Express and Remedial Trusts

Question 1

How is an express trust created?

Answer 1

By the expressed intention of the owner of the property to create a trust relationship with respect to the property.

Question 2

What are the two types of express trusts?

Answer 2

Private express trusts and charitable trusts.

Question 3

What law applies to express trusts in Pennsylvania?

Answer 3

The Uniform Trust Act, which provides rules pertaining to trusts, trustees, and beneficiaries.

Question 4

What UTA rules cannot be contracted out of?

Answer 4

1. Trust creation requirements;
2. trustee’s duties of good faith and loyalty to the beneficiaries, including the duty to keep the beneficiaries informed and act in accordance with the terms and purposes of the trust;
3. requirements that the trust purpose be lawful, in keeping with public policy, and capable of achievement;
4. court’s power to modify or terminate a trust;
5. effect of spendthrift provisions; and
6. rights of third parties engaging in transactions with the trustee.

Question 5

What are the elements of a valid private express trust?

Answer 5

1. Intent
2. Trust property
3. Valid trust purpose
4. Ascertainable beneficiaries

Question 6

What will create a presumption of intent to create a trust?

Answer 6

“In trust” or “trustee”

Question 7

When must the intent be manifested?

Answer 7

Either prior to or simultaneously with the transfer of property. If transfer doesn’t occur immediately, then the intent should be manifested anew at the time of transfer.

Question 8

Can you make an oral trust?

Answer 8

No, the settlor’s intent must be manifested in writing, although there is no requirement that the settlor communicate his intent to the beneficiaries.

Question 9

What if there is ambiguous languageas to intent?

Answer 9

A determination must be made regarding whether a bifurcated transfer was intended and, if so, whether theintent was more than a mere hope or wish.

Question 10

What if you use precatory language as to the disposition of property?

Answer 10

It will not create a trust in Pennsylvania. The words will either be construed as mandatory or as meaningless.

Question 11

What property may be incldued in a trust?

Answer 11

Property that was owned by the settlor at the time the trust was created and was at that time transferred to the trust or to the trustee.

Question 12

Will fractional property interests suffice?

Answer 12

Yes. Anything except for a mere expectancy. (Future earnings under an existing agreement are good though.)

Question 13

What distinguishes a trust from a debt?

Answer 13

A trust requires identifiable trust property–it involves the duty of one party to deal with specific property for another.

A debt involves the obligation of one party to another.

N.B.: If a recipient of funds can use them and co-mingle them as he pleases, then the obligation to pay the funds to another is a debt, not a trust.

Question 14

What requirements are there for trust property?

Answer 14

1. Segregated
2. Identifiable
3. Described with reasonable certainty

Question 15

What constitutes a valid trust purpose?

Answer 15

Any purpose, as long as it isn’t illegal or contrary to public policy.

Question 16

Are trusts severable?

Answer 16

Yes. If a term is violative of public policy, any alternative terms provided by the settlor will be honored. If none, then the term will be stricken, but the trust will still be valid (unless removing that term proves fatal).

Question 17

What does the “ascertainable beneficiary” requirement entail?

Answer 17

That the beneficiary be ascertainable (like, identifiable by name) so that the equitable interest can be transfered automatically by operation of law.

Question 18

What are the three exceptions to ascertainable beneficiary requirement?

Answer 18

1. Unborn children
2. Class gifts
   
   1. Will be upheld if the class is reasonably definite, even when the trustee may select the beneficiaries from among the members of a class.
3. Charitable trusts
   
   1. Only private trusts need to have ascertainable beneficiaries.

Question 19

How can you create a trust?

Answer 19

1. Inter vivos
2. Testamentary

Question 20

When do inter vivos trusts become possessory?

Answer 20

At the death of the settlor.

Question 21

When does the trustee take legal title of the property?

Answer 21

For real property: upon the delivery of a deed or other document of title, PROVIDED THAT the trust is in a writing that satisfies the SOF.

For personal property: upon delivery of the personal property.

Question 22

What if the Statute of Frauds is not satisfied?

Answer 22

Then a constructive trust is created and the purported trustee must distribute the real property to the intended beneficiaries outright, rather than in a trust.

Question 23

What if the terms of a written trust instrument are ambiguous?

Answer 23

Parol evidence is admissible to prove intent. Otherwise, it is not admissible.

Question 24

What is a Totten trust?

Answer 24

It’s a fake trust. A designation given to a bank account in a depositor’s name as “trustee” for a named beneficiary. Depositor has control and depositor’s creditors can get at it.

Will automatically terminate if the beneficiary predeceases the depositor.

Can be revoked by any act manifesting the depositor’s intent to revoke, including by will. (This distinguishes it from a joint bank account, which passes to the co-tenant at death.)

Question 25

What is a testamentary trust?

Answer 25

A trust whose terms are contained in a will or document incorporated by a will.

Question 26

Must testamentary trusts comply with the Statute of Wills?

Answer 26

Yes, though if it does not, it could be a constructive or resulting trust, still.

Question 27

What if you get divorced and die?

Answer 27

Then an interest created by the terms of a testamentary trust in favor of the divorced spouse will be ineffective, UNLESS it was clearly intended to survive the divorce.

An interest created by a revocable trust and not revoked during the testator’s lifetime, though, may still be enforced.

Question 28

What is a constructive or “secret” trust?

Answer 28

A trust that looks like a testamentary gift but is created in reliance on the named beneficiary’s promise to hold and administer the property for another.

Question 29

How will a constructive or “secret” trust be proven?

Answer 29

By clear and convincing evidence, including extrinsic evidence, to prove the promise. When the promise was made is immaterial.

Question 30

What is a resulting or “semi-secret” trust?

Answer 30

A gift that is directed in a will to be held in trust, but the testator fails to name a beneficiary.

Question 31

How can a semi-secret or resulting trust be proven?

Answer 31

It can’t be. The gift will fail as a violation of the Statute of Wills and a resulting trust will be imposed on the property to be held in trust for the testator’s heirs.

Question 32

What is the modern trend (under the Third Restatement) as far as secret and semi-secret trusts go?

Answer 32

To impose a constructive trust in favor of the intended beneficiaries (if known).

Question 33

What is a pour-over trust?

Answer 33

A provision in a will that directs the distribution of property to a trust upon the happening of an event, so that the property passes according to the terms of the trust without the necessity of the will reciting the entire trust.

Question 34

When will a pour-over trust be valid?

Answer 34

When it is identified in the will and sufficiently described in writing.

Question 35

Can a pour-over trust be revoked?

Answer 35

Yes. If both the will and the trust are revoked, then the pour-over trust is revoked too. If only the trust is revoked, then the pour-over provision fails.

Unsure if there’s a practical difference here.

Question 36

What will be considered a charitable trust?

Answer 36

A trust that has a stated charitable purpose and exists for the benefit of the community at large OR for a large class of persons.

They’re usually construed quite liberally.

Question 37

Who has standing to challenge a charitable trust?

Answer 37

1. The settlor
2. A qualified beneficiary
3. The state attorney general

Question 38

If a trust fails as a charitable trust, could it still be a private express trust?

Answer 38

Yep!

Question 39

What is a charitable purpose?

Answer 39

1. The relief of poverty;
2. the advancement of education or religion;
3. the promotion of good health
4. government or municipal purposes
5. other purposes benefiting the community at large or a particular segment of the community

Question 40

How will a court decide if a beneficiary is charitable?

Answer 40

By inquiring into the predominant purpose of the organization and the determination of whether the organization is aimed at making a profit.

Political party is not charitable, though a political movement may be.

Question 41

Can a charitable trust require matching funds?

Answer 41

Yes.

Question 42

What if a trust has both charitable and non-charitable purposes?

Answer 42

Then the rulse applying to charitable trusts won’t apply, unless two separate and distinct trust shares are capable of being administered.

This will only be found when there is an indication of how much of the corpus is to be applied to charitable purposes and its duration.

Question 43

What are benevolent trusts?

Answer 43

A trust identified by the settlor as merely “benevolent.” These will not be deemed a charitable trust UNLESS the acts called for in the trust fall under the acceptable charitable purposes.

Mostly now though nobody distinguishes these from charitable trusts.

Question 44

Do we like or not like charitable trusts?

Answer 44

We like them. Try to find a way to make a trust charitable.

Question 45

Who can be a beneficiary of a charitable trust?

Answer 45

It must be the community at large, or a class comprising unidentifiable members.

A very small class could still qualify though. The settlor could also grant the trustee discretion to choose beneficiaries form a large class.

Question 46

Does the Rule Against Perpetuities apply to charitable trusts?

Answer 46

Nope.

Question 47

What is the Cy Pres doctrine?

Answer 47

This allows a court to modify a charitable trust to seek an alternative charitable purpose if the original purpose becomes illegal, impracticable, or impossible to perform.

STEPS

1. Determine the settlor’s primary purpose
2. Select a new purpose “as near as possible” to that one.

Question 48

Will the Cy Pres doctrine apply if the settlor would not have wished an alternative charitable purpose to be selected?

Answer 48

No. It’ll be subject to a resulting trust for the benefit of the settlor’s estate.

Question 49

What if no charitable beneficiaries are named in the trust instrument?

Answer 49

Then the court will pick one or more.

Question 50

What is an honorary trust?

Answer 50

One that is not created for charitable purposes and that does not have private beneficiaries.

Examples: Trusts for the care of animals or cemetery lots.

Trustee is “on her honor” to administer the trust, and failing to do so will permit an individual named in the trust beneficiary (or appointed by the court) to enforce the trust.

Question 51

What is a remedial trust?

Answer 51

Trusts created by operation of law as equitable remedies. Not subject to the trust creation requiements!

Question 52

What is the duty of a trustee to a remedial trust?

Answer 52

Solely to convey the trust property to the beneficiary.

Question 53

When will the court create a resulting trust?

Answer 53

When the trust fails in some way or when there is an incomplete disposition of trust property. The resulting trust will require the holder of the property to return it to the settlor or the settlor’s estate.

Question 54

What is the point of a resulting trust?

Answer 54

To avoid unjust enrichment and to achieve the settlor’s likely intent in attempting to create the trust.

Question 55

When might unjust enrichment exist so as to warrant the creation of a resulting trust?

Answer 55

1. When a party other than the holder of trust property supplied the consideration (unless there is a close familial relationship between the two)
2. When the trust was established for some unlawful purpose, such as to avoid creditors or taxes.

Question 56

What is a constructive trust?

Answer 56

Trusts created to prevent unjust enrichment in instances of:

• fraud
• duress
• undue influence
• breach of contractual or fiduciary duty
• detrimental reliance by a third party on a false written representation by the settlor

Or also homicide.

Question 57

Will a constructive trust be imposed upon the violation of an oral agreement?

Answer 57

No, even if the agreement was relied upon UNLESS the violation constituted fraud, was commited by a fiduciary, or concerned the contents of the promisor’s will.

Question 58

What if there was wrongful conduct but the property has already been sold or disposed of?

Answer 58

Then the beneficiary of the trust may pursue the sale proceeds or other property received. (Tracing doctrine)

Constructive trust can be imposed against either the seller or the buyer.

Question 59

Who will be prevented from seeking a constructive trust?

Answer 59

Somebody with unclean hands.

Question 60

What is a gift-over clause?

Answer 60

A provision providing for a disposition of the trust property in the event the trust purpose fails. Usually honored before imposing an equitable remedy.