Key Issues - Trusts Flashcards
What is the essence of a trust
It is a fiduciary relationship between a trustee who holds legal title and beneficiaries who hold equitable title to property
Who are the four types of people that can be involved in a trust and what do they do
Settlor - the person who creates a trust
Testator/Testatrix - the person who creates will
Beneficiary - anyone who gets a portion of the stuff under the trust terms
Trustee - the person who holds & manages the Settlor’s property for the beneficiaries
What are the six trust elements
1) Settlor w/ capacity (to convey)
2) Present intent to create a trust
3) Trust res/property
4) 1 or more definite beneficiaries
5) trustee with duties
6) valid purpose
Note that a trust will not fail for want of a trustee. If a trustee is not named, or is removed, the court will appoint a trustee
Can a sole trustee be a sole beneficiary?
No
If real property is among the trust res, what is required
the Statute of Frauds requires a writing signed by 2 witnesses
If a trust has testamentary provisions, what is required
the Statute of Wills requires Will formalities:
Trust must be in writing, signed by settlor at end, attested (signed) by 2 witnesses who sign in settlor’s presence and in the presence of each other.
Testamentary capacity - Settlor knows nature & extent of her property, people who are natural objects of her bounty
What is the Rule Against Perpetuities in a trust?
360 years (discuss when you see a class gift in a trust)
What are the elements of a charitable trust
Intent to create the trust
Trust res/property
Indefinite beneficiaries
Charitable purpose - benefit public - good things; religion, science, gov’t, education
Enforced by settlor while alive, state attorney general or charity after settlor’s death
What is the cy pres rule
“as near as possible” find another charity with same/similar purpose
how does the rule against perpetuities apply to charitable trusts
RAP doesnt apply - can be perpetual
What is the major way to challenge testimentary capacity and what is the presumption involved
Undue influence - overcome testator’s free will.
Presumption of undue influence arises if beneficiary was a substantial beneficiary, had a confidential relationship with testator/settlor, and was active in procuring the will.
Fraud, Duress, Mistake
What are the 4 duties owed by trustees (and thus are grounds to remove a trustee for breach of trust)
Duty of loyalty - no self dealing
prudent investor rule
impartiality to all beneficiaries
account and inform beneficiaries of the trust assets
What is the trustee duty of loyalty
No self dealing: trustee may not borrow trust funds, comingle
What is the prudent investor rule
Trustee must exercise due care, invest res as a reasonable investor. Trustee must diversify. Trustee must make due care in selecting, monitoring agents. Trustee must keep trust productive - as a whole, total return. Trustee must preserve assets - insure.
What is the trustee duty of impartiality to all beneficiaries
income v remainder beneficiaries
What is the trustee duty to account and inform beneficiaries of the trust assets
Annually, keep beneficiaries reasonably informed
What do beneficiaries have standing to do?
enforce non-charitable trusts (force trustee to follow the trusts’ terms)
Are beneficiaries able to transfer their equitable interest? how about assignments?
Equitable interests are transferable. Assignments generally valid, unless prohibited by spendthrift provision
What is the difference between income beneficiaries and remainder beneficiaries
income beneficiaries get trust income; remainder beneficiaries get trust res distribution at the end
What are the three important things to remember about the revocable inter vivos trust
1) it is the default in FL unless the trust says otherwise
2) settlor can amend trust provisions until loss of capacity or death
3) declaration of trust is okay, no need to deliver trust res/property to self
What are the four important things to remember about an irrevocable trust
1) A present transfer of entire interest away from Settlor
2) Revocable inter vivos trust becomes irrevocable at settlor’s death
3) If Settlor survives 1 year after delivery to irrevocable trust, the trust res doesn’t become part of elective estate for spousal elective share
4) Protects Settlor from creditors, unless purpose is to defraud creditors
What are the two important things to remember about a testamentary trust
1) Trust created in a will upon death of Testator
2) Sometimes used to describe a trust which requires disposition of property after the settlor’s death
What are the two important things to remember about a discretionary trust
1) Trustee has sole discretion to make payments under the trust terms
2) Beneficiary can’t force Trustee to make payments unless trustee acts in bad faith, or abuses discretion
What are the two important things to remember about a support trust
1) distribution to beneficiaries is up to trustee
2) discretion is tied to level necessary for health, education, maintenance of beneficiary’s accustomed standard of living
What is the one important thing to remember about a mandatory trust
distribution to beneficiaries is required. Ex: trust income to A for life, remainder to B. A’s interest is mandatory and A can compel Trustee to pay.
What is a spendthrift provision in a trust
Trust which disallows assignment by beneficiary & creditor levy. Provision prohibits voluntary & involuntary transfer of beneficial interest
What is a voluntary vs involuntary transfer of beneficial interest as it relates to the spendthrift provision prohibition
Voluntary - beneficiary assigns her interest to someone else (right to be paid usually)
Involuntary - creditor of beneficiary attaches beneficiary’s interest
Note however that creditors cannot attach beneficial interest until disbursement of payment
What are the three important things to remember about a secret trust
1) outright devise to someone with instructions to hold for benefit
2) orally created trust before settlor death
3) it is enforceable in FL - constructive trust to avoid unjust enrichment
What are the two important things to remember about a constructive trust
1) equitable remedy to prevent unjust enrichment
2) someone got the property through wrongdoing - breach of trust, fraud, mistake, undue influence, duress
What are the two important things to remember about a resulting trust
1) implied reversion to settlor/settlor’s heirs if express trust fails for some reason (ex: beneficiary predeceased)
2) no wrongdoing
What is important to remember about an honorary trust
No beneficiaries, for the care of a pet or grave site. Okay in FL
Creditors of beneficiaries can reach what?
mandatory distributions, completed discretionary distributions, and spendthrift distributions in the hands of the beneficiary
Creditors of beneficiaries cannot reach what?
spendthrift interests still in hands of trustee, OR discretionary interests still in the trustee’s hands
What are the trust protections from creditors offered to the settlor
Irrevocable trust - outright transfer to trustee, and away from settlor
What are the trust protections from creditors offered to beneficiaries
spendthrift provision
What are the trust protections from creditors offered to a trustee
never - its not the trustee’s property
How does a no contest clause work for trusts in FL
they are unenforceable in FL
