Express Private Trusts

Question 1

What are the elements needed for an express trust?

Answer 1

(1) A settlor with capacity to convey
(2) The present intent to create a trust relationship
(3) A competent trustee with duties
(4) A definite beneficiary
(5) the same person is not the sole trustee and the sole beneficiary
(6) a present disposition in trust of specific property then owned by the settlor
(7) Valid trust purpose

Question 2

What capacity must the trust settlor have?

Answer 2

The same capacity required to make a will. Lack of legal capacity will prevent a trust from arising and undue influence, fraud or duress will render it unenforceable.

Question 3

What is the settlor’s intent requirement?

Answer 3

Present intent to create a trust externally manifested by the settlor’s words or conduct at the time they owned property and prior to its conveyance to another. They must intend the trust to take effect immediately.

Question 4

Is a written manifestation of settlor’s intent required?

Answer 4

No, unless the statute of wills or statute of frauds applies.

Question 5

Do precatory expressions create a trust?

Answer 5

Precatory language (expressions of hope, wish or suggestion that property be used in a certain way) is rebuttably presumed not to create a trust.

Question 6

What evidence overcomes the presumption that precatory language did not create a trust?

Answer 6

(1) Definite and precise directions
(2) Directions addressed to a fiduciary
(3) An unnatural disposition of property if no trust imposed
(4) Extrinsic evidence that the settlor previously supported the intended beneficiary

Question 7

Does a trust require consideration?

Answer 7

No

Question 8

Is an oral trust of personal property valid?

Answer 8

Yes

Question 9

Once made will a trust fail if the trustee dies, resigns or refuses the appointment?

Answer 9

No. The court will appoint a successor unless it was clear that the trust only continued as long as a particular trustee served.

Question 10

How does a person accept a trusteeship?

Answer 10

(1) substantial compliance with the agreement’s acceptance terms
(2) accepting delivery as trust property, exercising powers, performing duties or indicating acceptance

Question 11

Must a trustee have duties?

Answer 11

Yes, the settlor must intend to impose enforceable duties. If not spelled out in trust instrument, court will imply so long as there is intent to create a trust, a res, and a beneficiary.

Question 12

What are the qualifications of a trustee?

Answer 12

Capacity to acquire and hold property for his own benefit and capacity to administer the trust. (No minors, insane persons/some states say no foreign corps)

Question 13

What is a trustee entitled to?

Answer 13

Reasonable compensation or compensation specified in the trust instrument. Reimbursement of expenses of administration.

Question 14

When can a court remove a trustee?

Answer 14

On its own motion or on the motion of the settlor, beneficiary or co-trustee

Question 15

What are grounds for a trustee’s removal?

Answer 15

(1) Serious breach of trust
(2) lack of cooperation among co-trustees
(3) unfitness, unwillingness, persistent failure to administer
(4) substantial change in circumstance

The key factor/inquiry is whether continuation in office would be detrimental to the trust

Question 16

When is a trusteeship presumed rejected?

Answer 16

If not accepted in a reasonable time

Question 17

Can a designated trustee still act to preserve the property without accepting?

Answer 17

Yes, provided they send notice of rejection to the settlor or a qualified beneficiary

Question 18

Can the trustee disclaim/refuse appointment?

Answer 18

Yes, prior to acceptance, but not partially

Question 19

When may a trustee become liable on tort claims predating their acceptance?

Answer 19

If her acceptance relates back to the date of the trust’s existence (e.g., testamentary trust exists at settlor’s death and trustee’s acceptance relates back to that date)

Question 20

How may a trustee resign?

Answer 20

(1) giving 30 days notice to qualified beneficiaries, settlor and co-trustees, or
(2) obtaining court approval

Question 21

What happens when one trustee succeeds another?

Answer 21

The successor succeeds to all rights, powers and privileges of the original and is subject to all the original’s duties, liabilities and responsibilities

Question 22

What happens when the sole trustee is also the sole beneficiary?

Answer 22

The titles merge and the trust terminates

Question 23

Why is a beneficiary necessary to a trust?

Answer 23

A trust cannot exist without someone to enforce it.

Exceptions: none needed for honorary or charitable trusts

Question 24

Who is a qualified beneficiary?

Answer 24

A beneficiary who, on the date that qualification is determined, is a current beneficiary or a first-line remainderman (i.e., would become eligible to receive distributions were the event triggering termination of a beneficiary interest or the trust occur on the qualification date)

Question 25

What capacity is required of a beneficiary?

Answer 25

Natural or artificial person capable of taking and holding title to property

Question 26

Is anyone who benefits from a trust a beneficiary?

Answer 26

No – the trust must operate directly to their benefit

Question 27

How can a beneficiary disclaim an instrument?

Answer 27

No one can be compelled to accept a trust interest. They may disclaim by filing a written instrument with the trustee (if trust created by will, with the probate court)

Question 28

If a beneficiary makes a valid disclaimer, what is the consequence?

Answer 28

The trust is read as though the disclaiming was deceased as of that date

Question 29

When must a disclaimer be made?

Answer 29

Most states require that disclaimer be made within 9 months of the interest’s creation (this is the time for federal gift tax purposes). For beneficiaries under 21, it is timely if made within 9 months after attaining age 21.

Question 30

When may a beneficiary be estopped from disclaiming a trust?

Answer 30

If they have exercised any dominion or control over the interest or accepted any benefits.

Question 31

Can a disclaimer defeat creditor claims?

Answer 31

Yes, but not federal tax liens

Question 32

What is the application of anti-lapse statutes to trusts?

Answer 32

Anti-lapse statues only apply to wills in most states but several states and the UPC apply them to future interests created in trusts.

Question 33

What is the effect of divorce or annulments on beneficial gifts and fiduciary appointments to the former spouse?

Answer 33

Revokes all beneficial gifts and fiduciary appointments to the former spouse. Extended by several states and UPC to all revocable dispositions, including trusts and durable power of attorney. Read the instrument as if the former spouse and their relatives are deceased.

Question 34

What does a private trust require about beneficiaries that is not true for charitable trusts?

Answer 34

That they be definite.

Question 35

May unascertained beneficiaries still be definite?

Answer 35

Yes, but they must be ascertainable by the time their

Question 36

How does the definite beneficiary requirement apply to class trusts?

Answer 36

Common law: if a class is the beneficiary, it must be reasonably definite and the trustee may exercise discretion in selecting members to be benefited.

UTC: Settlor may empower trusteed to select from an indefinite class. If they do not do this, there will be a resulting trust in favor of the settlor/successors

Question 37

What happens when a trust fails for lack of a beneficiary?

Answer 37

a resulting trust in favor of the settlor/successors

Question 38

What happens if the trust has no res?

Answer 38

The trust fails

Question 39

Can a future interest be held in trust?

Answer 39

Yes, but not an interest not yet in existence/mere expectancy

Question 40

What property can be subject to trust?

Answer 40

Existing property the settlor has the power to convey, including intangibles in which the settlor has an assignable interest. It can be a fractional or undivided interest in specific property.

Question 41

What must be done with the trust property?

Answer 41

It must be identifiable and segregated.

Question 42

Can a debtor hold their own debt in trust?

Answer 42

No, but can declare themself trustee of a particular property from which the debt is to be paid or be held in trust by another person

Question 43

Can an unenforceable gratuitous promise be the subject of a trust?

Answer 43

No

Question 44

Is notice and acceptance by the beneficiary necessary to validity of the trust?

Answer 44

Notice is not essential, though can be proof of absence of intent to form a trust. Acceptance is required but can take place after creation and be express or implied. It is generally presumed.

Question 45

When is a trust purpose invalid?

Answer 45

If illegal, contrary to public policy, impossible to achieve, intended to defraud settlor’s creditors, or based on illegal consideration

Question 46

When is a trust purpose contrary to public policy?

Answer 46

If the purpose of the trust is to induce others to engage in criminal/tortious acts, encourage immorality, induce someone to neglect parental, familial or civic duties

Question 47

What happens if a condition attached to an interest violates public policy?

Answer 47

(1) settlor’s alternative desire controls if expressed
(2) an illegal condition subsequent will be invalidated but the trust held valid
(3) an illegal condition precedent will be held valid unless the evidence exists that the settlor would want to void the interest altogether if the condition was unenforceable

Question 48

How may an express trust be created?

Answer 48

Inter vivos transfer, inter vivos declaration of trust, will (testamentary trust)

Question 49

How is an inter vivos trust created?

Answer 49

Either by a person declaring himself trustee for another or by the transfer of property to another as trustee. The present intent is manifested by either the conduct (delivery) or words (declaration of oneself as trustee). Delivery places the property out of settlor’s control unless the settlor is the trustee.

Question 50

In an inter vivos trust is created, when must intent be manifested?

Answer 50

If there is not yet a trust res, the trust will arise when the settlor subsequently acquires it and remanifests the intent

Question 51

Are writings required for trusts?

Answer 51

Not usually for personal property but under the statute of frauds, a trust for land must be evidenced by a writing signed by the person entitled to put the property in trust.

Question 52

What level of proof establishes an oral trust?

Answer 52

clear and convincing evidence

Question 53

What are the formal requirements of testamentary trusts?

Answer 53

The trust intent and essential terms (res, beneficiary, purpose) must be ascertained from the will, a writing incorporated by reference or the exercise of a power of appointment created by a will

Question 54

What is a secret trust?

Answer 54

Where a will makes a gift absolute on its face but actually in reliance on the beneficiary’s promise to hold it in trust for another, the intended beneficiary may present extrinsic evidence to prove the promise by clear and convincing evidence. A constructive trust will be formed.

Question 55

What is a semi-secret trust?

Answer 55

The will makes a gift in trust but fails to name the beneficiary. The gift will fail and the named trustee will hold the property in a resulting trust for the testator’s heirs. (No extrinsic evidence allowed in to save the gift)