FL Trusts Flashcards
List characterists of the Uniform Transfers to Minors Act:
- avoids need for appointment of guardian for minor
- permits gifts of any type of property
- qualifies for a $14k annual exclusion under the federal gift tax
- automatically gives custodian the power to pay for the minors benefit so much of the property & its income as the custodian deems advisable for minors support & education
An exculpatory clause CANNOT relieve a trustee from liability for what?
- bad faith
- intentional breach of trust
- reckless indfference to purposes of trust
When can a beneficiary terminate or modify a trust?
- after settlors death
- beneficiaries unanimously consent to trustee
What are the categories of trusts?
1 - Express
- private
- charitable
2 - Implied (NOT true trusts - remedies)
- resulting
- constructive
What is a trust?
an arrangement under which the trustee holds legal title to property for the benefit of the beneficiaries
What are the elements of an express trust?
- a settlor (creator) w/ capacity to convey
- a trustee
- delivery of specific trust property to trustee
- definite beneficiaries
- present intent to create trust
- valid trust purpose
Consideration NOT required
What are the general ways a trust is created?
1 - Intervivos Trust
- created by transfer of property by the settlor during his lifetime; OR
- created by a declaration of trust by a property owner, stating he holds property as trustee in trust
2 - Testamentary Trust
- created by will
What is the intent needed to create a trust?
Intent to put legal title to property in one persons name with a duty to manage it for others
What provisions in a trust would violate public policy?
- prevent marriage
- encourage divorce
- encourage crime
- restrain right to procreate
- restrain right to practice religion
What is the rule against perpetuities when dealing with trusts?
A nonvested property interest in trust is valid if:
1. when interest is created it is certain to vest or terminate within 21 years after the death of a life in being; OR
2. interest actually vests or terminates within 360 years of the trusts creation
What happens when there is no specific identifiable trust property?
The corpus, the principal, or subject matter of trust
- specific interest in property to which trustees duties relate to
if no specific, identifiable trust property, trust FAILS
How does a trust arise, when a promise to create a trust isn’t supported by consideration?
- all elements for a valid trust are met
- at a subsequent time, settlor manifests an intention to create a trust
supported by consideration, trust automatic attaches when prop received
What happens if no trustee is named for trust?
Court will APPOINT a suitable trustee
What MUST a private trust have?
Ascertainable beneficiaries
When do beneficiaries need to be ascertained?
By the time their interests are to come into enjoyment
need not be ID’d at the time trust is created
When can a private trust exist for the benefit of members of a class?
When class is a REASONABLY DEFINITE one
trustee can select members in their discretion
What happens when a trust fails for lack of a beneficiary?
A resulting trust (remedy) in favor of the settlor or successors is presumed
What is the test for distinguishing a trust from a will?
Whether the transfer creates some present gift, even if that gift is of a future interest subject to divestment
Will placing property in a revocable trust protect it from a spouses elective share?
NO!
elective share includes revocable trusts
Explain the rules on beneficiaries being trustees
1 - Sole beneficiary CANNOT be sole trustee
2 - Beneficiary can be trustee, IF:
1. multiple beneficiaries; OR
2. multiple trustees
When are provisions of a trust, which control where the property goes after settlors death, effective?
When executed in the manner required for a will
What is a pour-over clause?
A clause in a will that leaves property at settlors death to previously created trust
When are pour-over clauses valid?
- gift to trust identified in will
- trust instrument executed before or with will
- trust executed with formalities of will
What is a Totten trust?
A totten trust is a trust where:
- 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 depositrs death
When & how is a Totten trust revocable?
When –> during life
How –> By any manifestations of intent to revoke
- withdrawl of funds
- any lifetime act manifesting intent
- a specific contradictory provision in a will
Does a Totten trust protect the funds in the account from creditors?
NO!
Are irrevocable oral trusts of personal property enforceable?
Burden?
YES!
Must be proven by clear & convincing evidence
Are irrevocable trusts of land enforceable?
NO!
may be enforced by imposing a constructive trust
What are the formalities for a Testamentary Trust?
Trust intent & essential terms must be ascertained from:
- will itself
- a writing incorporated by reference
- the exercise of a power of appointment created by will
Explain the parol evidence rule & trusts
Extrinsic evidence ALLOWED
even if NOT ambiguous & to contradict
Explain the types of Testamentary Trusts
1 - Secret Trust
- where a will makes a gift that is absolute on its face, but was actually made in reliance on the beneficiary’s promise to hold property in trust for another
- intended trust beneficiary may present evidence
- CLEAR & CONVINCING? constructive trust imposed on property in favor of intended trust beneficiary
2 - Semi-Secret Trust
- will makes gift but fails to name beneficiary
- the gift will fail
- Result? trustee holds property on a resulting treust for testators heirs
Are charitable trusts subject to RAP?
NO!
What is required for a charitable trust?
- May be perpetual (RAP doesn’t apply)
- MUST be for a charitable purpose
- MUST have indefinite beneficiaries (unnamed & changing class)
Who can bring a suit to enforce a charitable trust?
- settlor
- qualified beneficiary
- attorney general
A charitable trust must have what type of purpose?
Must have a purpose considered to BENEFIT THE PUBLIC
- ex: religion, medicine, science, government, research, education, advancement of humanities
The Cy Pres doctrine applies to what types of trust?
Charitable trusts
When may the court apply the Cy Pres doctrine?
when the specific charitable purpose is accomplished or becomes impracticable, unlawful, impossible to achieve, or wasteful, the court will apply cy pres
if very specific court usually does a resulting trust
What does the Cy Pres doctrine allow the court to do?
Modify or terminate trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlors charitable purposes, rather than permit trust to fail & become a resulting trust
In forumulating an alternative use for the trust property, what will court do?
Court MUST determine the settlor’s primary purpose
Court will considr settlors other purposes too
What is the Related Doctrine of Equitable deviation?
By exercising its equitable power, the court can authorize equitable deviation from a trust provision because of unforseen changed circumstances that render provision obsolete or at odds with settlors intent (can modify administrative or dispositive terms)
applies to both caritable & private trusts
What are Honorary Trusts generally established for?
- benefit of pets
- care of gravesite
How long does an honorary trust last?
- for benefit of pet –> until the pet dies
- not for the benefit of pet –> less than or equal to 21 years
Can a beneficiary transfer their interest in a trust?
YES!
unless statute or trust say otherwise
Can a beneficiaries creditors buy on their trust interest?
YES! Interest is subject to judicial sale
- to avoid, court may order trustee to pay the beneficiaries income to the creditors, until debt is satisfied
When can a settlor’s creditors levy on property of a trust?
1 - Revocable Trust
- creditors may levy on property, to extent that such property, if owned directly by settlor, would not be exempt from creditors claims
2 - Irrevocable Trust
- creditor may reach distributions made for settlors benefit
What is a Spendthrift trust?
One which prohibits beneficiary’s from voluntarily or involuntarily conveying trust interest to 3rd party (creditors precluded from reaching to satisfy claims)
protects beneficiary from own improvidence (benevolence)
A Spendthirft clause CAN’T be used to protect the beneficiary from what?
- child support
- alimony
- government claims
What is a discretionary trust?
One that gives trustee discretion in making distributions
- beneficiary has NO right until distribution made
- creditors have no right to distribution - BUT if creditor (1) serves trustee w/ process then trustee must 1st satisfy creditors claim before exercising his power in favor of the beneficiary
In a discretionary trust, what can a party that is owed support obligation from a beneficiary do?
Child or spouse CAN’T compel distribution BUT they can get a court garnishment of future distribution
When can trust assets be reached by a settlor’s creditors?
- Trust revocable; OR
- trustee has discretionary authority to make distributions to settlor
What are the duties of a trustee?
- duty of loyalty
- duty to administer
- duty to follow prudent investment rule
- duty to preserve trust property + make it productive
- duty of impartiality
- duty to account & inform
- duty to enforce claims
Explain the trustees duty to administer
Fiduciary duty to:
1. administer trust prudently
2. administer trust in good faith
3. abide by terms & purpose of trust
4. administer in best interest of beneficiary
Explain the duty of loyalty
Trustees actions must ONLY be for interest of trust they CANNOT engage in self-dealing (even if favorable to beneficiary)
Self-dealing includes:
1. borrowing trust funds
2. buying or selling trust assets
3. personal loan
4. personal gain
5. personal distributions
personally liable for breach of trust under “surcharge”
Explain the Prudent Investor Rule
Uniform Prudent Investment Act
- trustee has a duty to act w/reasonable care, skill, & education in making investment decisions
- trustee MUST act exclusively for beneficiaries & impartially
Elements of rule:
1. duty NOT to commingle
2. duty to balance return w/ potential risk
3. duty to diversify investments
4. duty to keep trust productive
Explain the trustees duty to account & inform
Trustee has a duty to keep beneficiaries REASONABLY INFORMED about administration of trust
Trustee must:
1. provide qualified beneficiaries with their trustee name & address
2. notify beneficiaries that fiduciary attorney client privilege applies
3. respond to beneficiaries request for information about trust administration & provide copy of trust instrument if requested
4. if trust irrevocable, furnish an annual accounting
What powers can trustees exercise?
Those powers expressly or impliedly conferred
Powers include powers:
1. expressly conferred in trust
2. that an unmarried individual has over their own property
3. that are appropriate to achieve the proper investment, distribution, & management of trust property
4. that are conferred by trust code
If there are multiple trustees, what is the number of votes needed to act?
A majority
If there is a breach by trustee, what can beneficiary do?
- ratify transaction & waive breach
- sue in surcharge for loss
- self dealing case = trace & recover property for trust
What can acourt do if trustee breaches?
- enforce specific performance
- enjoin trustee
- compel trustee to pay money or restore property
- suspend trust
When won’t a trustee be liable to the beneficiary for a breach?
When beneficiary:
1. consented to conduct
2. released trustee from liability
3. ratified the transaction
OR
when trustee acted on reasonable reliance on trust terms
Can trustees be sued on contract or in Tort in representative capacity?
1 - Contract
- only liable if failed to reveal representative capacity & ID trust
2 - Tort
- only liable if personally at fault
if 3rd party sued trust, it can seek indemnification from trustee
Can a settlor modify or terminate trust?
Yes, a settlor acting alone, can revoke, terminate, or modify a trust
- UNLESS, terms express that trust is irrevocable
Can a court modify or terminate trust?
Yes, IF:
1. doing that is NOT inconsistent with settlor intent; OR
2. doing that is in best interest of beneficiaries
court can reform to reflect settlors intent if a mistake in terms is shown by CLEAR & CONVINCING EVIDENCE
Can a trustee terminate trust?
Yes, IF:
1. property is less than $50k
2. amount insufficient to justify costs of administration
3. notice given to beneficiaries (consent NOT required)
When does a trust automatically terminate?
- expiration of term in trust; OR
- when all purposes accomplished, become unlawful, contrary to public policy, or impossible to achieve
What is a resulting trust?
Equitable reverstion that arises via operation of law
Types:
1. arising on failure of express trust (implied)
2. arising from an incomplete disposition of trust assets (implied)
3. purchase money resulting trusts
What are typical circumstances where a resulting trust arises?
- trust is void or unenforceable
- beneficiary is dead or can’t be located
- failure of charitable trust where cy pres is inapplicable
What is a constructive trust?
Equitable remedy to prevent UNJUST ENRICHMENT resulting from wrongful conduct (fraud/misrepresentation)
-
Trustees only duty is to convey property to person who would have owned it but for wrongful conduct
What is the power of appointment?
Authority created in a person (donee) to designate the persons who will take certain property & the manner in which they will take
must designate w/in limits prescribed by creator of power (donor)
Explain the general & special powers of appointment
1 - General
- one exerciseable in favor of the donee herself, her estate, her creditors, or creditors of her estate
2 - Special
- one exerciseable in favor of a specified class of persons that does not include those in “general”
When does a general residuary clause in a will exercise testamentary power of appointment?
- when specific reference is made to power; OR
- some indication of intent to include the property subject to power
When can a charitable trust have ascertainable beneficiaries?
When the beneficiary is a specified charitable agency
Do general references to bank accounts in a will revoke a Totten Trust?
NO!
