(5) Trusts: Formation & Types Flashcards
Trust Formation
Rule: A valid express trust requires: (1) an ascertainable beneficiary; (2)a settlor with capacity; (3) a settlor with intent to create a trust; (4) a trustee; (5) a valid trust purpose; (6) trust property; AND (7) compliance with any state formalities.
Sub-Rule: A trust must have a named trustee however a trust will not fail if that person refuses to act as the trustee, dies, is removed or resigns. In these instances the court will appoint a new trustee.
Parties to a Trust
Overview
- Settlor
- Trustee
- Beneficiary
Settlor
A settlor creates the trust by transferring assets to a trustee with manifest intent to create a trust relationship.
Trustee
Trustee must have duties to perform and the same person cannot be the sole trustee and the sole beneficiary.
Beneficiary
Beneficiaries can be natural persons, corporations/organization.
Types of Trusts
- Inter Vivos
- Testamentary
- Revocable Trust
- Irrevocable Trust
- Charitable Trust
- Resulting Trust
- Totten Trust
- Discretionary Trust
Inter Vivos
Types of Trusts
An inter vivos trust is a trust created during the settlor’s lifetime.
Testamentary
Types of Trusts
Definition: A testamentary trust is created through the provisions of a settlors will and does not take effect until the settlors death.
Pour Over Will Provision will use the testators will to fund a trust that was created prior to death.
Revocable Trust
Types of Trusts
In some states a trust is revocable by default (this is not the majority). A revocable trust becomes irrevocable upon the death or incapacity of the settlor.
Irrevocable Trust
Types of Trusts
In most states a trust is irrevocable by default unless expressly stated otherwise. An irrevocable trust cant be modified or revoked by the settlor after its creation.
Definition & Rule:
Charitable Trust
Types of Trusts
Definition: A charitable trust is one created by a settlor to confer a substantial benefit to society. The beneficiary may be indefinite or contain a class of persons described by the trust. The rule against perpetuities doesn’t apply to charitable trust.
Rule: A general charitable trust that fails to state a specific purpose or beneficiary will not fail. The court will select a purpose of beneficiary consistent with the settlors intent.
Definition & Rule:
Cy Pres Doctrine
Types of Trusts - Charitable Trust
Definition: The cy pres doctrine is applied by courts to modify charitable trusts to be consistent with the settlors or testators intent if the purpose of the trust is frustrated but has a general charitable intent.
Rule: if the trust does not name a specific charitable beneficiary and instead provides a general charitable intent, the cy pres doctrine may be used to continue the trust consistent with that intent.
*If the settlor did name a specific charitable beneficiary then the trust will terminate upon the specific charities termination.
Deinfition & Rule:
Resulting Trust
Types of Trusts
Definition: A resulting trust is implied by law based upon the presumed intent of the parties.
Rule: A resulting trust may arise when: (a) a private express trust has no beneficiary or is missing an important provision concerning handing the trust property; (b) a charitable trust ends because of impossibility or impracticability; (c) when a buyer pays consideration for real property, but has the seller transfer title to the property to a third person (A Person Money Resulting Trust); OR (d) when a will makes a gift to a person to hold a trustee, but fails to name the beneficiary (Semi-Secret trust).
Totten Trust
Types of Trusts
Payable on Death Account: An arrangement with the bank that allows trustee to open an account in their name and whatever is left in the account when they die the beneficiary has a right to receive if they are still alive.
Discretionary Trust
Types of Trusts
A discretionary trust occurs when a trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries of the trust.
*The trustee’s exercise of discretion must be in good faith. The court will only interfere with the trustee’s exercise of discretion if the trustee is abusing such power
