Understanding and Using Trusts

Preliminary Pages
	PREFACE
	ABOUT THE EDITOR
	ABOUT THE AUTHORS
	TABLE OF CONTENTS
	TABLE OF EXHIBITS
Chapter 1
	Requirements for a Trust
		§ 1.1 DEFINITIONS OF TERMS
		§ 1.2 TYPES OF TRUSTS
		§ 1.3 METHODS OF CREATING TRUSTS
		§ 1.4 FORMAL REQUIREMENTS FOR CREATING TRUSTS
			§ 1.4.1 Intention to Create
				(a) Written Document
				(b) Physical Acts
				(c) Spoken Words (Oral Trusts)
			§ 1.4.2 Trust Property
			§ 1.4.3 Intended Beneficiary
			§ 1.4.4 Valid Trust Purpose
Chapter 2
	Implementing the Trust*
		§ 2.1 INTRODUCTION
			§ 2.1.1 Testamentary Trusts
			§ 2.1.2 Irrevocable Trusts
			§ 2.1.3 Revocable Trusts
				(a) Ability to Reach Assets Immediately upon the Death of the Settlor
				(b) Ability to Reach Assets upon the Incapacity of the Settlor
				(c) Privacy
		§ 2.2 TRUSTEE
		§ 2.3 MEANS OF FUNDING
			§ 2.3.1 Lawyer
			§ 2.3.2 Client
			§ 2.3.3 Professional Trustee
			§ 2.3.4 Power of Attorney
		§ 2.4 MECHANICS OF FUNDING THE TRUST
			§ 2.4.1 Cash
			§ 2.4.2 Stocks and Bonds
				(a) Certificates
				(b) Brokerage Account
				(c) Mutual Funds
				(d) Stock in a Professional Corporation
				(e) Former Pitfalls
					Subchapter S Election
					Estate Tax Installment Payments
			§ 2.4.3 Real Estate
				(a) Nominee Trust
				(b) Ancillary Estate Administration
				(c) Income Taxes
				(d) Mortgage
				(e) Homeowner’s Insurance
				(f) Title Insurance
				(g) Declaration of Homestead
			§ 2.4.4 Life Insurance
			§ 2.4.5 Automobile
			§ 2.4.6 Other Tangibles
			§ 2.4.7 Individual Retirement Accounts (IRAs) and Qualified Retirement Plan Assets
			§ 2.4.8 Other Interests
		§ 2.5 CAREFUL MANAGEMENT OF ASSETS
		EXHIBIT 2A—Letter to Client
		EXHIBIT 2B—Letter to Transfer Agent
		EXHIBIT 2C—Trustees’ Certificate
		EXHIBIT 2D—Trust and Schedule of Beneficial Interests and Agreement
		EXHIBIT 2E—Declaration of Trust Ownership
Chapter 3
	Trustee Appointment and Succession
		§ 3.1 WHO MAY BE A TRUSTEE
			§ 3.1.1 Capacity
			§ 3.1.2 Fitness to Serve
		§ 3.2 SELECTION OF A TRUSTEE
			§ 3.2.1 Family Members
			§ 3.2.2 Professional Trustee
				(a) Advantages
				(b) Disadvantages
				(c) Corporate Professional Versus Individual Professional
				(d) Fees
			§ 3.2.3 Donor as Trustee
			§ 3.2.4 Single or Multiple Trustees
			§ 3.2.5 Trust Protectors
			§ 3.2.6 Pet Trusts
		§ 3.3 APPOINTMENT OF A TRUSTEE
			§ 3.3.1 Testamentary Trust
			§ 3.3.2 Inter Vivos Trust
			§ 3.3.3 Steps to Take Prior to Accepting Appointment as Trustee
		§ 3.4 RESIGNATION
			§ 3.4.1 Inter Vivos Trust Provisions
			§ 3.4.2 Testamentary Trust Provisions
			§ 3.4.3 Default Rules
				(a) Thirty-Day Notice Procedure
				(b) Nonjudicial Settlement
				(c) Petitioning the Court
		§ 3.5 REMOVAL
			§ 3.5.1 Grounds for Removal
				(a) Overview
				(b) Incapacity
				(c) Unsuitability
				(d) Hostility
			§ 3.5.2 Necessity for Court Proceeding
			§ 3.5.3 By Terms of Instrument
				(a) Testamentary Trusts
				(b) Revocable Trusts
				(c) Irrevocable Trusts
				(d) Modifying an Irrevocable Trust
				(e) Decanting
		§ 3.6 SUCCESSOR FIDUCIARY
			§ 3.6.1 Receiving Property on a Donor’s Death
				(a) Personal Representative’s Accounts
				(b) Nonprobate Assets
				(c) Liquid Assets
				(d) Real Property
			§ 3.6.2 Taking Over from Prior Trustee
		§ 3.7 COTRUSTEES
			§ 3.7.1 Pre-MUTC Default Duty to Act Jointly
			§ 3.7.2 MUTC Default Rule
			§ 3.7.3 Disputes
			§ 3.7.4 Allocation of Responsibility
		§ 3.8 TAX CONSIDERATIONS IN THE SELECTION OF A TRUSTEE
			§ 3.8.1 Grantor or Other Person Treated as Owner for Income Tax Purposes
				(a) Section 674: Power to Control Beneficial Enjoyment
					Powers the Grantor May Give to Anyone as Trustee
					Powers the Grantor May Give to Certain Independent Trustees
					Power to Provide for After-Born or After-Adopted Children
					Power to Allocate Income if Limited by a Standard
					Grantor’s Power to Remove Trustee
				(b) Section 675: Administrative Powers
				(c) Section 677: Income for Benefit of Grantor
				(d) Section 678: Person Other Than Grantor Treated as Owner
				(e) Section 676: Power to Revoke
				(f) Section 673: Reversionary Interest
			§ 3.8.2 Intentionally Defective Grantor Trusts
			§ 3.8.3 Grantor or Other Person Treated as Owner for Estate Tax Purposes
				(a) Section 2036: Transfers with Retained Life Estate
				(b) Section 2038: Revocable Transfers
				(c) Sections 2041 and 2514: Powers of Appointment
			§ 3.8.4 Appointment and Removal of Trustees
			§ 3.8.5 State Tax Considerations
			§ 3.8.6 Foreign Trusts
Chapter 4
	Trustee’s Duties
		§ 4.1 INTRODUCTION
		§ 4.2 DUTY OF LOYALTY
		§ 4.3 DUTY TO EXERCISE REASONABLE CARE AND SKILL
		§ 4.4 DUTY TO GIVE PERSONAL ATTENTION
		§ 4.5 DUTY TO KEEP AND RENDER ACCOUNTS
		§ 4.6 DUTY TO PROVIDE INFORMATION
		§ 4.7 DUTY TO TAKE AND KEEP CONTROL OF THE TRUST PROPERTY
		§ 4.8 DUTY TO KEEP TRUST PROPERTY SEPARATE
		§ 4.9 DUTY TO ENFORCE CLAIMS
		§ 4.10 DUTY TO DEFEND THE TRUST
		§ 4.11 DUTY TO MAKE TRUST PROPERTY PRODUCTIVE
		§ 4.12 DUTY OF IMPARTIALITY
			§ 4.12.1 Nature of the Duty
			§ 4.12.2 Investments
Chapter 5
	Trustee’s Powers
		§ 5.1 INTRODUCTION
		§ 5.2 DISCRETIONARY POWERS OVER THE PAYMENT OF INCOME AND DISTRIBUTION OF PRINCIPAL
			§ 5.2.1 In General
			§ 5.2.2 Trustee’s Power to Exercise Discretion to Distribute Principal in Further Trust
			§ 5.2.3 Power to Adjust
		§ 5.3 VARIOUS ADMINISTRATIVE POWERS
			§ 5.3.1 Power of Sale
			§ 5.3.2 Power to Lease
			§ 5.3.3 Power to Allocate Receipts and Expenditures to Income or Principal
			§ 5.3.4 Power to Borrow
			§ 5.3.5 Power to Retain Assets
			§ 5.3.6 Power to Make Distributions with Respect to Minor and Disabled Beneficiaries
			§ 5.3.7 Power to Terminate the Trust
			§ 5.3.8 Power to Consolidate Trusts and Administer as a Single Fund
			§ 5.3.9 Power to Operate a Business
			§ 5.3.10 Power in Trustee to Amend the Trust
			§ 5.3.11 Power to Divide a Trust into Separate Accounts
			§ 5.3.12 Discretionary Power Permitting Independent Trustee to Grant a General Power of Appointment
			§ 5.3.13 Power to Delegate to Cotrustees
			§ 5.3.14 Resignation and Appointment Provisions
			§ 5.3.15 Accounting Provisions
			§ 5.3.16 Power to Remove and Replace a Trustee
		§ 5.4 EXCULPATORY PROVISIONS
		EXHIBIT 5A—Sample Language for Holding a Closely Held Business Interest
Chapter 6
	Trustee’s Liability
		§ 6.1 INTRODUCTION
		§ 6.2 LIABILITY TO BENEFICIARIES
			§ 6.2.1 Intentional Breaches
			§ 6.2.2 Negligent Breaches
			§ 6.2.3 Defenses
				(a) Consent by Beneficiary
				(b) Release
				(c) Affirmance
				(d) Laches
				(e) Discharge by Court Decree
				(f) Exculpatory Provisions
		§ 6.3 TRUSTEE’S LIABILITY TO NONBENEFICIARIES
		§ 6.4 CONTRACT DISPUTES
		§ 6.5 LIABILITY IN TORT
		§ 6.6 CONSUMER PROTECTION MATTERS
		§ 6.7 DISCRIMINATION
		§ 6.8 UNAUTHORIZED REGISTRATION AND SALE OF SECURITIES
		§ 6.9 TAXES
		§ 6.10 LIABILITY TO COFIDUCIARIES
		§ 6.11 LIABILITY TO SETTLOR
		§ 6.12 LIMITATION ON PERSONAL LIABILITY OF TRUSTEE
		§ 6.13 DAMAGES
		EXHIBIT 6A—Receipt and Indemnification Agreement
Chapter 7
	Trustee’s Responsibility for Investments*
		§ 7.1 OVERVIEW
		§ 7.2 HISTORICAL APPLICATION OF “PRUDENT MAN RULE”
		§ 7.3 MASSACHUSETTS PRUDENT INVESTOR ACT
			§ 7.3.1 Adoption
			§ 7.3.2 Applicability
			§ 7.3.3 Investment Standards
				(a) Effect of Related Provisions in the Trust Instrument
				(b) Statutory Standard of Care
				(c) Portfolio as a Whole
			§ 7.3.4 Duty of Investigation
			§ 7.3.5 No Type of Investment Imprudent Per Se
			§ 7.3.6 Special Trustee Skills
			§ 7.3.7 Diversification
			§ 7.3.8 Duties at Inception
			§ 7.3.9 Loyalty
			§ 7.3.10 Impartiality
			§ 7.3.11 Costs
			§ 7.3.12 Delegation
			§ 7.3.13 Damages
		§ 7.4 WOODWARD SCHOOL FOR GIRLS, INC. V. CITY OF QUINCY
		EXHIBIT 7A—Ad Hoc Committee Report
Chapter 8
	Trustee’s Responsibility for Special Assets
		§ 8.1 INTRODUCTION
		§ 8.2 DESCRIPTION OF CLOSELY HELD INVESTMENTS
			§ 8.2.1 Proprietorships
			§ 8.2.2 Partnerships
				(a) General Attributes of Partnerships
				(b) Types of Partnerships
					Family Limited Partnership
					Limited Liability Partnership
			§ 8.2.3 Corporations
			§ 8.2.4 Limited Liability Companies
			§ 8.2.5 Other Business-Related Assets
		§ 8.3 BASIC GUIDELINES FOR MANAGING CLOSELY HELD INVESTMENTS
			§ 8.3.1 Terms of the Trust
			§ 8.3.2 Policies and Procedures
			§ 8.3.3 Reviewing the Investment Before Acceptance
				(a) Level and Kind of Ownership
				(b) Form of Doing Business
				(c) Risks Assumed by Trustees
		§ 8.4 RISK ASSESSMENT AND RISK MANAGEMENT
			§ 8.4.1 Family Risk Issues
			§ 8.4.2 Business Risk Issues
				(a) Value of the Investment
				(b) Financial Needs of the Family
				(c) Long-Term Viability of the Business
			§ 8.4.3 Fiduciary and Probate Risk Issues
		§ 8.5 BEYOND THE ACCEPTANCE PROCESS
			§ 8.5.1 Accounting for the Closely Held Investment
			§ 8.5.2 Tracking Income
			§ 8.5.3 Corporate Notices and Actions
			§ 8.5.4 Documentation
				(a) Organization of the Business
				(b) Ownership Information
				(c) Shareholder-Specific Information
				(d) Financial Statements
			§ 8.5.5 Trustee’s Duty to Review Investments
			§ 8.5.6 Serving on the Board of Directors of a Closely Held Investment
				(a) Fiduciary Standard
				(b) Conflicts of Interest
				(c) The Position Itself
			§ 8.5.7 Fees on Closely Held Investments
		§ 8.6 SALE OF THE CLOSELY HELD INVESTMENT
		§ 8.7 CONCLUSION
Chapter 9
	Trustee’s Responsibility for Real Estate
		§ 9.1 INTRODUCTION
		§ 9.2 DUE DILIGENCE REVIEW
		§ 9.3 ENVIRONMENTAL REVIEW
			§ 9.3.1 Underground (Fuel Oil) Storage Tanks
			§ 9.3.2 Septic Systems
			§ 9.3.3 Lead Paint
		§ 9.4 INCOME-PRODUCING AND NON–INCOME-PRODUCING PROPERTY
		§ 9.5 REAL ESTATE TAXES
		§ 9.6 SELLING REAL PROPERTY
		§ 9.7 HOMESTEADS
		EXHIBIT 9A—Site Review Checklist
		EXHIBIT 9B—Higher Offer Clause
Chapter 10
	Trust Distribution Issues
		§ 10.1 INTRODUCTION
		§ 10.2 SETTLOR INTENT
		§ 10.3 DETERMINING THE BENEFICIARIES
			§ 10.3.1 Adopted Children
			§ 10.3.2 Children Born Out of Wedlock
			§ 10.3.3 Spouses
			§ 10.3.4 Minors
			§ 10.3.5 Incapacitated Beneficiaries
		§ 10.4 DISTRIBUTIONS
			§ 10.4.1 Mandatory Distributions
			§ 10.4.2 Discretionary Distributions
				(a) Unlimited Discretion
				(b) Discretion with Standards
				(c) Particular Types of Distribution
					Support and Maintenance
					Comfort
					Best Interests
					Education
					Health
				(d) Spendthrift Provisions
				(e) Multiple Beneficiaries
			§ 10.4.3 Discretionary Distribution Documentation
Chapter 11
	Funding of Marital Trusts
		§ 11.1 INTRODUCTION
		§ 11.2 FUNDING FORMULAS
			§ 11.2.1 Overview
			§ 11.2.2 Practical Considerations
			§ 11.2.3 Pecuniary Formula Marital Deduction
				(a) Date of Distribution Method
					In General
					Income Tax Consequences of the Date of Distribution Method
					Administrative Consequences of the Date of Distribution Method
					Summary of the Date of Distribution Method
				(b) Fairly Representative Method
					In General
					Income Tax Consequences of the Fairly Representative Method
					Administrative Consequences of the Fairly Representative Method
					Summary of the Fairly Representative Method
				(c) Minimum Worth Method
					In General
					Income Tax Consequences of the Minimum Worth Method
					Administrative Consequences of the Minimum Worth Method
					Summary of the Minimum Worth Method
			§ 11.2.4 Fractional Formula Marital Deduction
				(a) Pro Rata Method
					In General
					Income Tax Consequences of the Pro Rata Method
					Administrative Consequences of the Pro Rata Method
					Summary of the Pro Rata Method
				(b) Pick-and-Choose Method
					Income Tax Consequences of the Pick-and-Choose Method
					Administrative Consequences of the Pick-and-Choose Method
					Summary of the Pick and Choose Method
		§ 11.3 ALLOCATION OF INCOME
Chapter 12
	Funding Generation-Skipping Trusts
		§ 12.1 HISTORICAL PERSPECTIVE
		§ 12.2 GST TAX
			§ 12.2.1 Applicable Statutes
			§ 12.2.2 Definition of “Skip Person”
			§ 12.2.3 Types of Transfers Subject to GST Tax
				(a) Taxable Distribution
				(b) Taxable Termination
				(c) Direct Skip
			§ 12.2.4 Imposition of Tax
		§ 12.3 TRANSFERS NOT SUBJECT TO A GST TAX
			§ 12.3.1 Gift Tax Exclusions
			§ 12.3.2 Predeceased Ancestor Exception
			§ 12.3.3 Gallo Exclusion
		§ 12.4 GST EXEMPTION
			§ 12.4.1 Deemed Allocations
			§ 12.4.2 Nonautomatic Allocations
				(a) Retroactive Allocations
				(b) Relief for Late Allocations
				(c) 9100 Relief
		§ 12.5 INCLUSION RATIO
		§ 12.6 FUNDING GST TRUSTS AT DEATH
			§ 12.6.1 Funding at Death—General Principles
			§ 12.6.2 Funding at Death—Pecuniary Amounts
				(a) General Principles Regarding Funding
				(b) Special Rules for Residual Transfers
		§ 12.7 CALCULATION OF THE GST TAX
		§ 12.8 SEPARATE SHARE RULES
		§ 12.9 REVERSE QTIP ELECTION
Chapter 13
	Trustee’s Duty to Account*
		§ 13.1 INTRODUCTION
		§ 13.2 ACCOUNTING REQUIREMENTS
			§ 13.2.1 Provisions in Inter Vivos Trust Instruments
				(a) Duty to Account
				(b) Persons to Receive Account
				(c) Sample Accounting Clauses
			§ 13.2.2 Probate Trusts
				(a) Duty to Account
				(b) Persons to Receive Account
				(c) Assent Form
			§ 13.2.3 Massachusetts Uniform Trust Code
				(a) Duty to Inform
				(b) Persons to Receive Accounts
		§ 13.3 PREPARING TRUST ACCOUNTS
			§ 13.3.1 Initial Inventory for Testamentary Trusts (Probate Trusts)
			§ 13.3.2 Initial Inventory Needed for Inter Vivos Trusts (Nonprobate Trusts)
			§ 13.3.3 Recordkeeping
			§ 13.3.4 Required Format
				(a) In General
				(b) Testamentary Trusts
					Information Schedule
				(c) Inter Vivos Trust
		§ 13.4 SETTLEMENT OF ACCOUNTS (FILING AND ALLOWANCE)
			§ 13.4.1 Nonjudicial Settlement: Inter Vivos Trusts
			§ 13.4.2 Judicial Settlement
		EXHIBIT 13A—Accounting Provision (Example No. 1)
		EXHIBIT 13B—Accounting Provision (Example No. 2)
		EXHIBIT 13C—Assent Form
		EXHIBIT 13D—Example of a Testamentary Trust Account
		EXHIBIT 13E—Examples of an Inter Vivos Trust Account
Chapter 14
	Trust Principal and Income
		§ 14.1 INTRODUCTION
			§ 14.1.1 General Principles
			§ 14.1.2 Governing Law
			§ 14.1.3 The Massachusetts Principal and Income Act
			§ 14.1.4 Trustee Discretion
		§ 14.2 ALLOCATION OF RECEIPTS AND DISBURSEMENTS TO INCOME AND PRINCIPAL
			§ 14.2.1 Receipts
				(a) Dividends (MPIA Section 10)
				(b) Distributions from a Different Trust or Estate (MPIA Section 11)
				(c) Business Conducted by a Trustee (MPIA Section 12)
				(d) Other Allocations to Income or Principal (MPIA Sections 13–16)
				(e) Insubstantial Allocations Not Required (MPIA Section 17)
				(f) Deferred Compensation, Annuities, and Similar Payments (MPIA Section 18)
				(g) Liquidating Assets (MPIA Sections 19–21)
				(h) Unproductive Property (MPIA Section 22)
			§ 14.2.2 Allocation of Disbursements to Income or Principal
				(a) Disbursements from Income (MPIA Section 25)
				(b) Disbursements from Principal (MPIA Section 26)
				(c) Depreciation (MPIA Section 27)
				(d) Income Taxes (MPIA Section 29)
		§ 14.3 WHEN THE RIGHT TO INCOME BEGINS AND ENDS—(MPIA SECTIONS 6 AND 7)
		§ 14.4 APPORTIONMENT AT BEGINNING AND END OF INCOME INTEREST (MPIA SECTIONS 8–9)
			§ 14.4.1 Income Not Apportioned
				(a) Dividends
				(b) Interest
				(c) Rents
			§ 14.4.2 Apportioned Income
			§ 14.4.3 Apportioned Expenses
			§ 14.4.4 Apportionment When an Income Interest Ends
		§ 14.5 ADJUSTMENTS BETWEEN INCOME AND PRINCIPAL (MPIA SECTIONS 4 AND 5)
			§ 14.5.1 General Power to Adjust
			§ 14.5.2 Allocating Capital Gains to Income
				(a) ATRA, the Tax Act of 2017, and the Shift Toward Distribution of Gains as Income
				(b) Methods for Allocating Gains to DNI
				(c) Additional Administrative and Drafting Considerations
		EXHIBIT 14A—Report of the Ad Hoc Principal and Income Act Committee
		EXHIBIT 14B—Massachusetts Principal and Income Act (2005 Mass. Acts c. 129) Annotated
		EXHIBIT 14C—Comment to Section 104 of the Uniform Principal and Income Act
Chapter 15
	Obtaining the Court’s Assistance in Trust Administration
		§ 15.1 INTRODUCTION
		§ 15.2 OPTIONS TO PURSUE IN LIEU OF COURT INVOLVEMENT
			§ 15.2.1 Assent of All Persons Interested
			§ 15.2.2 Nonjudicial Settlement Agreement
		§ 15.3 OBTAINING ADVANCE APPROVAL FROM THE COURT
			§ 15.3.1 Jurisdiction
			§ 15.3.2 Venue
			§ 15.3.3 Procedure
			§ 15.3.4 Scope
				(a) Request for Instructions
				(b) Action to Declare Rights
				(c) Approval of a Compromise Agreement
				(d) Modification, Reformation, or Termination of the Trust
				(e) Distribution or Termination of the Trust
			§ 15.3.5 Guardians ad Litem and Virtual Representation
			§ 15.3.6 Fees
		§ 15.4 OBTAINING APPROVAL AFTER THE FACT
			§ 15.4.1 Judicial Allowance of Accounts
				(a) Seeking Allowance by Petition
				(b) Seeking Allowance by Complaint
				(c) Guardian ad Litem and Virtual Representation
			§ 15.4.2 Nonjudicial Approval of Accounts
			§ 15.4.3 Fiduciary Litigation Session
		EXHIBIT 15A—General Trust Petition for Instructions
		EXHIBIT 15B—General Trust Petition for Declaration of Rights
		EXHIBIT 15C—General Trust Petition for Approval of Compromise Agreement
		EXHIBIT 15D—Amended Report on Bosch Litigation1
		EXHIBIT 15E—General Trust Petition for Reformation
		EXHIBIT 15F—General Trust Petition for Allowance of Account
		EXHIBIT 15G—Probate and Family Court Standing Order 3-17: Fiduciary Litigation Pilot Project
Chapter 16
	Termination of the Trust
		§ 16.1 METHODS OF TERMINATION
			§ 16.1.1 Termination by Action of Donor, Beneficiary, or Trustee
				(a) Revocation
				(b) Exercise of a Withdrawal Power
				(c) Termination by the Trustee’s Actions
			§ 16.1.2 Termination According to the Trust’s Terms
				(a) Termination on the Occurrence of a Specified Event
				(b) Termination Because the Trust’s Purpose Has Been Accomplished or by Consent
			§ 16.1.3 Termination Due to Illegality or Impossibility
			§ 16.1.4 Invalidity Under the Rule Against Perpetuities
		§ 16.2 MECHANICS OF TERMINATION
			§ 16.2.1 The Trustee’s Postterm Powers and Duties
			§ 16.2.2 Winding Up
				(a) Identifying Beneficiaries
				(b) Accounting
				(c) Plan of Distribution
					Taxes
					Expenses
					Timing
				(d) Manner of Distribution
		EXHIBIT 16A—Revocation of Trust
		EXHIBIT 16B—Receipt, Release, and Indemnity
		EXHIBIT 16C—Release and Receipt
		EXHIBIT 16D—Assignment and Stock Power
Chapter 17
	Charitable Split-Interest Trusts
		§ 17.1 INTRODUCTION
		§ 17.2 DRAFTING
			§ 17.2.1 Parties—CRTs
				(a) Donor
				(b) Trustee
				(c) Income Beneficiaries
				(d) Charitable Remainder Beneficiaries
			§ 17.2.2 Parties—CLTs
				(a) Donor
				(b) Trustee
				(c) Lead Beneficiaries
				(d) Remainder Beneficiaries
			§ 17.2.3 Types—CRTs
				(a) CRATs
				(b) CRUTs
					Standard CRUT (SCRUT)
					Net Income CRUT (NICRUT)
					Net Income with Makeup CRUT (NIMCRUT)
					Defining Trust Income
				(c) Which Type of CRT to Use
				(d) Changing the Type of CRUT
			§ 17.2.4 Types—CLTs
				(a) CLAT
				(b) CLUT
			§ 17.2.5 Payout—CRTs
				(a) Valuation of CRUT Assets
				(b) Minimum Payout
				(c) Maximum Payout
					Reformation
					Voiding
					Additional Contributions
			§ 17.2.6 Payout—CLTs
			§ 17.2.7 Term—CRTs
			§ 17.2.8 Term—CLTs
			§ 17.2.9 Other Governing Instrument Provisions—CRTs
				(a) Private Foundation Restrictions
				(b) Investment Restrictions
				(c) Funding at Death
				(d) Prohibition on Invasion of Trust Property
				(e) Power to Amend
			§ 17.2.10 Other Governing Instrument Provisions—CLTs
		§ 17.3 TAX TREATMENT
			§ 17.3.1 Contributions—CRTs
				(a) Income Tax
				(b) Gift Tax
				(c) Estate Tax
				(d) Generation-Skipping Transfer Tax (GST Tax)
			§ 17.3.2 Contributions—CLTs
				(a) Income Tax
				(b) Gift Tax
				(c) Estate Tax
				(d) Generation-Skipping Transfer Tax (GST Tax)
			§ 17.3.3 Distributions—CRTs
			§ 17.3.4 Distributions—CLTs
			§ 17.3.5 Taxation of the Trust—CRTs
			§ 17.3.6 Taxation of the Trust—CLTs
		§ 17.4 ADMINISTRATION
			§ 17.4.1 Creation and First-Year Issues—CRTs
			§ 17.4.2 Creation and First-Year Issues—CLTs
			§ 17.4.3 Timing of Payouts—CRTs
			§ 17.4.4 Timing of Payouts—CLTs
			§ 17.4.5 Funding—CRTs
				(a) Tangible Personal Property
				(b) Real Estate
					Occupancy of Residential Real Estate
					Depreciation Deductions
					Negotiation and Sale
					Mortgaged Real Estate
				(c) Closely Held Business Interests
				(d) Life Insurance
			§ 17.4.6 Funding—CLTs
				(a) Cost Basis
				(b) Private Foundation Restrictions
			§ 17.4.7 Investments—CRTs
			§ 17.4.8 Investments—CLTs
			§ 17.4.9 Income Tax Return Requirements—CRTs
				(a) Form 5227
				(b) Form 4720
				(c) Form 1041-A
			§ 17.4.10 Income Tax Return Requirements—CLTs
				(a) Form 1041
				(b) Form 1041-ES
				(c) Form 5227
		EXHIBIT 17A—Comparison of CRTs and CLTs
Chapter 18
	Administering Charitable Trusts
		§ 18.1 INTRODUCTION
		§ 18.2 CHARACTERISTICS OF CHARITABLE TRUSTS
		§ 18.3 POWERS AND DUTIES OF TRUSTEE
		§ 18.4 ROLE OF THE ATTORNEY GENERAL
		§ 18.5 ENFORCEMENT BY THE BENEFICIARY
		§ 18.6 ENFORCEMENT BY THE SETTLOR
		§ 18.7 MODIFICATION OF CHARITABLE TRUSTS
		§ 18.8 FAILURE OF CHARITABLE TRUSTS: THE DOCTRINE OF CY PRES
		§ 18.9 TERMINATION OF CHARITABLE TRUSTS
Chapter 19
	Income Taxation of Trusts and Estates
		§ 19.1 INTRODUCTION
		§ 19.2 OVERVIEW OF INCOME TAXATION OF TRUSTS AND ESTATES
			§ 19.2.1 General Principles
				(a) Distributable Net Income
				(b) Inclusion of Capital Gains in DNI
					Exception 1—Capital Gain Allocated to Income
					Exception 2—Capital Gain Allocated to Principal but Treated Consistently as Part of a Distribution
					Exception 3—Capital Gain Allocated to Principal but Actually Distributed
					Exception 4—Short-Term Capital Gains from Mutual Funds
					Exception 5—Capital Gains and Charitable Contributions
					Exception 6—Capital Gains in Year of Termination
				(c) Types of Trusts: Simple, Complex, and Grantor
				(d) Trust Accounting Income (TAI)
				(e) Tax Rates
					Taxable Income—I.R.C. § 1(e)
				(f) Taxable Income
				(g) Adjusted Gross Income
				(h) Estimated Taxes
				(i) When an Income Tax Return Is Required
			§ 19.2.2 Trust and Estate Distributions—Differences
				(a) In General
				(b) Taxable Years
			§ 19.2.3 Simple Trusts
				(a) In General
				(b) Distribution Deduction
				(c) Tax Consequences to the Beneficiary
				(d) Death of a Beneficiary
				(e) Distribution in Kind
				(f) Allocation of Expenses
			§ 19.2.4 Complex Trusts and Estates
				(a) Background
				(b) Basic Rule
				(c) Limitations on Deductions
				(d) Income Required to Be Distributed Currently
				(e) Amounts Properly Paid, Credited, or Required to Be Distributed
				(f) Character of Amounts Distributed
					In General
					Allocation of Deduction Items
					Effect of Charitable Contributions
					Effect of Passive Activity Loss Rules
			§ 19.2.5 The Distribution System
			§ 19.2.6 The “Tier System”
				(a) In General
				(b) Effect of the Charitable Deduction
				(c) When Distributions Are Taxable to Beneficiaries
				(d) Death of a Beneficiary
			§ 19.2.7 Separate Share Rule and Unequal Distributions
				(a) General Rule
				(b) Applicability
					Concurrent Interests
					Successive Interests in Point of Time
				(c) Final Separate Share Regulations
				(d) Application of the Separate Share Rule
				(e) Allocating Income and Deductions to the Share
				(f) Special Allocation Exception for Income in Respect of a Decedent (IRD)
				(g) Separate Share Rule Examples
				(h) Formula Bequests
				(i) Residuary Bequests
				(j) Special Situations—Interest on Pecuniary Bequest
				(k) Special Situations—S Corporation Stock
				(l) How the Final Regulations Affect Drafting
				(m) Effective Date
			§ 19.2.8 Sixty-Five Day Rule—Section 663(b) Election
			§ 19.2.9 Distributions Not Subject to the Distribution Rules—Section 663(a)(1)
			§ 19.2.10 Section 645 Election to Treat a Trust as Part of an Estate
				(a) In General
				(b) The Election
				(c) Duration of the Election
				(d) Filing Requirements
				(e) Tax Consequences at Termination of Election
				(f) Implications of Making the Section 645 Election
			§ 19.2.11 Distribution in Kind—Section 643(e) Election
				(a) In General
				(b) Making the Election
				(c) Planning with Section 643(e)
			§ 19.2.12 Qualified Subchapter S Trust (QSST)
			§ 19.2.13 Electing Small Business Trust (ESBT)—Section 1361(e)
		§ 19.3 COMPUTATION OF TAXABLE INCOME
			§ 19.3.1 Introduction
			§ 19.3.2 Fundamental Rules of Subchapter J
			§ 19.3.3 Exemptions for Estates and Trusts
			§ 19.3.4 Charitable Contributions—Section 642(c)
				(a) Background
				(b) Payments Made “Pursuant to the Governing Instrument”
					In General
					Discretionary Payments
			§ 19.3.5 Power of Appointment
			§ 19.3.6 Pass-Through Contributions
			§ 19.3.7 Will and Trust Contests and Settlements
			§ 19.3.8 Statutory Requirements
				(a) Payments “Paid from Gross Income”
					In General
				(b) Meaning of “Paid”
				(c) Accumulated Income
				(d) Definition of Gross Income
				(e) Gross Income Not Actually Received
				(f) Deductible Contribution May Not Be Made from Tax-Exempt Income
				(g) Payments Must Be Made for Qualifying Charitable Purposes
				(h) No Distribution Deduction
				(i) Set-Aside Deduction for Estates and Pre–October 10, 1969 Trusts
					In General
					Set-Aside Rules
				(j) Contingent Charitable Remainder Interests
				(k) Unrelated Business Taxable Income (UBTI)
				(l) Timing of the Charitable Deduction
				(m) How Is the Fiduciary Income Tax Charitable Deduction Taken?
			§ 19.3.9 Net Operating Loss Deduction
			§ 19.3.10 Depreciation—Section 642(e)
			§ 19.3.11 Unused Loss Carryovers and Excess Deductions on Termination of Trusts and Estates
				(a) In General
				(b) Capital Loss Carryovers
				(c) Excess Deductions
				(d) Terminating the Estate or Trust
			§ 19.3.12 Administration Expenses
			§ 19.3.13 Computation of Tax Liability
			§ 19.3.14 Credits Available to Entities and Beneficiaries
			§ 19.3.15 Nondeductible Expenses
				(a) In General
				(b) Annual Trustee’s Commissions
				(c) Special Rule for Termination Fees
			§ 19.3.16 Miscellaneous Itemized Deductions
				(a) In General
				(b) Background
				(c) Final Section 67(e) Regulations
					General Rule
					Ownership Costs
					Tax Preparation Fees
					Investment Advisory Fees
					Appraisal Fees
					Certain Fiduciary Expenses
					Bundled Fees
					Allocation of Bundled Fee
				(d) Planning Considerations
					Alternative Minimum Tax
			§ 19.3.17 Net Investment Income
			§ 19.3.18 Suggestions for Fiduciaries
			§ 19.3.19 Effective Date
			§ 19.3.20 Computing Miscellaneous Itemized Deductions
			§ 19.3.21 Alternative Minimum Tax
		§ 19.4 PROCEDURE, ADMINISTRATION, AND COMPLIANCE
			§ 19.4.1 Taxpayer Identification Number
			§ 19.4.2 Notice of Fiduciary Relationship
			§ 19.4.3 Accounting Periods
			§ 19.4.4 Estimated Tax Requirements
				(a) General Payment Requirements
				(b) The Amount of the Installment
					Method No. 1—90 Percent of Current Year’s Tax Liability
					Method No. 2—100 percent (110 percent) of Prior Year’s Tax Liability
					Method No. 3—Annualization
				(c) Estates
				(d) Special Deposit Requirements
				(e) Timing of Installment Payments
				(f) Tax Liabilities of Less Than $1,000
				(g) Allocation of Credits for Estimated Tax to Beneficiaries
				(h) Practical Problems for Beneficiaries
					Short Taxable Years
					Practical Considerations
			§ 19.4.5 Income Tax Returns
				(a) General Requirements
				(b) Filing Requirements for Charitable Trusts
				(c) Reporting to Beneficiaries
				(d) Signature on Returns
				(e) Time for Filing Returns
			§ 19.4.6 Protecting the Fiduciary
				(a) Discharge from Personal Liability—Section 6905
				(b) Request for Prompt Assessments—Section 6501(d)
		EXHIBIT 19A—Example of a 2017 Fiduciary Income Tax Return for a Complex Trust
Chapter 20
	Trustee’s Duties Relating to Generation-Skipping Transfer Tax
		§ 20.1 OVERVIEW OF GST TAX RULES
			§ 20.1.1 1976 Legislation
			§ 20.1.2 1986 Legislation
			§ 20.1.3 2001 Legislation
			§ 20.1.4 2005 Regulations
			§ 20.1.5 2010 Legislation
			§ 20.1.6 2012 Legislation
			§ 20.1.7 2017 Legislation
			§ 20.1.8 Summary of Current GST Tax Rules
		§ 20.2 DIRECT SKIPS
		§ 20.3 TAXABLE DISTRIBUTIONS
		§ 20.4 TAXABLE TERMINATIONS
		§ 20.5 SUMMARY OF TAX FILING AND LIABILITY RULES
		§ 20.6 GENERAL GST ISSUES FOR A TRUSTEE
		EXHIBIT 20A—Definitions Related to GST Tax
		EXHIBIT 20B—Filled-in Sample Forms for a Direct Skip
		EXHIBIT 20C—Filled-in Sample Forms for a Taxable Distribution
		EXHIBIT 20D—Filled-in Sample Forms for a Taxable Termination
Chapter 21
	Lawyer as Trustee
		§ 21.1 INTRODUCTION
		§ 21.2 ETHICAL CONCERNS
		§ 21.3 PRACTICAL ISSUES
		§ 21.4 SEC CONSIDERATIONS
Chapter 22
	Representing a Trustee*
		§ 22.1 INTRODUCTION
		§ 22.2 REPRESENTING A FIDUCIARY IN A REPRESENTATIVE CAPACITY
			§ 22.2.1 Representative Versus Individual Capacity
			§ 22.2.2 Status of Beneficiaries
			§ 22.2.3 Duties Owed to Beneficiaries
				(a) Liability to Beneficiaries
				(b) Duties Arising Under the Massachusetts Rules of Professional Conduct
					Guidance Under the Disciplinary Rules
					Guidance Under the Rules of Professional Conduct
				(c) Attorney-Client Privilege Between Attorney and Trustee
		§ 22.3 REPRESENTING A FIDUCIARY IN AN INDIVIDUAL CAPACITY
		§ 22.4 REPRESENTING COTRUSTEES
			§ 22.4.1 Conflicts of Interest
			§ 22.4.2 Confidential Information
		§ 22.5 GUIDELINES FOR PRACTICE
Table of Acronyms
Table of Cases
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	B
	C
	D
	E
	F
	G
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	J
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	Z
Table of Statutes Rules and References
	FEDERAL
	MASSACHUSETTS
	OTHER STATES
	ADDITIONAL REFERENCES AND RESOURCES
Index
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	D
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