Resulting and Constructive Trusts Flashcards
Situations where Resulting trust arise
trust with no beneficiaries no provision for part of trust property trust provision is invalid or excessive purpose never described carrying out material purpose is illegal or impractical
Resulting Trust
not a true trust
implied trust for benefit of settlor or settlors heirs
arising when settlor makes an incomplete disposition of assets or
fails after property has been conveyed to a trustee
Purchase money resulting trust
party obligates himself to pay purchase price for property
directs title to be held by another
creates a rebuttable presumption that grantee holds property in a resulting trust for payor
abolished by statute in NY to avoid fraud
When one party pays for property placed in someone else’s name
The property is presumptively placed in a resulting trust for the benefit of the payor’s creditors to the extent necessary to satisfy their claims
Trustee’s responsibilities in a resulting trust
same duties and obligations as other trustees
primary among these
- convey trust property back to settlor or her estate
- convey property to payor’s creditors where purchase money resulting trust is involved
- account for any income
Constructive Trust
not a true trust but an equitable remedy
imposes duties on holder of property to redress wrongdoing or prevent unjust enrichment
Use of Constructive Trust as Remedy is available where
- property wrongfully obtained - fraud, undue influence
- beneficiary kills decedent
- formal requirements for establishing a trust have not been met
ie secret trust
Purpose of Constructive trust
compel holder of property to return it to the rightful beneficiaries
Burden of proof to justify imposing a constructive trust
clear and convincing evidence
Source of Trustee’s Powers
trust instrument, express or implied
granted by statute or implied in law as necessary to accomplish trust purposes
Trustee statutory powers - short list (10)
- acquire assets
- invest and reinvest assets
- maintain insurance on trust property
- making repairs on property
- lease property
- mortgage trust property
- vote shares of stock
- exercise stock rights
- incur reasonable expenses to maintain trust property
10 mortgage trust property
Invasion Power
court may order a trustee distribute principal to beneficiary
whose support or education is not sufficiently provided for if
consistent with settlor’s intent
necessary to execute settlor’s purpose
and not prohibited by instrument
What trustee NOT automatically have the power to do (5)
abandon or destroy real property continue business pay illegal debts borrow or lend to trust make extraordinary repairs to trust property
Trustee Duty of Loyalty
utmost good faith and loyalty to beneficiaries in carrying out obligations
requires trustee treat each beneficiary fairly and impartially
prohibited in self dealing in any manner in dealing with trust assets even if acting in good faith
No Further Inquiry Rule
beneficiary can proceed to undue a self dealing transaction
or seek damages from the trustee
whether or not the transaction was fair to the trust or on good terms
Beneficiaries option in breach of trust by trustee
have the option to waive breach caused by self-dealing if transaction was beneficial to them
Self-Dealing of Trustee
automatic breach of trust
Trustee obtaining personal benefit
ordinarily prohibited from obtaining personal benefit
other than agreed upon or statutory fees as
consequence of his position
trustee Compensation
may receive reasonable compensation for services rendered
provided they are necessary
and consistent with duties
may not obtain a benefit from 3rd parties with respect to dealings with trust estate
Trustee Apparent Conflict of Interest
no apparent conflicts of interest are permitted
must segregate his assets from trust assets
Failure to Segregate trust assets and presumption created
lost assets were personal and remaining property belongs to trust
Self Dealing Authorized by Trust
instrument may authorize specified acts of self dealing
loan money or purchase assets
trustee must act in good faith with utmost fairness in such transactions
Affirmative Duties with respect to trust assets
preserve and enhance trust property
maintain clear and accurate accounting
may seek advice from professionals in deciding whether to undertake action
Standard of Care applied to trustee’s actions
exercise degree of care, skill, and prudence
with respect to trust assets
as would a reasonably prudent business person
with respect to his own affairs and property
Trustee with superior business expertise or is a professional fiduciary
standard of care
will apply higher standard of care
individual or entity possessing those characteristics
Reasonable steps to preserve the estate that may be taken by trustee
- obtain insurance
- pay debts as due
- maintain assets
- insure no injuries on property
- defend assets from settlor’s creditors
- prevent property from being stolen
Prudent Investor Rule
Trustee is permitted to invest assets
as a prudent investor
considering both the interest of life beneficiaries
and remaindermen
What must trustee consider when making investments of trust assets
size of portfolio nature and duration of fiduciary relationship liquidity and distribution requirements of trust instrument general economic conditions inflation tax consequences role of investment in portfolio current return of portfolio future needs of beneficiaries
When a Trustee may delegate investment or management functions
- use care in selecting delegee
- defines delegation consistent with trust instrument
- periodically reviews functions
- controls costs of delegee
