Express Trusts Generally and Creation Of Flashcards
Private versus charitable trusts
(1) A private trust is one created for the benefit of certain designated individuals, clearly identified or capable of being identified under the terms of the trust.
(2) A charitable trust is one created for the benefit of an uncertain class or the public generally.
Other forms of property ownership and fiduciary relationships
Types of property ownership that are not trusts because legal and equitable title are held in the same person or because there is no trust property include:
(1) bailments
(2) debts
(3) third-party beneficiary contracts
(4) mortgages
(5) sales contracts.
Fiduciary relationships that are not trusts include:
(1) agency
(2) personal representative
(3) guardian
(4) custodian
Intent to Create a Trust
(1) Intent to split title: settlor must manifest an intent to split legal and equitable title in order to create an express trust.
a. No special language is required
b. Use of the term “trust” is not required and will not create a trust when title is not split.
(2) Precatory terms not sufficient: the words used to create a trust must create enforceable duties.
Capacity
A settlor must have capacity to create a trust. The creation of a revocable trust requires the same capacity as that for will formation.
The creation of an irrevocable trust likely has an even higher standard.
Statute of Limitation - Challenging a Revocable Trust
The UTC provides a statute of limitations for contesting the validity of a revocable trust: such contests must be brought within the earlier of one year after the settlor’s death or 60 days after the settlor gives notice of the trust.
Elements of a Trust
(1) Trust property (corpus/principal/res)
(2) One or more trustees
(3) One or more beneficiaries
Trust Property
(1) Trust property must be ascertainable
a. both tangible and intangible property may be the subject of a trust.
b. if property is non-transferable it may not be subject of a trust.
c. a mere expectancy is not property and cannot be the subject of a trust.
d. if an attempt to create a trust fails because the settlor does not yet own the intended trust property, but the settlor later acquires the property, the trust arises upon the subsequent acquisition ONLY if the settlor again manifests his intent to create a trust.
(2) Certain characteristics do not render property unascertainable: the fact that a property interest is revocable, terminable, fractional, indivisible, intangible, equitable, or subject to divestment or lapse does not make that interest unascertainable.
(3) Pour-over exception: the UTATA allows a person to devise assets at death to an inter vivos trust that is recognized as having been created during the lifetime of the testator, though no assets were put into the trust until the testator’s death.
Trustee
(1) Who can serve?
a. Individuals: an individual may serve as a trustee, provided he has sufficient mental capacity to deal with his own property.
b. Corporations
i. Only banks and trust companies have general
authority to serve as trustees
ii. Other business corporations may serve as
trustees if the trust purposes are germane to
the activities of the corporation
iii. Municipal corporations may act as trustees for
purposes municipal in nature
c. Associations: unincorporated associations may not take
title to property as trustees. An attempt to vest title in
an unincorporated association vests title in the
members of the association in trust.
(2) Trustee bond: A trustee is required to provide a bond only if the
trust instrument requires a bond or the court approves a bond at
the request of a beneficiary or on its own motion.
(3) Settlor as trustee:
a. A settlor can also be sole trustee of the property under
a declaration of trust
b. When one person is the only trustee and the only
beneficiary, legal title has merged, and no trust exists.
(4) Acceptance of trust by trustee: no trustee will be required to
serve without accepting the position.
(5) Resignation or removal of a trustee
a. Resignation
i. A trustee may resign
1. upon 30 days notice to the
beneficiaries, the settlor, and other
co-trustees; OR
2. with the approval of the court
ii. An effective resignation does not discharge a
trustee from liability for acts committed while
he was a trustee.
iii. When a trustee resigns, the former trustee
must deliver trust assets expeditiously to a cotrustee
or successor trustee.
b. Removal
i. A trustee may be removed by a court on its
own motion or upon a request by the settlor,
a co-trustee or a beneficiary.
ii. Grounds for removal include:
1. serious breach of trust
2. lack of cooperation with other cotrustees
so as to impair the trust
3. unfitness, unwillingness, or a
persistent failure to administer the
trust effectively.
c. Co-trustees: when there are individual co-trustees, the
surviving or remaining co-trustees continue to have the
power to perform the trust and succeed to all powers,
duties, and discretionary authority given to the cotrustees
jointly.
d. Successor trustee: when a vacancy occurs in a private
trust, a successor trustee is selected using the following
order of priority:
i. a person designated as successor trustee in
the trust
ii. a person selected unanimously by the
beneficiaries
iii. a person appointed by the court
Beneficiaries
(1) Ascertainability: The beneficiaries must be definite or
ascertainable within the period of the RAP.
a. Under the UTA, if an attempt is made to create a benefit
for an indefinite class of beneficiaries, the trustee may
be given power to select a beneficiary from the class.
(This power lapses if not exercised within a reasonable
time.)
b. Certain gifts will be enforced as honorary trusts (i.e., for
the care of pets).
(2) Death of beneficiary prior to settlor’s death: For revocable trusts
entered into after August 2002, if a beneficiary related to the
settlor dies before the settlor, the issue of the the beneficiary
takes in his or her place.
(3) Divorce of beneficiary of revocable trust: Upon a divorce, any
beneficial interest held by a spouse of the settlor under a
revocable trust is revoked and the interest treated as though the
spouse predeceased the settlor.
(4) Repudiation by beneficiary: a beneficia
