Florida Trusts Flashcards
What are the elements required to create a valid trust?
(1) present intent to create a trust; (2) a settlor with capacity to execute the trust; (3) a valid legal purpose; (4) the trust must be funded with “res”; (5) identifiable and ascertainable beneficiaries; and (6) a named trustee to administer the trust
Will a trust fail if a trustee is not named?
No, the court will appoint a trustee if one is not named
Who has capacity to create a trust?
- someone 18 or older
- settlor understands the effect of the trust and the nature of her bounty
Does a trust need to be in writing to be valid?
Generally, no, UNLESS: (1) the trust property includes some real estate transaction (triggers SOF and must be in writing signed by party against whom enforcement is sought); or (2) the trust is a testamentary trust, which must comply with will formalities (written, signed by testator in presence of two witnesses; signed by witnesses in presence of each other)
In Florida, trusts are presumed…
revocable, unless the instrument expressly states it is irrevocable
What is a spendthrift provision?
A material purpose of a trust that prevents voluntary and involuntary transfer of the beneficiaries interest in the trust
What is the rule regarding creditors and spendthrift provisions?
- Generally, creditors cannot attach liens to property held in a trust with a valid spendthrift provision
- exceptions are: creditors seeking due child support payment; alimony payments; and government creditors
What are the elements of a charitable trust?
(1) no ascertainable beneficiaries; (2) a broad public purpose with a charitable benefit; and (3) has the ability to be perpetual in time (RAP doesn’t apply)
What is a discretionary trust?
- A trust that gives the trustee sole discretion to determine when and how to make distributions to beneficiaries
- beneficiaries and creditors cannot compel distributions
What is a support trust?
A trust that is made for the health, support, maintenance of the beneficiary (i.e. funds can only be used for basic necessities, not luxuries)
What is a pour-over trust?
- Created when settlor intends for remainder of assets in a will to pour over into a trust
- elements are (1) it is created before or at the time a will is executed; (2) it complies with will formalities; and (3) the trust is identified in the will
What are honorary trusts?
(1) trust set up to pay for a gravesite; or (2) trust set up to pay for someone’s pets
To create a valid pet trust:
(1) pet must be alive during settlor’s life; (2) ends when the pet dies; and (3) it must be in writing
what are the duties of a trustee?
(1) Fiduciary duty of loyalty to manage trust for benefit of the beneficiary; (2) duty of care in administering trust; and (3) duty to earmark trust property (i.e. cannot commingle trust property with trustee’s personal property)
When does a trustee breach the duty of loyalty?
When the trustee engages in self dealing- this is a per se violation
To what standard of care is a trustee held to?
Standard of a prudent investor
Under the prudent investor rule:
the trustee must manage trust as a prudent investor would; by pursuing an investment strategy with reasonable risk and return objectives
Can the trustee also be a beneficiary of the same instrument?
Yes, but a trustee cannot be the sole beneficiary
What are grounds to remove a trustee?
(1) breach of duty; (2) trustee is unfit to make decisions/ is incapacitated
Can the settlor of a trust revoke the trust?
-Yes if it is revocable; revocation must occur however provided in the instrument (I.e. if the trust instrument says revocation must be in signed writing by the settlor, then this will be required to validly revoke)
What are the grounds to terminate a trust?
(1) purpose of the trust has been fulfilled; (2) the trust has become impracticable (i.e. insufficient funds); (3) circumstances arise making administration of the trust inconsistent with its material purpose
How can a revocable trust be terminated when the settlor has died?
-It can be terminated by unanimous consent of all beneficiaries if the modification would not interfere with a material purpose of the trust
When may a court terminate/ modify a trust (on its own)
(1) if doing so isn’t inconsistent with the settlor’s intent; or (2) the modification/ termination will be in the best interest of the beneficiaries
What is the cy Pres doctrine?
- applies to charitable trusts
- if the purpose of the charitable trust is impossible/ impracticable; or has been fulfilled then the court may choose another similar charitable purpose/ organization so long as it would be as near as possible to the settlor’s intent
When may a resulting trust be imposed?
(1) a valid trust was not created due to an issue with formalities or (2) the trust purpose has been accomplished and there remains trust funds
When will a constructive trust be imposed?
equitable remedy to prevent unjust enrichment resulting from wrongful conduct such as fraud or misrepresentation
-facts necessary to impose a constructive trust must be made with clear and convincing evidence
A co-trustee will not be liable for acts of other trustees if:
(1) didn’t join in the action; (2) took reasonable steps to prevent the breach; or (3) compelled the other trustees to remedy the breach
What is the liability of a dissenting trustee acting under the direction of the majority trustees?
Not liable if trustee notifies any co-trustee of her dissent before or at the time of the action
What is a testamentary trust?
-trust that provides for the disposition of assets upon the settlor’s death
What are the requirements for a testamentary trust?
-The trust must comply with Florida will formalities (writing is required; signed by settlor and two witnesses all in the presence of eachother)
What is the effect of imposing a resulting trust?
The trust property is distributed back to the settlor/ settlor’s estate by way of reversion
What is precatory language?
-Language reflecting a hope and desire to create a trust; this language is insufficient to create a valid trust UNLESS it appears alongside provisions (I.e. a spendthrift provision) indicating an intent to create a valid trust
Can creditors of a beneficiary to a discretionary trust compel distribution to satisfy debt?
No
When may a beneficiary compel exercise of a trustee’s discretionary power to make a disbursement?
When the purpose of the trust is to provide for the beneficiaries support (if the beneficiary was in need of support, the trustee would be abusing its discretion by failing to make a distribution)
What is the prohibition against self-dealing?
Trustee cannot sell assets to the trust, even if the price is fair, can’t borrow trust funds, can’t use trust funds to secure personal loans, and cannot gain through position as trustee
Under the prudent investor rule
-a trustee must invest as a prudent investor would; must take into account probable income of an investment, safety of the venture; and preservation of trust principal
Discretionary Trust:
- When a trustee has discretion to pay all/ substantially all of income and principal for the benefit of the beneficiaries
- Beneficiary doesn’t have right to the income until trustee’s power is exercised
- Creditors cannot compel payment from trustee or reach beneficiary’s interest
What may a creditor to do to reach the beneficiary’s interest in a discretionary trust?
Serve the trustee with process; trustee must satisfy creditor’s claim before exercising discretion in favor of the beneficiary
What are elements of the prudent investor rule:
Not to commingle; balance return with risk; diversify investments; keep the trust productive
What are remedies for breach of trust?
- automatic wrong; good faith is not a defense;
- if trustee commits breach of trust court may enforce specific performance; enjoin trustee from committing a breach; compel trustee to restore trust funds; suspend the trustee
Can a beneficiary waive a breach of trust?
yes by ratifying the transaction
Mixed purpose trust:
Trust that arises when beneficiaries are non charitable individuals and charitable organizations; the special rules governing charitable trusts do not apply
Oral trust terms….
must be established with clear and convincing evidence
Under an irrevocable trust can creditor’s reach the trust principle to satisfy claims against the settlor?
No; creditors can only reach any amount distributable for the settlor’s benefit
When can nonjudicial modification of an irrevocable trust occur?
(1) settlor is dead; and (2) unanimous consent of the trustees and all the beneficiaries
Under Florida law, when can an irrevocable trust be judicially modified?
-Qualified beneficiary petitions the court and either (1) purpose of the trust has been fulfilled, is illegal or impracticable; (2) circumstances not anticipated by the settlor have made compliance with the trust inconsistent with its purpose; or (3) no material purpose exists
- Court can also modify if compliance with the trust isn’t the best interest of the beneficiaries
- modifications must be made to conform with the settlor intent to the extent possible
Under common law how can an irrevocable trust be terminated?
(1) settlor is dead; or (2) no further purpose remains
- all beneficiaries must agree
