Trust Validity Flashcards
5 Elements of a Valid Trust
- Intent,
- Identifiable trust property,
- Ascertainable beneficiaries
- Proper purpose
- Mechanics and formalities
Express Trust
An express trust is created when 1) the settlor has capacity to convey, 2) a present intent to convey, 3) there is a competent trustee, 4) a definite beneficiary, and 5) the sole beneficiary and sole trustee are not the same person.
Precatory Expressions
An expression of a hope or wish that the property be used in a certain way. The usual inference is that these do not create trusts. This inference can be overcome by:
- definite and precise directions
- directions addressed to a fiduciary
- a resulting “unnatural disposition” of property if no trust is imposed,
- extrinsic evidence showing the settlor previously supported the intended beneficiary
Sufficient trust property
the trust property must be an existing interest in existing property. A future interest may be held in trust, but an interest not yet in legal existence, such as a right to inherit, cannot be held in trust. Future profits from an existing contract can be held in trust.
If property cannot be transferred or is not yet owned, it cannot be a trust property.
Qualified Beneficiaries
A qualified beneficiary is a beneficiary who, on the date the beneficiary’s qualification is determined, is 1) a current beneficiary, or 2) a first-line remainderman
Disclaimer
A beneficiary may disclaim an interest by filing a written instrument with the trustee. Many states require that it be made within nine months of the interest’s creation.
A beneficiary may be estopped from making a disclaimer if they have exercised any dominion or control over the interest or accepted any benefits under the trust.
Definiteness of Beneficiaries
- beneficiaries may be definite even if not yet ascertained, but must be ascertainable by the time their interests come into enjoyment.
- Class gifts or general descriptions that are not ascertainable at the time the trust is created are okay so long as they are ascertainable when they are to benefit. So, “children” are okay, but “friends” are not.
- At common law, the class must be reasonably definite.
- If the class is indefinite, the settlor may empower the trustee to select the beneficiaries from a definite class.
Resulting Trust Remedy
If trust fails for lack of beneficiary, a resulting trust is created in favor of the settlor or their successors.
Trust Purpose
A trust purpose is invalid if it is illegal, contrary to public policy, impossible to achieve, or intended to defraud the settlor’s creditors.
If a condition attached to an interest is against public policy, the settlor’s alternative desire controls if it is expressed; if the illegal condition is a condition subsequent, the condition is invalidated but the trust is valid; 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.
Acceptance of Trusteeship
A person accepts a trusteeship by 1) signing acceptance, 2) substantially complying with the acceptance terms, or 3) accepting delivery of trust property, exercising trustee powers or indicating acceptance
If not accepted w/in reasonable time, presumed rejected
Court Removal of a Trustee
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: 1) a serious breach of trust, 2) serious lack of cooperation among co-trustees, 3) unfitness, unwillingness, or persistent failure, or 4) substantial change in circumstances.
Pour-Over Gifts
A settlor can make gifts by will to a trust – even an amendable and revocable trust – established during their life time. The trust must be clearly identified in the will.
Property goes into the trust as it exists at the date if death.
Pour over gift can be the initial trust funding if the trust is idenitifed in the will and the trust is executed before the testator’s death
Testementary Trusts
Created in the settlor’s valid will.
Secret Trust
Constructive trust imposed
The settlor agrees with will beneficiary that the beneficiary will hold the property in trust for someone else and relies on the beneficiary’s promise, but the will does not state the trust nature or the gift.
If promise can be proved by clear and convincing evidence, a constructive trust will be imposed. All that matters is the testator relied on the promise.
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 in a resulting trust for the testator’s successors in interest.
