FL TRUSTS Flashcards
Trust
An arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries. The trustee has burdens and the beneficiaries, who hold equitable title, have benefits of property ownership. The trustee is subject to fiduciary standards - they are not privileged to use trust property as their own.
Express Private Trust Elements
- A settlor (creator) with capacity to convey
- a trustee
- Delivery of specific trust property
- Definite Beneficiaries
- A present intent to create a trust
- A valid trust purpose
Self Declaration of Trust
Settlor declares themselves trustee of own property for the benefits of others. No delivery requirement.
Testamentary Trust
A testamentary trust is a trust made during the settlors lifetime through their will and is effective at death. A testamentary trust will not fail for want of trustee and must comply with the Statute of Wills.
Trust Creation
- A inter vivos trust may be created by declaration of trust by a property owner, stating that he holds the property as trustee in trust (self declaration trust)
- An intervivos trust may be also created by transfer of property by the settlor during his lifetime (delivery)
- A testamentary trust is created by will.
Intention to Create a Trust
The settlor’s manifestation of intention to create a trust is essential to the existence of an express trust. This intention may be manifested by written or spoken words or by conduct and no particular language is needed. The intention to create a trust must have been manifested by the settlor at the time they owned the trust property and prior conveyance to another.
Precatory Expressions
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that these do not create trusts. The inference can be overcome when
1. Directions are definite and precise
2. Directions are addressed to executor or administrator
3. Failure to impose trust results in unnatural disposition
4. Extrinsic evidence shows that the transferor had been supporting the alleged beneficiary prior to executing the instrument and beneficiary wouldn’t have sufficient support without trust
Trust Purpose
A trust may be created for any purpose that isn’t illegal, contrary to public policy, or impossible to achieve.
Condition attached against public policy
If condition attached is against public policy
- The settlor’s alternative desire controls if expressed
- If a condition subsequent, the condition invalidated but not the trust
- If condition precedent, preferred view is to hold the interest valid unless evidence that the settlor’s wish would be to void the benficiary’s interest altogether if the condition is unenforceable
Trust Property
Trust property must be certain and identifiable. Where there is no specific property, there is no trust. The trust res must be sitting property that the settlor has the power to convey. Debtor cannot hold own debt in trust but can declare himself trustee of particular property from which the debt is to be paid.
Unenforceable Gratuitous Promise Cannot be Res
An unenforceable gratuitous promise can not be the subject of a trust. Where a promise to create a trust isn’t supported by consideration (gratuitous), a trust arises when all elements of a valid trust have been met if, but only if, at that subsequent time the settlor manifests an intention then to create the trust by word or conduct.
Promise Supported by Consideration
When a promise is supported by consideration, a trust attaches automatically when the property is received.
Does a legatee have a property interest that can be held in trust?
Yes
When otherwise empty trust valid
Trust is named as beneficiary of
- life insurance policy
- pension plan death benefit
- gift under settlor’s will
Beneficiaries in Private trust vs Charitable trust
A private trust must have ascertainable beneficiaries and a charitable trust must benefit reasonable large and unidentifiable segment of public
Unascertained Beneficiaries
Beneficiaries need not be identified at the time a trust is created, but they must be susceptible of identification by the time their interests are to come into enjoyment.
Can a trust invalid for want of definite beneficiaries by given effect as a power of appointment?
No under traditional rule but YES under FL
Class Gifts
A private trust may exist for the benefit of members of a class as long as the class is reasonable definite, it is permissible that the members of the class are to be selected by the trustee in their discretion, or that the property is to be held for such members of the class as the trustee finds meet certain requirements.
Unborn Beneficiaries
Beneficiaries need not be alive, they just must be described so that we will know who they are when they are born. Guardian ad litem enforces the trust. No beneficiaries born means that property is returned to settlor by resulting trust
Honorary Trusts
An honorary trust is one without beneficiaries who can enforce the trust, such as a trust for the care of pets. Valid for lifetime of animals. Leftover money returns to settlor by resulting trust.
Pour over Clause
Clause in will that leaves property at the settlor’s death to previously created trust.
Beneficiary as trustee
Sole beneficiary cannot be sole trustee. Beneficiary can be trustee if multiple trustees OR multiple beneficiaries.
Revocable Trusts
Settlor retains right to revoke, alter, or amend the trust. Valid because interest passes to the beneficiaries during the settlor’s lifetime, it merely becomes possessory on settlor’s death. Must comply with formal requirements for making a will. Assets in a revocable trust are reachable by creditors unless there is a spendthrift provision.
Florida Pour Over Requirements
Gift to trust identified in will
Trust instrument executed before or concurrently with will.
Trust executed with formalities required of will.
Totten Trust
Revocable during life by an intent to revoke. Reachable by depositors creditors. Can be revoked by will, withdrawal of funds, any life time act manifesting the intent to revoke.
A bank account depositor declares himself trustee of the account for a person who is to receive the money in the account at the time of the depositor’s death.
Irrevocable Oral Trusts
Irrevocable oral trusts of personal property are enforceable. Trusts containing land must be evidence by a writing that satisfied the SOF. Oral trusts may be established only by clear and convincing evidence.
Oral Promises
Irrevocable trusts of personal property are enforceable; trusts containing land must be evidenced by a writing that satisfies the SOF. oral trusts may be proven by clear and convincing evidence.
Testamentary Trusts
Secret and Semi Secret Trusts
Secret Trust
Where a will makes a gift that is absolute on its face but was in fact made in reliance on the Bs promise to hold the property in trust for another, the intended trust B may present extrinsic evidence of the promise. Clear and convincing evidence. Constructive trust is imposed.
Semi Secret Trust
In a semi secret trust, the will makes a gift in trust but fails to name the B. The fight fails, and the named trustee holds the property on a resulting trust for the T’s heirs.
Distinctive Rules Apply to Charitable Trusts
Charitable trusts are not subject to RAP or Rule Against Accumulations. It may be perpetual, must be for charitable purpose, must have indefinite beneficiaries, and the cy pres doctrine applies. Suit to enforce can be brought by the settlor, a qualified beneficiary, or the atty general.
Charitable Purposes
Religion, medicine, science, govt, research, education, and advancement of the humanities.
Beneficiaries must be indefinite (Charitable Trusts)
The permissible recipient are unnamed and a changing class. Broad enough that society sees a benefit of keeping the trust around.
Cy Pres
Court reforms trust to purpose as near as possible to original when original purpose is no longer valid. The court must determine the settlor’s primary purpose, although the settlor’s other purposes are taken into consideration. If the settlor intended to limit gift to particular charity or purpose, then the trust terminates. If the settlor had a general charitable intent, apply cy pres to reform trust..
Voluntary Assignment of Trust Interests
Absent restrictions by statute or by trust instrument, a B may freely transfer their interest in the trust. The assigned interest remains subject to all previous conditions and limitations.
Involuntary Transfer of Trust Interests - Rights of Creditors
Absent restrictions by statute or trust instrument, an insolvent trust B’s creditors may levy on his beneficial interest.
Spendthrift Trust
A spendthrift trust is one in which the B is unable to voluntarily or involuntarily to transfer their interest in the trust, which. Means their creditors are precluded from reaching it to satisfy their claims. The purpose is to protect the B from their own improvidence. Although a restraint on alienation, most courts uphold and are valid and enforceable in FL.
Rights of Creditors under Spendthrift trust
A B’s creditors cannot reach the trust interest until income has been paid to the B.
Exceptions to Spendthrift Protection
Creditors of the settlor who is the beneficiary, Claims by ex-spouse for alimony, claim by child for child support, judgment claims.
Discretionary Trusts
If the trustee has discretion to pay all or so much of the income and/or principal to or for the benefit of the B, the B doesn’t have any right to the income until the trustee exercises his power. Trustee has duty to support B from income if B cannot support themselves. Trustee may take into account B’s other resources.
Pure Discretionary Trust
No standard of support. B’s only right is to have an honest trustee who acts in GF.
Creditors and Pure Discretionary Trusts
Creditors cannot force distribution. For support obligations, although they can’t compel distribution, they can get a court garnishment of future distributions to the B to be paid directly to the child or spouse in payment of the Bs support obligations.
Are spendthrift clauses enforceable in trusts created for the settlor’s benefit?
NO
When Trust Assets Can Be Reached by Settlor’s Creditors
- trust is revocable or
- trustee has discretionary authority to make distributions to settlor
Settlor’s Creditors in irrevocable trusts for 3rd persons
Can’’t do anything unless the trust was made to defeat known creditors. Can be set aside fraudulent transfers
Duty of Loyalty by Trustee
Trustee cannot
- buy or sell trusts assets
- borrow trust funds
- sell assets from one trust to another
- engage in transaction in which trustee or close family member seeks personal gain
- corporate trustee cannot invest in its own stock (but can retain its own stock if originally part of the trust when trust was established)
- make discretionary distributions to themselves
- use trust assets to secure personal loan
Prudent Investor Rule
Must adhere to a standard of reasonable care, skill, and caution in making investment decisions.
- duty not to commingle
- duty to balance return w/ potential risk
- duty to diversify investments
- duty to keep trust productive
Must manage as a prudent investor would considering the purposes, terms, distribution requirements and other circumstances.
Portfolio View
Investment decisions evaluated in context of entire trust portfolio and as part of overall investment strategy.
Common Trust Funds
A trustee may invest in common trust funds. These are accounts created by corporate trust companies where several smaller trust are combined for purposes of investment.
Other Trustee Duties
Duty to preserve and protect trust property (insure assets)
Duty of Impartiality (Be fair and impartial to all Bs)
Duty to account and inform
Trustee Powers (joint powers)
Trustees may act by majority (if co-trustees). Need to replace trustee only if the instrument requires.
B’s Options after breach by Trustee
- Ratify transaction and waive breach
- sue for resulting loss in a surcharge action
- In self dealing cases: (a) trace and recover property for trust (b) affirm the transaction or (c) set aside the transaction.
Exculpating Clause
A clause relieving Trustee of liability is unenforceable if it (a) relieves trustee of liability for reckless indifference or BF action or intentional misconduct (b) was drafted by trustee and settlor not represented by independent counsel
Tort Liability (Trustee to 3rd Parties)
Traditionally, trustee personally liable on all torts of self and agents.
UTC rule, trustee personally liable only if trustee personally at fault.
Liability in Contract (Trustee)
Traditional rule is trustee is personally liable on contracts unless stipulation in contract.
UTC states trustee personally liable only if trustee failed to reveal her representative capacity.
Each breach judged separately.
Delegating Investment Decisions
A trustee must exercise reasonable care, skill, and caution in (1) selecting an agent (2) establishing the scope and terms of the delegation and 93) periodically reviewing the agent’s actions.
If trust is revocable, who do they owe duties to?
Only to the settlor. Bs may not sue the trustee
Trust Accounting
Income beneficiaries receive accounting periodically, remainderman get corpus at the termination of the trust. Thus items of receipts and expenditures must be allocated to the correct account (income or corpus)
Receipts
Income = interest, rent, dividends paid in case, 10% of annuity or mineral royalty
Principal = sale proceeds, stock splits, dividends paid in stock
Expenditures
Income = ordinary expenses (repairs, interest, income tax)
Principal = extraordinary items, capital improvements, income taxes on sale of property
Termination of the Trust
A trust will terminate automatically upon the expiration of the term specified in the instrument or when all of the purposes of the trust have been accomplished or have become unlawful, contrary to public policing, or impossible to achieve.
Modification of Trust by Court
A court can modify or terminate a trust if
- not inconsistent w/ settlor’s intent or
- modification or termination is in best interest of Bs, even if it interferes with material purpose of the settlor
Preventing modification
Settlor can prevent modification if inconsistent w/ intent if
- trust complies w/ common law or 90 year RAP (not 1000 year)
- trust instrument specifically prohibits j judicial modification
Resulting Trusts
If an express trust fails in whole or in part or terminates by its own terms, a resulting trust may arise wherein the trust property results back to the estate of the settlor and passes by will, or if the settlor passes intestate, it devises according to the FL statutory formula.
Types of Resulting Trust
(1) resulting trusts arising on failure of an express trust
(2) resulting trust arising from incomplete disposition of trust assets (excess corpus)
(3) purchase money resulting trust
Purchase Money Resulting Trust
A purchase money resulting trust may arise if one person pays the proceeds for property that is then titled in the name of another person who is not closely related. For example, Steve purchases real property for $800k but the deed reflects Cathy as the owner. If there is a close family relationship between Steve and Cathy, it is presumed the grantee holds title outright. If there is no close family relationship, the grantee (Cathy) is presumed to be holding the real property in a resulting trust for the purchaser (Steve). In both cases, the presumption is rebuttable by competent written or oral extrinsic evidence.
Sale or Exchange from Trustee to BFP
A sale or exchange by a trustee of a resulting or constructive trust to a BFP for value cuts off the Bs rights to the transferred asset. But, the trustee holds any consideration received in trust for the B and if the sale is not to a BFP, the beneficiary has a choice
1. Impose trust on consideration received by T or
2. Impose trust on the original asset in the non BFPs hands
Power of Appointment
A power of appointment is the authority created in a person (donee) to designate, within the limits prescribed by the creator of the power (donor) the persons who will take certain property and the manner in which they will take. To exercise, will must reference power of appointment. if instrument requires specific reference to power, will must specifically reference power when devising.
General Power of appointment
Donee can appoint in favor of herself, her estate, her creditors, or estate’s creditors.
Special power of Appointment
Exercisable in favor of a specified class of persons that does not include, donee, her estate, her creditors, or the creditors of her estate.
Testamentary power
Donee is limited to appointment by will
Takers in Default (Power of Appointment)
Those who take if power is not exercised
Inter Vivos Trust
An inter vivos trust, which is created during the settlor’s lifetime, is created in favor of a third party. The settlor must deliver the property to the trustee, unless the settlor is the trustee (no need to “transfer” trust property to himself if he names himself).
FL presumption of type of trust
In Florida, unless expressly stated in the trust instrument that it is irrevocable, a trust is presumed revocable.
Mixed Charitable and Non-Charitable trust
A trust may be a ‘mixed trust’ if its Bs are both charitable and non-charitable. If the charitable beneficiaries cannot be separated from the non-charitable beneficiaries, the entire trust is treated as a private trust. The rules for charitable trusts may be applied to the charitable beneficiaries if it is possible to identify the portion of the trust res to be applied to charitable purposes, or the time period during which the res is to be applied to charitable purposes.
Can a trustee grant a lease on the property that may extend past the term of the trust?
Yes. Generally, a Trustee has fee simple ownership with regard to the property.
After the death of the settlor, how can a irrevocable trust be amended or terminated?
By unanimous agreement among the trustee and qualified beneficiaries
