Flash Cards for Bar Courses - Trusts
Interests of Trustee & Beneficiary
Trustee: Holds legal interest– who has responsibiliyt of ownership
Beneficiary: holds equitable or beneficial interst, who recieves the benefits of ownership – has little to no control over the trust or the trust property
Settlor
The person who causes the trust to come into existence by suppluing the initial trust property
Initial Trust Property
Initial trust property is required for the trust to be effective. If a trust is executed but no trust property – the trust becomes effective when property is placed into trust
Express Trusts
Are createred by the express intention of the settlor.
Private- private beneficiaries
Charitable - charistable beneficiaries
Trusts created by Operation of Law
Resulting trusts- These trusts arise from the presumed intention of the owner of the property
- resulting trust on failure of express trust: i.e. trust is void, beneficiary is dead, or where cy pres is inappliable. In such events, the trust terminates and teh settlor becomes the benefiary of the resulting trust
Constructive Trusts - are an equitable remedy used to prevent unjust enrichment
- must be requested
- Requires particular property
Elements of a Valid Trust
- Intent
- Indentifiable Corpus (property)
- Ascertainable beneficiaries
- Proper Purpose
- Mechanics and formalities
Intent 5 elements
Express trust requirements are
1. a Settloer w/ capacity to convey
2. a present intent to create a trust relationship
3. competent trustee w/ duties
4. a definite beneficiary
5. the same person is not the sole trustee and sole beneficiary
Identifiable Corpus
Property must be ascertainable w/ certainty
- where there is no property, there is no trust
- trust property must be an existing interest in exisiting property
Ascertainable Beneficiares
Qualified Beneficiary: who on the date the beneficairy’s qualiification is determined is a 1) current beneficiary or (2) a first-line remainderman
Acceptance by beneficiary is req. but can take place after trust is created. Can be express, implied, and is generally presumed
Beneficiary can also disclaim an interest in a trust
Beneficiaries must be definite
Trust purpose
Generally, a trust may be created for any purpose unless it is:
1) illegal
2) contrary to public policy
3) impossible to acheve
4) intended to defraud settlor’s creditors based on illegal consideration
Acts contrary to public poliocy
If the turst is to induce other sto engaeg in criminal or tortious acts; encourage immorality; or induce a person to neglect paternal, familial, or civic duties
Trustee
A person accepts a trusteeship by
1) signing the tusrt or a seperate written acceptance
2) substantially complying w/ the acceptance terms in the trust instrument, or
3) accepting delivery of trust property, exercising powers as trustee, or indicating acceptance
A trustee can be anyone who has capacity to acquire and hold property – minors and insane ppl cannot be trustees
Removal of trustee
Ct can remove a trustee on its own or upon request if
1) a serious breach of trust
2) seriois lack of coorpoertation
3) unfitness, unwillingness, or persistent faluer to administer, or
4) a substantial change in circumstances
Trustee Resigniation
Upon 30 day notice or ct approval
Writing Req. for trusts of land
For a trust of land a written instrument signed by the rperson entited to impress thre trust is req for the SOF
part perfomance precludes SOF
pour-over gift from will to trust
a settlor can make gifts by will to a trust
Pour over property can be inital trust funding if:
- the trust is identified in the will, and
- trust us executed b4 the testator’s death
Discretionary Trusts
trustee is given discretion whtehr to apply or withold payments of income or principal to a beneficiary
Beneficiary cannot interfere w/ the exercise of the trustee’s discretion unless the trustee abuses her power. (Ct will interfere if trustee acted in bad fait or dishonestly)
beneficairy has notihing to transfer and creditors cannot reach – expcept claims of child, spouse, or former spose
Spendthrift Trusts
precludes beneficiary froim voluntary or involuntart transferring ther interest in the trust and creditors are precluded from reaching it to satisfy claims
Ineffective is settlor is the beneficiary
Does not protect from : judgments or ct orders for suppirt of beneficiary’s child, spouse, or former spouse OR for claims by the govt.
Support Trusts
Dirests trustee to pay only so much of the income or princiap as is necessary for beneficiary’s support.
Standard of support is the beneficiary’s accustomed std of living
Recovation of a Trust by Beneficiary
Can revoke wiht the consent of the Settlor
OR
IF NO CONSENT, can revoke with the consent of all beneficiaries (but all including future beneficiaries and unborn beneficiaries req)
Implied Trustee Powers
- Sell trust property
- Lease trust property
- incur reasonable expneses
- Hire agents
- Mortgaeg trust property
- repair
trustee’s liabilities to 3rd party’s
K’s on behalf of trust estate: general rule is that trustee may be sued on the K in trustee’s fiduciary capacity. 3rd pty may sue tye trustee personally if trustee failed to reveal the fiduciary relationship by indicateding their role as trustee
Tort: 3rd pty injured in tort can sue the trust estate by proceeding against trustee in their fiduciary capacity. 3rd pty may also sue trustee personally if the trustee is personally at fault, but not by respondeat superior
Trust liabilites to 3rd parties
If trust prop is sold to a BFP, party who sold nmust replace value of property into trust.
Allocation of Receipts
From an entity: all money is icnome and all other property other than money is principal
Insurnace policies and other K’s: proceeds from life insurnace are prinicpal; but proceeds from a type of loss are income
Allocation of expenses
Charged to income: 1/2 of trustees compensation, 1/2 of all accting expenses and other matters affecting both income and reaminder interestt, the entire cost of ordinary expenses, insurance premiums covering lloss
Charged to Prinicpal: reamininf 1/2 charged for trustee compensation and the ones chaged for income, payments madfe on principal of trust debt, estate taxes
Charitable tursts
must have indefinites beneficiaries, may be perpetual, and cy pres doctrine applies
Cy pres doctrine
When trustee cannot carry outr the trust as wrtitten, the trustee attemps to carry out as near as possible by ascertaining the settlor’s primary purpose.
Honorary Trusts or Purpose Trusts
Is a trust that is not charitable and has no private beneficiaries; commonly used for pets
Trustee’s duties to trust corpuse
- Duty to protect
- make productive
- duty to invest (invest and manage as a prudent investor would)
Changes to terms of trust
Can deviate from terms if Settlor did not anticipate new circumstances, compliance would impair trust purpose
By court if:
- All beneficiaries consent
- changed circumstances threaten trust purpose
Can trustee use trust principal to pay for a life tenant’s support
Many states permit if support for life tenant was the primary purpose
UTC: if unanticipated circumstances threaten the purposes of the trust
