Key Issues - Trusts

Question 1

What is the essence of a trust

Answer 1

It is a fiduciary relationship between a trustee who holds legal title and beneficiaries who hold equitable title to property

Question 2

Who are the four types of people that can be involved in a trust and what do they do

Answer 2

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

Question 3

What are the six trust elements

Answer 3

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

Question 4

Can a sole trustee be a sole beneficiary?

Answer 4

No

Question 5

If real property is among the trust res, what is required

Answer 5

the Statute of Frauds requires a writing signed by 2 witnesses

Question 6

If a trust has testamentary provisions, what is required

Answer 6

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

Question 7

What is the Rule Against Perpetuities in a trust?

Answer 7

360 years (discuss when you see a class gift in a trust)

Question 8

What are the elements of a charitable trust

Answer 8

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

Question 9

What is the cy pres rule

Answer 9

“as near as possible” find another charity with same/similar purpose

Question 10

how does the rule against perpetuities apply to charitable trusts

Answer 10

RAP doesnt apply - can be perpetual

Question 11

What is the major way to challenge testimentary capacity and what is the presumption involved

Answer 11

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

Question 12

What are the 4 duties owed by trustees (and thus are grounds to remove a trustee for breach of trust)

Answer 12

Duty of loyalty - no self dealing
prudent investor rule
impartiality to all beneficiaries
account and inform beneficiaries of the trust assets

Question 13

What is the trustee duty of loyalty

Answer 13

No self dealing: trustee may not borrow trust funds, comingle

Question 14

What is the prudent investor rule

Answer 14

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.

Question 15

What is the trustee duty of impartiality to all beneficiaries

Answer 15

income v remainder beneficiaries

Question 16

What is the trustee duty to account and inform beneficiaries of the trust assets

Answer 16

Annually, keep beneficiaries reasonably informed

Question 17

What do beneficiaries have standing to do?

Answer 17

enforce non-charitable trusts (force trustee to follow the trusts’ terms)

Question 18

Are beneficiaries able to transfer their equitable interest? how about assignments?

Answer 18

Equitable interests are transferable. Assignments generally valid, unless prohibited by spendthrift provision

Question 19

What is the difference between income beneficiaries and remainder beneficiaries

Answer 19

income beneficiaries get trust income; remainder beneficiaries get trust res distribution at the end

Question 20

What are the three important things to remember about the revocable inter vivos trust

Answer 20

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

Question 21

What are the four important things to remember about an irrevocable trust

Answer 21

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

Question 22

What are the two important things to remember about a testamentary trust

Answer 22

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

Question 23

What are the two important things to remember about a discretionary trust

Answer 23

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

Question 24

What are the two important things to remember about a support trust

Answer 24

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

Question 25

What is the one important thing to remember about a mandatory trust

Answer 25

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.

Question 26

What is a spendthrift provision in a trust

Answer 26

Trust which disallows assignment by beneficiary & creditor levy. Provision prohibits voluntary & involuntary transfer of beneficial interest

Question 27

What is a voluntary vs involuntary transfer of beneficial interest as it relates to the spendthrift provision prohibition

Answer 27

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

Question 28

What are the three important things to remember about a secret trust

Answer 28

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

Question 29

What are the two important things to remember about a constructive trust

Answer 29

1) equitable remedy to prevent unjust enrichment

2) someone got the property through wrongdoing - breach of trust, fraud, mistake, undue influence, duress

Question 30

What are the two important things to remember about a resulting trust

Answer 30

1) implied reversion to settlor/settlor’s heirs if express trust fails for some reason (ex: beneficiary predeceased)
2) no wrongdoing

Question 31

What is important to remember about an honorary trust

Answer 31

No beneficiaries, for the care of a pet or grave site. Okay in FL

Question 32

Creditors of beneficiaries can reach what?

Answer 32

mandatory distributions, completed discretionary distributions, and spendthrift distributions in the hands of the beneficiary

Question 33

Creditors of beneficiaries cannot reach what?

Answer 33

spendthrift interests still in hands of trustee, OR discretionary interests still in the trustee’s hands

Question 34

What are the trust protections from creditors offered to the settlor

Answer 34

Irrevocable trust - outright transfer to trustee, and away from settlor

Question 35

What are the trust protections from creditors offered to beneficiaries

Answer 35

spendthrift provision

Question 36

What are the trust protections from creditors offered to a trustee

Answer 36

never - its not the trustee’s property

Question 37

How does a no contest clause work for trusts in FL

Answer 37

they are unenforceable in FL