Basics Flashcards
General overview of Trusts
What is a Trust?
A trust is a FIDUCIARY RELATIONSHIP in which one or more TRUSTEES manages the SETTLOR’S property for the benefit of one or more BENEFICIARIES.
What are the main differences in interests between the trustees and the beneficiaries?
The trustees hold legal title to the settlor’s property, while the beneficiaries hold equitable title to the same property.
Who are the three parties to a trust?
- Settlor: original owner and creator of the trust
- Trustee: Manages and holds legal title to the trust for the benefit of the beneficiaries, acts as a fiduciary for B.
- Beneficiary: Benefits from the trust and holds equitable title to the trust property.
What are the four main types of trusts?
- Intervivos vs. Testamentaty
- Revocable vs. Irrevocable
- Mandatory vs. Discretionary
- Express vs. Remedial
Intervivos vs. Testamentary
Intervivos: Created during the settlor’s lifetime
Testamentary: Created upon settlor’s death by will
Revocable vs. Irrevocable trusts
Revocable: Can be amended or terminated by the settlor (presumed revocable)
Irrevocable: Generally cannot be amended or revoked or terminated by the settlor
Mandatory vs. Discretionary Trust
Mandatory: A trustee MUST make distributions from the trust to the beneficiaries.
Discretionary: A trustee MAY and has at least discretion in making distributions from trust to beneficiaries.
Express vs. Remedial Trusts
- EXPRESS: Arises from the EXPRESS INTENT of the owner of property to create a trust with respect to the property (e.g. private express or charitable trusts).
- REMEDIAL: 2 types:
Resulting: A resulting trust that arises from the PRESUMED INTENT of the settlor when the trust fails.
Constructive: Equitable remedy for wrongful conduct to prevent unjust enrichment.
Two types of Remedial Trusts
- RESULTING: Arises when the presumed intent of when trust fails.
- CONSTRUCTIVE: Equitable remedy for wrongful conduct to prevent unjust enrichment.
Mandatory Statutory Rules from the Florida Trust Code (FTC)
- Trust CREATION requirements
- Trusties duty of GOOD FAITH and LOYALTY
- Trust’s purpose must be LAWFUL, in keeping with PUBLIC POLICY, ACHIEVABLE.
- Court’s power to MODIFY/TERMINATE
- Effect of SPENDTHRIFT provisions
- Periods of limitation for commencing JUDICIAL PROCEEDINGS
- Rights of 3rd parties in commercial transactions with trustee
What are the elements of a private express trust? or How is a private express trust created? (7 elements)
A private express trust is created when:
- A SETTLOR,
- with CAPACITY, and
- clearly expresses a PRESENT INTENT to
- TRANSFER OWNERSHIP OF PROPERTY to
- a TRUSTEE who has duties to perform
- for the benefit of one or more ascertainable BENEFICIARIES
- for a VALID and LAWFUL purpose.
Removal of a trustee
The settlor, co-trustee, beneficiary, or court may request to remove a trustee if the trustee shows:
- serious breach of trust
- lack of co-operation
- due to unfitness, unwillingness, or persistent failure to administer trust makes removal of the trustee in the best interest of the beneficiaries,
- substantial change in circumstances,
- removal is not inconsistent with the purpose of the trust.
Cy Pres Doctrine
The doctrine of Cy Pres “as near as possible” is applies by a court to terminate or modify a charitable trust when:
- a particular charitable purpose becomes unlawful, impracticable, impossible, or wasteful, AND
- trust property must be applies or distributed in a manner consistent with the settor’s charitable purpose.
Anti-Lapse Rule
- Applies when the beneficiary is the settlor’s grandparent or a linear descendant of the settlor’s grandparents.
- If the beneficiary predeceases the settlor leaving surviving descendants, the surviving descendants take the beneficiary’s interest, per sterpes.
Spendthrift Provision
- Expressly restricts the B’s power to transfer her trust interest
- Must restrain both voluntary and involuntary transfers of the transfer’s of the beneficiary’s interest
Exception creditors to the spendthrift provision
- Support claims by a spouse, ex-spouse, or child
- Claims by a judgment creditor who provided services for the protection of the beneficiary’s interest
- Claims of the federal government or the state of Florida
Two circumstances in which a trust may be unfunded
- POUR-OVER TRUST: Created when the settlor is alive and funded at the time of settlor’s death by a devise in settlor’s will.
2: LIFE INSURANCE TRUST: Trust property may consist of the trustee’s right to receive death benefits, proceeds, etc…
Duties of a trustee
- Duty to administer trust in GOOD FAITH
- Duty of LOYALTY
- IMPARTIALITY to beneficiaries
- Reasonable CARE and PRUDENCE
- Duty to DELEGATE
- CONTROL and PROTECT trust
- SEPARATE and IDENTIFY trust property
- Duty to INFORM
- Duty to ACCOUNT
- Duty to ADDRESS A BREACH by a former trustee
Will Substitutes
- Revocable inter vivos trusts
- Life insurance trusts
- UTMA accounts (for minors)
- Totten trusts: given to bank accounts in depositor’s name as “trustee” for a named beneficiary
- Pay a death bank account: designates B’s during depositor’s life. Money is transferred to B when D dies.
Charitable Trusts
For a trust to be considered charitable, it must have a CHARITABLE PURPOSE, including:
- relief of poverty
- advancements of ARTS, SCIENCE, EDUCATION, or RELIGION, and
- the promotion of HEALTH, GOVERNMENTAL, or MUNICIPAL PURPOSES
Main difference between the beneficiaries of a private express trust vs. a charitable trust
PRIVATE EXPRESS: Must have DEFINITE beneficiaries to be valid. CHARITABLE TRUST: The class of beneficiaries must be definite, but the specific persons to benefit from the trust must be INDEFINITE.
Challenges to the validity of a private express trust
A trust is void if its creation was produced by FRAUD, DURESS, MISTAKE, or UNDUE INFLUENCE
1. TIMING: Challenge can’t be brought until trust becomes irrevocable
2. No challenge provisions: unenforceable
3. Rules of construction: settlor’s intent controls. Evidence of ambiguity is not allowed to contradict.
Class gifts: per sterpes
