MC Trusts Flashcards
What is a trust
A trust 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
What are the three types of trusts (including short explanations of them)
Trusts are classified according to their method of creation:
(i) express trusts arise from the expressed intention of the owner of property to create the relationship with respect to the property;
(ii) resulting trusts arise from the presumed intention of the owner of property; and
(iii) constructive trusts arise in cases involving wrongful conduct and unjust enrichment
How are trusts governed in Florida
Express trusts are governed by the Florida Trust Code (“FTC”). The common law of trusts and principles of equity supplement the FTC, except to the extent modified by the Code or another law of Florida
What are the five elements required for an express trust (and also two additional things that must be present)
The five elements required for an express trust are:
(i) a settlor with capacity to convey;
(ii) a present intent to create a trust relationship;
(iii) a competent trustee with duties;
(iv) a definite beneficiary; and
(v) the same person is not the sole trustee and the sole beneficiary.
Additionally, there must be a present disposition in trust of specific property then owned by the settlor, and the trust must have a valid trust purpose. Consideration is not required
For the element of an express trust that “a settlor with capacity to convey,” what does it mean
The capacity required to create a revocable or testamentary trust is the same as that required to make a will. The settlor’s lack of legal capacity to convey prevents a trust from arising, and undue influence, fraud, or duress renders the trust void. Similarly, to create an irrevocable trust, the settlor must have legal power to convey the trust property
For the element of an express trust of “present intent to create a trust relationship,” what does it mean
The settlor’s intention to create a trust is essential to the existence of an express trust. Intent may be manifested by written or spoken words or by the conduct of the settlor–unless the Statute of Wills or the Statute of Frauds applies. An oral trust of personal property is valid in almost all jurisdictions. Communication of intent to the beneficiaries is not necessary; delivery of the deed to the trustee is sufficient
For purposes of the rule that there must be a present intent to create a trust relationship, does the property need to actually be owned at the time of conveyance to trust?
Yes, the intent to create a present trust must have been externally manifested by the settlor at the time he owned property and prior to its conveyance to another. (However, the conduct of the parties subsequent to the conveyance may be evidence of an earlier intent)
Note: Also, the settlor’s intent must be that the trust take effect immediately, not at some future time–although a future interest can be trust property
What is a precatory expression and how does it affect the creation of a trust?
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust. This inference can be overcome by:
1) definite and precise directions;
2) directions addressed to a fiduciary (e.g., executor under a will);
3) a resulting “unnatural” disposition of property (e.g., close relative will otherwise take nothing) if no trust imposed; or
4) extrinsic evidence showing that the settlor previously supported the intended beneficiary
What is the rule of existence of a trust based on the trustee (for example, if the trustee dies or refuses to accept appointment)
Once established, a trust will not fail because the trustee dies, refuses to accept appointment, or resigns. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served. The absence of a trustee may cause an attempted inter vivos trust to fail for lack of delivery.
What are the two ways in which a person can accept a trusteeship?
by:
(i) substantially complying with the acceptance terms in the trust instrument; or
(ii) accepting delivery of trust property, exercising powers or performing duties as trustee, or indicating acceptance
May the person designated a trustee still act to preserve the trust property without actually accepting the trusteeship? If so, how so?
The person designated as trustee may still act to preserve the trust property without accepting the trusteeship, provided he sends notice of rejection to a qualified beneficiary.
What happens if the trusteeship is not accepted within a reasonable time?
It is presumed to be rejected
One rule is that the settlor must intend to impose enforceable duties on the trustee. However, if duties are not spelled out in the trust instrument, what happens?
the court will usually imply duties if there is an intention to create a trust, a res, and an identified beneficiary
What are the qualifications for a trustee
Anyone who has capacity to acquire and hold property for his own benefit and has capacity to administer the trust may be a trustee. (Minors and insane persons can hold property but cannot administer).
What is the compensation and reimbursement to a trustee
A trustee is entitled to reasonable compensation or to compensation specified in the trust instrument. A trustee is entitled to reimbursement for expenses incurred in the trust’s administration and any other expenses that resulted in a benefit to the trust.
How does a trustee get removed, what are the four grounds for removal, and what is the basic factor considered
A court can remove a trustee on its own motion or upon request by the settlor, a beneficiary, or a co-trustee. Grounds for removal include: (i) a serious breach of trust; (ii) lack of cooperation among co-trustees; (iii) unfitness, unwillingness, or persistent failure to administer; or (iv) a substantial change in circumstances. The basic factor considered is whether continuation in office would be detrimental to the trust.
Does a trustee need a reason to either disclaim trustee status or refuse appointment as a trustee?
No
May a trustee accept a trust in part and disclaim it in part?
No
A rule is that a testamentary trust is treated as in existence as of the settlor’s death, and the trustee’s acceptance “relates back” to that date. What is the primary issue with that?
It is thus possible for a trustee, by accepting, to become liable (in his fiduciary capacity) on tort claims arising prior to the time he accepted
What are the two ways in which a trustee can resign
by either:
(i) giving 30 days’ notice to the qualified beneficiaries, settlor (if living), and co-trustees; or
(ii) obtaining court approval
What happens if the sole trustee and sole beneficiary are the same individual
If they are the sole trustee and sole beneficiary and hold precisely the same interests, titles merge and the trust terminates.
A trust cannot exist without someone to enforce it. Thus a beneficiary is necessary to the validity of every trust except what two kinds of trusts?
charitable and honorary trusts
Who is a qualified beneficiary (they must be one of what two things)
A qualified beneficiary is a living beneficiary who, on the date the beneficiary’s qualification is determined, is: (i) a current beneficiary, or (ii) a first-line remainderman (i.e., one who would become eligible to receive distributions were the event triggering the termination of a beneficiary’s interest or of the trust itself to occur on the qualification date.)
What is the capacity necessary to be a beneficiary
Any person, natural or artificial, capable of taking and holding title to property can be a beneficiary of a private trust
What is an incidental or indirect beneficiary
Not everyone who benefits from a trust is considered to be a beneficiary. The trust must operate directly to benefit the person (e.g., attorney designated by trust instrument is not beneficiary).
Is notice to a beneficiary essential to the validity of a trust? If not, does lack or notice indicate anything?
Notice to a beneficiary is not essential to the validity of a trust. Lack of such notice may indicate, however, that no trust was intended. Acceptance by the beneficiary is required but can take place after a valid trust is created. Acceptance may be express or implied and is generally presumed. However, a trust will not be forced on a beneficiary, and he may disclaim his rights by filing a written disclaimer. To avoid gift taxes, it must be filed within nine months
What is an anti-lapse statute as it relates to a trustt and when does it apply
Absent a contrary intent expressed in the trust instrument, Florida applies its anti-lapse statute to future interests created in trusts
How does divorce affect a trust
A final decree of divorce or annulment revokes all beneficial gifts and fiduciary appointments in favor of a former spouse, including revocable trusts. The trust instrument is read as though the former spouse is deceased
What is the rule on definiteness of beneficiaries as it pertains to a private trust? What is the effect of an unascertained beneficiary and a class gift?
There must be definite beneficiaries in order to have a private trust (not required in charitable trusts). Unascertained beneficiaries - Beneficiaries may be "definite" even though not yet ascertained (e.g., unborn beneficiaries). Beneficiaries must be ascertainable by the time their interests are to come into enjoyment. Class Gifts - At common law, a private trust exists for the benefit of a class, and the class must be reasonably definite. As long as the class is reasonably definite, the trust may authorize the trustee to exercise his discretion in selecting members to be benefited, or may provide that only those who meet certain requirements will benefit. Broad power to choose beneficiaries, however, constitutes a power of appointment rather than a trust. Under the FTC, however, a settlor may empower the trustee to select the beneficiaries from an indefinite class. Failure to exercise the power gives rise to a resulting trust in favor of the settlor or his successors
What happens if a trust fails for lack of beneficiary
A resulting trust in favor of the settlor or his successors is presumed
What happens if there is no res (no property) in the trust
Where there is no trust property, the trust fails because the trustee has no property to manage
Which of these three interests may be held in trust? 1) a future interest, 2) an interest not yet in legal existence, and 3) future profits from an existing contract
1 and 3 can be held in trust (a future interest and future profits from an existing contract)
Must the settlor have the power to convey property in order for it to be trust res?
Yes, trust res must be existing property that the settlor has the power to convey, including intangibles (e.g., promissory notes) in which the settlor has an assignable interest
Must the trust res be segregated from other property?
Yes, the res must be identifiable and segregated, but the res may be a fractional or undivided interest in specific property
May a debtor hold his own debt in trust?
No, a debtor cannot hold his own debt in trust, but the debtor can declare himself trustee of particular property from which the debt is to be paid, and the debt can be held in trust by another person.
A trust purpose is invalid if it is one of what four things?
(i) illegal,
(ii) contrary to public policy (e.g., encourages immorality),
(iii) impossible to achieve, or
(iv) intended to defraud the settlor’s creditors or based on illegal consideration
What three things may happen if a condition attached to an interest is against public policy?
(i) the settlor’s alternative desire controls if expressd.
(ii) if the illegal condition is a condition subsequent, the condition is invalidated but the trust is valid.
(iii) if the illegal condition is a condition precedent, the preferred view is to hold the interest valid unless there is evidence that the settlor’s wish would be to void the beneficiary’s interest altogether if the condition is unenforceable
What is Florida’s Uniform Statutory Rule Against Perpetuities?
Under the Uniform Rule, enacted in FL, a nonvested property interest in a trust is invalid unless: (i) when the interest is created it is certain to vest or terminate within the common law period (21 years after the death of a life in being), or (ii) it actually vests or terminates within 360 years after its creation
How is an inter vivos trust created
A trust can be created either by a person declaring himself trustee for another or by the transfer of property to another as trustee. The present intent required must be manifested by conduct (delivery) or words (declaring oneself trustee). Delivery means placing the trust property out of the settlor’s control (unless the settlor serves as trustee). Remember that the trust arises when the settlor subsequently acquires the res and remanifests trust intent
When is a writing required for trust creation
Florida does not require a writing for a trust of personal property. Oral trusts may be established only by clear and convincing evidence. For a trust of land, however, a written instrument signed by the person entitled to impress the trust upon the property is required under the Statute of Frauds. Note that an otherwise invalid oral trust of land may be enforced by imposing a constructive trust.
What rule must revocable trusts containing testamentary aspects comply with
Provisions in a revocable inter vivos trust created on or after July 1, 2007, that control the disposition of trust property on the settlor death are ineffective unless the trust instrument and any amendments are executed in accordance with the Statute of Wills
How does the parol evidence rule apply to inter vivos trusts
Florida allows extrinsic evidence even if the writing is unambiguous, and the court may consider evidence that contradicts an apparent plain meaning of the trust instrument.
What formalities are required for testamentary trusts
Trust intent and the essential terms of the trust (trust res, beneficiaries, and trust purpose) must be ascertained from the will itself, from a writing incorporated by reference into the will, or from the exercise of a power of appointment created by the will.
What is a secret testamentary trust and what is the effect
Where a will makes a gift that is absolute on its face, but was in fact made in reliance on the beneficiary’s promise to hold the property in trust for another, the intended trust beneficiary may present extrinsic evidence of the promise. If the promise can be proven by clear and convincing evidence, a constructive trust will be imposed on the property in favor of the intended trust beneficiary.
Note: a constructive trust will be imposed in the above case even if the will beneficiary did not make the promise until after the will was executed. Furthermore, it does not matter whether the will beneficiary intended to perform the promise when he made it; all that matters is that the testator relied on the promise.
What is a semi-secret testamentary trust and what is the effect
In a semi-secret trust, the will makes a gift in trust but fails to name the beneficiary. The gift fails, and the named trustee holds the property on a resulting trust for the testator’s heirs
