***I. FORMAL REQUIREMENTS OF A TRUST Flashcards
definition
trustee’s duty
definition: TRUST is an arrangement for making gifts of property and for the management of assets, under which the trustee holds legal title to trust assets for the benefit of the beneficiaries.
Trustee has all of the burdens of ownership (duty to manage, invest, insure, safeguard, etc.); beneficiaries have equitable title and all of the benefits of ownership.
trustee cannot self-dealing unless settlor waived prohibition agaisnt self-dealing, trustee must be able to show the investment will effectuate the settlor’s intent as to the purposes of the particular trust
cannot have self-interest in the transaction with the trust (buying stock from the trust)
cannot profit from serving as trustee other than reasonable compensation (commission for selling trust RP is not ok)
court has power to deny compensation to a trustee who has committed a breach of trust
To have a valid trust, SETTLOR (grantor) . . . DELIVERS . . . title to TRUST PROPERTY . . . to a TRUSTEE . . . for the benefit of BENEFICIARIES with INTENT TO CREATE A TRUST. Trust must be for a LAWFUL PURP
A. SETTLOR
A. SETTLOR must have legal capacity. (Age 18 or over; must have capacity to convey title to the trustee, a higher test for capacity than for wills.)
B. DELIVERY
application?
Sam told his lawyer that he wanted to place securities in a trust for his daughter, but died before delivering the securities to the trustee. Valid trust?
Sam gave agent authority to transfer securities to trustee, but Sam died before delivery was made
B. DELIVERY requirement does not apply to a self-declaration of trust (“I hereby declare myself trustee….”) or testamentary trust. But for inter vivos trust that names third party as trustee, the mere intent to create a trust, or a gratuitous promise to create a trust, is not sufficient. As with the law of gifts, there must be delivery of the subject matter of the trust, with the intent to convey legal title to the trustee.
no; because no delivery of the trust assets with intent to transfer title during Sam’s lifetime.
no; where Sam gave agent authority to transfer securities to trustee, but Sam died before delivery was made, and agent’s authority to transfer title terminated on principal’s death.
C. TRUST PROPERTY
requirement
Willa, who owns common stock that pays her over $100,000/year, writes, signs and notarizes a document: “I hereby create a trust for the benefit of my maid Mimi. I shall pay Mimi $3,000/month from dividends paid on stock that I own. After my death, [Bank] as trustee shall continue to pay Mimi $3,000/month until her death.” No cash, stock or other property was set aside as the corpus of the trust. valid?
Willa writes Mimi: “I have a cash flow problem right now, and I can’t pay you for a while. But if you continue to work for me, I shall sell some of my stock and create a trust for your benefit, naming myself as trustee. I shall pay you $3,000/month from some stock I plan to sell and place the sale proceeds in a trust. After my death, [Bank] as trustee shall continue to pay you $3,000/month until your death.”
C. TRUST PROPERTY: [July 1993] To have a trust, legal title to a specific interest in property must be conveyed to the trustee. The subject matter of the trust must be certain and identifiable. If there is no trust property, there is no trust.
can’t be “from all the stock i owned” or “whatever i have”
no; no trust property was segragated and identified
however, valid if the promise to hold property (to be received in the future) in trust is supported by a consideration. Under contract law principles, the trust duties automatically attach when the property is received.
Under contract law principles, the trust duties automatically attach when the property is received.
So watch for consideration to hold property in trust
D. TRUSTEE
requirement
who can
D. TRUSTEE: Must have legal capacity to deal with the property (age 18 or older, etc.). Trustee must have capacity to contract and to execute a deed, a higher standard of capacity than is required for execution of wills.
An unincorporated association cannot be a trustee. Only banks and trust companies given trust powers in their charters, and
charities as to charitable trusts only, can serve as trustees.
D. TRUSTEE
individual vs. corporate requirement?
compensation?
An individual named as trustee must post a fiduciary bond to secure the faithful performance of her duties unless the settlor waived the requirement of a bond. However [July 1993], a corporate trustee (bank or trust company) does not have to give bond.
A trustee is entitled to reasonable compensation for serving as trustee, and reimbursement for all expenses reasonably incurred in administering the trust. [Compare executors and administrators of decedents’ estates, who are compensated under 5% in/5% out rule.]
D. TRUSTEE
Ann’s will devises her residuary estate “in trust, to pay the income to my daughter Martha for life, and on Martha’s death to distribute the trust principal to her descendants.” However, the will does not name anyone as trustee. Valid trust?
what if doesn’t want to be trustee
yes; ***no trust ever fails for lack of a trustee. (trustee incapacitated)
If the intent to create a trust is clearly manifested but no trustee is named or if the named trustee dies, resigns or [July 2010] becomes incapacitated, with no provision for a successor trustee, the court will appoint a suitable successor to execute the trust.
No one can be compelled to accept fiduciary responsibilities and duties. court will appoint other
D. TRUSTEE
What constitutes acceptance of the trust office by the trustee named in the trust instrument?
(1) Trustee’s signature, signifying acceptance of the trust. But what if he does not sign a written acceptance of the trust?
(2) acceptance by conduct
claim he doesnt want to be trustee but perform trustee’s duties
D. TRUSTEE
Irreconcilable conflicts arise between (trustee) and the beneficiaries. May trustee resign? If so [Feb. 1999], what procedure must it follow?
1, need court approval upon showing
-he can no longer appropriate serve as trustee, conflict justify resignation (any reason would work)
2, give court an accounting
-property initially received; receipt and dispursement; property now on hand plus liabilities
D. TRUSTEE
Mother conveys land to her son “John Smith, trustee.” No trust powers or terms are set out in the deed or any other document. Then mother dies.
________ Was a valid trust created?
what about named as beneficiaries “Andy Brown, Betty Brown, James Brown, trustee.” Andy and Betty were Tom’s minor children; James was Tom’s brother.
no trust: no beneficiary was named; no trust purpose indicated
the land passes to mom’s estate by will or intastacy
involving minor children!!! avoid guardianship
The court held that a valid trust was created (!) because a trustee and beneficiaries were named. As for trustee’s powers and duties, read the Trust Code, said the court.
D. TRUSTEE
what If named “trustee” has no powers or active duties to perform,
no trust; trustee has to own fiduciary duty to someone
mere title holder
SETTLOR holds the title
***D. TRUSTEE
spendthrift clause
Alan transfers title to Blackacre to Betty, as trustee for the benefit of Alan’s son Clyde. Under the parties’ agreement, Clyde has the power to manage and control the use of Blackacre, and Betty as trustee has no powers or active duties over the property.
the trust instrument contains a spendthrift clause with respect to Clyde’s interest:
“No beneficiary shall have the power to transfer his or her interest, nor shall such interest be reachable by a beneficiary’s creditors by attachment or other legal process.”
not valid clause
creditor can’t reach the property
beneficiary doesn’t really have control
but to have a spendthrift trust need to have a valid trust first
TX trust code permits a grantor to include a spendthrift clause in a trust under which a beneficiary’s interest may not be voluntarily or involuntarily transferred
S clause can apply to both income and corpus, because S clause is being liberally construed, creditors can’t touch as long as there is words saying “restrained in any other manner”
D. TRUSTEE
Procedure for appointment of successor trustee, as specified in trust instrument, not followed; Uncle Bob purported to act as trustee for several years
by estoppel for the beneficiary to sue?
remove
“Trustee by estoppel” not recognized.
Person acting as trustee without formal and proper appointment has no authority to deal with trust property, and beneficiaries are not estopped from suing to recover any resulting losses.
Trustee can be removed for material violation of trust’s terms.
E. BENEFICIARIES:
charitable trust?
“I bequeath $100,000 to my good friend Hobie Gates as trustee, to pay the income therefrom to my best friends. I bequeath my residuary estate to my brother, Sam Slade.”
Does Hobie get to keep the money, then?
E. BENEFICIARIES: A noncharitable trust must have definite and ascertainable beneficiaries, and their interests must vest, if at all, no later than lives in being plus 21 years. (Rules for charitable trusts are exactly the opposite; charitable trust cannot benefit identifiable individuals, and charitable trusts are not subject to Rule Against Perpetuities.)
not valid; no ascertainable beneficiaries
Hobie holds on a “resulting trust” for Sam Slade, the residuary beneficiary.
A resulting trust is not a trust. It is the term courts employ when [Feb. 1994] a trust fails for some reason. The court will order that the $100,000 be distributed to Sam Slade.
F. INTENT TO CREATE A TRUST: IS THE LANGUAGE PRECATORY (a non-binding suggestion), or does it impose an ENFORCEABLE OBLIGATION?
Property devised in trust: Income to sister Sue for life, remainder to Sue’s descendants. The trust provides: “It is my wish and desire that Sue use a portion of the income to pay the educational expenses of my favorite nephew, Hobie.” In a year in which the trust has income of $15,000, Hobie, who is incurring expenses of $8,000/year as a law student, brings suit against Sue to compel payment of $8,000 out of trust income. Result?
Granny gives Sonny a check for $10,000 with the notation (on the check) “for the use and benefit of [grandson] Gary.”
hobie loses;
non-binding suggestion: my wish and desire is, requiest, hope, id like
valid; even if didn’t use the word trust and trustee: no particular words are needed, its a question of intent
not a gift for sonny
