Express private trusts

Question 1

Terms

Answer 1

1. trust: fiduciary relationship with respect to property
2. trustee: holds legal title to the property for the beneficiary
3. beneficiary: holding equitable rights in the property held in the trust
4. settlor: creator of the trust

Question 2

Express private trusts - essay

Answer 2

A private express trust is a fiduciary relationship with respect to property whereby the trustee holds legal title for the benefit of the beneficiary, which arises out of a manifestation of intent to create it for a legal purpose.

Question 3

Express trust characteristics - present manifestation of intent

Answer 3

1. settlor must have a present intent to create a trust, and the trust must have a valid purpose
2. the intent must be present intent that the trust take effect immediately
   i. note: present intent required, but a future interest can be trust property
3. intent
   i. conduct or written or spoken word, unless Statute of Wills or Statute of Frauds applies
   ii. oral trusts are valid for personal property
   iii. delivery of deed to trustee
   a. if settlor is trustee, intent shown by segregating trust assets
   b. no need to communicate intent to beneficiary
4. the intent must be manifested at the time the settlor owned the property
   i. intent must appear prior to the conveyance of any property
   ii. but conduct subsequent to the conveyance can be used to demonstrate prior intent
5. settlor’s precatory expressions do not manifest intent
   i. precatory expressions: expressions of hope, wish, or suggestion that property be used in a certain way
   a. mandatory words are not precatory (“ex. you must use this $ for X”: creates a trust)
   b. but precatory words + parol evidence may result in the requisite intent for a trust

ii. there is intent if the expressions are: (any)
a. definite and precise
b. to a fiduciary
c. result in an unnatural disposition
d. extrinsic evidence shows the settlor previously supported the intended beneficiary

6. transferee owns in fee simple if there is no intent to create a trust

Question 4

Express trust characteristics - Trustee

Answer 4

1. a trust does not fail because the trustee refuses to accept appointment, dies, or is removed
   i. court will appoint a trustee unless settlor clearly indicates intent that the trust continue under that specific trustee
   ii. absence of a trustee may cause an attempted inter vivos trust to fail for lack of delivery
2. no passive trusts
   i. passive trust: trust where trustee has no duties
   ii. the duty to convey title is sufficient

Question 5

Trustee capacity

Answer 5

i. anyone who can acquire and hold property for their own benefit can be a trustee
ii. excludes minors and insane persons

Question 6

Removal of trustee

Answer 6

i. court can remove or refuse to confirm an appointed trustee
ii. removal if continuation would be detrimental to the trust (breach of trust, conflicted, etc.)
iii. sometimes no removal if settlor knew of grounds for removal and still chose trustee

Question 7

Resignation of trustee

Answer 7

i. trustee can decline for any reason, but cannot decline in part and accept in part
ii. resignation requires court approval

Question 8

Trustee’s Relation back in testamentary trust

Answer 8

i. a trustee’s acceptance under a testamentary trust relates back to the date of settlor’s death, which is when the trust came into existence
ii. thus, trustee can be liable as a fiduciary for torts committed prior to their acceptance

Question 9

Trustee merger

Answer 9

i. if the sole trustee and sole beneficiary are the same person holding the same interests, title merges and the trust terminates

Question 10

Express trust characteristics - Trust property (trust res)

Answer 10

1. a trust without trust property fails
2. trust property must be:
   i. in present legal existence (can be future interests, life insurance policies, etc.)
   ii. identifiable and segregated (but can be a partial interest in specific property)
   iii. property the settlor has power to convey (including assignable interests in intangibles)
3. illusory interests cannot be cannot be trust res (no legal interest)
   i. future business profits
   ii. unenforceable gratuitous promises
   iii. debts settlor owes to beneficiary (is a liability, not property)
   iv. mere expectancies (ex. things the settlor expects to inherit)

Question 11

Express trust characteristics - Beneficiaries

Answer 11

1. required for all trusts except charitable and honorary trusts
2. beneficiary:
   i. the person the trust operates directly to benefit
   ii. must be capable of holding and taking title to property
   iii. can be natural or artificial (including unincorporated companies)
3. private trusts require definite beneficiaries (not required for charitable trusts)
   i. must be ascertainable by their interest comes to enjoyment
   ii. unascertained beneficiaries can be definite (ex. unborn beneficiary)
   iii. classes for class gifts must be reasonably definite, and if reasonably definite class
   a. class gift cannot be too big (ex. everyone in CA, but could be charitable)
   b. trustee can be authorized to select specific members to be benefitted
   c. may require individuals to meet certain requirements to benefit
4. broad power to choose beneficiaries may be considered a gift or power of appointment, not a trust
5. presumption that a trust failing for lack of beneficiary reverts back to settlor or her successor

Question 12

Express trust characteristics - Notice and Acceptance

Answer 12

6. notice to beneficiary is not required, but can be used to show lack of intent to create trust
7. express or implied acceptance by beneficiary is required, but can occur after a valid trust is created
   i. cannot be compelled to be a beneficiary against one’s will

Question 13

Express trust characteristics - Disclaimer

Answer 13

8. disclaimer: intended beneficiary may disclaim an interest
   i. written disclaimer filed with trustee, or probate court if testamentary trust
   ii. disclaimer filing must be made within 9 months of interest’s creation, or 9 months after beneficiary turns 21 if beneficiary is under 21
9. disclaimer is estopped if beneficiary exercised control over the interest or accepted benefits from the trust
10. valid disclaimers relates back to date of the transfer for all purposes, except federal tax liens (thus can be used to defeat earlier creditor claims)

Question 14

Express trust characteristics - Anti-lapse

Answer 14

1. anti-lapse statutes may be applied to future interests created in trusts, even those expressly contingent on survival if no alternate gift in case of beneficiary’s death is made

Question 15

Express trust characteristics - Divorce revokes

Answer 15

1. divorce revokes beneficial gifts and appointments from a former spouse
2. applies to all revocable dispositions including revocable trusts
3. instrument read as if former spouse is deceased

Question 16

Express trust characteristics - trust purpose

Answer 16

1. trust cannot have a purpose that is illegal or requires a criminal or tortious act
2. trust cannot have a purpose contrary to public policy
   i. cannot induce others to engage in an illegal or tortious act
   ii. cannot encourage immorality
   iii. cannot induce neglect of parental, familial, or civic duties
   iv. if a condition is against public policy
   a. settlor’s alternative desire controls, if expressed, otherwise
   b. illegal condition subsequent is invalid, but trust is valid
   c. illegal condition precedent: hold the trust valid unless settlor intends the entire trust to be void if the condition is unenforceable
3. a trust cannot violate the Rule of Perpetuities
   i. the interest is invalid unless it is certain to vest or fail within 21 years after the death of a life in being
4. if the illicit condition can be excised, the trust will be allowed to stand
5. if the court cannot excise the illegality, it will achieve the best result it can, either:
   i. invalidate the trust
   ii. allow the trustee to keep the property (settlor cannot get equity bc no clean hands)

Question 17

Express trust characteristics - Resulting trust

Answer 17

1. an implied in fact trust decreed by the court based on the parties’ intent
2. a resulting trustee only has one obligation: transfer the property to settlor or settlor’s estate, meaning residuary devisees and if none then to settlor’s heirs at law

Question 18

Creating express trust - inter vivos trusts (trust created to take effect during settlor’s life)

Answer 18

1. can be created by a transfer in trust (3p trustee) or a declaration in trust (settlor as trustee)

i. transfer in trust:
a. a third person is the trustee
b. requires delivery to trustee + simultaneous intent to create a trust
i) delivery can be actual, constructive (key), or symbolic (document)
iii) a promise to deliver the res in the future is not a delivery
c. real property: SoF requires a deed to deliver title to the trustee

ii. declaration in trust:
a. settlor is the trustee
b. requires only present manifestation to create a trust
ii) cannot deliver property to yourself, so no delivery requirement
c. real property: SoF requires a writing stating the settlor is the trustee

2. the present intent must be manifested when the trust res exists
   i. if the trust res is acquired later, settlor must re-manifest intent
   ii. note: failure to name a trustee, or a promise to name a trustee in the future, may evidence a lack of present intent and present delivery of the trust res
3. an invalid oral trust may be enforced by imposing a constructive trust
4. extrinsic evidence is usually allowed to resolve ambiguities

Question 19

Testamentary Trust ( Trust created to take effect at settlor’s death)

Answer 19

1. requires compliance with California Probate Code
2. trust intent and essential terms (res, beneficiaries, purpose) must be ascertained from the will, a writing incorporated by reference, or exercise of power of appointment created by the will
3. secret trust
   i. will that makes a gift appearing absolute on its face, but actually made in reliance on the beneficiary’s promise to hold the property in trust for another
   ii. if intended trust beneficiary can show the promise by clear and convincing evidence (including extrinsic evidence), a constructive trust is created in their favor
   a. does not matter that the promise was made until after the will was executed
   b. only testator’s reliance matters, beneficiary’s lack of intent to perform does not
4. semi-secret trust
   i. will makes a gift in trust but does not name the beneficiary
   ii. the gift fails, and the named trustee holds the property in trust for testator’s heirs
5. bar: regardless of which one you get, discuss the rules for both