Trust Lean Sheet Flashcards
What if an express trust fails?
if an express trust fails, courts may imply constructive or resulting trust.
Pet Trust
A Pet trust is statutory purpose trust. This instrument appoints an individual to enforce.
It terminates at the death of the last identified pet alive at trust creation.
Totten Trust
Totten trust, also known as a “payable-on-death” (POD) account, is a financial arrangement where an individual (the depositor) opens a bank account and designates a beneficiary to receive the account’s funds upon the depositor’s death. This setup allows for the direct transfer of assets to the beneficiary, bypassing the probate process.
This is not a joint bank account. Depositor controls & may revoke during life.
Example: A settlor may create a savings account trust by depositing money in a bank in the name of “A, in trust for B.
Life Insurance Trust
Life insurance trust is permissible even though not funded at creation.
Secret Trust
A secret trust is a provision in a will that looks like a gift but clear & convincing evidence shows an unwritten promise to care for an unnamed Beneficiary. This creates a constructive trust.
Semi-Secret Trust
A semi-secret trust is a provision in a will that directs property held in trust but no beneficiary or charity included. this creates a resulting trust.
Charitable Trust
A charitable trust requires valid charitable purpose that benefits charitable cause or broad section of the community.
How is the Charitable Trust created?
A charitable trust may be created by any of the methods for creation of an express trust, and there must be a settlor with capacity to convey, properly expressed intent, and a specific trust res.
Cy Pres Doctrine
if charity no longer exists or purpose impossible, ct will
use equity to fulfill T’s intent as close as possible (no lapse).
How can a charitable trust be enforced?
It can be enforced by settlor, state atty gen, co-Trustee, or individual w/ special interest in enforcement
Honorary Trust
An honorary trust has no ascertainable Beneficiary & no broad charitable purpose, but private goal of settlor.
Since there is no direct beneficiary, the trustee is expected to honor the trust’s terms, but if they choose not to, there may be no legal recourse to compel performance.
Otherwise, it creates resulting trust.
Constructive Trust
A constructive trust is an equitable device to prevent unjust enrichment from wrongdoing(fraud, duress, undue influence, violation of fiduciary duty).
Person with legal title is required to pass title to implied beneficiary.
Resulting Trust
A resulting trust is an equitable devise that creates a reversionary interest (e.g., private trust fails, charitable trust cant be repurposed by cy pres).
Trustee is required to transfer property to settlor or his estate.
Purchase-Money Resulting Trust
A purchase-money purchasing trust is when one party buys property but title is in name of another. It is a rebuttable presumption of resulting trust, but rebuttable presumption of gift if a family relationship.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
What is a Support Trust?
A support trust is one containing a provision that only so much of the income as is necessary for the beneficiary’s support may be paid out.
Trustee must distribute income and principal as needed (health, education, maintenance, & support);
Can a beneficiary demand distributions under a support trust?
The beneficiary cannot demand distributions beyond what is needed for their support as defined by the trust.
Can beneficiary’s creditors get trust assets from support trust?
No. creditors cannot force payments beyond the intended support.
However, once a payment is made to the beneficiary, creditors can attempt to claim those funds.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
What is a Discretionary Trust?
Gives the trustee full discretion over when and how much to distribute.
Can a beneficiary compel any distributions from a Discretionary Trust?
No. Beneficiary can’t compel any distributions unless Trustee breaches fiduciary duty.
Can beneficiary’s creditors get trust assets from a discretionary Trust?
Beneficary’s creditors can’t get trust assets if Trustee doesn’t distribute.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
What is a Mandatory Trust?
a mandatory trust is a type of trust that requires the trustee to distribute income or principal to the beneficiary according to specific terms set forth in the trust document.
Mandatory Trust;
Limited Trustee Discretion
The trustee must follow the distribution instructions and cannot withhold payments even if they believe it would be in the beneficiary’s best interest.
Can a beneficiary compel any distributions from a Mandatory trust?
Yes. Beneficiary can compel distributions.
Can beneficiary’s creditors get trust assets from a Madantory Trust?
Since distributions are required, a beneficiary’s creditors may have a right to claim the funds once they are due to be distributed.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
Spendthrift Trust
Spendthrift Trust expressly restricts Beneficiary’s power to voluntarily & involuntarily transfer his equitable interest.
It prevents the Beneficiary’s creditors from getting trust assets (except child/spousal support, necessities providers, tax liens, tort judgments, & restitution due to the Beneficiary’s criminal conviction); applies only while property is undistributed.
Spendthrift Thrust-Trustee’s Control Over Distributions
The trustee manages when and how distributions are made, ensuring that the beneficiary does not recklessly spend the funds.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
Settlor’s Creditors for irrevocable trust
irrevocable – Creditor can only get amount settlor could have gotten (if settlor is a Beneficiary);
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
Settlor’s Creditors for revocable trust
revocable – if settlor is alive, Creditor can get all trust assets,
if settlor is dead, Creditor can get trust assets only if probate estate is insufficent.
DISTRIBUTION RIGHTS OF BENEFICIARIES & CREDITORS;
Beneficiary’s Creditors
Beneficiary’s Creditors can get distributed property directly from Beneficiary; undistributed trust assets are subject to restrictions by type of trust.
TRUST ADMINISTRATION
Trustee’s Powers
Trustee has all powers specified by trust instrument or implied by trust purpose; limitations by trust terms.
The trustee must administer the trust in good faith, in accordance with its provisions and purposes.
TRUST ADMINISTRATION
Co-Trustee’s Powers
Co-Trustee’s must act unanimously unless trust terms express contrary intent.
TRUST ADMINISTRATION
Asset Allocation for Life Beneficiaries
Life Beneficiary entitled to trust income,remainder Beneficiary’s are entitled to principal upon trust termination;
TRUST ADMINISTRATION
Trustee duty to allocate assets
Trustee must allocate assets as income or principal in fair & balanced way to fulfill trust purpose.
½ of Trustee’s compensation & accounting expenses is charged to income, other ½ is charged to principal.
FIDUCIARY DUTIES
Duty of Loyalty
The trustee is a fiduciary who owes a duty of loyalty and utmost good faith in the administration of the trust for Beneficiary’s benefit.
FIDUCIARY DUTIES
Duty to avoid conflicts(self-dealing)
The trustee must avoid conflicts between the trustee’s own interests and those of the trust and must not enter into transactions with the trust in an individual capacity unless the trust instruments authorizes such action, the court grants permission, or all the beneficiaries, who must be of age, competent, and fully informed, consent to the transaction.
If the trustee purchases, in an individual capacity, property that should have been purchased for the trust, the beneficiaries can compel the trustee to hold such property subject to
a constructive trust.
FIDUCIARY DUTIES
Duty to Act Impartially
The trustee’s duty of loyalty extends equally to all beneficiaries of the trust, regardless of whether they have present interests in the income or future interests in the income or principal; the trustee may not favor either over the other.
FIDUCIARY DUTIES
DUTY OF PRUDENCE
Trustee may delegate if unreasonable for Trustee to perform (ministerial functions); must oversee delegates;
must use reasonable care & judgment in investment decisions (diversification req’d); must be impartial in balancing the interests of all Beneficiaries.
FIDUCIARY DUTIES
Duty to Collect, Preserve, and Segregate Trust Property
The trustee has a primary duty to hold and preserve trust property against loss or waste.
A trustee cannot commingle trust & personal assets.
FIDUCIARY DUTIES
Duty to Manage Trust Property with Care
The trustee has the duty to make the property productive and to use reasonable care and skill in choosing and managing investments.
Duties toward Beneficiaries
DUTY TO INFORM & ACCOUNT:
Trustee generally has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration.
Trustee must disclose complete & accurate info of trust at Beneficiary’s request.
Duties toward Beneficiaries
Duty to Account
A trustee must provide an account at least annually, upon trust termination, and when a trustee changes, to each qualified beneficiary entitled to or potentially receiving income, and to anyone with revocation rights.
Duties toward Beneficiaries
Duty to Inform-Irrevocable Trust
Within 60 days after the date of creation of an irrevocable trust or of the date on which a revocable trust becomes irrevocable, the trustee must notify the qualified beneficiaries of the existence of the trust and the name and mailing address of the trustee.
Duties toward Beneficiaries
Duty to Distribute Income
The trustee shall distribute all net income derived from the trust at least annually.
A trustee shall not be under any duty to investigate the resources of any beneficiary when determining whether to distribute trust property to such beneficiary.
Trustee’s Liability
Trustee’s Misconduct
Personally liable for losses due to breach of duty. Beneficiary may seek court removal of trustee for good cause.
Trustee’s Liability
Co-Trustee’s Misconduct
Personally liable for losses due to Co-Trustee’s breach of duty if trustee participated, improperly delegated, approved, concealed, negligently enabled, or failed to take reasonable steps to compel redress.
Trustee’s Liability;
Predecessor Trustee’s Misconduct
Successor Trustee is personally liable for lossess due to predecessor breach of duty if trustee knew or should have known and allowed breach to continue or failed to take reasonable steps to redress.
Trustee’s Liability
Exculpatory Clause
Trustee not personally liable without willful neglect. It still liable for breach of duty in bad faith or with reckless indifference.
