Florida Trusts

Question 1

What is a Trust?

Answer 1

It is a fiduciary relationship in which a trustee holds LEGAL TITLE to specific property under a fiduciary duty to manage, invest, safeguard and administer the trust assets and income for the benefit of designated beneficiaries, who hold EQUITABLE TITLE.

Question 2

What is legal title?

Answer 2

The actual ownership of the property. Has the duties.

Question 3

What is equitable title?

Answer 3

A person’s right to obtain ownership of a property or property interest. Gets the benefit.

Question 4

What is the Florida Trust Code?

Answer 4

The FTC governs express trusts. Common law of trusts and principles of equity supplement the FTC unless modified by the FTC itself or another law of Florida.

Question 5

Trust?

Answer 5

fiduciary relationship where

a trustee holds a legal title to property

for benefit of trust’s beneficiary (who holds equitable title)

• Creation: (1) someone (grantor/settlor/donor/testator) transfers legal title to property to trustee, who administers trust in accordance w/ settlor’s wishes for benefit of beneficiaries
• Not a bailment [deliver goods to a bailee, w/o transfer of ownership]

Question 6

Types of Trusts:

Express vs. Implied?

Answer 6

Express trusts: from property owner’s intention; 2 types:

1. Private express trusts
2. Charitable trust

Implied trusts: created by operation of law (trusts are equitable remedies.); 2 types:

1. Resulting trusts: places prop in hands of rightful owner when circumstances require it, even though there has not been any wrongdoing on anyone’s part
2. Constructive trusts: deprives wrongdoer from retaining improperly obtained prop. (Result of fraud or unjust enrichment)

Question 7

Parties to a Trust?

Answer 7

Settlor

Trustee (legal interest in trust property)

Beneficiary (equitable interest in trust property)

Question 8

Settlor?

Answer 8

creates trust by transferring assets to a trustee AND

manifest intent to create a trust relationship

Question 9

Self-settled trust?

Answer 9

Person who created the trust, Settlor, is also a beneficiary of the trust; aka “settlor’s ‘declaration of a trust’“

• A spendthrift or discretionary provision will not bar any of the settlor’s creditors; When there’s a self-settled trust, the settlor’s creditors can reach the maximum amount that can be distributed to or for the settlor’s benefit.
• Declaration can be oral, unless trusts assets include real prop [SoF requires writing], but need proof prop being held in capacity as trustee

Question 10

Trustee?

Answer 10

legal owner of trust property, who holds it for benefit of beneficiaries

• Legal title to, responsibility for, and the management of the trust property resides in the trustee
• Must always be a beneficiary that can enforce the trust against the trustee

1. Settlor can be the trustee, if there is a beneficiary in existence who can enforce the trust against the trustee.
2. Settlor may also be the beneficiary of the trust.
   
   • However, settlor cannot be the only trustee & beneficiary, because there is no one to enforce the trust against the trustee. [b/c can’t enforce obligation against yourself]
   • If a sole trustee is the sole beneficiary, the trust will collapse because the interests will merge.

• Failure to designate a qualified trustee won’t necessarily destroy the trust.

Question 11

Trustee Duties?

Answer 11

1. fiduciary of trust
2. must be given some active duties to direct him with respect to trust property in order for trust to be valid; w/o active duties: it is a “passive” or “dry” trust, and title to the trust assets will pass directly to the beneficiaries
3. Duties do not have to be spelled out, but need a direction that a court could reasonably interpret his duties

No trustee designated/incompetent/dies: court will generally appoint a trustee …only time courts won’t step in is if settlor stated otherwise …”don’t replace”

Question 12

Co-Trustees?

Answer 12

2+ persons have been named as trustees,

deemed joint tenant

• will may override this & name a successor trustee
• Co-trustees who are unable to reach a unanimous decision may act by majority decision
  
  • Losing trustee may formally dissent, and avoid liability [filing notice of dissent]

Question 13

Beneficiary?

Answer 13

the equitable owners of the trust property

Question 14

General Rights of the Parties in a Trust?

Answer 14

1. Rights of Settlor: no longer owns assets; therefore, no rights exist
2. Rights of Trustee: adhere to the terms of the trust with respect to the trust assets for the benefit of the beneficiaries; legal title to trust property
3. Rights of Beneficiaries: use and enjoyment of the property as distributed; equitable title to trust property

Question 15

What are the required elements of an Express Trust?

Answer 15

1. A settlor with capacity to convey
   
   1. same as for a will. need legal capacity. undue influence, fraud, or duress renders the trust void.
2. a present intent to create a trust relationship
3. a competent trustee with duties
4. a definite beneficiary AND
5. the same person is not the sole trustee and sole beneficiary.

There also must be a present disposition in trust of specific property then owned by the settlor AND the trust must have a valid trust purpose.

No consideration required.

Question 16

Precatory Language regarding Trust Creation?

Answer 16

language insufficient to create a trust; precatory is defined as a request and trusts are demands/direction (e.g., these assets are given to Shayla in hopes[I would like] that she distributes them toward Asia’s college education)

• Exception: Even though the language is precatory, there is so much specificity, the courts will interpret it as mandatory. (Ex: $5000 to Asia. Joe would like Shayla to invest the money in an annuity that will pay $200/month to Asia.)

Question 17

To create a trust, a settlor must have _________ intent.

Answer 17

present intent

• Ex: “I will put $5000 in trust for Terry next week” does not create a trust. [It is a mere promise not supported by consideration.]?

Question 18

If a trust states that it will name

the beneficiaries later, it is a _________.

Answer 18

resulting trust

• Resulting trusts: places prop in hands of rightful owner when circumstances require it, even though there has not been any wrongdoing on anyone’s part
• In Florida, if a trust fails for a lack of a beneficiary, then a resulting trust will be presumed in favor of the settlor or her successors.

Question 19

If the settlor does not own the trust property and then subsequently buys the property, is a trust created?

Answer 19

No

cannot have a present intent for unknown property

Question 20

What cannot be trust property?

Answer 20

1. mere expectations
2. unearned profits
3. debt owed by the trustee [can’t sue yourself]

There must be some certainty over what is the trust property.

Question 21

Must a trust must have ascertainable beneficiaries?

Answer 21

YES

1. “To my friends” is too vague.
2. “To my family” is also vague, but the courts will interpret it to mean heirs.
3. If Settlor provides objective standard by which to identify beneficiaries, then those beneficiaries are ascertainable.
   
   • a) Must provide a reasonable basis [Ex: Hold property in trust for “person who provided best health care for me before my death.”]
   • b) Court will defer to trustee’s discretion unless: its arbitrary, capricious or acted in bad faith
     • Trust may give trustee right to invade trust corpus for benefit of beneficiary subject to his discretion.
     • Trust may give partial or total discretion.

Question 22

Discuss Active Duties with respect to a trust?

Answer 22

• Must have active duties, if not it becomes “passive” or “dry” and that person must transfer legal title to beneficiary and end trust
• Duties do not have to be spelled out, but need a direction that a court could reasonably interpret his duties

Question 23

Trust Purpose?

Answer 23

CAN’T BE: illegal, violate R.A.P. or against public policy

• Against public policy: ex. (1) encourage divorce [can end trust based on a subsequent divorce]; OR (b) prevent marriage [unless it’s a SS]
• When trust purpose violates public policy:
  
  1. delete obnoxious language
  2. what would Settlor have wanted had he known provision was in violation of public policy

Question 24

Testamentary trust?

Answer 24

created by Testator’s valid will

• Even if a will is valid, there may be problems with trust.
• Wills frequently contain “pour over” provisions that direct the transfer of the decedent’s property into a trust established either by the testator during his lifetime or by another person.

Question 25

Totten Trusts?

Answer 25

Arrangement with a bank that allows the depositor to open a bank account in his own name, as trustee for other parties.

• Only right beneficiary has: take what is left in the account when the trustee dies, if the beneficiary is alive [allows the property to bypass probate]
• The account holder can use the account as she wishes during her lifetime (adding to, withdrawing from, or even closing the account).

Question 26

Limits on Trust Duration (Florida)?

Answer 26

• All trusts must comply w/ Rule Against Perpetuities–No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest; OR
• The interest either vests or terminates within 360 years after its creation.

Question 27

Trustee owes a duty of _________________ to the beneficiaries in carrying out her obligations under the trust.

Answer 27

utmost loyalty and good faith

Question 28

Trustee is prohibited from?

Answer 28

1. Self-dealing [NO borrowing or lending/buying or selling assets to trust]
   
   • Any profits earned from self-dealing w/ trust belong to the trust.
2. Obtaining a personal benefit other than agreed upon or statutory fees as a consequence of his position
   • Bonus, fee, or other benefit for trust business is strictly prohibited. All free gifts recieved, e.g. free TV, must be deposited into trust
3. Conflict of interest with respect to trust & 3rd parties
4. Entering into transaction w/ beneficiaries of trust she is administering
   
   • Only be allowed if:
     
     • A) if all pertinent/mat’ facts known to trustee are disclosed
     • B) all transactions must be fair when viewed objectively (Even when dealing w/ non-trust assets)

Question 29

Affirmative Duties re: Trust Assets?

Answer 29

1. Trustee has affirmative duty to preserve and enhance trust property
   
   • Prudent Business Person Rule: trustee must use a degree of skill and care & prudence that would be used by a business person in his own personal affairs (Trustee w/ superior business expertise/professional fiduciary: held to their profession’s standard)
   • Trustee is obliged to attempt to utilize trust property in a productive manner; subject, at all times, to the obligation to be prudent.
   • Trustee should diversify the trust’s portfolio.
     
     • Acceptable items include: gov’t or highly rated bonds, mutual bonds
     • Investments that will be questioned include: penny stocks, commodities, derivatives
2. Trustee generally may not delegate his duties
   * Trustee MUST: be diligent in selecting his advisor for investment decisions & inform beneficiaries of the delegation.

Question 30

Trustee’s Liability?

Answer 30

totally accountable for

any loss that arises from his breach,

AND any benefit gained is to be given to the trust.

He may also be subject to punitive damages

Question 31

If trustee uses trust assets to buy property

and it increases in value, he must?

Answer 31

return both the trust property

and

the appreciation in value

Question 32

A court will review the following factors to determine whether a transferor of property intended to create a trust:

Answer 32

1. Relationship b/w transferor and transferee–is transferee someone to whom transferor would normally give an outright gift;
2. Relationship between transferor and purported beneficiaries–are purported beneficiaries persons for whom a settlor would naturally provide; &
3. Whether transferor gave sufficiently specific instructions*** to the transferee to ***create a fidicurary relationship.

Question 33

Limits on Trust Duration (Florida)?

Answer 33

• All trusts must comply w/ Rule Against Perpetuities–No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest; OR
• The interest either vests or terminates within 360 years after its creation.

Question 34

Trustee owes a duty of _________________ to the beneficiaries in carrying out her obligations under the trust.

Answer 34

utmost loyalty and good faith

Question 35

Trustee is prohibited from?

Answer 35

1. Self-dealing [NO borrowing or lending/buying or selling assets to trust]
   
   • Any profits earned from self-dealing w/ trust belong to the trust.
2. Obtaining a personal benefit other than agreed upon or statutory fees as a consequence of his position
   • Bonus, fee, or other benefit for trust business is strictly prohibited. All free gifts recieved, e.g. free TV, must be deposited into trust
3. Conflict of interest with respect to trust & 3rd parties
4. Entering into transaction w/ beneficiaries of trust she is administering
   
   • Only be allowed if:
     
     • A) if all pertinent/mat’ facts known to trustee are disclosed
     • B) all transactions must be fair when viewed objectively (Even when dealing w/ non-trust assets)

Question 36

Affirmative Duties re: Trust Assets?

Answer 36

1. Trustee has affirmative duty to preserve and enhance trust property
   
   • Prudent Business Person Rule: trustee must use a degree of skill and care & prudence that would be used by a business person in his own personal affairs (Trustee w/ superior business expertise/professional fiduciary: held to their profession’s standard)
   • Trustee is obliged to attempt to utilize trust property in a productive manner; subject, at all times, to the obligation to be prudent.
   • Trustee should diversify the trust’s portfolio.
     
     • Acceptable items include: gov’t or highly rated bonds, mutual bonds
     • Investments that will be questioned include: penny stocks, commodities, derivatives
2. Trustee generally may not delegate his duties
   * Trustee MUST: be diligent in selecting his advisor for investment decisions & inform beneficiaries of the delegation.

Question 37

When a trustee breaches his duty of care in investing,

he must?

Answer 37

replace trust for lost value,

but he cannot offset money lost by money earned.

Question 38

A trustee will be ________ for any lost interest.

Answer 38

responsible

Question 39

A trustee ordinarily has no liability for breaches of duty by the trustee whom he succeeds, except where the successor-trustee is?

Answer 39

aware of bad transaction & doesn’t take steps to defend it

Question 40

3 ways a trustee can be relieved of liability for potentially wrongful acts?

Answer 40

1. Exculpatory clause: provision in a trust instrument relieving trustee of liability
2. Beneficiary had (1) full knowledge of material facts and (2) expressly approved of complained-of action by trustee, can ratify transaction, then trustee is NOT liable
3. Beneficiaries knew and said nothing: may be estopped

Question 41

Removal of Trustees?

Resignation?

Answer 41

1. Trustee may be removed for cause, such as a breach of duty or if he has become incapacitated. [not mere dislike]
2. Once Trustee has accepted appointment to his position, he can resign at any time, and a successor trustee: has all the rights of original trustee

Question 42

Are beneficiaries’ interests alienable?

Answer 42

freely assignable/alienable

(in absence of a restrictive provision to the contrary)

Question 43

Beneficiaries’ Interests:

Support?

Answer 43

directed to provide only

so much income and/or principal of the trust

as is necessary

for the latter’s support and for no other purpose

Question 44

Beneficiaries’ Interests:

Spendthrift provision?

Answer 44

states beneficiary cannot voluntarily transfer his property and a creditor cannot attack it. Makes it INALIENABLE.

These are not absolute & cannot be used to defeat a claim of:

1. alimony or child support
2. furnished necessities to beneficiary
3. gov’t to satisfy tax claims

Question 45

Settlor’s Interests?

Answer 45

has no interest in trust unless he has reserved it or has made himself a beneficiary of the trust

• Settlor cannot make his own interest subject to a spendthrift provision
• Settlors often reserve right to revoke the trust
  • creditor cannot force him to revoke, but a bankruptcy court could

Question 46

MODIFICATION OR TERMINATION OF TRUSTS:

Termination by Settlor?

Answer 46

1. Unless terms of a trust expressly provide that trust is irrevocable, settlor may revoke or amend trust.
2. Settlor may terminate an irrevocable trust: all of beneficiaries are in existence & agree to termination

Question 47

If the sole trustee becomes the only beneficiary?

Answer 47

The trust is terminated by merger

& beneficiary becomes owner of the trust assets

Question 48

MODIFICATION OR TERMINATION OF TRUSTS:

Termination by Operation of Law?

Answer 48

Trust terminated by operation of law where:

1. Accomplished by the mat’l purposes of the trust have become illegal, impossible, or impracticable;
2. Trust res has been consumed, destroyed or lost; or
3. Trust’s purpose have been fully accomplished

Question 49

MODIFICATION OR TERMINATION OF TRUSTS:

Administrative Deviations?

Answer 49

if unforeseen circumstances, frustrate or substantially impair a mat’l purpose sought to be accomplished by the trust ► trustee may deviate from administrative provisions as necessary to accomplish settlor’s purposes

• Administrative deviance doctrine may not, however, be used to change the beneficial interests in the trust.

Question 50

MODIFICATION OR TERMINATION OF TRUSTS:

Termination by Beneficiaries After Settlor’s Death?

Answer 50

After settlor’s death, trust can only be terminated before period specified by settlor has expired if approved by court based on whether

1. purposes of trust has been accomplished &
2. all beneficiaries approve such termination

spendthrift clause, then cannot terminate

Question 51

MODIFICATION OR TERMINATION OF TRUSTS:

Natural Expiration?

Answer 51

when trust was to be in operation for a specified number of years or until the occurrence of a prescribed event, and that period of time has elapsed of the incident has occurred, the trust will terminate

Question 52

TRUSTS ARISING BY OPERATION OF LAW:

IMPLIED TRUSTS:

Any time a resulting or constructive trust arises, it means?

Answer 52

the trust will end, because it has no duties or named beneficiaries [remedies given by courts of equity]

Question 53

TRUSTS ARISING BY OPERATION OF LAW:

IMPLIED TRUSTS:

Resulting trusts?

Answer 53

arise when: express trust

makes incomplete disposition of an equitable interest or

equitable interest fails after property is given to trustee

• Trust reverts back to settlor/his estate
• Florida: trust may be enforced by an individual named in trust instrument, or by court, to oversee the trust.
• A resulting trust creates a reversionary interest in the settlor

Question 54

TRUSTS ARISING BY OPERATION OF LAW:

IMPLIED TRUSTS:

Constructive Trusts?

Answer 54

an equitable remedy, whereby a trust is erected on holder of specific property to redress wrongdoing OR prevent unjust enrichment

• a) Typically imposed when property has been wrongfully obtained.
• b) Purpose is to oblige holder of property to divest himself of it & transfer it to the person entitled to that asset.
• c) In a possible answer: Say that a court will “raise,” “erect,” or “impose” a constructive trust.
• Ex: Widowed father tells Son that he will hold Son’s property for Son so that Son will not mismanage it while in college. Son transfers property to Father based on this promise. Father, however, needs the money for his new girlfriend. He later refuses to return the money to his son. Son can sue to have a constructive trust imposed over the son’s property that the father is holding. If the court imposes a constructive trust, the person holding the property, the constructive trustee (Father), has a duty to return the property to the person entitled to it, either the transferor or an intended beneficiary, in this case, Son.

Question 55

CHARITABLE TRUSTS:

Distinguishing Characteristics?

Answer 55

1. Charitable purpose
2. Indefinite beneficiaries
3. Exemption from RAP
4. Use of cy pres doctrine [trust doesn’t end]: court could allow trust to continue with a similar charitable purpose.

Question 56

CHARITABLE TRUSTS:

Charitable purpose?

Answer 56

1. relief of poverty
2. advancement of religion
3. advancement of education
4. promotion of health
5. other purpose that benefits the community

• Charitable purpose can be broad if trustee is constrained to use trust exclusively for that objective. [use money for charity]
• Distinguish b/w a charitable purpose & benevolent[kindly] purpose.

merely helping others is insufficient

Question 57

CHARITABLE TRUSTS:

Cy Pres?

Answer 57

If settlor’s exact charitable purpose cannot be carried out, court MAY direct application of trust property to another charitable purpose that approximates settlor’s intention.

• Cy pres FACTORS: (1) accomplished or impossible; & (2) settlor has shown a genuine charitable intent
• If settlor provided for “gift over” in event charitable purpose cannot be accomplished, this is ordinarily viewed as an indication settlor lacked a general charitable intent.
  
  • A non-charitable gift-over will likely fail as violating the R.A.P.
    
    • If it comes back to settlor as a resulting trust, it is vested at its inception & will not violate Rule Against Perpetuities.