Requirements for Creation of a Trust & Use of Trusts to Effect Nonprobate Transfers Flashcards
Define: Trust
A legal device whereby one individual or entity, a trustee, holds legal title to certain property and manages it for the benefit of named beneficiaries.
What are the six elements to every valid trust?
a) settlor
b) property
c) one or more trustees
d) beneficiaries
e) intent to create a trust
f) a legitimate purpose
Rule for capacity to create a trust
Mental capacity + over age of 18, or emancipated minor
No trust arises unless and until . . .
legal title to a specific interest in CERTAIN AND ASCERTAINABLE property is fully conveyed to the trustee
Who may a trustee be?
an individual, a group of individuals, or a corporation
Does a trust fail for lack of a trustee?
No. If the intention to create a trust is clearly manifested by the settlor, but no trustee is named, or if the named trustee refuses, resigns, or becomes incapacitated and there is no provision for a successor trustee, the court will appoint a suitable successor to execute the trust
When is a bond required of an individual serving as trustee?
Only if the court finds it is needed to protect beneficiaries’ interests
Private Trusts
- Trusts that benefit private individuals
- Must have definite and ascertainable beneficiaries
- Subject to the RAP
Charitable Trusts
- Cannot benefit identifiable individuals
- Must have a charitable purpose
- Must benefit an indefinite group of persons
- Not subject to the RAP
Honorary Trusts
For aims that are more personal than charitable but also NOT for the benefit of other humans
Example: for care of pets or a cemetery plot
How does a trustee accept his role?
- signature: signing a written acceptance of the trust
- conduct: accepting delivery of the trust property, performing the duties of the trustee, or otherwise manifesting acceptance of the responsibility, OR
- method stated in the trust: settlor may indicate some other way by which the named person accepts the role of trustee
Common Law Rule Against Perpetuities
No [future] interest is good unless it must vest, if it does vest, not later than 21 years after some life in being at the creation of the interest.
What it means: At the creation of the interest, is there any possibility that any interest will not vest within 21 years after everyone now alive is dead?
VA: Statutory “Gutting” of the RAP
Allow the trust to proceed for up to ninety years, to see whether during that time the questionable interest either vests or terminates.
Court may also “reform” (aka amend) a trust to eliminate any RAP problem not resolved by the 90 year thing
What should you look to in order to determine whether a trust was created? (versus a gift)
Look to whether the settlor attached enforceable duties to the transfer of the property
Are oral trusts valid?
Yes, so long as the terms of the trust are proven by clear and convincing evidence.
What purposes made a trust invalid?
- To further the commission of a crime
- Wastefully destroy property
- Purpose is otherwise contrary to public policy (e.g. encourage divorce)
Are trusts that impose restraints on marriage ever valid?
Yes, partial restraints on marriage are valid as long as they are reasonable restraints (do not unreasonably restrict right to marry, establish religion, interfere w/ freedom of association, limit your privacy, etc.)
What is an effective non-probate transfer vehicle?
A trust made inter vivos (validly created during the settlor’s lifetime, NOT by will!)
Revocability: by the settlor
All inter vivos trusts are revocable or modifiable by the settlor during his or her life unless the settlor expressly made the trust irrevocable and non-modifiable
Revocability: by the conservator, guardian, or agent
A conservator of an incapacitated settlor or the settlor’s guardian or agent under a durable power of attorney may revoke or modify the terms of a revocable trust only:
(i) if expressly authorized by the trust, or
(ii) if authorized by the court for good cause shown
SoL: An action contesting the validity of a revocable inter vivos trust must be brought within the earlier of . . .
(1) two years after the settlor’s death, or
(2) six months after the trustee sent the person commencing the judicial proceeding a copy of the trust instrument, the trustee’s name and address, and a notice of the time allowed for contesting the trust
Trustee Liability: A trustee can be subject to liability for distributing trust property if…
(1) the trustee knows of a pending judicial proceeding contesting the validity of the trust, or
(2) a potential contestant has notified the trustee of a possible judicial proceeding and a judicial proceeding is in fact commenced within 60 (sixty) days after the contestant sent the notification
Durable power of attorney
Authorizes another person (agent, attorney-in-fact) to act on behalf of the principal immediately and even after the principal becomes incapacitated and so unable to give direction
Springing durable power of attorney
“This power of attorney becomes effective upon my disability or incapacity.”
The person named acquires authority only at that time, NOT before.
