While the "and/or" part above makes this statement true, the above seems to misplace emphasis somewhat. Trusts often are so worded so as to prioritize income to the person who has the life estate in the trust. This priority may very well be above and beyond the interests of those who get the proceeds of the trust upon its dissolution (= in legal jargon, the beneficiaries). I try to remember that typically a second wife and stepchildren are involved, and the husband (prior to his demise) wanted all of them to reasonably share in his estate, and none to be unreasonably deprived. Solutions to how to invest a trust and/or distribute income from it will often not be perfectly equitable.
How do you figure? ISTM what's best for each may easily conflict.
Short of ensuring the terms of the trust are followed, it is usual for neither beneficiaries nor anyone having a life estate in the trust to get a legally enforceable say.
I didn't realize the trustees and beneficiaries were different people. Didn't the OP say that his mother was worried that she won't be able to live if the value of assets in this trust fell?
I picked those periods to illustrate that stocks going up in the long run is not guaranteed. The defintion of long-run is subjective, but I consider 10 years a long time.
The Nikkei 225 always went up until 1990 when it crashed and fell 70% and remains that low even 18 years later. Right at 1990 a person could argue that the Japanese share market always went up and he or she would be correct, but past performance does not prove long run performance, and the data from the Nikkei 225 index prove that.
Perhaps you are thinking of the Uniform Prudent Investor Act, and how it differs from the older Prudent Man Rule. UPIA requires viewing a portfolio as a whole and therefore may include non-income-producing investments in a context of a diversified portfolio seeking good total returns, whereas the Prudent Man Rule as applied to a portfolio expected to produce income required each investment in that portfolio to produce income individually - which is very hard to achieve in a world where dividends are averaging only a percent or two (as they were in the late nineties) - ie. the older rule would require dividend-paying stocks, and the payout to the income beneficiary would be just those dividends, rather than a portion of the total return of the portfolio.
But it doesn't really address income versus residual beneficiaries specifically.
UPIA was been being adopted a little at a time (ie. state by state) starting in 1992.
kastnna, now what do you mean by "beneficiaries" here? In previous posts, you made clear that the "beneficiaries" of whom you spoke did not include those with a life estate. But the definitions you cited in this most recent post appear to count as "beneficiaries" both those who have a life estate in the trust and those to whom the contents of the trust goes upon its dissolution.
I do not have a problem with the statement that "the trustees' ultimate fiduciary duty is to both those who have a life estate in the trust and those who receive the trust's contents upon its dissolution." But this is not what you said earlier.
It's not a simple answer. There are various levels of fiduciary obligation that can be junior or senior to others (like debt). The trustees ultimate fiduciary obligation is to the true beneficiaries (i.e. the children). As I said, he must act in their best interests at all times. However, some trusts have provisions that hinder that obligation. One such provision is a life estate (typically, giving money to someone other than the benes is not in their best interest). However, because the trust requires it, the trustee is given a "free pass" on his typical duties. That same provision creates a fiduciary duty for the trustee to serve the life estate holder but only within the confines of that provision. Outside of the scope of the provision, the trustee cannot put the interests of the LE holder above that of the beneficiaries.
To extend the debt analogy, the beneficaries are senior to the LE holder. However, the LE holder's note is due payable now and therefore must be serviced first. Not a great comparison I know, but I can't think of anything else.
[Aside: The only cite that even makes mention of life estate holders is that of the Uniform Law Commissioners. It is perhaps an overly broad comment made by them and not part of the law they drafted (nor did I imply it was part of said law). Both of the (more authoritative) State statutes do not include life estate holders nor could I find any state statute that did.]
Call it semantics if you wish, but you stated previsouly
"The ultimate fiduciary duty is to the terms of the trust itself. I do not consider this is semantical massaging. The distinction I am drawing is very important to a person's understanding of what a trust is and does."
I don't consider it semantics either. I can find no cite that supports that first sentence. I also think it is important that a person understand what a trust is and does. As such it is important for any beneficiaries out there to know that just because a trustee is working within the trust's provisions doesn't mean he has met his fiduciary duty (which your first sentence implies to me). I'm betting that is exactly the scenario with which the OP is dealing. As I previously stated, if this trust is typical of most, the trustee was well within his rights to invest as he did. He screwed up by not acting in the best interests of the beneficiaries, even though he likely never violated a provision.
How do you know they do not include life estate holders in their definition of "beneficiary"? UPAIA and UPIA are the bases for the typical state's code. My reading of all the citations you gave is that the ultimate fiduciary obligation is to both those who have a life estate in the trust and those to whom the contents of the trust goes upon dissolution. These citations define "beneficiary" differently than you.
This is not an aside. It is at the core of the problem I have with your claims.
" 'Beneficiary' means a person to whom a donative transfer of property is made or that person's successor in interest, and: ... (c) As it relates to a trust, means a person who has any present or future interest, vested or contingent."
"(3) BENEFICIARY means a person that: (A) has a present or future beneficial interest in a trust, vested or contingent; or... " "(14) QUALIFIED BENEFICIARY means a living beneficiary who, on the date the beneficiary's qualification is determined: (A) is a distributee or permissible distributee of trust income or principal;... "
Do you still think these state codes' definitions of "beneficiary" exclude those with a life estate in the trust?
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