Flash Card - Trusts
What are the elements to form a valid Trust?
1) Definitive beneficiary;
2) Settlor with capacity;
3) Intent to create a trust;
4) Trustee;
5) Valid trust purpose;
6) Trust property (the res); AND
7) Compliance with any State formalities.
*A trust will NOT fail solely because the appointed trustee dies, is removed, or refuses to act as trustee. The court will appoint a new trustee.
What are the majority and minority views for a Trust’s revocability?
Majority View & UTC: Trusts ARE revocable, unless stated otherwise.
Minority View: Trusts are irrevocable by default, unless expressly stated otherwise. (Trust cannot be modified or revoked after creation).
Testamentary Trust
vs.
Inter Vivos Trust
Testamentary: A Trust created through the provisions of a Settlor’s Will, which does not take effect until the Settlor’s death.
Inter Vivos: A trust created during the settlor’s lifetime
What is a Charitable Trust?
One created by a Settlor to confer a substantial benefit to society (charitable purpose).
(The rule against perpetuities DOES NOT apply here)
Even if a Charitable Trust fails to state a specific purpose or beneficiary, the trust will NOT fail. Instead, the court will select a purpose/beneficiary consistent with the Settlor’s intent.
What is a Discretionary Trust?
When a Trustee has absolute discretion and power to determine when and how much of the trust property is distributed to the beneficiaries.
The exercise of discretion must be in good faith.
What is a Resulting Trust?
When does it arise?
A trust implied by law based upon the presumed intent of the parties. It may arise when:
a) A private express trust has NO beneficiary or is missing a provision concerning the handling of trust property;
b) A charitable trust ends because of impossibility or impartibility;
c) A purchase money resulting trust; OR
d) A semi-secret trust.
What is the Cy Pres Doctrine, and when will courts apply it?
An equitable doctrine that applies to charitable bequests and charitable trusts.
Courts will apply it to modify a Charitable Trust to be consistent with and “as near as possible” with the settlor’s or testator’s
intent (if the purpose of the trust or bequest is frustrated).
*Only applies if the testator had a general charitable intent.
What is a Spendthrift Provision?
When is it valid?
A provision that prevents the transfer of a beneficiary’s interest, and it is valid ONLY IF it restrains both voluntary AND involuntary transfers.
*A spendthrift interest means that the interest CANNOT be sold or assigned by the income beneficiary, nor may any creditors reach it.
What are the 5 Exceptions allowing a creditor to reach a beneficiary’s income interest despite a Spendthrift Provision?
1) A judgment creditor who has provided services for the protection of a beneficiary’s interest;
2) A creditor who furnishes necessities;
3) An Order for child support or alimony;
4) Any claim by the state/federal government; OR
5) A self-settled trust where the settlor retains an interest.
*Spendthrift Trusts DO NOT provide protection for mandatory distributions of trust property.
When may a trust be modified by the Settlor?
It can be modified by the Settlor:
a) Who expressly reserved the power to modify the trust; OR
b) Who has power to revoke the trust (including power to amend).
When may an Irrevocable Trust be terminated?
a) The settlor and all of the beneficiaries agree to do so while the settlor is still alive;
b) All of the beneficiaries agree, and it will not frustrate the purpose of the trust; OR
c) By operation of law through merger (trustee is sole beneficiary) or passive trust (all trust property has been transferred to the beneficiary).
How may a Revocable Trust be revoked?
a) Compliance with any method of revocation provided in the trust instrument; OR
b) If the instrument doesn’t provide a method, then the trust can be revoked by a writing signed by the settlor and delivered to the trustee during the lifetime of the settlor.
What does the Duty of Care require of the Trustee?
To manage the trust as a reasonably prudent person would in his own dealings.
What does the Duty of Loyalty require of the Trustee?
1) To refrain from self-dealing;
2) Administer the trust in the best interest of the beneficiaries; AND
3) Give the same care and deference to each beneficiary.
How is a Trustee given powers?
Their powers can be expressly granted in the trust OR implied.
*A Trustee has a duty to distribute the trust income and assets in accordance with the directions in the trust instrument.
