Express Private Trusts Flashcards
What are the elements needed for an express trust?
(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
What capacity must the trust settlor have?
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.
What is the settlor’s intent requirement?
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.
Is a written manifestation of settlor’s intent required?
No, unless the statute of wills or statute of frauds applies.
Do precatory expressions create a trust?
Precatory language (expressions of hope, wish or suggestion that property be used in a certain way) is rebuttably presumed not to create a trust.
What evidence overcomes the presumption that precatory language did not create a trust?
(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
Does a trust require consideration?
No
Is an oral trust of personal property valid?
Yes
Once made will a trust fail if the trustee dies, resigns or refuses the appointment?
No. The court will appoint a successor unless it was clear that the trust only continued as long as a particular trustee served.
How does a person accept a trusteeship?
(1) substantial compliance with the agreement’s acceptance terms
(2) accepting delivery as trust property, exercising powers, performing duties or indicating acceptance
Must a trustee have duties?
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.
What are the qualifications of a trustee?
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)
What is a trustee entitled to?
Reasonable compensation or compensation specified in the trust instrument. Reimbursement of expenses of administration.
When can a court remove a trustee?
On its own motion or on the motion of the settlor, beneficiary or co-trustee
What are grounds for a trustee’s removal?
(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
When is a trusteeship presumed rejected?
If not accepted in a reasonable time
Can a designated trustee still act to preserve the property without accepting?
Yes, provided they send notice of rejection to the settlor or a qualified beneficiary
Can the trustee disclaim/refuse appointment?
Yes, prior to acceptance, but not partially
When may a trustee become liable on tort claims predating their acceptance?
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)
How may a trustee resign?
(1) giving 30 days notice to qualified beneficiaries, settlor and co-trustees, or
(2) obtaining court approval
What happens when one trustee succeeds another?
The successor succeeds to all rights, powers and privileges of the original and is subject to all the original’s duties, liabilities and responsibilities
What happens when the sole trustee is also the sole beneficiary?
The titles merge and the trust terminates
Why is a beneficiary necessary to a trust?
A trust cannot exist without someone to enforce it.
Exceptions: none needed for honorary or charitable trusts
Who is a qualified beneficiary?
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)
What capacity is required of a beneficiary?
Natural or artificial person capable of taking and holding title to property
Is anyone who benefits from a trust a beneficiary?
No – the trust must operate directly to their benefit
How can a beneficiary disclaim an instrument?
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)
If a beneficiary makes a valid disclaimer, what is the consequence?
The trust is read as though the disclaiming was deceased as of that date
When must a disclaimer be made?
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.
When may a beneficiary be estopped from disclaiming a trust?
If they have exercised any dominion or control over the interest or accepted any benefits.
Can a disclaimer defeat creditor claims?
Yes, but not federal tax liens
What is the application of anti-lapse statutes to trusts?
Anti-lapse statues only apply to wills in most states but several states and the UPC apply them to future interests created in trusts.
What is the effect of divorce or annulments on beneficial gifts and fiduciary appointments to the former spouse?
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.
What does a private trust require about beneficiaries that is not true for charitable trusts?
That they be definite.
May unascertained beneficiaries still be definite?
Yes, but they must be ascertainable by the time their
How does the definite beneficiary requirement apply to class trusts?
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
What happens when a trust fails for lack of a beneficiary?
a resulting trust in favor of the settlor/successors
What happens if the trust has no res?
The trust fails
Can a future interest be held in trust?
Yes, but not an interest not yet in existence/mere expectancy
What property can be subject to trust?
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.
What must be done with the trust property?
It must be identifiable and segregated.
Can a debtor hold their own debt in trust?
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
Can an unenforceable gratuitous promise be the subject of a trust?
No
Is notice and acceptance by the beneficiary necessary to validity of the trust?
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.
When is a trust purpose invalid?
If illegal, contrary to public policy, impossible to achieve, intended to defraud settlor’s creditors, or based on illegal consideration
When is a trust purpose contrary to public policy?
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
What happens if a condition attached to an interest violates public policy?
(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
How may an express trust be created?
Inter vivos transfer, inter vivos declaration of trust, will (testamentary trust)
How is an inter vivos trust created?
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.
In an inter vivos trust is created, when must intent be manifested?
If there is not yet a trust res, the trust will arise when the settlor subsequently acquires it and remanifests the intent
Are writings required for trusts?
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.
What level of proof establishes an oral trust?
clear and convincing evidence
What are the formal requirements of testamentary trusts?
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
What is a secret trust?
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.
What is a semi-secret trust?
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)
