion in Comment thereafter, see: "The trustee
sometimes must determine the extent to which discretionary payments should be
made [when] in second marriage situations ... some but not all children of a
remarried parent are trust beneficiaries or when the beneficiaries are residing in the
home of a guardian whose family is not a beneficiary of the trust. If the beneficiary
receives special benefits (such as music lessons or summer camp) while
nonbeneficiaries do not, family hostilities could result that might be as harmful to
the minor beneficiaries being deprived of these extras. The trustee should decide
whether the trust has sufficient assets to provide all children, beneficiaries and
nonbeneficiaries alike, with certain extras and whether such distributions would be
in the beneficiaries' best interests. If so, the trustee should consider a petition to
the court for permission; because payments are being made to others, the court
must be convinced that the payments indirectly benefit the trust beneficiary....
Some trusts, when there are sufficient assets, specifically allow the trustee to make
payments for certain items to benefit all members of the household in which the
beneficiaries are residing." Calif. Cont. Educ. of Bar, Estate Planning for the Blended
Family 143 (program handbook, 1997).
Also, compare generally, Matter of Estate of Steward, 134 Ill.App.3d 412, 89
Ill.Dec. 315, 480 N.E.2d 201 (1984) (stipulated amount annually to be paid to
guardians for routine care of child as long as she resided with them); Griffin v.
Griffin, 384 Pa.Super. 188, 558 A.2d 75 (1989) (interesting discussion of trust
contributions to education of child after age 18); and Stout, "Guidelines for Using
[Inter Vivos] Trusts for Minors Effectively," 20 Estate Planning 107 (1993).
Comment g:
For an example of a quite different guide to an underlying purpose of a settlor
(albeit in an easy case), see Stuart v. Wilmington Trust Co., 474 A.2d 121, 125-126
(Del.1984) (finding it "obvious ... that the dominating purpose and function of the
Trust, aside from the benefit of the beneficiaries, was to preserve the position of the
Stuart family with respect to the affairs of the Carnation Company" and "a
construction [allowing the requested invasion of principal] would render the Trust
corpus vulnerable to disposition.... contrary to [the settlor's] intention").
Research References
West's Key No. Digests, Trusts 177, 276, 280; Wills 684.10.
Eligibility for welfare benefits as affected by claimant's status as trust beneficiary. 21
A.L.R.4th 729.
Payment or distribution under invalid instruction as breach of trustee's duty. 6
A.L.R.4th 1196.
Propriety of considering beneficiary's other means under trust provision authorizing
invasion of principal for beneficiary's support. 41 A.L.R.3d 255.
Implication of right of life tenant to entrench upon or dispose of corpus from language
relating to the extent of his dominion over the corpus, of the beneficial purpose of
the provision for the life tenant. 31 A.L.R.3d 169.
Language of will or other trust instruments as implying right to invade principal on
behalf of life beneficiary. 31 A.L.R.3d 309.
Construction of specific provision of will or trust instrument giving executor or trustee
power to determine what is income or what is principal. 27 A.L.R.2d 1323.
Propriety of payment of funeral expenses of life beneficiary or life tenant out of corpus
or estate under instrument providing for invasion of corpus or estate for support of
such person. 18 A.L.R.2d 1236.
Assertion of fiduciary status of party to litigation as basis for intervention by one
claiming interest in fruits thereof as trust beneficiary. 2 A.L.R.2d 227.
Trust provisions for payment, in the trustee's discretion or for a designated purpose, of
part or all of the principal to a beneficiary. 2 A.L.R.2d 1383.
Invasion of principal in behalf of income beneficiary, absent or contrary to provision of
trust instrument in that regard. 1 A.L.R.2d 1328.
Discretion given trustee respecting payment, application, or distribution of income or
corpus as conditioning the gift itself, or as governing merely the time or method of
permitting enjoyment. 172 A.L.R. 455.
Disposition and rights in respect of surplus income from trust in excess of amount
directed to be paid to, or required for support of, beneficiaries during the trust
period. 157 A.L.R. 668.
Authority conferred by will or trust instrument upon trustee to determine amount of
income or principal that beneficiary shall receive as exercisable by substituted or
successor trustee. 126 A.L.R. 931.
Conditions, amount, and character of support contemplated by will, trust instrument, or
contract providing for support of person. 101 A.L.R. 1461.
Right of estate of life beneficiary to income under a trust which confides to discretion of
trustee the part of the income or principal to be paid to him. 61 A.L.R. 677.
Control of discretion of trustee as to turning over principal of fund to beneficiary. 32
A.L.R. 441.
What gifts in trust to a minor "may be expended by, or for the benefit of" the donee so
as to qualify for gift tax exemption within the provisions of 26 USC sec. 2503(c)(1).
3 A.L.R. Fed. 973.
Case Citations
Conn.App.2004. Com. (e)(4) cit. in ftn. Conservatrix for her disabled son
appealed from decision of state department of social services that establishment of
special-needs trust made her son ineligible to receive state supplemental income
assistance for a significant number of years. Trial court dismissed plaintiff's appeal.
Affirming, this court held, inter alia, that department's eligibility rules were
consistent with federal law, which permitted an optional state-funded and state-
administered benefits program to adopt eligibility criteria that were more stringent
than those that governed the parallel federal program. Therefore, trial court
properly determined that special-needs trust established by plaintiff for benefit of
her son was an asset that department could take into account in determining son's
eligibility for state supplemental assistance benefits. Parkhurst v. Wilson-Coker, 82
Conn.App. 877, 885, 848 A.2d 515, 520.
(2003)
(C)

Rest 3d Trusts S 26-50

Uploaded by

Copyright:

Available Formats

You might also like

Rest 3d Trusts S 26-50

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rest 3d Trusts S 26-50

Uploaded by

Copyright:

Available Formats

REST 3d TRUSTS s 26

Restatement (Third) of Trusts § 26 (2003)

Restatement of the Law -- Trusts

Part 2. Creation Of Trusts

§ 26. Tentative ("Totten" Or Bank-Account) Trusts

Where a person makes a deposit in an account with a bank or similar

a. The depositor's intention. A person may make a savings deposit in a bank,

6. D sets up a tentative-trust account, the filled-in bank form showing B as

Restatement of the Law -- Trusts

Part 3. Elements Of Trusts

§ 27. Purposes For Which A Trust Can Be Created

Comment on Subsection (1):

a. Charitable and private purposes. Except as provided in §§ 46(2) and 47 (on

Comment on Subsection (2):

b. Private trusts. The general purpose of a private trust is to benefit identified or

This Section replaces Restatement Second, Trusts § 59 (Purposes for Which a

Restatement of the Law -- Trusts

Part 3. Elements Of Trusts

§ 28. Charitable Purposes

Link to Case Citations

Charitable trust purposes include:

1. S created an irrevocable trust under which the trustee is to pay $2000 a

Comment on Clause (a):

Comment on Clause (b):

h. Advancement of knowledge or education. A trust for the advancement of

Comment on Clause (c):

i. Advancement of religion. A trust for the advancement of religion is charitable.

Comment on Clause (d):

j. Promotion of health. A trust for the promotion of health is charitable. A trust

Comment on Clause (e):

k. Governmental or municipal purposes. A trust for the construction or

Comment on Clause (f):

l. Promotion of other purposes beneficial to the community. A trust is charitable

The counterparts of this § 28 were Restatement Second, Trusts §§ 362, 364,

On the well-accepted statements in these two Comments, see observations in

This Comment is intended to clarify an area of increasing practical importance

Case Citations through June 2004

Case Citations through June 2004:

Case Citations July 2004 -- November 2004:

Restatement of the Law -- Trusts

Part 3. Elements Of Trusts

An intended trust or trust provision is invalid if:

a. Scope; types of impermissible purposes or effects. An intended trust or trust

Comment on Clause (a):

b. Voidable transfers contrasted. The types of situations addressed in Clause (a)

General Comment on Clauses (b) and (c):

f. In general. A beneficial interest, a condition attached to a beneficial interest,

Comments on Clause (b):

g. Remoteness of vesting. An attempt to create a private trust fails unless the

Comments on Clause (c):

i. Nature and rationale of public-policy limits on trust provisions. The rules

The subject of fraudulent conveyances is treated in Restatement Second,

General Comment f, on Clauses (b) and (c):

Clause (b) and Comments g and h:

The commentary on Clause (b) of this Section condenses, occasionally clarifies,

General Notes on Clause (c) and Comments i through i(2):

The Introductory Note to Part III of Restatement Second, Property (Donative

Restatement of the Law -- Trusts