Trust Validity Flashcards
Elements of a Valid Trust
Intent
Identificable Corpus
Ascertainable Beneficiaries
Proper Purpose
Mechanics and formatlities
Valid Intent
The settlor must intend to:
- Split the legal and equitable title
Any split of title is sufficient so long as the sole trustee is not the sole beneficiary - Impose enforceable duties on the holder of the legal title
NOTE: Must be intent that the trust take effect immediately, not at some future time (although a future interest can be trust property)
What is NOT valid intent to create a trust
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way does not create a trust.
BUT this inference can be overcome by:
* Definite and precise directions
* Directions addressed to a fiduciary
* A resulting “unnatural” disposition of property
* Extrinsic evidence showing that the settlor previously supported the intended beneficiary
Identifiable Corpus Requirement of a Valid Trust
Trust property is required, and must be ascertainable with certainty.
Sufficient Trust Property:
- 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 (e.g., the right to inherit from a person who is still alive) cannot be held in trust.
Insufficient Trust Property:
Property the settlor cannot transfer or does not yet own. An unenforceable gratuitous promise cannot be the subject of a trust
Where there is no trust property, the trust fails because the trustee has no property to manage.
Ascertainable Beneficiary Requirement of a Valid Trust
An ascertainable beneficiary is necessary to the validity of every trust (except charitable and honorary trusts)
Anyone capable of taking and holding title to property can be a beneficiary of a private trust. The beneficiary need not be competent.
Beneficiaries may be “definite” even though not yet ascertained (for example, unborn children), but they must be ascertainable by the time their interests are to come into enjoyment.
When is an ascertainable beneficiary not required?
Charitable Trusts
Honorary Trusts
How can a Beneficiary Disclaim an interest in a trust?
The beneficiary files a written instrument with the trustee (or with the probate court if a trust was created by will).
Time to disclaim: Within nine months after the beneficiary reaches age 21.
Some states do not impose a time limit: the beneficiary can disclaim as long as they are not estopped from doing so (e.g., if they have exercised any dominion or control over the interest or accepted any benefits under the trust.)
If a valid disclaimer is made, the trust is read as though the disclaimant was deceased as of the relevant date.
Valid Trust Purpose
General Rule: A settlor may create a trust for any purpose.
Trust purpose is invalid if:
* It is illegal
* Its performance requires a criminal or tortious act
* It is otherwise contrary to public policy
* It violates the Rule Against Perpetuities
What Acts are Contrary to Public Policy
Inducing others to engage in criminal or tortious acts
Encourage immorality
Induce a person to neglect parental, familial, or civic duties.
What happens if a Trustee dies/resigns/refuses to accept appointment as trustee?
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.
What if the Trustee has no duties under a trust
This is a “passive trust” which is void, and the beneficiaries take legal title.
In many jurisdictions, the duty to convey title to the beneficiaries is enough to make the trust “active.”
Ground for Removal of Trustee by the Court
Grounds of Removal Examples:
- Serious breach of trust,
- Habitual drunkenness,
- Conflict of interest, etc.
The basic factor considered is whether continuation in office would be detrimental to the trust.
BUT, if the settlor knew of the grounds for removal at the time they created the trust, the court may choose not to remove the trustee.
When can Beneficiaries Remove the Trustee?
Beneficiaries MUST have grounds to remove.
Grounds of Removal Examples:
- Serious breach of trust,
- Habitual drunkenness,
- Conflict of interest, etc.
Absent grounds, beneficiaries cannot remove the trustee UNLESS the power is specifically granted to them by the trust instrument.
Mechanics and Formalities: Inter Vivos Trust
Created while the settlor is alive, either by:
- Settlor declaring themself trustee for another
- The transfer of property to another as trustee
Present intent must be manifested by conduct (delivery) or words (declaring oneself trustee).
If the Trust is created by Declaration:
- The settlor keeps legal title
- No conveyance of personal property is needed as long as the property is identified and segregated.
If the Trust is Created by Conveyance:
- Settlor transfers legal title of property to a trustee.
- The settlor may retain or transfer the equitable title
- Real property is conveyed by deed.
- Personal property is conveyed by physical delivery or an appropriate written assignment.
What is “delivery” for an Inter Vivos Trust?
Delivery means placing the trust property out of the settlor’s control
Mechanics and Formalities: Statute of Frauds
PERSONAL PROPERTY: Most states do not require a writing for a trust of personal property.
REAL PROPERTY: A written instrument signed by the person entitled to impress the trust upon the property is commonly required under the Statute of Frauds.
Part Performance Exception to SoF
- If the holder of the legal title acts as if they are a trustee, part performance will preclude the Statute of Frauds defense.
Parol Evidence Rule
- Most states allow extrinsic evidence where an ambiguity appears on the face of the writing.
Pour-Over Gift from Will to Trust
Settlor can make gifts by will to a trust established during their lifetime. The trust must be clearly identified from language in the will.
Trust amendments made AFTER the will execution are effective to govern the poured-over property. If the trust is revoked, the gift fails (lapses).
Pour-Over Property as Initial Trust Funding
The trust may remain unfunded during the settlor’s lifetime.
The pour-over property can be the initial trust funding if:
* The trust is identified in the will, and
* The trust is executed before the testator’s death
Testamentary Trusts
Testamentary trusts are created in the settlor’s valid will
The requirements of a valid will 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.
Secret Trusts
Absolute gift in will made in reliance on beneficiary’s promise to hold the property in trust for another
Extrinsic evidence of the will beneficiary’s promise to hold the property in trust is allowed.
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.
Semi-Secret Trust
Gift in will to a person “in trust,” but does not name trust beneficiary
The gift fails, and the named trustee holds the property on a resulting trust for the testator’s successors in interest
EE not allowed
“Trustee” holds on resulting trust for testator’s legatees or heirs
