Express Trusts

Question 1

What is an express trust?

Answer 1

A fiduciary relationship with respect to property which arises as a manifestation by the settlor of an intention to create the relationship and which subjects the person holding title to the property to equitable duties to deal with the property for the benefit of another person.

Question 2

Creating the trust:

Answer 2

The owner of the property may create a trust by transferring that property in a unique fashion.

The owner must divide the title to the property into legal and equitable interest

The owner must impose fiduciary duties on the holder of the legal title to deal with the property for the benefit of the holder of equitable title. Once the owner transfers property in this manner, the property is usually referred to as the trust principal.

Question 3

Essential elements of a trust

Answer 3

1. Trust intent
2. Capacity
3. SOF compliance
4. Purpose of trust
5. Property
6. Trustee
7. Beneficiary
8. cannot violate RAP

Question 4

Trust property

Answer 4

Any type of property, whether real, tangible or intangible, legal, or equitable, including property held in any digital or electronic medium.

The term also includes choses in action, claims, and contract rights, including a contractual right to receive death benefits as designated beneficiary under a policy of insurance, contract, employees’ trust, retirement account, or other arrangement.

No trust eists until it has property and a trust terminates when no property remains!

Question 5

“Terms of the trust” means

Answer 5

the manifestation of intention of the settlor with respect to the trust expressed in a manner that admits of its proof in judicial proceedings.

Question 6

Honorary/purpose trust.

Answer 6

Not private express trusts because they lack identifiable beneficiary. An honorary trust is a gift that the donor intends to benefit a nonhuman, noncharitable purpose.

Even though there is not an identifiable beneficiary, common law allows to be carried out if the purpose is:
Not contrary to public policy
Can be carried out during the rule against perpetuities
Amount set aside is reasonable for the purpose
Designated trustee is willing to accept

Question 7

Charitable Trusts

Answer 7

Some are private express trusts.

Charitable trust is established for the benefit of the community as a whole or for a relatively large segment of the community.

NOT subject to RAP. Charitable trusts can last forever.

Question 8

Cy Pres

Answer 8

Courts can apply the cy pres doctrine once the purpose is fulfilled to create for a substitute beneficiary that still carries out the purpose of the trust.

Does NOT apply in a private trust, instead heirs will ask for a resulting trust.

Question 9

Trustee

Answer 9

The trustee holds legal title to trust property and is bound by a plethora of fiduciary duties to deal with that property ofr the benefit of the beneficiaries.

Question 10

What does it take to be a trustee?

Answer 10

Capacity: GAP: needs the ability to take, hold, and transfer title to the trust property, Must be of legal age (typically 18), and competent.

Acceptance: NOT assumed. Must take affirmative steps (signing written acceptance, complying with method of acceptance in the trust document, or implied by conduct.

Qualification: No formal qualification is required for trustees (no formal oath of office or bond required)

Question 11

What if there are multiple trutees?

Answer 11

Majority of the trustees needed before taking any action. TX rule, but probably not GAP yet.
If only 2 trustees, then need to act jointly.

Question 12

Successor trustees:

Answer 12

Three ways to determine who succeeds:
1. Settlor leaves directions in a well drafted document
2. The statute determines who succeeds
3. If statute does not fill, court will appoint a successor to ensure that the trust continues.

Question 13

Resignation of a trustee:

Answer 13

General rule: Once the trustee accepts, they cannot resign unless the settlor provided for a method of resignation in the document and the trustee follows that procedure.

If not method is provided, the trustee must go to the court, file an accounting, and then the court may appoint a successor.

Question 14

Removal of a trustee:

Answer 14

Beneficiaries have standing, if the trustee commits a serious breach to ask the court to remove the trustee

A trustee may be removed according to the terms of the trust instrument, or on the petition of an interested person after hearing, a court may remove a trustee and deny part or all of the trustee’s compensation

Question 15

Effect of the trustee holding legal title

Answer 15

The trustee and those claiming through the trustee have no claim to the property.

Trustee’s personal creditor cannot look to the trust property to satisfy a claim.

The trust property does not pass through intestacy or under trustee’s will.

Question 16

What is an active trust?

Answer 16

A trust with a purpose!

Question 17

What is a passive trust?

Answer 17

A trust with no purpose is a passive trust. There must be a purpose for the creation of the relationship. Not enough to separate title.

Passive trusts vest in the grantee!
1. If real property, an automatic merger of legal and equitable title
2. If personal property, no automatic merger, person with equitable title must take steps.

Question 18

Dividing equitable title among multiple beneficiaries. Two lines:

Answer 18

First, several beneficiaries may hold concurrent interests so that each is presently eligible for trust distributions

Second, the beneficiaries may hold successive interests.

Question 19

Constructive Trust

Answer 19

A constructive trust is an equitable remedy used when a party has been unjustly enriched, and the law does not provide a remedy

It is a judicially created concept for the limited purpose of getting property to the rightful owner.

Question 20

Resulting Trust

Answer 20

A resulting trust is used when an express trust fails because the trust does not have a valid purpose or beneficiary.

Question 21

Two types of express trusts:

Answer 21

Inter vivos
Testamentary trusts

Question 22

Three methods of creating trusts

Answer 22

Inter vivos declaration of trust
Inter vivos transfer in trust
Testamentary trusts

Question 23

Inter vivos declaration of trust:

Answer 23

A property owner’s declaration that the owner holds the property as trustee for another person

The settlor declares himself to be the trustee of specific property and then transfers all or some of the equitable title to the beneficiaries

Question 24

Inter vivos transfer in trust:

Answer 24

The property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person

The settlor transfers legal title to another person as trustee and names the beneficiaries who receive equitable title.
The settlor could retain equitable title for himself as long as he is not the only equitable title holder.

Requires transfer of legal title
Real property → Deed that satisfies SOF

Question 25

Testamentary trusts

Answer 25

A property owner’s testamentary transfer to another person as trustee for a third person

Law of wills controls!!

Must have a valid will admitted to probate and the will must create the trust within the 4 corners. The trust is not automatically valid just because the will is admitted to probate.

Question 26

Statute of frauds as applied to testamentary trusts

Answer 26

NO SOF because using the law of wills.

If not in the language of the will, no express trust.

Question 27

Statute of frauds as applied to inter vivos trusts

Answer 27

An inter vivos trust in either real or personal property is enforceable only if there is written evidence of the trust’s terms bearing the signature of the settlor or the settlor’s authorized agent.

A trust consisting of personal property, however, is enforceable if created by:
(1) a transfer of the trust property to a trustee who is neither settlor nor beneficiary if the transferor expresses simultaneously with or prior to the transfer the intention to create a trust; or
(2) a declaration in writing by the owner of property that the owner holds the property as trustee for another person or for the owner and another person as a beneficiary.

Question 28

Pour-over provisions

Answer 28

Probate asset pours over after administration to the trustee to the pour over trust, which was created inter vivos.

Pourover still does not name the beneficiary, but now there is a reference to a writing. Don’t have to worry about incorporation, although similar concept.

Most states (including TX) no longer requires that the trust be funded prior to the testator’s death as long as the trust is adequately identified and set forth in a written instrument.