Creation of Trusts Flashcards
What is a trust?
Arrangement for making gifts of property/management of assets. Trustee holds legal title to trust assets for the benefit of beneficiaries.
Trustee has burdens of ownership (managing), beneficiaries have equitable title and benefits of ownership
*Requirements for Trust
Settlor (grantor)… delivers… title to Trust Property… to a trustee… for the benefit of beneficiaries with intent to create a trust.
Trust must be for a lawful purpose.
No consideration required.
Settlor: must have legal capacity (over 18, capacity to convey title)
Delivery
only for inter vivos trusts (not testamentary) that name third party as trustee
Must be delivery of subject matter of trust (by settlor or his agent), with intent to convey legal title to trustee
Trust Property
Subject matter of trust must be certain and identifiable
If no property, look for promise to create trust-must be supported by consideration
Trust duties attach when property received
*Trustee
*NO TRUST FAILS FOR LACK OF TRUSTEE; CT. WILL APPOINT
Must have legal capacity (e.g. 18 years of age, capacity to K, etc.)
Only persons, banks, trust companies given trust powers in their charters, and charities (charitable trusts only) can be trustees (not unincorporated associations).
Trustee’s Bond
Individuals: must post bond to secure faithful performance of duties unless settlor waived
Corporate trustee: No bond (corporate assets serve as security)
What if no trustee is named?
If intent to create trust clearly manifested but no trustee named or available (death, resigns, incapacitated,) and none is named, court will appoint suitable trustee.
if trust created by will, court usually appoints executor named in will)
Can someone be compelled to serve as trustee against their wishes?
Nobody can be compelled to serve as trustee (to accept fiduciary duties)
Court will appoint trustee
*What constitutes acceptance of trust office by trustee named in trust instrument?
Trustee’s signature, signifying acceptance of the trust; or
Acceptance by conduct, if person exercises trust powers or duties (e.g. placing assets in trust, investing assets)
But not mere inspection for environmental concerns
If trustee wants to resign, what steps must he take?
Court approval that he can no longer serve as trustee; and
Provide an accounting (property initially received + receipts and disbursements + property on hand and liabilities)
What if trustee of real property has no trust powers or duties to perform?
no trust is created. Legal title to assets vest in beneficiary
Intention to Create Trust
Settlor must manifest intent for trust. Look to settlor’s words or conduct.
*Precatory language not enough (wish, desire, hope, request, etc.)
*Beneficiaries
Beneficiaries Must Be Ascertainable
“Relatives” or “family” is valid;
“Friends” is too indefinite
Charitable trust cannot be for the benefit of identifiable private individuals
“My insolvent brothers”
*Settlor can be beneficiary; also, sole beneficiary (but not if sole trustee)
Trust purposes
(any lawful purpose): Fails if
Used for commission of crime or tort, intent to defeat creditors, destruction of property
Total (not partial) restraints on marriage and conditions that encourage divorce are void; property transfers fully to beneficiary
Statute of Frauds
All trusts must be in writing unless a transfer of personal property e.g. (stocks and bonds) to a trustee other than the settlor or beneficiary and transferor express intent to create a trust prior simultaneously or before the transfer.
- rejection of trustee role
if person named trustee exercises powers or performs duties under the trust, he is presumed to have accepted the trust unless he is merely acting to preserve trust property and promptly sends notice of rejection to settlor or all primary beneficiaries.
e.g. if trust gives piece of property to beneficiary, proposed trustee does an inspection and then promptly sends letter that it is rejecting trust, trustee not liable
*Overarching rule
courts want to honor the intent of the settlor
- examples of precatory language:
“I hereby leave my…” and “wish” not enough
Need “shall” “must” or “transfer” not “wish” “want”
- Merging titles to the trust
a trustee for a trust holds legal title to the trust corpus for the benefit of the
beneficiary(s).
The beneficiary(s) own equitable title to the corpus
However, a trust in which the trustee and the beneficiary are the same party is not valid under Texas law, as in that case, the legal title and
the equitable title merge into one party, eliminating the purpose of the trust
*Is a trust that lists nobody and just says “for safekeeping” valid?
No, there must be named beneficiaries of the trust (or charitable purpose in the case of charitable trusts).
“safekeeping” is not a valid beneficiary
*Requirements for trusts of real property?
Statute of frauds
- must be in writing
- reasonably describe the property
